Bloomberg Businessweek Interview: Iger on DCA

[GrumpyFannyPack]

I found this kind of interesting. (My apologies if already posted.)

http://www.businessweek.com/articles/2012-08-09/bob-iger-on-disney-california-adventure

My favorite quote:

"We probably underestimated how much people would demand Disney when they come to a park that has the Disney name on it."

 

[MagicMike]

My favorite quote:

"When the economy truly tanked in late ’08-’09, we suffered somewhat from a decrease in attendance, but we lowered our prices to keep attendance up as much as possible. That was a long discussion, because there was some concern that if we lowered prices too much that we’d have a tough time climbing back up."

I'm glad they didn't have too "tough" of a time climbing back up.

 

[Tim_4]

My favorite quote:

"When the economy truly tanked in late ’08-’09, we suffered somewhat from a decrease in attendance, but we lowered our prices to keep attendance up as much as possible. That was a long discussion, because there was some concern that if we lowered prices too much that we’d have a tough time climbing back up."

I'm glad they didn't have too "tough" of a time climbing back up.

You can't be serious.

It's a *freaking* business.

 

[MagicMike]

You can't be serious.

It's a GD business.

Really? I wasn't aware Disney was a business. Which is strange considering every jerk on the WDW boards likes to remind everyone of that every fifteen seconds.

I'm purposely editing your profanity. This is a Disney site after all.

 

[MagicMike]

You can't be serious.

It's a *freaking* business.

Much better. Thanks for the change. I'll quote that.

 

[Tim_4]

Really? I wasn't aware Disney was a business. Which is strange considering every jerk on the WDW boards likes to remind everyone of that every fifteen seconds.

Just curious how Disney is supposed to expand and improve without turning a profit... And do you know what happens to profits? Let me guess. They "line the pockets of executives." False. Profits are reinvested in the company or paid out as dividends. You know what dividends do? They go to investors, pension holders, and 401(k) participants.

I imagine you also expect drug companies to spend their money researching medicine and then give them away for free? Oooh ooh I know! We could force doctors to pay for medical school and then have them treat patients for free!

Like it or not, friend, the profit motive is what drives business. This is a fact of nature, since the profit motive is what drives individuals.

I'm purposely not quoting your profanity. This is a Disney site after all.

Fair. Edited for content.

 

[lebeau]

Just curious how Disney is supposed to expand and improve without turning a profit... And do you know what happens to profits? Let me guess. They "line the pockets of executives." False. Profits are reinvested in the company or paid out as dividends. You know what dividends do? They go to investors, pension holders, and 401(k) participants.

You know they are making record profits, right? It's not like Disney is hiking prices so they can stay solvent.

Your Divs 101 lecture is a complete oversimplification. Not all companies pay dividends. And dividends really aren't inherently good or bad. I'm not even sure why we're talking about dividends.

I imagine you also expect drug companies to spend their money researching medicine and then give them away for free? Oooh ooh I know! We could force doctors to pay for medical school and then have them treat patients for free!

Like it or not, friend, the profit motive is what drives business. This is a fact of nature, since the profit motive is what drives individuals.


Fair. Edited for content.

Seriously, dude. You got up on the soap box for no reason.

I will bet 1 shiny nickel you have no business or financial experience whatsoever.

 

[lebeau]

Does anyone know what lower prices Iger's referencing? Are these prices at DLR?

I assume he's talking about all the discounting they did. Not actual lower prices.

 

[menamechris]

Yeah, i suppose all of the discounting and free dining is technically "lowering prices" - but I think they have created a situation they may never get out of. There are people who will never vacation at WDW again without a sizable discount. Of course, Disney is adjusting prices up constantly which is actually encouraging the doscount model. If their intention is truly to scale back and do away with discounting, they need to hold their prices steady for a few years.

 

[Tim_4]

I will bet 1 shiny nickel you have no business or financial experience whatsoever.

MSA, MBA, CPA.

 

[Tim_4]

Yeah, i suppose all of the discounting and free dining is technically "lowering prices" - but I think they have created a situation they may never get out of. There are people who will never vacation at WDW again without a sizable discount.

This is correct. The two drivers are "rate" and "volume". "Rate" refers to what the customer actually pays, not the rack rate. Growth has recently been driven by an increase in the percentage of guests paying the rack rate.

Of course, Disney is adjusting prices up constantly which is actually encouraging the doscount model. If their intention is truly to scale back and do away with discounting, they need to hold their prices steady for a few years.

You're correct when it comes to people in the hardcore Disney community because we know that waiting for certain times of the year will yield discounts. Most guests book very far in advance and simply don't do their research. Discounts will always be used to some extent, so they're not looking to "do away with discounting."

A cruise ship is a good example. It's better to fill 90% of the rooms at full price and then offer steep discounts for the remaining 10%. If you're offering a 20% discount the entire year, you're missing out on a lot of marginal revenue because that 90% of guests were willing to pay full price so you were essentially giving them a discount for no reason.

Another important fact is that Disney can't adjust expenses to match demand like a restaurant. If a restaurant is only half full, it only needs half the wait staff and will incur half the food costs. Conversely, Disney can't adjust the number of rooms and buildings it's paying to operate. Small adjustments can be made to labor levels, but it's much more efficient to get those rooms filled, even if it requires a discount.

 

[menamechris]

This is correct. The two drivers are "rate" and "volume". "Rate" refers to what the customer actually pays, not the rack rate. Growth has recently been driven by an increase in the percentage of guests paying the rack rate.


You're correct when it comes to people in the hardcore Disney community because we know that waiting for certain times of the year will yield discounts. Most guests book very far in advance and simply don't do their research. Discounts will always be used to some extent, so they're not looking to "do away with discounting."

A cruise ship is a good example. It's better to fill 90% of the rooms at full price and then offer steep discounts for the remaining 10%. If you're offering a 20% discount the entire year, you're missing out on a lot of marginal revenue because that 90% of guests were willing to pay full price so you were essentially giving them a discount for no reason.

Another important fact is that Disney can't adjust expenses to match demand like a restaurant. If a restaurant is only half full, it only needs half the wait staff and will incur half the food costs. Conversely, Disney can't adjust the number of rooms and buildings it's paying to operate. Small adjustments can be made to labor levels, but it's much more efficient to get those rooms filled, even if it requires a discount.

Fascinating.

 

[Tim_4]

Fascinating.

This is why cast members will tell you about crazy 70% off discounts on cruises, certain resorts, etc from time to time. It's better to collect 30% of a room rate if the ship is sailing anyways, but you need to do it at the last minute so that guests WILLING to pay full price don't get the discount "by accident."

 

[lebeau]

MSA, MBA, CPA.

That's really hard to believe in light of that dividend post...

 

[lebeau]

Fascinating.

I think someone's sarcasm detector is malfunctioning.

 

[MichWolv]

This is correct. The two drivers are "rate" and "volume". "Rate" refers to what the customer actually pays, not the rack rate. Growth has recently been driven by an increase in the percentage of guests paying the rack rate.


You're correct when it comes to people in the hardcore Disney community because we know that waiting for certain times of the year will yield discounts. Most guests book very far in advance and simply don't do their research. Discounts will always be used to some extent, so they're not looking to "do away with discounting."

A cruise ship is a good example. It's better to fill 90% of the rooms at full price and then offer steep discounts for the remaining 10%. If you're offering a 20% discount the entire year, you're missing out on a lot of marginal revenue because that 90% of guests were willing to pay full price so you were essentially giving them a discount for no reason.

.

Economic behavioral studies back this up as well. Essentially, profit is higher from having a high "regular price" with periodic (even frequent) steep discounts than a lower regular price that doesn't need to be discounted much. There are enough people that will pay the regular price rather than waiting for a sale, even if a sale is predictable, that it offsets the need for high discounts.

 

[Tim_4]

That's really hard to believe in light of that dividend post...

It's a Disney fan forum. Sorry I didn't delve deeply into advanced profitability metrics and the legal underpinnings of the fiduciary relationship behind corporate governance systems.

 

[Tim_4]

Economic behavioral studies back this up as well. Essentially, profit is higher from having a high "regular price" with periodic (even frequent) steep discounts than a lower regular price that doesn't need to be discounted much. There are enough people that will pay the regular price rather than waiting for a sale, even if a sale is predictable, that it offsets the need for high discounts.

This. Be careful or they'll call you a liar and insult your intelligence and/or academic background.

 

[MichWolv]

I will bet 1 shiny nickel you have no business or financial experience whatsoever.

He sounds to me like he knows what he's talking about. He's got a pro-business viewpoint, but not an uninformed one.

 

[lebeau]

It's a Disney fan forum. Sorry I didn't delve deeply into advanced profitability metrics and the legal underpinnings of the fiduciary relationship behind corporate governance systems.

No, no. I promise I really wasn't asking for more!