Feb

10

The Disney Model, from Ed Stewart

February 10, 2015 |

The Disney intellectual property focused economic model seems like an extraordinarily good one which I think can teach allot about money making in today's consumer economy. I am only scratching the surface and have little real insight, however I think it is still worth taking the time to consider, to better identify good investments and also to monetize our own ideas.

The movies and other entertainment programs are intense emotional experiences where kids bond with certain characters as heroes or loved villains. The fact that the huge investment in infusing new "magic" into IP assets (movies and their characters) called can in itself turn a healthy profit is extraordinary. In most industries that would be a huge cost that had to be recouped over years, vs Disney where it seems to be a profit or annuity on top of healthy profits. The smash hit and profit of a movie (and of course offsetting some of the losers), there is the ability to monetize the characters and songs far into the future through products that must have at least a 97% gross margin, and most parents have no problem buying armloads of the stuff.

Another great economic feature of the Parks is the complete integration of product sales with the various amusements. I was continuously surprised with the 1001 creative ways that rides and amusements were used to create a sales funnel for high margin toys, clothing, and accessories. One of the best was after the Star Wars 3d ride (very impressive!), where we exited our space craft and suddenly found ourselves in a bazaar-like selling space where we had the ability to buy all the characters, space crafts and light sabers - it was impossible to exit to outdoors without at least 100 sales pitches at the children's eye-level, and It seamed to me that at least 50% of riders were looking for stuff to purchase.

While exiting an accidental excursion into one of these selling spaces, I overhead a lower-middle-class looking woman telling her kids, "We have already spent $600 today, sorry we are broke" and I noticed her kids were decked out in Disney gear from head to toe.

Indeed, one of the benefits of visiting Disney is that it seems a window into the hopes and economic prospects of what might be called the dead-center middle class, and even the lower middle class. Tim Melvin (Who was kind enough to meet me for breakfast one morning) told me that many families save up for months, even years, for their perfect Disney vacation - including those who might otherwise be 4 months worth of paychecks away from losing their rent or mortgage money. It brings to mind the powerful role that time preference has in determining who rises economically, and who is stationary or falling. It seems that much of the consumer economy is an amusement designed to facilitate income shifting up the pyramid.

Based on the promotional videos I watched, 70% families of color (all wearing polo shirts) might have been expected at all Disney Properties. In reality, over the 4 full days of our trip (and not including a few school groups) I saw no more than a handful of persons of color among the many thousands of guests. The only "complete" family of color (mom, dad, kids) I saw was in our hotel lobby, where they were filming a promo video for Disney Resorts! The other PC amusement in this area was seen in the Disney educational rides, where 90% of 20th century achievements were persons of color, including the female wearing thigh-high gogo boots sporting an enormous Afro, leading the NASA control room for the moon landing. As an aside an ugly-looking white male was seen inventing the computer revolution, but his back was to us and he seemed to lack significance and stature vs. the others, almost troll-like in his disposition.

Overall it was a very fun and worthwhile trip. The kids had a blast. It was a new experience for me, as my parents much preferred a place similar to Victor's "worst place in the world" with zero crowds or commercial interest of any kind, a fusty attitude I had maintained until this trip (And might now return to). One surprise was that the food at the restaurants was mostly very good, the primary difference relative to decent city dining was the larger portion sizes. It is a great relief for parents to be at a pleasant place for dinner that is 100% kid friendly, without receiving dirty looks even when kids are 100% well behaved. That plus the night-time ride on the lake to one of our dinner destinations was my favorite Disney experience. My son's favorite was the "Design a car" ride and the Star wars 3d, plus playing in the pool.

Tim Melvin comments: 

We have annual passes and go to the parks often. My observation has been that the demographics are right in line with the general population. There is always a large international attendance as well with Brazil and England be the source of most out of country visitor.

Disney is ruthlessly efficient about the quality of the guests' experience and squeezing every dime possible out of its guests. At times I will just get a coffee and watch a particular attraction for a period of time and the amounts of money spent in each and every little shop (says the man with two Grumpy sweatshirts and 4 coffee mugs that also have my namesake character on them). B-school students would do well to spend some time in the parks to see the sale power of customer service, marketing, branding and capitalism at its finest.

You do indeed see many folks their for their dream vacation of a lifetime with months and years involved in saving for the trip. These visitors seem almost desperate to experience in every park. There is a statement in there about our society but it's too nice a day down here to spend time on such serious matters.


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2 Comments so far

  1. anand on February 10, 2015 7:40 am

    Went to Disney World as a 15 year old (bit old perhaps?) and HATED it. It was naff, vapid and just lacked any depth of experience. It was very ‘American’ in that it was an artificially created man made construct primarily designed to extort money .. personally as a child I preferred to play football (soccer) or listen to music (also an artificial construct but perhaps one coming from a more base human instinct).

    Also, if we apply some statistical methods what time was spent waiting in a queue vs. actually being on a ride? I would estimate 10:1 to 20:1 depending on popularity of ride.

    Ps despite my name I was born and raised in England and taught to quietly accept a queue but Disney World pushes one to a new level of frustration.

  2. Ed on February 10, 2015 10:24 pm

    Anand, if u are English I understand your distaste for Disney completely - I think disney-like amusement is completely alien to the English sensibility. Indeed I think that is why my parents hated everything disney and never let us go near even a disney store and considered such things a pox on humanity. We vacationed at a remote place in Maine and similar places, which I suspect was much closer what suited my families 1000+ year genetic-based proclivities for solitude and costal living. I still prefer nature-based activities to a crowd or structured entertainment by a long shot, However I have branched out and attempted to try new things. While the Disney trip was in many was alien to me, It also proved to be allot of fun. And as my wife is not English or ethnically northern european, I think my kids might be less likely to have my strong aversion to crowds, noise, entertainment, and all the rest. Fortunately though for my pocketbook she is quite stingy so we didn’t waist any money on the 97% markup products that popped up on every corner.

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