Universal Studios Set for U.S., Overseas Expansion

Barry Diller, in one of his first strategic moves since taking the helm of Vivendi Universal Entertainment this month, has green-lighted an unexpected expansion of the company’s theme park business.

Despite a severe downturn in tourism and theme park attendance after Sept. 11, Universal Studios soon will announce plans to develop three major new attractions at its theme parks in Hollywood and Orlando, Fla. The attractions, representing an investment of more than $60 million, will be based on the hit animated movies “Shrek” and “Jimmy Neutron: Boy Genius.”

Diller also has given the theme park group the go-ahead to aggressively scout for new locales for additional theme parks overseas, including possible sites in Germany and mainland China.

The developments reflect a vote of confidence in Vivendi Universal’s theme parks, which have bounced back sooner than expected from a slump that accelerated after Sept. 11 and sparked layoffs and cutbacks. Universal Studios Hollywood reported record attendance in this year’s first quarter, driven mostly by a popular discount on annual passes. Its two parks in Orlando--Universal Studios and Islands of Adventure--are running at last year’s levels, executives said.

Rival Walt Disney Co. also has seen significant gains in attendance in recent months, though its theme parks have been more affected by a continued slump in international travel.

Vivendi also has been encouraged by the strong results from its theme park in Osaka, Japan, which in its first year of operation drew 11 million visitors--2 million more than the company projected--despite a recession in the nation.

The gains in Japan and Hollywood brought a 69% jump in the group’s cash flow in the first quarter, more than any other segment of Vivendi.

“In the post 9/11 period we came out swinging,” said Tom Williams, chairman of Universal Studios Recreation Group.

Williams attributes the turnaround largely to an aggressive marketing campaign after the Sept. 11 terrorist attacks to counter the steep travel falloff. Universal doubled its advertising budget, hired a new advertising agency and launched a national advertising campaign aimed at drawing out-of-state visitors to its two Orlando theme parks. The promotions included a 60-second TV commercial during the Super Bowl in January.

The performance of the parks, however, has been overshadowed by the steep declines in Vivendi’s stock price amid doubts from investors about Chief Executive Jean-Marie Messier’s overall strategy for building a rival to AOL Time Warner Inc.

Vivendi shares closed Friday at 30.22, up 52 cents on the New York Stock Exchange.

Theme parks also get overlooked because they account for only about 5% of Vivendi’s operating income. Yet they are an important symbol of Messier’s drive to create a global entertainment giant and another outlet for promoting Vivendi’s diverse holdings, including movies, music, television and children’s books.

The mandate to expand the theme park business marks a strategic shift from a year ago, when Universal Studios’ new French parent put theme park expansion on hold until the company’s two newest parks in Orlando and Japan could prove their worth.

Diller is helping to bring new momentum to the division. He is a legendary figure in Hollywood who chairs Vivendi Universal Entertainment, which was recently created after Vivendi’s $11-billion acquisition of Diller’s film and television businesses.

Reached in Cannes on Friday, Diller affirmed his support of expanding the theme park business and his passion for rides.

“I like roller coasters,” he said. “ I went to the Universal park in Orlando before it opened just because I wanted to see the rides.... I rode Spider-Man so many times it’s embarrassing. I took my family at Christmas on the back-lot tour here [in Hollywood]. It’s genuinely fun.”

Diller also is interested in finding ways to promote ties between the film and television business of USA Networks and Universal Studios. Among the possibilities, Williams said, are staging television shows such as Home Shopping Network at the theme parks, or developing children’s programs that could be spun off into theme park attractions.

The new expansions, however, will be on a more modest scale than past projects, such as the $75-million Amazing Adventures of Spider-Man ride in Orlando. The Shrek attraction will be a 10-minute show, blending 3-D film, motion simulators and other effects based on the movie. The Oscar-winning DreamWorks film was distributed through Universal Pictures.

The attraction will open simultaneously in Orlando and Hollywood in the summer of 2003--a first for Universal Studios--in an effort to create more cohesion between the properties.

Universal Studios Florida in spring 2003 will add the Jimmy Neutron Adventure, inspired by the animated hit movie by Paramount Pictures and Viacom Inc.’s Nickelodeon. A motion-based attraction, it will take visitors on a ride in Jimmy’s rocket ship and include such popular children’s TV characters as SpongeBob SquarePants and those on “Rugrats.”

Industry experts said these kinds of additions are necessary to keep theme parks healthy and competitive. Walt Disney World, for example, will open its much-heralded Mission Space attraction at Epcot next year.

“If they don’t get out in front and add new things, they have a real chance of falling back,” said Steve Baker, a theme park consultant in Orlando.

Universal Studios also is looking to expand internationally, but only with the help of local partners who can finance most of the cost.

“We want to grow judiciously,” Williams said.

For example, Universal Studios owns 24% of Universal Studios Japan and has a lucrative management deal but invested only $90million in the $1.7-billion facility.

“Japan has been such an enormous success, it just reinforced the confidence that Vivendi had in the recreation business,” said Universal Studios President Ron Meyer.

New theme parks probably won’t be on that same scale or that of the company’s Islands of Adventure theme park, which opened in 1999 adjacent to the existing Universal Studios in Orlando. Islands of Adventure cost more than $2billion to open.

The company has not said how many parks it will build, the cost, or how they might be financed.

A string of deals in the last four years has brought Vivendi’s debt to about $17 billion.

Universal also operates a resort near Barcelona, Spain, called Universal Mediterranea, which is adding a second 500-room hotel and a water park to the existing Port Aventura theme park.

The studio is studying sites in Germany and China, including Shanghai and Beijing. Disney, which just opened a second theme park in Paris, also is building a park in Hong Kong and studying sites on the mainland as well.

“Clearly, there are many great opportunities to grow,” Meyer said.

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Times staff writer Corie Brown contributed to this report.