Theme parks a bumpy ride for congloms

Terrorist alerts, outbreak of military action affects patronage

This article was corrected on June 27, 2003.

HOLLYWOOD — As Vivendi Universal mulls whether to sell off its theme parks separately from its film studio, an unpleasant reality is setting in: The old cash cow ain’t what she used to be.

Historically, theme parks have been thought to complement media congloms by pumping out steadier cash flow than film and TV. They also help studios extend public awareness of film franchises through movie-themed attractions.

Disney is going a step further by making films of well-known attractions. Its “Pirates of the Caribbean” is set to dock in theaters July 11, steered by big-bucks producer Jerry Bruckheimer and toting such highbrow thesps as Johnny Depp and Geoffrey Rush.

Mouse tried a similar feat last summer with much more modestly budgeted “Country Bears,” bagging modest results. Its “The Haunted Mansion” is due at Thanksgiving.

But the $125 million “Pirates” is a riskier voyage, and a theatrical shipwreck could have execs walking Mouse House gangplanks. Such a high-profile failure would quickly kill further suggestions of extending theme-park “brands” into multiplexes.

Meanwhile, parks and resorts are not without considerable operating costs, which spike whenever a pricey new attraction goes into development. And overhauls for older attractions like Universal Hollywood’s “Back to the Future” ride can cost in the double-digit millions.

Profitability has always been a bit more cyclical with theme parks than movies, which are generally resistant to recessionary downturns. But these days the business cycles have gotten downright weird, with park patronage regularly imperiled by things like terrorist alerts and the outbreak of military action.

Head Mouseketeer Michael Eisner says the public is learning to be less skittish when feds issue occasional Orange Alerts linked to heightened security concerns. But the topper’s suggestion that theme parks soon will return to business normalcy appears based as much on hope as hard evidence.

“The theme-park business has definitely bottomed and is coming back,” Merrill Lynch analyst Jessica Reif Cohen says. “But once it’s gone down — for whatever reason — it takes four years for the business to come back. So in the case of Disney, we expect them to be up next year, but we don’t expect them to be up to the (previous) level.”

With those kind of struggles, some wonder whether theme parks are even worth the aggravation.

“Home entertainment diminishes the importance of theme parks,” observes Jon Richmond, a managing director at investment firm Houlihan, Lokey, Howard & Zukin and a one-time Disney parks exec. “You can introduce pictures and characters into consumers’ homes on a more regular basis these days.”

Handy cash flow remains the best reason for parking a park in an entertainment conglom, Richmond says. But he adds that terrorism and other concerns have definitely reduced enthusiasm for the sector.

So, what’s a Viv U to do when suitors of its other Hollywood assets voice concerns over the rise in theme-park headaches?

Sell to the highest bidder, of course. And many believe that will eventually prove to be the Blackstone Group, a Wall Street investment firm that already owns 50% of Universal Orlando.

Minus presumed synergies with other entertainment assets, one might imagine Blackstone as prevailing only in the absence of other bidders.

But it’s hard to put a dollar value on such nebulous benefits as “brand extension,” in any event. Consider, too, that U would change overnight from an owner/occupant to a paying leasee when it comes to using the park for preem parties and other events.

Blackstone’s ongoing talks with Viv U reportedly involve an offer of roughly $1.5 billion for the rest of U’s Florida parks and Universal Hollywood. That’s considered a relatively low number but a fair reflection of the bearish market for theme parks at present.

Blackstone appears to be hedging its bets on the U parks by simultaneously agreeing to back a bid by former Viv U vice chairman Edgar Bronfman Jr. to acquire a controlling stake in all of the conglom’s entertainment assets. Viv U’s brass is expected to take at least another few weeks to decide what to do with its various entertainment assets.