Wow, what a smart move for Walt Disney Company.
But what about Hong Kong Disneyland? Do we still need it ?
I just wonder what the position will be in the future ...
WSJ: Disney, Shanghai Government Move Foward On Theme Park Deal
By James T. Areddy and Peter Sanders
Of THE WALL STREET JOURNAL
Walt Disney Co. (DIS) and the Shanghai municipal government have signed a project proposal that lays out the broad legal and financial framework for the U.S. entertainment giant to build its first mainland theme park, slated to open as early as 2014 at a cost of $3.59 billion.
Under the proposal signed this week, Burbank, Calif.-based Disney would take a 43% equity stake in Shanghai Disneyland while a joint-venture holding company owned by the local government would own 57%, according to a person familiar with the terms. The first phase, about 1.5 square kilometers, would include a theme park, plus a hotel and shopping development, at a cost of up to 24.48 billion yuan ($3.59 billion) built over six years. A mostly rural site near Shanghai's Pudong International Airport has been designated for the project.
However, before the project can go forward, it must receive high-level approval from the central government in Beijing, an opaque process that is expected to take up to a year, according to people involved in the plans. It is also possible that the agreement signed Thursday could be altered as it winds its way through different layers of China's bureaucracy.
(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)
A Disney spokeswoman confirmed that the project proposal documents had been signed. But she said the company had signed no agreement and has no deal with the Chinese government for a theme park in Shanghai. The spokeswoman said the project application was only one step in a long process of approvals. A Shanghai government spokesman declined comment. China's central government has final authority to green-light the project, and the timeline for any decision is unknown.
The nonbinding proposal, more than 60 pages in length, was signed Thursday in Shanghai by Nick Franklin, executive vice president for new business development at Walt Disney Parks and Resorts, and a Shanghai district governor, Li Yiping, according to this person. Though the park has been in the planning stages for roughly a decade, the agreement marks a significant step forward by offering an outline for the intricate arrangement that would allow Disney and the local government to split ownership of the project.
The document signed on Thursday, called a "project application report," will now be sent for consideration to China's State Council, the central government's highest administrative body. Despite the document's length, it is more like a "pitch document" that discusses the benefits of a park, rather than a detailed contract between the signatories, said the person familiar with the terms. A formal contract would ultimately need to be negotiated and approved by other central government organs, such as China's Commerce Ministry.
The framework agreement envisages a six-year construction period for the first phase and says the park could open as soon as 2014.
Landing the Shanghai theme park has been a top priority for both Disney, which has code-named the effort "Project Bueno," and the Shanghai government. Shanghai Disneyland would be one of China's largest ever foreign investments. Like many Western media companies, Disney has been eager to expand its presence in China's vast market. But that has been difficult because of the tight limits Beijing maintains on foreign media's access to platforms such as local television and film releases. In addition, rampant piracy of everything from DVDs of Disney movies to Disney-branded toys handicaps the company's ability to take full advantage of the local market.
A mainland theme park has the potential to alter that equation. It would give the company a major venue where it can sell its products without the threat of piracy. It would also allow the company to get greater control over the way its brand is perceived throughout the rest of China. Disney executives also hope goodwill associated with a big investment can help them get approval to expand their local television programming. Even so, the theme park framework agreement doesn't address provisions for other Disney initiatives.
Though Shanghai's government has been discussing the park with Disney for years, the project heated up in early 2008 as global economic growth prospects weakened. In recent months, Shanghai officials have spoken favorably but vaguely about the possibility of a Disney project. Last month, Disney Chief Executive Robert Iger visited Shanghai, while months earlier a Shanghai vice mayor toured Florida's Walt Disney World, even as negotiations continued on details as varied as percentages each side would own to the price local landholders would get for each tree. Also last year, rumors of an impending deal prompted a flurry of land speculation in the watery area near the city's international airport where Shanghai Disneyland would be built.
Now, the priority in China is employment growth, and the framework agreement projects up to 50,000 jobs being created by Shanghai Disneyland, according to the person familiar with its content.
"I think it will really fly now given the current economic climate," said the person familiar with the terms.
Shanghai Disneyland is expected to feature Chinese cultural characteristics as well as attractions built around traditional Disney characters and themes. Only approximations of the theme park's layout are spelled out in the framework agreement.
The ownership structure resembles some aspects of Disney's deal in Hong Kong, where a joint-venture park majority held by the local government opened in 2005. In recent weeks, the two sides have agreed to expand the Hong Kong Disneyland.
In Shanghai, a newly formed company named Shendi will hold the local government's interest in the park. Shendi is owned by two business entities under district governments in Shanghai, as well as a third company owned by the municipal government's propaganda bureau. Advising the city government in the deal is Shanghai Investment Consulting Corp.
The Shanghai municipal government has declined comment as local media reports said the project has moved forward. "As people have waited patiently in the past one year, I hope you can keep your patience," said Chen Qiwei, a government spokesman.
-By James T. Areddy and Peter Sanders, The Wall Street Journal; james.areddy@wsj.com
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