There’s an interesting post at National Inflation Association on the relationship between the official rate of inflation and tickets to Disneyland. Over the years tickets to Disneyland have tracked the official rate of inflation pretty well. But not now:
Disney’s 2015 price increase of 6.06% is an unbelievable 8.96X higher than America’s latest official full year price inflation rate of only 0.68%! For comparison, NIA has just created and published for you below an exclusive must see chart, which displays the ratio between Disney’s Magic Kingdom Price Inflation and the BLS’s CPI Price Inflation. You will see that Disney’s 2015 Magic Kingdom price increase has exceeded the latest official rate of U.S. price inflation – by the largest ratio in history!
Lots of charts and graphs.
The obvious retort is that one price increase doth not make an increase in inflation. However, for the last year of so the official rate of inflation has diverged pretty strongly from what the Billion Price Project has found, despite the previous close tracking of the two. That suggests to me that there may be a problem with the official rate.
I’m not sure much can be made of this metric, but first it’s DisneyWorld in Florida, not DisneyLand. And the importance of that distinction is that the Florida resort is much larger (four theme parks, plus several other attractions), and caters to the multi-day visitor. DisneyLand is in one of the largest Metros in the area, and people visit for the day. In Florida, the pricing is built around packages, the second day is less than the first, but more than the third. Hotel and dining options exist. IOW, the single day admission to the Florida park is closer to the rate posted on the back of a hotel door.
The second point is that comparing prices back to 1971 has additional problems. Magic Kingdom has expanded since then, and rides have been replaced with new attractions, including by whatever unholy means could be crafted, convince kids to stand in long lines to have their pictures taken with Disney characters. Plus, in 1971, admission came with a ticket book (so many A rides, B rides, etc.), whereas now general admission gives you unlimited rides in the park. There are now free super-passes to reserve a place in line and extended park hours. Also, you don’t actually get a ticket to Magic Kingdom, you can get a ticket to any theme park for one day, which has some substitution value.
including by whatever unholy means could be crafted
Chemicals in the smell of food they pump in. Near the end of Main Street USA there’s a bakery, and it always smells of hot apple pie, even when no apple products are being produced or sold. They pump in the smell! I’m convinced they do something similar with children and the photo-ops. (And for those that don’t know, a massive tunnel system exists beneath the Magic Kingdom, allowing for all kinds of things to be done.)
And the Magic Kingdom does charge more for entrance than the other parks now, PD. I’m not sure how they do that with the multi-day passes, but MK is now $8 more per day that the others. It’s the first theme park in our region to pass the $100/day mark at $105. Though as you mention, package deals make that number something of a maximum for entrance.
…
Disney figured out long ago that they could raise ticket prices and it wouldn’t hurt them. If they lose customers over it they’ll make up for it with the increased price for the others. Plus, they’ll be losing the low-rent customers (I don’t have to call ’em ‘guests’ anymore) who don’t spend as much on all the other high-margin stuff that the richer folk do. It’s something of a process of de-selection* as it was called at the consulting firm I used to work for.
Incidentally, the profit margins at Walt Disney World Resorts are huge. When I started there in 2003 they were all in a tizzy because a combination of rising healthcare costs and higher pension costs due to the prior market collapse and low interest rates had their margins off by four to five percent. Instead of running a profit margin of 22% or 23%, it was only 18%. Yikes! It was all hands on deck mode to save the company, or at least the stock options of the C-level officers.
Also, for those that don’t know, the Florida resort carried that company for almost 20 years, with everything else (including Disneyland) at best breaking even in the good years. And that with bad management post-Roy Disney. There’s gold in them thar swamps!
ADDED: Yeah, PD, they’ve made lots of changes and upgrades, but they killed Mr. Toad’s Wild Ride, so they’ve still gone backwards as far as I’m concerned.
* By which, at the consulting firm, we meant we were firing clients for not producing enough revenue. Similarly, the price hikes at Disney basically fire paying customers.
Ellipses: The higher pricing for the Magic Kingdom is news to me, but I suppose not surprising. The MK is an iconic park that Florida tourist might want to drive from the beaches to see, but that’s not the target customer. They want a customer to be on premises as long as possible to spend as much as possible. You can spend $105 for a single day’s admission to the Magic Kingdom, or you can pay a rate of $108 per day, for seven day’s admission, including hotel and dining (assumes family of four).
I was disappointed that they got rid of the 20,000 Leagues under the Sea attraction. I found a web page dedicated to it, which said that the workers got tired of cleaning up the ride (they had to go into the tank and clean algae off the fake fish, etc.), so when top management did an inspection of the park, they made it appear that the ride was flooding.
I don’t know that story about 20,000 Leagues (which always had the longest wait time of any ride), but there were other problems with it too. One of the big ones was that it started leaking into a Cast dressing area in the tunnels I mentioned above. At that time (I’m not sure about now) that was the main dressing area for cast members at MK. Even Disney can’t take the risk of letting hundreds of employees drown to death while getting dressed!
Thus they closed it down and filled it in. Later they did a bunch of (minor for Disney) landscaping to make it look better, and now it has been completely redone as part of the big renovation/addition to Fantasyland.There’s a Little Mermaid ride and Seven Dwarves roller coaster upon that bit of land now, as well as the land where the Dumbo ride used to sit. (Dumbo has been moved, and a second ride added, to what had been the Mickey’s Playland area, or whatever they were calling it.)
I was talking to my wife about this just a couple of days ago, because of the price hike. I think if they were building the Magic Kingdom new these days it would be about 50% bigger than it is, and it is already substantially larger than when it opened. It’s hard to describe just how much money the place makes. It’s like several huge flocks of geese that lay golden eggs.
Elipsses: I think this is the 20,000 leagues story I must have read:
“Okay. In order to properly appreciate this story, you have to understand that, while WDW visitors may have loved the Magic Kingdom’s “20,000 Leagues Under the Seas” ride, the park’s operations staff absolutely HATED that attraction. Why? Because the subs were a maintenance nightmare. Each year, the ops crew would have to pour tens of thousands of dollars (and devote hundreds of hours of back-breaking labor) into the upkeep on that attraction. They’d spend weeks scraping scum out of the bottom of the lagoon, repainting the coral, repairing the fish, etc. And they had just grown tired of dealing with this annual headache.”
So the story goes that when Eisner demanded in 1994 that the Parks control costs, 20,000 Leagues was closed, creating a big backlash from its fans. When asked the reason, the Park said the ride was in awful shape and unsafe. Disney President Ovitz went to Park to see what could be done about it. His ride was staged:
“Now I don’t have to tell you smart people that WDW’s ops staff had sandbagged Ovitz. That they had deliberately picked out the “20K” sub that was in the worst possible mechanical shape for him to ride in. That they recruited a ride operator that they could trust to give Michael the roughest ride imaginable. That they had even thrown a few buckets of water down into the bottom of the boat to simulate a pinhole leak. All in an effort to leave Ovitz with the impression that WDW’s subs were beyond salvaging.”
http://www.20kride.com/history.html
Maybe some of that is true, but some of that sounds bogus. They do that kind of maintenance on EVERYTHING at WDW, and a helluva lot more often than once a year. No doubt some things are more difficult to maintain than others, but most of what’s described is basic stuff.
And it was common knowledge that the tank for the ride was leaking into the dressing areas. That wasn’t some Ops conspiracy, that was a well-known problem, and something of an aggravation with the unions. (Yes, Disney has unions.)
Disclosure: My Dad helped build the place. My sister worked as a Polynesian dancer for the opening ceremonies. My mother worked there for 20 years, and I did for almost five.
Here’s a fun story from Bloomberg:
Hyper-Luxury Cars Are Now Selling Faster Than Normal Ones
Welcome to a new gilded age of driving in which sales of Ferraris grow faster than Fords
Yet more evidence of two economies.
Disclosure: When I found out that the ride had been closed, a little bit of my childhood died, again.
At least they didn’t rape it and leave it for dead like Lucas & Spielberg?
Something just didn’t seem intuitively correct about your comment, ice, with Parks and Resorts being so labor and facility intensive.
In 2014 the Parks and Resorts segment generated 18% operating margins. However, capex was slightly above op prof, making free cash flow slightly negative. In 2013 op prof slightly exceeded capex. For the two years it looks like it’s a zero free cash flow enterprise. Hardly the stuff of a dynamo business.
Rather, the Media segment looks like where all the gas is. One might say the Parks/Resorts operation feeds the enterprise’s real reason to be.
PS –
To be fair, depreciation seems to be about 8%. That’s still no profit dynamo. It’s a capital intensive business. Even if facility construction is lumpy (like a steel mill), to grow those lumps are part of the program. Smeared out over time it just doesn’t seem that attractive.
A few comments.
First, my info is out of date by several years. I do know that in the 1970s thru the mid-2000s WDW generated huge cash flow & margins. (The reason they got greenmailed in the 1980s was because of all the damned cash they were sitting on, which most assuredly did not come from The Black Hole, The Black Cauldron and various Rescuers movies.) And don’t forget that ABC was a dude for some time (the jewel in that deal turned out to be ESPN), and the movie business has been an up and down business for them. It’s all bang-on now with Marvel and Pixar and soon Lucasfilms, but for a while there they were turning out movies like Tarzan and Mission to Mars instead of Frozen & Pirates of the Caribbean. And that wasn’t the first time the company has had a dry patch in the movie business.
Second, I didn’t say Parks & Resorts, I said WDW. The various other P&R segments have been drags at times.
Third, I know for a fact that all the WDW execs were shitting themselves about declining profit margins back when I joined up.
Fourth, you were probably looking at the years when they were dumping huge money into renovating Fantasyland and adding several new timeshare properties. (I also wonder if they’ve folded the cruiseline into P&R. If so that’ll kill ’em as I believe they’ve ordered three new ships.) I guarantee they’re not doing that stuff thinking they’re going to just break even.
Disney is a diversified entertainment and consumer products company. And every segment has had its ups & downs*. (They got clobbered at WDW by the Great Recession just like everyone else.) But everyone wants to go to “Disneyland”, and Florida has the biggest by far. Except during the very worst of times, enough people will show up to make it worthwhile.
* Okay, probably not ESPN. That sumbitch is probably the most reliable money-maker for them now, and as long as people love life sports & gambling on live sports it’ll probably stay that way.
Dud, not dude. Time for bed.
And PD, if they were going to pull a stunt like that, Ovitz would have been the guy they hosed. Astonishingly unsuitable for the job he was given. But I’m having trouble believing that they could have also sandbagged all the other execs who would have been in tow.
It was just an observation, ice.
I also looked back a number of years. The numbers seem to be consistent. I didn’t go back into the 70s and 80s. I think the dinosaurs ate the data.
The capex surge was identified as a Shanghai project. But when you have serial big capex projects, it’s part of the fabric of the business. As for WDW, it’s in the P&R segment, and WDW is all they talk about in the mgmt commentary.
The movie business was astonishing. 33% op margins on light capex. I guess all the failures and groundwork costs get expensed and not capitalized. Now that’s coining cash.