When Success Isn't Enough: What's Holding Back the Disney Parks

February 15, 2016, 2:45 PM · Disney's U.S. theme parks are discovering the flip side of being part of a massive media conglomerate.

Typically, being one division of a big company delivers a lot of benefits for theme parks. They have easier access to the characters and franchises from their owner's movies and TV series. They can promote themselves on their company's TV shows and cable channels, too. And big companies have access to a lot more money to pay for big new attractions, hotels, and other expansions than independent parks can raise.

But as the rest of the company gives to the parks, the rest of the company can take away, too. That's what appears to be happening at Disney now.

Let's be clear. Disney's U.S. theme parks — at the Walt Disney World and Disneyland resorts — are doing very well. Attendance and revenue are up, according to the company's latest financial reports, driven in part by the new Star Wars-themed events at Disneyland and Disney's Hollywood Studios. Disney's movie studio is doing great, too, thanks to the latest episode of Star Wars and a string of other hits in the past year.

So what's the problem? The parks outside the United States in which Disney owns a stake aren't doing nearly as well. Attendance at Disneyland Paris is down, and Hong Kong Disneyland posted an annual loss. (Disney does not own the Tokyo Disney Resort, which is owned and operated by the Oriental Land Co., under license from Disney.) And building Shanghai Disneyland continues to drain money from Scrooge McDuck's vault.

(By the way, here's an interesting little note buried in that story about Hong Kong Disneyland — it appears that park will be getting the Hyperspace Mountain overlay of Space Mountain that debuted at Disneyland last fall, too. Maybe that will help attendance, like it did in California?)

But Disney's bigger problem is ESPN. The company's former cash cow has been losing subscribers as more and more television viewers "cut the cord" and give up their cable subscriptions in favor of streaming services. ESPN has a streaming deal with Sling TV, but I tried that service last year and it was terrible — delivering little more than buffering warnings during popular events. (I cancelled.) Analysts are concerned that Disney doesn't have a plan to replace the revenue it used to earn from ESPN during the peak of its popularity, despite all the money that Star Wars is earning at the box office, and Disneyland and Walt Disney World are taking in from their operations.

That's why the company's stock has been down over the past few months, and now cast members in the park are buzzing over leaks that Disney will be cutting hours and slowing hiring in the U.S. parks to save money to help plug the gap between earnings and expectations created by the underperforming foreign parks and ESPN.

Basic economics would suggest that when a company is doing well — bringing in more customers, who are spending more money — the company would be more profitable and able to afford to increase its spending, wages and investment... and not have to cut back. But with companies as large as Disney, nothing about their operations or finances is that simple anymore.

Replies (21)

February 15, 2016 at 3:19 PM · Wow thats actually fascinating, thanks Robert
February 15, 2016 at 3:24 PM · Basic economics don't support the payouts Disney must make broadcast the sports for the NFL, NBA, and colleges. I still subscribe to ESPN to get college football. There's no other way to see the college football playoffs and Top 25 games, and Monday and Thursday Night NFL games. The only reason I still have cable service is the bundle package that makes getting it a $30 a month extra cost to my Internet bill.

So what's holding back Disney, or more precisely the Disney Parks? The Parisians don't care much for Disney and its weather is horrible for most of the year. The Hong Kong market needs the Mainland Chinese to visit since its own market isn't enough. Plus Hong Kong has many distractions especially from Macau, the gambling mecca that's even bigger than Las Vegas. It's like Anaheim has a Las Vegas that's three times larger and only a 1.5 hours away via boat. (Of course, Las Vegas is one hour away via airplane.)

I happen to think ESPN was horribly mishandled. Disney constantly asks for subscription price increases every cycle to the point that cable companies don't want to carry it anymore. Consumers want a la carte service. I do want ESPN, but not all the time. The future of cable should be unlimited channels with a basic fee and let the cable companies allow licensing prices based on ratings. This will ensure consumers won't cut the cord.

February 15, 2016 at 3:37 PM · I know a lot will say, "Who cares about the short-term? Star Wars Land is coming!" And to that I would say, Disney (and the communities built around DLR, WDW) stand to lose a lot of locals, employees, and all-around respect in the process.

Try justifying budget cuts to CMs who are already overstressed, underpaid, and pro-Union... and who have first-hand experience with crowded parks and rising prices. Does this sound like a premium experience from the market leader?

February 15, 2016 at 5:17 PM · Yeah. They already announced they were cutting the two water park operating hours this summer, and closing many of the Epcot Future World attractions at 7:00 PM. And as you said, the Disney oriented internet sites are buzzing with rumors of imminent cuts in employees, freeze on replacing employees, hours worked, manning of attractions,stores and restaurants and theme park hours. One WDW Magic poster jokingly said they were going to sell off the Animal Kingdom Safari animals & replace them with cardboard cutouts on the Kilimanjaro Safari attraction. Very sad rumors in the face of record attendance and earnings at the American parks. It's being attributed to the ESPN situation, the international parks bleeding money, and the new theme park head Chapek (he of no theme park background) re-instituting a Paul Pressler concept of running the parks. The American parks would probably be better off as a stand alone company. They do quite well on their own merits.
February 15, 2016 at 5:48 PM · I don't know. Slingbox works pretty well in the good ol Midwest.

I think Disney's problem is actually every media outlet's problem: there is compeitition and it is good competition. ESPN vs NBC Sports, Disney Parks vs Universal Resorts vs Cedar Fair. People have now brought their A games and where the consumer now has choices, it takes some market share from Disney.

Somebody already mentioned part of the ESPN problem: sports are getting expensive. Both ESPN and NBCSports have made decisions on which sports to carry and which to pass. Only time will tell.......

If I were Disney, I would not be too concerned. They are diverse enough to still make a buttload of money. The challenge for them is whats "next".

As for Disney Parks not doing well overseas, it is a bit of a mixed bag. Europeans (outside of the UK) do not seem to be as thrilled with Theme Parks as us North Americans. I saw it when I went to DLP. They liked it, but they didn't LOVE it. Quite honestly, with the dollar being down, it with worth it to travel across the oceans to DLR and WDW.

February 15, 2016 at 6:10 PM · There's usually really good deals in the UK that encourage people to travel to WDW & Universal Orlando, at least according to the many UK posters on OU.
February 15, 2016 at 6:55 PM · The dollar is not down and hasn't been for quite awhile. In fact, part of the problem with the price of oil is the strong dollar. Sorry to get off topic but the poster above is referring to an economic situation that existed 3 years ago and is totally opposite now.
February 15, 2016 at 7:12 PM · China's economy is slipping, I wonder if that bodes badly for Shanghai Disneyland.
February 15, 2016 at 8:29 PM · As Disney decides to cut its hours of operation, Universal will continue to gain ground. The gap gets smaller and smaller.
February 15, 2016 at 9:11 PM · This is why amusement park chains such as Cedar Fair, Six Flags, Seaworld Parks and Entertainment will continue to survive and thrive despite the naysayers out there who feel they cannot since they lack the budgets to build immersive lands and attractions.

Not being part of a media conglomerate has its advantages in that the performance of other divisions will not affect their operations as they are stand alone amusement park companies.

Being too dependant on ESPN as it's cash cow shows that Disney not getting the Harry potter theme park rights stings more and more. Granted they do now own the Star Wars and Indiana Jones rights but look at all the attempts previously to counter the Harry Potter phenomenon; Percy Jackson, Chronicles of Narnia and of course John Carter.

February 15, 2016 at 9:18 PM · "....I happen to think ESPN was horribly mishandled. Disney constantly asks for subscription price increases every cycle to the point that cable companies don't want to carry it anymore...."

I agree, but I don't think it's limited to ESPN. I think Disney has been treating the parks the same way. Increased prices not to improve the customer experience or product quality, but just because they can. With EPSN, distributors eventually figured out they could just do it cheaper by going directly to the source. Kinda like a little park down the street that figured out they could build new attractions twice as fast and at half the cost :)

Robert, one other thing worth mentioning is the delay of Star Wars VIII. Although Disney does have some other big releases this year (Finding Dora), it will be interesting how they handle YoY reporting without it.

February 15, 2016 at 9:31 PM · So the parks are booming, ticket prices keep climbing and the crowds have all impacted the quality of our theme park vacations.
And now the company will make park guests and their underpaid CMs pay for their media mistakes and bad business overseas :(
February 16, 2016 at 12:43 AM · IMHO, Shanghai will follow in the footsteps of Hong Kong Disneyland and Disneyland Paris and have a disappointing if not disastrous debut for the following reasons:

#1 Shanghai Disneyland at 220 acres (yes it's that big!) (total resort area is 963 acres) will only open with around a dozen attractions which is the same amount Hong Kong Disneyland (68 acres) opened with which is 12!

#2 Chinese Currency Exchange Rates. Its becoming more affordable for the rising middle class in China to travel overseas. Why go to Shanghai Disneyland but instead go to the one in Tokyo or Paris.

#3 China's economic growth is slowing down with consistent fears of real estate bubble burst. (Sounds familar to the environment that Disneyland Paris debuted to, doesn't it?)

#4 China's central government continued crackdown on lavish and excessive spending. Macau's gaming revenues have taken a significant hit because of this so I wouldn't be surprised if it spreads eventually to theme parks in China.

February 16, 2016 at 7:58 AM · How can you say that ESPN is the reason Disney's stock price and ignore the fact that the stock market in general has seen a major drop since January 1? Disney's stock price is down more so from the market decline, not the issues with ESPN.
February 16, 2016 at 8:57 AM · Re-Yeowser.

I agree with Percy Jackson riding on the coattails of Harry Potter, but not the other two. I feel like Narnia was trying to counter Lord of the Rings and John Carter? Pretty sure that wasn't trying to compete with anything. Also, you're only counting movies. Star Wars is attempting to compete with Harry Potter in terms of theme parks, completely different battlefield. If Waterworld has shown us anything, it's that quality of movies does not reflect quality of theme park attractions.

Re-Rob Pastor.

I think having the American Disney parks seperate from the rest of the Disney company wouldn't make things much better. They'd have to pay licensing fees like OLC does, which means they'd still have an excuse to lower CM wages and raise ticket prices.

February 16, 2016 at 9:33 AM · Disney sold its soul to Wall Street back in the 80's. Now the chickens are coming home to roost.

Walt played a win-win game with his guests, always striving to give consumers more value for their money. By contrast, the modern Disney executives play an aggressive zero sum game. These men appear to believe that the only way Disney can win is if their "guests" lose.

Every year, Disney "guests" are charged more to experience the same classic attractions that Walt built. What do we get for our hard earned dollars? Longer wait times, reduced hours and closed attractions.

Today's Disney executives treats their American "guests" like unwanted stepchildren. American parks are given new attractions at a glacial pace, while foreign parks overflow with an abundance of new attractions.

On the rare occasions when Disney does add new attractions to the USA parks, these attractions usually disappoint. Even the best "new" attractions like Expedition Everest and Radiator Springs Racers are notorious for featuring broken animatronics.

Modern Disney executives have a history of making bad decisions. ESPN should have been spun off years ago, when it would have fetched top dollar. Mymagic+, Disneyland Paris, Hong Kong Disney and the failure to spin off the cable division are mistakes that could cost Disney tens of billions of dollars.

How many park workers will be laid off to cover up the mistakes of greedy shortsighted executives? What are the odds that Shanghai Disneyland will succeed, considering this group's poor track record? If Shanghai Disney is a failure, what will Disney cut next?

What does the future hold for Disney "guests"? Higher prices, reduced services, new attractions that disappoint and constantly break down? When will Disney "guests" decide enough is enough? When will "guests" stop rewarding men who demonstrate more greed than common sense?

February 16, 2016 at 2:39 PM · This lose of revenue could be solved if they would just charge for parking at their resort hotels!
February 16, 2016 at 3:24 PM · Wait good princess happy yahool
February 16, 2016 at 5:28 PM · Having replica theme parks all over the world dilutes the magic, spreads it too thin. Cutting losses might be a good strategy, bringing travelers back to the US to get their Disney fix.

Disney has been making an annual tradition of raising the prices of dining, merchandise, and park tickets here in the United States. I'm wondering if that's their strategy to fill the ESPN void?

February 17, 2016 at 8:04 AM · I personally think the biggest problem for Disney is that they may have over-saturated their product. Simplistically, it's like having a CVS or Walgreens on every corner. Why haven't they kept the exclusivity of their product to the Orlando and Anaheim markets? Expansion isn't always a good thing. Foreign tourists still like coming to the United States and experiencing all that Disney (and Universal offer). Even though they have less of a reason to travel here, they still choose to visit the United States and I think that hurts the expansion of the Disney product in Europe and Asia.
I am not as interested in going to DLP, Shanghai or Hong Kong if I am vacationing overseas. For me there are many other things that I'd give a higher priority to visit than include a Disney park in my plans.
February 18, 2016 at 1:40 PM · BOB IGER. A terrible CEO for the theme park division.

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