Disney is doubling down on its cruise ship investment.
Today the company launches the Disney Dream, which cost nearly $1 billion, with a second massive ship at the same price point due to hit the seas next year. It is a major strategic move for Disney — it's the company's first ship in a dozen years and along with next year's launch of "Disney Fantasy" it'll more than double Disney's cruise capacity. The company is working to capture more vacation dollars — if families go to a Disney park every other year, this ship offers a branded-vacation in the alternate years.
The Disney Dream is massive — 130,000 gross tons, 1,115 feet long, and it holds 4,000 passengers plus nearly 1,500 crew members. And Disney invested in a range of high-tech features throughout the ship, from the first-ever on-deck water roller coaster, to virtual portholes. That's right — those rooms without a view of the ocean will get a 'virtual view' thanks to a digital image of what's actually outside. And then of course there are the themed areas and roaming characters.
So why is Disney placing such a big bet on family cruising when there are still concerns about consumer spending? Bottom line, this is a long-term bet. The company's first two ships, which are now 12 and 13 years old, have yielded double digit returns on investment, and the company is hoping these ships can deliver similar results for the next 15 years.
But its Disney's success in the family cruising space that has drawn so many rivals. 2010 was a busy year for entertainment-cruise partnerships. DreamWorks Animation partnered with Royal Caribbean to launch the 'DreamWorks Experience' with Shrek and Kung Fu Panda Roaming the deck, along with a 3D movie theater. And Viacom's Nickelodeon started licensing Sponge Bob and other characters to Norwegian for its new series of "Nickelodeon at Sea" family cruises.
The question now: will these new family cruises create a glut of capacity? Cowen & Company analyst Doug Cruetz acknowledges that the competition does raise the bar for Disney, but the strength of Disney's branding and its attention to customer service should distinguish Disney. Goldman Sachs analyst James Mitchell weighs in that Disney's owned and operated cruise model will work — he estimates the new ships will contribute 2% to Disney's earnings per share in Fiscal 2011 and 3% to EPS in 2012.
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