Disney is quickly gaining brand equity in the largest market in the world. Photo: Brand Channel
Partnerships with local production companies, working with the Chinese government, and most importantly, building a new theme park in Shanghai -- there is a reason why Disney (DIS -0.06%) is making such a strong entry into the Chinese market. Media and film continue to boom in China, with analyst estimates from PricewaterhouseCoopers projecting a value for the industry of $6.49 billion in 2017, more than double its $3.26 billion value in 2012. This just covers the film and media industry, without including the theme parks and other revenue-generating operations that Disney will profit from as Mickey Mouse and friends continue to become more well-known in China. However, competitors Comcast (CMCSA 0.74%) and DreamWorks Animation (DWA) are also looking to get their own brands recognized in this vast and growing market.
Source: ChinaFilmBiz.com
Investors are expecting a late 2015 date for Disney's next major profit driver in China as its Shanghai resort opens. However, thanks to even heavier investment in China by Disney, we are about to see that investment pay off even bigger and sooner as the company ramps up production on its Disney Resort in Shanghai.
DreamWorks and Comcast: In three or four years?
DreamWorks and Comcast are both preparing for their own film-themed amusement parks in China. Oriental Dreamworks, a joint venture that includes production studios and attractions in Shanghai, and a "Chinese content company" in which Dreamworks Animation holds a 45% stake, is preparing to build in Shanghai. The venture is planning a $3.1 billion indoor park in Shanghai, set to open in 2018.
Photo: Deadline
The newest Universal theme park from Comcast's Universal Studios is likely to open sometime around 2018 as well. Comcast already has Universal Studios theme parks in other parts of Asia. The parks in Japan and Singapore have been operating profitably for the company for a few years (whether directly or through licensing), and a new Universal in South Korea is set to open in 2016. The 5.4% growth in theme-park revenue in the first quarter was part of the reason that NBCUniveral (the segment of Comcast that Universal Studios falls into) was able to post nearly 29% revenue growth in the quarter over the same period of last year.
Disney: Now!
Disney is already producing content specifically for a Chinese audience. The company is linking U.S. screenwriters with writers and directors in China, who work together on film projects in the classic Disney style. These films with "Chinese elements" are being made in the hope that this will make the products appealing to Chinese families in particular.
Additionally, Disney has already made strong governmental connections by working directly with the Chinese government. The company has already established good relationships with the Chinese animation industry, as it partnered with the Ministry of Culture in China in 2012 to help improve the animation industry in the country.
Photo: CNN
However, the most exciting advancement for Disney in China will be the coming resort in Shanghai. Disneyland Shanghai, the first resort on the China mainland, is under development now and set to open in 2015. However, the company recently announced that it will invest an additional $800 million in the park for new attractions, entertainment, and guest capacity.
Bob Iger, Disney's CEO, said that "Since we first broke ground in Shanghai we've been very impressed with the growth of China's economy, especially the rapid expansion of the middle class and the significant increase in travel and tourism...Our accelerated expansion, including additional attractions and entertainment, will allow us to welcome more guests for a spectacular Disney experience on opening day."
Disney is not new to the theme park business in China. Disneyland Hong Kong has been operating since 2005. Plans for expanded accommodations at this property that could serve more guests appeared as a highlight of the company's 2013 fourth-quarter results in its parks and resorts segment. This segment grew 8% in the recent quarter over the same period last year.
Final Foolish thought: Disney's returns from China are looking more and more exciting
Room exists for multiple companies to benefit from growth in China. Hundreds of millions of consumers will become regular movie viewers and theme park visitors in the coming few years. The investments that Disney, DreamWorks, and Comcast are each making in this market are likely to pay off for these companies.
However, Disney has proven to be the most aggressive in assuring that its brand will win the hearts of Chinese consumers (just as it has in the United States for decades) and this new announcement of increased production at its new Shanghai resort proves that. For investors who are looking for a bigger return that is coming sooner, Disney looks to be a solid bet.
