Disney's Great Leap into China

By Michael Schuman/Hong Kong, Jeffrey Ressner/Los Angeles

Main Street U.S.A at the new Hong Kong Disneyland looks exactly like the one most Americans remember from their childhood, but it won't taste the same. The classic Disney thoroughfare of quaint buildings and gas streetlights has been lovingly re-created from the original theme park Walt Disney built in Anaheim, Calif., which opened 50 years ago this week. But Walt's vision of idyllic small-town America now has a surprisingly un-Midwestern twist. Inside one Victorian building is Main Street's first Chinese restaurant, the Plaza Inn, crafted as a stylish tea shop from early 20th century Shanghai. The interior has traditional landscapes of the Chinese countryside painted on the walls. The murals have been based on the Disney animated movie Mulan, which was inspired by a Chinese legend. Soon the workers in white hard hats, who are still screwing the final bolts in place, will hang fish-shaped Chinese lanterns. Dim sum is on the menu, as is seafood fried rice. "It's turn-of-the-century America, with a Disney overlay, with a Chinese overlay," says Tom Morris, one of the park's chief "imagineers"--Disney lingo for creative designers. "You can go to different places and different times."

Hong Kong Disneyland is taking the Walt Disney Co. to a new place: the wonderful world of China. The $3.6 billion park, scheduled to open Sept. 12, is Disney's boldest attempt to make Mickey Mouse as well known as Chairman Mao in the burgeoning Chinese market. With 1.3 billion increasingly wealthy people--290 million of them under 14, Disney's prime audience--China is the Magic Kingdom for a consumer company, and Disney wants to sell them everything from Mickey Mouse toys to animated movies to kids' magazines. "We know we have an addressable market just crying out for Disney products," Walt Disney International president Andy Bird recently told investors.

Disney is no stranger to China. The company debuted there in the late 1930s, when the cartoon Snow White and the Seven Dwarfs was screened in Shanghai. Today Disney sells Mickey Mouse gear through 1,100 Disney Corner outlets, and it wants to double that number over the next year. Disney movies and TV programs, like the popular Dragon Club series, appear on local television. With 24 hours of programming a week, Disney claims to be the largest foreign provider of films for Chinese TV. Disney's wholesome fare has given the company a leg up on getting its movies shown in Chinese cinemas. In 1995 The Lion King became one of the first Western films to premiere in theaters since the communists took over China in 1949. More than 15 other movies have followed, including The Incredibles and National Treasure--an impressive record, given that Beijing allows only 20 foreign films to be shown in the country each year. Disney on Ice has been performed in Beijing, Guangzhou and other cities since 1996. The company is even developing a new live-action film reminiscent of Snow White in which a young woman in 1880s China is protected by seven Shaolin fighting monks instead of the familiar Happy, Dopey and Doc.

It's an impressive list but still a Jiminy Cricket-- size business. Bureaucratic red tape and rampant piracy in China have stymied much of the profitmaking potential of the Mouseketeers. Disney has been unable to bring in its Disney Channel because of restrictions on media ownership. Legitimate Disney DVDs cost up to 10 times as much as knock-offs, restricting sales to a trickle. A hot title like Finding Nemo sold a scant quarter of a million or so genuine DVDs in China. (By comparison, Nemo sold nearly 15 million DVDs in the U.S. and Canada during its first two weeks alone.) The company, as a result, has lobbied the Chinese government to crack down on piracy.

Disney has also had the occasional misstep in China. In 1996 Beijing blocked the company's films after Disney backed Martin Scorsese's Kundun, which dramatized the life of the Dalai Lama and China's invasion of Tibet. (Beijing considers Tibet an integral part of China.) Mulan, which tells the story of a girl who fought in the Chinese emperor's army in place of her crippled father, was originally rejected for showings in China. Hollywood executives saw that as retaliation for the political incorrectness of Kundun, but an anonymous Chinese official quoted by the country's Xinhua news agency blandly attributed it to "a complicated issue." When Mulan finally hit Chinese theaters in 1999, it flopped at the box office, reportedly in part because the story was too Westernized. Although Disney doesn't reveal specific figures on its China business, a former executive who wished to remain anonymous says, "They're not doing any meaningful business at this point."

Incoming chief executive Robert Iger badly wants to change that. Unlike his predecessor, Michael Eisner, who never seemed comfortable with international expansion--"Going to China and the Far East might as well have been Mars," the anonymous former exec says of Eisner--Iger has made boosting Disney's overseas revenues a priority. China is a personal Iger favorite. He has made numerous visits, lunched with senior leaders and even dropped in for a movie at a Shanghai cinema. It was so modern, Iger says, "I might as well have been in a multiplex in Indiana."

With so much on the line, a successful Hong Kong Disneyland is crucial. Executives hope the park will pave the way for the company's DVDs, TV shows, toys and other businesses to thrive in China by acting as a huge roller-coaster-filled advertisement for the Disney brand. "At the highest level, Hong Kong Disneyland is a beachhead for the Walt Disney Co. in China," says Jay Rasulo, president of Disney's theme parks and resorts.

Disney's record with overseas theme parks, however, has been mixed. Tokyo Disneyland has been a smash, with 25 million visitors a year, but Euro Disney, based near Paris, has been a financial sinkhole. Earlier this year, Euro Disney finalized a $2 billion restructuring plan, which included new capital and loan concessions, to rescue the operation. Among the park's problems have been cultural faux pas that have turned off its European audience. When Euro Disney opened, for example, restaurants wouldn't serve wine, an affront even to the French soil it was built on.

Disney made sure not to repeat those mistakes in Hong Kong. "We've come at it with an American sensibility, but we still appeal to local tastes," says John Sorenson, one of Hong Kong Disneyland's landscape architects. Fantasyland has a garden where photo-happy tourists can always find Mickey, Minnie and other popular characters. Mulan will have her own pavilion in the garden, designed like a Chinese temple. Mickey even has a new red-and-gold Chinese suit to wear. Restaurants boast local fare, such as Indian curries, Japanese sushi and Chinese mango pudding served in containers shaped like Mickey Mouse heads.

The park's designers brought in a feng shui master, who rotated the front gate, repositioned cash registers and ordered boulders set in key locations to ensure the park's prosperity. He even chose the park's "auspicious" opening date. New construction was often begun with a traditional good-luck ceremony featuring a carved suckling pig. (Ironically, Disney kicked up trouble not by being too American but by being too Chinese. Disney offered to serve shark-fin soup at banquets, but the local favorite got yanked from the menu in June after environmentalists, who blame consumption of the delicacy for endangering the global shark population, howled in protest.) "Disney has learned that they can't impose the American will--or Disney's version of it--on another continent," says Dennis McAlpine of McAlpine Associates, a securities-research firm specializing in media and entertainment. "They've bent over backward to make Hong Kong Disneyland blend in with the surroundings."

Still, most of the park looks as if it were airlifted from the U.S. Imagineers used Walt Disney's original designs for the first Disneyland in Anaheim as a starting point. Many Disney classics are there, including a fairy-tale Sleeping Beauty Castle and a Space Mountain roller coaster. Will this slice of Americana appeal to the Chinese? Disney executives think so. The Chinese "have heard so much about the parks around the world, and they want to experience the same thing," says Don Robinson, managing director of Hong Kong Disneyland. Disney may be catching China at just the right time: Chinese consumers want to connect with the global pop culture that poverty and communist dictate had long kept out of reach. The Chinese, says Kevin Wong, a tourism economist at Hong Kong Polytechnic University, "want to come to Disney because it is American. The foreignness is part of the appeal."

But the park's success isn't a sure thing. Disney faces a special hurdle in China. Until a few years ago, hardly anyone knew Mickey Mouse and Donald Duck even existed. Disney characters were banned for nearly 40 years after Mao's takeover. Now Chinese kids are familiar with the classic characters--in part from pirated DVDs--but their knowledge of Disney lore is limited. "This is the first market where we've opened a park in which we don't have a long-term relationship with our guests," says Rasulo.

Even before its opening, Disney is plotting to expand. According to Rasulo, Disney has been in discussions with government officials in China to bring a Disneyland to the mainland, perhaps to Shanghai. Executives are already preparing new attractions for Hong Kong, such as an updated version of the popular racing ride Autopia, due to open in mid-2006. On the drawing board are plans to nearly double the park's capacity and possibly add a second park. "We're in for a long-term commitment," says Robinson. "It's not like just opening an office and selling a product. We have a castle." With all those grand plans, Disney realizes that the route to success in the world's most populous country is still blocked by a few Chinese walls. "Our eyes are wide open to the fact that, while China is very exciting for us in terms of potential, it's filled with great challenges," Iger says. Disney is wishing on a red star and hoping all its dreams come true.