Oriental Land profit f'cast up on Disney park boom

[Bob O]

Now if disney would actually build a complete park from day one(with new attractions/shows and not their attack of the clones strategy) rather than insist on making people in the US pay full price for a half day at best maybe we could compare the results of TDS and DCA/AK.But the disney company has been unwilling to build a complete park in the US anymore. They perfer to make money by building it half way with promises of finishing it some day in the future. Im just glad that DCA is flopping to send the disney co. a message that hopefully they will learn from.

 

[raidermatt]

I still believe that building a TDS instead of a DCA next to DL would have resulted in MUCH higher attendance/revenue

No doubt. But would it have been enough to make up for the additional cost? Given how poorly DCA has performed, I'd say the answer is probably yes, but its a huge gamble. Universal threw money at IoA and struggled. What if the assumptions we make are wrong and Disney built TDS next to DL, only to find it drew no better than DCA? I'm not saying it would have happened, but it would have to be a concern.

Scoop/Captain- Here's where I'm a little confused. If the American market truly is saturated, or at least more mature, and they won't turn out for just anything, wouldn't it make sense that IF you are going to build a park, you had better build a park that stands out in some way, or at least gives your guests more of what they expect from you? Not just an big-budget park, but a park that will truly be a hit with your intended audience.

IoA had a lot of money thrown at it, but it's hard to figure out exactly who they are targeting. In the US, its the families that are the high margin guests, yet IoA has too many height restricted rides, and lacks the parades and shows that families love. They have enough thrill rides to bring in some day-trippers and thrill seekers, but they can't even match most Six Flags parks for pure thrills, and these are lower margin guests anyway. So they've got an expensive park that generally speaking is more suited to lower margin guests, but doesn't even go after them very well.

Disney on the other hand, is known as the premier family destination in the country. They have an in with this high margin segment, which is a part of the overall more discerning American market. So wouldn't it make sense that Disney's Anaheim strategy should be to build a high quality family park? Instead, they built a mid-quality park that is confused about who its trying to target. Not enough thrills to pull people away from Magic Mountain, but not enough Family Magic to get families to stay an extra day or two. But a TDS, or a similar type park is much more in line with what Disney guests want and expect. I'm not sure what the height restrictions are on its rides, but certainly the look and detail in the park are what would attract the families that Disney is looking for.

I'm not saying that just transplanting TDS in Anaheim would bring equal results, but I do believe it is much more in-line with what would work for Disney as a complement to DL in Anaheim. Yes, this would cost more money than DCA, but IF it were done with your target audience in mind, it really should work.

 

[Captain Crook]

I can't really speak for California, but WDW will never see a huge, new state of the art park because of the total lack of necessity. They have AK (a work in progress), they have Epcot (which needs updating) and they still are not feeling the pinch from competetion. To build an expensive, state of the art park, hope the economy stays healthy, hope there is no tourism downturn just doesn't make sense...They don't have to 'make it' because they've already made it. They simply have to maintain...AND should Disney ever feel the pinch of local competition it would take relatively little to drown it out. Building BK when necessity calls will thwart the local competetion and ends up being less costly overall. If that's not enough it's still easier to add another thrill to MGM & another to MK and viola the competetion stays at arms length.

While I believe the market is mature I do agree that the public would go crazy for a super park, but there is no long term incentive for Disney to give it to us (at WDW) because they are having some problems maintaining the growth they've achieved now. How could they ever maintain that growth after a new super park with 3 or 4 new hotels to fill?

No, I think WDW growth will be slow and only when faced with necessity. DL, I don't know. I'm sure DCA will eventually be a fine park and compliment DL nicely, but it will never make DL the destnation resort they were hoping for...So CA is a big question mark in my eyes...

 

[raidermatt]

I agree, DL and WDW are very different. My comments were more directed at the DCA/TDS strategy as opposed to a 5th gate at WDW.

DL could be a destination resort, but certainly not on the scale of WDW. DCA could have been the 1st big step in that direction, but instead its hardly contributed at all. They did a good job with the Grand Californian, and Downtown Disney, but the meat was supposed to be DCA and it turned out to be nothing more than a table scrap.

Disney already has preliminary plans for a 3rd gate at DL. (though I'm sure those have been pushed back). Make DCA a success, expand DD, add another resort and build a great 3rd gate and maybe you have a week long destination for the masses. (I'd only need a strong DCA to do this, but I realize I'm not the average). A park with the quality of TDS would have put them well on their way. Even if it were opened "early" in order to get the revenue stream going and mitigate risk, it could have worked as long as plans moved forward to complete it.

As for WDW, it is already a viable week-long destination for the masses. Opening an expensive, "completed" 5th gate would be very risky. I think it should be considered, but only as plans move forward to expand AK, and continuously update the other three parks. I don't mean they each need a new E-ticket every year, but they shouldn't be left largely untouched for several years at a time either.

If a 5th gate is built, it would need to be an elaborate park that probably costs a lot. But money alone isn't the solution. It would need to keep its target audience in mind and live up to Disney standards. Since WDW already has 4 parks and 2 water parks, it would be more prudent to open the park "incomplete". I know this strategy angered many with AK, but its the smart thing to do. Its just that some of the expansions have been a little too slow in coming for AK.

 

[Bob O]

Regarding IOA i dont know what type of attendance Universal was expecting when the park was built and if they achieved their goal or not. I think it is a excellant park and did help Universal increase their attendance if a earlier posters number are correct.
I think the last thing disney needs is a 5th gate!!! People are limited by how many days they can stay on a vacation and i think a 5th gate would end up taking people out of disney's other parks and not increase their overall attendance. They wouldnt get the bang for the buck.
The 5th gate raidermatt talked about is what DCA should have been, but because the park was done on the cheap with a clone mentality and based on faulty logic that people from Ca will want to go to a park based on their own state the park has had awful attendance and had to use steep discounts to get alot of the attendance they have. Disney knew that DL attendance is alot of locals as compared to wdw so whoever approved the concept of the park wasnt too bright!!! Im from Wis. and why would i want to go to a park based on my own state when i can see the real Wisc, and not a made up one???

 

[Bstanley]

Actually I chased the data a bit further and discovered that the Israeli's had 'plagerized' a research document published in '98 by a company called "Economics Research Associates" from San Francisco - which actually makes a LOT more sense - somehow the concept that Theme Park Market Research was headquartered in Israel just made my eyes cross...

...Warning - Topic shifts ahead at every paragraph...

As to whether TDS would have made sense to build at WDW - I also agree that building it in California makes EVER so much more sense. You really aren't going to get that many more people to go to Orando by adding any more parks. There are more than enough there for the (typical) 1 week family vacation.

TDS should have been the next gate at DL. Perhaps it would have needed to be done in stages, but it should have been done, period. The audience is there - hey, people fly from there to WDW all the time - hmmm, now that would be an interesting statistic - how many people a year who live within 100 miles of DL visit WDW?... All Disney had to do was announce the long term plans and then build whatever they could afford to build. With 2 solid gates a fair number of people would have stayed a week (the real goal) - visit Universal Hollywood one day, a day at the 'Goose' or whatever and 3 - 4 days at the 'DL Resort'.

I don't doubt that Disney will end up turning DCA into something more interesting (ToT being added, etc indicate the commitment). But it is always MUCH more expensive to go back in and redo something rather than doing it right the first time - and you lose the mythical 'mindshare' when you come out with something that misses the target at first. It might have cost more to start with building 1/2 of a TDS (say 4 lands with 3 'real' attractions per island, plus 1 or 2 minor ones per) instead of DCA, but it sure would have been cheaper than it is going to end up costing to tear up chunks of DCA to add some 'real' Disney attractions. And more importantly the time and money that will be spent on 'converting' DCA into an exciting destination will basically turn into delays and lack of funding for the third gate that would have cemented DL's position as one of those 7 day destinations that generate great, greasy, gobs of money like WDW does.

 

[larworth]

Scoop

I was not trying to make a point about IOA, which I think is more related to saturation and brand identification issues. It was just to see if the data (versus speculation) supports our many lists of why the Japanese market is so different and so much more lucrative than everywhere else.

If making money was so much easier for OLC (with all their local advantages) than why have they not earned the highest returns with the same kind of assets everyone else has. In fact it appears they don’t do quite as well. Why doesn’t their higher spend per guest (probably 20% higher than here) not automatically translate into a bottom line advantage? Maybe, we overrate these advantages, or maybe OLC are really bad managers?

TDS has two dimensions (scale and quality). I guess before I’m willing to concede that the only place one can afford to build high quality parks is in Japan I need to understand the above conundrum. Please someone help me out here.

***

On the scale issue I think most of us agree it would be tough to justify adding a large quantity of new attractions in Orlando today. Over a short time span 1.75 new parks (how about .75 for DAK, .75 for IOA, and .25 Sworld) were added and probably did saturate the market.

Is the West Coast a differet dynamic? Universal did spend more on IOA (maybe 30%) than DCA to try to provide a higher quality park. They both have about the same attendance. One in a very saturated marked with a big consumer awareness disadvantage and less give-aways. Was the market saturated in CA, or was the execution just bad.

***

Universal assumed it would be impossible to outdo Disney in the family market, so they looked for their niche. It appears to be big and profitable enough to sustain them, but sure they are a little disappointed with their results as well.

 

[Another Voice]

The guest dynamics at Disneyland and Tokyo Disneyland are very similar – reliance on locals, near major metropolitan centers that are tourist draws themselves, limited space, and a total lack of “resort” surroundings. Most visitors to either place do not go to Anaheim or Tokyo just to see Disney parks – those are simply part of a larger vacation.

It’s a completely different situation in Orlando where the parks are the destination. And I do agree that Orlando has hit the limit on the number of theme parks that any area can handle. Both Disney and Universal seriously misjudged the public’s desire by simply turning out theme parks. As good as Islands of Adventure and Animal Kingdom are, there’s nothing genuinely unique about either one of them. Sea World, on the other hand, has had amazing success with Discovery Cove because they developed a different product that’s of interest to a large number of guests.

And that same philosophy guided the early development of Port Disney and Westcot in Anaheim. It was always known that “just another theme park” would not succeed as Disneyland’s second gate or as a second Disney resort area. DisneySea Park in Port Disney would have been an immensely interactive experience with fully realized environments and participation. The rest of the resort would have been a truly unique harbor development that really doesn’t exist in California. And Westcot would have been an intensely urban, high energy place to contrast with Disneyland’s rural, nostalgic nature. As with any project, it’s not enough just to be good, you have to be interesting as well.

But creativity is risky, especially for a management team that lacks much imagination. All of the financial justification and per captia guest spending numbers are really nothing but a smoke screen to cover the fear of failure in The Company these days.

Would DisneySea Anaheim have been a hit? Probably, certainly much more so than California Adventure. Would have been a sure thing? No – and that’s the rub.


P.S. - "Was the market saturated in CA, or was the execution just bad. "

Well, the first year that DCA was opened, attendance at both Knott's Berry Farm and Sea World San Diego increased. I'd say that's evidence that DCA's problem were in the park itself rather than in the market conditions.

 

[DisDuck]

Raidermatt you should introduce everyone here to our debate mate Edina. That poster might have an interesting spin to these proceedings. Certainly, in terms of crowds and lines as related to enjoyability.

For you uninitiated folks, there is a poster on the Debate Board who claims that Disney is not doing enough to alleviate long lines and crowds. Thinks it is terrible that the parks are crowded. On a recent vacation, left MK at noon without riding anything that the poster wanted to (operative word is 'wanted'). Stayed at Portofino for several days and loved FOTL passes for onsite guests and the smaller crowds but refuses to acknowledge that WDW has more onsite rooms thereby making FOTL difficult to implement. Even went so far as to state that lesser is better (crowd wise). I wonder if this poster would like or even venture to visit Tokyo DL and/or TDS.

So maybe Disney has it all wrong. TDS will eventually fail because crowds and long lines will turn people off and have them go somewhere else while DCA has it right. Keep crowds small and lines short.

By the way as a point of history, DL opened as a incomplete park and Walt himself (landbaron can verify from his quote book) stated that it will always be 'incomplete' (a work in progress). 1/2 day are only 1/2 day if you rush through them. I find enough at AK to spend from opening to almost closing. Do not find IOA that enticing, takes me from 9 to 3 without rushing.

 

[Bstanley]

I don't think so. Sounds like the old "a weak dollar is the best thing that could happen to the US economy" crud-ola. You know "if the dollar is weak then our exports will sell well and our economy will grow", yeah right - that must be why the Mexican economy is doing so well....

If it were true that long lines indicate failure there wouldn't be anybody at The MK on July 4th or Jan. 1st, or most of the summer, or etc. One of the differences between an amusement park and The MK is that the attractions are all the amusement park has going for it and The MK has 'other' things. And I don't just mean parades or fireworks or people dressed up in velour costumes...

I personally won't visit the MK when it's crazy busy - once was more than enough. But there are many people who do it year after year (personally I think they're all from New York City .

Worst case if a park stays crowded is that some people will choose not to visit and the crowds will moderate. This is also one area where the cultural differences really are a factor. If you haven't actually been to Japan you really don't have a point of reference concerning the crowds there - the Japanese will put up with crowds WAY beyond anything that an American can possibly imagine.

Big crowds = Big Dollars (sorry Big Yen = New attractions or New Parks or New Hotels or...


Another Voice,

I don't think it's the risk associated with creativity that has made for the less than stellar management decisions lately - frankly they appear to be taking substantial risks in almost all the other arenas that the company plays in. It just looks as if the management uses up all it's 'risk tolerance' before they get to the decisions affecting the parks.


larworth,

I don't know that it's easier for OLC to make money. There may be higher latent demand, but the average spend is actually a modest amount lower in Japan than it is in the US, and historically the cost of capital is significantly higher in Japan than it is in the US because Japanese companies borrow money rather than fund through issuing equity - although in all honesty I don't know how OLC funded TDS. My personal opinion is that the reason OLC built a park like TDS rather than one like DCA is simply because they are focused on the business of managing a Theme Park and they know their customers. The people who chose to build DCA next to DL rather than something like TDS were being distracted by buying Television Networks, trying to create an Internet Media Giant (whatever the [bleep] that is), and 12 other things at the same time.

 

[raidermatt]

Doing the ditto thing...

Would DisneySea Anaheim have been a hit? Probably, certainly much more so than California Adventure. Would have been a sure thing? No – and that’s the rub.

I absolutely agree with this statement. I just think that the increased probability of having a "hit" park would have outweighed the extra risk involved with the higher capital expenditures (thought about just using cost, but wanted to impress you guys with bigger words... )

DisDuck- As I'm sure you know, I reject our friend's conclusions on a macro level. Each individual has the right to do what's best for them, of course. But in the big picture, the company needs to find a balance by using something similar to the old marginal cost / marginal revenue thing. Certainly there are some who don't spend their money at WDW or DL because the lines are too long. But what would it cost Disney to decrease those lines, and could they increase their revenue enough to justfy that cost? Certainly there is a point where that answer is no. That point may vary depending on location (Tokyo vs. Orlando for example), but it nonetheless exists. For those whose tolerance falls below this point, well, they are just part of the "accepteable losses".

I don't think it's the risk associated with creativity that has made for the less than stellar management decisions lately - frankly they appear to be taking substantial risks in almost all the other arenas that the company plays in.

Good point. Eisner's reported "lust for a big budget hit" out of the live-action studio is certainly an example of taking risks. Perhaps they lack the same "stones" when it comes to the parks because they know the parks are their one almost guaranteed profit machine? If they mess it up, they won't be able to weather storms like the ABC situation.

 

[Bstanley]

Good point. Eisner's reported "lust for a big budget hit" out of the live-action studio is certainly an example of taking risks. Perhaps they lack the same "stones" when it comes to the parks because they know the parks are their one almost guaranteed profit machine? If they mess it up, they won't be able to weather storms like the ABC situation.

Well I certainly can't predict the future, but the reason these characters make the 'big bucks' is because supposedly they can...we'll see.

My concern is that by not taking 'risks' with their 'Golden Goose' they may end up killing it. It seems inconceivable ("you keep using that word - I don't think you know what it means" Mandy Potemkin, The Princess Bride) today, but in 1971 when WDW opened nobody imagined that in 30 years it would be what it is today and that many of the amusement parks then popular would be gone today.

The parks are 'Magical' places - I don't know what that is exactly, but it's clear from attendance that DCA doesn't have it...and I still contend that TDS does...

 

[d-r]

Originally posted by Bstanley
I mean really, DCA is basically nothing more than a Six Flags sitting next to DL...

I'm going to disagree with that. I've been to six flags and I've been to dca, and I think they are pretty different. The paradise pier section of dca is sort of "six flag-gish" in that it has thrill rides and games of chance, but it is way more themed and better looking than six flags. That said, six flags kicks dca's but in terms of rides. To me, DCA has basically three e-tickets, california screamin', which is fun enough to ride but it is a pretty mediocre, gentle coaster (the take off is fun), sourin' - which kicks six flags butts, and grizzly river, which is much, much better than Kali river in terms of the quality of the thrill, and much much better than six flags river rides in terms of quality of the theming. Grizzly is one of the things that they got right at dca. So, dca still really whoops six flags in theming, six flags still really whoops dca in terms of thrills.

Now, if you said that dca wasn't exciting and new because it was basically 1 part disney/mgm studios (muppets, animation tour), 1 part epcot (tortilla factory and vinyard etc), 1 part animal kingdom (tough to be a bug, grizzly river) and 1 part six-flag-gish (paradise pier) I'd pretty much agree with you. Sourin is the only new feeling thing. Well, besides the lame whoopie movie about how hard californians have it.

DR

 

[lrodk]

Originally posted by BobO:

Now if disney would actually build a complete park from day one(with new attractions/shows and not their attack of the clones strategy) rather than insist on making people in the US pay full price for a half day at best maybe we could compare the results of TDS and DCA/AK.But the disney company has been unwilling to build a complete park in the US anymore.

As AV eluded to before, the primary reason that this is going on is because of the failures of the Euro Disney Resort in it's first years, failures that were a direct result of Burbank's miscues. Eisner essentially built a complete park in France, one with all the bells and whistles. They over-estimated the locals willingness to spend on things like merchandise/hotel/food and suffered terribly as a result. That park is the best Magic Kingdom among all of Disney's theme parks, yet it nearly went bankrupt. As a result Eisner vowed never to overbuild, or as we say "build a complete park" ever again. This is the primary reason my friends. Disneyland Paris was designed and built to represent all of the creative might and capabilities of the Eisner regime. Unfortunately the studios park built next door is following in the foot steps of AK and DCA in that they are scaled-down "half" parks. This will continue into the forseable future, or at least until new management takes over(wishful thinking). Oh, what could have been(sigh).

 

[kenjean]

The misjudgement made was not in building a complete park, but in where they put it. In a past company I worked for we had a French division, and Euro Disney came up at dinner one night. This was right after attendance increased and I believe the park had made its first profit (I didn't keep up with Disney as much in those days). The concensus at dinner was that the adults in France (and their neighbors in Europe) intentionally snubbed Euro Disney because it was considered American crass. It was the children that eventually made the park work as they dragged their parents there. Guess what? After the adults were forced to go, they found that they liked it. Now it is the most popular travel destination in Europe, according to the travel channel. I wonder if this all would have happened if the current park philosphy hadf been used. Euro Disney was eventually successful because guests expectations were exceeded.

If Eisner is using this example as why to start small, he is misreading the situation.

 

[Another Voice]

The failure of Euro Disney had NOTHING to do with a “full day park.”

The failure of Euro Disney had NOTHING to do with the amount of money spent on it.

The failure of Euro Disney had NOTHING to do with adding bells and whistles.

The failure of Euro Disney had EVERYTHING to do with Michael Eisner not understanding the business he was running.

Like a really bad comedian, he’s trying to blame the audience for not being “cool” enough to get his jokes…

There are two reasons why EDL flopped and both relate back directly to Mr. Eisner. First was his insistence on the very American feel to the place. The original plans for the park were very European in flavor and in the details. Most of Disney’s stories can from European fairy tales and books, and the park was an attempt to bring these stories “home again”. Even Main Street was turned from a recreation of a small mid-western town into a melting pot urban neighborhood in the Jazz Era (much more interesting to the French).

The entire “American cultural imperialism” problem was understood very, very early in the project. Eisner choose to ignore all of it. Instead of subtle changes and major re-themeing, he decided that the secret to success was to be more American. His reasoning – that’s what worked in Japan. Completely misunderstanding his audience, he tore out the old concepts and inserted his desires instead. The result, as Mr. Kenjean wrote, was a place that wasn’t interesting (to say the least) to an audience.

And he continued with the reason the project failed financially – the hotels. There is no tradition of a “theme park” three day weekend in Europe. Only Americans suffer with the messily five day vacation. In Europe, people take a month and they don’t stay in hotels. And they don’t go to Paris, they go to where the sun is and the city isn’t. Again, all of this was known, but Eisner choose to ignore it. He wanted the profit margins that the hotel’s generated. Most of all, he wanted to remain the Crowned King of Corporate Architecture by hiring big names to build big splashy hotels for the glitterati to fawn over. And notice how aggressively American the hotels are as well.

Euro Disney did not fail because “full day” parks are a bad business. Euro Disney failed because of specific misunderstandings of the audience. It’s not an issue about spending too much money, about building too much – it’s all about giving the audience what they want. It’s not economics, it’s artistry.

It's also about talent. And no amount of corporate spin will cover-up for its absence.

 

[Peter Pirate]

Yeah, but they fixed it, didn't they?

 

[lrodk]

The man who fixed Euro Disney(Frank Wells) is no longer around to make things right. And if you look at the time line where Disney started to faulter in the late 90s, it would coincide(coincidently or not) with Mr Wells' untimely death. Besides, a property that expanse should not have needed fixing in the first place. They had nearly 10 years to plan for it and do their research. If done properly it should have been a financial asset from the start, instead of the drag on earnings it was for well over 5 years.

 

[Bstanley]

Frank Wells' untimely death was just one part of the unravelling of argueably one of the best corporate senior management teams ever.

Between '94 and '95 Disney replaced their CFO, their Senior Planning VP and a little known guy called Jeffrey Katzenberg along with others...and I imagine all these senior characters took people with them when they moved to their new 'lives'. But they hired Michael Ovitz to make up for all the losses...

 

[Sarangel]

Like a really bad comedian, he’s trying to blame the audience for not being “cool” enough to get his jokes…

LOL... Oh man, AV. What a great summation of how badly Eisner fits into what we, the fans & stockholders, believe that Disney should be. Where's the club owner to boot him offstage?

Sarangel