Wednesday, November 04, 2009

Disney's missing link in China

Disney - Big Thunder Mountain Railroad at NightImage by Joe Penniston via Flickr
The long-awaited approval of the new Disney park in Shanghai by the central government in Beijing is reason enough to be cheerful. No other project has been on so many drawing tables for such a long time, at least ten years.
Many parts of Shanghai had already enjoyed the arrival of the new Disney Park, as time-after-time the deal got into trouble. Mostly because the eager Shanghai authorities were unable to secure the blessing from the central government. But - and that is now conveniently forgotten - because Disney itself has some misgivings about its operation in Shanghai.
The Shanghai-park - Shanghai municipality has been talking to more potential operators than Disney alone - was initially the product of the unfruitful concept of a competitive relationship between Hong Kong and Shanghai. What Hong Kong had, Shanghai needed to have better, bigger, huger. In the case of the Disney park, Hong Kong has proved it is doing a very poor job in a park that is too small and too poorly organized to be a big success.
In all cases, both Disney and the government have been calling off the negotiations repeatedly. It needed a financial crisis to navigate the deal through the central government.
Meanwhile, Shanghai and the 80 million people on easy traveling distance to the new park have been working very hard over the past years to improve their spending power, making the park possible. Only five years ago, entertainment experts were convinced a Disney Park would not have been possible in Shanghai, because of the lack of financial means of the potential audience. That has improved quite a lot over the past five years and will improve even more in the years to come.
That does not mean all is well. Outside China Disney is a mainly a media company, while operating entertainment parks is just a small part of a much larger operation. It is conveniently forgotten that it can never be a media company in China, at least not in this stage. Just read Bloomberg here:
Disney, the world’s largest media company, has discussed opening a park in Shanghai, its fourth outside of the U.S., for more than ten years. The park will provide Disney with a way to expand its China business without risk of regulatory hurdles that come with movies and television shows, said David Bank, an analyst with RBC Capital Markets in New York.
“It gives Disney an opportunity to monetize its brand without necessarily having to produce filmed content,” Bank said. “And that’s the real key to making money in China for the media companies.”
Let's put Mr. Bank straight here: China's media regulations do not allow Disney or any other foreign media company to operate as a media company. The company has tried, based on its own misconception of its opportunities in China, to get permission to operate also ventures in the media industry. That has been a few times the reason for Disney to leave the negotiation table. For anybody who is a bit familiar with China it was clear that this demand would never be met.
Now, the media aspirations of Disney are not even mentioned in the reports and I assume that Disney has accepted its loss here. It should restrain our cheerful mood a bit, though. What Disney gets at best is a huge, well operated fun park. It will not become a media company in China for the near future.
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