Will Universal benefit from Disney cutbacks?

[IOATech]

Another view that should be considered is that sometimes the usual rules and protocols of business just simply don't apply, or don't work in theme parks. Cutbacks, cost-saving measures meant to give back to the bottom line sometimes backfire and have the opposite effect. A recent newspaper article pointed out the negative results of cutbacks at WDW. The quality of the properties has begun to suffer. When the climate turns bad the employees who are lucky enough to remain employees become nervous, and are given limited resources to perform with. This creates an environment which can quickly spill over the back-of-house areas and infect the guest experience. This results in negative feedback, bad word-of-mouth advertising and decreased head counts. Cutbacks hurt the theme parks. Universal made the decision to be proactive and reverse this process at considerable risk. 8 days later, and on a somewhat smaller scale for the business ratio, Disney made a similar announcement by releasing plans to hire additional workers- some seasonal, some regular. Not even close, though to the number of employees who were walked out of the gate. It is likely Universal will hire this fiscal year the balance of vacant positions.

And just to stir up the pot a little- Disney owns most of their hotels and resorts. Fluctuations in occupancy directly impact their profit. Universal resorts are owned by another operator who bears much of the business in that respect. This is the kind of relationship Disney executives purportively are inclined to transition to in the future.

The company's number one goal is provide a quality primary entertainment destination. The Walmart comparison more accurately applies to someone else (no offense taken- I kind of like Walmart).

 

[larworth]

IOATech

Curious about your comment concerning Disney and hotel ownership. Someone on another board speculated that Disney would sell off most of their moderates to outside vendors. People were quick to say this was not true. Can you add any more to what you have heard?

Seems that hotel ownership is the two-edged sword. When times are good you get an extra profit boost, when times are bad it is an added drag. I would still bet (whether Disney or Universal) that on-site properties will continue to enjoy higher occupancy rates as long as they are not overbuilt. Therefore, if I had enough critical mass to make hotel management practical I would think owning is still the best option longerterm.

It is possible that even with 3 hotels this is not enough critical mass to make this a good choice for Universal?

 

[raidermatt]

JessicaR- We all expect seasonal variances, even day of the week variances. But discounting has impacts other than its immediate impact on the bottom line. You maybe the exception, but once most people have been able to purchase a luxury item at a bargain price, they aren't likely to pay the high price again. They expect to pay more in peak seasons, or on weekends, but they expect to pay the same next December that they paid this December.

Yes, there are profits from merchandise and food to consider, but the profits from these things do not go up in proportion to the revenue lost on a room. If you save a $100 on a room, you might spend that $100 on other things, but most won't. Even if you do, the actual profits are less than $100. The $100 off the room comes off the top and therefore is pure profit.

Yes, cutbacks result in less total money spent, but if there are also fewer guests. The huge fixed costs of running a theme park make it impossible to keep the ratio the same in bad times, but by keeping prices relatively stable, and reducing costs as much as possible, the ratio can be kept as close as possible to the optimum. Universal is not any different. Even with their discounts, attendance is suffering, so why don't they discount more? (rhetorcal question)

I can only say my son likes Bear in the Big Blue House and House of Mouse. He really isn't old enough to take control of the remote. My son also likes the Disney movies, such as Pinnochio, The Little Mermaid, Mary Poppins, Tarzan, and the Toy Story movies. Admittedly, if your children don't like these movies, they won't have the same attachment to Disney that our family does.

 

[raidermatt]

IOATech- I must have missed the Universal announcement 8 days prior to Disney's on 12/3. The Orlando Sentinel (not exactly a Disney cheerleader), said this about Universal's additions:

"Universal will offer its existing 12,500 park employees additional hours over the holidays, then hire seasonal employees to meet the remaining need, spokesman Jim Canfield said."

Disney has been increasing hours for current employees, and is hiring both seasonal and permanent employees.

Regardless, the point is there isn't much difference in risk between Universal's announcement that I guess came on 11/25 (right date?), and Disney's on 12/3. Both came after it became clear that holiday crowds would be large, though not up to last year's numbers. Had Universal announced this in October, it would have been a risk.

When does Universal's fiscal year end? Did they actually anounce that the hirings would fully replace those let go? (Its not that I doubt your info, I just want to ascertain if its based on opinion, an anouncement, or some other source.) Unless Universal's fiscal year ends this quarter, its not really fair to speculate on the number of hirings Disney will have by then.

As for the hotel ownership, larworth makes some good points about the plusses and minuses. But essentially "outsourcing" the hotels would not be received well among Disney fans. It would be viewed as just another cost-cutting move. Similar to turning over ride development to outside companies, and letting go of Imagineers. Yet this is already common practice for Universal. I find it very ironic that some are angered by these types of moves when Disney makes them, and says they will now go to Universal. Yet Universal did things that way to begin with.

I know I'm coming off as anti-Universal, but I'm really not. I have no problem with what they are doing. If I did, we wouldn't be considering spending a day or two there. Its just that there are some pretty apparent double standards being applied.

 

[raidermatt]

BobO- I basically agree with a lot of what you are saying, and I see this as more of a threat to Disney than a new Universal resort or discounted ticket.

I will say this, I grew-up in the 70's when there was a dearth of strong Disney animated films. I liked Disney, but there wasn't much of it on TV or in the movies. The cartoons I watched were Bugs Bunny, Porky Pig, Woody Woodpecker, Popeye, etc. I still like these characters, but they simply do not appeal to the human spirit the way films like Peter Pan, Pinnochio, The Lion King, and Toy Story do. Same with the Nick stuff.

The Universal films are somewhat of a different story. Films like ET, Back to the Future and Jurassic Park have large appeal, and are a big plus for Universal.

But I still contend that for the most part, Universal is not hurting Disney. Until the recession, both resorts were seeing record crowds. Universal may have designs on taking away more of Disney's core customers, but they need to be careful. Everybody wants to take on the top dog until he bites back...

(BTW, I've seen how Paramount runs a park, and while they can make money at it, they will never be a threat to Disney or Universal unless they change their ways.)

 

[Earl]

Raidermatt, I respectfully disagree with some of your opinions but can clearly understand your viewpoint. Mine differs as I am in the middle of this and have been for many years.

Just as a matter of information only, Universal's fiscal year does end this quarter, 12/31. Those positions cut from Universal are not scheduled to be refilled. They did a restructuring that changed the core management to a single line responsibility for both parks. Those folks whose hours were cut can hopefully look for hours to be restored as business picked up. Universal is offering available hours to all of it's current employees before going outside for new hires. Disney is hiring without restoring full hours to current employees.

Disney has a rich long history of providing entertainment, in film and theme parks. A large number of people have supported Disney for years, especially those with children. Universal does not have that legacy, and targets a slightly different market. I would not have any concern about Universal waking the sleeping dog. Universal has a tremendous amount of ambition right now, a huge, growing spirit in it's employees. They are not going after Disney. They are focused on becoming the best resort destination and grabbing the bigger share of the pie. I must say that knowing both sides as well as I do, that I honestly beleive that they will be successful. There is a huge difference in the management teams of these two companies. The general public could never understand just how much. Personally, this is where Universal will shine. Disney will be fine, Universal will be better than ever before.

 

[Spaceman Spiff]

Earl that was very inspiring.


Since today is the 100 Years Celebration of Walt and also the big press conference for all new Disney things when can we expect something similar from Uni?

 

[Earl]

Well, there's no big milestones going on at Universal right now. They don't typically do the big fanfare announcements that Disney does. Typically something is already underway before it goes public. At least there's no risk of announcing something and never building it.

There are several things being stirred in the pot, shall we stay. It's hard to say exatly if and when something will come about. I would dare say that one should stay tuned.

 

[raidermatt]

Earl- I think that while we may not agree on all of the "why" and "how", our conclusions are the same. Universal is going to do very well, and will have a growth rate larger than that of WDW. WDW will continue to grow, and do just fine, just as you say.

And, we, the vacationing public will be the better for it, having what appears to be two world class resort destinations so close together. (I only say appears since I haven't actually been to Universal Florida yet. But everything I see says first class.)

 

[Bob O]

Raidermatt i would agree that Paramount parks arent a threat to disney but the two i have been too i liked alot and my kids really enjoyed their kid areas which were excellant and they wear their "Beastie" shirts alot(lol). I would love disney to put a classic coaster like the Beast in their parks or a XLC hypersonic with disney type themeing. I think they are hurting disney with the teenage/young adult population and that could lead to furthur losses as they grow up.
Earl i think with the quality of live action films Universal has created they are building a legacy for the younger generation and films they can use to inspire rides and shows for their parks and with disneys recent movie output(besides pixar)their isnt alot their.

 

[Hockeyman]

Im gonna have to agree with Bob O. I definetly think Universal has a big edge with the teenage/young adult age group. Myself being part of that age group (23),find that more people around my age would much rather go to IOA over Disney any day of the week. Universal just appeals more to us than Disney. I think now that a lot of people my age are growing up going to Universal that it will have a big impact on our kids going there as well down the road. So in the long run instead of us staying a couple days at Disney we stay a couple at Universal. With that happening, as Earl said, Universal will have a bigger share of the pie.

 

[Dragon0525]

We're just back from our vacation. PBH hotel was so nice and the Polynesian so bad we checked out early and went back to PBH! We also went back to IOA-you can't beat the front of the line access for rides while staying onsite!! It was great!