Disney May Add 2nd China Park

Walt Disney Co., eager to expand its reach in the world’s largest untapped market, has taken the first step toward building a theme park in mainland China.

Disney has signed a nonbinding letter of intent with Shanghai’s city government to develop a Disneyland theme park in Shanghai, the emerging commercial hub of China, according to sources familiar with the matter.

The proposed park is part of an overall strategy by Disney to expand its theme park business internationally as its domestic markets mature.

The park would be Disney’s second in China. The company is building a park in Hong Kong, which is set to open in 2006. Disney also has two parks in Tokyo. The latest one, DisneySea, opened last summer and is doing brisk business.

In Europe, Disney added a second theme park outside Paris this spring.

Chinese officials hope the proposed Shanghai park will be open in time for the 2008 Olympic Games in Beijing, although it’s unclear whether Disney would be able to do so in such a short time frame.

Whatever the date, Disney probably would reap broad benefits.

“It [the park] will serve as a platform to promote all things Disney in China--whether it’s movies, DVDs or TV shows in syndication,” said David Miller, a media analyst with Sanders Morris Harris.

Disney representatives declined to comment on the preliminary park agreement, saying only that the company was having ongoing dialogues with China about its various businesses there.

“We have made no definitive decisions or commitments at this time,” said Walt Disney Parks and Resorts spokeswoman Leslie Goodman. “We have always stated that two parks in China could be a possibility in the future.”

Goodman said the company is focused for now on opening Hong Kong Disneyland, which beat Shanghai in lobbying for the first Chinese Disneyland in 1999. Some Hong Kong officials worry that a rival park could cut into their much-needed tourism business.

Financial terms of the proposed Shanghai venture remain unclear. Sources said the city probably would pay for much of the construction costs, as was the case in Hong Kong. In that project, Disney is contributing $315 million for a 43% equity stake, while taxpayers are paying $2.9 billion for the park and accompanying infrastructure.

Disney is not alone in seeing gold in China.

Motorola Inc., IBM Corp., AT&T; Corp., Ford Motor Co. and General Motors Corp. have made significant investments in China. On the entertainment side, rival Universal Studios also has been studying various sites in China for a new theme park. Viacom Inc.’s MTV cable channel has had a presence in China for several years.

The allure is clear: China has a population of 1.3 billion people with a growing middle class. Rising incomes and a reduction in the average workweek also have created more demand for the apolitical family entertainment that is Disney’s trademark.

With as many as 16 million people in Shanghai, the park will not be short on customers, experts say. “Disney will get a lot of business out of this, that’s for darn sure,” said James McNeill Stancill, a professor of finance at USC’s Marshall School of Business who has special expertise on China. “It’s great for Disney and for China.”

For China, which recently joined the World Trade Organization, a second Disneyland park would be an important symbol of the nation’s eagerness to open its economy to Western investment.

Disney has built a significant presence in China since its foray into the country in 1986 with a roll-out of merchandise and the launching of “The Mickey and Donald Show,” a half-hour program on Chinese television. “The Dragon Club,” a children’s television program featuring mostly Disney cartoons, is viewed by more than 60 million households in China.

Beyond television, Disney has published nearly 200 titles in China and has a biweekly magazine, Mickey Mouse, with a circulation of 250,000. In the last five years, Disney has released to theaters “The Lion King,” “Toy Story,” “Mulan,” “Tarzan,” “Dinosaur” and “Pearl Harbor,” plus more than 100 Chinese-language titles on DVD. Disney also has opened about 200 Mickey’s Corners and other retail areas within stores.

Disney plans to open more stores and has commitments to launch additional television programs. In Hong Kong, Disney has been pushing to start a full-time Disney Channel.

The expansion follows the classic business development pattern that Walt Disney used to convert his fledgling film studio into an entertainment juggernaut: Establish a loyal following for characters through television programs and movies, roll out merchandise based on the characters, then create theme parks that are 3-D versions of the characters.

Doing business in China, however, carries some risks for Disney and others. Hollywood studios, for example, have struggled to market and distribute movies and television programs. Among the obstacles: piracy, red tape and a government whose ideology often has been at odds with Hollywood.

Disney and Sony Pictures Entertainment were temporarily banned from China’s film market after releasing movies about the Dalai Lama. Disney also stumbled with its adaptation of the Chinese folk tale “Mulan.”

The movie was hurt by criticism that its characters were too Western and by rules that restricted its release in China.