Posted by: Frederik Balfour on June 26, 2009
It looks like the Walt Disney Company (DIS) and the Hong Kong government have finally reached an agreement to expand their undersized and underperforming Hong Kong version of the Magic Kingdom. Though its joint venture, Hong Kong Disneyland declined to comment about ongoing discussions, Reuters reports an announcement is expected by early next week. On the face of things it looks like an important breakthrough for Disney, which in March announced it was sacking 30 Hong Kong-based “Imagineers” because discussions with the Hong Kong government, which currently owns 57% of the park, were going nowhere.
However it appears as though Disney ended up making all the concessions. According to press reports, Disney will pay for the entire expansion costing as much as $800 million. The government will convert its debt to equity to prevent its share from being diluted below the 50% mark. The Hong Kong government, quite rightly, was reluctant to pony up any more cash into the money-losing park considered too small to attract enough first time visitors, let alone getting them to come back. Although Hong Kong covered more than 80% of the initial $2.9 billion cost of the project, the government has just a 57% share in the joint venture, with Disney holding the other 43%.
But it looks to me like the 30% expansion plan comes too little, too late. The clock is ticking as Disney plans to open a monstrous park in Shanghai in 2014 that would dwarf the puny Hong Kong version of the Magic Kingdom, the smallest of all Disney theme parks worldwide. But as Allan Zeman, who is chairman of the profitable government-owned Ocean Park in Hong Kong said to me on the phone today, “Disney has no option” but to put in the additional cash, because the park will never turn a profit at its current size. Hong Kong Disneyland officials declined to comment.
Perhaps execs back in Burbank are still living in Never Never Land. Or maybe they just can’t afford to admit the Hong Kong project was poorly conceived from the get-go. From this end, it feels like Disney is throwing good money after bad. Mainland visitors account for more than one third of the tickets sold to Hong Kong Disneyland, and Shanghai Disneyland is bound to cannibalize most of that business once the Magic Kingdom comes to the Middle Kingdom. Shanghai is expected to sprawl across more than 800 hectares, while an expanded Hong Kong park will only cover about 150 hectares. And don’t forget the Universal Studios will be opening its own theme park in Singapore as part of the casino complex by early next year.