On a tour of the old section of Beijing last year, Walt Disney Co. President Bob Iger found himself in unexpected quarters.
An elderly woman cleaning windows along a narrow street had invited him and his assistant into her two-bedroom apartment for a cup of tea.
As he sipped his tea, Iger noticed a stack of Disney books on top of the woman's refrigerator.
"She said they were for her grandson," Iger said. "It was a seminal moment for me."
Iger recalled the tale recently, fresh from another trip to China, where he and Disney Chief Executive Michael Eisner met with top leaders on a mission to expand Disney's business interests there.
The trip cast a spotlight on Disney's plans for a possible second theme park in China. It also coincided with other ventures, including the launching of the company's first Chinese-language Web site, signaling the company's growing interest in the world's biggest untapped market.
"Enough development has already occurred for us to view China as an incredibly important market for the Walt Disney Co. and a great opportunity," Iger said in an interview. "It could evolve into one of our most important markets."
Disney is hardly alone in seeing gold in China, which is on the verge of entering the World Trade Organization. News Corp. and AOL Time Warner Inc. announced this month that they were close to a deal that would allow them to broadcast programming to homes in parts of southern China. And Viacom Inc.'s MTV cable channel has had a presence in China for several years.
For American business, the allure is clear: China is a vast market of 1.3 billion people with a vibrant economy--one that grew 7.5% last year--and a rising middle class.
Mickey Mouse and China would seem to be a perfect pairing. China has a huge middle class that is hungry for the kind of wholesome, apolitical family entertainment that is Disney's trademark.
And, after years of nurturing ties with China, Disney has something of a head start over its rivals. The piracy of Disney products in the 1980s and 1990s has helped to make Mickey Mouse and Donald Duck household names in much of China.
"Walt Disney's future in China can be extremely promising. The market opportunity is there for the taking," said Desmond Wong, a partner at Ernst & Young who advises Western clients on investing in China. "There's no domestic competitor anywhere close in magnitude in brand recognition. Generations of Americans grew up on cartoons in the Walt Disney library that will be relatively new material to generations of Chinese kids."
Such overseas expansion would be welcome for Disney, which has faced some gloomy news on the home front, including 4,000 job cuts and the closing of several dozen Disney Stores.
But China also poses risks for Disney and other entertainment companies. The studios have struggled to market and distribute movies and television programs in China. Among the obstacles: piracy, red tape and a government whose ideology often has been at odds with Hollywood.
Disney and Sony Pictures Entertainment were temporarily banned from China's film market after releasing movies about the Dalai Lama. Disney also stumbled with its adaptation of the Chinese folk tale "Mulan." The movie was hurt by criticism that its characters were too Western and by rules that restricted its release in China.
"China has changed tremendously in the last two decades, but it still has a different ideology and the government guards certain ideas very, very carefully," said Yasheng Huang, a professor at Harvard Business School who studies Western investment in China. said. For a media company such as Disney, which owns the ABC television network, "this is the biggest risk," he said.
Disney Courting Chinese Leaders
To succeed in China, Disney will have to carefully navigate political and cultural crosscurrents far greater than those that bedeviled Disneyland Paris when it opened in 1992.
"They must have somebody with Chinese tastes to direct the operations and not do what they did in France and say 'This is the way we do it,' " said James Stancill, professor of finance at USC.
That means seeking local partners and having plenty of patience and tenacity. After the anti-Western backlash that followed the NATO bombings of the Chinese Embassy in Belgrade, MTV was taken off the air for five weeks. But MTV bounced back. Disney's push into China didn't happen overnight. The company has been carefully cultivating its relationship with China's top leaders for several years.
Two years ago, Eisner was among a handful of executives who met privately with Chinese Premier Zhu Rongji when he visited Los Angeles.
The company's foray into China began in 1986 with a roll-out of merchandise and the launching of "The Mickey and Donald Show," a half-hour program on Chinese television. The Chinese-language program was pulled three years later in a dispute over piracy of Disney products.