Just over 20 years ago, Disney (NYSE:DIS) rang in the debut of Euro Disney, its first theme park ever in Europe. Despite high hopes for the park, however, which was within a four-hour drive of 68 million people, it opened to an onslaught of mockery and disgust. A journalist in the French newspaper Le Figaro called for "rebels to set fire" to the theme park. Others called it a "cultural Chernobyl," and the site became flashpoint for political protests when a group of French farmers blockaded the park in 1992, its opening year, as a demonstration against American farm policies.
Euro Disney's debut wasn't just a public-relations disaster, but a financial flop as well. In May, its first full month of operation, park attendance averaged just 25,000, well below the 60,000 Disney had projected. For the full year, it reported a net loss of about $50 million, and was forced to close one of its hotels that winter.
A little bit of Disney magic
A few years following that disastrous beginning, however, things were looking up as management seemed to learn from its initial mistakes. By 1995, the park had turned its first annual profit, helped by a debt restructuring and a decision to lower prices, which led to increased attendance and revenue. The new Space Mountain ride also proved to be a huge attraction for new visitors.
Today, Disneyland Paris, as it's now known, is an undeniable success by some figures. With 14.9 million visitors in 2013, it is the most popular attraction in all of Europe, bringing in more visitors than the Eiffel Tower and Louvre combined.
However, despite the return to profitability in the mid-1990s, Disneyland Paris is still struggling financially today. Even with the earlier restructuring, Disneyland Paris's parent company, Euro Disney, still carries a heavy debt burden of about $2.2 billion, as a result of purchasing land for the park at the peak of a real-estate boom. Disney (NYSE:DIS) owns a 40% stake in the publicly traded Euro Disney, whose stock has plummeted to near €3 after a peak near €30 before the park's opening. Last year, the company posted a net loss of €78.2 million, following a €100.2 million loss in 2012, and revenue has fallen this year, down 5.1% to €872.8 million in the first nine months of the fiscal year.
Management cited "continued challenging economic context" for the decline in revenue as the European recession has hit the company hard. Over the course of its history, Euro Disney has accumulated a loss of €1.7 billion, calling into question the wisdom of the business venture in the first place.
In recent years, visitors have complained of operational problems within the park including lack of maintenance, closures and breakdowns of many rides, and poor customer service. Fans of the park even circulated a "Save Disneyland Paris" petition, which gained enough signatures to be submitted to Disney CEO Bob Iger.
Mickey's next move
Despite the park's financial struggles, a closure or a sale seems nearly unthinkable as the park is a huge draw and giving up on it, especially in the form of selling it to a rival, would mark a huge defeat. A Disney buyout of Euro Disney is a more likely option. At a market cap of just a $142 million, Euro Disney would be an easy target for the entertainment giant, and it would only have to purchase the 60% it doesn't already own. Rumors had swirled that Disney was planning such a move in 2012, but the company instead opted for a refinancing of Euro Disney's debt.
With Disney's stock at an all-time high and the rest of the theme park's division performing strongly, the question of what to do with Disneyland Paris may be sitting on the back burner for the brand behind it. Nine months into Disney's fiscal year, parks and resorts revenue has jumped 7%, and operating income in the segment is up 20%, driven by increased attendance and higher spending at domestic parks.
Euro Disney is paying down its debt, slowly, and Disney TV networks, including ESPN, are looking stronger than ever. Operating income from its studio unit has also more than doubled this year thanks in part to the success of the animated movie Frozen. At a time when the company seems to be firing on all cylinders, Disneyland Paris' foibles may be nothing more than a thorn in the side of the entertainment empire.
[Editor's note: Removed incorrect information about number of theme park visitors]