Think of it this way: You don't need to know how the animatronics, ride system, and show effects work to have a great time on Pirates of the Caribbean. But if you're going to analyze the attraction like a designer, you need to know those technical details. If you're going to analyze Pirates like a park manager would, you need to know the ride's cycle time, load time, and hourly guest capacity. And if you're going to consider Pirates like a corporate CEO or stock analyst would, you need to know its capital construction cost, yearly maintenance cost, and how much the ride is responsible for driving park attendance, both in the current year and into the future.
That's a lot of additional information that a casual guest needn't bother to learn.
Of course, we're not casual guests here — we are Theme Park Insiders, with an insatiable need to learn as much as we can about the theme park industry, then to talk about what we've learned. (Sometimes, with the belief that we might actually be able to run these places better. Well, some of them, anyway....)
So here are a few notes for people who really want to understand the theme park business. I also think that these notes would be especially helpful for other reporters covering theme park business stories but who don't regularly cover the theme park beat.
1. Theme parks are a capital intensive business
It costs a lot of money to play in the theme park industry. A successful park spends at least $10 million a year, and often far more, adding new rides, shows, restaurants, shops, or hotels to the park. Top new attractions can cost more than $100 million. And this doesn't include ongoing maintenance for the park's existing line-up. The Universal theme parks have reported that they will spend $500 million a year on capital spending in the United States going forward. That's for just three theme parks. Tokyo Disney has announced that it will spend an average of $500 million a year for the next nine years across its two theme parks.
So let's flip this: If you don't have access to tens, if not hundreds, of millions of dollars to spend on capital each year, you're going to have a bad time in this business. It's no coincidence that the two companies whose parks dominate the U.S. attendance list, with the nine most popular parks in the country, Disney and Universal, are part of multi-billion dollar conglomerates. These parks have access to abundant corporate cash flow as well as favorable borrowing terms to finance their ongoing expansion. If you're not part of a bigger company with that kind of cash flow, it's going to be much harder for your park to keep up by offering the new, high-tech attractions that visitors crave.
2. The two most important letters in the theme park business are "IP"
It's not enough anymore to offer a thrilling new ride. Theme park visitors have voted with their dollars that they want to spend their time with beloved characters and franchises — "intellectual property," or "IP" for short. Look at Harry Potter, the Minions, Transformers, Cars, Toy Story, all the Disney princesses, and, eventually, more Star Wars. Attractions based on IP become part of an ever-flowing circle where movies, TV shows, soundtracks, toys and theme park attractions all promote each other, ever-reinforcing loyalty to the franchise.
Even when a park develops original IP, it needs to work to ensure that it grows that IP into a franchise. Pirates of the Caribbean as just a ride is worth millions to Disney. Pirates as a multi-media franchise is worth billions. Without IP, a ride is just, well, a ride. With IP, a ride becomes part of an overall experience that touches riders on multiple levels — not just physically, but emotionally and in referencing a common cultural experience. That's far too powerful a connection for a ride system, no matter how thrilling, to match on its own.
IP provides one more reason why parks do best when they're part of a large corporation that can provide free access to the corporate siblings' TV, movie and comic franchises — such as Disney and NBCUniversal offer their respective theme parks. Parks that aren't part of such companies have to pay to license IP if they want to compete with the industry leaders that have it. And paying for that IP requires a lot of money — see point number 1, again. In short: Parks without IP are going to have a bad time.
3. International partners can help strengthen the bottom line
Entertainment has become a global business, where box office returns, syndication agreements, and licensing deals in other countries have helped U.S.-based film and television studios expand their business far beyond what they ever could have done in America, while also providing a hedge against failure, as foreign returns sometimes can make profitable productions that bombed in the U.S.
International deals are helping top theme park chains expand their businesses, too. In an ideal situation, a theme park company invests none of its money in exchange for a licensing deal with a local developer who builds and operates a branded theme park to the theme park company's specifications, paying the theme park company a licensing fee, which might be a flat fee or a percentage of revenue, or both. (The most famous example of such an arrangement is the one that the Walt Disney Company has with the Oriental Land Co., which owns and operates the Tokyo Disney Resort.)
These deals not only provide a potentially risk-free source of cash flow to the theme park company, they also help extend the company's brand into new markets, further growing the value of the park's IP (see point number 2, again) as well as the company brand itself. Given that foreign economies don't always rise and fall in concert with the American economy, international parks also can provide a hedge against recessions that lower revenue for parks in the United States.
So who has the biggest international deals among U.S. theme park companies right now? Say it with me: Disney and Universal. Who's trying to land international deals? Everyone else. That's because every insider in this business knows that theme park chains without an international presence are going to have a bad time.
4. You need more than theme parks to compete as a vacation destination
With one-day ticket prices approaching $100 at the world's most popular parks, theme parks generate enormous revenue. But a theme park admission is just one of many expenses for people on vacation. There's transportation, hotels, dining, shopping, and other entertainment during the trip. The more that a theme park company can offer to meet those needs, in addition to the time in the park itself, the more money the company can make.
That's why you'll find parks expanding into multi-gate resorts, with abundant on-site hotels, as well as shopping malls, theaters, spas, water parks, and even golf courses in the mix for vacationing travelers. Disney even runs a cruise line and a time-share operation to further expand its reach into visitors' vacation budgets.
Parks that don't offer on-site hotels, shopping districts and other amenities leave that money on the table for other businesses to claim. And that means less cash for the theme park company to finance the capital expansion (point 1) and IP acquisition (point 2) that they need to compete at the highest level in this business. Parks without hotels are going to have... well, I think you can guess by now where we're going with this.
5. You can't make money when your parks are closed
If you're going to invest all this money in world-class attractions, based on popular franchises, with on-site hotels and resort amenities, it makes no sense to leave money on the table by closing your resort for several months during the year. That's why top parks build in locations where mild weather allows year-round operation, or they build weather-proof facilities that can stay open in less-than-ideal conditions. The most popular theme park in the world that is not open year-round is Germany's Europa Park, which draws about 5 million visitors a year — and ranked 20th in the world for attendance last year. For comparison, Disney has eight theme parks that each drew twice that — more than 10 million visitors per park a year. You don't need to be Clark Griswold to know that a closed theme park is a bad time.
6. Put it all together for success
So what is the roadmap for success in the theme park business? Be owned by an entertainment conglomerate with strong IP. License your park brand to international partners. Develop on-site hotels and recreation facilities, and locate your resorts in major markets where they can operate year-round. Who does this best? Disney and Universal, who just so happen to have the 11 most popular theme parks in the world, and 14 of the top 17.
What is the roadmap for weakness, or even failure in the theme park business? Go it alone, or worse, get spun off from a large corporate owner, forcing you to scramble for capital. Don't have your own IP, and no IP partners. No international licensees. No on-site hotels. Who does this sound like? Six Flags managed to hold on to its rights to use DC Comics and Looney Tunes characters when it spun off from Time Warner in the 1990s, but it faced more than a decade of uncertainty under multiple undercapitalized owners after that. And SeaWorld and Busch Gardens sure were doing better under Anheuser-Busch ownership when it had A-B capital and all that free beer to help draw people to its parks.
Is there hope for lagging theme park companies? Absolutely. The same roadmap that Disney and Universal followed (or, let's face it, wrote) is available to everyone else in the industry. SeaWorld and Six Flags have been pursuing international deals to expand their brands abroad and secure potentially lucrative licensing income. Ultimately, getting acquired by an entertainment company might provide the best solution for mid-major theme park companies, but absent those deals, building on-site hotels in year-round markets and restricting expansion that those locations can help open new revenue streams that can help finance the acquisition of some potentially lucrative IP that can enable the parks to develop the engaging attractions they need to compete with the Disney and Universal parks.
Because when parks build great attractions, with compelling characters, in locations with wonderful weather, where visitors can find top-quality hotels and vacation amenities... everyone has a good time.Tweet
If you remove the "US park companies" qualifier though, Disney and Universal aren't on top - Disney just have the HongKong and Shanghai parks, with bits of ownership in Tokyo and Paris.
Compare that with the Merlin group who's legoland brand alone is in 5 countries, and 3 more in construction... Plus their stand alone parks and other mini experience brands (the "Dungeons" offer a theme park experience in a couple of hours).
But agreed on the capital thing, majorly - you gotta keep investing more and more to keep people coming back. Wonderland Sydney stoped investing in new rides, and then wondered why people stopped coming.
This is all about expectations and only Disney and Universal can drive their destinies. SeaWorld and Six Flags had better work harder and faster or they will lose a generation. LEGOLAND's doing very well, but they seem to restrict or attract young kids with their families, thus leaving money on the table.
However, the small businesses of the theme park world can be profitable and solid businesses. The best example how to do this is Holiday World. No IP, horrible location, seasonal, yet highly successful. How? The same way smaller businesses succeed all over the country, great customer service, great environment, and high value. Something Sea World, Six Flags and To a lesser extent Cedar Point have completely forgotten. Even Disney and a Universal get beaten up for this a bit though their size forces them to look at customer service a little differently. Merlin seems to maintain their success by not being a mega park chain but instead a chain of seemingly independent parks.
In addition, other than Disney, Universal, and Sea World, I would argue that most IP is irrelevant for most people. Are most people going to decide to come to one park over another to meet Looney Tunes or Peanuts? Most people in my experience will only go to their local park(or parks if they're lucky) or Florida, and they'll go because they want to go to a park more than anything else. The IP is at best a bonus in these situations.
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