Disney Gets a Second Chance in China

There were signs aplenty that the Apr. 8 groundbreaking for the $4.4 billion Shanghai Disney Resort wasn't aimed at the typical Orlando vacationer. Shanghai school children sang When You Wish Upon a Star—in Mandarin. Mickey Mouse showed up clad not in his signature duds but in traditional red Chinese garb to symbolize good fortune. Everything was customized to suit the tastes of the world's most populous nation.

Walt Disney (DIS) has good reason to sweat the details at its first theme park on the mainland. When it opened Hong Kong Disneyland in 2005, it underestimated how many visitors would show up and how long they would linger. The result: too few rides, inadequate seating and food supplies at restaurants, and angry crowds that had to be turned away. Although the 47 percent Disney-owned Hong Kong park is expanding, it still lost $92.3 million in the year ended last October, while attendance rose 13 percent. "We learned a lot from Hong Kong," says Disney Chief Executive Officer Robert A. Iger. "In Shanghai, we're within a three hour's drive of 300 million people. That's a huge opportunity, and we have to be careful about how many will come and their visitation patterns."

For Disney, which will own a 43 percent stake in the 963-acre resort (three state-owned companies own the rest), Shanghai is a $1.9 billion wager on a growing Chinese middle class who the company projects will spend $200 billion annually on leisure travel by 2015. It's also a bet that Disney's characters and 55-year history of running theme parks can be adapted to a culture it may not fully understand. Disney "has too much riding on China to let either Hong Kong or Shanghai fail," says John Gerner, managing director of Leisure Business Advisors, which assessed the potential for theme parks in China for Village Roadshow, an Australian theater and park operator. "Hong Kong was an experiment to see if a smaller park would work, and it didn't. Now they're fixing it."

Shanghai's Disneyland will be almost 85 acres, about 50 percent larger than the Hong Kong park at its opening, says one executive. There will be traditional Disney rides and others based on Chinese culture, says Iger. The company is adding Chinese nationals to its "imagineering" team to help develop the park. One staple that will change: Main Street USA, the turn-of-the-century collection of storefronts and horse-drawn street cars that welcome visitors to most Disney parks. Explains Iger: "We simply believe Main Street USA might not be that interesting to people here."

Disney isn't likely to repeat the cultural faux pas it made when it opened Disneyland Resort Paris in 1992, where food sales suffered because the park initially didn't serve wine with meals. In Hong Kong, Disney has cut the number of hot dogs in its restaurants in order to serve more dim sum and noodle dishes, says a Disney executive, and there is likely to be plenty of local fare in Shanghai. "Disney is paying a lot more attention now to cultural differences," say Evercore Partners (EVR) analyst Alan Gould. One motivation: The Shanghai park will generate $70 million in management fees for Disney in its first year and $200 million within a decade, Gould estimates.

The bottom line: Disney, which already provides its TV shows to 260 million viewers in China each week, is betting on mainland theme parks.

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