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What’s at stake as Shanghai Disney brings the magic to mainland China

06/20/2016| 4:34:17 PM|

The Walt Disney Company’s newest “happiest place” opened Thursday in Shanghai, a USD5.5 billion project that’s been in the works for nearly 20 years.

The Shanghai Disney Resort represents an enormous opportunity for the entertainment giant, not only to grow its theme park empire in one of the world’s most potentially lucrative markets, but to cultivate a new audience to consume a virtual buffet of Disney offerings.

Disney has not been timid about expressing its ambitions in the market. In an interview with CNBC earlier this month, CEO Bob Iger said the company expects the new resort to spark awareness and fondness for the brand.

“It clearly will serve as sort of a booster rocket for people’s appreciation for Disney,” he said.

Challenges Abroad

Still, success is far from a slam dunk.

Disney unveils its latest fairytale landscape as China’s economic growth slows, nationalism surges, and homegrown rivals vie for the leisure time of the middle class. While the California-based company has decades of experience in building resorts abroad — this will be the fourth project outside of the U.S. after Tokyo, Paris, and Hong Kong  — they have not all been immediate, or even eventual, winners.

Disneyland Paris, which opened as Euro Disney, never lived up to expectations and has needed to be financially restructured several times. And Hong Kong Disneyland has been unprofitable more years than not since opening in 2005. Attendance there dropped 9.3% to 6.8 million last year, according to the Global Attractions Attendance Report produced by Themed Entertainment Association and the economics practice at AECOM, an engineering firm.

But experts who have watched the Shanghai progress say Disney is too heavily invested to let the project be anything but a success — and so is the government. The state-owned Shanghai Shendi Group owns 57% of the resort, with Disney holding the balance. The theme park company owns a majority of the management company, but the government has a stake in that too.

During years of negotiations, Disney ceded significant power to Chinese authorities, The New York Times reported. The government was able to influence the kinds of rides that would be offered, ticket prices, and other elements that the carefully controlled company was not accustomed to giving up.

The Long View

Iger has said he does not expect the park to be profitable in its first year due to the cost of opening, but Disney is playing a much longer game.

For now, the company says 330 million people who can afford a day’s visit live within a three-hour trip, representing a massive pool of potential visitors.

“There’s a lot of growth in the years ahead and the decades ahead, maybe even the centuries ahead,” Iger told Bloomberg TV in a lengthy interview earlier this month. “You have to start with the notion, whether good or bad, that you’re building something for the ages. So it’s not about the economy today or the circumstances today, it’s what we really see long term.”

Today’s economy, while not growing with the velocity of earlier years, is still creating favorable conditions for businesses that focus on tourism, Zakkour said.

Even with some ticket prices lower than other parks around the world and a relatively low number of hotel rooms compared to the critical mass in Orlando, Iger said the company believes that spending on hotels, food, drinks, merchandise, and tickets will be “robust enough to turn this into a very, very valuable property for the company and for our partners over the long term.”

Distinctly Chinese

Part of the reason Iger is so confident is because he has been intimately involved in the planning process for a park that is built to appeal to Chinese interests — what he has described, in interviews, public appearances, and financial calls, as “authentically Disney and distinctly Chinese.”

While Shanghai Disneyland still includes a princess castle (the biggest of any park), parades (with the longest route),  and a Buzz Lightyear target shooting ride (boasting the most targets), the park also features a Chinese teahouse, cuisine that is predominantly  Chinese, and signage that for the most part puts Mandarin first, followed by English. The Lion King is performed at a theater in the resort entirely in Mandarin. There is no American-style Main Street.

Vocal Competition

Will audiences choose an import, even a carefully crafted one, when local attractions are proliferating? Competition has already been heating up.

Billionaire Wang Jianlin, chairman of the Dalian Wanda Group conglomerate, has warned that Disney will be no match for his company’s tourism aspirations. Wanda plans to open 15-20 theme parks across China.

“One tiger is no match for a pack of wolves,” he told a television show in China.

“The days of Mickey Mouse and Donald Duck being able to create a frenzy are over,” Wang told the TV program. “They are entirely cloning previous intellectual property, cloning previous products with no innovation.”

In the Bloomberg interview, Iger rejected the criticism and downplayed the threat.

He said the company is confident that the significant investment and 60 years of experience give it a competitive advantage.

While the Chinese competitor has the resources to mount a threat to Disney, Gerner said he expects the two will be able to coexist without doing much damage to each other, just as big-name theme parks do in U.S. destinations such as Orlando and Southern California.

A Booming Market

Even without the Shanghai park, China is seeing a rise in theme parks. According to the TEA/AECOM attendance report, mainland China drove growth for the Asia-Pacific region. Attendance at 11 parks reached 48 million in China.

The report says the popularity of Shanghai Disney is expected to determine how quickly the Asian theme park market surpasses the market in North America — by 2020 or sooner.

“Disney Shanghai will be a watershed event,” the report says. “It is expected to do very well and have a positive effect on the region. The Asian market really likes the Disney product.”

The report’s authors cautioned that the Chinese government was wary of too much influence from the west, and highlighted the effort to blend local and foreign culture in new parks.

“There’s certainly room for something of everything in the market, including traditional culture-based attractions and Chinese media-based experiences as well as foreign,” the report said.

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TAGS: Shanghai Disneyland | Disney | Shanghai | China
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