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Why Walt Disney World Needs a 5th Theme Park By 2025

ParentsOf4

Well-Known Member
Original Poster
Please note this is not a rumor that Disney is building another theme park, only an analysis of Disney’s Parks & Resorts (P&R) financial data, suggesting that Disney needs to construct another Walt Disney World (WDW) theme park by the mid-2020s in order to maintain healthy growth within P&R.

The Good

P&R Gross Margin:


After over a decade of subpar financial performance, Disney’s domestic theme parks are once again at former levels of profitability.

For the 2014 fiscal year, P&R gross margin finished at 17.6%, up from 15.8% the year before, and up more than 5% since cratering in 2010. This was the segment’s best margin since 2002.

Even better, excluding the abysmal performance at Disneyland Paris (DLP), P&R gross margin was 20.4%.

Historical context is needed in order to appreciate this number.

P&R gross margin averaged 18.8% from fiscal years 1972 to 1984 (i.e. the first years of WDW operation) and 22.2% from fiscal years 1985 to 2005 (i.e. the Michael Eisner years). Excluding the current year, this number has averaged a disappointing 14.7% under CEO Bob Iger.

This year’s 20.4% (excluding DLP) represents a return to normalcy.

It appears the years of me badmouthing P&R margins are over. :D

Purists might dislike what’s happening at the theme parks but, after 5 years, P&R Chairman Tom Staggs and his team have corrected most of the financial problems created by former P&R Chairmen Paul Pressler and Jay Rasulo.

It’s not all sunshine and roses though.

This year’s improved margin was the result of a 5.3% decrease in P&R selling, general, administrative and other expenses that was “due to the absence of development costs for MyMagic+”. In other words, if Disney hadn’t thrown away so much in previous years on “information technology spending related to MyMagic+”, margins would have improved years ago.

If you read stories about MyMagic+ cost overruns and disappointing financial results, it’s because they are true. :D

As Disney has warned, much of the IT used for MyMagic+ is becoming obsolete much more rapidly than other traditional P&R investments, meaning Disney will need to pump even more money into MyMagic+ in the not-too-distant future. In the coming years, this could once again threaten P&R’s improved margin.

There’s a lesson to be learned here. Sometimes depreciating the cost of a brick & mortar theme park attraction over 25-to-40 years is better for profitability than investing in the latest whiz-bang technology with its accelerated depreciation and obsolescence.

Theme Park Attendance:


Domestic attendance was up 4% for quarter and 3% for the year. Coupled with last year’s 4% gain, Disney hasn’t seen this kind of improvement since 2005/2006.

With the Magic Kingdom’s (MK) hub redesign and new bus terminal, a third track at Toy Story Mania (TSM), and a third theater at Soarin’ in the planning phases, Disney is taking the right steps to alleviate WDW overcrowding.

More is needed.

WDW attendance is up 10 million since Disney’s Animal Kingdom (DAK) opened in 1998 and can be expected to grow further once new lands are unveiled in DAK and Disney’s Hollywood Studios (DHS). WDW needs new attractions, new lands, and (gasp) perhaps even a 5th Gate to handle the increased attendance.

The Bad

There are some worrisome trends, which if left unattended, will cause Disney heartache down the road.

P&R Revenue:


Revenue grew by only 7.2% in 2014, the worst ever in a non-recession year. However, this number was pulled down by DLP, where revenue declined by €30 million. Domestically, P&R revenue was a slightly more respectable 8.2%, the worst in 4 years.

More worrisome than this year’s number is the long-term trend under Iger.

In 9 years, Iger has generated a compound growth rate of only 5.9% annually. For comparison, Eisner generated 10.6% annually, even more impressive considering he maintained this growth rate for over 2 decades. 5.9% is not good, especially when that growth is overwhelmingly the result of higher prices. Add in a 24% domestic theme park attendance increase since Iger took charge, and 5.9% is downright weak.

Record attendance coupled with record prices will result in record revenue. The question is what happens if Disney doesn’t take the steps necessary to keep generating record attendance.

To date, Iger’s revenue growth has come at the expense of ‘Guests’, who pay more for less as Disney has focused on higher prices and cost cuts rather than growing the business organically to improve margins. A business can’t thrive on price increases and quality cuts alone.

In order to achieve sustainable growth, Disney needs to grow revenue by reinvesting in its theme parks, particularly WDW, which represents over half of P&R’s revenue. Disney needs to give consumers genuine reasons to spend more in Orlando.

WDW Investments:

Yes, yes, WDW will add more years from now. However, right now, domestic P&R capital expenditure (capex) finished at 9.6% for the year, one of Disney’s lowest ever. Domestic capex was only 10.0% last year. For comparison, Eisner averaged 18.8% over 21 years while Iger averaged 14.3% for his first 7 years.

We read stories about great things coming to WDW. However, Disney is not spending domestically right now.

Talking about building is not the same as actually building.

This “check is in the mail” routine is beginning to wear thin.

The Ugly


Domestic hotel occupancy:


What? Occupancy was up 4% summer-to-summer and year-to-year. How can that possibly be ugly?

With the opening of Seven Dwarfs Mine Train (SDMT), the Frozen tie-ins, and Diagon Alley, this was a record summer in Orlando.

Even with its new offerings, Universal is no more than a 3-day stop for most, meaning WDW benefited from Uni’s investment. SDMT and Frozen proved to be popular at the theme parks. The domestic economy was on an uptick while International visitors still accounted for 22% of WDW attendance despite weak overseas markets. This was a blockbuster summer in Orlando.

Except when adding an entire new theme park, the last couple of years is as good as it gets. Disney should have reported knock-your-socks-off occupancy numbers this summer.

Instead, WDW managed a measly 83% occupancy. It actually was down 3% from 2 quarters ago when MyMagic+ was an onsite-only perk.

Think about that for a moment. Orlando had a great summer and WDW had record attendance, yet Disney managed only 83%.

Take into consideration WDW’s timeshares along with the 5% of rooms that currently are out-of-service, and WDW’s hotel occupancy was lower than Metro Orlando hotels, much lower than the nearby Buena Vista hotels.

WDW hotel prices are just too darned high.

Domestic Per Room Guest Spending (PRGS) was up 5% for the quarter and for the year. With so many “numbers guys” running the theme parks, Disney is going to do everything it can keep that metric climbing. Instead of lowering WDW hotel prices, Disney will look to convert existing rooms into DVC.

Because of the way DVC rooms are counted, this conversion will appear to improve both PRGS and occupancy rates, even if total annual revenue collected at the hotels remains relatively flat. It’s a strategy focused on specific metrics rather than overall results, as Disney looks to free up hotel capital for “re-investment” in its next $6.5 billion (the amount spent in 2014) in stock buybacks. :banghead:

Meanwhile, Disney continues to partner with other hotel chains to provide pseudo-onsite accommodations. Rather than build, Iger clearly would rather have someone else invest the capital. Hey, Iger’s compensation package is tied to return on invested capital, so it’s understandable why Iger wants someone else footing the bill, even if it means less cash for Disney.

Unless you become a DVC member, expect to pay sky-high prices for onsite stays as existing WDW hotel rooms slowly disappear.

Theme Park Spending:


It can be a bad sign when a company changes how it reports a well-established metric. Disney has reported “Parks and Resorts Merchandise, food and beverage” sales for decades.

Until now.

For the first time ever, Disney is reporting “Retail merchandise, food and beverage” sales rather than separate P&R sales. In other words, Disney is tucking retail sales in with theme park sales. With retail sales outside of the theme parks up 11.2% for the year (thank you Frozen), Disney is trying to hide lagging theme park sales behind strong retail sales.

Last year, Disney reported 2013 merchandise, food and beverage sales of $4.189 billion. This year, like magic, Disney reported the same 2013 number as $5.185 billion. Poof, a little accounting hocus-pocus and merchandise revenue is up an extra $1 billion.

As I posted months ago (see the link here), Disney’s recent aggressive price increases have hurt theme park merchandise, food, and beverage sales. Increases at the theme parks have caused ‘Guests’ to alter their spending patterns, resulting in fewer units sold as prices outpace income.

Under Eisner, theme park merchandise, food and beverage sales typically beat admission sales by 3%. In other words, for every $1 in ticket sales, Disney sold $1.03 in merchandise, food, and beverage at the theme parks.

In just the last few years, aggressive price increases have wreaked havoc on this ratio. Last year, theme park merchandise, food, and beverage sales were actually 12% lower than ticket sales.

The disparity continues to widen as merchandise, food, and beverage sales lag further behind ticket sales, hence the need to redefine this metric, making it appear as if merchandise, food, and beverage sales are just peachy.

Higher prices at the theme parks are hurting sales.

Disney needs to find a way to grow P&R revenue other than constant price increases.

What Does It All Mean?


Whether you like what’s happening at the theme parks or not, Disney’s domestic P&R operations are once again performing at old financial levels. Margin is back to where it should be.

Future improvements in profitability through quality cuts will become increasingly difficult. Disney has cut out fat and now is cutting bone.

Furthermore, there are growing signs that Disney’s aggressive price increases are altering the way guests spend at the resorts. Hotel occupancy is weak despite record theme park attendance while merchandise, food, and beverage sales lag.

There are only so many pennies that can be squeezed out of 'Guests'. Only so much can be done with show cuts and higher prices. After years of both of these, ‘Guests’ are beginning to revolt.

Paraphrasing what Princess Leah once said, “The more you tighten your grip, Iger, the more Guest spending will slip through your fingers.”

Currently, P&R is financially sound but is headed towards dangerous waters. The challenge facing Disney is charting a course towards sustainable growth. The current direction of quality cuts and higher prices is the wrong heading.

With WDW generating more than half of P&R revenue, any path to meaningful growth begins in Orlando. That means building, a lot of building.

New lands at DAK and DHS will help but they are not enough. If Disney wants to sustain WDW’s long-term average annual attendance increase of 2% (and its associated operating income growth), then Disney needs to take steps to make sure there is capacity for another 10 million gate clicks by 2024.

With Disney’s Orlando business financially robust and WDW’s existing theme parks bursting at the seams, it’s time for Disney to start planning to open a 5th Gate by the mid-2020s.
 
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216bruce

Well-Known Member
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Thanks for posting this. It's refreshing to see the numbers laid out and explained like the folks that make the big decisions in P&R do as opposed to what is usually posted here. Makes a lot more sense now.
 

Glasgow

Well-Known Member
Believe me, if there is money to be made in a fifth park then they will certainly do it! Would love to be a fly on the wall when they talk about this very topic during meetings. I wonder how much actual research goes into expansion .. Probably a lot
 

216bruce

Well-Known Member
The only thing I can say is that a 5th gate, regardless of the "completeness and full-day worthiness" of DHS and AK, does add another admission gate. It thusly spreads around bodies, adds days of hotel stays and subtracts a day from folks who may wander over to Uni or elsewhere in the area.
 

Goofyernmost

Well-Known Member
The only thing I can say is that a 5th gate, regardless of the "completeness and full-day worthiness" of DHS and AK, does add another admission gate. It thusly spreads around bodies, adds days of hotel stays and subtracts a day from folks who may wander over to Uni or elsewhere in the area.
Perhaps temporarily, but, it highly depends on what is contained in a 5th gate. If they go with the minimalistic approach as in DHS and DAK, then very little will be gained. People will simply do what I do and skip certain parks during their visit. I don't know if there are any numbers to support my suspicion, but, I really feel that domestic attendance is limited in it's days due to work requirements, etc. I don't see much in the line of increased stays in the hotels, just pick and choose methods of touring. Foreign guest have traditionally spent longer times at the parks per visit, which is logical considering the cost and the distance traveled to get there. They will not necessarily increase their time there when they have ample time in their normal time on-site.

In my opinion, beefing out the current parks (except MK) would or could have the same affect as a new park, if done properly. It is, however, quite clear in Po4's terrific post that something needs to be done in the near future or they just might see all of that increase slipping away. And it won't necessarily be lost to Universal, in fact I think that when negative happens at Disney, it will also adversely affect Uni. Other choices of travel destinations will become more affordable when compared to the cost of a Disney Vacation. There is a lot of world to see out there and it isn't all connected to a mouse.
 

216bruce

Well-Known Member
Perhaps temporarily, but, it highly depends on what is contained in a 5th gate. If they go with the minimalistic approach as in DHS and DAK, then very little will be gained. People will simply do what I do and skip certain parks during their visit. I don't know if there are any numbers to support my suspicion, but, I really feel that domestic attendance is limited in it's days due to work requirements, etc. I don't see much in the line of increased stays in the hotels, just pick and choose methods of touring. Foreign guest have traditionally spent longer times at the parks per visit, which is logical considering the cost and the distance traveled to get there. They will not necessarily increase their time there when they have ample time in their normal time on-site.

In my opinion, beefing out the current parks (except MK) would or could have the same affect as a new park, if done properly. It is, however, quite clear in Po4's terrific post that something needs to be done in the near future or they just might see all of that increase slipping away. And it won't necessarily be lost to Universal, in fact I think that when negative happens at Disney, it will also adversely affect Uni. Other choices of travel destinations will become more affordable when compared to the cost of a Disney Vacation. There is a lot of world to see out there and it isn't all connected to a mouse.
We tour differently. We go to a park a day and when 'done' with that park (and MK is an exception) go to Downtown Disney or spend time at the pool and hotel. So, for us, another gate would add another day. I have no idea if other folks do this, but in our case it'd add a day.
 

rct247

Well-Known Member
The main problem with WDW in terms of adding to the parks or creating new ones is that every guest that visits WDW almost always visits Magic Kingdom if they then choose to park hope or stay more days, then they will visit the other parks. An average attendance day at Magic Kingdom is between 45K and 50K per day where as an extremely busy day at Studios for instance might be 35K. You can expand DHS, DAK, and Epcot, but if they didn't increase the capacity of MK at all, then that park would be slammed with even more guests. This is why prior to all the buzz, construction, closures, and rumors at DAK and DHS, we saw Fantasyland expanded, the hub expanded, the backstage bypass receiving more permanent show quality upgrades, and restroom & restaurant refurbishment throughout at Magic Kingdom. If none of those things were done, Magic Kingdom would be in poor shape when more guests arrive to see Avatar and the new Studios.

I predict that if no new theme park resorts (like Shanghai or Hong Kong) are built in South or North America and they continue to at least build out the existing park, you will find daily average attendance at Magic Kingdom between 50K and 55K per day. That will feel busy ALL the time.

Now take into account a 5th theme park. It will probably debut with an attraction roster similar to DAK or Studios, my guess will be a villians themed park for sure. Mickey's Not-So-Scary Halloween party would probably move to that 5th park. I'm sure the Christmas party will also move somewhere else. Epcot would have year round festivals to encourage crowds to continue to visit. Studios would have more special events in it's new identity. Magic Kingdom will probably introduce a 24 hour summer event where they stay open 24 hours throughout the summer (with rolling maintenance closures as usual). This will become the norm and will also pop up for the Christmas/New Years rush for added capacity. Daily average attendance (not on 24 hour days) will be 55K to 60K per day. Meanwhile the other parks will have increased their capacities, but their average daily attendance will still be between 30K and 40K. On site hotel occupancy will be about the same as now with more being turned over to DVC. MyMagic+ will have everyone scheduling everything before they visit leaving those who don't plan in the dust and picking up the scraps.

As much as we rely on our South American tourists and how much they help our economy in central Florida, I really think that along with a 5th park a decade or two down the line, that they should highly consider a South American theme park resort. It won't completely stop South American tourism much like Disneyland Paris hasn't stopped European tourism, but it will be enough for some guests allowing the parks to return to a more normal capacity. Disney has mastered spreading out crowds throughout the year, but eventually it won't be enough and Magic Kingdom will be strained if we don't expand it along with everything else.
 

disney4life2008

Well-Known Member
It doe make sense, but they really need to flesh out and freshen the current parks before adding another "half day" adventure into the mix!
I agree with the other poster that mentioned most people go to MK. I think a lot of people buy tickets with the intent on going to MK and visiting the other parks as because they are "included". MK is the problem - even with the expansion of fantasyland it is still a mess. If for anything, waits are worse and more congested. Epcot, AK, and HS need a lot of help and the argument remains - all 3 could be half day parks. I am eager for the AK and HS reworks. While I would welcome a 5th park - this would cause the ticket prices to increase even more. They need to stop building DVC all over the place and put that money into attractions
 

Tom

Tom
I will never support the mere notion of a 5th park until Epcot has been fixed, DHS has doubled in size (including ride capacity), and they finish Avatar and one more land in DAK.

Once those are all complete, and EVERY guest can enjoy a full day experience at all 4 parks, then they can talk about expansion. But there's no need to build more mediocrity when they can't even maintain their last 3 parks.
 

tl77

Well-Known Member
Maybe in 20 years they will need a 5th gate, but in the short term there's Avatar coming to AK, Star Wars and Pixar to DHS, Frozen and hopefully some revamped Future World Pavilions coming to Epcot.

And I'm not sure if these numbers reflect this but as on site hotel attendance is down, new DVCs go up. "Hotel" rooms at the Poly and Wilderness Lodge are being converted to "DVC" rooms, which to me says that people who were regular guests at the onsite Hotels are just Buying into the DVCs. The up side to DVC also is that it has a kitchen where you can make 1 or 2 of you own daily meals instead of buying them in the parks, or like my sister did for her kids, make lunches and bring them to the parks

And I noticed on our last trip, while there's a lot of cutting corners and raising of prices, there is also a lot less corporate sponsorship of individual attractions. Maybe they should go back to that instead of trying to "nickel and dime" the guests, because every major motion picture made in this country has multiple corporate commercial tie-ins and partners. Disney's last Muppet movie had commercials for both Toyota and Lipton Iced Tea, why did they stop doing this in the parks though? I think the most impressive thing in Epcot at the moment is Test Track which is presented by Chevrolet.

All 4 parks cost the same to get in, but MK has the most to do and has the most rides, at the moment DHS has 5 shows and 5rides, 3 of which have height requirements, but I don't see why anyone would pay to go to a 5th park at the moment
 

StageFrenzy

Well-Known Member
Adding another park will also add to the number one dreaded cost for any corporation in this modern age more labor. You'll have to have additional ticket gate and ride staff rather than just ride staffing. Add to that more buses and transportation woes I'd say they have bite off more than enough as it stands.
 

R W B

Well-Known Member
Excellent post with great information PO4!

I do agree that prices are getting up there especially for the resorts. I think if prices were lowered just by a few percentage points that 83% occupancy number would of been higher.

I dont think WDW needs a 5th gate just yet, at least not one to open in 10yrs. I think once we get closer to Avatarland, Star Wars Land, whatever else is planned in DHS, the hub expansion and Disney Springs being completed and giving us a much clearer picture as too what kind of occupancy these new attractions will take up we will then need to revisit this topic.

I do wonder how often of at all the topic of a 5th gate is talked about seriously amongst those that are actually important at Disney.
 

yensid67

Well-Known Member
I would love to see DHS become Disney/Pixar Animation Studios...since they are on a trend of playing off the current animations...a park that would be dedicated to animation would be a win-win for everyone. Disney would have an avenue to showcase and profit from the popularity and the guests can be guaranteed updates often!

As for a 5th gate, I don't see it happening anywhere soon, BUT I would like them to start to incorporate their Marvel franchise...Disney's(Marvel) Hero Park!!!! With just the Disney name, they could include all heros and heroins into a park that would be especially geared towards kids...even a small park like a small amusement park size or maybe just build 2 half-day parks instead of one full day! Just ideas so don't get your panties all bunched up! LOL
 

JohnD

Well-Known Member
Let's cut through all this. There is only so much you can do in one week. There comes a point when you've reached critical mass. Plans are already in the works to overhaul HS as well as expand AK and turn it into an all day park, meaning they want you to spend more time in an existing park . MK is pretty much fleshed out. And more work needs to be done in Epcot, especially FW.

So, no, WDW does not a 5th park at this time.
 
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