Orlando, Florida: The Universal theme park chain was the last thing Comcast was interested in when it bought NBCUniversal four years ago. Endless upkeep? Endless spending on new rides? Endless anxiety about public safety?
Thanks, but no thanks. Some analysts predicted a speedy sale.
Instead, Comcast did a public about face, identifying Universal Orlando in particular as a growth engine and spending $100 million (Dh367 million) to build a “Transformers” ride here in 2013. Still, there was scepticism. Was Comcast becoming a new theme park force? Competitors insisted the jury was still out.
Well, the verdict just came in: Comcast is pouring billions into Universal Orlando and a sister property in California, opening major attractions and resort hotels at breakneck speed, and visitors are flooding the gates as a result. Attendance increased 10.4 per cent last year, with Universal parks generating 40.2 million turnstile clicks. For the first half of this year, NBCUniversal’s theme park unit had operating cash flow of $617 million, a 49 per cent increase from the same period a year ago.
“That’s just a huge, huge number for a business this size,” Stephen B. Burke, NBCUniversal’s chief executive and senior executive vice president of Comcast, said in a July 23 conference call with analysts. “We see this as a major growth driver for the company for five, 10, 15, 20 years.”
But now Comcast faces a new question: Is it moving too fast and disregarding the perennial problems that have long challenged this corner of entertainment?
Here at Universal Orlando, an 800-acre resort that includes two theme parks, four hotels and an outdoor CityWalk mall, a vast amount of construction is underway. Four cranes towered last month over a site that will become Volcano Bay, a new water park. A few hundred feet away, six cranes toiled over an even bigger site marked Project 664. Rising from the ground there is a $300 million hotel called Sapphire Falls, which Universal hopes will strengthen its conference business.
More hotel rooms are on the way — a lot more. Burke has said that Universal Orlando, which will have 5,200 rooms after Sapphire Falls opens next year, could have 10,000 rooms and still maintain profitable occupancy levels.
Expansion
Since 2013, Universal Orlando has opened rides themed to “Transformers,” “Despicable Me” and the Harry Potter movies. A major “King Kong” attraction will arrive next summer. In the works are attractions based on the “Fast and Furious” films, “The Tonight Show,” Hello Kitty and Nintendo video games. Over at the CityWalk shopping district — where eight new restaurants have opened over the last two years — an NBC Sports Grill & Brew pub is on the way, complete with 100 televisions.
And that is just in Orlando. Under the guidance of Ron Meyer, NBCUniversal’s vice-chairman, the company’s California outpost is undergoing a $1.6 billion expansion anchored by a snow-capped Hogwarts Castle. Universal is also building a $3.25 billion park in Beijing in partnership with a consortium of Chinese companies; it is slated to open in 2019. “We’re going to keep our foot on the pedal as far as it will go,” Tom Williams, chairman of Universal Parks and Resorts, said in an interview. “Any chance we get to pour the gas directly into the carburettor, we’ll do that, too.”
Add in the billions Disney is spending to expand its own empire — the $5.5 billion Shanghai Disney Resort opens next year and megawatt “Avatar,” “Frozen” and “Star Wars” additions are coming to Disney outposts in Florida — and perhaps the biggest theme park building boom in history is underway, analysts say. It is a remarkable turnaround for a business that became a backwater in the years following the 9/11 terrorist attacks, when attendance dropped sharply.
But with increased investment in theme parks comes increased risk. Theme parks will always be sensitive to swings in the economy. Another challenge involves managing visitor expectations; training them to expect something new every summer will eventually disappoint. Analysts point out that, despite an extraordinary safety record, these teeming resorts could become relative ghost towns overnight if a park anywhere in the world became a target of violence.
More profitable
Disneyland in Anaheim, California, recently endured a public-relations nightmare when it was linked to an outbreak of measles.
“I don’t think it’s a great business,” said Doug Creutz, an analyst at Cowen and Co. “You’re always pouring money into them. It’s relatively low return. And when you have a downturn in the economy, they typically get hit pretty hard.”
Still, theme parks, at least for the moment, are a reliable business. Last year, the Universal parks were significantly more profitable for NBCUniversal than movies or broadcast television. “Comcast’s stock price is driven by growth, and the parks, while a small piece of Comcast overall, have become an outsize contributor to its growth,” said John Hodulik, an analyst at UBS.
While still delivering huge returns, cable television has started to sputter with ratings erosion. NBCUniversal’s cable networks, for instance, generated $872 million in operating cash flow in the most recent quarter, a 4.6 per cent decline from a year ago. The movie business, meanwhile, remains challenged by piracy, diminishing DVD sales and rising marketing costs.
“Technology is changing so quickly it’s hard to predict how many people 30 years from now will be watching linear television or movies with Oculus glasses, but I feel strongly that for decades to come families are going to want the experience of having fun together at one of our theme parks,” Burke said in an interview.
Universal expanded into Florida in 1979 with the purchase of 312 acres of “palmetto scrub and swamp,” recalled Williams, who has worked for Universal and its various parent companies (MCA, Matsushita, Seagram, Vivendi, General Electric, Comcast) for more than 40 years. With an emphasis on thrill rides, Universal became a force among teenagers and young adults when it finally opened in 1990.
But Universal’s parks, suffering from underinvestment as owners came and went, “were in an attendance death spiral” by 2000, according to Sam Gennawey, the author of “Universal vs. Disney: The Unofficial Guide to American Theme Parks’ Greatest Rivalry.”
Hogwarts Express train
Then came Harry Potter.
Working with J.K. Rowling, Mark Woodbury, president of Universal Creative, the company’s theme park design group, created an immersive 20-acre “land” in Orlando dedicated to Rowling’s wizarding world. The $265 million addition, complete with Butterbeer carts and Ollivanders, an interactive wand shop, opened in mid-2010 and became a hit — demonstrating to Comcast that Universal Creative, if properly funded, could be a best-in-class operation.
Now Comcast is speeding ahead — a Harry Potter expansion, featuring a working Hogwarts Express train, opened in 2014 — in large part because of Burke’s confidence in Woodbury. To create the new water park, Volcano Bay, Woodbury said he sent his team on a round-the-world tour of existing water parks. “We want to build something that is totally groundbreaking,” he said. “What’s the state of the art and how can we surpass that?”
Universal sees a competitive opening in Orlando, which is dominated by Disney World. Located about 20 minutes to the south, Disney World dwarfs Universal in size and popularity. But navigating such a giant resort can be daunting. Disney, which recently spent $1 billion on a reservation and navigation system to make Disney World more convenient, declined to comment.
“We are user friendly,” Williams said. “If visitors notice what we’re doing here and decide to spend a day or two less at a competing resort, hip hooray.”
