The Corporation: STRATEGIES
DISNEY'S THEME-PARK SHOOTOUT
A host of new competitors has it building like crazy
The sign out front says it's "The Happiest Place on Earth." These days, Disneyland, Walt Disney Co.'s Anaheim (Calif.) flagship, is also one of the most construction-happy places on earth. Workers in bulldozers criss-cross the 100 acres that used to be a parking lot. Outside, streets are being widened, snarling traffic in all directions. Signs tell passersby that a new Disneyland Resort is in the making.
But there's a lot more than that going on. From Anaheim to Central Florida, Disney is expanding its theme-park kingdom with gusto. Faced with stiff competition from a host of rivals that has trimmed its once juicy margins, Disney plans to spend more than $4 billion by 2001 to add two new theme parks, a cruise line, and three regional entertainment chains. On Apr. 22, the Burbank (Calif.) company will open its first new theme park in nine years, the $750 million Animal Kingdom near Orlando. And in May, it will unveil an update of Tomorrowland, an original Disneyland attraction.UPPING THE ANTE. The burst of spending reflects Disney Chairman and Chief Executive Michael D. Eisner's philosophy that, despite the hoopla about cable TV and handwringing about couch-potato lifestyles, people still hunger to go out for entertainment. "I've never believed what Faith Popcorn said--that people would be `cocooning' in their homes," says Eisner. "People get sick of sitting around their homes. They need to get out and find new things."
Maybe so. But Disney's four U.S. theme parks are facing their most intense period of competition ever. From the $2.7 billion Islands of Adventure being built by Universal Studios about 20 minutes down Interstate 4 from Walt Disney World to new attractions such as the Wild Arctic helicopter simulation at nearby Sea World to the $35 million in new rides planned for Knott's Berry Farm in Anaheim, everyone is upping the ante.
Those projects all take aim at Disney's most consistent cash cow. Year after year, Disney's parks provide the parent company with huge cash flow and hefty profit margins. Last year, the parks raked in $1.1 billion in operating earnings and a profit margin of 22.7%, compared with 16.8% for Disney's movie studios and 19.8% for broadcasting.
But for much of the past decade, Disney management's attention was focused elsewhere. The company dabbled in regional parks, running into a political buzzsaw with its doomed plan for a historical park in Virginia. It built overseas, suffering through the slow opening of its park outside Paris. And it branched into broadcasting, paying $19 billion for Capital Cities/ABC Inc. in 1995. Meanwhile, Anheuser-Busch Cos. bought four Sea World parks and began pumping in millions of dollars. Universal Studios opened a Florida park in 1990. Even Las Vegas made a play for family vacationers.
The combination of fresh vacation alternatives and a weak economy sent Disney's park attendance skidding in the early 1990s. By 1994, it had fallen 12% from five years earlier, to 39.2 million visitors annually, according to the newsletter Amusement Business. And though theme-park profit margins still beat those of Disney's other units, they've drooped from their far higher 30% of the late 1980s.
Disney has responded with a torrent of cash. The expansions at Universal and elsewhere "made them understand that they're not the only guys on the block," says Abraham Pizam, director of the Dick Pope Institute of Tourism Studies at the University of Central Florida. "It made them understand that they had to concentrate on quality and add, add, add." Not to mention spend, spend, spend. Today, building one new ride can cost more than $100 million.
Key to the strategy has been expanding operations at the Central Florida and Anaheim strongholds. Florida is the most important, with three theme parks and nearly 18,000 hotel rooms. But that's also where Disney faces its stiffest competition.
Next year, a $2.7 billion expansion of Universal Studios Florida will open. The site includes a second theme park, Islands of Adventure, with Universal's trademark thrill rides, such as Dueling Dragons roller coasters; a 750-room hotel; and an entertainment-and-dining district, Citywalk, that will open later this year. Universal has a sure hit in a dinosaur island modeled after its Jurassic Park movie and is going after Disney's younger fans with rides based on Dr. Seuss characters.
To beat back its rival, Disney will weigh in next month with Animal Kingdom, which features more than 1,000 types of animals, an African safari, and rides based on such Disney properties as The Lion King. The new attractions include DinoLand USA, featuring a thrill ride called Countdown to Extinction. Universal sees that as a premptive strike on its dinosaur attraction. "What do dinosaurs have to do with a wild animal park, anyway?" says Cathy Nichols, CEO of Universal Recreation Group. Eisner deflects the charge. "We've been working on a dinosaur movie well before they began Jurassic Park," he says, referring to an animated project.
Will it be enough? The payoff from Disney's spending so far, analysts and competitors agree, is that the company has reinforced its position as the top brand name in the business. Attendance at its U.S. parks grew 12% last year, to a record 53.4 million visitors, while Universal rose 4%, to 14.3 million. And with the additional hotel rooms and restaurants Disney is building, it hopes to extend the average park stay and grab even more guest dollars.
Nowhere is that clearer than in Anaheim, where Disney is using its clout with city officials to build a mini-Disney World. With Disney guaranteeing some of the money, Anaheim is spending $546 million to help the entertainment giant build a resort blocked off from the collection of dives and cheapo motels that ring Disneyland. Disney is building a 750-room hotel, called Grand Californian, to give it 2,350 rooms in Anaheim.DRY-DOCKED. Disney has suffered some setbacks. An effort to update Epcot Center in Orlando ran into costly software problems on a ride featuring cars that race at speeds up to 65 mph. That project is at least a year behind schedule. Also, some industry skeptics question Disney's efforts to transfer its brand to smaller regional entertainment centers, such as its new DisneyQuest virtual-reality and entertainment arcades and Club Disney play centers for younger children.
Disney's most public embarrassment has been the four-month delay in the launch of its cruise business because of construction problems. Still, when they finally set sail, the two ships should help Disney fill its parks. They will dock at Port Canaveral, about 90 minutes from Walt Disney World. To meet its targets, Disney needs 70% of the ships' passengers to buy a weeklong package that combines a cruise and a park stay, says a former Disney exec. "The whole strategic value was to get them to the park--that's where Disney makes a lot of money on them," he says.
And that, after all, is the real Disney magic. Recently, Philadelphia ad exec Alex Breder was marching and spending her way through Walt Disney World with children Maggie, 10, and Ian, 8, in tow. Midway through a five-day vacation, Breder figured she had spent upwards of $2,000 for her room at Disney's All-Star Resort, meals, park passes, and trinkets for the kids. "If you're going to spend all that money to get here and stay, you may as well eat and treat yourself well," says Breder.
No doubt the cash registers can be heard ringing all the way back in Burbank. But Disney can't afford to be smug--after all, the Breder family also planned to spend a day at Sea World.By Ronald Grover in Los Angeles and Gail DeGeorge in OrlandoReturn to top