Why Intrepid Mouse
Looks to Asia for Growth
By MERISSA MARR and GEOFFREY A. FOWLER
Staff Reporters of THE WALL STREET JOURNAL
June 16, 2005; Page B1
A decade ago, executives from Walt Disney Co. met with Chinese government officials to discuss the company's expansion there. China already had an idea in mind: The officials pointed to a plot on a map of Shanghai where they wanted a theme park.
Unable to pin down a deal, Disney opted for a park in Hong Kong first. But with that venue gearing up for its opening in September, Disney executives are shifting their gaze back to mainland China, negotiating with government officials for a park targeted for Shanghai.
So Hong Kong Disneyland will, in effect, be a warmup act for Shanghai -- and for what the company hopes will be a bigger presence in China for its movies, television programs, products and other assets. The hope is that by finally satisfying China's desire for a Shanghai theme park, Disney will be able to broker broader entrée into the world's most sizable consumer market.
"A theme park acts as a fantastic brand magnet in any country," says Andy Bird, president of Disney's international operations. "It creates a brand halo in a far wider geographic area than just the theme park."
Theme parks serve as splashy introductions to new markets, which kick the door open to other ventures. In the case of Shanghai, the Chinese government is looking to a second park to boost economic growth and employment, and help promote Shanghai as an international city.
The financing terms for Hong Kong Disney underscore Disney's strategy: Disney put up only $316 million for a minority 43% stake, with the government contributing $419 million for its 57% equity stake and providing $780 million in debt financing. Hong Kong authorities also agreed to develop the surrounding land and infrastructure.
That is now the template for other overseas deals Disney hopes to strike, beginning in Shanghai. On the mainland, any deal would most likely be with the Shanghai municipal government, although it would need approval from the central government as well. However, Disney wants to give its soon-to-open Hong Kong venue time to take hold before announcing any plans to build another and Disney theme-parks chief Jay Rasulo says a new park is unlikely to materialize before the end of the decade.
Since Walt Disney built his first park in Anaheim, Calif., in 1955, the Disney company has expanded to 11 parks in five destinations (Anaheim, Orlando, Paris, Tokyo and Hong Kong) and branched out into new businesses like Disney Cruise Line. The parks now rank as Disney's second-biggest division, as measured by operating income, after media networks.
Disney laid the groundwork for its latest drive into new destinations in the 1990s. Spurred by the huge success of Tokyo Disneyland, the search focused on Asia, and executives held negotiations in countries including Singapore, Thailand, South Korea and China, according to people familiar with the discussions.
In Shanghai, Disney was initially competing with rival Universal Studios, which was also keen on the city. While Disney developed the Hong Kong project, Universal announced a project in Shanghai with great fanfare, but later folded it after failing to get central-government approval.
Theme parks are a cornerstone of Disney's international growth strategy, as they are coveted by local officials around the world. And overseas markets are crucial to incoming Chief Executive Bob Iger, as they offer one of the few clear growth opportunities for a company that still derives more than 75% of its revenue from domestic sources.
But while China is a gigantic country -- one Disney thinks is easily capable of supporting two parks -- there is some overlap in the two markets, with the Hong Kong venue expected to draw at least a third of its visitors from the mainland. There are also big questions about the overall affordability of the Disney vacation experience in a nation with low income levels.
Another challenge: China already has dozens of theme parks. But many of them have been forced to close or are struggling financially, limited by poor planning and accessibility. Disney maintains that its parks are very different from the more traditional thrill-ride parks that currently are the Chinese standard.
Apart from Shanghai, Disney also still has its eye on South Korea. But it is headed to the region on the tail end of a major push by other international media and consumer brands for growth in Asia. While Disney has a growing consumer-products business in China, it is limited. And what it really wants is a television channel.
Despite Disney's desire to build parks, most of the theme-park division's near-term growth is still expected to come from its domestic sites. The company has set a target of returning to 20% margins in its parks division, hoping to bounce back from years when it was hampered by higher employee costs and marketing expenses.
The path to reviving margins involves keeping customers at the parks longer and improving the "back stage" efficiency of operations in places where there are more than one park. Morgan Stanley analyst Rich Bilotti expects margins for earnings before interest and taxes, or EBIT, at Disney's domestic parks will stabilize at 19%-19.5% in the long term, but he sees EBIT margins at its international parks lagging behind at 8% to 9%.
Write to Merissa Marr at merissa.marr@wsj.com and Geoffrey A. Fowler at geoffrey.fowler@wsj.com
Looks to Asia for Growth
By MERISSA MARR and GEOFFREY A. FOWLER
Staff Reporters of THE WALL STREET JOURNAL
June 16, 2005; Page B1
A decade ago, executives from Walt Disney Co. met with Chinese government officials to discuss the company's expansion there. China already had an idea in mind: The officials pointed to a plot on a map of Shanghai where they wanted a theme park.
Unable to pin down a deal, Disney opted for a park in Hong Kong first. But with that venue gearing up for its opening in September, Disney executives are shifting their gaze back to mainland China, negotiating with government officials for a park targeted for Shanghai.
So Hong Kong Disneyland will, in effect, be a warmup act for Shanghai -- and for what the company hopes will be a bigger presence in China for its movies, television programs, products and other assets. The hope is that by finally satisfying China's desire for a Shanghai theme park, Disney will be able to broker broader entrée into the world's most sizable consumer market.
"A theme park acts as a fantastic brand magnet in any country," says Andy Bird, president of Disney's international operations. "It creates a brand halo in a far wider geographic area than just the theme park."
Theme parks serve as splashy introductions to new markets, which kick the door open to other ventures. In the case of Shanghai, the Chinese government is looking to a second park to boost economic growth and employment, and help promote Shanghai as an international city.
The financing terms for Hong Kong Disney underscore Disney's strategy: Disney put up only $316 million for a minority 43% stake, with the government contributing $419 million for its 57% equity stake and providing $780 million in debt financing. Hong Kong authorities also agreed to develop the surrounding land and infrastructure.
That is now the template for other overseas deals Disney hopes to strike, beginning in Shanghai. On the mainland, any deal would most likely be with the Shanghai municipal government, although it would need approval from the central government as well. However, Disney wants to give its soon-to-open Hong Kong venue time to take hold before announcing any plans to build another and Disney theme-parks chief Jay Rasulo says a new park is unlikely to materialize before the end of the decade.
Since Walt Disney built his first park in Anaheim, Calif., in 1955, the Disney company has expanded to 11 parks in five destinations (Anaheim, Orlando, Paris, Tokyo and Hong Kong) and branched out into new businesses like Disney Cruise Line. The parks now rank as Disney's second-biggest division, as measured by operating income, after media networks.
Disney laid the groundwork for its latest drive into new destinations in the 1990s. Spurred by the huge success of Tokyo Disneyland, the search focused on Asia, and executives held negotiations in countries including Singapore, Thailand, South Korea and China, according to people familiar with the discussions.
In Shanghai, Disney was initially competing with rival Universal Studios, which was also keen on the city. While Disney developed the Hong Kong project, Universal announced a project in Shanghai with great fanfare, but later folded it after failing to get central-government approval.
Theme parks are a cornerstone of Disney's international growth strategy, as they are coveted by local officials around the world. And overseas markets are crucial to incoming Chief Executive Bob Iger, as they offer one of the few clear growth opportunities for a company that still derives more than 75% of its revenue from domestic sources.
But while China is a gigantic country -- one Disney thinks is easily capable of supporting two parks -- there is some overlap in the two markets, with the Hong Kong venue expected to draw at least a third of its visitors from the mainland. There are also big questions about the overall affordability of the Disney vacation experience in a nation with low income levels.
Another challenge: China already has dozens of theme parks. But many of them have been forced to close or are struggling financially, limited by poor planning and accessibility. Disney maintains that its parks are very different from the more traditional thrill-ride parks that currently are the Chinese standard.
Apart from Shanghai, Disney also still has its eye on South Korea. But it is headed to the region on the tail end of a major push by other international media and consumer brands for growth in Asia. While Disney has a growing consumer-products business in China, it is limited. And what it really wants is a television channel.
Despite Disney's desire to build parks, most of the theme-park division's near-term growth is still expected to come from its domestic sites. The company has set a target of returning to 20% margins in its parks division, hoping to bounce back from years when it was hampered by higher employee costs and marketing expenses.
The path to reviving margins involves keeping customers at the parks longer and improving the "back stage" efficiency of operations in places where there are more than one park. Morgan Stanley analyst Rich Bilotti expects margins for earnings before interest and taxes, or EBIT, at Disney's domestic parks will stabilize at 19%-19.5% in the long term, but he sees EBIT margins at its international parks lagging behind at 8% to 9%.
Write to Merissa Marr at merissa.marr@wsj.com and Geoffrey A. Fowler at geoffrey.fowler@wsj.com