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Universal Orlando's lost summer

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Published: August 7, 2009 at 11:45 AM

Take a look at theme parks' second-quarter financial results, and the contrast could not be more clear:

Disney offers huge discounts, spends aggressively to promote them, and maintains its attendance levels in the worst economy since the Great Depression. But it suffers a significant profit loss as a result.

Universal also offers some discounts, but cuts its promotion budget, trims costs throughout its properties, and its attendance tanks. But thanks to the cost cuts, it increases its profit.

Which company did the better job?

If you're a cold-eyed, myopic Wall Street analyst, you might select Universal. Theme park fans, who care more about price and service than profit, might opt for Disney.

It's a classic management dilemma confronting any business in a bad economy: Do you cut price and sacrifice profit for market share, or do you cut costs and risk market share to protect profits?

Disney and Universal seem to have picked opposing strategies. But upon a closer look, Universal's choice might not have been so intentional. Circumstances may have led Universal to see that it had no chance to build market share in 2009, forcing it to sacrifice a "lost summer," while trying to bank as much cash as it could for 2010.

Ad campaigns tend to one of three approaches:

  • Promoting a new service, product or discount
  • Reinforcing an emotional bond with a product
  • Appealing to an immediate hunger or desire

    The third approach is tough for destination theme park resorts. Vacations take too much planning to be a true impulse buy - like ordering a pizza at 10pm. Disney can do the second phenomenally well, but other theme parks tend to have less emotional connections with their audience. (Roller coasters resonate with a relatively limited percentage of the marketplace. SeaWorld's cute critters appeal to more. But Mickey and Disney's princesses tend to rule this category.)

    That leaves the first option, which is what you see in so much theme and amusement park advertising. Universal hit the market big with its Super Bowl ads giving away 7-day tickets to the resort. But after that, what was Universal to promote?

    Well, its new roller coaster at Universal Studios Florida, of course.

    Whoops.

    Hollywood Rip, Ride, Rockit didn't open as planned last spring. And as the summer season melts away, it still hasn't opened. With no new ride to promote, Universal instead opted to save the money it would have spent on ads, and bank the money for next year.

    Why wouldn't Universal instead promote more discounts, like Disney did, and try to hold on to its market share in the summer of 2009?

    I can answer that question in two words: "Harry Potter."

    With the much-anticipated Wizarding World of Harry Potter opening at Islands of Adventure early next year, many theme park fans understandably have decided to wait until that new land opens before visiting Universal Orlando. Perhaps a new roller coaster at USF might have encouraged some of those fans to plan another trip to Universal this summer, but with HRRR not open, the decision to postpone a visit became easy for many.

    Universal management understands that. So it punted, gave up on 2009, and, I suspect, is hoping that Harry Potter saves the year for Universal in 2010.

    The boy wizard's batting 1.000 so far, with every book and movie from the series becoming a huge hit. But Universal got burned this year with an attraction opening that didn't come through. There's still no firm opening date for Universal's Harry Potter land, and the longer that Universal goes into the 2009 holiday season without announcing one, the more potential visitors the resort will lose as families make alternate vacation plans.

    A business with pockets as deep as Universal's might be able to afford one lost summer of crumbling market share. I am sure that no one at Universal wants to see what would happen should they lose two.

  • Readers' Opinions

    From 71.98.191.240 on August 7, 2009 at 12:34 PM
    I noticed a few differences in Universal Orlando last weekend... 1st and foremost was the drop in employees, there were fewer staff members at all of the rides than I noticed in April. 2nd - the lines did not exist on a Sunny Sunday at 1PM - Simpsons was a back to back ride with less than 20 minutes combined. The Mummy - Ditto - Spiderman and Men in Black - all quicker than normal - only the coasters were busy and seldom more than a 40 minute wait posted. The Rip Ride Rocket - was going through empty seat weight testing all afternoon. The security guard at the Hard Rock side park entrance said that they were talking about fall before they would again reopen to the public. I was surprised - last year summer was a waiting nightmare - this year ...both parks - multiple rides per attraction - in and out in 6 hours...
    From Anthony Murphy on August 7, 2009 at 1:00 PM
    I think the difference is that Disney (mostly WDW) is not building some big stuff like Universal down the street. In the CA arena, Disney is building like crazy while Universal is building some attractions too.

    Disney went conservative in 2009 and likely 2010 with rolling out new rides all over the place. Universal is giving the people new lands and ride at all of its parks. However, in the long run, I think Universal needs to stay fresh and to date.

    Still, both looking very good for the times we are in!

    From 76.181.144.2 on August 7, 2009 at 3:40 PM
    I think Universal did the right thing this year. This summer has been like few others when it comes to simple economics. People are not spending a lot of money and aren't going on long vacations. We are in a recession, and it's foolish for a company to keep operating like we aren't. Everybody is great when economic times are good, but it's the bad times that separate the men from the boys. Universal has had a rough year, but so has everyone else in the industry. 2009 isn't about attendance and profit for the Orlando parks, it's about riding out the economic storm and keeping your eyes on the future. Disney chose to maintain it's operation and heavily discount, and it brought them flat attendance and economic pain. Universal temporarily cut it's budget and offered smaller discounts. That brought them fewer guests, but more money. I'm sure that Disney would rather have Universal's result than their own.

    Now Universal is in a stable financial position for the future. Not only that, they also have some huge attractions opening up soon. When the economy picks back up, those going to Orlando will see the new coaster and Harry Potter land, and all of the sudden Universal will look pretty appealing. Disney will be left recovering from the previous year with nothing new to speak of. Time will tell how they deal with it.

    From 99.195.147.180 on August 7, 2009 at 3:46 PM
    theme parks are no differant than any other business and must stay alive by cutting back on servises until the climate changes and it will. i have worked at silver dollar city for four seasons and it is not fun here for anybody but we must all keep trying to give our guests the best servise possible. being friedly and keeping a clean park does not cost a thing and that will bring more in and most important bring them back.
    From 76.243.38.183 on August 8, 2009 at 5:46 AM
    Well, as others have mentioned and predicted, the regionals are taking up the slack. My experience here in the Midwest leads me to believe a lot of travelers are opting for the staycation, or at least, the next state over. Both Kings Island and Cedar Point appear to be having good seasons, with long waits for signature rides and healthy crowds buying food and drink even at the airport-level prices they charge in the parks. So it's easy to see how the giants like Disney and Universal would have to run the numbers and decide whether to pay for the advertising, or to rely on those locals with annuals (and spill-over from the other destinations, like in LA and Orlando...).
    From 86.147.67.174 on August 8, 2009 at 7:34 AM
    not really commenting on the situation regarding disney or universal.
    i stay in the uk, and through e-mails with a cousin of mine, who stays in the USA and without attempting to identify him, we were talking about my trip to orlando, and how he is due down there next week, as the company that are operating Rip Ride Rocket (german im told) have major issues with wiring and technical difficulties on this ride, as well as it was forecast it could run seven trains, but more likely no more than four. he told me that his company have a hand in this project, and they ran the trains for 700 cycles last weekend, and on inspection found cracks in the steel on the trains! he also informed me that they have a meeting with the top top management of universal next week, where i am led to believe they will take over the project, the germans will be removed, they will face possible legal action, and also have had payment held (so i am led to believe.) he also informed me that this ride may not be open to the public till ocotber. he also promised to keep me informed. maybe this issue has not helped universal's year, although i am no expert. hope this may clear up some issues with the RRR.
    From Anthony J on August 8, 2009 at 11:15 AM
    I'm not surprised by the fact that Universal's had to do so many cutbacks.. My close friend is a former employee of Universal who lost his job as part of the cutbacks. But I have to say, these cutbacks had zero effect on my experience as a guest in the parks this summer. Well, other than a few closed food stands too many, there was nothing that glaringly said "cutbacks" other than what we've seen for months or years, like the fire in Jaws and the water vortex in Poseidon's Fury. So for the most part, they're doing it right.
    From TH Creative on August 8, 2009 at 7:16 PM
    To the anonymous poster who wrote: "Now Universal is in a stable financial position for the future."

    I Respond: You're kidding, right?

    The Orlando Sentinel: "Orlando's No. 2 theme-park resort is warning that it could face a cash crunch by next spring, as turmoil in the credit markets -- and an obscure clause in its long-standing contract with famed filmmaker Steven Spielberg -- complicate its efforts to restructure nearly $1 billion of debt. If Universal Orlando is unable to rework the loans in coming months, it could be forced to slash spending on new attractions, seek more money from its owners or even put a piece of the resort up for sale."

    All balance sheets aside there is one fundamental reason I believe Universal will persevere: They build better rides than Disney. PERIOD!

    From Derek Potter on August 8, 2009 at 8:20 PM
    I think Universal will be fine. Obviously they would have liked to had more attendance so far, but the fact that they have turned profit in a down year kinda means they've kept things stable for the time being. There's always something looming with a park company. Several chains have released that same warning the past year or two about debt restructuring and how it may not happen. If Cedar Fair can get it's line of credit increased and extended for a couple of years like it recently did, than surely Universal's deep pockets will get them through these tough economic times, and surely they can figure out a way to pay the bills.

    It would seem to me that Universal chose not to gamble with the money they had and profited, while Disney placed their bets and lost profit. This is still a business, and the object of the game is two-fold. Entertain the heck out of people and make money doing it. Would you rather have Universal be like Six Flags a few years ago...ignore the bottom line and spend themselves into oblivion? I didn't think you would, so good for Universal for being wise with their money and recognizing their position and the 2009 Orlando summer for what it is....which is to say a time to hold on.

    The economy will eventually get on the right track. The issues with the new coaster will be fixed and the Harry Potter attractions will be open by next year. Disney will likely have made cuts and will be charging for things they didn't used to charge for...wait they already started that one.

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