The (hypothetical) Universal Impact - Merlin's response. Tanks on their lawn, or golden opportunities?

[Matt.GC]

There isn't a single spade in the ground yet for a potential Universal Resort being built in Bedfordshire, and nothing is concrete. There's every chance that it could all fall through. But needless to say, as time goes by, the prospect of such a development is becoming more realistic.

There's a wider debate that keeps cropping up in numerous threads about the impact that the potential of a Universal GB could have on Merlin's Resort Theme Parks (and possibly even the midway's), and the wider UK theme park industry as a whole. Since this debate is becoming louder, and encroaching on many threads, I thought it would now be worthy of its own thread. It's an interesting discussion.

One thing I am absolutely certain of is that not a single large or medium scale decision made by Merlin at the moment has anything to do with Universal. The prospect is all very exciting for Thoosies, but businesses don't make decisions on hypotheticals, only degrees of certainty. Don't get me wrong, it'll be in the mix at Merlin, they'll be keeping an extremely close eye on developments, and may even be risk assessing future strategies with Universal in mind. It would be prudent of them to pencil in a response strategy at this stage, and draft some forecasts. But nothing a customer sees at the moment will have anything to do with Universal GB. They'll only press buttons once they know for sure and have far more detail than they currently do. Who knows, that day may come quite soon?

Then you move on to the impact itself should it all go ahead. Hypotheticals again as we can only speculate around timelines and what a Universal GB would actually look like. Personally, I think viewing this through the lens of 'one more customer for Universal equates to one less customer for Merlin' is an enormous oversimplification of the competitive forces that would be in play. Whilst it's true that there would be significant competive overlap where both are trying to attract a finite territory spend, I don't think that's how this market works in totality.

In terms of market positioning, it looks like Universal would be sourcing it's patronage from a growing domestic population, some of whom probably currently prefer to seek high standard theme parks abroad, and attracting international tourists. What they would actually be doing in my view is growing the UK industry as a whole, which I would suggest as a country we currently underperform.

For Merlin however, their bread and butter is domestic and regional custom. I would also say that if you look at UK economic pressures in the past, I would argue that it's parks have probably benefited from people downgrading from foreign trips when finances are tough and staying closer to home.

This is very back of a fag packet, but what I would be looking to do in response is to piggy back off of the growth and reinvigoration that Universal would bring to the UK theme park industry - ride off the theme park bug as you will. Think of Shockwave, The Big One, and Nemesis all opening in the same year benefiting all parks. I'd be strategically targeting investment into unique attractions and experiences, keeping these costs as low as possible. A tart-up of existing assets, better quality food, and a keen pricing strategy to market the Merlin parks as a good value alternative. Have a good quality day out, ride some iconic and unique attractions in great locations, for a decent price. Universal is your once or twice in a generation expensive special treat, we're you're affordable every other year park fix. I think that would serve them well regardless of whether Universal comes or not, and they can review that strategy again if it doesn't.

What I think would happen however is completely different. I think they'll carry on as they are pending an announcement, putting out fires after years of rot, and whacking in new attractions any time they find some financial breathing space. If an announcement is made, I could see them battening down the hatches, slashing operational and capital expenditure, leaning on Annual Passes and discounted entry more than ever, and positioning themselves as the budget alternative.

What do you guys think?

 

[BSwiss]

I voted for option 3, with the thinking that the physical, maintenance and upkeep investments over the next 5-10 years will be similar regardless of whether Universal lands or not.

But the marketing may be different.

Each of the Merlin parks fulfil a slightly different purpose, and it would make sense to double down on each of the parks core offering.

I doubt Merlin can go toe-to-toe on investments in terms of spend, certainly not on IPs.

So, target confirmation bias.

For example, go heavy on heritage and magic at AT, bringing some of the park’s stories and rides’ theme messaging to the core through the marketing.

 

[GooseOnTheLoose]

I touched on this yesterday, in the Park Opening Hours thread (apologies @Craig; I sometimes stay on topic, I promise!). I'll drop the post below the fold.

In summary I don't think it'll be as rosy as some people hope. I don't think it will encourage Merlin to up their game, they're already stretched across the world as it is, I think it could lead to them cutting their losses in the UK with the Resort Theme Parks. I don't think that this will impact Legoland, operationally it's pretty alone too. I can see Merlin retaining midways in Blackpool (for as long as the Beach is up there and Blackpool remains a destination) and London, along with Legoland.

I can't think of another operator, or body, who has the capital to take on a spin off of Resort Theme Parks; especially when the freehold for the parks won't be part of the deal. Merlin sold the parks off years ago to finance the buying of Tussaud's in typical leveraged acquisition buyout management.

Any investor/new purchaser coming in will need very deep pockets, as they won't be able to borrow against the parks assets to raise finance. A typical park will raise finance for a new investment by taking a loan out secured against the park. As Merlin sold off the parks, and only hold a leasehold to operate the parks, there is no park to take a loan out against. There is no tangible asset to back anything.

The primary shareholders in Merlin are Kirkbi and Blackstone. Blackstone care about making a quick buck, and ideally floating a business or selling it off completely; they don't like risk. Kirkbi are in it to protect their Legoland / Lego assets and I don't think have much love for the Resort Theme Parks. The only reason why Resort Theme Parks have remained relatively safe with Merlin, until now, is because of Nick Varney and his history with Alton Towers and The Tussaud's Group. Varney is out (good and bad), Scott "I'd never heard of Merlin before" O’Neil is in and he doesn't have the same nostalgia, history or care. He's a money person, a manager. He'll make decisions based on numbers and returns and results, he won't have a soft spot for Alton Towers, Thorpe Park or Chessington World of Adventures.

Contrary to popular belief, competition doesn't create a better product, or force companies to up their game. Competition forces companies to make tricky commercial decisions. Examples can be found throughout the world of entertainment.

Universal's hypothetical entry into the UK market will force Merlin / Kirkbi's hand to rethink their portfolio. They don't have bottomless pockets and the first products on the chopping block will be the previous Tussaud's Theme Park Resorts. Legoland Windsor and the London midway attractions are licences to print money, with evergreen products. Alton Towers, Chessington World of Adventures and Thorpe Park are risky businesses. They have ageing hardware, decades of neglect and won't be up to anywhere near the same standard as Universal's expected quality offering. The only reason why these parks exist in their current state, at all, is because they don't have to compete with each other, as they have the same owner. If they were spun off from Merlin, and run individually, I expect we'd see them follow a similar pattern to every other UK park.

If the hype is to believed, the entry of Universal to the UK market would possibly be the end of one or more of the current Merlin parks and I don't think this is a good thing. The market size is limited and already pushing its boundaries. There won't be another partner who will want to take on the operation of Alton Towers, Chessington World of Adventures and Thorpe Park, with Universal as a competitor, especially as they wouldn't even own the freeholds for the properties.

You will be trading three mediocre, but acceptable and nostalgia inducing parks, for one corporate commercial behemoth, able to charge whatever they want and monopolise the market.

I'm not sure the views of "bring on Universal" and "it will force Merlin to do something" are going to be as rosy as people think.

 

[Matt N]

My view is that Merlin should try to emphasise and play to the differences between their product and Universal’s.

Each of the London parks, I feel, could easily coexist with Universal, as each of them has its own niche that I don’t think Universal will aim to compete with:

• Legoland has the Lego, which Universal are unlikely to directly compete with. Merlin has exclusivity on the Lego IP, and Legoland parks are also pitched to a slightly younger audience than Universal parks.
• Chessington has the zoo, which Universal are very unlikely to directly compete with. To my knowledge, the only whiff of an animal attraction in any of their parks is the rather old Animal Actors show in Florida, and certainly, no recent new-build Universal park has ever had anything to do with animals.
• Thorpe Park perhaps has a less obvious niche than the other two, but I think the park’s focus on thrills through big coasters and flat rides is something that Universal are unlikely to try and legitimately compete with. Yes, Universal are likely to build roller coasters in some capacity, but I don’t think they’ll ever double down on the thrilling coasters and flats like Thorpe Park has. I’d also say that unlike the other two, Thorpe Park doesn’t really go for the “short break” market at all, mainly focusing on day visitors, which puts them in a completely different market space to Universal.

Despite being further away than the London parks, I actually think that Alton Towers is the Merlin park most at risk from Universal. It doesn’t have an obvious niche like some of the London parks, and it competes quite heavily in the “short break” space with its 694 hotel rooms and array of activities building up a “resort” offering. Therefore, they may compete more head-on with Universal than the London parks, with them both targeting the “whole family short break resort” market space.

I think Alton Towers could possibly have the most painful transition to adapt to Universal. I think Universal competes more directly with Alton Towers than the other three parks, and I feel that Alton Towers would need to make fundamental changes to their business model in some way to adapt to Universal effectively.

They could do what Thorpe Park has done and aggressively target thrills. They arguably have the coaster lineup to do so successfully, and with the addition of a few more flat rides, this could arguably work. However, I wager that this would be a far more painful transition for Alton Towers than it was for Thorpe Park, as it would negate everything they’ve done over the last 30 years to build the place up as a whole family short break resort.

Alternatively, they could considerably undercut Universal on price. I think this is a bit more likely than the first option and would give Alton a legitimate USP, but going for aggressive cheap pricing likely wouldn’t lead to the sort of improvements in the product that many want.

But what do I think will actually happen? I think that things will stay mostly the same, but Merlin will try to undercut Universal on price and go more for the day visitor pound. Universal won’t really be trying to primarily attract day visitors, with them going more for the short break market, so Merlin could make themselves a compelling alternative for day visitors.

 

[Matt.GC]

In summary I don't think it'll be as rosy as some people hope. I don't think it will encourage Merlin to up their game, they're already stretched across the world as it is, I think it could lead to them cutting their losses in the UK with the Resort Theme Parks. I don't think that this will impact Legoland, operationally it's pretty alone too. I can see Merlin retaining midways in Blackpool (for as long as the Beach is up there and Blackpool remains a destination) and London, along with Legoland.

I can't think of another operator, or body, who has the capital to take on a spin off of Resort Theme Parks; especially when the freehold for the parks won't be part of the deal. Merlin sold the parks off years ago to finance the buying of Tussaud's in typical leveraged acquisition buyout management.

Any investor/new purchaser coming in will need very deep pockets, as they won't be able to borrow against the parks assets to raise finance. A typical park will raise finance for a new investment by taking a loan out secured against the park. As Merlin sold off the parks, and only hold a leasehold to operate the parks, there is no park to take a loan out against. There is no tangible asset to back anything.

The primary shareholders in Merlin are Kirkbi and Blackstone. Blackstone care about making a quick buck, and ideally floating a business or selling it off completely; they don't like risk. Kirkbi are in it to protect their Legoland / Lego assets and I don't think have much love for the Resort Theme Parks. The only reason why Resort Theme Parks have remained relatively safe with Merlin, until now, is because of Nick Varney and his history with Alton Towers and The Tussaud's Group. Varney is out (good and bad), Scott "I'd never heard of Merlin before" O’Neil is in and he doesn't have the same nostalgia, history or care. He's a money person, a manager. He'll make decisions based on numbers and returns and results, he won't have a soft spot for Alton Towers, Thorpe Park or Chessington World of Adventures.

I completely agree. That's why I mentioned the over simplification of competitive forces. I think anyone expecting Merlin to "up their game" could be severely disappointed. For starters, this industry is far more nuanced than that. This isn't head on binary competition we're talking about here, in fact Merlin would be absolutely insane to see at is as such (they won't), so I'd be interested to hear the opinions of those who have been standing by the game upping comments this past year and what they mean by that.

BA failed to compete with budget airlines, and instead became a smaller carrier mainly focusing on long hauls and bit more of a premium experience. Nationwide didn't jump on the low hanging fruit that was the demutualisation bandwagon in the 1980's, but instead merged with other building societies and compete with private banks on that point-of-difference basis. Tesco haven't competed with discount supermarkets by upping their game, they've downsized, sold foreign distractions, and rationalised their offering to remain highly profitable and sustainable. Virgin Media TV can't compete with Sky's TV offering, so have focused on a superior broadband and bundling it with packages. Eurostar haven't upped their game by increasing rail services in the face of airline competition, but have instead rationalised their diagrams to focus on key routes.

Trying to out Universal Universal won't work. But neither does that mean that there isn't market opportunities for Merlin I feel. Although as you rightly pointed out, they don't have a great deal of Fixed Assets on which to raise capital, so it would have to be a financially restrained strategy. It would have to include the theme parks remaining in the portfolio also, as not having them undermines a fundamental bedrock of the groups UK strategy, namely Annual Passes. The MAP is dead outside of London and the South East without the RTP's.

 

[GooseOnTheLoose]

Tesco haven't competed with discount supermarkets by upping their game, they've downsized, sold foreign distractions, and rationalised their offering to remain highly profitable and sustainable.

I'm never normally one to pick up a retailer on their area of expertise, but I imagine that Tesco would also like us all to forget about Jack's too:

Jack's (store) - Wikipedia

en.m.wikipedia.org

With this though, you can show that Tesco tried to put Aldi Aldi, but it didn't work.

If we were talking one park, maybe. Three of them though, in this country alone? Something will have to give.

 

[Kraken27]

Merlin will certainly have to appraise their position in the market if Universal does go ahead. They don't have the finances to compete with Universal on an IP front or "total immersion" theme park experience. So, as above, I suspect Merlin will target the day visitors & continue to push MAP's to keep guests coming back.

If Universal replicate similar pricing strategies to their Florida parks, they will be targeting the short break guests who want to stay for a few nights. It will probably be Disneyland Paris who would be more concerned about Universal UK as they also very much target short break guests, with a similar price-point to what Universal would charge.

So Merlin would be the "cheap and cheerful" option, with Universal being the "expensive but top-notch quality" option.

 

[DiogoJ42]

Merlin can't compete. It wouldn't make a difference even if they could. Once [if!] Universal opens, it'll be the killing blow for just about every other park in the country.
The last parks standing will be Legoland, Thorpe, and Towers (possibly BPB, but not in any form we would recognise), visited only by a handfull of us geeks and nostalgic youtubers. It'll be just like when Wallmart moves in to a small town and kills all the local shops.

 

[Zeock]

I do think that Merlin would massively increase investment in their parks so that they can still attract people to their parks post-Universal, but I don't think that Merlin would try to bring their parks exactly up to Universal standard. They could perhaps do this with Towers, but this would likely result in the neglect, and possible closure, of many of their other parks, such as CWOA.

 

[EarthlyKnight27]

To be honest, if this proposed Universal themepark does break ground, it'll be interesting to see what they would offer to get people to go to this new themepark, as they'd have to adapt to British H&S and most importantly regulations on noise, local environment, etc. Yes, I know they probably already do it in other parks, but the UK as we all know can be a bit of a buzz kill with the red tape!

 

[jon81uk]

Overall I think where Merlin should focus over the next few years is getting the basics right. Food quality, clean toilets, good throughputs and availability, happy staff, working effects on all attractions. Also add the supporting filler attractions and shows. Make sure the parks feel worth the £29-46 being charged so that when Universal is charging £50-60ish (we assume) the Merlin parks continue on at £35-50 and it still feels worthwhile. If AT does add the three flat rides, plus a show or two and Horizon it should be a strong enough park to continue.
Whereas if Chessington don't replace their old hardware (Tiger Falls, Vampire, Tomb Blaster etc) that is suffering breakdowns I can see them having issues as people won't feel its worth the price for a small zoo and some broken rides.

Merlin can't compete. It wouldn't make a difference even if they could. Once [if!] Universal opens, it'll be the killing blow for just about every other park in the country.
The last parks standing will be Legoland, Thorpe, and Towers (possibly BPB, but not in any form we would recognise), visited only by a handfull of us geeks and nostalgic youtubers. It'll be just like when Wallmart moves in to a small town and kills all the local shops.

I don't think it will be that much of a blow, as above the price point will still likely be very different. Think also of how Paulton are already doing things differently to the Merlin parks, a relatively high price, but strong good quality and fairly focused offerings, they won't be affected by Universal as they are already going after a different market. At Matt N said, Universal's main UK competition will be Alton Towers and hopefully they can get that park back to what it was. Thorpe will meander on as the high thrill park and be OK as it is and Legoland has the brand recognition.

 

[EarthlyKnight27]

Merlin can't compete. It wouldn't make a difference even if they could. Once [if!] Universal opens, it'll be the killing blow for just about every other park in the country.
The last parks standing will be Legoland, Thorpe, and Towers (possibly BPB, but not in any form we would recognise), visited only by a handfull of us geeks and nostalgic youtubers. It'll be just like when Wallmart moves in to a small town and kills all the local shops.

To be honest, in my opinion here, if Universal does come to the UK, it'll be interesting to see how Alton Towers would fare against Universal. As Merlin are quite large. They own a lot of parks in Europe, which can give them a flow of money to try and put up with Universal.

Plus, if Universal does come, it'll bring much needed competition to Alton Towers, as Merlin own the only other real 'rival' to Alton Towers, that being Thorpe. So this could, in theory at least, make an 'arms race' kind of scenario where each park tries to out do the other. Maybe Alton Towers would lower prices to try and bring more people in? Maybe they would get better food and drink providers in? We simply don't know yet, and can only speculate.

 

[Matt.GC]

I'm never normally one to pick up a retailer on their area of expertise, but I imagine that Tesco would also like us all to forget about Jack's too:

Jack's (store) - Wikipedia

en.m.wikipedia.org

With this though, you can show that Tesco tried to put Aldi Aldi, but it didn't work.

If we were talking one park, maybe. Three of them though, in this country alone? Something will have to give.

Now notice how Tesco try to claim it was all a "trial" to "take learnings from, which we can use for our existing stores". They weren't saying that at the time, billing it as the next thing. Sainsbury's also bought the UK brand rights to Netto with a view to setting up a discount chain here, they've not done anything with it. However, both companies have focused on rationalisation, their core product, and on things that discounters can't compete on. Both are in a better situation because of it. Who remembers British Airways Go? An attempt at a budget airline to compete with easyJet and Ryanair? They're also now well shot of that.

An offloading of a park wouldn't be completely out of the question. But they'd obviously keep Lego (not in the RTP division anyway) and they should really keep Towers for brand recognition and geographic reasons more than anything else.

I think there is every chance that they could make a success of this with targeted investment and positioning themselves as a good clean value alternative, bolstered by the MAP offering. Hell, if people enjoy Universal so much, there's a sales pitch to buy a MAP right there. This doesn't have to be a bad news story, I think there's great potential to actually feed off of Universal and make a success of it by choosing to take advantage of a market that Universal can't penetrate.

My fear is, however, that they'll see this as a competition hit, ignore the opportunities, and just cut back. Their parks don't get the basics right at the moment, knowing that they can just fill parks up with MAP holders and everyone else can like it or lump it. That said though, they successfully feed off of Orlando with a Legoland there, and many of their midways feed off the success of other attractions. So they do have experience already in offering complimentary attractions successfully.

 

[Mick]

Taking this quote from a Daily Mirror article but hopefully it’s accurate:

“The document notes that annual visitors to Universal operated theme parks number between 8.4 million to 12.4 million. Even the lower figure is roughly four times more visitors than the UK's current busiest theme park, Legoland”

Visitor numbers the likes of which Merlin couldn’t even achieve if they wanted to. And where are those 8 million people going to come from? Even if a large percentage are new theme park attendees ie growth in the sector, even if just a quarter of them are now choosing Universal over Merlin, that’s basically a theme parks worth of people deserting Merlin.

Thinking of it like that is quite scary for them! But shows the scale and power of Universal coming here.

 

[GooseOnTheLoose]

Taking this quote from a Daily Mirror article but hopefully it’s accurate:

“The document notes that annual visitors to Universal operated theme parks number between 8.4 million to 12.4 million. Even the lower figure is roughly four times more visitors than the UK's current busiest theme park, Legoland”

Visitor numbers the likes of which Merlin couldn’t even achieve if they wanted to. And where are those 8 million people going to come from? Even if a large percentage are new theme park attendees ie growth in the sector, even if just a quarter of them are now choosing Universal over Merlin, that’s basically a theme parks worth of people deserting Merlin.

Thinking of it like that is quite scary for them! But shows the scale and power of Universal coming here.

Universal operates 7 theme parks worldwide. You're comparing an operator's worldwide attendance figures with those of a single UK (much smaller) theme park. That Universal's lower end projected figures, over 7 parks, are 4 times higher than the visitors to Legoland Windsor alone actually shows the strength of Legoland Windsor.

By visitor numbers, as we all know, Merlin Entertainments is the second largest theme park operator in the world.

 

[Matt N]

Merlin can't compete. It wouldn't make a difference even if they could. Once [if!] Universal opens, it'll be the killing blow for just about every other park in the country.
The last parks standing will be Legoland, Thorpe, and Towers (possibly BPB, but not in any form we would recognise), visited only by a handfull of us geeks and nostalgic youtubers. It'll be just like when Wallmart moves in to a small town and kills all the local shops.

I feel that this is a pessimistic prediction. Universal operates in plenty of other countries and US states where they haven’t completely wiped out the rest of the theme park market, and Disney also didn’t do this when they moved into France despite being an arguably bigger behemoth than Universal.

I reckon that the only parks in the UK with a legitimate cause for concern from Universal are the Merlin parks, realistically. I know the others are smaller and Merlin has more financial might, but while Merlin would “lose their lead” so to speak if Universal came to fruition, the other parks wouldn’t really see much difference in this regard.

They’re already smaller fish compared to the bigger fish that is Merlin, so I don’t realistically see that the big fish changing to a different competitor would change an awful lot for them.

To be honest, I do think that the “threat” from Universal to the existing UK parks is overstated in general, even to Merlin. Universal occupies and aims for a completely different market space to most UK parks; Universal competes in the premium short break market, whereas most UK parks compete in the more regional, more lowly priced day trip market, which is a completely different space.

 

[GooseOnTheLoose]

Universal competes in the premium short break market,

In Orlando and Asia.

whereas most UK parks compete in the more regional, more lowly priced day trip market, which is a completely different space.

Just like California.

I think, in the UK, we'll see any hypothetical Universal park operate in a similar way to how they do in California, vs Florida or Asia. There will be a focus for perhaps an overnight stay, certainly initially, but not a multi day break.

 

[DiogoJ42]

I feel that this is a pessimistic prediction.

In the words of Bugs Bunny, "He don't know me too well, do he?"

 

[Mick]

Universal operates 7 theme parks worldwide. You're comparing an operator's worldwide attendance figures with those of a single UK (much smaller) theme park. That Universal's lower end projected figures, over 7 parks, are 4 times higher than the visitors to Legoland Windsor alone actually shows the strength of Legoland Windsor.

By visitor numbers, as we all know, Merlin Entertainments is the second largest theme park operator in the world.

Ah okay, misinterpreted figures. I thought they were saying each of their parks get between 8m and 12m visitors. Which does sound absurd when you stop and think about it.

 

[GooseOnTheLoose]

Ah okay, misinterpreted figures. I thought they were saying each of their parks get between 8m and 12m visitors. Which does sound absurd when you stop and think about it.

It's not your fault, it's the Daily Mail. They fully intended for you to interpret those figures in that way. Sensationalism encourages shares and clicks.