How To Build A Better Mousetrap

By David S. Jackson/Anaheim

Looking for thrills? The world of Disney has always been a good place for them. Take that scream-inducing roller-coaster ride, replete with stomach-churning falls from on high--oh, we're just talking about the stock price.

The gyrations have been in all the wrong places for Disney of late. Recently the company shut down its Go.com website, laid off 400 of its 2,000 Internet employees and wrote off more than $800 million stemming from its slumping online operations. And famed value investor Warren Buffett dealt the stock, which has been lagging the S&P 500 since November, a psychic blow by revealing that his Berkshire Hathaway company had dumped 80% of its Disney holdings by last March. After two years of such disappointments, and enough bumps and jolts in its movies, TV, consumer products and cable businesses to compete with its Big Thunder Mountain Railroad ride, the entertainment giant is trying to put the excitement back where it belongs.

That's the mission of Disney's California Adventure, its newest theme park, which opened last week in Anaheim, across the street from the original Disneyland. Theme parks are something Disney has always done well. Last year the parks accounted for about 27% of the company's $25.4 billion in sales and nearly 50% of its $3.2 billion in operating profits. In the company's most recent quarter, "once again, parks and resorts proved to be an extraordinary driver of higher earnings," noted ceo Michael Eisner. The new 55-acre California Adventure is part of a $1.4 billion expansion that aims to keep the Mouse a step ahead of ever more powerful competitors like Universal Studios, now part of the $70 billion French media conglomerate Vivendi Universal.

California Adventure will advance Disney's latest theme-park strategy, which seeks to offer as much for parents as for kids. Inside the park, kids rule, once Mom or Dad pops for the $43 admission: there's a giant Ferris wheel, a soggy river-rafting ride and the usual characters. The theme is intended to capture the feeling of touring the Golden State, from the Napa Valley to Yosemite to Hollywood.

Outside lies Downtown Disney, an admission-free, quarter-mile-long shopping and dining esplanade for the adults. The mall, which has already proved popular in Florida's Disney World, was designed to attract not only theme-park guests but also local residents and conventiongoers from the newly renovated Anaheim Convention Center nearby. It will offer such grownup attractions as live entertainment at the House of Blues and the world's most elaborate sports bar at ESPN Zone. You will be able to get an adult beverage, both there and in one of the gourmet restaurants in the new park. (What would Uncle Walt think!) And plopped right in the middle of it all is the Grand Californian, a 751-room craftsman-style luxury hotel that's part Gustav Stickley, part Swiss chalet and all Disney.

The idea, of course, is to prevent the customers from leaving until Mickey has all their money. Disneyland was designed to be a one-day romp for most guests; Disney's California Adventure is a multiple-day, capital-R Resort. "We really transformed Orlando into a resort-vacation destination," says Paul Pressler, chairman of Walt Disney Parks and Resorts. "And now our second park here in Southern California is striving to do the same thing."

For Disney, the addition of a new, competing park alongside Disneyland represents a major gamble with its original 45-year-old property. Yet such parks generate cash far more reliably than, say, the movie business. Which is why Disney is also expanding at Tokyo's DisneySea this year, adding a second gate in Paris next year and drawing up plans for a new Hong Kong Disneyland in 2005.

The new expansion project, five years in the works, clearly illustrates two valuable lessons the company has learned about how to make money in the theme-park business. The first lesson is, don't overbuild. Disney learned that the hard way in France, where the overly ambitious Disneyland Paris forced the company to take a write-down in 1993. "We probably built too many hotel rooms and sized the park a little larger than we needed to," admits Pressler. When it came to expanding in Anaheim, he says, "we wanted to make sure we were building smaller than we feel the demand is." Disney left nearly 30 acres vacant for expansion.

Yet that is also why California Adventure may leave some hard-core Disneyland fans feeling like the fairy dust is spread a little thin. At about two-thirds the size of Disneyland, the new park will offer only 22 attractions, compared with Disneyland's 60. And none of them match the elaborate, blockbuster rides like Indiana Jones Adventure and Star Tours that have been such huge crowd pleasers in the older park--but can cost $100 million or more to build. Says Pressler: "There are lots of ways to tell compelling stories that don't necessarily require you to build the Taj Mahal."

Two of the new park's attractions, It's Tough to Be a Bug and a 3-D Muppets show, were imported from Florida. Even Soarin' over California, a simulated hang-gliding ride over the ocean, mountains and deserts of California, which promises to be one of the park's biggest hits, can easily and cheaply be reinvented in a few years when the experience starts feeling old.

The other lesson Disney has learned is to share the cost. In Tokyo, Disney gets a management fee for licensing its brand to DisneySea, but it has invested virtually nothing in the resort. In France the company now owns only 39% of the property. In Hong Kong, Disney has paid only $310 million for a 43% stake in a venture that is valued at around $4 billion.

Back home, Disney has always worked with corporate sponsors, such as Kodak and Coca-Cola, but the trend is clearly toward shifting even more of the financial burden to them. So California Adventure offers more brand names than Macy's: the Golden Vine Winery and tasting room sponsored by Robert Mondavi, a sourdough breadmaking factory from Boudin Bakery and the Avalon Cove restaurant of celebrity chef Wolfgang Puck, to name a few.

Disney executives are so convinced they have got the right formula at California Adventure that they're predicting 7 million new customers will visit the park in its first year--despite a weakening economy. That's on top of the 14 million that Disneyland already gets. The goal is to make these visitors, many from overseas, feel like they've hit all the tourist high points of California without ever leaving Anaheim.

It's that last, not-leaving part that has spooked Disney's competitors and kicked off a miniboom in Southern California theme-park construction. Knott's Berry Farm, owned by Cedar Fair L.P., a publically traded, Ohio-based company that owns nine amusement parks across the country, has just spent nearly $70 million on a new luxury hotel, a 13-acre water park, Soak City U.S.A., and a thrill ride, Perilous Plunge, which it calls the tallest (115 ft.) and steepest (75[degree] angle) water ride of its kind. Knott's is located only seven miles down the freeway from Disneyland.

Six Flags Magic Mountain in Valencia has 12 roller coasters, but it plans to spend $30 million this year to add three more. "We'll have more roller coasters in one place than anywhere else on this planet," promises spokesperson Amy Means. Six Flags currently boasts, among other superlatives, the tallest (415 ft.) and fastest (100 m.p.h.) coasters in the world. And over at Universal Studios Hollywood, which is planning new attractions around a live Rug Rats entertainment show and the Animal Planet TV show, officials lined up a deal to provide free round-trip transportation for Disneyland guests to Universal, less than an hour from Anaheim. "We can offer the real Hollywood experience," says Larry Kurzweil, president and COO of Universal Studios Hollywood.

He may be right, but who wants reality? The whole point of theme parks is to be transported to a place that's cleaner, safer and more fun than real life. If Disney's illusioners can persuade 7 million more people to double the time they spend here, they will have transformed what they like to call "the Happiest Place on Earth" into one of the busiest--and also one of the most profitable.