Did Disney Tarnish Its Pristine 'Family Friendly' Image?

| About: The Walt (DIS)

Summary

The news of a child's death at Disney has overshadowed the opening of a resort in China.

There are two sides to the story, and a lot of anger and frustration.

Will the impact of this event linger?

Just before Disney (NYSE:DIS) was set to open Disney Shanghai, a young child died at one of its top hotels in Orlando, Florida. The news pushed the China opening into the background. But here's the bigger question, will the death cause lingering harm to Disney's brand?

Horrific

There's no way around this one, the idea of a family watching their child get dragged away by an alligator is nothing short of gut-wrenching. Having a child, I can't even imagine the pain that the family must be feeling right now. I'm quite sure that everyone's heart goes out to them.

The thing is, this isn't the first time a death has occurred at Disney. Several years ago, a boy was riding a bike and was hit by a Disney bus. There was also the monorail incident, in which a cast member died when two monorails collided - the first ever incident on what is one of the prime transportation methods at the parks. There have even been deaths related to the It's A Small World ride, according to The Orlando Sentinel.

Some of these events garnered bigger headlines than others, but running a series of giant parks inevitably results in sad and unfortunate incidents. I can only imagine the number that never make the headlines. Just looking at the sheer volume of people that pass through Disney's doors each day, bad things simply have to happen, statistically speaking.

Could this one hurt Disney more?

Is this incident any different than the others that have happened and the additional events that are sure to take place in the future? There's clearly the media angle since the gut-wrenching story of an alligator killing a small child at Disney has clearly been headline news. That's to be expected, I guess, because the story draws eyeballs on many different levels.

But there's also another angle, should Disney have warned of alligators in the water? It knew there were alligators in the water, for sure. In fact, anyone who has spent long enough in Florida knows you pretty much have to assume that any body of water could, at some point, have an alligator in it - even a backyard pool. A visitor, however, may not realize this, so a "do not swim" sign might not be enough to emphasis the risk.

Should Disney have done more? The fact that it is changing its signs to warn about alligators suggests that the answer may have been yes. That said, Disney has an extensive program in place to manage the wildlife in and around its parks. It's not like the company has been sitting around ignoring the wildlife issue - that's simply not true. And yet it's hard not to believe that Disney could have done something better here. For example, I can't help wondering if avoiding putting up alligator warnings was a decision made to protect the image that Disney is a safe place.

A lawsuit in the making?

Whether you like it or not, this, too, shall pass. It's highly unlikely that this unfortunate death will stop enough guests from going to Disney's Florida theme parks that attendance will see anything more than a blip. As time goes by, people will forget about this just like they have every other incident. In fact, I think the monorail is a far more frightening risk since hundreds of people board them at a single time. But the headline news of a monorail accident that claimed a life hasn't stopped customers from going to Disney or from riding the monorail.

And while you could point to the Orca issues that dogged SeaWorld Entertainment (NYSE:SEAS) and did, indeed, have a direct impact on attendance, the problems at Disney are very different. SeaWorld's business tightly involved the Orca shows. Disney's hotels are a key business, but the wildlife around its hotels is not a core aspect of the theme parks (This isn't true of Animal Kingdom Lodge, which has animals that roam around a portion of its property, but it wasn't an animal within Disney's direct control and care that was involved in the current incident).

So the real impact is likely to be related to legal issues. At this point, it isn't clear if there will be a lawsuit. However, this is America, and we are a litigious people. It's hard to believe that there won't be one. And if there isn't, the reason will likely be that Disney and the family came to some out of court agreement.

But how big could this really be? The U.S. park business had revenue of around $13.5 billion in 2015, with the parks business in total generating $16 billion in sales. The overall parks division had operating income of around $3 billion. And this is just one part of a much larger company, with sales of $52.4 billion and operating income of just shy of $8.4 billion. Like it or not, the direct costs of dealing with this incident is likely to be immaterial to Disney's top and bottom lines.

The background noise

In fact, DIS's foray into China will likely have a much greater impact on the long-term performance of the parks business and Disney in general. And, for investors, that's the event to be watching. However, even there, the news isn't likely to help you get a clear picture. The opening went well, but only time will tell how the Shanghai park will perform. Right now, the new park is just a drag on results and will likely remain so for most of its first year, if not longer. That leaves attendance as the primary indicator, but right now, novelty is going to boost the numbers. So, again, it could take a year, when the numbers anniversary, to get a better idea - unless there's a swift drop off from early levels, which would be telling and worrisome.

No one wants to hear about a child's death. Especially one that takes place at a time that is supposed to be happy and joyful. Was there more Disney could have done to prevent this? Perhaps. At the end of the day, however, this isn't likely to be a major financial issue for the company or create a lingering image problem. If you are watching Disney as an investor, pay more attention to China.

Disclosure: I am/we are long DIS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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