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The BLOGFlume—The Almighty Dollar

Earnings reports from Disney and Cedar Fair, and a crazy labor story from the UK.

Written by Russell Meyer
Published: May 11, 2005 at 7:42 PM

Disney Revenue Soar
Bloomberg.com 5/11/05

In an early release today, the Walt Disney Company reported net profit for the 1st quarter of 2005 rose an astonishing 30% from last year. Total revenues for the company reached $7.83 billion, an 8.9% increase, primarily boosted by the DVD release of Pixar’s The Incredibles. The movie, which is the biggest selling DVD release of 2005, has sold about 23 million copies since it hit store shelves on March 15, 2005. However, the film division was also boosted by the impressive performance of Vin Diesel’s The Pacifier, which grossed over $100 million. The movie grossed more than 2004 big budget releases The Alamo and Home on the Range combined, which partially explains the segment’s stellar profits over last year. One of the segments that did not increase from 2004 was Disney television. ABC Family, ESPN, and Disney’s other cable TV interests fell slightly with a loss of 1% in profit, which was explained by a revenue deferral from ESPN. However, ABC made a giant leap by increasing operational profit by 93%. Revenue at the theme parks also increased with a revenue surge of 26% totaling $2.1 billion, with this performance preceding all of the hoopla surrounding Disneyland’s 50th Anniversary. I guess I should have bought some Disney stock at the end of last year, because the sky’s the limit for the company as revenues are almost assured to soar over the summer months. With some major movie releases coming later in the fall, Disney could return to being one of the hottest stocks to own. Robert Iger could not have taken over at a better time, but will be expected to maintain Disney prosperity over the long term. So far there have not been any signs that he will not be able to accomplish Disney’s goals.

Cedar Fair Earnings In
Yahoo Finance 5/5/05

Cedar Fair LLC announced its earnings for the first quarter of 2005. Like Six Flags, Cedar Fair’s first quarter results are somewhat insignificant because most of the company’s parks are not yet operating. However, the first quarter did demonstrate the effect of Castaway Bay. Cedar Fair’s newest park, an indoor water park in Sandusky, Ohio, contributed nearly $25 million of revenue, and offset a net loss of $2 million from the company’s only other operational property, Knott’s Berry Farm. Knott’s loss of nearly 100,000 guest visits was attributed to weather in Southern California, a common “excuse” for Cedar Fair. One would think that the opening of a very well reviewed, and seemingly popular roller coaster- Silver Bullet- would increase guest visits, and in turn, revenue. However, the opposite has seemingly occurred. Could the weather really cause the loss of 100,000 guests over three months, or are other parks in Southern California drawing people away from Knott’s? If Disney, Universal, and Six Flags are drawing guests away from Knott’s Berry Farm, than Cedar Fair could be in some serious trouble over the rest of 2005, as the Disney parks will be getting a surge of guests, and Universal Studios Hollywood is still performing strong. Knott’s does not have any new attractions on the horizon, unless work is going on in the defunct Kingdom of the Dinosaurs space to launch a new attraction before the end of the year. The other Cedar Fair parks could also be in trouble as Cedar Point and Geauga Lake are having trouble competing with Paramount’s Kings Island. Also, despite the addition of Hydra, Dorney Park may not see a surge in visits because of the massive additions going on a few hours away at Six Flags Great Adventure. A few years ago, Cedar Fair was poised to become one of the most successful regional theme park companies in the country, but faster than Top Thrill Dragster gets up and down its 420-foot tower, Cedar Fair the company has seen it’s promise fall below that of Six Flags.

Labor Laws Gone Too Far?
Times Online 5/11/05

While this story isn’t exactly related to theme parks, I caught word about it on the radio this afternoon, and just had to read it for myself. Blackpool Resort, a popular holiday destination for Europeans and home to Blackpool Pleasure Beach, has been forced by the town council to limit its famous donkeys to a 48-hour work week. Earlier in the day, the British Parliament declared that English workers could not exceed 48 hours of work in one week, and the Blackpool council felt it necessary to apply the new labor law to donkeys. That’s right, donkeys are being extended the same rights as British citizens. The donkeys are very popular as tens of thousands of children are given rides throughout the year at 2 pounds per ride. The donkeys will continue to give rides from 10 am to 7 pm with a one-hour lunch break, and Fridays off. Before we know it though, the donkeys will want 15-minute smoke-breaks and accrued vacation days. Let’s be nice to the animals, but when they are covered under labor laws, it might be taking things a bit too far.

Readers' Opinions

From Robert Niles on May 11, 2005 at 7:49 PM
"Could the weather really cause the loss of 100,000 guests over three months, or are other parks in Southern California drawing people away from Knott’s?"

Answers: Yes, and yes.

This might end up being the wettest 12-month period in recorded history in Southern California. We're talking epic levels of rain for this area. Heck, yeah, the rain has affected all outdoors venues in the area.

That said, not everything in a theme park need happen outdoors. Disneyland's done well by its extensive line-up of dark rides and other indoor attractions. But an outdoor roller coaster, of all things, is just about the most useless attraction one can imagine in drawing folks during a rainstorm.

Cedar Fair needs some more themed, family attractions at Knott's if it is not to deteriorate into Magic Mountain O.C. This year's weather should have helped send that message back to Ohio.

From Derek Potter on May 11, 2005 at 10:03 PM
"Cedar Fair has seen it's promise fall below that of Six Flags."

Have to disagree with you on that one. Cedar Fair may not be at the top of it's game right now in terms of park attendance, but it's still a highly successful operation. Actually, I would be willing to bet that it's one of the most successful operations in the business, theme park or regional, in terms of pure profit. Attendance may have been down at the parks lately, but make no mistake, they make money because they know that there is also money to be made by building things like hotels and indoor waterparks. Six Flags on the other hand, may be showing some promise this year, but until they can truly prove otherwise, the company is still a dog, and is nowhere near the caliber of Cedar Fairs operation (note the price of stock...CF 31.01, Six Flags 3.92).

I'm starting to rethink this whole weather thing. Weather is an often abused reason for attendance decline and such, but when I really look back at the last year or two, I see that CF really has had some tough luck. SoCal has been been monsoon land for the past six months...so yeah, I also can believe that Knotts took a big hit in the wintertime. Silver Bullet will have it's impact in the summertime anyway. Cedar Point had a very wet season last year too, as did it's counterpart in the south, Kings Island. A few days of rain doesn't really excuse attendance drop, but when there are a lot of days, than we start to see weather having a bit of an impact. Weather has also played a part in offseason construction. Cleveland had over 100 inches of snowfall this past winter, which has pushed back construction and delayed the opening of Wildwater Kingdom at Geauga Lake until June. While the weather excuse is often thrown around freely, it does hold water in some cases. It may even hold water in Six Flags case, but I suspect that there are other issues that have bigger impacts.

While each Cedar Fair park faces a lot of potential competition this year, I wouldn't worry too much about it. Dorney Park's Hydra has gotten some glowing reviews, while Six Flags has dropped the ball a bit. Kingda Ka and Golden Kingdom is a bonafide threat, but only if Six Flags doesn't screw up. Cedar Point and Geauga Lake have the biggest competition in Kings Island this year, but Geauga's new waterpark and $25.00 ticket price will move the turnstiles more than they did last year, and while CP may or may not win the "attendance war" with KI this year, they will make big money with their hotels and Castaway Bay, which will gear them up for the next big ride. Despite the early setbacks, Silver Bullet will make it's impact with Knotts. As for the rest of Cedar Fair? Well, really no competition in their other markets, so as long as they see profit, there's no reason to worry about them. Cedar Fair will be fine.

From Robert Niles on May 12, 2005 at 7:34 PM
If you've been reading The New Yorker for the past three weeks, you've seen how global weather patterns are changing around the world thanks to global warming, and smart businesses need to adapt to that.

Does that mean SoCal and Ohio will see more rain every year? Who knows? But now is a good time to diversify your offerings, and not to build a park that is dependent upon sunny weather and warm temperatures every day to make a profit. The Florida parks have done a good job of building a mix of attractions that never leave visitors hanging in unpredictable weather. Parks in other regions need to start following that lead.

From Russell Meyer on May 12, 2005 at 7:46 PM
Actually Hong Kong Disneyland is specifially designed with a majority (I think 80%) of its attraction inside because of the frequent occurrances of heavy rain in the region.
From SpaceMt Fan on May 13, 2005 at 7:50 AM
Here's 1000 more folks that could care less that earnings were up:

Disney to cut 1,000 IT jobs

The offical quotes were:

"This is not a mass layoff, by any account, but an employee transition."

and

"You are in the IT business, but Disney is not."

From Kevin Baxter on May 16, 2005 at 2:06 AM
Russell, sometimes you need to look between the lines of pieces like this. Analysts clearly state that the majority of that increase is due to The Incredible on DVD. The writer pointed out how write-downs for The Alamo and Home on the Range also caused the increase. A Disney spokesperson is the one who claimed The Pacifier helped. Why didn't an analyst say that? Well, because what the Vin Diesel film actually helped was to hide all the bombs Disney had during the period. To wit: Hostage's production budget was $65M and it made $34M; Cursed's budget was $35M and it made $19M; Ice Princess's budget is unknown, because Disney is so secretive about that crap, but it most likely cost more than the $24M it made.

The Pacifier cost $56M and made $110M, and even if you pretend that there were no marketing costs for any of these films, this film did not make enough to cover losses of the other films. Also, considering those write-downs for Alamo and Range were $70M, that puts the difference between the two quarters at about $90M, which can be attributed to other divisions if you do the math. ABC alone made almost $50M more than they did last year. Merchandising was up almost $40M. (Parks and cable were flat, basically.)

So what does all this mean? Especially when you remember that Disney released Pirates of the Caribbean on DVD during this quarter last year, and they kept ALL the profits of that one, instead of half, like they are doing with The Incredibles. So the lesson here? Take what the analysts say with a grain of salt, but NEVER listen to a spokesflunky!

From TH Creative on May 16, 2005 at 7:23 AM
Disney's earnings report runs paraleel with Orange County Florida's report that tourist industry taxes collected in March were up 14%! Things are pretty busy at the parks!
From Kevin Baxter on May 16, 2005 at 4:27 PM
No one doubts that, but this is the Jan-Mar period, Disney's slowest by far, so gains of 3% aren't all that impressive.
From TH Creative on May 17, 2005 at 4:13 AM
I must have missed something here.

Mr. Baxter writes: "No one doubts that, but this is the Jan-Mar period"

I respond: Right. And Orange County Florida reported a 14% increase in tourism related tax revenue in March.

Again, I must be misunderstanding your point.

From Kevin Baxter on May 20, 2005 at 3:14 AM
Clearly you are, because Disney is not located in Orange County, does not pay Orange County taxes, so Orange County tax revenues are based solely on revenues from SeaWorld and Universal, which doesn't necessarily have anything to do with how Disney is doing. Furthermore, Disney explicitly said their profits were up in the theme park sector 3%. Considering WDW has like 4000 hotels which most certainly do not fill up during this period, do ya think this might have something to do with why Disney's profits don't match apparent profits of the other Orlando parks???
From TH Creative on May 20, 2005 at 10:15 AM
Mr. Baxter Writes: "Clearly you are, because Disney is not located in Orange County, does not pay Orange County taxes, so Orange County tax revenues are based solely on revenues from SeaWorld and Universal, which doesn't necessarily have anything to do with how Disney is doing."

I Respond: That's not correct. WDW straddles Orange and Osceola Counties and pays taxes to both. From the Orlando sentinel, May 1, 2005: "Last year, Disney paid $77.5 million in property taxes to Orange and Osceola counties."

From TH Creative on May 20, 2005 at 10:34 AM
Anyone catch this choice nugget in Business Week earlier this month?

"Steve Jobs, who disliked Eisner, is now talking warmly about Iger and has said he has had a few informal meetings with Eisner's successor. The odds are improving daily that Pixar may renew its relationship with Disney, which distributed Pixar hits The Incredibles and Finding Nemo.

The existing agreement calls for Disney to pay for half Pixar film's production costs on each movie, receiving 62% of the profits, including a distribution fee. Jobs wants Pixar to pay for the film productions and give Disney 8% of the profits to distribute. Iger and Disney may well settle for a less attractive deal in the end if the thaw continues."

"(And) give Iger credit: He has hit the ground running. He has streamlining the company, eliminating the strategic planning unit that insiders groused was holding back the launch of promising new initiatives. He has cut loose Miramax founders Harvey and Bob Weinstein, whose bickering had diverted executive time and energy. And he signed the long-awaited NFL deal, giving money-making ESPN the rights to televising football games on Monday nights, ending the long-running but unprofitable Monday Night Football format on ABC."

"Disney CFO Thomas Staggs predicts that Disney will continue to show double-digit earnings growth until at least 2007. That's what any shareholder wants from his or her company: continued, sustained growth, especially for a company with more than $30 billion a year in revenues."

Very nice.

From Kevin Baxter on May 21, 2005 at 1:49 AM
Oops, I wasn't thinking of property taxes, which is lame since I knew WDW paid those, considering I wrote a damn Blog Flume about Disney, Universal and Busch paying less in property taxes by claiming certain acres were being used for agricultural purposes. (I was thinking of the Reedy Creek crap, where Disney pays taxes to itself for everything else.) But, once again, I have to wonder where these news sources, who are beholden to advertisers like Disney, get their facts. Your article is based solely on a report FROM DISNEY which tried desperately to convince Central Floridians that Disney was paying its fair share.

Are they? Universal Orlando claims to pay $24M a year (840 acres) and I can't find any info on SeaWorld, but their two parks and acres of unused land appear similar in size to Universal, so they have to be paying in the range of $20M. Add in Disney's supposed $77M (most of their property taxes do go to Orange County as only 1/4 of WDW's nearly 30,000 acres resides in Osceola County and most of it is zoned as agricultural), so even claiming that only $60M of that goes to Orange County, these three park operators allegedly paid more than $100M last year in taxes. Yet, just four years ago, the Orlando Sentinel claimed that $93M was paid to Orange County by the theme parks AND county hotels AND International Drive businesses. Unless property taxes have tripled in four years, there is a bit of a math dilemma here. So I don't think property taxes are that reliable, at least when the Sentinel is involved.

Getting back to the point... which was... oh, property taxes have nothing to do with tourist-related tax revenue anyhow. What that is probably referring to is hotel taxes (not sales tax, since the counties don't include that). BUT, what that does NOT say is that Easter was in the First Quarter in 2005, but was in the Second Quarter in 2004. Easter vacation is one of the busiest two-week periods for the Orlando parks, and could easily explain the increase.

As for the second post, why are you so damned obsessed with posting stuff that interests INVESTORS and not the people who actually make those companies money??? While the Pixar info is welcome (and seriously... 8%??? That's just pathetic...), who gives a rat's ass about a made-up reason for the Weinsteins departing, especially considering that article makes it seem like it was Iger's idea for the Weinsteins to get the hell out of Dodge. Yeah, he probably deserves some credit for making the divorce fairly amicable, which we all know Eisner wouldn't have done, but all he has done so far is reverse all the horrible things Eisner has done over the years, which wasn't too difficult since countless articles have been written complaining about them.

If Iger continues listening to what Eisner's critics have said, then he will certainly be a better CEO than his predecessor was the past decade, but the big fear has always been the man's lack of creativity. This shouldn't hurt the theme parks, which have creative minds like Jay Rasulo, Matt Ouimet and Al Weiss. Hopefully, for us, he listens to them and gives them money. But he still has the reins of ABC, which is still the Number Three network, and the film studios, which have sucked for two years straight. I think I'll take a wait-and-see approach rather than listen to people who are only interested in stock performance.

From TH Creative on May 23, 2005 at 1:16 PM
The only reason I posted the quote from the Sentinel was to give some providence to the fact that WDW is in Orange County.

As for Iger, he broke-up strategic planning, has establishjed an objective of moving aggressively into China and has begun to patch things up with Pixar. And he's only been in charge for about a month and a half.

And I agree with Mr. Baxter that an 8% distribution fee with Pixar seems incrediblly small. But, as Mr. Baxter has noted recently, if Disney takes a smaller fee and gets a piece of the licensing rights, Disney may make a big pile of money by re-signing Pixar.

Things are looking up at the House of the Mouse.

From Kevin Baxter on May 23, 2005 at 11:55 PM
Well, that's usually when all the new stuff happens. The new guy has to prove to the skeptical stockholders that he ain't the last guy.

Iger has made many good moves, but China is most certainly not one of them. Disney is building quite possibly their worst park for Hong Kong. It might be popular, since the Asian audience loves Disneyland, but a crappy park will further erode the Disney name in the theme park world. After HKD opens, Disney will have their name on nine parks and four of them will be seriously lackluster affairs. How long can a company be considered the greatest in the world when almost half of their parks can't compare to any Universal or Busch park? Considering how poor the openings for DCA and WDSP were, this needs to be addressed immediately.

From TH Creative on May 24, 2005 at 1:31 AM
I'm a bit more optimistic. The other parks you reference were built by the previous administration. Iger's decision to break-up strategic planning averts the micromanagement that people (including Roy Disney) have criticized.

And it seems short sighted on your part to believe that it's not a "good move" to build a theme park on Mainland China -- the most robust economy on the planet. Those other theme park operators you mention have either cancelled plans to build parks there or have never had plans to build there.

But then, why argue. After all, you have now said, "Iger has made many good moves." Delighted to read that. Perhaps you could tell us what you believe are some of those wise decisions.

From TH Creative on May 24, 2005 at 1:39 AM
'Chronicles of Narnia' trailer looks VERY IMPRSSIVE.
From TH Creative on May 27, 2005 at 10:42 AM
WSJ reports that ABC has almost sold out its upfront ad time. It also notes that ABC earned a healthy windfall from selling only half of its ad space up front last year -- allowing it to charge premium rates when 'Lost' and Desp Hswvs were such enormous hits.

Nice!

From Kevin Baxter on May 27, 2005 at 7:55 PM
And, once again, stockholder news! Thanks so much for adding nothing to the conversation... AGAIN.

And nothing about your China comment was close to correct. Disney is building in Hong Kong, which apparently everyone on this site knows is an island, except for you. Furthermore, I didn't say it was a bad idea, I specifically said it was a bad idea to build a crappy park there, and I also gave the reasons why, so to distort that shows your true agenda. And I have no clue where you get your information on other theme park companies. Universal simply moved expansion to Singapore, where they can also build a casino. Don't know about you, but I would much rather own a casino in the area, than part of a theme park partnering with a questionable government. Plus, Paramount, another big company expanding internationally is going to be building on the actual Mainland. China is really pushing American companies to build here, so I wouldn't be surprised to see far more building here. And, though, I wouldn't build in China with that questionable government, I would think it is far smarter to do it on the populous Mainland, where almost every province is far more populated. Hong Kong: 6M. Beijing Province: 14M. Shanghai Province: 16M. Guangdong Province: 85M. And those are just the ones where most tourists are. Once Chinese tourism picks up after the Olympics, tourism spots will become more known to Westerners. And with so much coastline, there will be lots of tourist destinations on the map.


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