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Variations on a Theme : Growing Competition Sends Disney Into New Ventures


Disney does theme parks; everybody knows that.

But the same folks who design Walt Disney theme parks are getting into the cruise ship business, building a town from scratch, investing in a redevelopment project in Manhattan and planning several smaller themed-entertainment centers.

These attempts to make the Disney magic work in a diverse array of new developments are being driven by some stark realities: Disney's theme parks are more than ever before confronted with serious competition from rival media giants MCA, Time Warner and Paramount Communications.

"They are feeling the heat," said Gary Goddard, a former Disney theme park attraction designer who now runs his own firm, Landmark Entertainment Group in North Hollywood. "They are feeling the need to respond to a changing market."

Not that the king of theme parks is in danger of being dethroned. Disneyland in Anaheim and Walt Disney World in Florida had a combined 47.2 million visitors last year, compared with 12.7 million at MCA's Universal Studios parks in California and Florida, according to Amusement Business magazine. Last year's debut of the Indiana Jones attraction at Disneyland helped attendance zoom 35% to 14.1 million, the magazine said.

But these days, growth doesn't come easily. Major new rides can cost $50 million to $200 million apiece, and their drawing power soon wears off. Building a new theme park takes years of planning, more than $1 billion in capital outlays and inevitable battles with area residents over what constitutes the best use of real estate.

So the company is delving into new areas that will test the limits of the public's appetite for Disney.

"We have to grow," said Disney's Peter Rummell. The only restriction on new development, he said, is: "Does it fit the franchise?"

Rummell, an 11-year Disney veteran, was named chairman of Disney Imagineering in May, when the fabled theme park design unit was merged with the real estate development arm.

One of his most ambitious projects is a master-planned community near Orlando, Fla., called Celebration. The town is being constructed from the ground up, with the first residents due to move in this summer. By the time it's completed, it will have as many as 8,000 homes, a school, a 150-bed medical center and office and retail space.

Disney is marketing the project as a return to small-town America, complete with big front porches, white picket fences and a pristine town center. Nostalgia aside, all homes will be wired with fiber optics, giving residents the ability to be linked via computer to their local school, library and doctor's office.

And people are clamoring to get in: Since the first homes were put on the market in January, more than 300 have been sold.

In addition to its ventures on land, Disney is looking to the seas with two new cruise ships. The first is to set sail in January 1998, the second about a year later. The ships will pick up passengers at Port Canaveral, Fla., near Orlando and take them on three- or four-day cruises in the Bahamas. Disney even bought its own Bahamian island to serve as a port of call. "There's a huge, huge packaging opportunity," Rummell said.

Does all this seem like a stretch, even for Disney? Analysts say not.

"What really is a Disney World or Disneyland but a planned community?" asked Cowen & Co. analyst Harold Vogel. "What is a cruise ship if not a floating hotel?"

But skepticism has been directed at Disney's restoration of the historic New Amsterdam Theater in New York on a crime-ridden, drug-infested block of 42nd Street near Times Square. Disney plans to use the theater as a base for its fledgling theatrical unit that brought "Beauty and the Beast" to the stage.

While such projects might be risky, many observers welcome what they consider to be a change in Disney's thinking.

For years, they say, Disney took the continued success of its theme parks for granted. Instead, the company pushed its boundaries in other areas, such as animation. Real estate development was almost an afterthought--hotels and time-share properties were added to boost theme park attendance.

Then came the reality checks.

The first was Disneyland Paris (formerly called Euro Disney). The park, which opened in 1992, posted operating losses for its first three years and at one point was losing $1 million a day. Disney had spent too much money, built too many hotels, opened during a recession and blundered in its initial marketing strategy by refusing, for example, to serve wine. Changes have since been made, and lenders agreed to a financial restructuring. The park posted its first operating profit--albeit a slim one--in 1995.

Disney also suffered a blow--more to its psyche than its pocketbook--when it was forced to retreat two years ago from plans to build a historical theme park about 40 miles west of Washington, near Civil War battlefields in rural Virginia. The project had the support of many local politicians but was bitterly opposed by property owners and historians.

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