Over the last few decades, the amusement and theme parks industry in the United States has experienced a high level of growth and is expected to grow further in the coming years. The amusement park and theme park industry represent number leisure facilities that encompass a number of activities such as water rides, mechanical rides, games, shows, refreshments and themed exhibits among other attractions (Vogel, 2007). Although the industry has gained prominence in the recent years, it has been in existence since the mid 1900’s. Over the last few decades, the amusement and theme parks industry in the United States has experienced a high level of growth and is expected to grow further in the coming years. Just like any other entertainment business, the industry is faced with the growing threat of economic recession world over, consumer level of disposable and the availability of leisure time by the consumers (Fridson & Alvarez, 2002). Moreover, the industry is heavily reliant on the declining demographic, mostly the young children, which is challenging. However, there are still opportunities for growth of the industry. Recent statistics show that during an economic recession, there is a substantial reduction in the level of spending on entertainment services but consumers still frequent these entertainment spots.
General Environment Analysis
According to Six Flags’ 10-K filing (2013), government regulation poses a potential negative influence on its net profits. Six Flags’ ownership of property and its operations are subject to environmental, health and safety regulations, which create a level of uncertainty with regard to the future of environmental liabilities and expenditures (Six Flags, 2013). Amusement parks and theme parks are producers of waste water, air emissions and storm water and hence are required to comply with the environmental, health and safety laws as required by Environmental Protection Agency (EPA) and other state and local authorities. Some of the laws that they need to comply with include the Clean Water Act and the Clean Air Act. Additionally, amusement and theme parks handle, store and dispose hazardous substances. As a result they are required to comply with the Conservation and Recovery Act as well as the Compensation and Liability Act among others (Six Flags, 2013). The liability costs related to these acts could affect the company’s operations substantially. The parks are also regulated by state regulatory agencies that have a jurisdiction over a number of operations. Also, the amusement parks are susceptible to newly enacted laws at federal or state levels which may require them to incur costs of compliance (O’Brien & O’Brien, 1996).
The amusement park industry has witnessed increased growth after a decline in revenues due to the 2009 economic recession. A number of factors suggest that the industry may witness continued growth in revenues and attendance in the coming years (Fridson & Alvarez, 2002). First, the total number of Americans conducting domestic trips has been significantly rising after witnessing declines in the years 2007 and 2009. The figure is expected from 700 million to 800 million trips by the year 2019. This growth in trips would greatly boost the amusement park industry. On a similar note, there is a high likelihood that consumer spending would grow significantly by two to three percent over this period. With a high number of Americans regaining employment and disposable income, they are more likely to pursue leisure activities such as visits to amusement and theme parks (Fridson & Alvarez, 2002).
The amusement park industry is heavily reliant on teenagers aged between ten years and nineteen years (Vogel, 2007). This age group forms the primary consumers for the industry. Consequently, a change in demographics in this age group will eventually lead to changes in attendance of these parks. In future, it is highly likely that that this age group will decline due to the declining birth rates. The declining birth rates would lead to substantial drop in this age group. As a result, the amusement parks are obligated to attract other age groups or attract a larger population of its primary consumers in order to maintain and increase attendance (Vogel, 2007).
The industry employs technology in three key areas that include cost cutting, seasonal updates and the improvement of the overall experience of the guests. Amusement parks in the recent years have been investing heavily on technologies that will reduce their energy consumption. Such technologies have included high-efficiency ice machines and newer water filtration systems among others. Apart from cost cutting, amusement parks use technology for seasonal updates. During the cold winter months, most parks are usually closed. To ensure that they attract new customers for the incoming season, they install newer technological rides, such as roller coasters, that are compliant with the weather changes. Furthermore, amusement parks have to install technologies that will enhance visitor experience such as online ticket sales and new vending machines. These technologies reduce the waiting time for entrance to parks (Vogel, 2007).
Five Environmental Treats Model
The bargaining power of suppliers is high. Roller coaster manufacturers are the main suppliers of amusement parks because they develop the hallmark features. These manufacturers include Arrow Dynamics, Giavanola, Premier Rides and Vekoma among others. These companies have supplied about 72% of roller coasters in the United States. Giavanola and Arrow Dynamics have increased their operations in the recent years (Vogel, 2007). Consequently, there has been a manufacturers consolidation and hence less competition for the amusement parks’ industry.
The threat of new entrants to the industry is relatively low. The barriers to entry to the industry are very high. First, the industry is controlled by Walt Disney, Universal Studios, Cedar Fair and Six Flags (O’Brien & O’Brien, 1996). These companies are able to enjoy the economies of scale established and leverage on the established practices. Also, it is a highly capital intensive industry. The large acreage of land, public facilities and the creation of rides make it a very expensive industry. Technological change is also high hence making it a hostile environment for new entrants.
The threat of substitutes is very high. This is mainly because of the limited leisure time of the consumers and their discretionary spending. As a result, there are a number of leisure activities that compete for a consumer’s time such as video games, movies, sports events, hotels and restaurants and tourist destinations.
The rivalry among the amusement park companies is very high. The industry is intensely competitive. Rival companies continue to develop new rides and attractions to be able to compete with both the national and regional rivals. An example of this rivalry is Universal Studios allocating $265 million to Harry Porter and Walt Disney developing a section worth $500 million for Avatar. Innovation has also been a key area for rivalry in the industry.
The industry experienced major losses during the economic recession. With many of the consumers faced with unemployment and job insecurity, they were less willing to spend on leisure activities. Recreational activities such as visiting amusement parks were highly affected with the recession given that they were “unnecessary” expenditures. As a result, many parks were pushed to offer discounts to consumers. Consumers may also opt for cheaper amusement parks or alternative leisure activities during harsh economic periods. Harsh weather also prevents consumers from visiting certain parks. As a result, the bargaining power of buyers is high.
In conclusion, the amusement park companies must overcome the difficult tasks of negotiating with suppliers, the high number of substitute products and the intense rivalry within the industry. On the other hand, firms in the industry can take solace in the fact that there is a low threat of new entrants. In order to maintain and ensure continued success, Six Flags must carefully develop its attractions which will meet or exceed what is being offered by its competitors such as Walt Disney and Universal Studios. Moreover, it is vital to ensure a balance of the pricing for the consumers to entice visitors and also ensure profitability (Vogel, 2007).
Fridson, M. S., & Alvarez, F. (2002). Financial statement analysis: A practitioner's guide. New York: John Wiley & Sons.
O'Brien, T., & O'Brien, C. (1996). The essential guide to Six Flags theme parks. Birmingham, Ala: Oxmoor House.
Six Flags (2013). 10-K Six Flags Entertainment Corporation. Internet resource. July 05, 2014, Retrieved from http://www.sec.gov/Archives/edgar/data/701374/000104746913001833/a2213098z10-k.htm
Vogel, H. L. (2007). Entertainment industry economics: A guide for financial analysis. Cambridge: Cambridge University Press.