By Gordon Chu | Tuesday, November 10, 2009
In business school, case study after case study, Disney was the belle of the ball in nearly all of my classes. From marketing to finance, you couldn’t escape the Disney name without seeing them in one form or another. And I say why not – after all, they have undeniable brand power internationally. Mickey Mouse is synonymous to US pop culture and Walt Disney’s marquee signature is universally recognized in any language around the world.
This year especially, Disney seems to be very active in extending their reach in all facets of media. In movies, Disney’s summertime blockbuster lineups (from ‘Up’ to ‘A Christmas Carol’) show little signs of wear from this bad economy here domestically in the United States. Then there was the $4B (USD) plan to acquire all of comic behemoth Marvel’s assets. And to top off this illustrious year, breaking news to create a brand-new Disney China outside of Shanghai valued at over $3.5B (USD).
BACKSTORY OF DISNEY CHINA
Now, I should be very clear that Disney China is not a spur-of-the-moment decision by the Chinese government to bring Western media groups over to China. The idea has been percolating for over 20 years to bring a brand-new amusement park for the Chinese market. Previous attempts were curtailed mainly due to perceived unwanted foreign cultural influences in the China market by the government.
After numerous attempts to bring an amusement park on to mainland China, Disney eventually ‘settled’ on Disney Hong Kong as a constellation prize. Unfortunately for Disney, the park has not fared well and paled in comparison to corporate’s grandiose expectations for the landmark.
Still, Disney Hong Kong was a great first run for Disney to test the waters when dealing with China.
SIGNIFICANCE OF DISNEY CHINA
When you first glance at the idea of a Disney park in mainland China, the gravity of such an event is not obviously apparent. There are over 300 theme parks throughout China and one more to that list doesn’t seem to be all that ground-breaking of media news. However, remove the roller coasters, the different attractions, and the physical location of Disney China as a whole, and the details and symbolism of Disney China takes front stage of worldwide importance.
Invitation of Western Media
Until recently, the whole Chinese media industry was very happy with status quo. And rightfully so. With state-run money as a sure income to your revenue top line, I don’t find it incredibly difficult to understand that Chinese-ran media companies had little motivation to go beyond that of status quo.
However, now with less reliance on government money and more dependence to be commercially viable, the entire Chinese media industry is evolving as we speak and have undeniably been more open to the ideas of Western companies and philosophy.
For China, the nod and the green light to develop Disney China is really an invitation of Western media companies to the China market. Not only does this exude miles upon miles of ‘soft power’ the Chinese have been very disciplined at practicing since the Beijing Olympics, but this is a way of China making their footprint as a worldwide media player.
Media’s Two-Way Street
It’s no mystery that China is on the rise and is the fastest growing consumer market in the world. While nearly the rest of the world is in an economic slump, China has been on the fast lane to aggressively build and grow their market during these troubled times.
Since even before the Olympics, China has invested billions in infrastructure to develop their cities to be a global spectacle. It’s also no mystery that tourism plays a big role in China’s plan (dovetails very nicely with the 2008 Olympics and the 2010 Shanghai World Expo) to extend their image. The approval for Disney China comes amid China’s ongoing efforts to develop its tourism sector – expected to grow 3% in 2009.
However, the build-it-and-they-will-come model does not always pan out according to plan. In this case, China understands that if it wants to play nice and rebrand themselves to be more open, they will ultimately need to learn the first lesson in the golden rule of sharing. In this particular case, opening their doors to Disney is a way to exemplify a spirit of a two-way street for Western companies and themselves.
Disney’s Way into China
We’ve focused a lot on describing the significance of Disney China on a more macro level for all Western companies alike. However, if we look into the micro, this new theme park is a significant boost in Disney’s presence in China.
For Disney, every move is a carefully analyzed decision that helps either build the company brand image or is a way to add to the income statement’s bottom line. I personally view Disney’s choices as a good indicator of where they see future growth. In the case for theme parks, Disney has real estate in Los Angeles, California; Orlando, Florida; Tokyo, Japan; Paris, France and Hong Kong. To carefully choose Shanghai (and 20-something odd years ago) as a near $4B (USD) bet is probably a good indicator of Disney’s thoughts on the Chinese market.
We’ve talked a lot about the difficulties and intricacies that go into entering in the China market. Many have tried and many have retreated simply because there is no simple way of doing so. Take Disney for example, in the United States, Disney operates an entire 24-hour TV channel and radio station – not to mention the numerous movies it produces every year as well. In China, Disney is limited to sporadic blocks of programming on local TV stations and has yet to capture the potential it sees in the China market.
Despite the barriers and hurdles to get across the goal line, Western companies still try and this is an excellent example at how Disney can really make a significant impact in the media industry in China going forward. It’s too soon to reveal the ‘how’ but landing a theme park is a great way to start the dialogue.
Share in Financial Risk
In my opinion, the most significant piece to the Disney China deal is understanding the flow of money. In this case, it’s rumored that Disney will only have 40% stake of the entire deal with the rest by Chinese monies.
To piggyback my previous comment about ‘playing nice’ with others, one of the most significant ways to demonstrate trust in any business transaction is a share in financial risk. For China, investing in 60% in this new venture demonstrates a real serious nature about being a global media country that is committed to make this a successful venture for all.
Especially with business in China where culturally, transactions are commonly lopsided in favor for the Chinese partner, this is a positive invitation for other Western companies to create ventures in China once again. This time – without the prejudice and without the notion of ‘playing by the rules’.
CONCLUSION
The whole concept of Disney China is still in its infancy stage. Yes, there are already committees and teams dedicated to creatively start drafting the ideas for the theme park altogether. I hear they’ve already tackled issues of localization (remembering the follies of Disneyland Paris) for the China market and are well aware of the fine lines they need to tread when working in China.
There will be hiccups along the way and I’m sure there will be areas of disagreement; however, Disney China is such an important venture for more than just operational reasons to Disney. It symbolizes an opportunity for Western companies to partake in China; and is a platform for China to demonstrate their ability to exude ‘soft power’ on a global stage. In either case, I see China truly being the place ‘where dreams come true’.
