Disneyland Paris is a tourist magnet for France. But the park has yet to pay off for Walt Disney
When the Walt Disney Co. opened Disneyland Paris 20 years ago, many French people wouldn't have bet 10 centimes that the theme-park resort, 32 km east of the French capital, would be a success. Critics lambasted the government for striking a deal with Disney that seemed to benefit the U.S. company far more than the French state. They mocked Disney's manic attention to detail, its ban on alcohol and its choice of rainy Paris over sunny Barcelona. And they wondered how such quintessentially American entertainment could thrive in the land of Molière, Cocteau and Sartre. Disney's implantation in France, Ariane Mnouchkine, a theater director, famously declared, was "a cultural Chernobyl."
How wrong they were. This year, to mark the 20th anniversary, the French state issued a report card that is an eloquent response to the critics. Disneyland Paris, which now attracts as many visitors as the Louvre and the Eiffel Tower combined, has created 55,000 jobs in France, and the return on the French state's investment has been stellar: $8.5 billion in taxpayers' money has turned into $61 billion in added value for the French economy through additional tourism revenue and taxation. "I can say without ambiguity that it has been a big success," enthuses Vincent Pourquery de Boisserin, director of the government agency that works with Disney and is charged with development of the region surrounding it.
If only the Walt Disney Co. could say the same. Disneyland Paris may have been a boon to France, but as an investment and shareholding for Disney, based in Burbank, Calif., the venture has been a dog — and not of the fluffy, lovable variety usually associated with the company.
Despite being one of the top tourist destinations in Europe, attracting 15.6 million visitors last year, Disneyland Paris continues to struggle financially. It's run by Euro Disney SCA, a French company that is 40% owned by the Walt Disney Co. and that has had to negotiate a restructuring of its finances with bank creditors not once but twice. Disney was supposed to receive a steady annual revenue stream from royalty payments and management fees from the park. But for more than half of the 20 years of the resort's existence, it has had to waive, reduce or defer those fees because of the troubled financial situation. Even so, Euro Disney has reported a loss for 12 of those years, including every year since 2009.
The reason? After the wild success of the Disney theme park in Japan, Euro Disney got over-ambitious, taking on more debt than the French resort could handle and over-estimating the size and spending habits of its new audience. Those miscalculations explain why Disney, unlike France, hasn't capitalized on the sea of visitors the park brings in.
Although things are starting to look up — its cash flow is growing, and it's finally turning an operating profit, thanks to tight cost control, better marketing and extra financing from a French state-owned bank — the net losses look set to continue for a few more years until the company can finally bring its $2.2 billion in debt down to a more manageable level. And that's if all goes well. With Europe battling a sharp economic slowdown and a simultaneous banking and currency crisis, the risks are huge. Disney, whose global parks and resorts make up more than a quarter of the company's revenue, has been relying on expansion abroad to boost growth. U.S. parks and resorts still make up a bigger chunk of the business, but much of Disney's 21% profit jump last quarter was thanks to growth at Disneyland Tokyo.
The capital-intensive theme-park industry by its nature is a long-term business, but there are signs that after two decades, investor patience is wearing thin. Sources close to the company tell TIME that Disney is considering a buyout of Disneyland Paris in order to shore up its longer-term prospects. The move wouldn't lessen the boon for the French state, but it would enable Disney to turn around the park's finances. And it would end a long slow bleed for Euro Disney's stockholders; the stock, which started trading in November 1989 at $13.50 and hit a peak of $30 when the park opened, is now worth just over $6. Disney didn't comment on the possible buyout but says it remains committed to the "invaluable asset."
Losing the Sparkle
Disneyland Paris was Disney's second theme-park venture abroad, after the one in Tokyo, which opened nine years earlier. (A third opened in Hong Kong in 2005.) It helped set the parameters of Disney's involvement. In Japan the company, wary of the risks, focused on earning licensing fees and allowed a Japanese company, Oriental Land, to take ownership of the resort. Tokyo quickly proved a big financial and commercial success, and the arrangement meant Disney didn't get as much of the upside as the owner did. In Paris, Disney was determined not to make the same mistake.
The intricate public-private partnership it negotiated with the French state was finalized in 1987. The deal gave Disney a big ownership stake, along with control of more than 2,000 hectares of land — and some ironclad government commitments to finance important infrastructure, including roads and a high-speed rail line. For the first park, which has a classic Sleeping Beauty castle, Disney spared no expense. The attention to detail is still evident in the elaborate decoration of the stores and restaurants along Main Street, USA, and in the rich landscaping. "It's probably the most beautiful castle park Disney has built so far," says Adam Bezark, an industry creative consultant involved in early discussions for the Discoveryland section. "Lots of love was put into every corner of it and not just the attractions."
A decade later, a second park, Walt Disney Studios, opened in the resort, and it reflected the drearier economy. The studio park seems lovelorn by comparison, with minimal landscaping. To get to the castle, visitors stroll through charming lanes; to access the studios, they trudge through a dark, restaurant-lined passageway that reeks of fried food.
Whatever their differences, both parks had the same problem: they were built using over-ambitious projections of visitors, including the number of overnight stays in Disney hotels, which languished because many visitors arrived on day trips from Paris. "We built something that was too big for what the market could absorb," acknowledges the French company's chief financial officer, Mark Stead. The first park initially attracted 9 million visitors, rather than the 11 million expected, and hotel occupancy just breached 50%. When recession hit in 1992, some of the hotels were so under-occupied, they shut down for the winter. The company reached an agreement in 1994 with its lenders to restructure its finances and then had to go to them a second time in 2004, after lofty expectations about the second park's performance bumped into the harsh reality of a European recession. "History repeated itself," Stead says.
The Walt Disney Co. came out of these restructurings the worse for wear, having to waive or defer its royalties and management fees, invest in new rights issues that bumped up its ownership stake in Euro Disney and extend lines of credit or new investment. Business picked up in the mid-2000s, helped by a 15th-anniversary celebration in 2007 and a new ride, the Twilight Zone Tower of Terror, but that upturn came to a halt with the financial crisis, which hurt parks not only in France but worldwide.
Disney hopes this 20th anniversary will prove to be another "booster year," as Stead puts it, but so far, the results have been mixed. In the quarter that ended June 30, the anniversary high season, average spending at the park rose 3%, giving Euro Disney stock a boost, but hotel occupancy dropped. Certainly, European consumers are more skittish than ever and are looking for last-minute deals. Geography hasn't helped. Federico Gonzalez, head of marketing for Euro Disney, says that for people arriving from other European countries like Spain or the U.K., travel can account for up to half the price of a trip to Disneyland. And when times get tougher, that cost can be prohibitive: from 2009 to 2010, Disney cut its ticket prices by as much as 40% for British visitors, but their attendance still dropped.
In Tokyo and Hong Kong, Disneyland visitors are mainly local, whereas Disneyland Paris has to draw customers from across Europe. So the company has been working with airlines and tour operators to provide attractive packages, including offers that allow children under 12 to travel free. "The overall cost remains important, but what people are really looking for is a good deal," Gonzalez says.
The company won't give details, but the Internet is full of chatter that a new attraction — based on the hit Pixar movie Ratatouille, about a rat turned gourmet chef — is on its way to help boost traffic. Marketing and new attractions can do only so much, however. Barring a Disney buyout, the main solution to Euro Disney's financial crunch is the hard-slog one: tight financial controls and careful investing to nudge up cash generation, coupled with a strategy to reduce that debt. The company has paid down about $500 million over the past five years, and management hopes to pay down as much again over the next six years. "In the past we had the attitude 'Let's build it, and people will come.' Now we say 'Let them come and figure out why they come, and then let's build,'" Stead says.
Playing It Cool
Surprisingly, French attitude is one thing that's playing in Euro Disney's favor. The controversial ban on alcohol was dropped after the park's financial troubles began in the 1990s; this year the restaurants are even selling special anniversary bottles of grenache, chardonnay and merlot. Euro Disney has ramped up advertising in France in recent months, and Gonzalez insists, "We're not trying to impose anything. We're just trying to share." That, plus special deals for residents of the Paris region, has helped boost the proportion of French visitors to half the park's total, up from 40% in 2000. Gonzalez says his market research shows an important shift in popular attitude, thanks to the company's softer, less aggressively American approach. The percentage of French people who react negatively to the Disney image has dropped sharply in the past five years.
Euro Disney has even made a stab at wooing the Parisian intellectual crowd. In 2009 it asked nine authors to write short stories loosely related to the park, and Flammarion, one of France's biggest publishers, issued the results as a paperback called, simply, Disneyland. Among the stories is one by David Abiker, who imagines a special part of the park dedicated exclusively to worn-out dads who can sit quietly in a café and read the sports pages. Another is by Simonetta Greggio, who imagines the filmmakers Federico Fellini and Roman Polanski visiting a Disney park together in 1964, where "they ogle the backsides of the pretty Snow Whites and other Minnies with amused indulgence."
But French philosophers are hardly Euro Disney's core audience. Teenagers, on the other hand, clearly are. On a Tuesday evening in July, a rare dry day in a rainy month, a crowd gathers along Main Street, USA, a good hour before the 10:15 parade, waiting for darkness to fall. They have come in their thousands, lining the sidewalk three and four deep, spilling out of the restaurants and stores as they wait for the nightly procession of Disney heroes, heroines and villains. At the sight of the first colorful floats, there are cheers and applause, and a 16-year-old girl named Laure Dupois, who is standing on a bench with a group of teenage friends, starts chanting in English, "Mickey, we love you! Mickey, we love you!"
Her friends start laughing and then join in. "Mickey, we love you! Mickey, we love you!" Jean-Paul Sartre is probably turning in his grave.