Tim Grassey returns with his thoughts on Disney World’s MyMagic+. As you can gather from the title, this isn’t a column the Disney suits are going to like. However, it’s an important discussion as the new MyMagic+ fundamentally changes the theme park dynamic for both Disney and its guests. Give it a read and then let us know your thoughts. Do you agree with Tim or do you have a different view?

I will often point to the Happiest Celebration on Earth as the last great Disney promotion because it brought forth the main thing Disney fans want: new attractions. The Happiest Celebration on Earth began in May of 2005 and continued through September 2006. Soarin’, Lights, Motors, Action! Extreme Stunt Show and Expedition Everest all opened in the first 11 months of the celebration and the result of this investment was a substantial increase in attendance from 2005-2007.

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2000

2004

2005

2006

2007

Total

Magic Kingdom

15,200,000

15,200,000

16,100,000

16,640,000

17,060,000

 

Epcot

10,300,000

9,400,000

9,900,000

10,460,000

10,930,000

 

Hollywood Studios

8,800,000

8,300,000

8,600,000

9,100,000

9,510,000

 

Animal Kingdom

8,200,000

7,800,000

8,200,000

8,910,000

9,490,000

 

Rate
increases

Magic Kingdom

 

 

5.92%

3.35%

2.52%

12.24%

Epcot

 

 

5.32%

5.66%

4.49%

16.28%

Hollywood Studios

 

 

3.61%

5.81%

4.51%

14.58%

Animal Kingdom

 

 

5.13%

8.66%

6.51%

21.67%


As attendance rebounded after 9/11, the new slate of attractions resulted in each park seeing at least 12% growth from 2005-2007 (Source TEA-ERA reports). However, I speculate that in the halls of Disney’s offices they at least partially attribute this growth to three other substantial changes that began during this time frame:

  • January 2, 2005: Disney launched the Magic Your Way ticket system. The concept was the longer your stay, the less you paid per day. At its inception each day beyond day 5 of a multi day ticket was only $3 more per day.
  • January 2, 2005: The Disney Dining Plan launched in conjunction with the Magic Your Way ticket system. This gave guests three different levels of pre-paid options based on the types of restaurants they wished to experience.
  • May 5, 2005: Disney launched Magical Express, a service that gave guests free transportation from Orlando International Airport to every Disney owned resort.

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These three initiatives were done with a singular objective: keep guests on property. Guests that stayed on property were inclined to give more money to Disney. If a family of 4 only spent $12 more on tickets per day, they thought they were getting a good value. As a result, that family was more willing to dismiss the cost of the hotel room, food and merchandise spent on those extra days. With Magical Express, guests no longer needed to rent a car. Not only could the money that would have otherwise gone to a rental car company be spent on Disney property, the lack of a rental car meant a guest could not easily travel elsewhere in Central Florida.

Immediately following the 2008 economic crisis, Disney offered deep discounts on resort stays and park tickets. Through early 2010, discounts included an offer to “Buy 4 nights, get 3 nights free” at Value, Moderate and Deluxe hotels. As the economy recovered, the discounts decreased and attendance remained stable from 2008-2012.

 

2008

2009

2010

2011

2012

Total

Magic Kingdom

17,063,000

17,233,000

16,972,000

17,142,000

17,536,000

 

Epcot

10,935,000

10,990,000

10,825,000

10,825,000

11,063,000

 

Hollywood Studios

9,608,000

9,700,000

9,603,000

9,699,000

9,912,000

 

Animal Kingdom

9,540,000

9,590,000

9,686,000

9,783,000

9,998,000

 

Percentage
Increases in Attendance

Magic Kingdom

0.02%

1.00%

-1.51%

1.00%

2.30%

2.80%

Epcot

0.05%

0.50%

-1.50%

0.00%

2.20%

1.25%

Hollywood Studios

1.03%

0.96%

-1.00%

1.00%

2.20%

4.18%

Animal Kingdom

0.53%

0.52%

1.00%

1.00%

2.20%

5.25%

While attendance remained stable, it was a far cry from the growth seen during 2005-2007. Still, Parks and Resorts revenue was increasing in large part due to an increase in guest spending per day.

Hotel
Occupancy Rates

 

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Occupancy

78%

83%

87%

89%

89%

87%

82%

82%

81%

79%

Available Room Nights Domestic (in thousands)

9356

9587

9644

9424

9367

9549

9629

9625

9850

10558

Per Room Guest Spending Domestic

$204

$206

$218

$225

$233

$214

$224

$241

$257

$267

The preceding numbers include both Disneyland and Disney World. The Disney World numbers have historically been $4-10 less in Per Room Guest Spending due to all Disneyland Hotels being in the deluxe category. Disney has seen a steady increase in spending for their resort guests, but this has largely been a product of price increases. Without organic attendance growth or higher room occupancy rates, the continued growth is unsustainable.

MyMagic+ is Disney’s attempt at organic growth.

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More than ever, Disney executives seem consumed with guest spending per day. In Disney’s eyes, this is even more important than increasing the number of guests. MyMagic+ reinforces the motivation to increase guest spending through incentives to stay on property. The incentive of MyMagic+ and Fastpass+ is the application of a value system to attraction reservations. By granting earlier access and better reservations to resort guests, Disney is rewarding guests that are paying more per day. There’s absolutely nothing wrong with a company making money, but the approach to doing so can certainly be questioned.

Guests have previously seen these incentives manifest themselves through high demand reservations at restaurants. Currently, guests struggle to make a dinner reservation at Be Our Guest restaurant 180 days in advance because resort guests can book up to 189 days in advance. The initial fear with Fastpass+ was that it will be the dining system revisited. While capacity at attractions is higher than at a restaurant, non-resort guests are already being shut out of Fastpass+ offerings at Princess Fairytale Hall.

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Disney has long adhered to the John Lasseter philosophy that quality is the best business plan. If guest satisfaction is high, people are more inclined to spend money. With MyMagic+ and Fastpass+, Disney is taking a different approach. The motivation behind the original Fastpass system was guest satisfaction. The motivation behind Fastpass+ is strictly monetary. Looking towards the summer, Harry Potter and the Escape from Gringotts will draw guests towards Universal Studios. However, Disney believes if a guest was on the fence about leaving Disney property, Fastpass+ reservations at The Seven Dwarfs Mine Train and/or other attractions will keep them on property. Rather than try to compete on an attraction level, Disney has opted to reward those guests that “lock in” their plans 2 months in advance.

One of the criticisms of the original Fastpass system was the advantage experienced guests had over the inexperienced guest. The experienced guest knew what to prioritize while the inexperienced guest didn’t know what to prioritize or even how to use Fastpass at all. Disney will never attempt to resolve this ignorance, nor should they. All Fastpass+ does is allows Disney to profit on this ignorance.

Since Fastpass began, Disney has tweaked it by removing it from many high capacity attractions where it was deemed unnecessary. It was removed from most shows for the same reason. Guests would save less than 5 minutes using Fastpass at some attractions, and save no time using Fastpass on shows.

Fastpass+ is technologically superior to the original Fastpass. However, from a Fastpass distribution standpoint, Fastpass+ reverses any evolutionary gains over the last 15 years of Fastpass by adding it back to attractions that since had it removed, as well as adding it to attractions that never necessitated Fastpass usage. The motivation behind this is to get more guests to be able to make more reservations per day. In doing so, they will have “locked in” that guest and prevented them from traveling elsewhere in Central Florida. Disney has assigned value to Fastpass reservations like Spaceship Earth that are wholly unnecessary with the intent of deceiving guests into staying on property.

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When it comes to shows, Fastpass+ typically results in a guest losing time as opposed to gaining it. Guests can walk into most shows up to and after the official start time. The Fastpass+ return window for shows is 20-5 minutes before a show begins. For example, a Fastpass+ for a 1 PM show will have a return time of 12:40 to 12:55, but at 12:56 you can still walk into the show through the standby line.

The intentional deception of guests is necessary so that Disney can sell guests on the availability of 3 Fastpass+ reservations per day. In Disney’s eyes, 3 seemed to be the magic number for when a guest was “locked in” to those reservations and therefore unwilling to leave property. The problem is that in order to achieve 3 reservations per guest per day, Disney had to add those reservations where they didn’t belong. Simply put, aside from the Magic Kingdom none of the other Florida parks have the attraction capacity to meet the true Fastpass demand necessitated by Fastpass+.

While tweaks to Fastpass+ are certainly likely, the advanced booking concept does not seem to be going away. A recent guest survey indicated guests could soon make Fastpass+ reservations at multiple parks per day and/or acquire additional reservations once the original three are used. Despite what sounds like an improvement, the advanced bookings still give preference to resort guests, making Fastpass+ another service that Disney can sell as “complimentary” but is really anything but.

These advanced reservations are another cog in the machine to keep people on property and increase guest spending per day. These choices seem to be made in lieu of new attractions or raised expectations at the resorts. A decline in quality and an increase in prices have resulted in the stagnant hotel occupancy and attendance numbers seen since 2008.

The opening of headliner attractions during the Happiest Celebration on Earth showed that sustained attendance growth it still possible, but Disney no longer seems interested in that approach. For the first time in Disney’s history, they will go 11 years between headliner additions to Walt Disney World (Expedition Everest in 2006, Avatar in 2017). The longest previous gap between E-Ticket attractions was 6 years (Horizons/Journey Into Imagination in 1983, MGM Studios and Wonders of Life in 1989). With that unfortunate reality in mind, it stands to reason that Disney’s new approach to growing revenue is through increasing guest spending. Initiatives like Magical Express, the Disney Dining plan, Magic Your Way Tickets, and now MyMagic + are infrastructure and philosophy changes all designed at increasing guest spending but not necessarily the number of guests that visit the park.

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Disney has chosen to no longer compete in the theme park wars in the way that fans desire. Fans want to watch Disney and Universal exchange blows like two prize fighters trying to one up each other in attraction technology. Disney has decided they would rather reshape how theme parks work with MyMagic+. Fellow MiceChat columnist Kevin Yee as well as WDWMagic poster WDW1974 have helped introduce the concept of “Blue Ocean Strategy” to the Disney fan community; this concept is the core of My Magic+.

The simplest explanation of a Blue Ocean Strategy vs. a Red Ocean Strategy is that a Blue Ocean Strategy involves competing in an industry or in a manner that does not yet exist. A Red Ocean Strategy is competing in an existing market under existing rules and parameters. Walt Disney often existed in “Blue Oceans” where he created demand for products that people didn’t necessarily know they needed. Defenders of Walt will argue that he did so as an innovator and that’s what separated him from the finance minded decisions typically at the root of today’s Blue Ocean Strategies.

From Disney’s perspective, the infrastructure improvements, change in ticket media, RFID tracking, and Fastpass+ scheduling are intended to change how people tour Walt Disney World. These changes are taking place under the Next Gen/MyMagic+ umbrella and are being done at Disney World because they’re not being done elsewhere. The hope is that these changes will somehow increase revenue through an increase in guest spending while also avoiding a costly attraction building arms race with Comcast and Universal.

The concepts behind Blue Ocean Strategy may work under different circumstances but it’s application as it relates to MyMagic+ seems misguided at best. While it’s possible to generate more revenue per guest, you can only squeeze so much milk out of a single cow. One of the reasons the 2005 initiatives worked was because they coincided with substantial additions at three of the four parks. Attendance increased and guest spending increased. That is the most desirable option, but one that Disney is unwilling or unable to pursue today.

It’s not unreasonable for Disney to believe that Theme Parks in Central Florida are incapable of additional organic attendance growth beyond the 1-2% per year. Nearly a decade without an E-Ticket addition will result in stagnation. However, Universal Studios has proven that innovative new attractions can still drive attendance and Central Florida has room to grow. Companies are allowed to make mistakes, but My Magic+ has hindered this growth by taking money away from additional projects that would further enhance the resort.

My Magic+ spending is reportedly north of $1.5 billion. Disney is acting as if MyMagic+ is too big to fail. Expenses will continue to mount as the infrastructure associated with this state of the art system will need to continually be refreshed. This is not a project that can simply be completed because the technology behind it will become obsolete quicker than the amortization of any attraction or building already in Disney World. To paraphrase a line from Walt, MyMagic+ will never be complete as long as technology continues to evolve.

Under a management group that claimed a holiday incandescent light display was obsolete, it’s possible Disney considers MyMagic+ obsolete after five years, however it seems unlikely. It’s more likely that the components of Next Gen are not generating revenue at the same rate as the amortization of the components themselves. That means that Disney is potentially faced with the continual replacement of Next Gen related infrastructure that cannot pay for itself. While this occurs, any additional spending on new attractions that was not already approved has been halted until a revenue stream is derived from Next Gen.

To recap, in order to avoid a “costly” attraction driven theme park war with Universal, Disney has opted to go with the “less costly” alternative: a bottomless pit of an infrastructure project that to date has cost more money than the initial build of any stateside theme park after inflation.

For 35 years, Disney World had steady organic growth generated largely by continued reinvestment into the parks themselves. However since Expedition Everest debuted in 2006, Disney has failed to innovate in Central Florida. Financiers have taken over the company from the creative minds that made it great. WDWMagic user Astro Blaster recently uncovered a great Walt Disney quote that seems pertinent here:

“I could never convince the financiers that Disneyland was feasible, because dreams offer too little collateral.”

The most significant event during the Happiest Celebration on Earth wasn’t the addition of Soarin’ or Expedition Everest. The most significant event during the Happiest Celebration on Earth wasn’t Magic Your Way, the Disney Dining Plan, or even Magical Express. The most significant event during the Happiest Celebration on Earth was the appointment of Bob Iger as CEO and Jay Rasulo as the head of Walt Disney Parks and Resorts.

Led by Iger and now CFO Jay Rasulo, the company has sacrificed guest satisfaction in favor of getting the most money out of a guest on their current trip. This shortsightedness sacrifices future profits for current cash flow. In Disney’s eyes there will always be a new crop of guests to replace those they lose. Repeat visitors aren’t as profitable as the first timer. Every corporate decision is made with the next quarter’s balance sheet in mind while five, ten and twenty year plans are seemingly non-existent.

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Unless a change of philosophy takes place, Disney will continue to make cuts and only make safe additions to the parks. They will do so as long as the current management team remains in place and the current management team will remain in place as long as the stock price continues to rise. Strip mining Walt Disney World is not a long term plan, and it’s one that will eventually catch up with those doing the mining. There are no diamonds left to uncover, no matter how many Dwarfs are sent to look for them.