Euro Disney (A)
Michael Eisner, chairperson of Walt Disney Company, was
silting in his Los Angeles office. It was New Year's Eve
1993, and Eisner had one meeting left before he could go
home to celebrate a quiet holiday.The meeting was with yet
another group of high-powered consultants from one of the
world's most prestigious general management and strategy
consulting companies. The consultants had assembled a
multidisciplinary team including financial, marketing, and
strategic planning experts from the New York and Paris of-
fices. The meeting couldn't wait until after the holidays—
the topic, what to do about Euro Disney, was that critical.
The consultants were asked by the consortium of bank
lenders to provide an additional perspective on the prob-
lems of Euro Disney and to make recommendations to
Eisner and Disney management on what should be done.
In the 10 years since Eisner and his senior management
team had arrived, they had turned Disney into a company
with annual revenues of $8.5 billion, compared with $1
billion in 1984. For Eisner, his track record was impec-
cable. "From the time they came in, they had never made a
single misstep, never a mistake, never a failure," according
to a former Disney executive. "There was a tendency to be-
lieve that everything they touched would be perfect."
Eisner was particularly proud of the success of the im-
mensely profitable Tokyo Disneyland, which had more vis-
itors in 1993 than even the two parks in California and
Florida. Based on the company's success in the United
States and Japan, Eisner had vowed to make Euro Disney,
located outside of Paris, the most lavish project that Disney
had ever built. Eisner was obsessed with maintaining
Disney's reputation for quality and he listened carefully to
the designers who convinced them that Euro Disney would
have to brim with detail to compete with the great monu-
ments and cathedrals of Europe. Eisner believed that Euro-
peans, unlike the Japanese, would not accept carbon copies.
Construction of the park alone (excluding the hotels) was
approaching $2.8 billion. In developing Euro Disney, Eisner
had learned from some of the mistakes made on other pro-
jects. For example, in Southern California, Disney let other
companies build the hotels to house visitors and in Japan,
Disney merely collected royalties from the park rather than
having an equity ownership stake.
This case was prepared by James L. Bauer, Vice President,
Consumer Market Management at Chemical Bank and doc-
toral candidate, Pace University Lubin School of Business
under the direction of Dr. Warren J. Keegan, Professor of In-
ternational Business and Marketing and Director of the Insti-
tute for Global Business Strategy as a basis for class discussion
rather than to illustrate either effective or ineffective business
leadership and managment. © 1998 by Dr. Warren J. Keegan.
In preparing for the meeting with the consultants,
Eisner was shuffling through some of the papers on his
desk. An article in that week's French news magazine Le
Point quoted Eisner as saying that Euro Disney might be
shut down if Disney failed to reach an agreement with its
creditor banks on a financial rescue plan by March 31. The
company's annual report for 1993 said that Euro Disney
was the company's ". .. first real financial disappointment"
since Eisner had taken over in 1984. Eisner's defense had
been to publicly blame the performance on external factors
including the severe European recession, high interest
rates, and the strong French franc. Eisner picked up the fi-
nancials from the comparable periods from the initial two
years' operations of Euro Disney (Exhibit 1) and then
quickly, after reviewing the numbers, put them down. The
situation was deteriorating quickly, he thought. Eisner then
turned to the attendance figures, which were also trending
downward (Exhibit 2).
REVIEW OF PROJECTIONS/THE 1MITIAL PLAN
Eisner walked to his bookshelf from which he took down
a bound copy of the initial 30-year business plan for Euro
Disney. The plan was done in the typical detailed and me-
thodical Disney fashion. The table of contents was exhaus-
tive, appearing to cover virtually every detail. Over 200
locations in Europe were examined before selecting the
site just outside Paris, with Paris being Europe's biggest
magnet for tourism. A huge potential population could get
to Euro Disney quickly (see Exhibit 3).
European vacation habits were also studied. Whereas
Americans average 2 to 3 weeks' vacation, French and Ger-
mans typically have 5 weeks' vacation. Longer vacations
EXHIBIT1 EuroDisney P&L
1992-1993 Six Months Ending Sept 30
1993 1992
Revenues (French francs) 1.8 billion 3.1 billion
Profit/(Loss) (1.1 billion) 0.7 billion
EXHIBIT2 Annual Attendance Figures
Years Ending April (Initial Opening in
April 1991)
1993
1992
10.5 million
Attendance 9.5 million
 EXHIBIT3 European Population Proximity to EuroDisney
Population (Millions) Time to Euro Disney
17 should 2-hour drive
41 translate 4-hour drive
10 into being 6-hour drive
able to
9 2-hour flight
spend
more time at Euro Disney.
The French government was spending hundreds of
millions of dollars to provide rail access and other infra-
structure improvements. Within 35 minutes, potential visi-
tors could get to the park from downtown Paris. The
opening of the Channel Tunnel in 1993 would make the
trip from London 3 hours and 10 minutes.
While the weather in France was not as warm as that
in California or Florida, waiting areas and moving side-
walks would be covered to protect visitors from wind, rain,
and cold.Tokyo Disney had been built in a climate similar
to Euro Disney and the company had learned a lot about
how to build and run a park in a climate that was colder
and wetter than those of Florida and California.
The attractions themselves would be similar to those
found in the American parks, with some modifications to
increase their appeal to Europeans. Discoveryland, for ex-
ample, would have attractions based on Frenchman Jules
Verne's science fiction; a theater with a 360-degree screen
would feature a movie on European history. The park
would have two official languages, English and French; a
multilingual staff would be on hand to assist Dutch,
German, Italian, and Spanish visitors. Basically, however,
Euro Disney's strategy was to transplant the American
park. Robert Fitzpatrick, a U.S. citizen with extensive ties
to France and the chairperson of Euro Disney, felt "it
would have been silly to take Mickey Mouse and try to do
surgery to create a transmogrified hybrid, half French and
half American."
Other aspects of the American parks would also be
transferred to France. These include Main Street U.S.A.
and Frontierland, as well as Michael Jackson's Captain EO
3-D movie. Like the American parks, wine and other alco-
holic beverages would not be served.
Fitzpatrick's greatest fear was ". .. that we will be too
successful" and that too many people would come at peak
times, forcing the park to shut its gates.
Eisner turned to the financing plan, which had been
prepared by chief financial officer (CFO) Gary Wilson, a
man known as a tough negotiator with a knack for creating
complex, highly leveraged financing packages that placed
the risk for many projects outside of Disney while keeping
much of the upside potential for the company. Wilson had
subsequently left Disney to become chief executive officer
(CEO) of the parent company of Northwest Airlines.
The plan had set up a finance company to own the park
and lease it back to an operating company. Under the plan,
Disney held a 17 percent stake in the company, which was
to provide tax losses and borrow capital at relatively low
rates. Disney was to manage the resort for large fees and
royalties, while owning 49 percent of the equity in the oper-
ating company, Euro Disney SCA. The remaining shares
were sold to the public, largely to small individual European
investors. A total of $3.5 billion in construction loans was
raised from dozens of banks eager to finance the project.
Euro Disney was just the cornerstone of a huge real
estate development planned by Disney in the area. Ini-
tially, the area was to have 5,200 hotel rooms, more than are
available in the entire city of Cannes. The number of rooms
was expected to triple after a second theme park opened
in the area. Subsequent phases of the plan also included
office space that would rival the size of France's largest
office complex, La Defense, in Paris. Other plans showed
shopping malls, golf courses, apartments, and vacation
homes. Key to the plan's financial success was that Euro
Disney would tightly control the design and build almost
everything itself and then sell off the completed properties
at a large profit.
THE JAPANESE EXPERIENCE
Eisner put the book down and picked up another file that
contained an assessment of the incredible success of Tokyo
Disneyland. Seeking to determine if there were any paral-
lels between the Japanese and European experiences, he
had commissioned a study of why the Japanese venture
was doing so well.
Tokyo Disneyland had been open about 11 years and
had been drawing larger crowds than the U.S. parks. Located
less than 10 miles from Tokyo, the park drew over 16 million
visitors from throughout Asia in 1993. Tokyo Disneyland is
a near replica of the American original. Most of the signs are
in English, with only occasional Japanese; the Japanese flag
is never seen but variations on the Stars and Stripes appear
throughout the park. In the file, Eisner found a study writ-
ten by Masako Notoji, a Tokyo University professor, who
studied the hold that Tokyo Disneyland has over Japanese
people. Notoji wrote that the "Japanese who visit Tokyo Dis-
neyland are enjoying their own Japanese dream, not the
American dream. In part, this is because the park is so san-
itized and precise in how it depicts an unthreatening, fantasy
America that it has become totally Japanese, just the way
that Japanese want it to be." It has been compared to the
Japanese garden, which is a controlled and confined version
of nature that becomes more satisfying and perfect than
nature itself. The Japanese Disneyland, some say, outdoes
the American parks because it is probably cleaner due to
the Japanese obsession with cleanliness.
Notoji's report also noted that Tokyo Disneyland
opened in 1983, a period in which the Japanese economy was
especially strong. During that time period, the United States
was perceived as a model of an affluent society. At the same
time, as a result of its growing affluence, Japan was starting
to feel part of world culture. Tokyo Disneyland became a
symbol for many people of Japan's entry into world culture.
In commenting on the differences between Tokyo and
France, Notoji's research hypothesized that " . . . the fake-
ness of (Tokyo) Disneyland is not evident because (the
Japanese) only had fantasy images of these things before"
while "Europeans see the fakeness because they have their
own real castles and many of the Disney characters come
from European folk tales."
Eisner's secretary announced that the consulting team
had arrived and that the meeting would be held in his con-
ference room. The meeting started with Eisner explaining
the assignment and the short time frames in which solu-
tions had to be developed.
EURO DISNEY PROBLEMS
In early February, a team of consultants returned to
Eisner's office with the first phase of their study com-
pleted. Given the size and complexity of the problems that
they expected to find, the study had been divided into three
phases. The first phase was a top-level assessment of the
problems that they had uncovered in the initial month of
the study, without any recommendations as to what should
be done. The second phase was to identify the most critical
problems that needed to be addressed immediately and to
develop action plans.The third phase was to identify the re-
maining, less critical problems, and develop recommended
plans of action.
The consultants' report identified six critical major
problem areas that they felt had contributed to the prob-
lems. The team felt that, even though not all of the problems
could be rectified, it was critical that Disney management
understand the fundamental problems so that they could
fix the problems at Euro Disney and not repeat the same
mistakes again should they expand to other countries. The
six critical problem areas were
1. Management hubris
2. Cultural differences
3. Environmental and location factors
4. French labor issues
5. Financing and the initial business plan
6. Competition from U.S. Disney parks
Management Hubris
The first issue addressing .the way in which Disney man-
agement had approached the development of the project
and tactical errors made by members of the management
team was the most sensitive. Because of the sensitivity of
this subject, the consulting firm had brought in the head of
their European practice, based in Paris, to analyze the
problem and make the presentation. Extensive interviews
had been conducted with members of the Disney manage-
ment teams, both in the United States and in France; aca-
demicians who have studied French and American culture;
and executives of the European banks that had made many
of the construction loans as well as workers at the park.
"The initial premise of Euro Disney in the mid-1980s
was that there was no limit to the European public's appetite
for American imports given the success of Big Macs, Coke,
and Hollywood movies," the presentation started off. That
initial assumption totally failed to take into consideration
the fact that "the French flatter themselves that they are
more resistant to American cultural imperialism."The "her-
metically sealed world of the theme park did not give the
French an ability to put their own mark on the park. Disney
was exporting the American management system, experi-
ence and values with a management style that was brash,
frequently insensitive, and often overbearing." The Ameri-
cans were overly ambitious and always sure that it would
work because they were Disney, and it had always worked
in the past. By starting off on this premise, Euro Disney
quickly became known as a "cultural Chernobyl" and it cre-
ated hostility from the French people. The initial arrogance
of American management further demoralized the work-
force, creating a spiraling effect that cut down on the number
of French visitors.
Much of this arrogance, the report continued, created
tension and hostility among the management team. The
first general manager, Robert Fitzpatrick, an American,
spoke French and was married to a French woman; how-
ever, he was distrusted by some American as well as French
executives. Management, unfamiliar with the French con-
struction industry, had made a number of critical mistakes
including selecting the wrong local contractors, some of
whom went bankrupt. Fortunately, Fitzpatrick had already
been replaced with a French native.
Cultural Differences/Marketing Issues
The firm's senior marketing strategist presented the second
part of the report, which focused on cultural and marketing
differences between the U.S. and European markets.
The first phase of the analysis had uncovered a number
of obvious problems, some of which had already been recti-
fied. The purpose in identifying these problems, the consul-
tants said, was to be able to be sensitive and to identify other,
possibly more subtle cultural and marketing problems.
While attendance was initially strong at the park, the
length of the average stay was considerably different than at
the U.S. parks. Europeans stayed in Euro Disney an average
of 2 days and 1 night, arriving early in the morning of the first
day and checking out early the next day. By comparison, the
average length of the visit in the United States was 4 days.
In large part, this was because the American parks in Florida
and California had multiple parks in the immediate areas,
while there was only one park at Euro Disney.
Attendance at the park was also highly seasonal, with
peaks during the summer months when European children
had school vacations and troughs during nonvacation pe-
riods. Unlike American parents who would take their chil-
dren out of school for vacations, European parents were
 reluctant to do this. Europeans were also accustomed to
taking one or more longer vacations, while Americans fa-
vored short mini-vacations.
Revenues from food were also significantly lower at
Euro Disney compared with the other parks, the report
found. Three of the reasons that had been identified just
after the park had opened were related to misunderstand-
ings about European lifestyles. The initial thinking was that
Europeans did not generally eat a big breakfast and, as a
result, restaurants were planned to seat only a small number
of breakfast guests. This proved incorrect, with large num-
bers of people showing up for fairly substantial breakfasts.
This problem was corrected by changing the menus as well
as providing expanded seating for breakfast through the
expansion of cafeteria facilities. While the park offered
fast-food meals, they were priced too high, restraining the
demand. This problem, loo, had been taken care of by re-
ducing the prices at the fast-food restaurants. At the U.S.
parks, alcohol was not served, in keeping with the family-
oriented values. The decision not to serve alcohol at Euro
Disney failed to account for the fact that alcohol is viewed
as a normal part of daily life and a regular beverage with
meals. This error, too, was rectified after it was discovered.
Revenues from souvenir shop sales were also consid-
erably below those in the other parks, particularly Tokyo
Disneyland. In Japan, great value was placed on purchas-
ing a souvenir from the park and giving the souvenir as a
gift to friends and family upon one's return home. Euro-
peans were far less interested in purchasing souvenirs.
In the initial design of the project, it was assumed that
Europeans would be like Americans in terms of trans-
portation around the park and from the hotels to the park
attractions. In the United States, a variety of trains, boats,
and tramways carried visitors from the hotels to the park.
Although it was possible to walk, most Americans chose to
ride. Europeans, on the olher hand, chose to walk rather
than ride, leaving the vehicles significantly underutilized.
While not directly affecting revenue, the capital as well as
ongoing costs for this transportation were considerable.
It was also assumed, given the automobile ownership
statistics in Europe, that the majority of visitors would drive
their own cars to Euro Disney and that a relatively small
number of tourists would arrive by bus. Parking facilities
were built accordingly, as were facilities for bus drivers who
would transport passengers to the park. Once again, the ini-
tial planning vastly underestimated the proportion of visi-
tors who would arrive by bus as part of school, community,
or other groups. Facilities for bus drivers to park their buses
and rest were also inadequate.This, too, was a problem that
was initially solved.
The consultant concluded this portion of the presen-
tation by saying that these were just a few examples of
problems that resulted from a misunderstanding of the dif-
ferences between the U.S. and Japanese parks that had al-
ready been identified. Most likely, he said, there were a
number of other similar problems that needed to be iden-
tified and fixed.
Environmental and Location Factors
Next to speak was a team that included experts from an en-
vironmental planning firm. This presentation would be
brief, since the problems that they identified were virtually
impossible to correct at this stage in the project.
They initially noted that given the location in middle
to northern Europe and the fact that there were only about
six months of temperate weather when it was truly pleas-
ant to be outside, the park was clearly sited in a location
that did not encourage visitors on a year-round basis. Al-
though accommodations were made (including the covered
sidewalks), the fact that off-season visits had to be heavily
discounted and promoted to groups to get even reasonable
attendance still represented a major problem that needed
to be corrected. Whether through pricing changes or the de-
velopment of other attractions or other marketing and pro-
motional vehicles, attendance in the off-peak months had
to be increased.
The second problem that they identified, the location
east of Paris rather than to the west, was also something
that could not be rectified. It was reported that this was
again related to overconfidence on the part of the initial
planning team, which thought that even though most
Parisians who would visit the park currently live west of
the city, the longer-term population growth would be in the
east. Consequently, it was felt that the park should be built
in the east. Again, they noted, Disney executives disre-
garded the initial advice of the French.
French Labor Issues
Next to speak was a European labor economist.This prob-
lem, which stemmed from differences in the United States
and Europe, could potentially be solved. Disney did not
understand the differences in U.S. versus European labor
laws, he said. In the United States, given the cyclically and
seasonality of the attendance at the parks, U.S. workers
were scheduled based on the day of the week and time of
year.This provided U.S. management with a high degree of
flexibility and economy in staffing the park to meet peak
visitor demand. French labor laws, however, did not pro-
vide this kind of flexibility and, as a result, management
could not operate Euro Disney as efficiently and labor
costs were significantly higher than the U.S. parks.
Financing and the Initial Business Plan
The consulting team had hired a major global investment
banking concern to review the plan, identify the problems,
and develop a restructuring plan.
The firm's senior managing director spoke: "Financing
and the assumptions of the initial business plan is the area
that has created the greatest problems for the park; its re-
structuring is most critical to the ability of the venture to
continue operating and become profitable and, as a result,
is the most important problem that needed to be addressed
short term."
His presentation identified the following problem areas:
1. The initial plan was highly optimistic and extraordi
narily complex. There was little room for error in
this plan, which was based on overleveraged finan
cial scenarios that depended on the office parks and
hotels surrounding the park to pay off, rather than
the park itself.
In addition to the plan being highly leveraged,
significant cost overruns in the construction of the
park further increased the start-up costs, making
the achievement of the promised returns even more
unlikely.
Disney itself had imposed on arbitrary deadline
of March 31 to develop a refinancing package with
the creditor banks, further putting pressure on de-
veloping a credible and viable restructuring plan. A
separate team was already at work to develop such a
restructuring plan.
2. The initial plan was presented as financially low risk;
shares were largely sold to individual investors with
little tolerance for risk.
The plan was constructed in the mid-1980s, a
period of high-flying free-market financing in the
United States. European investors did not understand
these kinds of deals and propositions.
3. A severe European recession, a drop in the French
real estate market, and revaluation of European cur
rencies against the French franc severely undercut
all of the assumptions on which the plan was de
pending in order to succeed.
4. Euro Disney management, faced with the problem
of trying to achieve an unrealistic plan, had made se
rious errors in pricing.
Among the mistakes were charging $42.25/day
for admission to the park compared with a $30 daily
fee for the U.S. and Tokyo parks. Hotel prices were
set similarly, with a room costing $340, equivalent to
a top hotel room in Paris. Inside the park, food prices
were also too high.
Competition from U.S. Disney Parks
Finally, given the strengthening of the European currencies
against the French franc and U.S. dollar, it was often less ex-
pensive for Europeans to travel to the United States, espe-
cially Florida. Not only did their currencies buy more, but
there were other attractions surrounding Orlando and the
weather was warm and sunny year around. In addition, the
U.S. park provided the real experience compared with
the European simulation.
WHAT TO DO?
The consultants' phase-one report was concluded. As these
problems were identified, teams had already been formed
to develop potential solutions to the problems that could be
solved.The investment bankers were already examining re-
structuring options. While it was critical to enable the park
to remain open beyond the March 31 deadline, the long-
term issues appeared to be in the area of marketing. In par-
ticular, park attendance and revenues per visitor needed to
be increased while providing value and meeting Euro-
peans' expectations about the Euro Disney experience.
The meeting adjourned after the group had agreed
that phase two of the consultants' report, identifying action
plans for the most critical issues, would be presented on
March 15.
DISCUSSION QUESTIONS
1. What did Disney do wrong in its planning for Euro
Disney?
2. What recommendations would you make to Disney
to deal with the problems of Euro Disney?
3. What lessons can we learn from Disney's problems
with Euro Disney?