Written by Luke Paterson
Edited by Antony Fitzsimmons
15 June 2020
Reading time: 6 minutes
Snapshot
Considering 2020 has been depressing regarding cancellations and closures, the recent announcements by The London Resort to build a mega theme park, dubbed the ‘UK Disneyland’, has got me buzzed! Since the announcement, I thought I’d discuss the interesting ways Disney chooses to price their resorts as it’s quite a good application of economics – especially to monopolistic behaviour!
The London Resort
Recently announced, the new £3.5 billion London Resort (nicknamed the ‘UK Disneyland’), is located 17 minutes from central London, and is set to open in 2024 with the second part opening in 2029. Though affiliated with Paramount not Disney, the resort promises to be one of the largest construction projects across Europe and is dubbed to be the biggest theme park constructed on the European continent since Disneyland Paris in 1992. In fact, The London Resort has announced the park will be three times larger than any current amusement park in the UK with proposals for two theme parks, a water resort and 3,500 hotel rooms spread across 535 acres. Luckily, it has also been suggested that 70% of the park will be undercover which is excellent considering the weather in the UK isn’t quite that of Florida or California!
Historical context
Let’s time travel back to July 1955 – Walt Disney had just opened his first theme park costing $17 million ($162 million in 2020) on the former orange groves in Anaheim, California. The opening of the amusement park was, surprisingly, a total disaster! Sadly, a lot of the tickets were counterfeit causing the attraction to run out of food and drink pretty quickly (not to mention a woman got her heel stuck in the wet asphalt!). However, the idea of Disneyland, which Walt Disney had envisioned after regular visits to amusement parks and state fairs across the US, would act as a template for the multi-billion dollar resort brand we all know today!
Work began on Walt Disney World in Orlando, Florida, in 1965. Sadly, Walt Disney never got to see the park open in 1971 due to his passing in 1966. The company he founded would go on to open “castle parks” in Tokyo, Paris, Hong Kong and Shanghai with huge success.
The theme parks were actually Disney’s largest source of revenue in 2019, generating $26.23 billion compared to $24.83 billion from media networks. Nonetheless, Disney’s business model is increasingly being accused of being too expensive, squeezing out middle-class families from their nostalgic and fairy tale experiences!
The Pricing System
The Disneyland of 1955 was a completely different experience compared to that of today. Most notably, there were only 15 attractions on the original opening day compared with the 93 attractions for adventures, classic stories, and exhilarating thrills across the two Disney parks in California today.
The admission fee in 1955 was $2.50 ($23.92 in 2020), compared to $117 which is the price of a single day ‘regular’ ticket in 2019 – that’s a price hike of 4680%! Bear in mind that the value of $1 from 1955 as of today has increased by around 857% due to inflation. Yes, it is true that the Disney brand and experience has led to much of the price sore, but the main attributing factor has been Disney’s pricing system and the exploitation of their monopoly power.
Disney, following the trend of other theme parks at the time, charged a standard admission fee and subsequent charges to use the resort’s attractions. This was done through the sale of ticket books which had 5 different tickets bands – A through to E – which granted access to relatively “cheap” rides to the most popular attractions. Disney continued to use this ticket system until 1971 where only the standard admission fee was increased.
As previously mentioned, in 1971, Disney opened Walt Disney World in Florida and, to start off with, continued to use a ticket book system. Magic Kingdom, one of the theme parks in Walt Disney World, originally charged a $3.75 admission fee. The customers could spend $5.75 for the “8 Adventure Ticket Book” (1-A, 1-B, 1-C, 2-D and 3-E) or a dollar more for the “12 Adventure Ticket Book” (1-A, 1-B, 2-C, 4-D and 4-E) which granted access to the different attractions. Disney faced some drawbacks due to using this system, namely its inefficiencies (regarding selling and enforcing the ticket system) and susceptibility to being counterfeited.
The Economics
A Disneyland Dilemma… – an academic paper published in 1971 – demonstrated that theme parks should discard the additional charges as most visitors only care about the rides. Until this time, Disney imposed a two-part tariff system. It’s simple to understand and similar to the strategy used by manufacturers of razor blades: they sell razors for one price and the blades for another. Moreover, the reasoning behind this is because consumers of razor blades have different demands for the blade and the actual razor – which makes sense as you need blades more frequently than the razor! The exact same is true for theme parks. However, using a lot of technical mathematics, Professor Walter Oi demonstrated that since people are going to the theme park to go on rides, a single large admission fee with no additional charges will maximise profit.
Disney began experimenting with the concept of charging one admission fee. In 1980, Disney introduced the 2 day “passport” to the Magic Kingdom and, given its success, abandoned the ticket book system in 1982.
Over the following years, Disney introduced and discontinued various pricing strategies in order to maximise profits (junior pricing, annual passports and “Super Duper” exclusive passes to name a few). The cost of going to any Disneyland undeniably began to rise – entry fees have continued to increase each year since 1994. However, only since 2011 have the prices really began to skyrocket with a one-day pass increasing from $85 to $97-135 depending on the time of year and which park you visit in 2020.
In the modern era of Disney’s theme parks and resorts they began to exploit the seasonality of their product. In 2016, a Peak-Regular-Value season pricing system was introduced helping to distinguish between those who could afford to go in holiday periods versus non-peak times. This allows Disney to dynamically change the price of their product based on the demand on any given day to maximise profit. In addition, they still use the 3-day, 4-day, X-day tickets which lowers the daily charge with each additional day – similar to buying bulk products at the supermarket (the price per quantity you get goes down).
The conclusion
More recently, the cost of going to Disneyland has become a bit ridiculous. Bear in mind I have not even mentioned the cost of food, drink, hotels, merchandise, and other amenities (which are massively inflated); however, people seem to keep going! Although it’s becoming increasingly harder for even middle-class income families to go see the famous Disney Castles, there’s no doubt Disney’s business model is crazily successful (this goes without mentioning their other endeavours). Disney is one of the few businesses that seem to actively spend billions and billions on innovation and construction of new rides/parks, yet simultaneously still manage to have a grossly consistent profit margin. Furthermore, this drive to constantly update and build new products is the reason for Disney’s theme park success. Disney has become a cultural institution of our childhoods and The London Resort might be able to capture some of Disney’s success in the UK. Only time will tell!
Sources:
Business insider
Timeout
Dad’s guide to Walt Disney World
A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly by Walter U. Oi
History Channel
Tripsavvy
Statista
Mouse Hacking
Jacob Clifford’s YouTube video – The Economics of Disneyland
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