For many Walt Disney World fans, this big news this week was the ABSENCE of news coming out of the massive D23 Expo. This was the big event of the year for the Walt Disney Company, and the place where surprise announcements were made before. Even at the much smaller WDW-based Destination D (also a D23 event), there was a surprise announcement concerning the parks, in the form of the Tiki Room’s impending return. Fans have become accustomed to expecting announcements to appear at the big events, but this time, there were no surprises concerning Walt Disney World. The Fantasyland Expansion was talked about, and a visualization of the Seven Dwarves Mine Coaster was shown, but this constituted the release of details about known projects, not the unveiling of something previously unconfirmed.
|
|
To be sure, there are secret projects in the works. Whispers point to projects like a coaster in Pixar Place (in the former Who Wants to be a Millionaire building), Hyperion Wharf replacement ideas, an overhaul for the Imagination pavilion, and even a brand-new Brazil pavilion for World Showcase. All have been proposed and are being worked up to one degree or another, but none have been greenlit (or funded) enough to release the plans to the public. In the big-spending side of the equation would be a significant addition to Disney’s Animal Kingdom, such as the rumored Australia expansion or an E-ticket on the scale of Journey to the Center of the Earth.
But projects in the pipeline are not the same thing as projects announced. As always with Disney, nothing is certain until the concrete is poured (and even then, maybe not). Witness the example of Flamingo Crossing, a parcel of land outside the property gates on the west side, several miles away from Coronado Springs (accessible by passing the WDW Tree farm, water treatment plant, and bus repair facility). This area was initially cleared in 2007, and after online news broke about the “Western Way development,” Disney went public with plans to open a mixed-use zone featuring a Four Seasons Hotel, a much cheaper motel, and shopping districts over the next 8-10 years. They’ve certainly taken their time; while the ground-level infrastructure work went quickly, nothing vertical happened for a long time. Rumors report that Disney is having trouble lining up third-party businesses to sign up—the same problem plaguing Downtown Disney’s attempted reboot. The culprit? The economy, of course.
An unrelated “decline by degrees”: these menu boards were dark last week, too.
Are the replacement parts that hard to get ahold of?
In this down economy (recession, stalled recovery, drawn-out malaise—whatever your metaphor), it makes sense to pull back on capital expenses. No one wants to bet the farm on multiple expansions when times are uncertain. And it’s not as if there are no expansions underway in Orlando. It’s costing some $300 million for the new Fantasyland. Although that will only yield two new rides (Little Mermaid and Seven Dwarves Mine Coaster), it will also feature a marquee restaurant show (Be Our Guest) and several new themed areas. You could argue that this is pretty expensive for what MK is getting. Expedition Everest, an E-Ticket coaster themed in the usual heavy Disney style, cost only $100 million. Shouldn’t Disney be getting three E-Tickets for $300 million, rather than two D-Tickets and some themed areas?
But that’s another argument for another column. For now, let’s stay focused on the fact that Disney has committed that money, for better or worse, so they are unlikely to commit to more big projects. The wider umbrella organization, Parks and Resorts, has also been spending money like crazy: Cars Land at DCA, and the upcoming Shanghai Disneyland to name two very expensive examples. And let’s not forget that the Disney Cruise Line is part of the division, so those new cruise ships (built for a combined $1.8 billion). The same Parks & Resorts division has to pay for it. Ditto the DVC expansions. Speaking of which, it seems pretty obvious that the parks are going to suffer for the Aulani debacle. When Disney finally gets permission to sell the DVC units at Aulani again, they will have to raise the price. All contracts previously signed will be honored, but Disney is likely to have to make up the difference—that will be a bit of a drag on the division’s performance. More money for Aulani (and DVC, and cruise ships) means less money for the parks directly.
Fireworks still cost a lot of money to run every night.
From all the above, we conclude that Disney is already spending big, so it doesn’t make sense to be angry that Disney isn’t dedicating more to Walt Disney World. On top of all that, I’m not sure they see the urgent need for it. An executive at a major corporation like Disney is most likely to seek new investment when the customers need a reason to visit and spend money. But is Disney World facing a fiscal crisis?
I offer a few observations based on my weekly visits for the past seven years:
- Restaurants are always full. Ever watch tourists from out of state walk up and request a table at a sit down restaurant?
- Ticket prices go up every year (sometimes more than once per year), but the walkways are as crowded as ever.
- Each year, the cost of the signature dinners at the Food and Wine Festival goes up. This year was no exception. The Cat Cora dinner is $155 per person (way out of my price range, by the way), but it sold out within a few hours.
Be honest. If you were in charge and you saw these expensive dinners sell out in half a day, wouldn’t you charge more the next time? The whole point to the free market is that merchants figure out how to charge what the market will bear. Well, this is what the market will bear.
But wait, you cry, what about the discounts? True, you can find the free dining promotion at Disney World hotels in certain times of the year (such as now). But don’t be misled by that old magician’s trick of misdirection. While you’re focused on lowered prices over here (free dining), they are quietly raising prices over there (higher prices on the actual menu for paying guests, higher ticket prices, higher hotel prices). So they raise the prices, and still the people come. If you’re a businessman, should you build new rides when people keep coming? It’s not sound business to spend more money than you have to, right?
Captain EO was left open until 9pm at first, but now (when no one is looking),
the attraction closes earlier, along with much of Future World.
The competition posed by the Harry Potter expansion to Islands of Adventure was theoretically a reason to spend money even if your visitors are still paying. But while the attendance at IOA has gone through the roof, WDW’s attendance hasn’t really taken a hit. Out of state visitors have largely viewed Potter as a reason to add Universal onto a Disney trip (which is not cut short by the Potter detour).
The Fantasyland expansion was announced after Potter, and has been widely seen as Disney’s “answer.” That kind of thinking—to compete with others in your industry—is commonly called “red ocean” thinking, where the competition is stiff and the water is red with blood. The opposite is called “blue ocean” thinking, where you create entirely new lines of business where none existed previously. You have the entire “blue” ocean to yourself, because you’re in an industry no one else is.
Disney used to be a blue-ocean company, but arguably they are a red-ocean company now. It takes a visionary to be in the blue ocean, and Disney’s top leadership—probably starting with Iger himself—appears to want to play it safe at Walt Disney World. Yet Iger doesn’t always play it safe. He spent a whopping four billion dollars on Marvel in 2009. Think about that. He could have bought forty Expedition Everest rides for the same price tag. Even the much smaller Playdom cost $500 million in 2010 – enough for five new E-Ticket rides.
Why such spending there but not as much at Walt Disney World? In addition to the lack of perceived need (see the arguments above), there’s just a general feeling that the four parks of Walt Disney World are a mature asset. To put it in Wall Street terms, the Orlando property isn’t a “growth stock” with tremendous potential to accelerate (or at least increase) revenue over time. Rather, it’s more akin to a boring utility stock. It produces dividends and a steady rate of return, without being overly exciting.
It’s a miscalculation for executives to think this way. I doubt families in Wyoming and Ohio plot a visit to Vero Beach’s DVC facility (as nice as it is) with the same fervor they hold for the actual theme parks at Walt Disney World. Granted, the company is spending a lot of money right now. But the average visitor won’t care about timeshare units in Hawaii or new parks in China if neither of them are in their budget. They will judge the Orlando experience on its own merits. So the executives in charge had better hope that they are calculating correctly. Because if customers find the experience wanting for the price paid, it will not matter what rationalizations are brought to bear. In the end, the “Why Should They” approach may turn out to be well-reasoned (perhaps even prescient, if this economic downtown lasts for a whole Lost Decade or more). Or it may turn out to have been wrong-headed from the start. But it’s too early in the game to know for sure which is right. |