It’s the Most Profitable Unit After All

Walt Disney Co. is often thought of as a movie studio and television broadcaster, but theme parks remain Disney’s cornerstone, helping to pull the company through good times and bad.

The theme park division of the Burbank-based entertainment company has made more money for Disney than its movie business in each of the last three years, out-earning the studio by well over $1 billion last year.

Theme parks accounted for about 26% of the company’s $23.4 billion in revenue last year but garnered 42%, or $1.5 billion, of Disney’s $3.4-billion operating profit.

The strength of its theme park business and the prospects for its future are why Disney said Friday that it is in the initial stages of developing a third theme park for its Disneyland Resort complex. Disney’s announcement comes as it is finishing a second attraction in Anaheim, where it invented the theme park business 45 years ago.

Disney already plans to open four new theme parks in five years, a record pace for the company.

California Adventure, a companion park to Disneyland, will open its gates in Anaheim in February. That’s followed by a second Japanese park, Tokyo DisneySea, debuting later in 2001. A second park will open at Disneyland Paris the following year, and a Hong Kong version of Disneyland will see its first visitors five years from now.

The new parks represent several billion dollars of investment for the company, which in recent years has plowed more capital into its theme parks than into any of its other divisions.

“Over the next 25 years, I could see Disney opening a half-dozen parks internationally,” said Richard Read, an analyst with Credit Lyonnais Securities in New York. “Brazil, India, Mexico--anywhere there are enough people with a high enough income to make it work. This is a tremendous long-term-growth story.”

Thomas Staggs, Disney’s chief financial officer, said the company is looking to expand internationally but plans “to pick our spots very carefully.”

But he noted that because of their close link to Disney’s stable of animated characters, the theme parks help drive both Disney’s consumer products business--everything from clothing to toothbrushes--and video sales. This is especially true abroad.

“The presence of a Disney park really helps embed that franchise of our characters in that region,” Staggs said.

Within five years after Disneyland Paris opened in 1992, sales of Disney products rose eightfold in Europe, Staggs said.

For now, however, Disney is anticipating the benefits of the projects it already has underway.

Staggs said that means by 2002 the theme park division will be generating $1 billion in cash for Disney annually, the result of the flurry of theme park openings over the next several years. That would be a dramatic turnaround, because the division has been sucking cash out of the company to fund all of its large projects.

And it will also give Disney a huge cash stream to invest in its other businesses, everything from the ABC television network to its Internet holdings.

Analysts point out that Disney is expanding its theme park division rapidly while smartly spreading its risk through ventures with multiple partners.

The studio park Disney is building in Paris, for example, will require about $90 million of the company’s cash. That will give Disney roughly a 40% stake in a development that will top $500 million.

The government of Hong Kong will cover much of the cost of developing the Hong Kong Disneyland on north Lantau Island, but Disney will wind up with a 43% stake in the company.

Disney is building Tokyo DisneySea, a project that will cost more than $3 billion, for Oriental Land Co. and will collect royalty payments, a lucrative deal similar to its Tokyo Disneyland venture with Oriental Land.

It is only in California that Disney is spending primarily its own money, about $1.4 billion, to build California Adventure, the Downtown Disney shopping and entertainment area and the Grand Californian Hotel.

That’s one reason Disney is speeding forward with yet another theme park in Anaheim, leveraging what will soon be an infrastructure of three hotels, a large shopping area, Disneyland and California Adventure. Disney officials said Friday that the first stage of the new development could open in as little as three years.

Disney’s plans domestically run counter to trends in the industry, which has domestic revenue of about $9 billion and is growing at about a 5% annual rate, according to the International Assn. of Amusement Parks and Attractions.

“There is plenty of potential for growth outside the United States, but there is only limited potential inside the U.S.,” said Bill Haviluk, president of Lego Co.’s theme park operations.

Disney, however, is the company best positioned to buck that trend.

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ANOTHER DISNEYLAND PARK

Walt Disney Co. announced plans to build a third Anaheim theme park. A1

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Mickey’s Expanding Empire

In hopes of developing a full-fledged urban resort, Disney took the first step Friday toward building a third amusement park in Anaheim. A “best of” theme park drawing from Disney attractions around the world would be built by 2010 on a 78-acre strawberry field.

Source: Disneyland