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Walt Disney – Company Insight & Competitive Analysis Theme Parks & Resorts Division By Salman Abdulaziz
COMPANY’S EXTERNAL ENVIRONMENT KEY ECONOMIC & INDUSTRY VARIABLES Market Size The global attractions and amusement industry was worth $24B in 2010. 341M visitors visited US theme parks in 2007 creating revenues of US 12B. 185.6M visitors attended the Top 25 theme parks in 2009 Market Growth Global theme parks industry is expected to reach US 29.5B by 2015 US amusement and theme parks grew 34.8% between 1990-2007 and is expected to grow 3- 4% between 2011-15. 123.6M attended the top 20 theme parks in North America, an increase of 1.8% from 2009. 189.1M attended the Top 25 parks in the world in 2010, an increase of 1.9% from 2009 Scope of Rivalry Theme Parks Walt Merlin Parques Six Flags Universal Disney Entertainment Reunidos Studios Group Revenue 2010 966.6M 800.8M 516.8E 976M N/A PORTER’S 5 FORCES Competition: Intense Walt Disney competes with several large players such as Merlin Group, Universal Studios and Parques Reunidos along with some local regional players. Substitutes: Low Substitutes include zoos and museums which don’t match the theme park experience. Threat of entry: Medium It takes significant investment to enter the market. Universal Orlando’s Simpsons Ride, Hollywood Rip Ride Rocket costs 275M and Harry Potter Wizarding costs about $310M. Supplier Power: Medium Suppliers include equipment manufacturers, construction companies and vendors. Bargaining power for technology suppliers and construction companies is medium as technologies are capital intensive and require support and maintenance. Food, toys and clothing vendors have low power. Buyer Power: Low Buyers are end-consumers. Their power is low as prices are controlled by theme parks.Walt DisneyCompany Conclusion The industry requires significant investment to enter but attracts some competitors due to high revenue generating opportunities. COMPETITIVE ANALYSIS Theme Parks Walt Disney Merlin Universal Parques Reunidos Six Flags Entertainment Studios Visitors in 2010 120.6M 41M 26.3M 25.8M 24.3M
KEY DRIVERS FOR THE INDUSTRY Product Innovation Different theme parks compete to provide unique movie themes and provide new rides never experienced before to attract fans. In 2010, Disney launched an award-winning night-time fountain spectacular show called Wonderful World of Colour which took five years to make. The show helped attract destination park visitors during recession and maintain attendance in 2010. Cedar Fair will be investing $75M in capital improvements which will also include 300-foot tall swing rides at its four largest parks including Canada’s Wonderland. Marketing Innovation Since visitation by tourists in Orlando reduced by 9% in 2009, Disney parks maintained healthy attendance by building relationships with customers and focusing less on revenue. They compensated for lower tourism levels by increasing regional attendance and repeat visits through special passes and discounts. Globalization In 2008, the number of visitors to world’s top 25 theme parks is higher than the number of tourists who visited Spain, China, Italy and UK combined. 49% of the visitors who attended Disneyland Paris were international tourists. Major US companies have 13 parks under development in international markets including Universal plan to expand in South Korea. This makes global availability and mobility of resources necessary. Managers, operations staff, planners, architects, engineers and designers travel abroad to accomplish these projects. Customer Preferences Along with deals, parents also they also need ways to reduce the complexity of theme parks which can be large and confusing. According to a study, customers put emphasis on staff members, cleanliness, safety and security and 37% visitors in US stated that they would be willing to pay extra to avoid long lines. Competition In 2005, more than 100 new attractions were launched or announced worldwide. Competitors are launching new theme parks to capture market share. Wild Adventures Theme Park will invest its 4M Splash Island Water Park Expansion with the addition of new family rides five stories high and 9 VIP cabanas increasing the total attractions in Splash Island to 15. Danish based “Theme Park Group” is planning to launch a theme park in Spain’s Majorca Island in the Mediterranean.Walt DisneyCompany Value Chain Analysis Corporate clients and Construction Manufacturers Suppliers provide, end consumers pay companies are hired provide technology food, clothing and for events, hotels, to create theme and equipment for toys to be sold in vacations, cruises and parks. amusement. theme parks. theme parks. Some companies like International Theme Park Services provide services in developing, operating and enhancing theme park facilities.
The Walt Disney Imagineering Unit designs and creates concepts for new theme parks and attraction resorts Walt Disney Theme Parks Division creates destination theme park globally. Revenue is generated through selling tickets (60%), food and beverages (17%) and merchandise (10%). Conclusion about the Attractiveness of the Industry The industry is moderately attractive. It requires significant investment to enter but attracts some competitors due to high revenue generating opportunities. The average price of one day ticket is $25 which when multiplied by the number of members in a family and added to purchase of foods, clothing, toys and premium tickets provide significant sales. Weighted Key Success Factors Key Success Weighted Walt Merlin Universal Parques Six Factors Factors Disney Entertainment Studios Reunido Flags s Advertising .2 9 7 7 7 7 Quality Experience .14 8 7 7 7 6 Product Innovation .12 8 6 8 7 8 Customer Service .1 8 7 7 7 6 Global Presence .15 8 7 6 6 5 E-commerce .15 7 6 7 6 6 6.93 5.75 5.99 5.72 5.45 Disney is the industry leader as it has a more globalized business than its competitors. It advertises aggressively and constantly innovates to maintain market share.Walt DisneyCompany
COMPANY’S RESOURCE & COMPETITVE POSITION CORPORATE STRATEGY Walt Disney provides magical experiences in its theme parks and advertises them aggressively to attract customers. It stays global to be the market leader and constantly innovates new products to respond to changing customer tastes. The revenue is generated from sales of tickets, hotels, merchandise, food and beverages along with sales and rental of vacation club properties and cruise vacations. FUNCTIONAL STRATEGIES Partnerships Disney completely owns and operates the theme parks in US but uses the partnership model to expand in other countries. It has 51% ownership in Disneyland Paris and 47% interest in Hong Kong Disneyland and receives royalties from Tokyo Disneyland which is owned and operated by a local Japanese corporation. Alliances with Movie Studios Walt Disney partners with film-makers to provide unique and exclusive movie themes. It partnered with James Cameron and Fox Entertainment to have mysterious universe of Avatar at its theme parks. The agreement gives Disney exclusive rights to have franchise avatar theme lands globally. Construction for the project will begin in 2013. Flexible Pricing Strategy Disney used demand based pricing and internet tickets to drive sales. Prices are adjusted when parks are full. Increasing prices by 10% and losing 5% customers increases profits and prevents overcrowding. Internet selling is beneficial as tickets and coupons are easily sold and customers don’t feel the expense when they don’t pay in cash. They use customer relations tools to learn about their customers and their needs to provide personalised services and special offers. COMPANY’S VISION To have a magical park where children and parents could have fun together. MISSION STATEMENT To be one of the world’s leading providers of entertainment. Using our portfolio of brands, Disney seeks to develop the most creative, innovative and profitable entertainment experiences around the world.Walt DisneyCompany COMPETITVE ADVANTAGE The company is able to leverage its multiple divisions to promote its products and create new revenue generating opportunities. Disney can produce a movie using its Studios division, promote it through the Media Networks division and use it to create themes and toys for theme parks and consumer goods division.
FINANCIAL ANALYSIS 2007 2008 2009 2010 Gross Profit Margin 19.23% 19.67% 15.76% 17.6% Operating Profit Margin 16.1% 6.48% 13.29% 12.24% ROA 7.7% 7.08% 5.72% 6.23% ROE 9.56% 8.61% 5.86% 10.96% Current Ratio 0.99% 1.00% 1.33% 1.11% Gross profit margin has shown a gradual decline indicating that percentage of revenues available to cover operating expenses is lower than before. The operating profit has decreased by 3.86% and has been consistently decreasing indicating a decline in profitability of current operations. The ROA has a small decline which is usually common in the industry with ongoing capital investments. The ROE indicates a stable dividend return for shareholders. The current ratio of 1.0 and above in the last 3 years indicates Disney is able to pay its liabilities. Overall, the company is financially stable. SWOT ANALYSIS Strengths Walt Disney is the industry leader. 120.6M visitors attended Walt Disney in 2010. It has Europe’s largest theme park Disneyland Paris which received 15M visitors in 2010, 2,32M more than 2008. It is also the most globalized theme park company with 10 of the Top 25 theme parks under its belts. Creative Advertising. Disney placed 7th on the Ad Age’s 100 Leading National Advertisers report with spending of 124M on parks and resorts in 2011. Solid Management Team. The senior employees possess a wealth of experience to lead the company. Chairman of Disney Parks and Resorts Thomas Staggs presides over the vacation and travel business which includes 11 theme parks at five destination resorts in United States. He played an important role in a wide variety of Disney’s strategic and operating initiatives and corporate transactions including the acquisitions of Capital Cities/ABC, Pixar Animation Studios and Marvel Entertainment. Weaknesses Disney has ignored the key decision makers – the parents who purchase the tickets by focusing only on the young audience. Parents visit theme parks to for the sake of their children but do not have any desire to go for themselves.Walt DisneyCompany Disney rides are not as high or as fast as their competitors Cedar Fair and Six Flags. Opportunities Even though Americans are still budget conscious, they are becoming more comfortable spending on travel. Growing interest in traveling and vacations, along with promotions offered by theme parks, will create growth in the future. 33% respondents mentioned they buy tickets online which provides theme parks to shape the visit before it begins. Theme parks can offer coupons along with tickets to increase spending. Growing demand in Asia. 83.3M attended the top 15 Asian theme parks in Asia in 2010, 7.3% increase over 2009. The attendance in Disney Japan and Hong-Kong Disney increased by 800,000 and 600,000 in 2010 respectively. Furthermore, Shanghai government and Disney
announced a detailed agreement to launch a Disney theme park in the Pudong District of Shanghai by 2016. Growing demand in Latina America. 13.3M visitors attended the top 10 theme parks in Mexico and Latin America, 8.2% increase from 2009 and 20.5% since 2006 Disney Tokyo fed and sheltered many customers stranded in the park during the earthquake which allowed them to build customer loyalty. Threats Risk of park related accidents. According to US Consumer Product Safety Commission 78 site related injuries required overnight hospital visit in 2003 Disney’s global presence means it has repatriate profit from different currencies exposing it to foreign exchange risks. Theme Park insurance is expensive. It depends on various factors like revenue, number of rides and previous loss experiences of different parks. Amusement parks are covered under general liability insurance which includes slips and falls to ride malfunctions. Due to high risks, few insurance are willing to undertake the risks. Strong competition in Europe. Merlin Entertainment Group is the market leader in Europe and Europa-Park attracted over 4M visitors in 2010 with more than 20,000 visitors in peak days. It also held Euro Dance Festival and Miss Germany 2011 intensifying the competition for Disney. Intellectual property is necessary to provide unique themes and experiences. The unauthorized use of intellectual property rights can increase the cost of protecting it.Walt DisneyCompany
COMPANY ISSUES Product Innovation: Consumer tastes and preferences change with time which can potentially reduce demand for existing products. Economy: Poor economy, political climate, adverse weather conditions, natural disasters, health concerns and terrorist attacks can negatively influence demand. Competition: The theme park industry is highly competitive facing competition from large global players and small regional parks. PRODUCT INNOVATION Theme parks have to create new attractions to attract customers on a regular basis. 39% US visitors say they would visit a theme park to try new rides or attractions. The lure of new rides, shorter lines and grown-up entertainment help entice future theme park visitors. Disney is growing slower than its competitors as its innovations are not matching its rivals. Teenagers who are 3 times more likely to visit a theme park compared to adults have shown interest in Six Flags as it provides some of country’s tallest, fastest and wildest heart pumping rides. Six Flags also introduced the Terminator Salvation Ride where riders are transported into a deserted future to fight along a post-apocalyptic legion of soldiers. As a result the revenue for Six Flags grew by 77M or 9% to 976M in 2010 due to in-park sales, admission ticket sales and sponsorship fees. Furthermore, Universal Studios Orlando created the award-winning Wizarding World of Harry Potter which met the expectations and created an immersive guest experience. It attracted 15% of the American teenagers who visited theme parks and increased the visitor attendance by 1.7M, more than Disney’s global growth of 1.57M visitors in 2010. The new Harry Potter theme in Universal Orlando’s Wizarding and King Kong 3D in Universal Hollywood will attract more teens in the near future. Also, Universal is also trying to address the needs of keyWalt DisneyCompany decision makers – the parents. In partnership with American Express, Universal will provide a new air conditioned lounge for customers who purchase multi-park tickets or annual passes through American Express credit cards. This will allow people to relax and recharge with chilled beverages and light refreshments while kids enjoy the theme park. Since 29% of American consumers mentioned they would be willing to pay extra for entertainment geared towards adults such as concerts, comedy clubs and bars, this will address a market need. Disney needs further innovation which can be challenging as consumer preferences changes with time and
wrong predictions on consumer tastes can result in losses. Also, creating new themes can cost between 75M-300M which increases capital requirements and may require parts of the park to be closed for a period. ECONOMY The International theme park and attractions industry suffered due to global economic recession. Number of theme park visitors for Top 25 theme parks worldwide declined by .7M to 186M in 2008. Weak tourism in Los Angeles and Orlando caused double digit declines in major theme parks in 2009. European theme parks which depend on visitors taking long vacations were impacted negatively and the total attendance for the top 20 European theme parks decreased by 1.8 percent from 2009. Also, unemployment which hovers in US (9%) Euro zone (10.3%) and Greece (18.3%) with rising oil prices increasing the cost of travel impacts profitability. As a result more and more consumers have preferring low-cost regional parks, zoos, museums and staycations to recreate within a budget. Furthermore, incidents of civil unrest, natural disasters and terrorism reduce the perception of safety in theme parks by 30%. Earthquake in Japan resulted in closure of Disneyland Tokyo for one month and since consumers lost their properties and savings it will take some time for them to seek recreation again. Also, Attractions in Latin America and Mexico were impacted due to recession and H1N1 virus in 2009. Disney had to respond by aggressive discounting and advertising to maintain sales in challenging periods which reduced their margins and increased advertising costs. COMPETITION Walt Disney is among the top 8 theme park companies which had 20M+ visitors globally in 2010. However, Disney’s growth rate is lowest among major competitors and below the average industry growth rate of 2%. It had the lowest growth of 1.3% compared to 11% for Universal Studios, 8.1% for Cedar Entertainment and 6.5% for Merlin Entertainment. Disneyland Hong Kong is the only Disney theme park in the list of Top 10 fastest growing theme parks of 2010.Walt DisneyCompany Furthermore, Disney has a weak presence in Europe where it competes with 300 amusement parks and Merlin Entertainment leads the market with 41M visitors compared to just 15M visitors for Disney France in 2010. Also, it does not have any theme park in Mexico and Latin America where Six Flags and Parques Reunidos attracted 2M and 1.1M visitors in 2010.