Monday, March 4, 2013

Disney’s China Parks - Growth and Competition

Disney’s Shanghai venture is in collaboration with the Shanghai Government, which holds a 57% stake, while Disney owns the rest. The park has been driving most of the foreign investment in the city and comes with a price tag of $4.4 billion. The Shanghai Government planned to invest $1.58 billion to build infrastructure for the park and $695 million to construct a subway that would connect the park with the city center.

However, Disney is not the only one eyeing the pockets of China’s rising and affluent middle-class, particularly those living in Shanghai, which has become a popular tourist destination. Disney’s rival Dreamworks Animation Skg (NASDAQ: DWA) – with its Kung Fu Panda, Shrek and Madagascar franchises – is also planning to open an entertainment district in Shanghai by investing $3.2 billion for a 2016 projected opening day. Dreamworks will also base Oriental Dreamworks, its new $350 million joint venture with Chinese partners, at the park. Unlike Disney, Dreamworks is focusing on the “world's largest IMAX theatre, three Broadway-style theaters, smaller performance halls, restaurants, shops”

Among the most popular theme parks already open in Shanghai is the World of Warcraft inspired ‘Joyland,’ which is just two hours’ drive away from Shanghai. Rovio, the Finnish creator of the iconic game, Angry Birds, has already opened its office in Shanghai and is developing an ‘activity park’ at the Tongji University, Shanghai.

In essence, while Shanghai Disneyland is more anticipated than any other theme park, it is going to face tough competition from local as well as international rivals. This further pressures Disneyland Hong Kong to continue finding ways to attract visitors after piling up HK$3.8 billion (~$490 million US) in losses since 2008.

Disney’s theme parks seem to have turned the revenue and profitability corner, with the exception of Euroland Disney. In its last quarterly report released earlier in February, Disney reported a 5.2% increase in revenues to $11.34 billion, while its net income dropped by 5.5% to $1.38 billion. During the quarter, the revenues from parks and resorts rose by 7% to $3.4 billion, but operating income also rose by 4.3% to $577 million. The segment is the second biggest contributor to the company’s top and bottom—constituting 30% of total sales.


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