It is not an exaggeration to say that 2020 has been an ‘annus horribilis’ for the leisure industry, and one that theme park operators in particular will not look back on with undiluted pleasure. Unlike many other consumer-facing businesses it’s impossible, today anyway, to replicate such an immersive experience online and so the COVID-19 pandemic has had a significant negative impact on theme park attendance, revenues and profits.
Disney, the world’s leading theme park operator, began closing its parks in January, starting with Shanghai Disney and Hong Kong Disneyland, before closing Tokyo Disney Resort in February and its US parks and Disneyland Paris in March. The company estimates that the pandemic has negatively impacted operating income by over $7bn, due to revenue lost because of the closures. Today, most of Disney’s theme parks have now reopened, albeit at significantly reduced capacities, whilst Disneyland in California remains closed and Disneyland Paris has been reclosed because of the new lockdown measures in France. Of the parks that have reopened, Florida, Shanghai, and Hong Kong all achieved a net positive contribution in the company’s latest financial quarter, which means that Disney generated revenue that exceeded the variable costs associate with reopening. At Walt Disney World in Florida, the company’s largest theme park, booking trends have been particularly encouraging, with 77% of park reservations, albeit at a reduced capacity of 35%, already booked for the current quarter.
When it comes to running theme parks, Disney really is in a league of its own, especially domestically. In 2019, according to the Themed Entertainment Association (TEA), Disney attracted nearly 156 million visitors to its theme parks worldwide. Eight of the top ten most popular theme parks, as well as six of the top nine North American theme parks were operated by the company, with an aggregate domestic attendance that is more than triple that of its closest competitor, Comcast, the owner of Universal Studios. Around 87 million people visited its domestic theme parks in 2019, more than the rest of the top twenty combined. Guests at its parks also spend a lot more, with our estimates suggesting the average guest spends over $100 per day at Disney versus around $50 at peers. Ticket prices at Disney’s parks are more expensive but we think there are other reasons for the higher spending including the unique on-off nature of the visit for many (but certainly not all), as well as the immersive nature of the experience which means guests stay longer in the parks and thus spend more on food, merchandise, etc.
The company’s original corporate strategy, first laid out by Walt Disney in 1957 on the back of a napkin, depicted a blueprint for the company to achieve future success, with the parks as an important part of the plan. Today, Disney still operates based on this ‘flywheel’ business model with every part of Disney’s organisation expected to work together and feed into each other. One example of this is the company’s Marvel Cinematic Universe (MCU) franchise, which it obtained through its c$4bn acquisition of Marvel in 2009. Since then, Marvel Studios has released 21 films, generating over $20bn at the global box office including the highest grossing movie of all time (Avengers: Endgame) in 2019. To leverage this success and therefore keep the flywheel turning, Disney is planning to build an ‘Avengers Campus’, with rides and experiences based on its MCU franchise at several Disney theme parks. This is a strategy that Disney has successfully executed many times, including for its Frozen franchise, and more recently with the building of Star Wars: Galaxy’s Edge to build from the success of the famous film franchise. With the addition of Disney+, part of the company’s entry into the mainstream direct-to-consumer (DTC) video streaming market, it has added another cog to the flywheel, with several spinoff TV shows and movies planned for the future.
The Parks, Experiences, and Products division at Disney was the highest revenue contributor in 2019 and second-highest contributor to profits, underlining the essential and extremely valuable part it plays in creating tangible experiences for customers with Disney’s brands and franchises in the form of rides, characters, and merchandise. We believe the most recent data as well as its historical success shows that there is clearly underlying demand for Disney’s parks and experiences and with increasingly positive news by way of vaccine developments, it may not be long before the magic really returns to the kingdom.
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