Richard Verrier
of The Sentinel Staff
Published in The Orlando Sentinel on Dec 1999, 12:00AM.
Walt Disney Co. and Hong Kong officials on Friday signed a formal agreement for a far-reaching deal that will bring
the Magic Kingdom to the Middle Kingdom.
Disney and Hong Kong announced last month that they had agreed jointly to develop a 310-acre theme park on Lantau,
an outlying island of the Chinese territory.
The last remaining hurdle to Hong Kong Disneyland was cleared earlier this month when the Hong Kong Legislative
Council overwhelmingly approved government financing for the theme park, set to open in 2005 near the city's new
international airport.
Disney's board of directors had already approved the deal, which requires Disney to invest $314 million in the
project.
The agreement culminates 13 months of intense negotiations with Hong Kong government officials.
But it was by no means a given for Disney, which was determined to avoid repeating the missteps of Euro Disney,
now Disneyland Paris. Plans for Hong Kong Disneyland almost crumbled when the original site for the theme park
fell through.
And Disney, which has had a rocky relationship with China over the content of the entertainment company's movies,
faced opposition from some lawmakers who chafed at the idea of a Main Street U.S.A. in China.
In the end, Hong Kong leaders rallied behind the project, seeing it as a catalyst to turning the city into Asia's
major tourism hub.
China also has been eager to attract Western investment. The country recently forged a historic trade deal with
the U.S. government. China assumed control over Hong Kong from the British in 1997.
Disney executives say the theme park -- its third international park and the second in Asia after Tokyo Disneyland
-- will give it a foothold into a vast economy of 1.3 billion people. Expanding Disney's presence overseas has
been a top priority for Disney Chief Executive Officer Michael Eisner.
"It's significant because it's another important extension of the Disney franchise in what happens to be the
fastest-growing region in the world," said Judson Green, who led negotiations as chairman of Walt Disney Attractions.
"We're very excited about bringing the magic and wonder of Disney to millions of people in China."
Overlooking Penny's Bay, Hong Kong Disneyland will consist of six themed lands -- complete with a Sleeping Beauty
Castle -- and will include special events celebrating the local culture. Guests will have access to the park by
rail, highway and ferry.
The project also will have up to 2,100 hotel rooms and a 28,000-square-foot entertainment district similar to Downtown
Disney in Orlando. The site could accommodate a second theme park, which has not yet been planned.
The city will cover the bulk of the project's cost -- $3.3 billion -- which includes roads, transportation and
other improvements. The hefty investment prompted some opposition politicians to say Disney got a sweet deal.
City economists countered that the project would generate $148 billion in economic benefits over 40 years and an
estimated 36,000 jobs at buildout.
Why Hong Kong?
Disney has a successful track record in Asia: Tokyo Disneyland, which opened in 1983, has the highest attendance
of any its theme parks, including those in Orlando. And like Microsoft Corp. and other major U.S. multinational
corporations, Disney sees China as a huge, largely untapped market.
Hong Kong, a city of 6.8 million, was especially attractive because the city has made hefty investments in its
infrastructure. "The new international airport has the capacity to handle up to 90 million passengers, so
it's clearly a gateway to the Asian Pacific region," Green said.
At the same time, Hong Kong officials saw a Disney theme park as a way to stimulate a recession-bruised economy.
Once negotiations started in October 1998, both sides wanted to move quickly. But they didn't reach agreement overnight.
To limit its investment risk, Disney initially wanted to develop the park through a joint venture with a private
group. But the Hong Kong government didn't want to take a back seat; it wanted to be a full investment partner.
There was another problem. The original site, under the flight path of the new airport, proved unworkable. The
two sides missed a June deadline, but they agreed to continue negotiations through October.
Disney officials say they hope to not repeat errors made in France, where Disney was blasted for being insensitive
to French culture.
"We have learned a lot of lessons from Tokyo Disneyland and Europe," Green said. "As we approach
how we operate the parks, for example, what the food and beverage offering is and how we deal with language, we
do need to be culturally sensitive."
Still, doing business in China carries some risks for Disney, which angered Chinese officials in 1997 for distributing
a film about the Dalai Lama, the exiled Tibetan leader. More recently, Chinese officials complained that Disney's
animated feature Mulan was "too foreign looking."
Yasheng Huang, an associate professor at Harvard University Business School, said Hong Kong Disneyland should fare
well, despite some recent tensions in China-U.S. relations.
"In Asia as a whole, and in China in particular, there is no cultural backlash against Disney," he said.
"To have a Disney theme park there is really a signal of the economic maturity of that region. It should attract
a lot of tourists."
Hong Kong Disneyland also is more financially conservative than Disneyland Paris, which faced huge losses in its
early years, partly because it built too many hotel rooms.
Hong Kong Disneyland will carry less debt than Disneyland Paris: 60 percent of the total cost vs. 75 percent at
Disneyland Paris. Disney will have a 43 percent ownership stake in the park; the government will own 57 percent.
Disney will manage the resort and get an undisclosed percentage of the revenue.
"We haven't borrowed too much money and we haven't built too many hotel rooms, and we haven't sized the project
to be bigger than the market can bear," Green said.
Analysts, who have been sharply critical of Disney's lackluster profit in fiscal 1999, welcomed the deal.
"I think it will be a winner for Disney," said Jill Krutick of Salomon Smith Barney. "It's a huge
market."
Alan Gould of Gerard Klauer Mattison agreed, saying Disney negotiated a good deal.
"To me, it's the formula for success in the theme-park business," he said. "You find a strategic
partner who has an incentive to spend most of the capital."
Disney stock rose 41 cents a share to $28.03 on Friday.
(c) Copyright The Orlando Sentinel. All rights reserved. Visit the Sentinel online at http://www.orlandosentinel.com