Disney management has tried for years to convince Chinese officials that the world’s biggest theme park and the world’s fastest-growing economy are a match made in financial heaven. Now, it seems, they will finally get their chance.
The sight of Mickey Mouse in traditional Chinese clothing at the April groundbreaking ceremony for Shanghai Disney Resort is one that mainland tourists will be seeing a lot more of in the future. The theme park – Disney’s first in the mainland, second in Greater China, and sixth globally – and accompanying resort are scheduled to open by 2016. At an estimated cost of US$3.8 billion, the project will be the largest-ever single investment in mainland China’s tourism industry.
Yet many fear that the project is nothing more than a doomed gamble. Disneyland Hong Kong has massively underperformed since it opened in 2005. Moreover, the overall theme park industry in China has struggled to stay afloat. An untapped market of more than a billion potential consumers awaits the Disney park if it can succeed where others have failed – which it may. But it will have to leverage its brand name to the hilt just to survive.
The current Shanghai Disney site spans 116 hectares in a once rural area near the city’s main international airport in Pudong, making it smaller than parks in the US and France. But some analysts predict the area could expand up to 1,000 hectares if future demand meets the higher end of visitor projections. The centerpiece fairytale castle, meanwhile, is planned to be the world’s largest.
For their part, Shanghai government officials are happy to rattle off promising figures. “More than 7 million people are estimated to pay a visit in the first year,” said Dai Haibo, deputy director of Shanghai Pudong New Area.
A cautionary tale
Nowhere is the local government’s faith more visible than in its sizable stake in the project. Not only is its Shendi Group – a joint-venture holding company of government-owned businesses created specifically to invest in the Disney project – the majority stakeholder of the park with a 57% share, but the city is also said to be planning a special tourism and resort zone, along with two new subway lines, to bolster the park’s appeal.
Disney and the Shanghai government’s optimism aside, there are fears that Shanghai Disneyland will be a nightmarish case of déjà vu. Its closest predecessor, Disneyland Hong Kong, opened to great fanfare in 2005, as Disney’s first foray into the untapped Greater China market seemed a sure bet. Annual attendance figures were projected to be 6.5 million annually. Original predictions had the park breaking even as early as 2009, and no later than 2011.
Such enthusiasm now appears hopelessly naïve. Far short of breaking even, the theme park posted attendance figures in 2009 nearly 2 million less than the 6.5 million originally predicted, contributing to a US$170 million operating loss. In 2010, the park continued to lose about US$92 million.
Results have been little better from the perspective of the Hong Kong government. In its first year of operation the park added only 4,400 full-time jobs, less than half of the previously forecast 11,000. In 2009, it fell 42% short of the predicted US$565 million boost it was supposed to give the Hong Kong economy.
It may be cold comfort for Disney that its woes are not unique to China’s market. According to a 2009 survey by the Horizon Group, 70% of China’s approximately 2,500 theme parks are operating at a loss.
Liu Wei, dean of tourism and hospitality at Guangdong University of Finance, believes that Shanghai Disneyland has an opportunity to buck this trend, as long as Disney utilizes its extensive experience and knowledge base to distinguish itself from smaller, less mature parks.
“The success of the project will depend on careful design and excellent management, which are lacking in many of the Chinese theme parks that have failed,” Wei said.
Indeed, experts argue there is reason to believe that Shanghai Disney’s fortunes will be different from those of Disneyland Hong Kong.
The sheer size of China’s mainland population is an important factor. While Disneyland Shanghai is within easy reach of most of the country’s wealthiest and most populated provinces, Disneyland Hong Kong is too distant – and Hong Kong visa applications too unpredictable – to be a viable choice for many mainlanders.
“For mainland travelers, Hong Kong is just not as convenient as Shanghai,” said Regina Yang, Shanghai-based director at Knight Frank, a real estate and property service firm. “The new park will have a bigger potential audience to draw from.”
Guangdong University’s Wei added that the big market, fast-growing economy and tremendous influence of Disney culture, could bolster Shanghai Disneyland’s chances.
Optimists al–so point to last year’s Shanghai World Expo for comparison. Given the location and similar target demographic – mainland tourists seeking a memorable, larger-than-life entertainment experience – the millions of tourists who made pilgrimages to Shanghai for the event may indicate the potential scale of Disney’s market.
“I’m optimistic because the World Expo received a huge amount of visitors from mainland China last year,” Yang said. “We think this is the target market for Shanghai Disneyland.”
Moreover, the precedent set by other Disney parks suggests that even Hong Kong Disneyland may someday see its investment pay off. After opening in 1992, Disneyland Paris turned in annual net losses for 12 of its first 14 years in operation. Disney, however, stayed the course and adjusted for local tastes – and ultimately watched its investment blossom into Europe’s single most-visited tourist attraction, currently with 15 million visitors a year.
One thing that looks certain is the park’s impact on Shanghai’s tourism industry, and local MICE operators in particular. Companies looking to hold conferences and incentive trips could do worse than hosting at or nearby Disneyland, especially companies that place an emphasis on including employees’ families.
“When Disneyland opens, we expect it to have a significant impact on our hotel’s business,” said Richard Shen, marketing manager of the nearby Royal International Hotel Shanghai.
In fact, some MICE hotel managers are reaping rewards five full years before the park is set to open.
“Since the government announced the Disneyland project’s construction, we’ve already been presented with countless business opportunities,” said a marketing and communications manager of a five-star MICE-focused hotel near the site, who asked not to be named. “It’s clear that Disneyland will bring more meetings and MICE travelers to our hotel.”