Earnings: Six Flags Lags while Disney Exceeds Predictions

Philip:  All right from our studios in Boise, ID and Tampa, FL this week, this is Green Tagged Theme Park in 30. I'm Philip and I'm joined by my co-host Scott Swenson of Scott Swenson Creative Development. 

Scott:  Hi everybody, welcome back for another week of important discussion about trends and the important happenings in the world of attractions. 

Philip:  And it has been a big week because we've had several earnings reports that have been released. We're going to talk about two of the main ones, we're going to talk about Six Flags, and we're going to talk about Disney because they're kind of the polar opposites of each other.  So, we'll start with Six Flags. I was going to say, Six Flags, in an astonishing feat, has managed to lose money and decrease their attendance. Despite the fact that every other major theme park chain has been doing well, they are not doing well. There's a lot here to dig through because, of course, it's not good news, so of course, there were a lot of questions back and forth. So, I'm going to read some of the highlights, and we'll discuss each point by each point. All the notes are going to be in the show notes, I have taken these summaries from various sources, including the transcript from the earnings call and the earnings report itself. So, if you want to see any of the information yourself, I'll put them on the show notes. "Six Flags Entertainment said its revenue declined by 5% to $435.4 million during the second quarter, leading to a profit of $45.4 million, down from $70.5 million a year ago," not 2019, just one year ago it was down that much from that, so that's not even the 2019 numbers. "In response, CEO Selim Bassoul said the company plans to implement several changes across all its parks to increase attendance, including rolling out a new dining plan, expanding its Fright Fest events through wearable technology and launching a new Oktoberfest event."

Philip:  So those are the three main things. Now, also noted was that their spend per person was actually higher, and in the transcript they said that the increase in admissions spending per capita was primarily driven by higher realized ticket pricing and a higher mix of single-day tickets. So, basically, they're reducing the discounts that they are offering, and they have more people showing up just once for day tickets, and that's what's causing the spend per guest to be higher. He gave an interview for the New York Post in which he kind of said some of what I believe are not helpful things. 

QUOTE "We became a daycare center for teenagers,” Bassoul said. “It was a cheap daycare center for teenagers during breaks and the summers.” “We realized that we had discounted too much and we were filling the park” with the wrong kinds of customers. "We want to be a park for the middle class and even the lower middle class,” he said. “We believe our demographic is the average income of the US and I’m migrating a little bit from what I call the Kmart, Walmart [customer] to maybe the target customers, if I want to say that.”

Philip:  Then he goes on to kind of just repeat the Disney strategy, which is to say that they want more single-day ticket holders because they spend more money, they pay for parking, they pay for food, they pay for flash passes, blah blah blah. Then he wants those type of customers to also come back more. Then regarding the dining plan, they basically said it costs too little and it led to long lines and they're going to increase the price and they're also going to limit, now, how much food people can get with it.

There are very few details on the Fright Fest option, other than it's going to include trick or treating and wearable technology. So, that's a lot a lot. Scott, what do you think? 

Scott:  So, I'm... 

Philip:  

Trying to find their kinds of people, Scott, the wrong kinds of people. 

Scott:  I'm yeah, I'm trying to find the positive side of this, although I will say that they are not the only chain that is saying, being the daycare for teens is not in the best interest of their parks. I've heard from larger chains and even independent attractions that that is not a beneficial business model at this time. I don't know whether I would have phrased it exactly that way. I think the idea of the wrong kinds of people and using the Walmart versus Target mentality is... If you're trying to shift your degree in that small an increment, I think you've probably just offended both sides. So, I think that the theory is good, I think the statement that is being led out front may not be the best way to approach it, but I'm not sure. What do I know? 

I would say that you know I don't think anybody surprised that Six Flags has always been... Years and years ago, their mindset in their business model was we're going to be the local alternative to traveling to a destination location park, whether that is a Disney Park or Universal Park or even a Cedar Fair Park, there are people who do travel to go to Knott's, you know? I don't think it's a real big surprise that all of a sudden, they've had this realization of, "we've been lowest common denominator, and we've thrived on that for many years."

It is also not particularly surprising to me that, of all the theme park chains, they're down just a little bit, because again, they are local. If people are going to get out and want to do something that means they're also willing to travel, that means they're also willing to get up, get out and move. So, because they've always positioned themselves as the local theme park, the local amusement park, guests are like, "well, we can do that when things calm down, but we just want to go out and do something really cool, Let's go to California, Florida, whatever." So, it's not really surprising.

What is surprising to me is the way it has been presented, almost insulting to the guests that are there, and it would make more sense from a marketing standpoint, for me, and again, not an expert in this area but, for me, it would have made more sense to try to find a way to position it so that you're building off of your existing audience, as opposed to saying we've been inviting in the wrong kinds of people, or targeting the wrong kinds of people, and we want to go here. To me, that sort of radical culture shift, and I know Walmart to Target seems minuscule, but I think you could have accomplished that without actually saying it. Maybe this is speak for the stockholders, I don't know, maybe this is stockholder speak to try to get them to not just abandoned. It's like, "Bail! Time to bail!" It might be a bit of insurance from that standpoint, but I think from a general populace standpoint it is an unusual take, and it rubs me the wrong way personally. This is clearly your realm of expertise. Philip, how do you feel about this one? 

Philip:  I don't know. It's everything that we have said previously on the show which is, I'm not sure there's really a future for Six Flags. We've talked to ad nauseam, kind of about the consolidation of entertainment and this whole diversification. I also feel like they're just looking at what Disney is doing and trying to copy it, but the problem is they don't have the IP, they don't have any of the assets that Disney has been building with the IP and the depth of experience right? And the velvet rope kind of thing. Like, you can't just go in and add a bunch of velvet ropes and be like, "well, that's how we're going to make money." It's not going to work

I also think to go back to what you say all the time, use your assets. They're not using their assets. Their assets are their thrill rides, that's kind of it. When I think of Six Flags, I don't think their dining plan, I don't think of trick or treating or Fright Fest. I was just talking with other bloggers recently about how Fright Fest has announced nothing for their event, and like no media has been able to get ahold of them, like they don't even... I don't understand. I feel like everything he's saying is wrong. I feel like it's obvious they've been targeting the lowest common denominator and just trying to get capacity on their thrill rides. I think that's been their plan forever, and I think all of their capital investment has gone into their coasters. 

Now for him to say, no, we're going to make a better dining plan, and then also focus on Oktoberfest and Fright Fest, like nobody cares about their Fright Fest. They can't do anything else well without significant investment and without a whole culture redo. I just disagree with the entire strategy. I also disagree there's a future for the park, if that's what they're thinking. It's interesting when you put all these perspectives together, because we talked last week too about the earnings call last week and kind of everyone's strategy, and it feels like Disney here as usual, you know, kind of at the forefront and they're saying they're diversifying entirely right with the Disney Plus thing and trying to give people access to their IP at a much, much lower price point if they can't get to the parks, et cetera. And over the years they've been building these experiences with depth...

Scott:  Yeah, but that's not an asset that Six Flags has. Six Flags doesn't have that option. 

Philip:  But that's exactly my point. 

Scott:  Yeah, instead of trying to mimic what Disney is doing, they need to find what they need to do

Philip: Exactly.

Scott:  I think with Six Flags this has been a challenge throughout their recent history. 

Philip:  Exactly, yeah exactly. 

Scott:  I mean, there was a time where Six Flags was, not too many years ago, was buying up every park they possibly could. They were buying up all these independent parks, they were expanding, and they expanded too quickly and couldn't maintain. So, then they have gone back and now sold much of that. I can think of two specific examples where there are now condominiums where there used to be a theme park. So, they expanded, they realized, oh crud, this is too big for us. We can't manage this. So, they contracted back down. This sounds to me like they don't know what to do? 

Philip: Yes.

Scott:  So, they're looking to successful models which are outside of their grasp and outside of their assets and trying to copy them. They did this for a short really short period of time, and I want to say it was the early to mid-90s where they really focused on their thrill rides. It was, we are the thrill ride park, come to us. Again, something else that I have said way too many times, not only on this show but also to many of my clients is, find the thing that differentiates you from your competitors. Find that thing, elevate it, and make it your North star. What do we want to be? I understand that there are challenges with going strictly for the thrill rides, because that brings in that teen audience that they're so afraid of and I and I get that. But that's where their assets lie right now.

Philip:  Yeah, it's like they're not even considering finding a way to... We talked about this last time, or several episodes ago, when the last Six Flags fight broke out, we talked about how they could maybe do things to encourage not... to kind of get around the violence. Instead of doing that, instead of being like, let's figure out a way to work with what we have and to figure out a way to reduce the violence in the parks. They're just like no, no, no, no, the way we're going to reduce violence is just kick all those people out and just change our entire business model to not rely on those undesirables. It seems like the lower-hanging fruit here is to refocus on their assets and then figure out a way to just deal with it. You know, figure out a way to reduce the violence without that.

Then the trick or treating thing and the wearable thing like I literally I'm like, god, this is really just trying to copy Disney. We just talked about the Magicband plus and then how you know Disney's Oogie Boogie Bash selling out in California, which is trick or treating. I'm like, dude, like you're not a trick or treat park. What? Wearables? It costs a billion dollars, they're not going to make money off of that. 

Scott:  So, it's interesting, because going back in my own personal history, one of my first theme park Halloween events was Fright Fest at Six Flags Great America in Gurnee, IL. That was an amazing event, it was so much fun. It was in a location that Fall reinforced the event anyway, so the weather was just crisp enough and there were just enough turning leaves so you didn't have to worry too much about decor, because the trees in the park just magically, through the wonders of nature became that. I think they need to try some radical things here. One of the things I would suggest is, if they want to elevate their age range, part of the reason that people you know who are older are hesitant to go to Six Flags is because, again, they are concerned about the teen daycare, to use their language, not mine. They're concerned about the teen/tween daycare. Great, then why don't you institute Friday/Saturday nights, after 6, 21 and up? I know there would be pushback, I know there's a whole bunch of reasons not to do it, but that would be totally in line with what they're saying here. If you want to elevate that experience if you want to go back and target that, go back and say OK, fine 21 plus. I promise you there are more than enough people in their 20s who would love to come out, have a glass of wine or two, and ride roller coasters. I mean taking their assets, which they own, and letting the audience know. Here's the thing, if you want to come out and you don't want to come out and have to deal with our teen daycare... And test it, you know test it over three weekends.

Philip:  Two weekends, or a few more, yeah. 

Scott:  So again, it's going to take something radical. It's going to take something radical because, again, you're doing a culture shift. It's hard enough to do an internal culture shift, it's even more difficult to do an external culture shift. Yes, you can shoot holes in this idea till the cows come home, but you're never going to know whether it's going to work until you try it. That's one of the few things that I think is in line with what they say they want to do and what they're actually proposing or going to do.

Again, I am not an expert in this regard, and I realize you have to go through the whole thing about clearing the park, are you going to lose money on the teen/tween market? Perhaps, but are you going to make it up and work towards the culture shift you want by showing people who are 21 and older it's not just about the teens and tweens that just are, you know, annoying to that older demographic, slightly older demographic. Do date night events, do 21-and-up date night events. Do young couple events. Here's something really stupid, here's something really stupid, but I think would be super cool and just might work. Say, if you come out on one of these nights, we will pay you, for the amount of hours that you stay we'll pay the equivalent of a babysitter. So, it encourages a longer stay... and yes, I know you can tell me that there are a million or one operational reasons why this wouldn't work. But all of those could be overcome, and it wouldn't be that difficult. You just punch in when you get there, you punch out when you leave, and that punch in and punch out gives you X amount of dollars based on your local market to pay for the babysitter. Get young parents to come out and drink and enjoy the parks.  

Philip:  Or just put a daycare center there. 

Scott:  Well, putting the daycare center there, there's a lot of...

Philip: Liability yeah.

Scott:  It could be done, but there's a lot of liabilities, a lot of insurance, a lot more staffing. This is just, you charge them for this and then pay them back at the end of the night based on length of stay. 

Philip:  Yeah, well all those suggestions I think are better than their current plan. I don't think their current plan, as-is, is going to work. I don't think it's going to work. But, overall, I'm not sure Six Flags is going to work as a model if this is what they're going...

Scott:  I will say, personally... 

Philip:  Anyway, I don't know. This is frustrating me.

Scott:  Yeah, it saddens me, because I think there are some Six Flags parks out there that are just stellar and just really fun. 

Philip:  Just yeah, it's annoying.

Scott:  Really, really fun, as long as you recognize they ain't Disney. 

Philip:  Yeah, well, speaking of Disney, the next half of this is the Disney earnings report. The reason I wanted to put Six Flags first is because Disney is basically the exact opposite. Their earnings report was tremendous, actually, way better than anybody even predicted. Which, I guess that's the surprising part, is how good it was actually. So, revenue grew to 7.4 billion from 4.3 billion during the same period last year. Also, spending improved by 10% over last year of a per capita guest spend. So, they made 10% more on each guest, and their profit margin also was at that huge increase. So, we can break these up into I think, 2 broad buckets: Disney Plus, and then the Disney Park bucket. I'll go through each of them, but just realizing that when they're reporting this, they're reporting over everything combined. So the two broad buckets are Disney Plus and Disney Parks.

On the Disney Plus side, the thing that made the most news was that their Disney Plus subscribers rose to 152.1 million during this last quarter, which is higher than the 147 million that even the analysts had predicted. So, like even the high end of the analyst prediction, they beat that by 5 million, which is a lot. The big thing they were touting is if you take their Disney Plus and you combine it with Hulu and ESPN Plus, they have 221 and Netflix has 220, so that was kind of their big thing. Of course, that's not quite accurate because you know you don't know how many of those are overlapping, right? But it's still worth kind of noting they're like, oh, they're kind of at the Netflix level now, and we will continue to see if there is a ceiling on streaming. That's a big piece of this as well. 

So, just to note though, that even though they've reached, I think, potentially a ceiling or close to the ceiling of subscribers where Netflix is, they have still lost money on it. So, during this last quarter, they lost 1.1 billion. Basically, the strategy up until now has been to grow the subscriber base, right? Invest in the content, really grow the content, tie into the parks, kind of build the ecosystem, and then monetize it. Now we are at that monetization point because they announced that starting December 8th, Disney Plus with commercials will rise to $7.99 pricing, which is the current price. So basically, in order to make up that shortfall of in loss of content, they're making the current offering the price it's going to be for the ad version of it. The ad Free Disney Plus version will be $10.99, so it'll be $3 more for the ad-free monthly one. They're hoping that a new pricing structure, incorporating advertising as part of it for the base level, and then increasing $3 will balance that out into profitability for that.

They also announced that they've adjusted their forecast, so they're kind of moving what they believe to be the ceiling down. They've adjusted their 2024 forecast to 215 million to 245 million, which is down 15 million on both ends. So, they're kind of sensing they might be at the ceiling for total subscriber possibility, and they're addressing all that. They're basically ready to flip the switch and see if they can get this ad-supported model out there and jump into profitability on Disney Plus, which would be a huge win for them. 

The Disney Park section is just ridiculous. They saw a revenue increase of 72% during this quarter, up from the same period last year, which is just insane. Of course, the same thing we've been talking about there, the increase in average per capita ticket revenue is due to the introduction of Genie Plus and Lightning Lane for the first quarter, blah blah blah and then reduced impact from promotions at Walt Disney World. So, basically, less discounts, less promotions, their Disney Theme Park Hotel occupancy sat at 90% throughout Q3, and they had the 70%. So, the only thing in here that they said which got a lot of blowback online, and I'm going to read the exact line from the report, I'm not going to read anything from the blogs, so the exact line is. 

QUOTE "The increase in average per capita ticket revenue was due to the introduction of Genie+ and Lightning Lane in the first quarter of the current fiscal year and a reduced impact from promotions at Walt Disney World Resort, partially offset by an unfavorable attendance mix at Disneyland Resort."

Philip:  That is the exact quote. The Internet is going wild over that because the section there of unfavorable attendance mix, they did not define what that is. So, they're not going as far as Six Flags is just saying like where a babysitter went like that, but they did include that "unfavorable". Of course, what we know, which we have talked about, is that that most likely refers to there are too many annual passes and that their annual pass members are, since they spend less, it's an unfavorable mix because there's too many of them in the parks. Which we have seen them try to adjust, right? They've been blocking out those passes during the summer, and now they've started to not give details on the renewal. So, there's a lot of passes that are expiring where people can't renew them because they haven't released if they're going to renew, or how, and the passes are not currently on sale. So, there we are. 

Scott:  Well, so, it's very interesting. Let's start with the passes are not currently on sale. Let's start there. The idea here is... It's interesting that they have, for the very first time in my recollection, actually separated out the mentality of people who visit the California parks versus the Florida parks. They always have been different. The California parks, for many, many, many, many years, were traditionally the locals. Yes, it was a destination park, but nowhere near the kind of destination park that Walt Disney Resort is in Orlando. So, they were much stronger on season passes in Disneyland than they were in Orlando. It was, it was part of the business model of Disneyland and California Adventure. Then they tried to kind of homogenize that between the two.

At one point in time, and this is many, many years ago, I was told, and this is anecdotal, but I was told that the attendance at Disneyland, California, this was before California Adventure opened, was 60% passholder. Which is great when travel poops out. But when travel picks up, obviously the one offs, or the not one-offs, but like for example the five-day tickets, that's what may replace the season Passholders. Now, if all of a sudden, we have some sort of travel catastrophe, that's going to shoot them in the foot too. So, you kind of have to continue to figure out what that balance is. I think it's very interesting that in this particular report, the unfavorable attendance mix at Disneyland Resort is basically saying, and I think, Philip, you just brought it to light, is basically saying there are too many Passholders who aren't spending additional revenue. 

But I will say, that 90% at the theme park hotels, that is an incredible number. Again, anecdotally, many, many years ago, I will say from internal sources, but all of this information is way outdated, I was told that in Florida their Florida resorts hovered around 75%. Considering this is 90% for Q3, that's mind-blowing, but it reinforces what we've been saying. People are ready to get out, they're ready to travel, they're ready to get to where they need to be, and if they have denied themselves over the last two years of taking that trip to Florida, taking that trip to California, now all of a sudden, they're like, "let's do it, and let's do it right." I've heard that a lot. It's like we've denied ourselves for too long, now that we're going back, we're going to take the money that we basically banked over the last two years and we're going to do it, correctly. We're going to stay on property, we're not going to stay in the surrounding hotels are going to stay on property, we're going to spend a few more days there, and we're going to do the stuff that we really want to do. 

Philip:  So, the only other thing that it could relate to is the international guests have still not really been returning, because in some cases they can't, or you know, for whatever reasons. That could be the only other thing that it might allude to, although that really would be more of an impact to Disney World than Disneyland. So, I think it's most likely the season Passholders, because to your point, Scott, by the time I was working for the Disney company, what I was told working there was that Disneyland was up to 75% of locals, annual Passholders. I had heard that it was inverse in Florida. It is absolutely inverse in Florida.

It's interesting, because my friends who grew up in California would say, "yeah, Disneyland was our local theme park. We go there the same way people would go to Six Flags, because we just lived in Anaheim." You know, there you go. 

Philip:  Yeah, basically, to bring up Six Flags, that is exactly what he is trying to do. His strategy is basically to try and get those types of, you know, those types of people, who are IE people that would go Disneyland and spend that money, to come and visit Six Flags often and spend that money there. But that's not going to work because I don't go to Six Flags, and it's 20 minutes from me, and I drive an hour down to Disney. They don't have the depth of offerings, they don't have the offerings there. I still think that the day guest, the annual Passholder to Disneyland still spends a lot more than the annual Passholders at any of the other parts though.

Scott:  So, let me just wrap this up, because we're just about out of time, but I think what we're seeing here is Disney has always been a content-driven company. They always put the creative first and they let the operation follow. So, the expansion in Disney Plus has been getting all these things that you can only see on Disney Plus. That's what their big investment has been, that's why there's been a shortfall in money, because they have been gathering all of the IP, the intellectual properties, the creativity, lead with creativity and make the business model work based on that. 

On the inverse, I think what we saw with Six Flags is an operationally lead mentality. They're not talking about, how are we going to change the product per say, they're talking about how we're going to implement the product. So, I think if we want to look at a takeaway, the takeaway for long-term success, based on what we're seeing with Disney, is let the product lead your business, don't let the operations lead your business. Don't do what is easiest. Do what is right and figure out a way to make it profitable. I think that's what's happening here with Disney versus Six Flags, so I try to just kind of wrap that all up. 

I know that Six Flags is much larger than a lot of our independent listeners. I know that Disney is significantly larger than many of our independent listeners, but I think that is the takeaway that everybody can utilize. Focus on the product. Focus on the product. Make certain that it's something people want to see and figure out how to operationally make that happen, and that will make your long-term growth and your long-term success significantly greater. 

Scott:  I've rambled on too long, we're way over time, it is called Theme Park in 30, and I'm over. But on behalf of Philip Hernandez and with Gantom Lighting and Haunted Attraction Network and myself, Scott Swenson, thank you so much for listening or watching Green Tagged Theme Park in 30. We'll see you next week.