Build It and They Will Come
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Disney (NYSE: DIS) has just re-opened the kiddie area of its Magic Kingdom park in Orlando, Florida. Though not quite done yet, it is an impressive update and one that greatly expands that section of the already massive park. It won't lead to huge earnings gains, but it will likely help boost results for years to come. It's just one more reason to love this entertainment giant.
A Tired Section
Fantasyland, as the kiddie section is called in Magic Kingdom, was in sore need of an update. As a frequent customer, I can attest to that fact. While it drew many customers, the rides were getting old and, frankly, for anyone over the age of 10, there really wasn't much there. So Disney shut it all down and started with a new concept.
It brought in the successful Ariel ride from its California park and added new restaurants and shops. It also expanded and formalized a niche Belle story telling attraction that was wildly popular, but with limited show times. It now operates on a continual basis and, from a Disney fan, is a lot of fun for kids and adults. Still to come is a roller coaster.
Harry Potter did it
One of the biggest changes, however, is that the area has more of a theme to it now than it did before. The park inside of a park idea isn't new; Disney has several “sections” within Magic Kingdom already. However, the highly stylized and themed Wizarding World of Harry Potter attraction in Universal Studios showed just how powerful adding an attraction inside of an attraction can actually be.
In fact, Universal saw a massive attendance boost after it opened the Harry Potter themed area. Moreover, it continues to draw large numbers of customers, resulting in a sustained attendance boost. That's not the norm for a new ride, which often sees a strong initial boost followed by a quick taper over the next couple of years.
How the Muggles do it
This is why amusement park operators like Cedar Fair (NYSE: FUN) have to be constantly updating old rides and bringing out new ones. The new rides create excitement and bring in customers, which is one of the two most important aspects of a theme park's results. This is also, however, how Cedar Fair got itself in trouble a few years back.
New rides are expensive to plan and build. Cedar Fair took on a huge amount of debt to buy a competitor (effectively doubling in size overnight), making it more difficult to afford the upgrades necessary to keep its parks fresh. It was forced to cut its dividend, a severe “no no” for a limited partnership. The company appears to be back on track now, however, and should again interest income-oriented investors. Disney, for its part, isn't limited financially, so this concern doesn't dog the Dow-30 member.
Also returning from the grave is Six Flags (NYSE: SIX), which has been reporting solid results since becoming a public company again just a few years ago. One of the keys to that success has been constant updating of its parks. For example, it just announced plans for 12 major rides and attractions for its 2013 season. The company also recently doubled its dividend, a nice sign of strength for interested investors. Six Flags' shares have been on a steady ascent of late, but they still boast a near 6% dividend yield. Disney, for those interested, has been increasing its dividend on an annual basis for years.
In Park Spend
Disney's theme parks draw more than any other. Providing a princess themed area inside Magic Kingdom will likely provide only a small attendance bump. It will greatly please the company's legions of fans (Yes, my daughter and I loved it) and perhaps give some folks who haven't been to the park in a long time a reason to return. It has certainly created a lot of positive press. More important for Disney, however, is that it will keep people around longer and give them more opportunity to spend money.
This is the second most important aspect of running a theme park—in park spend. Everyone that goes to an amusement park accepts the inflated prices for everything from food to clothing. (Note that Disney actually allows outside food in its parks, unlike most other operators.) Along with attendance, this is a key figure for shareholders to watch. Disney's new area provides plenty of reasons to spend money, including new food options with, for the first time in Magic Kingdom, alcoholic beverages.
This is the real reason to love the update. The spending boost from the new area may seem slight when averaged over all of the people who show up at Disney's doors in a given year, but multiply a few pennies by the more than 100 million people who reportedly visit a Disney park in a year and you come up with meaningful numbers.
Fantasyland isn't the only update at a Disney park. The California Adventure park recently introduced Cars Land to rave reviews, using the same themed area concept with its highly popular Cars movie franchise. I can personally report that Cars Land is fun for the whole family.
A constant dedication to updating and improving is a key to success in the amusement industry and no one does this better than Disney. More exciting, however, is the potential for future ideas that come from Disney's media business, a benefit that few of its competitors have.
Any number of Marvel's superheroes could have a themed area, including such popular characters as Iron Man or the Hulk, among many others. Or, Disney could create a themed area (or a whole new park) around all of the characters in Marvel World. Then there is the recently purchased Lucas Films, which boasts Star Wars and Indiana Jones. Both have existing rides at Disney and could easily inspire new wings.
Although only a relatively small part of Disney's overall business, the company's dedication to its theme parks is indicative of the care management takes throughout the company. The market has afforded it a premium price for good reason. While the current yield is meager at around 1.5%, investors of all stripes should keep this well-run company on their watch lists for a sell off.
ReubenGBrewer has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!