Shanghai wishing on a fading Disney star
By Olivia Chung
HONG KONG - Shanghai isn't buying the Disney dream. A top political advisory
body, shocked by losses at Hong Kong Disneyland, this week questioned whether
the city's plans to support the opening of a theme park in 2014 would turn into
a financial nightmare.
Shanghai members of the Committee of the Chinese People's Political
Consultative Conference (CPPCC) began their annual meeting on January 25
expressing concerns about the viability of the project as Hong Kong Disneyland
revealed it lost HK$1.32 billion (US$170 million) last year. At the same time,
a research report shows 70% of mainland theme parks are in the red.
"Hong Kong Disneyland's poor performance should serve as a
warning about any economic projections that the city promises," said Lu Weimin,
a Shanghai member of the CPPCC.
Shanghai city authorities and Walt Disney Co have yet to announce final details
after Beijing in November approved construction of Shanghai Disneyland. The
amusement park in Hong Kong, which increased visitor numbers last year despite
the swine flu outbreak and the global financial crisis, has struggled to
attract mainland visitors since it opened to great fanfare in 2005.
Shanghai Disneyland, to be built on the east bank of the Huangpu River at a
cost about 25 billion yuan (US$3.5 billion), is expected to cover an area of
116 hectares, 10 hectares fewer than its counterpart in Hong Kong, the smallest
of the five existing Disney theme parks.
Walt Disney will take a 43% equity stake in Shanghai Disneyland, while a
joint-venture holding company formed by a consortium of Chinese companies owned
by the municipal government will own the majority 57%, the 21st Century
Business Herald said.
"Given the similar share structure between the Shanghai Disneyland and the Hong
Kong Disneyland, the Shanghai government should look into the reasons behind
Hong Kong Disney's losses," Lu said.
The financial performance of Hong Kong Disneyland had been difficult to judge
because of Disney's initial refusal to give results and attendance figures. The
numbers released a week before the Shanghai officials gathered were the
company's first major admission of its struggling performance.
The Hong Kong government, hard hit by the 2003 severe acute respiratory
syndrome virus outbreak amid a weak economy, shouldered HK$23 billion of the
HK$27 billion cost of the park to lure Disney. That translated into a 57% stake
in the joint venture that runs the Hong Kong park, with Disney holding 43%.
Under a new structure that is part of the expansion deal agreed last June, the
Hong Kong government's stake will be diluted to 52.19%, with Walt Disney
holding the other 47.81% by 2011-12.
"What we have been worried about is whether the contract between the Shanghai
government and Walt Disney is unfair, which means that even if the Shanghai
Disneyland is making a loss, Walt Disney still earns money from royalty on
food, merchandise sold at the park and outside the park, management fees as
well as incentive payments, with franchising arrangements," Lu said, without
giving actual figures.
With the forecasts for the Hong Kong theme park now proved overly optimistic,
Lu may have a point.
The Hong Kong government predicted 11 years ago that the venture could break
even as early as 2009 and no later than 2011. That is unlikely to happen when
the expansion of the park is completed in 2014. The Hong Kong government said
last month that the park's loss last year widened from a HK$1.574 billion loss
in 2008.
When stating the case for Disneyland, Hong Kong's government also said
attendance would be 5.6 million visitors in its first year of operation and
6.49 million in 2009, its fourth year, contributing HK$7.57 billion to Hong
Kong's economy.
However, according to last month's disclosure, visitor numbers in the first
year of operation totaled 5.4 million. Last year, attendance was down to only
4.6 million, 29% fewer visitors than originally forecast. The value added to
the economy was estimated at HK$4.4 billion, 42% less than projected.
Meanwhile, the park was forecast to create about 11,000 new jobs for the first
year of operation, but only 4,400 full-time jobs were created, 60% fewer than
predicted.
From its opening until December 2009, Hong Kong Disneyland received 19 million
visitors, Bill Ernest, Walt Disney's Asia-Pacific president and managing
director, said on January 19.
Despite the global financial crisis and swine flu scare, last year's figures
were an increase on 2008, when 4.5 million went through the turnstiles, he
said.
From October 2008 to May 2009, it even recorded double-digit visitor growth
until the swine flu broke out, Ernest said.
Hong Kong Disneyland managing director Andrew Kam noted that most of the park's
customer sources, such as Taiwan, Singapore, Malaysia and Australia, were
affected by the financial crisis.
In terms of origin, local visitors accounted for 41%, while 36% came from the
mainland and the rest were international visitors.
Disney officials have vowed to attract more visitors, but declined to disclose
their visitor growth forecast for the next few years. Rita Lau, Hong Kong's
secretary for Commerce and Economic Development, said the financial results
were not as good as expected, and Disney would be urged to improve cost
controls.
Ren Xianzheng, another member of the Shanghai committee of the CPPCC, warned
that the Disneyland in the mainland's financial center would face competition
for regional and international visitors from other new parks in the region,
such as Singapore's ResortsWorld at Sentosa, which opened on January 20.
Ren urged the Shanghai government to link the Disneyland to other theme parks
in Shanghai, such as the state-owned Shanghai Wild Animal Park, when welcoming
visitors in a bid to promote its theme park industry.
"On the one hand, a collaboration of different theme parks could give visitors
more excitement, on the other, it could help attract visitors to other theme
parks which have generated less attendance and revenue in the city," Ren said.
Of China's 2,500 theme parks, 70% are operating at a loss, according to a
survey by the Horizon Group, a strategic research and consultancy firm.
With about 150 billion yuan invested in the parks, only about 10% are making a
profit, which include popular theme parks in Shenzhen - Splendid China, created
in 1989, and Happy Valley. In 2008, 25 million people visited Happy Valley,
making it China's most popular theme park.
Liu Wei, a professor from the Guangdong University of Finance, attributed the
losses to the small scale of most parks, and the similarity of themes in a
fiercely competitive market.
"Many theme parks in China are only good as a backdrop for a photo shoot, which
included miniatures of nature from ethnic minorities inside China or a
collection of replica historic landmarks from outside China," Liu said.
"There's little interactive function. They provide some kinds of rides, but
most of them are for children, but they charge 100 or 200 yuan for one ticket,
which is beyond what ordinary people can afford," he said.
Liu said to attract visitors, theme parks needed to add new attractions and
there must be large-scale, high-tech and interactive entertainment.
"With increasing wealth, people travel everywhere and see real things instead
of replicas," he said.
In August, Guangzhou's Shijie Daguan (Grand World Park) shut its gates with a
deficit after being in business for about 15 years. In 2007, east China's
Hangzhou Future World shut down with 260 million yuan in lost investments. In
2000, Shanghai's 400-million-yuan-invested Universal Park closed after only
four years.
Hong Kong Disneyland has followed the fortunes of Disneyland Paris, which lost
money from 1992 until new attractions helped it end 1995 with a net profit of
$22.8 million. In 2002, Disneyland Paris announced another annual profit.
However, it incurred a net loss in the three years following. After realizing
that it had to cater for local tastes, in 2008 Disneyland Paris was the
most-visited attraction in Europe. Now turning a profit, it is Europe's top
attraction with 15 million visitors a year.
At present, two of the five Disneylands are in the US, one in France and one in
Japan.
Raymond So, an associate professor at the Chinese University's Faculty of
Business Administration, argued that attracting visitors to Disneylands in
China would not be easy because of differences in culture and the need to cater
to local tastes.
“Walt Disney needs to incorporate some elements of Chinese culture into the
products offered in the parks," he said, quoting the success of having Mickey
Mouse and Minnie Mouse sporting traditional Chinese costume in Hong Kong
Disneyland during Lunar New Year celebrations.
“One of the most important factors which might affect the visitor numbers in
Shanghai is that most Chinese mainlanders have not been exposed to the Disney
culture since childhood, partly due to no Disney channels being broadcast in
China," he said.
Olivia Chung is a senior Asia Times Online reporter.
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