The acrobats are practicing their flips. Chefs are learning to cook dumplings by the thousands. And invited guests are test-driving the Tron Lightcyle Power Run, a roller-coaster that races through a fluorescent space landscape at 60 miles per hour.
All systems are go for the June 16 opening of the $5.5 billion Disney Shanghai Resort, the largest foreign investment ever from the world’s biggest theme-park operator and a career milestone for Walt Disney Co. Chief Executive Officer Bob Iger.
If history is a guide, however, the opening could be as turbulent as the twists and turns on Big Thunder Mountain. Disney’s past international park efforts have been marked by cultural missteps and years of losses. Shanghai represents a chance for the Burbank, California-based company to avoid those mistakes and earn a profit commensurate with the money it’s investing.
“The billion-dollar question is, will it be more like Hong Kong or more like Tokyo?” asked Barton Crockett, an analyst at FBR Capital Markets & Co. “It’s much bigger than Hong Kong. In Paris, the execution has been problematic.”
In an interview with Bloomberg TV in Shanghai on June 9, Iger said the new park’s size, commitment to technology and focus on local culture distinguish it from prior efforts.
“It combines all the things we have learned over the years from all the other parks we have operated,” he said. “In a way, it’s the smartest park we’ve ever built, based on our own learning.”
Disney has taken steps to win over Chinese consumers. Chinese zodiac symbols combine with Disney characters at a central garden in the 963-acre resort. A giant tea house sits at the foot of the castle, the tallest of any Disney park. An app will let guests buy tickets and check wait times on rides.
Disney’s resorts division began taking steps overseas with Tokyo Disneyland in 1983. Construction of the first park there ran about 80 percent over its 100 billion-yen budget.
But the company was insulated. Card Walker, CEO at the time, had endured kamikaze attacks on his aircraft carrier in World War II and was reluctant to invest directly in Japan, according to “Dream it! Do It!,” a 2013 autobiography by Disney parks designer Marty Sklar.
So he signed a licensing deal with Oriental Land Co., which funded and owns what is now two parks in Japan. Oriental Land earned $692 million last year on sales of $4.4 billion. Disney collects a royalty that amounted to $366 million in fiscal 2015, much of that profit.
Things haven’t gone so well at the company’s other international resorts. Euro Disney SCA, the publicly traded owner of the two parks at Disneyland Paris, has been bailed out three times in three decades — with the U.S. company lending a hand each time — and hasn’t made a profit since 2001. Disney has a 77 percent stake in that company.
Among the problems: Europeans didn’t stay overnight or spend on merchandise like their American counterparts, meaning too many of the 5,800 rooms at seven hotels were empty. Disney also took a beating in the local press for perceived cultural imperialism, such as serving too much American food, said Lee Cockerell, who supervised restaurants at Disneyland Paris on opening day and is now retired from the company.
“We were overstaffed from the beginning,” Cockerell said.
Hong Kong Disneyland, a 47 percent-owned venture with the local government, has been unprofitable for eight of its 11 years, including 2015. The smallest Disney resort at 310 acres, Hong Kong was hurt by a decline in mainland Chinese tourists last year, according to its annual statement. The resort lost $19 million on sales of $659 million.
Disney hasn’t shown a profit on its international theme park investments since the company began breaking out the business in 2004, according to filings. The results since 2011 include the still-under-construction Shanghai resort, as well as Hong Kong and Disneyland Paris, though not Tokyo.
Disney has invested $6.7 billion in its international parks over the past 10 years, according to filings, with about half from local partners. Disney and its Chinese partners are financing two-thirds of the Shanghai resort with equity and borrowing the rest.
The company has already endured criticism on social media for its Shanghai prices. Though the lowest in Disney’s empire, they are high by local standards. Admission on weekends and other peak periods is 499 yuan ($76). On other days it’s 370 yuan ($56). Chinese billionaire Wang Jianlin, who is opening a string of his own theme parks in the country, has said he will come after Disney like a pack of wolves on a tiger.
Iger said he’s not concerned.
‘Immaterial to Us’
“We entered this market knowing that competition existed and that competition was only going to grow,” he told Bloomberg Television. “We are bringing something that is so unique in this market. Nothing that has been said about us entering this market is bothersome, nor do we believe it’s accurate. It’s just immaterial to us frankly.”
Disney estimates 330 million potential guests live within three hours of the park. That, combined with the low cost of doing business in China and Disney’s support from the government there, means the resort could be more profitable than Tokyo, said Crockett, the FBR analyst.
He predicts the resort will break even in two years and generate more than $200 million in operating income by fiscal 2019. Macquarie Capital analyst Tim Nollen estimated it will earn $185 million before interest and taxes by then on revenue of about $2 billion and attendance of 15.7 million. Disney has said only that the park won’t be profitable this year. Expenses before the opening will reach $300 million.
The payoff from a stronger presence in China could go beyond the park to include Disney’s other businesses, like film and TV.
Iger plans to have a Disney-branded movie in production in China within a year. The presence of the park, he said, will boost sales of Disney merchandise and U.S.-made films in the country.
“There’s a lot of growth ahead in the years ahead, the decades ahead, maybe even the centuries ahead,” he said.
— With assistance from Tom Mackenzie. To contact the reporter on this story: Christopher Palmeri in Los Angeles at email@example.com. To contact the editors responsible for this story: Crayton Harrison at firstname.lastname@example.org, Rob Golum, Lisa Wolfson
©2016 Bloomberg L.P.
This article was written by Christopher Palmeri from Bloomberg and was legally licensed through the NewsCred publisher network.