Stupid cutback hits home.

[All Aboard]

It's not contradicting at all. Margain (expressed in percents) is operating profit (which is revenue less expense) divided by revenue.

For example:

Let's say our example company has two activities...

One activity has $9000 in revenue and $5000 in expense. Thus $4000 in profit. So, the margain is 44%.

The other activity has $10,000 revenue and $3000 in expense generating $7000 profit at a 70% margain.

In total, this company has $19k revenue, $8k expense and $11k profit. Thus, it operates at a 58% margain.

By cutting Activity One, the company saves the $5k expense, but loses the $9k revenue. Now the company has INCREASED its margain to 70% (since activity 2 is its only activity) but has DECREASED its profit fro $11k to $7k.

Please note - I am not applying any of this to Hollywood and Vine, just trying very hard to point out that the elimination of a profitable activity (no matter the margain, as long as it is positive) is both a reduction to revenue and bottom line profit - IF done without the redeployment of resources to a higher margain activity, WHERE incremental profit (profit that wasn't there before) can be generated.

 

[DisneyKidds]

Poly didn't exist in the day of Walt

OK, time for me to pull a Baron.............................

You know what I meant.

Sure, the Poly, same as all of the Florida Project, wasn't built yet. However, it was a product of Walt's plans, Walt's way, Walt's pricing structure, and Walt's concept of value.

Is that better?

 

[crusader]

By cutting Activity One, the company saves the $5k expense, but loses the $9k revenue. Now the company has INCREASED its margain to 70% (since activity 2 is its only activity) but has DECREASED its profit fro $11k to $7k.

Ok I understand your argument. Now let's take it one step further. In this example, hasn't the Co. in turn increased its cash flow from $11k to $12k? Not to mention the savings on the general and administrative overhead costs being applied as well. Now how much money are we really talking about?

Please note - I am not applying any of this to Hollywood and Vine, just trying very hard to point out that the elimination of a profitable activity (no matter the margain, as long as it is positive) is both a reduction to revenue and bottom line profit - IF done without the redeployment of resources to a higher margain activity, WHERE incremental profit (profit that wasn't there before) can be generated.

Agreed! Hopefully there is a better plan in play.

 

[All Aboard]

In this example, hasn't the Co. in turn increased its cash flow from $11k to $12k?

How so? They've now got only $10k total revenue (on which they spend $3k to support). Where does $12k come from?

Not to mention the savings on the general and administrative overhead costs being applied as well.

I was waiting until I had folks on board with my first explanation before I went there. That's the other side of the opportunity coin. (The first being the redeployment) The other side is "how much time and energy does management spend trying to keep the underperforming asset afloat? Here we are talking about resources that don't even hit the particular product's p&l.

 

[crusader]

How so? They've now got only $10k total revenue (on which they spend $3k to support). Where does $12k come from?

$12k cash flow, not revenue. $5k cash freed up and available since it is no longer earmarked to be spent on the low performing activity; and $7K more coming in from the higher performing activity.

 

[All Aboard]

But Crudsader, that $5k was originally cash coming in (in the form of part of that $9k of revenue). It's gone now, you haven't freed up anything.

 

[crusader]

gcurling -

I was waiting for you to catch on to the flaw in my analogy and you're right - my premise only works in a loss situation not a gain. The only other point I was trying to make was that you spent that money to run a program which in the end earned substantially less than if you had more efficiently applied it elsewhere during the same time period.

So back to the formula.

We made $4000 but we haven't paid out the fixed overhead so we may lose it all plus some to run the program. Without any raw data to substantiate what happened at H & V who knows what the truth really is?

 

[hopemax]

Here's a what if:

In large companies, profits aren't returned to the place that generated them, right? So you're a manager of a division, your allocated budget has been slashed 10% by the higher ups, something has to go, but nothing on your balance sheets is unprofitable? What do you cut?

I meant aren't, so now editing to match. Can you tell I got no sleep this weekend!

 

[raidermatt]

Is H&V actually closed for breakfast and lunch now, or is it serving non-character meals?

 

[Another Voice]

"In large companies, profits are returned to the place that generated them, right?"

Unless you've seen the ratings for 'All American Girl' and then ALL the profits go into floating the CEO's favorite hobby.

You can't think about resort operations as a collection in independent shops and restaurants. For a long time time Disney haas been "rumored" to be using a more tops-down approach to their planning. Parks is told how much profit they must contribute to the corporate bottom line, the parks tell WDW how, then WDW Management tells each park, and so on. From the manager's point of view, the exercise has now really become an investment game: I have $5,000 in expense budget, where do I use it to get the greatest return.

The goal right now is maximize the number of guests using each facility. 'Pirates' costs the same amount to run if the boats are empty or full; a restaurant table still depreciates whether someone's sitting at it or not. This is Spreadsheetland, a mystical place that can convince executives that if they close one restaurant everyone will gladly flock to another. The goal is to get the guest flocking to the restaurant that produces the biggest return.

Add into this all the corporate politics of a really bad prime time soap – Parks hate Entertainment, Food is always feels left out, Entertainment is always trying to find ways of making money, licensing at ESPN just soared so another round of cuts is coming, someone else has an "emergency" need for funds…It all leads to decisions that are made for seemingly illogical reasons.

The old boundary of "don't screw the guests" doesn't exist anymore. The Numbers are the only concern and everyone has been given a free hand to meet them by any means possible. Simple budgeting exercises like closing places is much each than coming up with something cleaver. And politically it's infinitely better than proposing something that might make additional money (because of the risk of failure).

 

[d-r]

Originally posted by DisneyKidds


Is that better?

Yeah...

The only reason I posted it was because I wasn't sure about the pricing. Maybe Walt's hand was in on it, I just wasn't sure.

DR

 

[All Aboard]

In large companies, profits are returned to the place that generated them, right? So you're a manager of a division, your allocated budget has been slashed 10% by the higher ups, something has to go, but nothing on your balance sheets is unprofitable? What do you cut?

Not sure I understand your question. Since you state that everything is profitable, your example here must be a profit center (rather than simply some administrative function) and since we are talking Disney-MGM studios on the whole, then that example works. So, let's do it this way...

What normally happens mid-stream during an operating year is that expense cut mandates do go out. However, generally no slippage in the bottom line is permitted. So, in our example of the company with two cost centers, they've got a budget of $19k revenue and $8k expense, with a profit target of $11k. We'll assume that is our budget (and goal that our bonuses are tied to) at the beginning of the year.

So, a couple of months in it's evident that we won't make your revenue goal for the year of $19k. In a projection that you send to corporate each week, we indicate that for the year it looks like revenue will be off by $3k. We attribute all of it to the activity that nets you the $4k in profit. Corporate responds by saying that they are not budging on our profit goal - we still have to deliver the $11k. And, since they are now on notice that we are going to be missing revenue by $3k, they immediately tell us to come up with a plan that saves us $3k in expense.

So, what do we do? Could we simply cut the first activity? Nope, then we have absolutely no way to make our profit goal. Can we cut the first activity, redeploy some of the resources to the other and hope that it can generate enough revenue to get to the $11k, maybe. More likely, we scale back operations a little everywhere to see if we can find the $3k without further eroding the revenue.

Our example is extremely simple of course, but where we first look is advertising and promotion, then we cut some jobs, but we most likely will try to keep every business function alive (albeit reduced) that is making a positive net profit.

 

[crusader]

The goal right now is maximize the number of guests using each facility. 'Pirates' costs the same amount to run if the boats are empty or full

This goal is faulted by the time element. Older omni-mover large capacity transport venues are no longer capable of maximum utilization with a few exceptions during peak times. Guests ride them once and move on.

Restaurants may have a different effect entirely though.

 

[betterlatethannever]

Originally posted by DisneyKidds
......OK, time for me to pull a Baron.............................

DisneyKidds sounding like Baron????

Things haven't been the same on this forum since the Tag Fairy made her appearance.

 

[JeffH]

They were open for 'dinner' from 3pm-7.
Breakfast was being served at the ABC Commissary

 

[crusader]

Our example is extremely simple of course, but where we first look is advertising and promotion, then we cut some jobs, but we most likely will try to keep every business function alive (albeit reduced) that is making a positive net profit.

I wanted to get back to this because of something hopemax addressed. What if you arbitrarily implement uniform budget cuts with no basis beyond enhancing the next quarterly earnings report? Your profit centers are continually making money but your revenue base remained relatively constant. The only option was to cut costs in order to affect earnings and bolster that press release!

How do we know this isn't the reason vs assuming the character meal was losing money?

 

[IASW Rider]

Sorry to interrupt, for a second, but with regard to JeffH's original post, the reason that B&B is starting later now is because that show is now sharing its cast / crew with that of Fantasmic. Since that is a nighttime show B&B's schedule has been changed to accomodate the shared resources. As for the 2 Princess barges - were there 3 Animal barges? If so, maybe there was a technical difficulty in the middle of the show, preventing the 3rd Princess barge from appearing. If not, maybe there is just a temporary issue with that barge. I'm sorry to hear about the H&V character meals - those were great!

 

[raidermatt]

Since that is a nighttime show B&B's schedule has been changed to accomodate the shared resources.

End result is still a reduced number of performances, correct?

If so, maybe there was a technical difficulty in the middle of the show, preventing the 3rd Princess barge from appearing. If not, maybe there is just a temporary issue with that barge.

Good point. Unless we hear of this happening at other times, you're probably right.

Was the music changed to match the reduced number of princesses, did one of the barges "double up" with 2 princesses, or did they just spotlight the "wrong" princess during the missing princess's music? Wouldn't necessarily prove anything regardless, but just curious...

Regarding H&V, I seriously doubt it was losing money....that would be pretty difficult to do. Its far more likely that it wasn't making "enough" money (margin), and Disney felt it could shift the business to other restaurants that weren't running at capacity. Theoretically, they lose no revenue, but eliminate the costs at H&V, improving margins while boosting cash flow.

Getting back to the example of a $5000 cost that generates $9000 in revenue. If the company believes it can eliminate the $5000 cost, and simply transfer the $9000 in revenue to another location, they'll most likely do it. There will be an increase in cost at the other locations (let's say $2000), but not the $5000 cost associated with a separate location.

Of course, the reality is that they will lose some of the $9000, but unless they lose more than $3000 (losing $3000 in revenue leaves them at $6000 in revenue. With the $2000 in cost, $6000 in revenue still allows for $4000 in profit, just as before, only now with better margins), its still a "win".

Just like a bank who consolidates branches, or a supermarket who consolidates stores. Its not that any particular locations are losing money, its just that the company feels it can peform better overall by closing certain locations. This becomes particularly appealing when you have a captive audience, like at WDW.

Of course this doesn't take into account the benefits of having a character meal in each park, or the "bad show" of a closed restaurant, or the impact of reduced choices on the guest experience, etc...

 

[All Aboard]

Thanks Matt, that was where I was going next. But, it started to be too much like work. It's what I take breaks from to post here. Loses its purpose when it's the same thing.

 

[JeffH]

I'm pretty sure all three barges were used during the monkey/bigbird loop, since we've seen Fantasmic so many dozen times, looking for the differences is the big thing for me.
Only 2 princess came out on only 2 barges and they highlighted the 'wrong' princess during the music of the missing princess. And since it was 2 different princesses is can't be a matter of the barge dressing being damaged.
Otherwise, last Saturday's show went off perfectly.

I would like to also note that the crowd at MGM was pretty 'normal', Fantasmic filled as did the Indiana Jones show we attended, as well as all the other shows except for Muppets 3D (which doesn't normally fill anyway).

Instead of eating at H&V (where we did eat for dinner) for breakfast, we instead had an early lunch at the ABC Commissary where we ate kid's meals (which are generally a great bargain for the price).