AMUSEMENT PARKSBy Marc Sourour, Ben Chartock, and Megan Eisenbrown

Agenda

Industry Structure

Pricing Strategies

Raw Data Analysis

Recommendations

Why Amusement Parks?

Highly Concentrated

Industry

Huge Variety in Pricing Strategies

Ease of Access to Data

Entertaining to Research

INDUSTRY STRUCTURE

Amusement Parks in the United States

Industry Overview

• Definition: This industry is made up of amusement and theme park companies that operate mechanical rides, water rides, games, themed exhibits, refreshment stands and other attractions

• Amusement Parks:• Not themed and simply consist of

distinct attractions or rides.• Theme Parks: Have a specific

theme in one or more areas of the park.

Product Segmentation(by percent of industry revenue)

Theme Parks in the West

19%

Amusement and Water

Parks20%

Theme Parks in Other US Regions

23%

Theme Parks in the Southeast

39%

Theme parks account 80.0% of total industry revenue.

Market Segmentation

Competitive Landscape

• Enterprises: 457• Major Players: 5• HHI: 1865.21*• C4: 73%

• Highly concentrated Industry• The top four players in this industry will account for over 70% of total industry

revenue.

36%

17%11%8%

8%

19%

Major Player Market ShareThe Walt Disney Company

Universal Parks & Resorts

SeaWorld Parks & Entertainment

Six Flags Inc.

Cedar Fair LP

Other

Barriers to Entry

Factors affecting entryMature Life

Cycle

Technology Change

High Competition

Area of Land

Required

High Capital Costs

HighConcentration

Overall difficulty of entry: High

Product Differentiation

In response to this high level of competition in this industry, the major players must differentiate their parks.

1 2

3 4

Industry Organization

Amusement Parks

Beer Wholesaling

Hotels & Motels

Confectionery Wholesaling

Supply Industries Demand Industries

Consumers

Demand Drivers

World Price of Crude Oil

Per Capita Disposable Income

Real household disposable

income

Social or geopolitical factors that

influence travel

Other social factors Seasonal factors

Demand Drivers

FY13: The increase in per capita disposable income is expected to drive growth in the industry in 2013.

Government Regulation

• Regulation of the industry is medium but increasing

• Regulatory Agents:• The Federal Consumer Product Safety Commission• Occupational Health and Safety Administration

• Missouri, Utah, and District of Columbia do not require any regular inspections

Major PlayersThe Walt Disney

Company• Market Share:

36.0%• FY12 Profits: $12.9

billion• 5-Year Growth

Rate: 4.0%• Brand Names:

Disneyland, Walt Disney World Resort

• In the news: Redesign completion

Universal Parks & Resorts

• Market Share: 17.3%

• FY12 Profits:$2.3 billion

• 5-Year Growth Rate: 12.4%

• Brand Names: Universal Studios, Islands of Adventure

• In the news: The Wizarding World of Harry Potter

SeaWorld Parks & Entertainment

• Market Share:11.0%• FY12 Profits: $1.4

billion• 5-Year Growth

Rate:2.3%• Brand Names:

SeaWorld, Busch Gardens, Adventure Island, Discovery Cove, Waterworld Country USA, Sesame Place, Aquatica

Major Players Continued

Cedar Fair LLP.

• Market Share: 8.2%• FY12 Profits: $1.1 billion• 5-Year Growth

Rate:1.6%• Brand Names: Knott’s

Berry Farm, Cedar Point, Dorney Park and Wildwater Kingdom, Valleyfair

Six Flags Inc.

• Market Share: 8.20%• FY12 Profits:$1.1 billion• 5-Year Growth

Rate:2.1%• Brand Names: Six Flags• In the news: emergence

from bankruptcy in 2010

PRICING STRATEGIES3rd degree price discrimination

• Affiliations2nd degree price discrimination

• Seasonality• Time sensitivity• Quantity discounts

1st degree price discrimination• Booking choices

Affiliations• Florida residents,

Disney Clubmembers, annualpassholders, and members of the U.S. Military can purchase Walt DisneyWorld park tickets at a discounted price.

• Universal Orlando also offers discounted pricing for Florida residents.

Seasonality• Hotel prices at Walt Disney World fluctuate based on the

time of the year.

100

120

140

160

180

200

220Disney's Pop Century Resort Price (Avg/Night)

Check-in Date (6-night stay)

Avg

pric

e pe

r nig

ht

Seasonality• Six Flags offers Junior pricing for

everyone through May 27nd when you bring in a can of Coca-Cola.

• Universal offers a 3rd day free with the purchase of a 2-day ticket until June 30th.

Time Sensitivity• Consumers that are more

time sensitive will have to pay more.• Different levels of the “FLASH

Pass” exist to extract additional consumer surplus.

• “Express Pass” prices are based on demand and seasonality for Universal.

• Disney has a free ‘regular flash pass’.

$125 $80 $45

December 2013Sun Mon Tue Wed Thu Fri Sat

1 2 3 4 5 6 7$35.99 $35.99 $35.99 $35.99 $35.99 $45.99 $55.99

8 9 10 11 12 13 14$45.99 $35.99 $35.99 $35.99 $45.99 $45.99 $55.99

15 16 17 18 19 20 21$45.99 $55.99 $55.99 $55.99 $55.99 $55.99 $55.99

22 23 24 25 26 27 28$55.99 $55.99 $55.99 $69.99 $89.99 $119.99 $119.99

29 30 31$119.99 $89.99 $69.99

“The Longer You Play, The Less You Pay Per Day!”

• Similarly to most amusement parks, Disney’s pricing structure provides those who spend more time at the park with cheaper tickets.

Six Flags Price Discrimination• Purchasing tickets online will save you $25 on a

general admission ticket.• Junior ticket price is the same online or at the park.

• Age (3+) and height (4.5ft or 1m37) discrimination are in effect.

• Buying more than three Season Passes will reduce the cost per pass.

At the park29%

On-line71%

Six Flags ticket purchasing loca-

tion

Booking choicesBook your Disney vacation here!

Confusion• A search for a booking at Walt Disney World lead to 26

hotels available, 4 rooms in one of the hotels, more than 4 ticket options, 6 dining options, and 3 transportations options.

That amounts to over 7,488 price points!!

• Each phase of reserving your booking allows you to add more options, increasing the cost of the trip.

• Allows Disney to approach 1st degree price discrimination.

RAW DATA ANALYSISVia online survey results:

• Competition Factors & Pricing • Demand for Bundling• Advanced Booking Demand• Price Discrimination on peak times

Number of people visiting each park

Competition & Monopoly Pricing• Data collected: Information regarding appetite for “thrill rides & exciting roller coasters,” as well as data regarding individuals’ visits to the top amusement parks in the United States (based on a 2011 industry report - Global Attractions Attendance Report)

Estimating Park Extremeness • Question:

Does Disney offer a different level of “extremeness” than Universal Studios?

| Summary of risk appetite Disney | Mean Std. Dev. Freq.------------+------------------------------------ 0 | 4.3846154 1.1208971 13 1 | 4.08 1.1924935 50------------+------------------------------------ Total | 4.1428571 1.1757927 63

| Summary of risk appetite Universal | Mean Std. Dev. Freq.------------+------------------------------------ 0 | 4 1.0540926 19 1 | 4.2045455 1.2309865 44------------+------------------------------------ Total | 4.1428571 1.1757927 63

| Summary of risk appetite both | Mean Std. Dev. Freq.------------+------------------------------------ 0 | 4.173913 1.0292174 23 1 | 4.125 1.2646577 40------------+------------------------------------ Total | 4.1428571 1.1757927 63

THRILL CONTINUM

Monopolistic Competition• Are the Big Two parks behaving more like oligopolists and

driving prices up, or is competition driving prices down?

• Both factors are at play!• Differentiated products on the thrill scale indicate lessened

competition and prices driven up• Close proximity (both located in Orlando) indicates competitive

behavior and prices driven down

Park attendance by region

128 respondents

If you were given a chance to go to one of the major amusement parks in the United States for an overnight stay, which region would you chose to go to?

Should I go to Florida or California?

Should I go to Florida or California?

Demand for Mixed Bundling

Price Discrimination on Peak Times• Florida residents can buy tickets to Universal Studios’

Halloween Horror Night at different prices depending on which day one wants to go: Sundays, Wednesdays, or Thursdays are $41.99, on Friday the price is $51.99, and on Saturday it is $66.99. Which night would you buy a ticket for?

• We measured the time and price sensitivity of 128 students facing this hypothetical choice.

Which day would you buy a ticket for?

DATA SHOWS:

1) More people are interested in off-peak, lower price tickets than high price weekend tickets

2) We see evidence of aversion to buying the highest price tickets. Preferences tend away from the extreme.

Industry Outlook• Strong revenue outlook• Travel spending expecting to increase• Decline in unemployment rates

Investment Recommendation• No clear strategy

• Several ways to invest in theme parks

• Cedar Fair and Six Flags are the most concentrated bets in the industry, BUT

• Disney is the leader in theme parks, BUT

• Blackstone’s (owner of SeaWorld) future is unclear

Source: USA Today “The Ups and Downs of Investing in Theme Parks”

Recommendations• Disney should advertise its free basic “flash pass” or

begin charging for it, even a small amount would lead to an almost 100% margin on the pass.

• The industry should continue their current pricing structure, the confusion caused by all the choices causes increased extraction of consumer surplus.

Recommendations • Advertise, Advertise, Advertise!

- Major Players in the industry should highlight heterogeneity of the products offered in continued advertising campaigns.

This will drive up prices & increase revenueby changing demand.

Questions?Book your Disney vacation here!