Spirited News, Observations & Thoughts IV

[GoofGoof]

Please refer to my earlier posts on Q3 attendance here and here.

I think Iger and Rasulo have been making the kinds of statements a CEO and CFO should. However, some seem to think "all is well" at WDW because "attendance at our domestic parks was up 3%, with Walt Disney World and the Disneyland Resort each setting new Q3 attendance records." My point is such statements require critical analysis; WDW is facing significant attendance challenges.

I agree with your analysis, but based on the facts presented if overall domestic park attendance is up 3% over 2012 in Q3 but both WDW and DLR saw record attendance numbers than 2012 had to be at or near record numbers at both resorts for Q3 as well. Its only being highlighted in 2013 because they dropped $1.5B+ on DCA and FLE and they want to make sure everyone knows the huge investment is paying off. I really don't think they would put out in their prepared statements that both had record attendance if it wasn't true. I also think that DCA must be taking a healthy bite out of DL attendance since we know DCA is drawing better but the total was only up 3%.

My only point in all of this is that WDW attendance is not crashing right now (at least through June). It probably should be based on what is going on both at WDW and down the street, but it's not. Maybe actions today will lead to problems in the future, but even if attendance overall is only up a hair each quarter that is still not down. Maybe the business isn't growing, but its not hurting either. They can't keep raising prices 7-10% a year. That pace isn't sustainable. I think Nextgen is more a reaction to that reality than anything to do with attendance. They are trying to figure out a way to get more money from us without simply just raising prices more than double the inflation rate every year.

 

[MOXOMUMD]

If humor can be dry, then what is wet humor?

Gallagher and watermelons.

 

[HMF]

I doubt it would happen. Unless the whole economy collapses, Disney won't be overpriced. If anything, I fear that they will continue to jack the pricing up.

They are making very little money on the Theme Parks right now. And that is somewhat evidenced by the past several pages of discussion regarding DVC, thus supporting a great idea of @ParentsOf4 posted awhile back on how Disney is now running hotels and DVC and not really running a Theme Park per se (and Parents writes much more eloquently than I do!!)

I just don't think the thought that Disney could price itself out of the market crosses the Suits minds. It is all about meeting goals and making that Bonus check at the end of the quarter for them. They have been so far removed from the Theme Park Guest demographic for so many years they just don't care.

And I wouldn't put it past the big mouthpieces of Rasulo and Iger to blame NGE- gee, the computer gave us the wrong info!! Spin, spin spin, blame, pass the blame, and then repeat spin.

.

When you get that high in the business world you tend to think that your customers are just small-minded people to exploit. This shows in the way Disney regards it's guests everything from the narration to Spaceship Earth 07 to the whole concept of NGE. These people are so proud and sure of themselves that they tend to lack common sense. From my point of view the way to make people want to do business with you is treat them the way you want to be treated not as a replaceable or insignificant cog in a machine. What the higher-ups fail to realize is that if you take your customers for granted everything that made your Easy Living Possible would come tumbling down and you will be in the position of the people you snicker at.

 

[SirOinksALot]

I love that this bit from Comcast's Q3 report goes right over PO4's head:

Our Theme Parks revenue increased slightly (1.1%) for the three months ended June 30, 2013 compared to the same period in 2012 primarily due to an increase in per capita spending partially offset by the timing of holidays.

Our Theme Parks revenue increased for the six months ended June 30, 2013 compared to the same period in 2012 primarily due to higher guest attendance at our Hollywood and Orlando theme parks, as well as an increase in per capita spending.

For all the scrutiny PO4 is giving WDW attendance figures, he's not applying the same scrutiny to poorer numbers up the road. Comcast had to manufacture an arbitrary time period to give the impression that attendance did not decline in Q3. The reality is that Q3 attendance at both Universal parks was down compared to last year, caused by when Easter fell but still down.

Maybe one day reality will sink in that the reason we aren't getting new attractions is 1) people like PO4 signed ridiculous contracts to keep giving Disney money for 40-50 years and 2) they've made such huge pricing gains over the past two years that they can prop any downturn over the next few years with discounting. And that every person who can't afford the new pricing has been replaced by someone who can.

Often your analysis makes these hops and skips from published facts to your conclusions from them and treat those conclusions as if they were published fact as well.

That's what you get with PO4 - lots of column inches but constant non-facts that get treated as fact. I about fell out of my chair laughing at the notion that the Poly has occupancy problems.

 

[SirOinksALot]

Oh dear, I used the word we to refer to those of us who visit theme parks. Cue the plant accusations in 3,2,1...

 

[GoofGoof]

I love that this bit from Comcast's Q3 report goes right over PO4's head:



For all the scrutiny PO4 is giving WDW attendance figures, he's not applying the same scrutiny to poorer numbers up the road. Comcast had to manufacture an arbitrary time period to give the impression that attendance did not decline in Q3. The reality is that Q3 attendance at both Universal parks was down compared to last year, caused by when Easter fell but still down.

Maybe one day reality will sink in that the reason we aren't getting new attractions is 1) people like PO4 signed ridiculous contracts to keep giving Disney money for 40-50 years and 2) they've made such huge pricing gains over the past two years that they can prop any downturn over the next few years with discounting. And that every person who can't afford the new pricing has been replaced by someone who can.


That's what you get with PO4 - lots of column inches but constant non-facts that get treated as fact. I about fell out of my chair laughing at the notion that the Poly has occupancy problems.

To defend Uni a little they couldn't have huge attendance increases every year. It's no more sustainable than the huge price increases. They are also in a lull year before a major expansion of their most popular land.

I agree with your second point on pricing gains. Nextgen will help to refine that process and let them push the envelope even further on sucking cash from us. Not saying I like it, but its a fact. Your 1st point on DVC is off base. I've posted this a number of times before, but what the heck its a slow night. DVC makes up about 10% of WDW rooms. Assuming a 50/50 mix of park guests staying onsite vs offsite/locals that means about 5% of total park guests are staying in DVC rooms. Even TDO isn't dumb enough to say "we don't need anything new since 5% of our guests are locked in for 40-50 years". It's a Disney urban legend that just doesn't pass the smell test. The real gains with DVC come in the profits from selling the timeshares. It's a quick earnings gain that potentially cannibalizes future hotel revenues.

 

[SirOinksALot]

Your 1st point on DVC is off base. I've posted this a number of times before, but what the heck its a slow night. DVC makes up about 10% of WDW rooms. Assuming a 50/50 mix of park guests staying onsite vs offsite/locals that means about 5% of total park guests are staying in DVC rooms. Even TDO isn't dumb enough to say "we don't need anything new since 5% of our guests are locked in for 40-50 years". It's a Disney urban legend that just doesn't pass the smell test. The real gains with DVC come in the profits from selling the timeshares. It's a quick earnings gain that potentially cannibalizes future hotel revenues.

But about 40% of deluxe rooms are DVC. You can fill the rest of the resorts with anyone with some promos, but locking in the big spending resorts is key.

Either PO4 or someone he sells his points to will be writing checks to Disney for the next four decades. There is value in having that money locked in.

 

[ParentsOf4]

I love that this bit from Comcast's Q3 report goes right over PO4's head:

Let's at least quote the Comcast report completely:

"For the second quarter of 2013, revenue from the Theme Parks segment increased 1.1% to $546 million compared to the second quarter of 2012, reflecting the shift of holidays to the first quarter this year. Second quarter operating cash flow decreased 1.6% to $231 million compared to the same period last year, primarily reflecting increased operating costs to support new attractions.

"For the six months ended June 30, 2013, revenue from the Theme Parks segment increased 5.9% to $1.0 billion compared to $951 million in 2012. Operating cash flow increased 3.2% to $404 million compared to $392 million in the first six months of 2012."

Let's recall what's happening at Uni right now. It's the same thing that happened at Uni in 2009. Guests are deferring their Uni vacations in anticipation of Diagon Alley in the summer of 2014 and WWOHP in Hollywood in 2015. It's the bane of theme park improvements. These Harry Potter lands represent major expansions.

The same happened at the Magic Kingdom in 1981 and 1982 prior to the opening of Epcot. Magic Kingdom revenue for those years was down. All things considered, 5.9% revenue growth in the year prior to a major expansion is impressive, much better than WDW's numbers prior to similar expansions.

I about fell out of my chair laughing at the notion that the Poly has occupancy problems.

All Deluxe Resorts have occupancy rate problems. Simple business sense suggests you don't convert $600/night rooms into timeshares if they are occupied. Especially when it costs about $30/night to turn them over.

Your turn. (Although I'll be away on business for the rest of the week so I might not get back to you for a while.)

 

[GoofGoof]

But about 40% of deluxe rooms are DVC. You can fill the rest of the resorts with anyone with some promos, but locking in the big spending resorts is key.

Either PO4 or someone he sells his points to will be writing checks to Disney for the next four decades. There is value in having that money locked in.

My point is the park tickets cost the same whether you are in a deluxe, moderate, value or off property. Since less than 10% of the park ticket revenue is coming from DVC members its a flawed arguement that having DVC guests locked in is a reason that Disney doesn't need to focus on improving or maintaining the parks. DVC will definitely cannibalize future deluxe resort revenues since you are taking the gains up front when you sell the points. The annual fees only cover the costs to run the DVC resorts. Disney makes very little profit from collecting the fees. The profit came when PO4 or the person he bought the points from bought the contract from Disney originally. Those profits were taken years ago.

 

[SirOinksALot]

Let's at least quote the Comcast report completely:

"For the second quarter of 2013, revenue from the Theme Parks segment increased 1.1% to $546 million compared to the second quarter of 2012, reflecting the shift of holidays to the first quarter this year. Second quarter operating cash flow decreased 1.6% to $231 million compared to the same period last year, primarily reflecting increased operating costs to support new attractions.

"For the six months ended June 30, 2013, revenue from the Theme Parks segment increased 5.9% to $1.0 billion compared to $951 million in 2012. Operating cash flow increased 3.2% to $404 million compared to $392 million in the first six months of 2012."

Let's recall what's happening at Uni right now. It's the same thing that happened at Uni in 2009. Guests are deferring their Uni vacations in anticipation of Diagon Alley in the summer of 2014 and WWOHP in Hollywood in 2015. It's the bane of theme park improvements. These Harry Potter lands represent major expansions.

The same happened at the Magic Kingdom in 1981 and 1982 prior to the opening of Epcot. Magic Kingdom revenue for those years was down. All things considered, 5.9% revenue growth in the year prior to a major expansion is impressive, much better than WDW's numbers prior to similar expansions.

All Deluxe Resorts have occupancy rate problems. Simple business sense suggests you don't convert $600/night rooms into timeshares if they are occupied. Especially when it costs about $30/night to turn them over.

Your turn. (Although I'll be away on business for the rest of the week so I might not get back to you for a while.)

You hit someone over a poor purchase decision and they get a little feisty. If you're going to have a go, at least do it in a way that makes a point versus copying and pasting out of a 10-Q and then ignoring what you just copied and pasted.

You have yet to hit on the biggest selling point of converting cash to DVC, which is a bit scary given that you bought in.

How many words did you pound into this site over the holiday? Bitter over buying into DVC, aren't you?

 

[SirOinksALot]

The annual fees only cover the costs to run the DVC resorts. Disney makes very little profit from collecting the fees. The profit came when PO4 or the person he bought the points from bought the contract from Disney originally. Those profits were taken years ago.

If you believe this, I have a bridge to sell you. Or some DVC points.

 

[GoofGoof]

If you believe this, I have a bridge to sell you. Or some DVC points.

Please educate me then. How is Disney making a profit from collecting DVC dues?

Just a few facts: Warning for those who don't like numbers or facts, stop reading now. FL timeshare law (which DVC falls under) prohibits an entity from charging a timeshare owner for fees that are not directly related to the cost to run and maintain the resorts. Each DVC property has audited financial statements that lay out what the dues are used for. It would be difficult for Disney to gain much from the fees charged. They do take a small fee for some shared services and if the DVC resorts share common services with another deluxe resorts DVC is allocated some of the shared cost, but there isn't room for a big profit windfall.

Even if you think Disney would look to break the law and pocket these fees it still isn't a huge windfall. Let's just say for arguments sake that Disney could pocket the entire fee as profit and there were no expenses associated with those rooms. The average studio room night for DVC is about 20 points. If the average fees are roughly $5 that's about $100 a night. Most deluxe resorts have rack rates at least 5 times that. It would hardly be a huge profit windfall to rent deluxe rooms for less than the rate at the AllStars on a regular basis. The fees are not a source of future gains for Disney.

Where DVC is a big winner for Disney is from short term profit gained from the original point sales. As an example BLT sold 5.7M points. If you estimate the points went for an average price of $110 per point the revenues from sales were over $625M while the cost to build BLT was around $240M. Even adding in selling and overhead costs the profit on the original sales were huge. Those profits were taken in the last 3 or 4 years.

My point in all of this is the gains from existing DVC are in the past. The only future gains coming from DVC are future, direct sales of DVC points. If you let the parks go and people lose interest your future DVC sales could take a hit. A strong argument could be made that under the current WDW business model a significant reason to upkeep the parks, build new attractions and keep people interested in coming back is to collect on future DVC point sales. I think you are basically saying the exact opposite.

 

[SirOinksALot]

The management fees are pure profit, while the other non-tax items contribute to the existing cost of service. The transportation fee is an example, when BLT opened what actually changed in terms of transportation service? Nothing. But now you have some DVC owners paying WDW transportation to help cover that existing cost.

Universal has to build rides to get people coming back, which is why they took a huge attendance hit in the 2000's. Disney has people who are contractually obligated to come back regardless of what gets added or they lose their investment. Huge difference.

Sorry, I just believe that signing a life worth of vacations away is sheer stupidity.

 

[Clever Name]

The DVC dues include maintenance and taxes. A DVC member has a long term (40+ years) property lease, but they don't own any property. They don't have fee simple title. Disney maintains fee simple title on all DVC property. Yet the club members pay the full amount for property tax. Shifting the tax burden to the club members is genius. Walt would have loved the idea!

 

[Mike730]

I still can't believe that they wont price themselves out. Theres plenty of people on here who have expressed that exact sentiment. The suits may not even consider it, but that doesn't mean it wont happen.

They know that their attendance growth is reaching the top of the hill, and thats why they're trying to pull more money out of each person with NGE.

Why their attendance growth is topping out is up for debate, but I can guarantee that Iger thinks there simply aren't more people willing to spend their vacations at WDW. He thinks the resort is as good as it gets and if attendance isn't growing its because they've simply tapped out the market in terms of numbers of people.

WE know, that the reasons attendance would slow down is because of...

Degradation of the brand due to a myriad of things including, but not limited to
-a reputation for cringe worthy movies,
-a reputation for corporate greed,
-a reputation that has changed from "fun for everyone" to "kids will have fun''
-a reputation that mickey wants his hands in your pockets as often as possible
AND
(the main focus here) Stagnating parks and resorts who's prices go up but amenities and experiences go down. Year after year.

If they continue to raise prices and their reputation stays the same, attendance growth will continue to slow down, especially if the competition continues to beat them at their own game.

Eventually they will reach a point where even if each person gives all the cash in their bank accounts to them, (NGE at MAX efficiency) their profits wont grow because their attendance isn't going up. People need a reason to go, and the "ultimate vacation destination" draw is declining by the hour.

They will need more people to spend their money, not more money to be spent by the people they've got.

 

[stlphil]

Interesting thing about the attendance patterns. Seems like more and more people view WDW as a weekend destination than a full week vacation. Could it be that this has something to do with the prices they charge...

This is an interesting hypothesis. To tie this in with the more recent discussion on "record attendance", lets think about attendance in a different way for a moment. According to the TEA numbers (which are in some dispute, but I digress), total annual attendance at the 4 parks is between 45-50 million. But how many of those are unique individuals? Between AP, the common 5-7 day MYW, and our friends from the UK who seem to go for weeks at a time, I'll bet the total is well under 10 million.

Now what happens when attendance patterns change, and the length of stay goes down and there are relatively fewer APs in the mix? And maybe also there are some more individuals coming from South America. It is easy to imagine that total attendance could be down at the 4 parks, perhaps significantly, while the total number of unique individuals has gone up. Now what if I'm Rasulo or Iger, and I want to spin attendance in a positive way? Disney has never said exactly how they measure attendance for financial reporting, so would it be wrong to claim an attendance record in the scenario of total attendance through the turnstiles down but number of unique individuals up? You know, lies, damn lies, and statistics.

I don't know if any of the above conjecture is the truth, just anecdotally it is hard for me to reconcile the reports of record attendance with what I experienced in my trip to the World this summer. The parks seemed way less crowded than when I have gone at the same time in past years. I'm not talking about length of the queues (which were also generally shorter) because that is an unreliable metric, but just overall crowding on the paths, ease at getting good spots for fireworks and shows, etc.

One final point is that this scenario of fewer turnstile clicks but more unique individuals is not necessarily bad for revenue, because the per-day cost of tickets is more with shorter stays, but this could be overshadowed by less on-property hotel demand.

 

[SirOinksALot]

Or add in the fact that after 40-50 years, Disney gets everything back.

But how many of those are unique individuals? Between AP, the common 5-7 day MYW, and our friends from the UK who seem to go for weeks at a time, I'll bet the total is well under 10 million.

Wrong.

 

[PhotoDave219]

That's why Iger and Rasulo have started to spin attendance. They need to say something to justify the money being spent in Orlando. If WDW isn't experiencing "record attendance", then what's the $450M spent on New Fantasyland doing? What's the billions being spent on NextGen going to do? It calls into question corporate Disney's leadership. It calls into question Iger's and Rasulo's judgment. Let the attendance spin begin.

Getting back to attendance for this weekend....

Its my observation that it appeared to be a local or South Florida holiday weekend crowd. Dead Friday, Insane by Saturday Afternoon, Dead by Monday night again.

 

[Wikkler]

They love to slap him all over construction wall signs and reactive press releases too to justify stupid decisions. Sad that he's become a corporate martyr.

"It was all started by a mouse" - Walt Disney
SO IT MUST BE A GOOD IDEA!!!!!!!!

 

[Wikkler]

I'm not all that interested in returning to WDW for awhile. My last visit in 2009 was enough- and Star Wars and Avatar Land are not enough to draw me back soon. TWO Sci-Fi IPs? How about something else.

If Disney must use IP's to expand, then how about expanding the Pixar IP in DHS, like was commented on before that dream gave way to Star Wars.
Or Lone Ranger in Frontierland...