Report: Jim Hunt and Jay Rasulo Smith Barney Citigroup 2003 Tutorial Series Presentation
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The key cost driver for the business is labor costs which include salary and benefits. While costs can be controlled by reducing offerings, Disney tries to be careful not to let short-term pressures impact the guests experience. After 9/11, guest satisfaction levels increased, and Jim credits this with not letting economic pressures impact guest experience. An example of this is that 5% of the businesss assets get renewed annually through various programs of maintenance and enhancement. The marketing and sales cost is a cost driver that is being managed. The brand needs to be in the consumers mindset, but during tough times the message might not break through. After the current economic situation ends, the brand will need to be more present because of increased advertisement as consumer confidence grows. This means that advertising and marketing costs will probably increase once consumer confidence begins to rebound.
Finding partners for co-investing in new ventures is a new trend at Walt Disney Parks and Resorts. An example of this is Hong Kong Disneyland, where the significant business partner is the government of Hong Kong. Disney is contributing 350 million in capital with hopes that they will receive returns higher than the expectations. The partners benefit from long term capital return, and in the case of Hong Kong, an increase in the amount of jobs in the area.
That concluded Jims prepared remarks and it was Jay Rasulos turn to discuss his vision for the business in the coming 3 to 5 years. According to Jay, the fundamental desire for guests to visit Disney destinations has not changed. When the world seems stable, guests rush to book a Disney vacation. An example of this is last December, where there was a flood of guest bookings because CNN told the nation that war with Iraq would not begin until 2003. Not only do multi-park resorts control the fixed costs of running a resort, they also control the fixed costs of a familys vacation. A person is able to enjoy two parks while still only buying one road trip plane ticket.
After spending a large amount of capital on making the resorts multi-park destinations, now there will be a much smaller amount of capital expenditures. Jay emphasized that guests will still see new shows and attractions, but that the growth will be much more tactical. They will go park by park and focus on building projects that address specific guest needs. He used California Adventure as an example. When the park opened guests said that there needed more attractions for young guests and that there was not enough to do for a whole day. Disney added a bugs land, and the Aladdin show to address these concerns. The recent opening of Playhouse Disney and the upcoming opening of the Tower of Terror which is an iconic attraction that has had success in Florida will further address those concerns.
Since all of the Disney destinations have reached "resort level". Disney is now using the same marketing message for all of their resorts. This saves money in messaging and also creates a stronger message that can be applied to all of the destinations. Disney calls this portfolio marketing because it markets the portfolio of parks and resorts around the world. They tested this approach in the U.K. which is a huge market for Disneyland Paris and Walt Disney World. They used the same ad to advertise both resorts. Guests that wanted to go to Disneyland Paris saw it as a Disneyland Paris ad. Guests that wanted to go to Walt Disney World saw it as a Walt Disney World ad. The ad did double-duty for the cost of one ad. Disney will use this approach to market celebrations that will be celebrated at all the parks like the 50th anniversary of theme parks and the companywide princess initiative.
Finally Jay talked about the investment in Customer Relations Management, which Disney is calling Destination Disney. Information about guests will be collected at all of the points that the resorts have contact with the guests during their stay. They will then receive a marketing message that focuses in on who they are and what they like. Each guest will feel they are receiving a personalized message that is addressed to them and not their neighbor.
In the question and answer session Jay discussed synergy and the attendance mix at Disneyland and Walt Disney World. At Disneyland 50% of guests are locals and 10% are international. At Walt Disney World, local guests account for about 10%, with international accounting for up to 20%. In response to a question, Jay said that there is no cannibalization effect that the international parks could have on Walt Disney World attendance. European guests that visit Disneyland Paris are more likely to visit Walt Disney World. A similar situation exists with the Tokyo Disney Resort. Addressing the concern that kids are growing up quicker and how that affects the demographics of Disney park guests Jay said it has little effect on guest demographics. After recent events, there is a growth in more generational trips at all Disney destinations.
-- Posted April 15, 2003
-- Story by Benji Breitbart