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Walt Disney (NYSE: DIS) is the premier global entertainment company, reliable for churning out hit films and media and raking in revenue. Even with its current challenges, it’s posting sales growth and launching new content, park rides, and more.

However, its films have underwhelmed in 2023. That could be a passing trend, or it could point to a crack in its carefully crafted business model. Pay attention, because this could impact it for the foreseeable future.

It all started with Mickey Mouse

Disney is synonymous with Mickey Mouse for a very good reason. Disney has cultivated relationships with its fans based on its large cast of characters that it created over its decades of operation. It now has this playbook down pat.

It goes something like this. Disney’s creatives conjure up characters for content. The content becomes popular, attracting viewers to films and, today, streaming. Disney grabs the opportunity and develops more content based on these characters that fans love, leading to products, theme park rides, and higher sales.

Fans feel emotionally connected to Disney and its characters, and Disney creates experiences that feed off this emotional connection. Some of these characters are decades old and still going strong.

When Bob Iger, in a previous tenure as CEO, organized the acquisition of Marvel Studios in 2009, it was a natural addition and the perfect complement to this model. At the time, Iger said:

This transaction combines Marvel’s strong global brand and world-renowned library of characters … with Disney’s creative skills, unparalleled global portfolio of entertainment properties, and a business structure that maximizes the value of creative properties across multiple platforms and territories.

That pretty much sums up how the model works and why the deal was so beneficial for Disney.

Why it may be broken

Disney consistently releases entirely new content, such as this year’s Elemental, from Pixar Studios, another Iger acquisition. But most of its content these days is refreshed or, you could say, refurbished.

Its top-grossing film this year has been Guardians of the Galaxy Vol. 3, a Marvel movie, and as you might have guessed, the third in a series. Disney’s studios have four of the top 10 highest-grossing spots, which is impressive. But Guardians, as the third-highest, has sales well below the top two, and the other three are in the back half of the top-10 lineup, including the last two spots.

What’s disconcerting is that the other films, besides Elemental, are all what I’ll call refreshes — new films based on beloved Disney characters. They comprise the live-action version of The Little Mermaid and the latest Marvel feature based on the Ant-Man character. Even worse, the highly anticipated sequel to the Indiana Jones franchise is in the No. 13 spot.

The major question is, what does this all mean? Is it because fans are now attached to streaming and not going to theaters as much? Are the other top-grossing films a quirk of this year, and will Disney go back to better performance in the future? Can Disney still trust that its characters can make lots of money? Or, as the title of this article asks, is Disney’s model broken?

If indeed fans are tired of the same characters, themes, and brands, that could impact Disney’s operations well into the future.

Broken or not, there’s a lot of volatility

Let’s keep in mind that Iger hasn’t been back in the driver’s seat for all that long. His first order of business when he came back to the company was to put more control back into the hands of the creatives. Disney may have already recognized that there may be a creative problem here, and it’s on the way to fixing it.

I would stress that part of the playbook is that Disney constantly develops new franchises, so even if the public may tire of some, Disney is ready with new ones.

The current Hollywood writers’ and actors’ strikes aren’t helping the matter since Disney relies on its creatives to keep the model going. All of the studios do, of course, but it impacts Disney’s differently because the model supplies Disney with material to fill all of its segments.

I wouldn’t bet on Disney’s model falling apart, especially now that Iger, the great architect of the plan in recent years, is back on board. But I also wouldn’t recommend buying its stock now with strikes, streaming challenges, and films that aren’t drawing fans in the way Disney usually expects.

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Jennifer Saibil has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool has a disclosure policy.

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