MyMagic+ Continues to Drain Disney Income

[jcb]

Fair points. I went too far in the other direction. I'm very much a "Just the fact ma'am" type person when it comes to news, so I can get excessively annoyed by things even a little bit sensational. There's a reason I'm not in marketing.

I can be the same way, believe me, which explains why I was probably more sensitive to the comment than I should have been.

On the other hand, I do enjoy writing the April fools' blog posts and those are nothing if not "click bait."

 

[jcb]

Disney has posted the transcript from the earnings call: http://cdn.media.ir.thewaltdisneycompany.com/2014/q3/q3-fy14-earnings-transcript.pdf

Some clarifications are in order:

On the 90 percent statement, the accurate quote is:

About half of the guests now use Magic Bands, and 90% of them rate the experience as "excellent" or "very good."

On the cost of MM+:

Growth in operating income at our domestic operations was driven by increased guest spending, higher attendance at our parks and higher ticket prices at Disney Cruise Line, partially offset by higher costs primarily related to the continued rollout of MyMagic+. Operating income at our international operations was lower in the quarter as a result of lower performance at Disneyland Paris.

Iger was asked (and responded):

Analsyst: With MyMagic+, could you talk about any -- you have anniversaried the costs. Is there a longer-term benefit in terms of a revenue component?

Iger: There is, and we have said that it is going to contribute to our growth in the next quarter. This is actually -- the quarter that we just announced is the first full quarter that it was basically fully operational or available to all guests, both those that come as basically walk-up guests to our parks, or single-day ticket holders, and those that reserve in advance, and the plan all along was for it to enable us to grow revenue. Clearly that happens in a variety of ways. It's increasing guest satisfaction, so that should have an impact on essentially length of stay, repeat visitation, word of mouth.
There are other opportunities from a direct revenue-generating perspective that I won't get into in great detail, but we would be glad to detail it at a later date. But PhotoPass is one specific example of that, but there are many more. And this is going to start delivering basically a positive impact to the bottom line in the quarter that we are just in -- that we are now in.

The Harry Potter comparison question was (with Iger's response):

Analyst: You have always been able to drive your franchises throughout the organization, and I'm just wondering when you see something like Harry Potter becoming a game changer for Universal, is there a franchise for you that can do -- not that you need to have a game changer -- but is there something that can drive that kind of a lift?

Iger: I think we have a lot of them. Cars Land is a great example of it, or Cars. Clearly, Disney Princesses is a franchise that is all over our parks globally. Star Wars is going to be just that. We have global licensing rights to Avatar. I mean I could go on.
Pixar, there is plenty of Monsters presence. There is a Toy Story attraction in every one of our parks around the world. I think there are literally dozens of them. We have more than anyone, and unlike competitors in the marketplace, except for a couple, Avatar being probably now the only example, we don't have to license from third parties. We own them all.

Along the lines of the above comment, someone asked Iger to name Disney's $1 billion franchise properties in consumer products. Iger named eight:

Pooh, Mickey Mouse, Monsters, Star Wars, Spider-Man, Cars, Disney Junior, and Princess. . . . That's all over $1 billion in global retail sales in fiscal 2014.

And finally, the "Star Wars" presence in the park statement from Iger:

The other thing I will add is -- and this goes back to the question that Jessica asked -- is as we spend money at the parks on new attractions that are based on known intellectual property and brands, the likelihood of their success is greater. So when we increase Toy Story's presence or other Pixar presence, when we put Frozen in the parks, when we grow Star Wars presence, which we will do significantly, when we do it with Princess, for instance -- you're going to see, I think, basically better bets being made that pay off -- that are more likely to pay off for us than some of the bets that were made in the past.

 

[k5jm]

Okay...all I'm getting from all of this is that Jeff gets to go out to dinner.

Jack....should we go to dinner?

 

[k5jm]

Iger:
This is actually -- the quarter that we just announced is the first full quarter that it was basically fully operational or available to all guests, both those that come as basically walk-up guests to our parks, or single-day ticket holders, and those that reserve in advance, and the plan all along was for it to enable us to grow revenue. Clearly that happens in a variety of ways. It's increasing guest satisfaction, so that should have an impact on essentially length of stay, repeat visitation, word of mouth.

Let me read between the lines: "We will effectively be charging an additional $12.95 for a 1 day, single park admission without actually saying we are doing it, by pushing magic bands on walk-up guests. This now puts us well above the sacred cow of $100 per single day ticket."

 

[jcb]

You half to admire disney. They have figured out not only how to charge admission but to make people pay for the admission ticket.

 

[k5jm]

You half to admire disney. They have figured out not only how to charge admission but to make people pay for the admission ticket.

You can have your cake, and eat it too!

 

[Chuck S]

The original FastPass was also a drain initially. Installation of the machines, computer support system, even the paper FastPasses. There are bound to be similar start up costs with FP+...neither system could really have been justified as a freestanding profit center. But as guests use and become familiar with the system, the value will be in guest satisfaction. It needs to be looked at as long-term infrastructure for park operations rather than a profit center. IMO

 

[jcb]

The original FastPass was also a drain initially. Installation of the machines, computer support system, even the paper FastPasses. There are bound to be similar start up costs with FP+...neither system could really have been justified as a freestanding profit center. But as guests use and become familiar with the system, the value will be in guest satisfaction. It needs to be looked at as long-term infrastructure for park operations rather than a profit center. IMO

This is a good point, one I don't think the financial analysts who follow Disney fully understand. They want to see MM+ as if it were a cruise ship.

 

[k5jm]

This is a good point, one I don't think the financial analysts who follow Disney fully understand. They want to see MM+ as if it were a cruise ship.

There is a product, a small product, with MM +. That is the MBs and MB. Accessories. All of the other parts of MM + are just ways to track items that were not easily trackable before.

MM+/MB profit realization from uses:
room keys - no profit
Resort guest admission - no profit
iPhone app - no profit
Fast pass media - no profit
Crowd control - no profit
Costume tracking - no profit
Employee tracking - no profit
Selling MB 's and accessories - pure realized profit

Now you have to really look and squeeze the numbers to see a profit realization from higher customer spend and long stays attributed to MBs and MM+. So with 50% of customers using MM+, I do not think that they can fully attribute anything to MBs and MM+.

Maybe a happy guest spends more. I spent less on my last trip.

 

[OKW Lover]

Let me read between the lines: "We will effectively be charging an additional $12.95 for a 1 day, single park admission without actually saying we are doing it, by pushing magic bands on walk-up guests. This now puts us well above the sacred cow of $100 per single day ticket."

You half to admire disney. They have figured out not only how to charge admission but to make people pay for the admission ticket.

Great observations!!!

 

[k5jm]

Great observations!!!

 

[julietsstars]

So this was just my first impression: "Rasulo says Disney knows Cars and Toy Story are the kind of attractions that make guests say, "I want to go now" instead of "I want to go."

I can only speak for myself and what I gather as I talk to other Disney travelers, but this seems rather off the mark. Cars and Toy Story dont seem to have the staying power as some other Disney characters/movies and I wonder if this focus is driving Disney away from being..I'll say, bigger innovators in the Theme Park industry.

Looking at what Universal has done with HP (their latest movie release date being one year younger than TS3) keeping it fresh and relevant doesnt seem near what Disney *could* do with Cars or Toy Story. I cant imagine they've both brought in more money. But I'm hardly an expert there.

Anyone have any thoughts on this comment from Rasulo?

 

[jcb]

So this was just my first impression: "Rasulo says Disney knows Cars and Toy Story are the kind of attractions that make guests say, "I want to go now" instead of "I want to go."

I can only speak for myself and what I gather as I talk to other Disney travelers, but this seems rather off the mark. Cars and Toy Story dont seem to have the staying power as some other Disney characters/movies and I wonder if this focus is driving Disney away from being..I'll say, bigger innovators in the Theme Park industry.

Looking at what Universal has done with HP (their latest movie release date being one year younger than TS3) keeping it fresh and relevant doesnt seem near what Disney *could* do with Cars or Toy Story. I cant imagine they've both brought in more money. But I'm hardly an expert there.

Anyone have any thoughts on this comment from Rasulo?

I have my opinions about either park using fresh and relevant content, and whether that is even required (e.g. Universal opening Simpsons 18 years after it premiered and Disney opening Little Mermaid over 20 years after it premiered) but to be fair to Rasulo here is the question and his full response:

Q: I have two, one for Jay and one for Bob. Jay, firstly, when you look at your domestic parks, it looks like over the past couple quarters or years, you have been getting low-single digit attendance growth and good mid-single digit per cap spending growth. And I wonder when you look out over the next couple years, and given your history in parks, do you think that's the right way to think about the drivers to the revenue model there?
Jay Rasulo – Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company
Well Michael, if you look at the last five years, we have really seen incredibly strong results from the addition of attractions, lands and experiences based on franchises that have been incredibly powerful. A few minutes ago, Bob just mentioned Cars, and before that, Toy Story.
And we know that these are the kinds of attractions that pull people from “Gee, I'm going to go to a Disney park someday” to “I want to go this year.”
If you look forward, whether it is Avatar, and we have spoken of the opportunity for Star Wars in our parks, these are the kinds of things that have been absolutely the basis of our growth here in the U.S. And if you look overseas, like at Hong Kong for instance, you will see Iron Man being introduced into that park soon.
So I think that from a volume perspective, we remain keenly focused on enhancing the experience, having guests who come to central Florida or Southern California extend their stay with us, and that has served us for 30, 40 years as a strategy, and I don't see any reason why we won't continue that.
In terms of the other side you mentioned, on per caps, Bob just mentioned that we expect MyMagic+ to have some revenue impact as it continues to be fully utilized by guests. We also have been able to continue to price behind the value of our offering, so I also see that as a continuing trend.
So we don't like to get out and predict what's going to happen tomorrow, but the fundamental strategies that have delivered those results you mentioned are still in place and are still serving us well.

I can't comment on Cars as I have not experienced DCA. Disney seems to be quite good a milking Toy Story from a parks and consumer products division perspective. I agree that Toy Story in the parks isn't as immersive as is Hogwarts at IoA but it is looking like "Avatarland" might be. Let's keep our fingers crossed for Star Wars. I really look forward to running through swamps and swinging from vines with a little green Yoda on my back, though why I need to got WDW to do that remains to be answered.

 

[Suvadoo]

So I think that from a volume perspective, we remain keenly focused on enhancing the experience, having guests who come to central Florida or Southern California extend their stay with us, and that has served us for 30, 40 years as a strategy, and I don't see any reason why we won't continue that.
Personally, I'm cutting back on days spent at WDW and increasing my time at Universal. I also believe there are a lot of Disney fans who are doing the same thing. I just think FP+ is too much work for a vacation. And Universal is easier and has great new attractions.

I think it's interesting that only 1/2 of park guests are using MB and FP+. I wonder how Disney is going to convince the other 1/2 that this is a great idea. My guess is they won't.

 

[julietsstars]

Let's keep our fingers crossed for Star Wars. I really look forward to running through swamps and swinging from vines with a little green Yoda on my back, though why I need to got WDW to do that remains to be answered.

I agree! I'm very very excited to see what Disney does and can do with Star Wars.

Avatarland ...perhaps that ship has sailed. Too early to tell though since the new movies have yet to come out. Maybe with the franchise in mind and knowing everyone involved wants to be successful, the movie(s) will support that.

 

[k5jm]

I agree! I'm very very excited to see what Disney does and can do with Star Wars.

Avatarland ...perhaps that ship has sailed. Too early to tell though since the new movies have yet to come out. Maybe with the franchise in mind and knowing everyone involved wants to be successful, the movie(s) will support that.

I'm hoping for a parking garage at Star Wars Land

 

[jcb]

I'm hoping for a parking garage at Star Wars Land

Just as long as it it lets you stand on the far west side so you can have an unobstructed view to the east.

And spaces for naps, don't forget naps.

 

[k5jm]

Just as long as it it lets you stand on the far west side so you can have an unobstructed view to the east.

And spaces for naps, don't forget naps.

I think there needs to be a large Black Helmet/Mask at the hub with mouse ears