Why Can't Disney Get It Right the First Time?

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Disney (NYSE: DIS  ) is finally doing what it should have done a couple of years ago. It's arming its Hong Kong theme park with the depth and attractions to make it succeed.

The family-entertainment giant will be investing roughly $450 million to expand Hong Kong Disneyland in hopes that new themed lands and rides will help the turnstiles click a little more frequently. As a result of the infusion, Disney's stake in the park will grow from 43% to 48%. Hong Kong's government will retain a majority 52% stake.

The park has been a disappointment since its 2005 opening. Disney figured it could conservatively draw 5.6 million guests in its first year, but that forecast wasn't even close. The park entertained just 5.2 million guests in its inaugural year, and the introduction of annual passes during the second year, to stimulate repeat visits, was also a dud. Attendance fell by 23% to 4 million in the park's second year.

If this performance were an anomaly, it would be easy to blame the park's shortcomings on the cultural divide and the uncertainty of breaking into a new market. But closer to home, Disney's California Adventure in Anaheim, Calif., and its Animal Kingdom in Kissimmee, Fla., also experienced bumpy launches.

The wildlife park in Florida didn't enjoy its first attendance uptick until its fifth year. One can only imagine how successful the park would have been if the now iconic Expedition Everest coaster -- and the initially proposed slate of attractions that got axed along the way -- had been there from the beginning. The same thing goes for California Adventure. It surely wouldn't have been a dud if it had opened with the Pixar-themed attractions that are in the process of being added.

There aren't too many new parks being built these days, so maybe we should give Disney a break. Recent stateside additions such as Hard Rock Park and the rides-based rebirth of Cypress Gardens hit serious snags last year. There's a rumored Legoland set to break ground in Florida in the coming years, but that's about it.

Things are different overseas. Marvel (NYSE: MVL  ) and DreamWorks Animation (NYSE: DWA  ) have licensed parks going up in Dubai. And despite its shortcomings in Hong Kong, Disney hasn't silenced the chatter of a new Disney park that's scheduled to be going up in Shanghai.

However, there is a brand to protect here. Attractions can't afford to disappoint their first wave of visitors. Would Great Wolf Resorts (Nasdaq: WOLF  ) still be around if it had opened its family resorts with just a fraction of its indoor waterpark diversions? Would an IMAX (Nasdaq: IMAX  ) installation be a success if it had offered only half of a theatrical flick in its larger-than-life presentations?

Disney needs to get this right the first time. Instead of holding back on choice attractions, Diensy should go in with everything it has, and then trust those Disney "imagineers" to dream up the e-ticket additions that will turn things up a notch in the years to come.

Park patrons -- and lonely turnstiles -- deserve better.   

Hop on some of these other industry rides:

IMAX is a Motley Fool Rule Breakers selection. Walt Disney, DreamWorks Animation SKG, and Marvel Entertainment are Motley Fool Stock Advisor picks. Walt Disney is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz enjoys taking his family on coaster treks over the summer. He owns shares in Disney and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.  

Read/Post Comments (5) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 01, 2009, at 3:33 PM, conncr wrote:

    Even though I agree completely with your conclusion Rick, I would like to remind everyone that with the exception of Tokyo Disneyland, EVERY Disney theme park has had problems within the first 5 years of their operation. Obviously, one could argue that is because of the limited attraction offerings when a park first opens. It could also be argued that it takes 5 years for the public to embrace the new park and make it their own. Personally, I believe that there are several factors that affect those first years after a park opens; and the mix between marketing and the attractions are different at each of the parks.

    However, I will readily admit that Disney Studios, Disneyland Paris, California Adventure, Animal Kingdom and Hong Kong Disneyland -since they have all been built in the last 20 years- have had the problem of being compared to the existing parks that have been "fully" built out for many years.

    Rick, how would you propose justifying the expense of fully building out a new park from the start? Even if Disney has money sitting in the bank, does it make financial sense to outlay all that cash upfront and hope for a return?

    Both you and I are obviously Disney fans (I worked at Disneyland for about two years). This article seems to be written from the perspective of a fan. Would you have this same financial advice for Six Flags, or Cedar Fair?

  • Report this Comment On July 01, 2009, at 5:17 PM, TMFBreakerRick wrote:

    You pointed out Tokyo Disneyland -- and it's clear that the two parks in Japan have been successful from the get-go. It's not a coincidence that it wasn't Disney bankrolling either of those two parks.

    So, yes. You ask if opening with a complete "full day" kind of park would be worth the investment. Let's rephrase the question another way. If Animal Kingdom had opened with Expedition Everest (and even Kali River Rapids which opened a few months late), would its attendance have been materially better? Yes. The dip in the subsequent years wouldn't have been so pronounced. The park would have been able to open later, scoring more dinner traffic.

    If the suggestion is that Disney opens incomplete parks so "growth" is possible from there, then it's cheating fans in the near-term and deluding investors in the long-run.

  • Report this Comment On July 03, 2009, at 11:28 AM, Dmarquez918 wrote:

    Two words: Michael Eisner. All of these parks were created under his watch. I was a part of many opening teams and everything from planning to execution was flawed. Although I'm not longer a part of the company I still have an interest in what they do. It seems like Iger and Co. "get it" and are doing a much better job at managing and planning.

  • Report this Comment On July 03, 2009, at 12:52 PM, RickM73 wrote:

    I could not disagree more this. First off, remember that Disneyland and Magic Kingdom hardly opened as 'full' parks. Neither did Epcot. If you open with to many attractions, there is less room for expansion and more time between any expansion that does take place. This makes people less inclined to keep visiting.

    Also, I don't think you can throw TDR and HKDL in for comparisons. Both parks are not majority owned by Disney and in HKDL, the government is the majority owner. TDR has a privately owned company that is the majority owner. So both parks are going to be approached differently.

    TDR also had the luxury of seven other Disney parks opening before it so they could tell what works and what doesn't. So it there wasn't as much of a risk opening with as many attractions as they did and I still don't know that TDL itself was a full park when it opened.

    I do agree that HKDL should have been better when it opened but I think that was more a case of the Chinese goverment getting in the way.

    I think the only real misstep was DCA. That was just a mess by the Disney Company and they really should be held to the fire on that one.

    One last thing, for all the bad decisions Eisner made, the made just as many good ones. And also remember, it really wasn't Eisner decision, it was the stock holders. They wanted the better returns.

  • Report this Comment On July 07, 2009, at 1:31 PM, RaynbowBoy wrote:

    Lest we forget the years that followed "Black Sunday," July 17th, 1955. Even Disneyland Park in Anaheim was not immune to a slow acceptance. Again, the years following the opening of the Walt Disney World Resort were slow to gain traction despite the huge popularity of Disneyland for the previous 16 years.

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