Spirited News, Observations & Thoughts Tres

[Computer Magic]

I fully agree with your post - and would add another thought: Financially Disney has even become "addicted" to DVC. Because it brings such huge profits they simply just can't stop building them as that would mean a drop in profit. We all can imagine how investors would react to a sudden drop in profits in a buisiness unit - even if it would make sense to take that drop.

Isn't that Disney in general (addicted to a product to the point oversaturation?).

 

[Computer Magic]

DVC is a ticking time bomb waiting to blow up in WDW's face.

From a WDW guest perspective, DVC costs are divided into two parts: purchase price and annual Maintenance Fee (MF). From TWDC's perspective, they make their profits up front as part of the purchase price. MF are supposed to be charged per cost.

The purchase price ROI is huge which is why TWDC continues to build DVC. TWDC wants the money and they want it now. However, compared to regular WDW resorts, MF profits are essentially nil. As DVC grows, this means WDW will continue to devote a larger percentage of its resources to onsite guests who basically do not provide profits through room stays. This means TWDC will have to charge other onsite guests even more for their rooms in order to maintain existing margins.

The myth is that DVC members are big spenders. However, the whole reason guests buy into DVC is to save money. That's DVC's big hook; long-term DVC is a less expensive way to stay at WDW's very expensive (and very profitable) Deluxe Resorts.

DVC units have kitchens. DVC members actually cook meals in their rooms. They're not eating every meal at WDW's outrageously priced restaurants.

DVC members are repeat WDW visitors. After the initial, "wow, isn't WDW great" phase, they get bored experiencing the same attractions, just like anyone would. That means they start looking for other things to do in Orlando.

Unless Disney does something to pull DVC members back into the parks, they are going to end up with an expanding class of onsite guest who provides little to no profits on their room stays, who don't eat at WDW's restaurants, and who don't visit the parks.

DVC exemplifies the problem with corporate Disney's thinking: focus on profits for the next 1-to-3 years instead of developing a long-term plan for sustainable growth. Sacrifice long-term profits for short-term profits.

Again, DVC is a ticking time bomb waiting to blow up in WDW's face.

One of the best articulated DVC post I have read. This really can't be disputed by either DVC for or against people. This also brings new prespective into the dicussion for example DVC owner staying on Disney property but not going into the park. A strong pattern would force WDW into making changes. Disney will have to try a new way to lock those guests onto property. Using their DVC points at other Disney locations isn't currently a value.

 

[George]

One of the best articulated DVC post I have read. This really can't be disputed by either DVC for or against people. This also brings new prespective into the dicussion for example DVC owner staying on Disney property but not going into the park. A strong pattern would force WDW into making changes. Disney will have to try a new way to lock those guests onto property. Using their DVC points at other Disney locations isn't currently a value.

Another input into the DVC owner equation is points rental. Because of my kids ages (8 and 10) we have no shortage of friends taking WDW and central Florida vacations. Thus, when I've wanted to rent points, I've had no issues at all. I'm sure Disney is cool with this if the renters do WDW, but that wasn't the case for one of the two families I rented too. Plus, @ParentsOf4 points out, they're getting rooms with extra amenities which help with food costs. Even in the studios you get a fridge, toaster, and microwave with plates, bowls, utensils, etc., I get my maintenance fees covered even if I rent half my points and my renters get a deluxe room with amenities for less than they'd spend on a moderate. Once they run the numbers and see the deal they get from me versus Disney it is usually a no-brainer and the rare win-win situation in life.

 

[AngryEyes]

You guys seriously think Disney is going to be hurting, at some point, because people paid them millions of dollars for hotel rooms months, years, decades in advance? Then, you pay them every year to maintain it for you? Then, later on, they get it all back and get to sell it again?

 

[asianway]

You guys seriously think Disney is going to be hurting, at some point, because people paid them millions of dollars for hotel rooms months, years, decades in advance? Then, you pay them every year to maintain it for you? Then, later on, they get it all back and get to sell it again?

Part of the initial analysis of DVC was that there would be future revenue streams guaranteed by this captive audience, so yes, to a certain extent. DVC is a beast that needs to be fed, and there is only so much land to develop. If the owners who are locked in only pay their dues with the small amount of management fees that DVC takes in, then that initial analysis will fall apart.

What will be interesting is if/when the first resort expires, they determine timeshare is still the best use of the land.

 

[lazyboy97o]

You guys seriously think Disney is going to be hurting, at some point, because people paid them millions of dollars for hotel rooms months, years, decades in advance? Then, you pay them every year to maintain it for you? Then, later on, they get it all back and get to sell it again?

It is illegal for Disney to profit from the maintenance fees. The whole thing is front loaded, and for a common concerned with this quarter's results, that will become an issue.

 

[GiveMeTheMusic]

To provide some contrast to the Acountineer article from a few days back on how things are approached today, I wanted to share this article that describes the philosophies of the management team that built WDW.

http://passport2dreams.blogspot.com/2012/09/how-it-was-done-part-one.html

This is the most enlightening/depressing thing I've read in a long time. Isn't it amazing how 40 years later philosophy is a complete 180? The talk about cutting corners in food service and not looking at individual venues as profit centers - how did they ever survive?! And "reasonable" prices? It hurts!

 

[AngryEyes]

Part of the initial analysis of DVC was that there would be future revenue streams guaranteed by this captive audience, so yes, to a certain extent. DVC is a beast that needs to be fed, and there is only so much land to develop. If the owners who are locked in only pay their dues with the small amount of management fees that DVC takes in, then that initial analysis will fall apart.

What will be interesting is if/when the first resort expires, they determine timeshare is still the best use of the land.

Analysis can show whatever it wants. Common sense shows if I can get you to pay now for a service I don't have to provide for years, it's a good move. Their operating costs are zero, because you're paying them in annual maintenance fees. Whether they profit is immaterial. They also get to rent out the rooms at their usual exorbitant rates if a room is unoccupied.

DVC is absolute genius.

 

[asianway]

Analysis can show whatever it wants. Common sense shows if I can get you to pay now for a service I don't have to provide for years, it's a good move. Their operating costs are zero, because you're paying them in annual maintenance fees. Whether they profit is immaterial. They also get to rent out the rooms at their usual exorbitant rates if a room is unoccupied.

DVC is absolute genius.

Certainly genius in the short term. When you realize you sold it too cheaply in the beginning and that you did it at the cost of 50 years of renting to the guests most likely to return over and over and pay near rack rate prices, not so much. Growth or even keeping pace YOY is always going to be a challenge for DVC to make their numbers annually.

 

[WDWFigment]

DVC is a ticking time bomb waiting to blow up in WDW's face.

From a WDW guest perspective, DVC costs are divided into two parts: purchase price and annual Maintenance Fee (MF). From TWDC's perspective, they make their profits up front as part of the purchase price. MF are supposed to be charged per cost.

The purchase price ROI is huge which is why TWDC continues to build DVC. TWDC wants the money and they want it now. However, compared to regular WDW resorts, MF profits are essentially nil. As DVC grows, this means WDW will continue to devote a larger percentage of its resources to onsite guests who basically do not provide profits through room stays. This means TWDC will have to charge other onsite guests even more for their rooms in order to maintain existing margins.

The myth is that DVC members are big spenders. However, the whole reason guests buy into DVC is to save money. That's DVC's big hook; long-term DVC is a less expensive way to stay at WDW's very expensive (and very profitable) Deluxe Resorts.

DVC units have kitchens. DVC members actually cook meals in their rooms. They're not eating every meal at WDW's outrageously priced restaurants.

DVC members are repeat WDW visitors. After the initial, "wow, isn't WDW great" phase, they get bored experiencing the same attractions, just like anyone would. That means they start looking for other things to do in Orlando.

Unless Disney does something to pull DVC members back into the parks, they are going to end up with an expanding class of onsite guest who provides little to no profits on their room stays, who don't eat at WDW's restaurants, and who don't visit the parks.

DVC exemplifies the problem with corporate Disney's thinking: focus on profits for the next 1-to-3 years instead of developing a long-term plan for sustainable growth. Sacrifice long-term profits for short-term profits.

Again, DVC is a ticking time bomb waiting to blow up in WDW's face.

I agree with your ultimate conclusion, but if the main impetus for purchasing DVC in the first place is to save money, then aren't DVC members a lost cause after the initial purchase no matter what? Stagnation only causes them to spend less on park tickets--they wouldn't be buying as many souvenirs and food in the first place so you can't factor that in. Stagnation didn't cause them to become cheap--they always were, which is why they bought DVC.

I think there are probably two main categories of DVC buyers: 1) "cheap" guests who do it to save money, and, 2) big spenders. (Ironically, the former category is not saving anything if they finance the purchase, which they are likely doing if they don't fit into category #2. No amount of tortured math or magic allows you to save money if you finance the up front cost.) These people probably are using the kitchens, not buying souvenirs, etc. They are most profitable at the time of sale, and while they're financing the purchase through Disney.

The big spenders who are likely paying for the initial purchase price in cash at the time of closing could be buying in to save money, or they could want it for some other reason. Most well-off people I know are selectively frugal--just because they buy into DVC to save money doesn't mean they won't otherwise drop a lot of money on vacation. These people are profitable up front, but also as long as they come, stay on site, and spend good chunks of money.

This second category's disinterest is the one causing Disney hurt in the long term. If the parks continue to stagnate and these guests go elsewhere, Disney doesn't just lose out on ticket sales, it loses out on a whole host of other spending.

I guess my point is that if DVC "big spenders" are a myth, then drawing (cheap) DVC members back into the parks doesn't matter. They aren't going to be spending nearly as much as an average guest anyway, so Disney probably doesn't care too much about them after the initial sale.

 

[asianway]

I guess my point is that if DVC "big spenders" are a myth, then drawing (cheap) DVC members back into the parks doesn't matter. They aren't going to be spending nearly as much as an average guest anyway, so Disney probably doesn't care too much about them after the initial sale.

Theyre not a myth - every DVC member I know falls into that category. People so passionate about the mouse, they needed to own a piece and justified it by it being a good deal.

There is also an upsell feature there too. Most of the "savings" modeling is done around comparing a hotel room to a Studio or 1BR, but they are counting on you to want to buy enough to buy into a 2BR to bring friends and family as well.

 

[ParentsOf4]

You guys seriously think Disney is going to be hurting, at some point, because people paid them millions of dollars for hotel rooms months, years, decades in advance? Then, you pay them every year to maintain it for you? Then, later on, they get it all back and get to sell it again?

The original DVC price-point was built around DVC guests being "rich" and effectively spending as much or more than average resort guests. DVC, after all, is targeted at the Deluxe Resort market. For about its first 10 years, Disney gave DVC members free APs, that's how much they valued their business, that's how much they wanted them in the theme parks. Even today, DVC members receive a $150 AP discount.

DVC was intended to be an exclusive "club". However, with the relatively recent construction of SSR, AKV, and BLT, the game has changed. Those 3 resorts added the equivalent of nearly 2400 rooms to the mix. Prior to those 3 resorts, DVC had only about 1700 equivalent rooms. Combined, these numbers now make up an appreciable portion of WDW's total onsite occupancy. DVC is no longer the exclusive club it once was intended to be.

Disney has made a lot of money selling DVC but that money is already on the books. That's profit made in previous years. It doesn't help Disney in future years.

The annual Maintenance Fee (MF) essentially covers cost only; it provides some revenue but very little profit. A company doesn't think simply in terms of revenue; it thinks in terms of profit. From a corporate perspective, I don't care what my revenue is if I'm not making money. I don't operate a private company with the intention of breaking even.

Think of it this way. Looking at just my MF, it costs me $65/night to stay in a studio at the Boardwalk Villas during the popular Food & Wine Festival. Even with a 30% discount, a comparable room at the Boardwalk Inn is $336/night for those same nights. The difference between those two numbers closely mirrors how much Disney makes off each stay at a Deluxe Resort per night. That's a huge amount of money; 7 nights in a Deluxe resort is more profitable for Disney than a family of 4 buying 7-day tickets. For someone staying at the Boardwalk Inn, Disney is banking a ton of cash. For someone staying on points at the Boardwalk Villas, Disney is banking essentially 0.

The first DVCs are set to expire in 2042. That's in 29 years. 29 years is an eternity in business. As the number of DVC resorts expands and take up a larger percentage of WDW onsite guests, how does Disney fill that 29-year gap?

Perhaps worse, in 29 years, DVCs will flood the market. It will take years or even decades for Disney to sell all those points. In the meantime, Disney eats MF at those resorts.

Disney tried selling 15-year extensions at OKW but it flew like a lead balloon. For the next few decades, Disney's going to be facing an increasing problem with its growing number of DVC members if Disney doesn't figure out a way to get those members back into the parks spending money and wanting to extend their contracts. The way to do it is either offer rock-bottom prices (yeah, sure, Disney loves offering lower prices) or to get them back into the parks the same way they get anyone into the parks, by investing in the parks.

 

[WDWFigment]

Theyre not a myth - every DVC member I know falls into that category. People so passionate about the mouse, they needed to own a piece and justified it by it being a good deal.

There is also an upsell feature there too. Most of the "savings" modeling is done around comparing a hotel room to a Studio or 1BR, but they are counting on you to want to buy enough to buy into a 2BR to bring friends and family as well.

That's what I was getting at. If I had to hazard a guess, I'd peg category #2 from my previous post at over 50%.

I do think there are plenty of DVC members who do it for supposed savings, but I don't think the majority are people without much money who are doing it to save. A good chunk of DVC members being big spenders is certainly no myth.

 

[asianway]

Perhaps worse, in 29 years, DVCs will flood the market. It will take years or even decades for Disney to sell all those points. In the meantime, Disney eats MF at those resorts.

I think some of those sites will be redeveloped. I can see BW renewing as a condo, WL converting to hotel, selling off VB and HH. It will be interesting to see how they manage it.

 

[the.dreamfinder]

When was the last time you were at DCA? A lot of the miscellaneous tackiness has been removed: see this thread. The only major thing breaking theme outside of the Backlot (I think) is the Animation Bldg. While I think it's silly as all heck that a building is pretending to be the sky at the Hyperion Theater, the part that is still a building is a good looking building, IMO.

I'll be going to DLR/SoCal later this summer. I think I may not have communicated my point clearly, WDI designed major facade redos for the Animation Building and the Hyperion theater that got jettisoned from Phase I. I was just commenting on how WDI had a solution to make Hollywood Blvd. completely 1930s era, but wasn't able to execute that plan. I'm quite pleased that project sparkle happened as I watched the progress last year, followed MiceChat's DCA tracker thread religiously last year. It's just that the Anim. Building and Hyperion are the last vestiges of the old DCA.

 

[Sue_Vongello]

or to get them back into the parks the same way they get anyone into the parks, by investing in the parks.

Exactly!!

Like the Next Gen Initiative ...

 

[ParentsOf4]

Theyre not a myth - every DVC member I know falls into that category. People so passionate about the mouse, they needed to own a piece and justified it by it being a good deal.

There is also an upsell feature there too. Most of the "savings" modeling is done around comparing a hotel room to a Studio or 1BR, but they are counting on you to want to buy enough to buy into a 2BR to bring friends and family as well.

Even at today's direct sale prices, DVC saves money, potentially lots of money over the long haul. However, it takes the right type of person to realize that savings, mainly someone who wants to vacation at WDW regularly and someone who wants to stay at Deluxe Resorts. Depending on what set of assumptions you make, you can, for example, reach the break-even point at BWV, even at Disney's current $130/point, in about 8 years.

But that's the problem facing Disney. For about the first 8 years or so they are ahead of the game. After that, they are behind, way behind. See my previous example of BWI vs. BWV per night prices. Every night I stay beyond 8 years (a lot less for me because I paid less than half the direct price) is a night WDW loses an incredible amount of profit. BWV originally opened in 1996. They are well past the break-even point on nearly all the deeds there. BWV and the other older "classic" DVCs are now costing Disney lost profit.

As I wrote earlier, DVC sacrifices long-term profit for short-term profit. With many DVC deeds well past their original break-even points, DVC is starting to cost Disney a lot of missed profit opportunities. Disney needs those DVC guests spending money on tickets, restaurants, and merchandise if it hopes to even begin to make up for that lost profit. Otherwise, it needs to charge non-DVC guests even more to make up the difference.

 

[flynnibus]

Certainly genius in the short term. When you realize you sold it too cheaply in the beginning and that you did it at the cost of 50 years of renting to the guests most likely to return over and over and pay near rack rate prices, not so much. Growth or even keeping pace YOY is always going to be a challenge for DVC to make their numbers annually.

Yes and no... what DVC is poor on for Disney is opportunity cost. DVC is locked in money at yesterday's value.. they can't use that land or resource to grow revenues. That's where it's bad.. and where Disney has basically traded dollars today.. vs tomorrow dollars. Typically getting money up front is always as 'good', but where a deal like DVC strains that thought is the length of the term. So Disney trades lost opportunity for dollars 'right now'. Seems incredibly short sighted... but that's where the returning customer angle offsets that and puts DVC back into the positive for Disney long term. By having this captive audience, they basically guarantee a customer base.

But that 'guarantee' part is the dangerous one for Disney... where Disney takes their customers for granted. The DVC crowd isn't as 'captive' as one might think.. and that's where combating the idea of DVC dollars leaking to other parks needs to be combated.

The fact Disney can use the property to rent out themselves is another easy-peasy for them. As long as Disney can get those owners into their parks.. where they suck their pockets dry on a regular basis.. all is good.

If they can't... then the losses from opportunity cost rise dramatically.

 

[asianway]

Even at today's direct sale prices, DVC saves money, potentially lots of money over the long haul. However, it takes the right type of person to realize that savings, mainly someone who wants to vacation at WDW regularly and someone who wants to stay at Deluxe Resorts. Depending on what set of assumptions you make, you can, for example, reach the break-even point at BWV, even at Disney's current $130/point, in about 8 years.

But that's the problem facing Disney. For about the first 8 years or so they are ahead of the game. After that, they are behind, way behind. See my previous example of BWI vs. BWV. Every night I stay beyond 8 years (a lot less from me because I paid less than half the direct price) is a night WDW loses an incredible amount of profit. BWV originally opened in 1996. They are well past the break-even point on nearly all the deeds there.

As I wrote earlier, DVC sacrifices long-term profit for short-term profit. With many DVC deeds well past their original break-even points, DVC is starting to cost Disney a lot of missed profit opportunities. Disney needs those DVC guests spending money on tickets, restaurants, and merchandise if it hopes to even begin to make up for that lost profit. Otherwise, it needs to charge non-DVC guests even more to make up the difference.

And more and more loans getting paid off so no onerous interest revenue coming in any more.

 

[Computer Magic]

I think some of those sites will be redeveloped. I can see BW renewing as a condo, WL converting to hotel, selling off VB and HH. It will be interesting to see how they manage it.

Maybe BW can become a retirement/nursing home in 2042. That's were I can live my final years.