Wednesday, February 21, 2018

Crowds, Pricing, and the Disney Experience...

Will Disney's Legacy be one of endless price increases?

As has become almost standard operating procedure for Disney of late, they once again raised prices for the domestic theme parks. There is a lot of issues here that need to get unpacked around Disney’s pricing strategy, crowds and the Disney Experience - so lets dig in.


First some math. When Walt Disney World opened in 1971 an admission ticket with 11 ride coupons sold for $5.75 ($35.02 in 2018 Dollars). The median income in 1971 was $9,027 ($54,979 in 2018 Dollars). Flash forward to today - again Median Income today is around $59,039 but the one park one ticket Disney admission is $129 - a 268% increase from what it used to be. Now it could be argued that there is a lot more attractions, parks, things to do now than in 1971 - but the argument doesn’t hold water because while there are more things to do (and thus more cost for the company) there is also a lot more people attending to spread that cost across.

Crowds and Pricing

Consider in 1971 Magic Kingdom Attendance was 10.7 million. In 2016 (latest year I have access to data for) attendance at the Magic Kingdom alone was 20.3 million - and that doesn’t include the other parks (Epcot 11.7M, Animal Kingdom 10.8M, and Hollywood Studios 10.7M).

According to a statement put out by Disney spokeswoman Suzi Brown the reason that they have raised prices to this level is as a "crowd control" strategy. 
“We know how important making memories at Disney theme parks is to our guests and we will continue to evolve our pricing in a way that gives them a range of options to meet their budget and helps better spread attendance throughout the year so they can make the most of every visit," 
This doesn’t make any sense on the face of it. How does making something more expensive help anyone to “meet their budget”? I would suggest that what Disney is doing is pricing the theme parks at what ever level they feel that they can get away with to maximize profit. If crowds are really such a problem, so much so that you have to deliberately price the experience out of the reach of most people, then you have by definition, a capacity problem, not a pricing issue. Demand is not a problem that needs to be discouraged, but rather a good problem to have. Why would Disney want to deliberately punish its most ardent fans by pricing them out of their products? Even if this would work as a strategy (and I would argue that it will not), its a terrible long term business practice as those who are priced out will have ill will engendered for how Disney treated them. Movies, Television Content, Consumer Products, all require mass market appeal. What happens to Disney when those very consumers, who are vital to all Disney’s other businesses, are turned off from the pricing strategy from the parks.

The basic operating principle at Disney Parks, more than anything, is nostalgia. Positive memories of a Disney Park experiences are often formed when young. If Disney prices young families out of the market, they are breaking the cycle of the next generation of Disney fans. Long term this will be disastrous to the health of the theme park business. As a justification for rising prices, crowds are a terrible excuse, and the fact that Disney mentions crowds, shows that they have an understanding that crowding at the parks is a number one guest complaint. In fact, crowding has been a major guest complaint for some time, and once the crowd levels exceeded design capacity at the theme parks, led to the introduction of the fast pass system (which introduced way more problems then it hoped to solve). From a marketing standpoint raising prices is absolutely one of the worst things that you can do to people, and I believe that Disney is mindful of it, and so they justify rising prices by tying it to something that they know is equally painful, and that fans are desperate to escape from - namely crowds. It’s a brilliant piece of marketing, but its disastrous as a general business policy.


The real underlying truth of this is that the theme park business has become a consistent reliable earner for the Disney company, and the parks segment has, in fact, become the top earner - contributing to 26% of Disney’s earnings in 2017 alone, which is more than the media networks did. It all comes down to greed and profit.

Tear Down and Replace

Another fine example of the greed principle is the tear down and replace phenomenon. For example instead of building a "Star Wars Park" which is clearly what Disney needs, and what people want - Disney has instead chosen to tear down a significant portion of Hollywood Studios (removing ride capacity) in order to build back a few new rides, themed to Star Wars. Rather than add new attractions while keeping the existing ones, increasing the total overall capacity of the park, we end up with more or less, the same capacity. There are several reasons why Disney has taken this path. 
  1. Disney failed to keep the parks (especially Epcot, and Hollywood Studios) fresh, and for a span of 10 years let the parks more or less stay static. Universal crept up on them and put them in a somewhat difficult position when people started to flock to the newer attractions at Universal. The parks were becoming stale and dated in several respects, and they needed to add some net new attractions. It wouldn't have been enough to just fix and freshen the existing attractions - they needed something new, and they needed it fast.   
  2. Building complete new parks and attractions is expensive. For an example of this - you can see what Disney invested in Shanghai - reported at $5.5 billion. A fifth gate at Walt Disney World could easily cost them in excess of $2 billion. 
  3. Tear down and Replace in an existing park is the cheapest option. You don't have to develop and build the infrastructure, the roads, and such as you would with a new park. You can leverage the existing park's infrastructure keeping development costs as low as possible.  
So with the reasons above in mind we end up with something which feels like a bad compromise, namely tear down and replace. Its the cheapest way for Disney to sort of deal with the two problems, while spending the least amount of money. 

Crowds and the Guest Experience

A miserable guest experience.

Nothing that Disney has done, Fastpass +, tear down and replace, rising prices to an unreasonable level,  will do anything to fix the guest experience as regards the crowd problem. Only net new ride capacity will fix the problem, and preferably net new capacity in all the parks plus a fifth gate. Consider for a moment, what Walt Disney World could be, if Disney had chosen to invest $5.5 billion in only new ride capacity domestically, as opposed to investing it in China.

Spreading Attendance Though Out the Year

The simple fact of the matter is that the "peak" seasons of the year are "peak" because that is when kids are out of school. For many people - there isn't a choice at the time of the year that they get to visit WDW. No amount of raising attendance prices will fix this because people are just simply not going to take their kids out of school to accommodate Disney - and to spread the crowds into the former "off" season of the year. What is going to happen is that people will dig deep to continue coming during the times of the year that still works best for them. Eventually the price will rise to such a point that families will just give up. At that point, Disney will lose the future generation.

Premium Guest Experience

A fine example of "Not a Premium Guest Experience"

Disney is not a "cheap" experience, nor should it be. The parks were built on being a reasonable priced premium experience. What we have today, is a reasonable experience (declining with the overcrowding) with a premium price - so the traditional Disney formula has been flipped on its head. Long term, this will be disastrous for the brand, and no amount of helping people to "meet their budgets" will help that.

Monday, January 29, 2018

Negativity, Positivity and Disney

Disney parks are an inherently positive place. The feelings that you get from a visit to one of the theme parks is, admittedly infectious. I think, that because of this, there is an unusual amount of over positivity as surrounds Disney. You see it when ever anyone dares to mention anything that doesn’t fit the narrative of “everything is always great” at Disney. There are certain websites and communities on the Web where if you dare to criticize anything Disney does - you would be silenced or banned. Not here. To be clear - I love Disney. I am a great fan of the parks and the creative legacy of Walt. In fact I love them so much - that I am willing to be honest - in order to save them from being destroyed.

My great fear is that we will have a new generation of kids coming up who will never know the Disney that was - and just how great it actually was. Instead of tranquil park like settings, with incredibly detailed and themed attractions - they will only know an over crowded over priced thinly themed roller coaster park - with little connection to its history or to the greatness of the vision that once was.

The theming and the park like atmosphere are important. It’s what sets the mood of the place and communicates to people on a very deep and almost sub-conscious level. We are loosing it. We’re loosing it when they design new attraction areas for “though-put” because of the immense crowds.

Take for example the new hub at the Magic Kingdom in Orlando. The hub in front of Cinderella’s castle wasn’t redesigned because it was somehow or other bad. The hub had been, with some changes, more or less the way it had always been since 1971. No the hub was redone in order to pack in more people for the fireworks, and to create special “viewing” areas which can be reserved in advance. This wasn’t an improvement to make things better. This was a change to cope with new reality.. and we sacrificed the park like setting what we once had in the name of crowd control. It’s still nice.. but its not what it was.... and that is a huge problem.

I don't point out any of this to be overly negative or because it gives me some great thrill to rain on someone’s fun. Indeed I do it out of a love for the place, and a respect for the vision that is being lost. Disney has lost it’s heart - and is now being driven not what is always best for the guests - but rather what is best for the bottom line. It’s being run, like any other corporation, and unfortunately that sort of thinking will absolutely kill it.

Many folks will point out that Disney is a public company with shareholders and there is a requirement that Disney do everything that it can to return the most profit possible back to the shareholders who are the owners of the company. And I do understand this line of thinking very clearly. How ever Disney doesn’t understand what it is selling or where the real value is in what they offer to the public.

When Walt was building Disneyland - and they were building the Plaza Inn - they tried to talk him out of buying real cut glass chandeliers. Plastic would be fine.. how would anyone know that the furnishings were real.. no one would care. Walt thought differently - the value wasn't that people would come and eat hotdogs in a “recreation” from the turn of the century, but rather they would come and eat hotdogs in a real (as he could make it) turn of the century restaurant. What Walt was selling is the experience of the special.. not the experience of the cheap, or expensive, or crowded, or what to some would be the most “cost effective”. Walt was selling an experience that you could not get anywhere else in the world. People know and can feel quality. That’s the main product that Disney is selling. Follow that guideline and the profits will take care of themselves.  Everything else is secondary.