Resort in Europe to Test Disney’s Magic Touch : Entertainment: The Burbank firm is gambling that the $4.4-billion theme park and complex will boost international operations and bring back double-digit earnings growth.
Ask a Walt Disney Co. executive for the time these days and he might glance at both wrists.
Strapped to one arm is the standard, corporate-issue Mickey Mouse watch; affixed to the other, a special, neon-pink digital timepiece ticking off the seconds until the Euro Disney Resort opens April 12 outside of Paris.
It is a reminder that “we’re not going to rest until this is over,” said Martin A. Sklar, president of the company’s Imagineering division that designed the Euro Disneyland theme park.
The Burbank-based entertainment giant is gambling that the $4.4-billion theme park and hotel complex will bring in millions of dollars in profit and mountains of publicity, boost the company’s international operations in the key European market and return the company to double-digit earnings growth.
While few analysts and observers doubt that Euro Disney will be successful, it remains unknown whether Europeans will digest a Disney theme park’s unique brand of schmaltz. Fairy-tale castles may be novel when they crop up in the midst of California orange groves or Florida swamps, but Europeans accustomed to real parapets and drawbridges may not be as amused.
“Left-of-center European intellectuals would love to have this fail,” said Richard Cochrane of Protective Group Securities Corp. in Eden Prairie, Minn. But, he added, mainstream Europeans “are not that different than us.”
Disney is confident 11 million Europeans annually will climb aboard rides linked to Disney classics, such as Dumbo the Flying Elephant, and meet characters, from Goofy to Snow White, they know from books or movies. Hopefully, they will stay at one of 5,200 rooms at six Disney hotels, eat at one of the many Disney restaurants and choose from countless Disney souvenirs.
The timing for exporting this proven Disney formula to Europe could not be better. International operations have been increasingly important to the company. Disney’s international business rose from 10% of total revenue in 1987 to 22% in the 1991 fiscal year ended Sept. 30.
The success of international operations have dampened the impact of the recession on Disney’s bottom line. With Euro Disneyland’s opening, the company will have spread its theme parks to the three key centers of the industrialized world--the United States, Japan and Europe.
Disney already has a significant global presence. While the domestic box office was flat for most movie makers last year, the international market was booming. Three Disney features--”Pretty Woman,” “Three Men and a Lady” and “The Little Mermaid”--collectively grossed $400 million in overseas markets in 1991, according to the company. The first four Disney Stores in Europe have been successes, and more are planned.
Compared to the United States and Japan, Europe is yet to be saturated with the Disney mystique. Particularly with the opening of Eastern Europe, the Continent is considered the most ripe for expansion, executives say. The “Walt Disney Presents” television show reaches 135 million viewers in Russia and three other former Iron Curtain countries.
Already, two of the four Disney Stores in Europe--one in London and the other in Glasgow, Scotland--rank second and third respectively as top sellers in the 167 store chain behind one in Honolulu. Overall, European retail sales of Disney apparel and trinkets reached $2 billion last year.
“Euro Disney creates a growing surge of excitement everywhere” said Chuck Champlin, a spokesman for Disney Consumer Products.
If that proves to be the case, it could not come at a better time. Disney may generate most of its publicity from its movies, but it is the theme parks that stoke the financial engine. In fiscal 1989 and 1990, the parks--principally Disneyland in Anaheim and Walt Disney World in Florida--contributed better than 60% of the company’s operating income.
But when the nation was socked by recession beginning in mid-1990, fewer families were willing to make high-priced sojourns to Disney’s parks. The theme park portion of operating revenue fell to 52% of the total in 1991. Overall, the company’s profit fell to $636.6 million, down 23% from $824 million the previous year.
The Euro Disney park will provide a needed shot in the arm. It will likely earn $20.4 million in 1992 and $52.7 million in 1993 for stockholders of Euro Disney, the French company that Disney created to build and run the park, forecasts Richard Simon of Goldman Sachs & Co.
“It will do gangbusters,” Simon predicted.
If it does, so will Disney, which for about a mere $160 million gained a 49% interest in Euro Disney.
Analyst Cochrane said he became a believer when he saw the frenzied buying at a visitor center on the Euro Disney construction site. “They couldn’t keep $100 Mickey sweat shirts on the rack,” he observed.
Virtually all Disney watchers, however, are interested in whether the park can maintain its popularity after the initial publicity dies down. Though smack in the center of the Continent, the French site averages 100 days of rain a year.
Euro Disney represents the next step in an evolution that began when Walt Disney created Disneyland in 1955. That park set a standard for cleanliness and combined elements of a world’s fair and fantasy exhibits along with thrill rides.
The next phase came in 1971, when Walt Disney World premiered. Disney’s company showed that several theme parks could be clustered on a remote suburban site, enticing guests to stay for several days and to shy away from competing attractions outside its borders.
Next came Tokyo Disneyland, the company’s first venture with a foreign partner.
The company is now planning to reinvigorate Disneyland by building a $3-billion second theme park beside it in Anaheim. It is also mulling building a second theme park in Tokyo.
Despite this proliferation, Disney officials say the Euro Disney park will not detract from the substantial number of foreign tourists at its domestic parks. At Disneyland, for instance, officials say they expect more visitors who have seen the European park to show up to quench their curiosity about the company’s original theme park.
And Euro Disney is being built as a multi-day attraction, while Disneyland caters mostly to one-day visits. At Marne La Vallee, France, Disney has built not only a resort, but plans to create a modern city around it. On about 4,800 acres, a fifth the size of Paris, Disney includes sites for a second theme park, more golf courses, high-rise offices, light industrial buildings and housing that has yet to be built. The resort gives Disney “a strong base of operations in Europe,” said Paul Marsh, who tracks Disney for the Kemper Securities brokerage in Los Angeles. With the film and merchandising, “it all fits together.”
Disney is also learning from past mistakes. In Japan, for instance, Disney built Tokyo Disneyland with a Japanese partner and today receives just 10% of the gate and 5% of food and souvenir concessions. Euro Disney will certainly prove more profitable.
For starters, Disney pitted Barcelona, Spain, against France in a competition for the site and its 12,000 jobs. It was same strategy that the company employed again last year when Anaheim and Long Beach were vying to become the site of the company’s new Southern California park.
Spain has sun, France has rain. But France had the better location--about 109 million people are within six hours driving time. It was literally at the crossroads of Europe. The French government promised loans of up to $655 million and vowed to extend both the standard and high-speed rail links to the park.
That deal in hand, Disney then created the new French company, Euro Disney, and negotiated a good financial arrangement for itself. The project has required little upfront money from Disney. Instead, it has been financed by bank and government loans, private investments and corporate sponsorship by companies such as Kodak, IBM, Coca-Cola and European companies including Nestle, Esso and Renault.
Disney will receive management and incentive fees. In addition, it will receive a cut of Euro Disney ticket and merchandise revenue at the same rate as at Tokyo Disneyland. “The return on investment is phenomenal,” Marsh said.
In true Disney fashion, the company is counting on free publicity to do much of its marketing. The park is being thrown open to thousands of reporters. CBS plans to air a two-hour, prime-time “Grand Opening” special the night before the park’s premiere.
Disney has already signed up tour operators to sell packaged deals to the park from around the world. But a day in the park will be pricey by American standards: $40 for an adult, compared to $27.50 for Disneyland. And the Disney hotels are also premium priced. Two nights at the mid-priced Newport Bay Club hotel, along with three days’ of Euro Disneyland tickets, will cost $560 for two people through next October.
Analysts aren’t put off by the prices in making their forecasts. “They are experts at marketing and promoting and giving the consumer the feeling they have received value,” said Harold Vogel of Merrill Lynch Global Securities.
