Shanghai Disneyland opens on June 16, but Disney's target for the park was late last year. The delay has inflated the price of construction and has cost Disney its share of six months of income from what might end up becoming the world's most popular theme park. At the same time, fans are seeing cuts at the Walt Disney World and Disneyland Resorts, with fewer entertainment options, reduced capacity at some attractions and reports of cast members seeing reductions in their hours scheduled.
It's easy to put two and two together, and... #ThanksShanghai. But blaming Shanghai Disneyland for operational cuts at Disneyland and Disney World reflects a simplistic conclusion. This just isn't the way that publicly-traded companies run.
To start, one basic rule of accounting is that capital expenditures — money spent on construction, new equipment, and buying land — is accounted differently that money for operations — such as paying employees. If Disney had to pay more than it planned to build Shanghai Disneyland, that's a hit to its capital budget. And no amount of cutting its operational budget will change that.
If Disney wants to offset an unexpected expense in its capital budget, it would need to do that by delaying or canceling another construction project. Now, there's a strong consensus within the analyst community that Disney already did that... by delaying Star Wars Land for nearly two years. Yes, the company was waiting for the start of the new trilogy, and yes, the company's board sent the original plans back to Imagineering for another go. It's possible, even likely, that Disney would have ended up delaying Star Wars Land even if it had never started the project in Shanghai. But it was a lot easier for Disney management to justify those capital delays when Shanghai was running over budget.
So what about that loss of six months' income? That is an operational issue. But in accounting terms, that delay was a one-time, extraordinary event. One-time items are the "get of of jail free" cards that companies hand to analysts, hoping not to be punished for a loss that doesn't reflect an ongoing problem in the company. Disney doesn't have to make cuts to balance that — analysts know what's up.
Of course, all of Disney's capital and operational expenses get thrown together on the company's bottom line. And any corporate executive who wants to keep her or his job wants that bottom line to look as black and as fat as possible. But any analyst with the ability to read a spreadsheet looks far beyond the bottom line. They know exactly what's happening in Shanghai. Nothing that Disney does stateside will hide that.
But... aren't cast members hearing from their managers that they're under orders to cut costs due to Shanghai? Here's where the corporate game of telephone comes into play. Of course, Disney wants to deliver the best bottom-line performance that it can, despite a hit from delays in Shanghai. So that's why upper-level executives would tell their department managers to take a hard look at all aspects of their operations, to see what might be cut to improve their departments' contributions to the bottom line. And yet... executives tell managers to get out the scissors all the time. With Bob Chapek taking over the Parks division from Tom Staggs last year, it's likely that such a call would have come anyway, with or without Shanghai in play. An immediate boost to the bottom line is an immediate boost to a new leader's reputation.
Disney always cuts labor hours in the shoulder season between Spring Break and the start of summer. And with Star Wars Land construction taking over large sections of Disneyland and Disney's Hollywood Studios, several attractions were going to close — whether for a short time or forever. But managers now are looking for whatever other cuts they can make to their labor and operational budgets, to see which ones they can "get away with," without resulting in a loss of income or attendance.
Many fans are citing the elimination of the Pixar Play Parade at Disney California Adventure for the next month as an example of #ThanksShanghai. But the festival marketplace food booths for the DCA Food & Wine Festival effectively block the park's parade route, making the parade impossible to run during the festival. Sure, Disney could have found other locations in the park for the booths, allowing both the parade and the festival to run at the same time. But here's how that cost-cutting analysis comes into play — Disneyland management is betting that it doesn't need the parade to draw visitors while the festival is running. And if the parade isn't going to improve the bottom line during the festival, why run it? Why not save the expense and let that flow to the bottom line?
Here's how you know that the current cuts at Disneyland and Disney World ultimately don't have anything to do with Shanghai. Imagine if Shanghai Disneyland becomes a wild financial success, earning more than Disney anticipated and contributing billions to the company's profit. What happens then?
Here's what happens — If the cuts at Disneyland and Disney World do not result in a loss of income or attendance at those parks, Disney won't change a thing. Disney will bank the extra profits from Shanghai and the extra profits from cutting superfluous expenses at DLR and WDW. The only way that Disney will back off cuts at its U.S. resorts will be if those cuts result in losses for the company. Ultimately, the parks' direction is not determined by what's happening in China. It will be determined by the decisions of Disney's theme park customers.
If fans decide that they'd rather go spend their money at Universal, Knott's, SeaWorld, Six Flags, or other parks and attractions, than put up with cuts at Disney, then Disney will have a reason to open its checkbook to win back its former customers. But if fans continue to support Disney's theme parks — deciding that Disney with cuts is still better than the competition — then why of Earth should Disney increase marginal spending on labor and operations? It's making its money without that expense.
Every time Disney raises its ticket prices or cuts something in its parks, fans go online and wail and moan. Many say that's the final straw and that they will stop spending money at Disney's theme parks. And year after year, Disney's theme park attendance and income grow anyway.
Disney knows exactly what it is doing. And it does it better than anyone else in this industry, which is why Disney is far and away the industry leader in attendance and income.
Don't like what's happening at Disney's theme parks? Don't say #ThanksShanghai. Give credit where credit is due and say... #ThanksDisneyFans.
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I think what Robert is trying to say (and what I've been saying for over a year now) is that many people complain that Disney's betrayed their fanbase; but Disney keeps seeing a ride in attendance and income every year. If Disney was really upsetting it's fans, than the numbers would say otherwise. But they don't. Ergo, Disney thinks that it's giving it's fans exactly what they want, and that the people complaining on the internet are just a bunch of grumpy little trolls. Ergo, there's no need to change their current business model. So if you're really upset with the way that the Disney parks are, then here's an old saying that I suggest you take to heart:
"Put your money where your mouth is."
In other words, actually stop visiting Disney and giving them your money and convince a whole lot of other people to do the same. The civil rights advocates of the 1960s didn't end segregation just by complaining about it. They organized sit-ins, bus boycotts, protest marches, etc. So do that! Don't just talk! Act!
So the plan, on the short term, is to show profit over popularity (particularly since Disney doesn't release attendance figures). Outside of Star Wars and Marvel expansions, they don't have a lot of compelling projects on the horizon, so delaying that is actually in their best interest. In the mean-time, they can raise prices and build lesser attractions (meet and greets, after-hours events, ride overlays, etc), and determine just what price they can set for these offerings.
The theme park wars are on, it's just not over immersion or the best ride... It's over value.
Organized labor will always jump on any cuts and look for the most convenient excuse to blame on the company and it's "evil management", when the truth is that Disney is no different than any other business that is beholden to it's investors. Sometimes that means they have to tighten their belts from time to time. Disney doesn't HAVE to bring in outside talent, they've capitalized on their success and added some of the most popular and imaginative properties to their family in order to expand their popularity and success well into the future. That's just GOOD business.
And as a devout Star Wars fan, as well as Marvel, Pixar and the core Disney properties, I for one applaud them for their efforts. I only wish they had bought Marvel BEFORE they made all these side deals with various producers and Universal Parks in particular. One can only imagine the amazing things they could do at Disneyland and Disneyworld with all Marvel rights in hand.
Your last comment is the most ridiculous of all..."...they've lost the own inward drive to surpass customer expectations...." Last I checked, "Frozen" was an inward driven Disney production and it's become the biggest animated film of all time.
Disney's future is well in hand, and like the author of this article stated, they KNOW exactly what they need to do to be successful.
The extra investment has been estimated at $800M and Disney owns 43%. Assuming equal investment, and it likely isn't, that's an additional $350M. In comparison, the last 3 years cash flow are $ +848M, -510M, +544M. An additional 300M cost and 100M lost 6 months business is significant, A simplified look, but cash flow matters. Good business practice requires either cutting or deferring costs to protect cash on hand.
I don't think these 'shoulder' cuts are normal, they're deeper than just seasonal cuts. They're actually affecting the guest experience. Disney charges premium prices, and they need to continue offering a premium experience, not cut back on it.
I hope that Harry Potter at Universal Hollywood will wake Disney up and realize that they cannot cut back and still expect people to just swallow it. I expect that the So Cal theme park audience will be drawn to Potter for the next 2-3 years, until Star Wars land opens.
I still think that Shanghai has an effect, even if it's because of the 6 month income loss as you say. The domestic parks are doing gang busters, don't penalize your best customers by trying to make up for losses in Shanghai. That would be a dangerous short sighted policy.
What's that old business saying? It costs less to keep existing customers than to get new ones. It seems like Disney WANTS less theme park customers, just as long as they pay more. Again, short sighted, they need to increase supply (third theme park), not just raise prices.
I suspect there is a delay in the construction of Star Wars Land at Disney Hollywood Studios. The ground breaking there appears to be enough acreage for Toy Story Land only with two rides, the roller coaster and a spinner. They demolished the backlot, the Motors show, and Catastrophe Canyon. They didn't demolish land for Star Wars Land that will begin at Star Tours and possibly further west and up to Echo Lake.
I presume Disneyland's Star Wars Land will open first in 2019, then Toy Story Land at DHS in 2019, and then another two or three years, DHS' Star Wars Land will open in 2021. It only makes sense to stagger the openings with Animal Kingdom's Avatar will open in 2017. BTW, they preserved The Muppets at DHS as Muppets Courtyard so this appears to be an attempt to save some money.
"Sometimes things look good on paper, but lose their luster when you see how it affects real folks. I guess a healthy bottom line doesn't mean much if to get it, you have to hurt the ones you depend on. It's people that make the difference. Little people like you."
Hardcore Disney fans in general are among the more foolish in the theme park fan community. They tend to complain about everything yet do nothing to inspire change. Anyone who thinks Disney will make changes that decrease revenue or profit when there aren't needed benefits elsewhere doesn't understand basic economics, and anyone who expects these cuts to be reversed after Shanghai opens even if they don't show a negative effect on income is going to be very disappointed. Disney is a business and always has been, the inner workings and strategies to maximize profit just weren't as obvious before.
If one is suffering, the other has to make up for it. The budget overruns in Shanghai have an INDIRECT affect on the operational budget.
What this article fails to mention is that Hong Kong Disneyland was in the red last year. This accounts as an operational loss. So, then we have to look at the combination of budget overruns in Shanghai and the operating income loss in Hong Kong.
But, wait...what about the billion dollar bailout that occurred last year at Disneyland Paris? That was also considered an operating income loss. Disneyland Paris has barely stayed afloat since its opening in 1992.
To make up for all of their losses in France and China, Disney's goal is a cost savings of 30% on the operating budget stateside. This means cutbacks to the entertainment, attraction capacities, and Cast Member hours. This will temporarily make the bottom line of the company look good but not for long.
It is not the fans' fault for these losses. Fans are already starting to taking their money elsewhere. The #ThanksShanghai hashtag is pretty spot on, although the cost overruns there are not entirely to blame. Perhaps the tag should read #ThanksHongKongFranceAndShanghai
For example, some annual passholders are moaning about the perceived loss in theme park time due to Disney After Hours. But, the fact is that in just a few weeks, the overall total hours available to passholders will increase greatly due to Disney's Animal Kingdom being open an additional "X" hours each night. That's a fact that gets dismissed because it doesn't fit into their "Disney has turned Evil" viewpoint.
That said, I think Disney does need to shoulder some blame with the general ill will. If they hadn't engaged in multiple price increases each year, I think the outrage would be tempered.
In the end, all the complaints are not likely to matter. I do agree with AJ Hummel is correct that lots of complaints are hollow and that those people will still make their annual trips. I'm also certain that as far as Walt Disney World goes, Disney wouldn't mind a decrease in annual passholders because those folks tend to spend less than first-time/once-in-a-lifetime guests.
What would Disney's profits be, if Disney management had not made so many bad decisions: EuroDisney, Hong Kong Disneyland, MyMagic+ and now Shanghai Disney?
The Disney CEO job must be the easiest in the world: cash in on the goodwill that Walt built, raise prices every year until you've destroyed customer goodwill, then take your golden parachute and get out.
Remember there is also that other mandatory SEC financial statement that captures both of these issues -- the Cash Flow statement. Good analysts care an awful lot about the that statement and the operational gains made within Cash from Operations do indeed offset the CapEx line inside of Cash from Investing Activities.
And don't underestimate the power of perception -- a monster domestic quarter can very much obscure a weak Shanghai report. It will still be topical, but becomes bullet point #3 instead of #1. And it's not just the parks, look at the new Star Wars digital release date -- April 1, the first day of the second quarter. Whatever the reason(s), Disney really, really wants a strong second quarter.
Plus the Marvel movies are making monies, add in other movies, Star Wars is Huge… They do not pay a large dividend on their stock…. So I wonder where are the monies?
Are they giving TH Creative kickbacks again? Hahahah
I am sure the Disney executives and making $$$$$$.
To cut cast members is wrong because you lose the atmosphere of Disney. I also believe Disney should concentrate on their parks in the USA vs creating more over seas. Especially sine France and Hong Kong aren't doing well and have resulted in loss of profits. And yes, I do believe Shanghai Disney is one of the contributing factors for price increases of both parks in the USA.
I don't know what the answer is but Disney needs to put it's customers first because it's starting to look like the only ones who will be able to afford Disney will be the rich!
The money hasn't disappeared. They are sitting in banks waiting to be spent. High profits feeds the stock markets that compels businesses to spend more money to feed profits. Once a certain amount of cash is banked, they will pull that money out and see if it can be put to better use. Some money is awarded to stockholders, some money is used to buy companies like Marvel and Pixar, and some money is used on new projects. Of course, the executives get their cut.
Most companies don't really care about the employees as long as they are producing and the bottom line. Just because Disney is Disney doesn't mean it's not a corporation.
Disney wasted $20 billion repurchasing its stock-market shares over the past few years. Yet another bad investment by Iger and Co.
Brain-dead bean counters screw up. Fans and cast members get stuck with the bill. Welcome to the Wonderful World of Wall Street Disney.
There is also no thought here to long-term effects. If a guest comes this year and has a bad time, they won't be back two years later. If a child comes to Disney and their experience is totally unmagical, then that guest will not become a fan as an adult. Again, there is no end to how much of a fan you can be. It's not a binary; fan = yes or fan = no. If your experience is incredible, then you will become an extreme fan, rather than someone who simply "kind of likes Disney parks".
Part of the reason that Tokyo Disney is so pristine as that Japanese management thinks way beyond the next quarter - that's how Japanese culture tends to be.
Now it is quite possible that they have an over-attendance problem right now resulting in guest dissatisfaction. In effect they paying the price for not having expanded much for so many years. Had they invested more in expanding park capacity ten years ago, they could welcome way more guests now, and those guests would stay more days at the resorts because there would be more to see. Again, if all you care about is the next quarter you are unlikely to start spending on something that only pays off in 6 years. How much more money would Epcot make if Future World had more awesome attractions?
How many people go into the Imagination Pavillion, say "this is really lame" and then leave the park or don't ever come back? My guess is thousands and thousands of people do this every year. It's maybe not a majority of guests, but thousands of people is still tens of millions of lost revenue - so if management were less probe to simplistic bean counting they would now have more cash in their pockets. Not to mention, ten years from now, those disgruntled guests will not be bringing their kids....
In the film industry (which I work in) the people who spend the least on production and do everything on the cheap are not, in the end, the wealthiest. It's people creating Hunger Games that have the mansions on the beach. Same here. Nickel and dime-ing is not a road to long term prosperity.
- Robert Ruffo
- Robert Ruffo
There is also no thought here to long-term effects. If a guest comes this year and has a bad time, they won't be back two years later. If a child comes to Disney and their experience is totally unmagical, then that guest will not become a fan as an adult. Again, there is no end to how much of a fan you can be. It's not a binary; fan = yes or fan = no. If your experience is incredible, then you will become an extreme fan, rather than someone who simply "kind of likes Disney parks".
Part of the reason that Tokyo Disney is so pristine as that Japanese management thinks way beyond the next quarter - that's how Japanese culture tends to be.
Now it is quite possible that they have an over-attendance problem right now resulting in guest dissatisfaction. In effect they paying the price for not having expanded much for so many years. Had they invested more in expanding park capacity ten years ago, they could welcome way more guests now, and those guests would stay more days at the resorts because there would be more to see. Again, if all you care about is the next quarter you are unlikely to start spending on something that only pays off in 6 years. How much more money would Epcot make if Future World had more awesome attractions?
How many people go into the Imagination Pavillion, say "this is really lame" and then leave the park or don't ever come back? My guess is thousands and thousands of people do this every year. It's maybe not a majority of guests, but thousands of people is still tens of millions of lost revenue - so if management were less probe to simplistic bean counting they would now have more cash in their pockets. Not to mention, ten years from now, those disgruntled guests will not be bringing their kids....
In the film industry (which I work in) the people who spend the least on production and do everything on the cheap are not, in the end, the wealthiest. It's people creating Hunger Games that have the mansions on the beach. Same here. Nickel and dime-ing is not a road to long term prosperity.
- Robert Ruffo
- Robert Ruffo
Now they truly only care about the one time visits of those international visitors who will spend huge coin for 10-14 days...once! So I guess we'll soon be forced to see the Star Wars Tower of Terror and the Marvel-ous Water parade in Bay Lake...*sigh*.
Is Disney a greedy for profit business? Well yes!
Should the fans who feel ownership in a company they love and adore take responsibility for it's issues as well? Yes.
If you think things are bad, just stop going for a while. Try a Six Flags or Knotts Berry Farm. Rent a house near the ocean for a change. Take a few years off and see how much Disney hurts without your business. I realize it sucks that they might not notice you aren't there... but it might help "fix" things.
Regardless... Disney is fine. Everything is fine. We're all fine here now... how are you?
Is it all about Shanghai? Probably not, but it's certainly not the fans fault for spending too much money.
The worst thing is, Disney IS this simplistic. Everything they do, they do for their shareholders. Why? Because it's easy to tell the shareholders "Well, we sucked in this category but the theme parks are making money and these cost-cutting measures INCREASED our profits!" I don't recall reading a Disney Annual Report that doesn't brag about purchasing something globally and cost-cutting elsewhere (usually in the parks division). They don't take three to four years to build a new attraction to please the parkgoers. They don't build new parks to please Disneyland/WDW's visitors. They don't buy television channels to increase attendance. Disney has operated following this shareholders-first-fans-last mentality for over 20 years. It's pretty disingenuous to think that's changed in the slightest.
The most successful people and enterprises are those who demonstrate that they care about something other than money -- namely, they care about providing an excellent product. They have PRIDE.
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