Big trouble in Hong Kong: Disney all but abandons Hong Kong Disneyland

Seeing no end to the money-hemorrhaging madness in Hong Kong, Disney is halting all plans for expansion for its park in Hong Kong. The show will go on, but it will be frozen, and nothing new will be added. About 30 Imagineers will be laid off.

Attendance in Hong Kong was never what they'd hoped. In fact, it's slid. Originally, the expectation was that people from mainland China would flood its gates, but that never quite happened. And when it did, the results haven't been golden. It's not always easy for Mainlanders to get clearance to travel to Hong Kong; generally speaking, only the wealthiest ones can or do. And inside the park, staff must continually explain to Chinese guests why it's not all right for them to urinate in the park's gardens -- they would be politely directed to the squat toilets in the bathrooms. Citizens of Hong Kong traditionally disdain Mainlanders for behavior like that (and rival Ocean Park is closer and viewed as less corporate/imperialist), so Hong Kongers have mostly avoided the park, too.

By stalling its joint venture, though, a turnaround isn't in the cards, leaving Hong Kong Disneyland the only Disney resort in the world sustained by just a single theme park. The Disney brand is showing signs of drastic erosion.

In terms of the bottom line, the surrender isn't as bad for Disney as you'd think, primarily because the company has always been wily about its investment exposure. In Hong Kong Disneyland's case, it convinced the government to put in an 80% stake of the $3.5 billion investment for just a 57% share. You can imagine how Hong Kong residents took that news. Hong Kong authorities even created massive landfill to accommodate the Mouse; the park sits on what was once a bay in the South China Sea, just 20 minutes by rail from the city. Every leaf and blade of grass was planted by human hands. Nevertheless, the majority of the financial pain will be felt by taxpayers, not Disney Parks.

I was lucky enough to be at the grand opening of the park in September of 2005. It was one of the last official bits of business overseen by Michael Eisner, although incoming CEO Bob Iger was also on hand. I thought the park, though pretty, was best described as Disney Lite: just four lands and only nine rides, several of the spinning types, like the Dumbo attraction. It has since added two more (including the first "it's a small world" to be stocked with Disney characters), but it's way behind the growth curve that its parent park experienced after opening in 1955.

The day before the opening ceremonies, I sat with Walt Disney Imagineering Executive Vice President Wing Chao, a 37-year veteran of the company, in Tomorrowland, and talked about his new baby. Seeing the Disney brand through an Asian lens was refreshing: Hotels lack unlucky fourth floors, carts serve cold watermelon juice, and you can do the Jungle Cruise in Cantonese, English, or Putonghua (Mandarin).

Although Disney execs are notoriously tight-lipped about specifics, Chao said that the Hong Kong authorities had created much more landfill than Disney was using, and that a second "gate" (industry speak for a park) and a shopping zone were in the offing. He had high hopes. On that day, the park stood in a vast field of unadorned new land. Expansion was essential. Hong Kong Disneyland is a mini Mickey.

But from an outside perspective, it appears that when it came time to talk turkey about who would fund the expansion, Disney couldn't see a bright future, and it couldn't come to terms with how much the government should shell out. The government is already under fire for pumping money into the project, so giving more wouldn't be politically savvy.

There's one other massive reason that Disney has all but given up hope on Hong Kong for now. It's the same one that Hong Kong's leaders won't say out loud: Disney has left them behind. Disney is about to officially announce that it's building a new park outside of Shanghai. Negotiations are in their final frame. Once that happens, then Disney won't have to court the massive Chinese market through the Special Administrative Region of Hong Kong. They can court the Chinese within their own country, where passports are not required.

Even before the economic turmoil, Hong Kong Disneyland drew a third of its visitors from Mainland China (plus a third from abroad, and a third from Hong Kong itself). If that crowd can get to Disneyland Shanghai easier, Hong Kong's share will plummet. Disney is on the verge of not needing Hong Kong anymore. Without expansion, its attendance won't rise, and Hong Kong Disneyland will be doomed.

The argument isn't hard to make: In a terrain as densely populated as Hong Kong, the land Disneyland sits on, which was put there using support from the state, would be better used for housing. Will that happen? Not yet. But it could. And should that happen, it would be the first Disney park in history to close.

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