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Disney Stepping Up Efforts to Increase Presence in China

China 'will be the No. 1 market for our growth,' Chairman Michael Eisner says at the groundbreaking of Hong Kong Disneyland.

January 13, 2003|From Bloomberg News

HONG KONG — Walt Disney Co., facing slower earnings at theme parks in the United States, is stepping up efforts to get China to grant more access for its movies and other products, Chairman Michael Eisner told reporters in Hong Kong on Sunday.

"China is very important to Disney -- it will be the No. 1 market for our growth going forward," Eisner said at a ceremony marking the start of construction of Hong Kong Disneyland. "We talk to Beijing about a lot of things -- motion pictures, television, consumer products, even theme parks."

The Hong Kong park is scheduled to open in 2006. Its design is based on the original Disneyland park in Anaheim.

Burbank-based Disney saw its revenue decline after the Sept. 11 terrorist attacks. Shares rose 7 cents Friday to $18.15 on the New York Stock Exchange.

The entertainment company is betting on more and more Chinese visiting theme parks and watching movies as China's economy continues to expand.

"We are talking about a market opportunity that is massive," said Jordan Rohan, an analyst at SoundView Technology Group in Old Greenwich, Conn. "If the demographic trends continue in Hong Kong and mainland China, there could be room for as many as 10 Disney theme parks, possibly more, over the next 25 to 30 years."

Eisner said the company is interested in opening a park in Shanghai, where the "weather is a little better" than in Beijing. Talks are at an early stage, and no Shanghai park will open before 2010.

"A market this size could easily support two theme parks," Eisner said. "The mainland government would really like to see Shanghai" have a theme park.

China recently signed a preliminary agreement with Disney rival Universal Studios to build a theme park in Shanghai, the mainland's wealthiest city.

Pleasing mainland authorities could help Disney in China, where cheap, pirated copies of "The Lion King," "The Jungle Book" and other Disney movies are freely available.

The Motion Picture Assn., to which Disney belongs, estimates that the U.S. film industry lost $598 million from bootleg DVD sales in Asia in 2001.

The association also has asked China to let its members show more films on the mainland, which limits access to its market both to protect its own film industry and for censorship reasons.

Disney won permission to show "Mulan," an animated film about a legendary Chinese soldier, in China in 1999. The film, which some critics suggested was made to please officials in Beijing, flopped because the main character looked and behaved differently from the Hua Mulan figure portrayed in Chinese poems and folklore, the Xinhua news agency reported at the time.

Disney is hoping Hong Kong Disneyland will quickly add to theme park revenue, which fell 8% in the year ended Sept. 30.

The firm collects gate attendance and licensing fees from two Disney-branded parks in Japan, which contribute just over $100 million in annual earnings before interest and taxes, said David W. Miller, senior vice president at Sanders Morris Harris Group Inc. in Los Angeles.

"Since the Hong Kong park will have virtually the same financial structure as currently exists in Tokyo, it would be fair to assume an incremental $100 million in EBIT per year once the park opens," Miller said.

Tourism from China to Hong Kong surged last year, when 6.1 million mainlanders visited the former British colony in the first 11 months, a gain of about 50% from a year earlier. That made China the biggest source of visitors to the city, a self-administered Chinese territory.

Disney invested $314 million for a 43% stake in Hong Kong International Theme Parks Ltd. The company persuaded the Hong Kong government, which holds a 57% stake, to pay for most of the rest.

Disney will get 8% of admission fees and 5% of all food, beverage and merchandise sales, said Don Robinson, group managing director of Hong Kong Disneyland.

Hong Kong Chief Executive Tung Chee-hwa attended Sunday's groundbreaking ceremony.

"Hong Kong Disneyland is our core project toward enhancing Hong Kong's attractiveness as a tourist destination," he said.

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