Disney looks to China for international growth

With profits down 19 percent in its theme parks, the Walt Disney Company (DIS) needs to expand internationally in order to grow in these tough economic times. So where is it looking? Shanghai, China will be the next location for a Disney-style theme park. If built to full capacity, the new park could rival Disney World in Florida, which attracts 45 million annual visitors.

The park will cost $3.6 billion to build and Disney will own about 40 percent of the Shanghai resort. The rest will be owned by a holding company formed by a consortium of Chinese companies selected by the government. This park will set Disney on the right path to meet its goals of generating about 50 percent of its annual profits from overseas sales. Right now, international sales represent about a quarter of revenue and operating income.

New Theme Park to Rival Disney World

The Disney plans for Shanghai are huge, in line with the potential market of 1.3 billion Chinese. The park will include a mix of shopping areas, hotels and a Magic Kingdom-style theme park on 1,000 acres in the Pudong district. The theme park is planned for 100 of those acres. It will be a bit larger than Disneyland in Anaheim, but about the same size as Disney's successful parks in Paris and Tokyo. Ultimately, Disney hopes to expand the park to more than 1,700 acres, and increase capacity to rival Disney World in Florida.

Disney has been in negotiations with China for 20 years, but the prospect of creating tens of thousands of jobs in the current economic climate was what finally made this deal possible. Of course, operating a park is not Disney's only plan. The company hopes to use the park to market all of Disney's products, including DVDs and video games.

Some raised concerns that a Shanghai park would take customers away from Disney's Hong Kong resort, but that resort is tiny and can't handle its current crowds. In addition, mainland Chinese must get a visa to go to Hong Kong, which limits the park's appeal. Rita Lau, Hong Kong's secretary for commerce and development, told Bloomberg that China's population provides enough market potential for both Disney theme parks.

Traffic at U.S. Disney Parks Holds Steady

New international Disney parks probably won't make much of a dent in traffic to the company's U.S. parks. For example, Tokyo Disneyland, which got 27.2 million visitors in the fiscal year that ended March 2009, found 95.8 percent of its visitors were Japanese, and most were people who could not afford a trip to the U.S.

Disneyland Paris
has been around since the 1990s and it certainly hasn't hurt traffic at Disney properties in the U.S. The French park had 14.5 million visitors in 2008 and new hotels are planned for the surrounding area. Disneyland Paris is now Europe's most popular attraction with more visitors than the Eiffel Tower and the Louvre combined.

As long as Disney carefully selects locations that don't compete with each other, there's probably room for growth. While attendance at U.S. Disney parks has held steady -- despite big traffic declines at other U.S. theme parks -- they may have maxed out their potential here. Can Disney grow significantly without building its park's brand internationally? Probably not.

Lita Epstein, who lives in the Orlando area and has to deal regularly with all the traffic Disney generates, has written more than 25 books, including Trading for Dummies and the Complete Idiot's Guide to Value Investing.
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