Euro Disney was Disney's first major foray into Europe, France specifically, to set up an amusement park similar to its Anaheim, California, facility. The project started in 1987, opened in 1992 and went bankrupt twice as a financial venture by 2003. Situated in Paris, France, the project was subject to multiple issues associated with foreign market behaviour that ultimately sealed its fate.
Market Entry Forces
Walt Disney Company targeted Europe as a new market after significant success with Tokyo Disneyland in Japan in the early 1980s. Euro Disney was designed with the same strategy but geared for more ownership revenue -- for example, from royalties, lodging and concessions -- to Disney rather than partners. This strategy also assumed the real estate market would stay strong so Disney could sell off property and recoup costs. By the early 1990s, the same market faltered, dashing Disney's revenue plans.
Regional Economic Vulnerability
Even though Euro Disney opened in 1987, it did not begin to make any profits until 1992. The park organisation then suffered from external economic malaise and started to fall apart without cash flow by 2002. Unable to raise its own revenue to sufficient operating levels, the managing organisation had to seek financial help from the main Walt Disney Company and outside investors.
Unlike consumer financing, commercial financing in the U.S. and Europe fluctuates with economic trends. Euro Disney relied heavily on commercial loans for its market entry and establishment. This approach assumed that rates charged on those loans, both short-term and long-term, would stay stable. Again, the opposite occurred as rates began to rise significantly in the mid-1990s, eating away at valuable operating revenue.
Picky Customers and Costly Labor
Disney's assumptions about park visitor behaviour assumed that people would not just pay for entry, but would spend significant sums of money on concessions, gifts, travel and related costs. The Japanese and U.S. markets saw significant revenues from these areas. Europeans, however, particularly in a 1990s recession, chose not to spend their money, only wanting to pay for the park entry and experience instead. Alternatively, labour costs were double the original 13 per cent of operating revenues projection at the start, and grew to 40 per cent, further eating away at profit margins.
Euro Disney continues to rely on investor support and subsidy to survive. The company was £1.3 billion in debt in 2007 and still not self-sufficient. Further park expansion in the early 2000s again put the organisation well over its head in costs unmatched by revenues. However, the location still draws significant crowds and tourism, so its survival seems to be caught in purgatory, always suffering but still desired by consumers.
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