Tariffs & Terror: Why and How Universal is Diversifying in an Unpredictable Market

Philip Hernandez (00:00.498)
My goodness, from our studios, our home studios this week in Los Angeles and Tampa, this is Green Tag Theme Park in 30. This week, I just returned from the Themed Entertainment Association’s INSPIRE Week and their Leadership Forum. And Scott, you know, I have two big takeaways. The first takeaway is that there's a lot of uncertainty, and a lot of people in our industry are not really sure what to do about it. And the second is that Universal really is diversifying with their new entertainment offerings.

And we got more details about specifically how they plan to capture more of their local markets in the different regions.

Scott (00:36.664)
So, you know, as far as the first takeaway, I think my response—and I wasn't there, so I'm living vicariously through Philip on this one—since I wasn't there, my response to that is, “Duh.” Second is, you know, I'm glad to hear that because we've kind of hinted at that, or at least mentioned that in previous shows here, that, you know, with their expansion to the family park, the full-time year-round horror experience, etc., etc., etc., that they really are diversifying their portfolio and reaching out to a bunch of different audiences, which we can go into a little bit more depth from what I understand. We'll go into a little bit more depth in this show, and you can explain that—what you discovered while you were at the TEA… what was this one, INSPIRE?

Philip Hernandez (01:03.73)
Mm-hmm. Mm-hmm.

Scott (01:05.548)
INSPIRE. Since I wasn't there, I'll rely on you.

Philip Hernandez (01:21.168)
Yeah, now it's called the INSPIRE Week because day one is a leadership forum, and then that's for executives, and then continuously—or at the same time as that leadership forum—is the stories from the fringes, which is, I think, more junior members sharing their projects. It's like operators, more non-executives, you know, people that are actually working on projects, sharing takeaways. And then it's the two days of case studies for the Thea recipients as it has been in the past.

And then there is the Thea Gala, of course, which kind of caps it off. So it's at least a four-day event (or a week), if not five, by the time you travel in for it.

Scott (02:00.492)
I was—and it was so funny—I was very disappointed, just on a side note, I was very disappointed I didn't get to go to the Thea Awards because it was co-hosted by my buddy Chris Dermick. So I was like, darn it, I missed it. Anyway, sorry.

Philip Hernandez (02:11.194)
Anyway, well, I didn't go either. It's a little too expensive for me. But… so just to clarify here too: a lot of this I'm kind of extrapolating from conversations that I had with a lot of the leaders during the Leadership Forum, which is kind of what the Leadership Forum is for—actually to sit around and be able to talk to other executives in the space. They do have sessions that are planned, and none of the planned sessions had anything to do with, in my opinion, what the problems were, which are tariffs and uncertainty in international markets. But that was like the hallway conversations, right? Like all the conversations happening around the topics was, “What are we doing about this?”

Scott (02:54.402)
Well, and to a certain extent though, I think that's because, as you've mentioned, there is such uncertainty and the tariffs are coming and going and rising and lowering, and they're being made up as we go along. It's sort of like, you know, 10 years ago when someone came in and said, “Yes, I'm coming in as a social media expert.” We'd all go, “Yeah, right.” So they don't know what to say. They don't know what to do about it. I think that's the reason there's no platform for it. They can only set up panels on things they can actually discuss, I think. But that's just opinion.

Philip Hernandez (03:29.83)
Right. I think that is a great insight, and I think it echoes exactly what the challenge is also for IAAPA, because IAAPA put out a statement this past week in their newsletter. So it was just funny because it's the IAAPA newsletter, right? But then usually it's news stories that have a link to the story, and they summarize the story—that's the newsletter. But this one was just like the headline, which is that “New tariffs raise attractions industry concerns,” but there's no article. It's actually just that, and then a paragraph saying that new tariffs on Mexican, Canadian, and Chinese products may have global implications. These could lead to less spending on leisure travel and shifts in vacation choices. Steel and aluminum tariffs could also impact manufacturers and suppliers. IAAPA supports policies that foster innovation and economic growth. IAAPA will monitor the situation, provide updates, and develop new member resources. Period. There’s no story. It’s just that.

And I think that's, exactly to your point, as much as they can say really about it—that they're like, “It could do this. It could not. It could, it could not.” So I'm combining that with the conversations that I had with the executives and operators. And in those conversations, they did give a little bit more insight—a lot of the hotel operators saying that their business travel is completely nosedived, down 80%. A lot of the industry publications in our space have seen also an 80% reduction in ad sales because people don't know what to advertise because they're not sure about the future. So there's all these concrete disruptions that I did hear about from the executives. Anyway, there's a lot of disruptions, a lot of crazy.

And to your point, people are not sure what to do, but a few themes emerged, which is: what can you do in this situation? You diversify your revenue to focus on local markets, and then you also look at international markets. And I think that's exactly what Universal has been doing—although, to be clear, Universal did not explicitly draw that connection at any point. Like, no one explicitly did. I'm saying, based on my analysis, the only things people could think of as solutions are come up with things to do with your local market and also to look at international markets. And you did see some topics on that, like topics on Hong Kong’s tourism recovery and how to get international clients—those types of things.

Scott (06:08.226)
Yeah. I think that a couple of things that we have to take into consideration here. I agree with you. I think the fact that IAAPA's statement is pretty much, “We have a problem, and we'll monitor it,” which is, in essence, what they're saying here. And I think that's, from my perspective—kind of looking… I don't want to say looking back into the industry because I'm still part of the industry; actually, consultants are becoming more and more a part of the industry once again—but what I'm seeing is not only is it, “We don't know exactly whether this is really going to happen, or to what extent it's going to happen, or how quickly it's going to happen, or who's going to implement it once it does happen.” And once it does happen, is it going to then become immediately illegal? We don't know any of that at this point.

There's a lot of, “I'm signing an executive order.” That’s great, that's a piece of paper. What that doesn't do is actually show how it's going to happen, who's going to pay for it to make it happen, and will they actually be able to make it happen because it doesn't go directly against either the United States Constitution or other laws that are already in place? So that's part of the reason there's this huge muck of confusion right now.

I think the other reason that these statements have to be so incredibly basic is because we are so polarized right now that no matter what you say, one side or the other—or both—are going to take offense to it. So pretty much all you can do is state the facts: “Tariffs are going to impact us, and we will keep an eye on this.” OK, that's addressing the issue, but only by addressing the fact that it exists. Because no one knows what to do.

Philip Hernandez (07:51.316)
Yep.

Scott (07:53.202)
Because no one knows what's going to happen. And anybody who is 100% on one side of the fence or the other is delusional, because there's no way of knowing right now. There's absolutely no way of knowing in the industry. Now we can make predictions, and I think that—as you say—I think diversification, well, that's always the answer. That's always the answer. That was the answer during COVID. That was the answer during 9/11. That was the answer anytime there is a catastrophe—and yes, I'm calling these tariffs a catastrophe. Anytime we have that situation where there is something that is going to threaten the way we do business, diversification is the answer.

I started saying many, many years ago, “Don't panic, just pivot.” I started that 10 years ago when my career changed—it was, “Don't panic, just pivot.” But you have to have a place to pivot to.

Philip Hernandez (08:42.904)
Mm-hmm.

Scott (08:44.098)
The other thing that we've talked about ad nauseam on this show is be prepared for the next catastrophe. Post-crisis leadership taught us: have parallel paths, keep parallel approaches going. And that is, in essence, diversification—whether it's diversification of product or diversification of vendors or diversification of supply chain in general. I think these all make sense, but I'm going to be completely honest—and I don't mean to pee in anyone's Cheerios here—but I think what's really happening is no one knows what's going to happen, so they're falling back on what is comfortable. They're falling back on what they know is true, and that diversification is always a good idea when there's any sort of crisis.

Philip Hernandez (09:27.984)
Yeah, yeah, I think that we also, again, see exactly that in the, I guess, real-time strategies. Because, basically, we talked a lot previously when we talked about comparing the earnings, and we were like, “Disney is more diversified, so they're in a better position.” But to your point, they haven't fundamentally done anything that they haven't done before, if that makes sense. They… you talk about the Disney flywheel forever, and it's like they're really just doing stuff in the Disney flywheel. Versus Universal, who is doing things that they've honestly never done before in the way they're doing them. But then we have, like, Six Flags over there, where we're like, “We're not even sure what they're doing,” and then United Parks, right? And they're…

Scott (10:10.382)
They're not even sure what they're doing. And United Parks is just trying to stay out of court.

Philip Hernandez (10:16.1)
Yeah. And so I think in all these, you see this thing, but to your point, yeah, it's like I did get the sense that people were not even sure where to diversify to, because it's like the target is moving so quickly. Because, you know, when you reference the pandemic crisis, we kind of knew. We knew the rules of the game. The rules of the game were like, “No in-person meetings,” etc., etc. You had rules—literally quite explicitly rules to follow. And we have no rules to follow here, except that there are no rules.

Scott (10:50.86)
Well, and I think that… you know, my little tirade there, I think, made it sound like I was frustrated. No, I just want to clarify: I think diversification is exactly the right choice; I just don't think it's anything particularly groundbreaking. I think it is going to ground. I think it's the safest thing we can do in a situation where there are, as you say, no rules. There are no absolutes. We've just got to figure out, “What do we do if?” And unfortunately, unlike the pandemic or unlike what 9/11 did to tourism, this one is, I think, even more vague because there's no clear-cut right or wrong. There's no clear-cut enemy to unify against.

It's hard, because it's a bunch of muck thrown into the air—kind of like I'm swirling fish poop in a fish tank. That's about all I can equate it to, because I'm very visual. When you continue to stir up, I just got a new fish tank… you continue to stir up the fish poop so you can't see anything, you just don't know where to go. That's what's happening right now. There's my fish metaphor—enjoy that one.

Philip Hernandez (12:06.758)
Well, that's great. Thank you, Scott. Thank you for that. But you know what? I think when you don't know where to go, maybe placing small bets on different locations is at least a strategy. And that seems to be…

Scott (12:18.55)
It is a strategy, and it's a very common strategy. It's “go to ground.” It's “go to your safe place.” Find that comfort zone. And sometimes that comfort zone, by finding that comfort zone, it may mean not the comfort zone in the same place, because you don't know quite where the poop's going to land. You don't know quite where you're going to lose your profitability, so you've got to make sure that you've got a comfort spot in the world of family-friendly and local. You've got a comfort spot in the world of horror if you're Universal and you've made a huge brand out of that. Because you just don't quite know what's going to happen.

Philip Hernandez (12:52.422)
Yeah, that's a great segue into going over what we learned from Universal during the TEA INSPIRE Week. They had many panels and many discussions, and the Universal team was there. And we did learn a lot more about their specific plans for those items you said. And if I were to put them—kind of continue what you were saying—it's like their bet is, yes, in horror with Horror Unleashed, then the local kids/family thing, which is the park in Texas, and then they have their tapping into other fandoms or convention vibe or “convention-ness,” which is the Fan Fest nights.

We did have panels on the different items. I'm going to briefly talk about— or try to keep it brief—some of the things that we learned. During the INSPIRE the Night event, which is a separately ticketed event that was on Thursday (which is the first day of INSPIRE Week—I know it's confusing, guys, there's five different events, there are different tickets for everything), INSPIRE the Night was like the little party—because it's not like IAAPA Celebrates, but it's the TEA version. And during that event, we went all into the theater, and there was a panel presentation from Universal. And during that panel presentation, they discussed Fan Fest nights, among other things, but the Fan Fest nights piqued my interest because it gave us a little bit more context on this that we didn't have from the press release.

They basically said the term “North Star,” which I was wondering—thinking of Scott during that—basically they described the North Star as fan-first and authentic. And they mean both authentic to the brand but also to Universal, like, “Does this fit? Does this feel like Universal?” and also, “Is it fan-first?” They said that basically—this also sounds like stuff we talk about—they started brainstorming this event three years ago, and it was born on the legacy of Halloween Horror Nights in Hollywood, but they wanted to capture “the elusive spring event.”

Which is… right, this all makes sense, right? So the concept for these is story-based, pulsed attractions where groups go in together to solve different challenges. They expect—they're not sure—but they do expect the nights to be different because each one is a particular fandom, and so one night you might get more One Piece fans versus Back to the Future fans. So they're unsure about the staffing that needs to be flexible, because you're going to have to scale up or scale down particular areas depending on the nightly demand. They also discussed their intention to send this model out to other properties, with tweaking for local markets.

They said that these experiences are going to be longer than HHN scenes, and so the scope is larger, which was more challenging for their operational team, and that, quote, “It's the highest level of detail we've ever done for live entertainment.” They are also, like I mentioned before, kind of a spaghetti approach. So they are experimenting with bringing in the movie set from Star Trek for people to be in, but then they're also, as we said, each experience is almost like a different test. They do have the whole leaning-into-the-movie thing, where you get to see the prop and interact in that. But they have the HHN-esque style, where there's a walkthrough except it's more like a group escape-room type of thing. And then they have the more large-scale immersive LARPing experience, which is the Back to the Future thing. And then they have what they're calling a “fan zone concept” for One Piece, where fans can just hang out in a zone where different characters will come and interact with you.

And then they did confirm that the Jujutsu Kaisen 4D theater experience is the same one that they debuted at USJ. They're just bringing it over to their 4D theater, which I think is actually brilliant, because you already have it; you've created this asset, it's already done. You have also a 4D theater here—let's just bring it over. It's literally “just bring it over.” I mean, sure, it's more complicated than that, but you know what I mean—it's a good way to activate a space and put something in there that is unique when you already have created the asset.

So hearing all these details, I'm much more optimistic about this event, I think, and also hearing that they're understanding that so much of it is a test. Because sometimes, we don't… there's like, you know very well, sometimes there's not a North Star for projects. But hearing that there's a North Star, hearing they have longer plans, hearing specifically what they're thinking about and how they're thinking about activating different areas, and then also that this is a cross-departmental project—it's not just folks from one park—I think all this is good, and it shows their commitment to diversity across their portfolio.

Scott (18:09.634)
Well, and I think that they've hit the nail on the head with their North Star when they start with “fan-first and authentic.” Now, we talk about these Fan Fest nights or fan weekends as something completely new. They are not. They are not. In fact, Disney was the first major chain to do it, and they used to do soap opera weekends; they've always done these kinds of things. So, you know, it's nothing new.

Part of the reason that—because I used to go to soap opera weekends here in Orlando all the time—when they first started, they were fan-first. The primary element of that was autograph signings, panel discussions, and because it was in what was then MGM—Disney-MGM Studios—they had parades with the stars. It was all about the stars, because they knew that the fans wanted to meet the soap stars. When they got away from that is when it started to fade. The same thing happened originally; they tried that same model when they did Star Wars Weekends. That all started with “meet the actual people from Star Wars,” and then as that petered out, they got less and less popular, quite honestly.

So I love the idea that it's fan-first. I think as long as they can maintain that, that would be great. And I think that the only way to do that is to continue to find out what do the fans want.

Philip Hernandez (19:48.294)
You bring up something interesting, and I'm not sure, I guess, how to put this, but I didn't think about it until you say it. But I think maintain… you know, the idea of fluctuation. Sometimes when you look at diversifying, basically this might be what Universal needs now at this point in time because things are so uncertain, and because they're basically looking and saying, “Are people spending money?” I mean, they talked about anime, and you could tell that I know anime; I know that Los Angeles has the largest anime convention in the country. It's massive. I go to it every year—it's insane. But the people in that room in themed entertainment were like, “What is anime? What are you talking about?” And they had to explain it.

Here's the thing: like, to your point, it might evolve, and part of the evolution might be they don't need it in the future. Maybe in four years, you won't need this Fan Fest event, because the park revenue on its own will be able—or there'll be a different way they can monetize or go back to a different strategy, or whatever. But at this point in time, I think they're looking at it and saying, “OK, what are people willing to spend money on? Clearly anime, especially in Los Angeles. Clearly these different IPs. And if we put all these markets together, we can monetize it.” That may change in a few years.

Scott (21:04.012)
And I also think it's important to recognize, when you look at these Fan Fest fandoms, they're not selected randomly. This clearly… I mean, if you just look at it, it legitimizes Universal with a bunch of different demographics without being scattershot, without saying, “We're going to put this out there, we're going to put it all out at the same time,” and it just becomes one big muck—back to my swirling fish tank. But the idea here is you've got the anime, which is traditionally a younger demo (I'm not trying to be exclusive, but generally speaking, a younger, more hip demo, generally speaking, a more educated demo), you know… I'll be honest, I did not know… what's the pirate here? One Piece? I did not know One Piece until I saw it on TV, and then I started to explore it and go, “The TV is nothing.”

One Piece is significantly more robust and massive. And then when I had my art booth at Spooky Empire, I was next to a card dealer. He said, “I'm a One Piece card collector. I can't keep them in stock, because no matter what I charge for them, people buy them.” And so he was like—he had none, but everybody asked about them. So I was like, “I felt so hip and cool.” But the truth is… and then you've got… but then at the same time, you've got Back to the Future and Star Trek. These are things that target an older demo, because, I mean, let's be honest, there are probably anime fans who go back to the what? So I think it's really interesting that they are getting at least a foothold in all these different demographics and legitimizing their overall product to these niche markets, which is so smart.

I also think they're playing into pop-up. Pop-up is going to be king for a while because we need a reason to go. We need a fuse to be lit. And to go on a certain night is a specific enough reason for many people to attend a theme park.

Philip Hernandez (22:58.288)
Yes. Let's talk about that, actually. So speaking about that, again, I don't want to just emphasize here that part of diversifying is taking risks. You can't know ultimately until you put it in the market. You can do all the product testing and all the research you want, but you don't actually know until you hit the ground with it. And exactly to your point, their Universal Horror Unleashed seems like the opposite bet, which I think, in a world where you're not sure if anything is true, is actually a good strategy to bet on opposite directions. Because Horror Unleashed is the opposite of a pop-up—it is, “We're going to put this Horror Unleashed facility here, and it's going to be open year-round, like every day Halloween.” That is in many ways the opposite of Fan Fest—it's very temporary, that’s very pop-up that disappears.

Scott (23:34.382)
But it started as a pop-up! It started as a pop-up. Halloween Horror Nights started as a limited run. And they have built such a brand—Halloween Horror Nights has almost become synonymous with theme park haunted attraction. I can't tell you how many people have said, “I'm going to Halloween Horror Nights.” “Which one, the one at Busch Gardens or the one at Universal?” So it's become the Kleenex. It's a brand name that has taken over the genre.

I think that, to your point, I agree with you in the fact that this is a very wise approach. What they're doing is they're taking a proven concept and doubling down on that, while simultaneously opening up the exploration and the experimentation of the Fan Fest nights to see what the next one is going to be. There is an…

Philip Hernandez (25:20.058)
Yes. So, to give some details: we learned a lot more. There was a panel in the stories-from-the-fringes section about Horror Unleashed, where we learned a lot more about what they're planning from a business-model standpoint for Horror Unleashed. I wrote an extensive, way too long—2,500-word—article about this that I'll link to in the show notes, but of course I did. I even modeled out what I think is the profitability marker for this. Basically, I'm more optimistic about this project, but still not convinced about its sustainability. Good on Universal, to my previous point—and to your point—for trying.

And again, they did underscore exactly what you said: they kind of are like, “Look, this is a huge event. It's like our 13th month of revenue. We need to do something. It's a good place to start, and Vegas is a good market to start in, maybe.” So I just want to… Some of the things we learned, for those that are not aware of Horror Unleashed: Universal Horror Unleashed is a new 100,000-square-foot warehouse that's going to have four haunted houses tied to IPs—Universal Monsters, The Exorcist: Believer, Texas Chainsaw Massacre, and Scarecrow: The Reaping. There's also going to be themed bars, food stalls, and there's also going to be a show, some sort of show section where they're going to have Cirque-style shows.

So what we learned that's new about this place is that we knew that we learned that some of the bars are going to double as scare zones—they're going to have some “safe spaces” because the one with the palace is like, “Nobody wants to wear a martini”—so they're going to have some safe spaces. They're also going to have some places where there's more of a scare-zone aspect to it. But overall, what we learned—two things that we learned about this panel that we had not previously really heard much about, which were my biggest doubts. So they kind of addressed them, which is, one, basically “How is this going to be different?” There were actually a few people that asked that question almost exactly: “How is this going to be different from Halloween Horror Nights, or why would I go here versus Horror Nights?”

And the two things they said are, one, continuous immersion, and two, it's an evolving experience. By continuous immersion, I believe that what they're trying to convey is that you're going to enter into the space, and then once you enter into it, it's kind of all encompassed in this horror thing. So it's not like the theme park where you're walking from zone to zone, and there might be a roller coaster in the way. You're gonna… It's everything around you, everywhere you look, it's going to be a set that's all going to be somehow related to the overarching story in some way, and then all the zones are going to be connected. So it's not really like once you enter, you're inside, and it's this giant continuous immersion.

And they also talked about evolving experiences, which they had not previously disclosed, but essentially they did admit on here they are going to be rotating the IPs, and that the way they built this is similar to HHN. So basically it's similar to the HHN model, but a little different. So they're built to be more sturdy so they can be up for longer—because they're not “temporary buildings” in this case—but they are built like black boxes, where they can rotate sets and rotate IPs. So they do plan on rotating IPs; they didn't say what they were going to look at, but they also intend on doing seasonal festivals and seasonal overlays, and kind of just have a rotating entertainment piece. And they also talked about creating more adult immersive experiences, because it is a market that is a different market, and they're going to have shows that will be competing with Cirque-style shows. So they did kind of position it more as like, “This is an adult area, so the performers will be able to do things with you that they couldn't get away with at a theme park, but they can do it here because it's a different demo. And because they're going to have more time with you, there's going to be less conga lines, and it's going to be kind of like a haunt dream experience.”

Scott (29:27.756)
Well, and in essence, they're taking all the things that they learned from being able to put up haunted houses in soundstages, and they're going to apply it here. You know, whether you call it a black box or a big soundstage, they're pretty much the same thing. And they have learned in this way they don't have to rent the soundstages from the movie side of the industry, so that will be a good thing. And it sounds like they're going at it the right way. I still think what remains to be seen is: is there a sturdy enough market in Las Vegas to support this kind of attraction, this kind of experience that is so specifically targeted to a haunted theme? I don't know the answer to that. I think there probably is, quite honestly. I think there probably is.

Philip Hernandez (30:10.139)
Yeah. Well, I ran the numbers, and we can talk about that in Unhinged.

Scott (30:17.944)
Great, because we're out of time. So, yeah, for those of you who are done listening for the week, thank you all so much for being part of us. We really appreciate the fact that you do listen to us. And for those of you who are part of our Patreon followers with Green Tagged Unhinged, we will get into some deeper stuff and throw off the gloves in that issue coming up very, very shortly.

So until next time, on behalf of Philip Hernandez and myself, Scott Swenson, this is Green Tag Theme Park in 30, and we'll see you next week.