Oriental Land profit f'cast up on Disney park boom

[Tannerman]

Adding even more fuel to to the "build it cheap or not" fire....

Oriental Land profit f'cast up on Disney park boom

Tuesday April 23, 5:07 am Eastern Time
Reuters Business

TOKYO, April 23 (Reuters) - Disney amusement park operator Oriental Land Co Ltd (4661.T) of Japan more than doubled its 2001/02 group net profit forecast on Tuesday, buoyed by the popularity of the new DisneySea theme park.

Oriental Land, which operates Tokyo Disneyland and the adjacent Tokyo DisneySea, said it now expects group net profit of 12.7 billion yen ($97.60 million) for the year ended March 31, up from a November estimate of 5.9 billion yen.

The company said the number of visitors to the two theme parks on the outskirts of Tokyo totalled just over 22 million in 2001/02, which was 447,000 more than it forecast.

A reduction in fixed costs also prompted the upward revision, it said.

Oriental Land operates the two parks through a licensing agreement with Walt Disney Co (NYSEIS - news). Tokyo Disneyland drew more than 17 million people in 2000/01, top among amusement parks worldwide.

Revenue estimates rose 2.3 percent to 281 billion yen, compared with its earlier forecast for 274.7 billion yen and 200.2 billion yen a year ago.

Oriental Land, which charges adults 5,500 yen ($42) for admission, pays about seven percent in royalties to Disney on ticket, merchandise and restaurant sales.

The new aquatic-themed playground DisneySea, which opened in September, is the first of its kind for Disney, with a giant volcano serving as the centrepiece to the park.

The allure of the Disney theme parks in Japan has defied the downturn in consumer spending, which has crippled other parts of the Japanese economy, and the overall slump in amusement parks worldwide.

On a recurring basis, which is pre-tax and minus extraordinary items, Oriental Land raised its profit forecast to 23.7 billion yen from its earlier 13.1 billion yen.

Also boosting sales and profits was strong demand for the luxury Hotel MiraCosta, a new 500-room hotel built inside the park, which is solidly booked, often two months in advance.

Shares in Oriental Land closed down 0.12 percent at 8,080 yen on Tuesday, in line with the broader market and down over 10 percent on the year to date. ($1=130.12 yen)

Click for source

 

[Bstanley]

If you build IT,

They will come...and they will bring their pocketbooks.

 

[Captain Crook]

Good for Disney (7%). But relating what happens in Japan is of little intrinsic value in forcasting what would or could happen here in the US.

The Japanese are a lot different culturally from us. They do not mind crowds or standing in lines, something we have fits about. To further emphasize the differences, look at what the Japanese pay to play golf. It is absurd and I'm sure course profits in Japan and neighboring countries are way greater than those in America. Does that mean their courses are just that much better? Well, of course not, but they are willing to patronize them at any price in order to play golf.

Disney has much the same affect on the Japanese and I don't mean to downplay the TDS for it truly looks like an amazing place but putting it in Orlando would not create the same result in my opinion. First there would be the crowd factor, how many Americans would be happy taking 2 or 3 days to see one amusment park and still feel they weren't being 'gouged' by big bad Disney? How many people would like to pay rack rates at all of the Disney resorts for their trips, which would be almost a certainty based on any type of similar success?

Before we cannonize OLC as the new entrtainment good guy lets wait and see what they have next in store. If it isn't a full course gourmet meal I'm sure some DIS loyalists will have something to say about their decline as well. But for now, for Japan, OLC certanly made a very good move...

 

[Another Voice]

Actually, Tokyo Disneyland and DisneySea have the lowest ticket price for any Disney theme on the planet. It’s currently $42 at the present exchange rate. Not only that, but somehow they’ve figured out how to make money even when they lose 7% off the top.

As for the crowds, they’re actually no worse than the crowds at Disneyland on the weekends. Wait times are very, very close. I have yet to see all these impatient Americans fleeing Anaheim. Nor were their huge cries of “gouge” when Disney advertised that EPCOT Center was a two-day park from the very start. In fact, the cries of gouging seem to come from the other end of the spectrum – no one has ever complained about not being able to see everything at Animal Kingdom or California Adventure in a day.

As for the rack rates – well if you can only sell rooms when you offer a discount, PERHAPS THE RACK RATES ARE TOO HIGH. A novel concept for Disney, especially when they used to pull in a 96% occupancy rate with no discounts at all.

The simple fact of the matter is that the Oriental Land Company wants to run world class theme parks. They are interested in making the investments and know full well that quality products will produce substantial financial returns.

On this side of the Pacific, we have a management that is interested in running a network and managing their stock options. Theme parks are nothing but a side business useful for generating cash which will be used to purchase ‘The Mighty Morphing Power Rangers’. In their minds quality is unimportant because the public’s perception can be molded through carpet bombing marketing.

They’re wrong. And the extra 7% they’re receiving from Tokyo doesn’t even begin to fill-in that massive money-pit The Company has built in Disneyland’s parking lot.

 

[Bob O]

I would agree with AV !!!! What do you think the attendance would be for DCA if they actually built a new and complete park with new attractions rather than a park with re-treads based on a state that most live in and can see for themselves??? One company did their research and built a excellant park and attendance shows how succesful it is, the other company again did things on the cheap andattaendance suffers because of it. They again tried to force people to pay full price for a half day park and it has blwon up in their face.

 

[kenjean]

OLC makes money the old fashioned way.

They earn it.

Paying attention, Eisner?

 

[Captain Crook]

Well Voice, you're understanding of the crowds at TDS & mine are vastly different. I have not heard that it takes anyone two or three days to see DL lately. If you're right, fine, but I've read that lines are unbelievable, reservations were needed for the initial months...Oh, and what are they charging for hotel rooms at Mira Costa? Discount rates, you think?

Bob, would you go to a Disney Park & pay 40-50 bucks per person for three days in order to see it all?...Not because it is so big, but because it is so crowded?

Lastly I used a very good analogy with the golfing scenerio to show just how different the Japenese view their recreational expenditures, highlighting why there is a distinct difference between the Japanese and US market and yet this goes ignored? Masses who will gladly spend 500-750 for a round of golf are not found in the US.

 

[space42]

Yeah.. but...


Disney USA used to build parks that took more than a day to see!! This half day park is a recent thing with MGM in '89

What about when EPCOT center opened?? Heck, they even built a monorail expansion before the park was finished so that you could watch the construction

You mean to tell me that Disney USA has less money now than they had in the late 70's and early 80's??? They actually have more but would rather spend it (5 billion) on a cable network and a worthless dot com.

It makes me sad to see Tokyo get such a park and in USA we get DCA and a 1/2 of AK. I just wish Disney would think big with the parks again like they did in the 70's and 80's. It was profitable then and it would be now!


ps... Scoop.. My take on IOA is that it is just not that great of a park. I mean sure it looks good and has two or three good rides but one 1/2 day trip was enough for me and don't forsee myself going back anytime soon. If other people feel this way, perhaps that is why it is not that well attended? This is just speculation on my part

 

[airlarry!]

Mssrs. Scoop & Cap'n:

I must beg to differ. It is both further of an analogy and closer of an analogy than you say.

#1 The Japanese recession is much deeper than anything we are facing. Massive job cuts (mentioned in the article) have been hitting the Japanese labor force in huge waves over the last two years, yet the parks are DOUBLE THEIR FORECAST! Not 20%. Not 50%. Double! Yes, I know the Japanese spend more in the parks, and they love Mickey a lot, but come on! DOUBLE?

#2 The Golf thing is a red herring, just as in comparing gas prices or anything else. Land prices are at a premium, hence their golf fees are higher. In the USA, development costs for a comparable golf course are much less than in Japan or Europe (see the NGF for comparisons if the articles are still on-line).

#3 Monsieur Voice exposes a revelation. Mr. Eisner's recent actions (even within the parks) do seem to be in the vein of someone who sees himself as CEO of a Television Network and not the head of a Creative Company:

Cheap Reality Shows making lots of money with little capital investment? Tell the Imagineers to cancel the Venetian, let's get the Hotelineers to design the cheapest Reality hotel and buy more wheelbarrows to cart off the money.

Other networks have a hit show? Our network has a new hip, hit show? Don't reward creativity with more free hands and find another one...it is easier just to clone it! Clone Dumbo twice in Orlando alone! Wilderness Lodge is getting rave reviews! Clone it! AKL! AKL! We don't need no stinkin' Buffalo Junction...we've already paid an architect, and we can maximize profits by modifying his original design into AKL...

I could go on...

 

[Bstanley]

So let me see if I understand this...the reason the new DisneySea Theme Park is so extraordinarily successful is because the Japanese are culturally willing to overpay? And the proof of this is the high prices that the 'masses' pay for golf?

Sorry, wrong answer. I've been to Japan many times, spending months there and the masses simply do NOT play golf in Japan - for the reason you noted - that it costs more than they can afford. Some have golf clubs and hit at driving ranges, but will literally never play a round in their lives. Using golf as an example of anything effectively discards more than 85% of the population (17M people claim to 'play' golf in Japan out of a population of 130M) - who will never touch a golf club in their lives... Golf doesn't even make it into the top 10 leisure activities according to the government...

This myth of the Japanese overpaying for things is a leftover from the 'Japan bashing' days of the late Eighties/early Nineties. People like to talk about the high cost of a beef. Well sorry but a Big Mac costs about the same here and there. However it's true that a Kobi beef filet will cost $50 a pound (and a Matsusaka filet - which is even better - will cost $75). Or they point out that a hotel room at the New Otani runs $300 a night - true, but my room was huge and had a panoramic view of the Imperial grounds, with fantastic service, and the best of everything AND oh by the way, have you ever tried staying at the Waldorf Astoria in New York City - it's also $300 a night...

Have we spotted the trend here? The Japanese - who are somewhat careful with their money - can be induced to spend great wads of it - For QUALITY.

From what I can see the DisneySea Theme Park is a GREAT Theme Park, period. If it had been built in California or Orlando does anyone seriously believe that it would not have been successful? Bushwah I say! Bushwah!

For once I am actually regretting that my traveling days are in the past - I for one would LOVE to wait in line at Tokyo DisneySea...

 

[Captain Crook]

Who said the Japanese "overpay"? Scoop, did you say that? I sure didn't mean to infer that...But it is true that they pay way more than their counterparts in the US for certain things and golf is a good example. Not that many Americans (percentage wise) play golf either yet it is a lot less expensive here...Again, is it because our courses are inferior? No it's cultural and many Japenense buy into that pattern even if their sole foray into the sport is at a driving range. How many Americans go to driving ranges that don't play golf? You further strengthened my golf analogy with this tidbit, I'd say.

Scoops Universal scenerio is another good one. I'm with scoop that OLC probably could have built a DCA in Japan and done very well with it. It is to thir credit that they forged ahead and built TDS. TDS stands as a current day Disney achievmnt and while Disney didn't actually go out on any limbs financially they proved that they still can do it. Do you think Eisner etal are not aware of the great success of this venture? Do you believe that if they were reasonably assured of this kind of success for a TDS like park in the US that they wouldn't do it? Why wouldn't they? They know something we don't and that something has to do with (1) saturation and (2) American economics. As great as TDS is can you imagine the heart tremors Disney would have had had they been sitting on a just opened TDS investment at the time of 9/11 & the economy slowdown?

Now, I don't suggest that Disney has to run scared from events out of their control but realistically do they really need to roll the dice either?

 

[wdwguide]

AV,

the Parisian parks are the cheaptest ones on the planet, with admission fees in the low to mid $30s, depending on the exchange rate.

 

[JeffJewell]

The mere fact that TDS was great is likely just gravy to the fact that it was Disney. The brand has not been nearly as diluted in that market as here in the states

...because it sure sounds like you're saying "Americans aren't buying the diluted Disney (of DCA, for instance) because Disney diluted it," and "Japanese are buying the undiluted Disney (of TDS, for instance) because OLC did not dilute it."

I mean, I agree with both of those assessments... they're pretty much "Well, Duh" moments. But I fail to see how either supports your position on this argument.

comparing Japanese and American park-visiting habits is kumquats

I can let you have this point, but it seems to me that you make the statement then extrapolate what it means to be "Americans do not appreciate and will not pay for quality," or even "it is fiscally irresponsible for a company to put quality into an American theme park." It is that kind of interpretation of "comparing Japanese and American park-visiting habits is kumquats" that I believe to be faulty.

Jeff

 

[airlarry!]

I reread my post. I don't mean to deride the beauty of AKL, and I'm not crying about the addition of the spinners in Adventureland and Dinoland. I'm just saying that it fits the M.O. of a television network agenda.

I'm not saying that Japanese golf is not more expensive (although go check out the latest prices on 18 at the Pebble Beach complex, or at Pinehurst....how 'bout $125, the going rate for Tour 18 in Houston or Dallas?) AV's point that ticket prices are the same makes the argument of golf more expensive a red herring.

 

[Bstanley]

Well Capt. I would have to agree that if M.E. had invested a couple of Billion in a TDS park in Anaheim just a few days before 911, I can indeed imagine he might have needed more bypass surgery on the 12th... (Although he seemed OK after writing off $1.5 Billion in losses on internet related foolishness last year...).

You know WDW had to survive an oil embargo in '73 that basically shut the door to vacation traveling for months, and the later hyper-inflation of that decade, etc. and yet today it still makes much of the profit (40% of Net according to the 2001 Annual report) that the rest of the company manages to consume.

No - I don't think Disney command central ARE aware of the success of TDS. M.E. is not focused on the parks and has not been for years. He always wanted to be head of ABC, now he is and it appears to be keeping him busy - or perhaps it's the other ten company divisions that are clamoring for his attention... It's OK though because he's got sombody else in charge of the parks right?... Unfortunately the guy who IS responsible for the parks is also not focused on the parks...he didn't understand the difference between a Six Flags and a Disneyland when they promoted him to the Park Boss position and it's abundantly clear that he hasn't picked it up 'on the job'. In fact he's probably the strongest supporter of the 'it's not the same here' argument...

I continue to believe that if TDS had been built in Anaheim it would be drawing sufficient crowds to be paying for itself, unlike CA.

 

[Another Voice]

Over the past two years I’ve heard a lot of “foolish Japanese, smart Americans” spin coming from Team Disney, but this golf excuse really takes it to another level. I’m assuming the nut of the agreement is that since a few Japanese executives have their companies pay high green fees that they are now entitled to a first class theme park. Too bad out here in Hollywood we’re merely left with paying $8.50 for bottled water at a restaurant. I guess we must only deserve California Adventure. Actually, we do have our share of $300+ golf course too. Maybe Disney wasn’t aware…

Universal Studio’s success is very easy to explain. It was the first studio themed park to open in Japan. And Japan is the largest overseas market for American movies. I guess the secret is to open up a unique park with a topic that’s widely popular. It’s not an issue of “cultural tastes” at all. And yes, California Adventure might have worked well in Asia too only because it would that “unique” angle covered. But how “unique” is a park filled with knocks-off of the real sites that are just up the freeway? Something tells me that Disney’s Tokyo Adventure as TDL’s second gate would have met a similar fate as DCA.

As for the Captain’s complaint that DisneySea is horrible because it’s filed with paying crowds – and his implication that this is a reason why DisneySea would flop in the US – it seems that Disney has built the answer to your concerns, sir. Come to California Adventure, a Disney park filled with vast open spaces, empty queues and free of all those annoying tourists. And it doesn’t take two days to see it! Wait – perhaps building a half-sized, poorly themed, uninteresting park that’s lost money each and every day it’s been opened isn’t the best way to increase shareholder value. But if someone likes it, it must be good.

Which brings me to the last point – DisneySea was designed as an American park. Had Euro Disney not tanked, all of us would be visiting the Mount Prometheus right now out in Long Beach Harbor. Or jitterbugging in the USO nightclub on ‘Queen Mary’. Or enjoying a cappuccino in our room at Hotel Mira Costa. Or waiting for our cruise ship to dock at Port Disney. Funny, there were never any concerns at WDI that the place wasn’t going to be popular (there were plenty for DCA).

Trying to explain away DisneySea as some sort of fluke of the Japanese mind set is nothing but sour grapes. Vent your frustration at the people who deserve it – the guys with the offices right behind Dopey.


P.S. "It's just that Mickey is still relatively new over there." You've got to be kidding with this one Mr. Scoop! The films have been over there since the 1930's, television since the early 1950's and even Tokyo Disneyland is 25 years old!

 

[Captain Crook]

Voice, I'm not sure what to make of your post...You're a smart guy, with a lot to say but you constantly misrepresent what I've said ...I know you realize this, I just don't know how to respond...

The golf analogy couldn't be better suited and your dillusional statement attributed to me that "Disney Sea is horrible because it is filled with paying crowds" is a patently unfair statment. I believe TDS looks great (not horrible) nor do find it repulsive that it is filled with paying customers, but I am saying American's wouldn't be so thrilled. I for one would probably not continue being an AP'er if the crowds, hotels & prices were so successful that elbow room could never be found. Perhaps I'm being selfsh but I like room to breathe and the opportunity to actually enjoy the park. So if TDS brings these crowds I'm unhappy and I think many Americans would be as well, so it becomes a double edged sword...Damned if you damned if you don't...Besides how long before the investment soured and the big picture muddied? Sure the first 5 years or so would be great, but what could they do for an encore? How can they keep all of these hotels filled once the majority has made their pilgramage to the 'new park'? No, my friend the future needs to be looked at very closely and as I (and scoop) have harped, the word is saturation.

DCA will end up just fine. In a few years after the 'quick fixes' fail, some new, ground breaking attractions will appear and it will find its own niche, AK will be fine (BK will eventually appear). I reiterate that America will never get a new, groundbreaking park unless they decide to tap a new area (i.e Texas). Does his make me happy? Well, no but it's a moot point, this is the way it is and no amount whining on my part wil change it...

 

[larworth]

All these inherent advantages (higher latent demand, higher spend per guest, lower cost of capital, etc) should give OLC a more favorable business situation. One that would allow them to invest more (build higher quality parks like TDS) than elsewhere, or earn greater returns on the same investment. However, when I look at actual results the latter hasn’t seem to been the case (even after adding back royalties).

Operating Income / Sales (+ Royalty?) =

OLC…......……13% (+ 7%) = 20% before TDS
EuroDisney...18% (+ 5%) = 23%
Disney…….....23%

Unless TDL was built to much higher quality standards than the other Magic Kingdoms it doesn’t look like some of these advantages make much difference.

I can understand why you would be slow to expand if you believe the market is saturated. I don’t see anything here that says the relationship between returns and quality are different anywhere.

What are I missing other than knowing how to spell kumquat in Japanese??

 

[Bstanley]

The attendance figures for IoA are:

2001 : 5.5 Million (~15K people a day)
2000 : 6.0 Million (~16K people a day)
1999 : 3.4 million (9 months ~ 13K people a day)

Universal Studios Florida was running at about 8 Million folks a year. So basically Universal increased the number of people visiting their 'destination' by 70% or so.

I don't know what Universal's average daily $ amount spent per person is, but if it's $100 (the average visitor to Orlando spends $275 a day supposedly) they basically added $600 Million Gross to the corporate coffers and unless they are badly managed they added $50-$60 Million Net to the bottom line.

Here's an interesting comparison:

Open IoA next to USF - pull in 60%-70% of the customers that the original park attracts.

Open DCA next to DL - pull in 30%-35% of the customers that the original park attracts.

OK what about Japan? Also a saturated market for Theme Parks by the way - they've got 29 major parks (Greater than a million visitors a year) and we have 40 in the US - but we have a population of over 260 Million to their 130 Million.

Open DisneySeas next to TDL and you get what? Well nobody knows just yet but according to Michael Eisner "Since the park opened, both Tokyo parks have achieved attendance levels that have greatly exceeded our projections" (Jan. 3, 2002 letter to shareholders in the Annual report).

 

[Bstanley]

I extracted the # of Theme Parks from an Israeli (?!) Market Research document on the web at:

Theme Parks - Market Analysis

The document defines a "large-scale park" as one having attendance higher than 1 Million people a year and says there are 29 in Japan and 40 in the US. They don't give details on individual parks, but they do say that US and Japanese spend about the same amount of money per visitor.

I guess we'll just have to agree to disagree because I still believe that building a TDS instead of a DCA next to DL would have resulted in MUCH higher attendance/revenue - and people would have begun to view DL as a destination rather than a park. I don't think "people were tired of parks" - I think "people were tired of the same old parks". I mean really, DCA is basically nothing more than a Six Flags sitting next to DL...

It's 1955 all over again. If Walt had built just another amusement park how could it ever have turned into anything special?