Building a Mouse House in Hong Kong


Walt Disney (DIS) and the Hong Kong government are teaming up to build Disney's first theme park in China. Scheduled to open in early 2006, the 310-acre Hong Kong Disneyland and supporting infrastructure will cost $4.1 billion, with the lion's share to be borne by Hong Kong.

In an unusual move, the government struck its deal with Disney before an environmental impact assessment was conducted. While not a violation of any laws, this has raised concerns in Hong Kong that a subsequent environmental study was conducted with less rigor because the project had already received the green light. The park will require extensive dredging and land reclamation, affecting local fisheries.

Steven M. Tight, who has been with Disney since 1987, most recently as business development vice-president for parks and resorts, is the managing director of Hong Kong Disneyland. He recently spoke with BusinessWeek Correspondent Frederik Balfour about the unique challenges of building China's first theme park, including how copyright piracy could affect profits, and how to make the park relevant to the region while still keeping it distinctly Mouse-like. Edited excerpts of their conversation follow:

Q: Euro Disney lost a lot of money for years. What has Disney learned from its mistakes there?

A: Each resort is unique. This one is a little more financially conservative -- it has a debt-equity structure of 60-40. Based on all our experiences developing theme parks, we've learned lessons. We're opening fewer hotel rooms here than elsewhere -- only 1,000. [By comparison, Euro Disney opened in 1992 with 5,760 rooms.]

Q: Isn't Disney risking much less equity than in Euro Disney?

A: For this project, the cash outlay is $325 million, for a 43% stake. [Its initial stake in Euro Disney was 49%.]

Q: But the Hong Kong government is putting in $2.3 billion for its 57%.

A: I don't think, when you look at who's doing what, you can ignore that we're contributing our No. 1 brand. That's what creates the entire valuation equation for the Hong Kong government and for Disney.

Q: Where do you expect the visitors to come from?

A: One-third from mainland, one-third from Hong Kong, and a third from the rest of Southeast Asia

Q: What language will the characters in the park speak?

A: About one-third will speak Putonghua [Mandarin], one-third Cantonese, and one-third English.

Q: What will visitors find on the opening day at the Hong Kong park?

A: People say they really want us to bring traditional Disney characters and stories -- that they want to see quintessential Disneyland. They don't want to see us create new rides based on Chinese fables -- the Monkey King ride or whatever.

However, food is the comfort factor, and while a lot of the park might seem new and unique and exciting, people really want to get back into their Chinese food and not be pushed into Western food.

Q: How big a problem is piracy?

A: Merchandise is a significant portion of our revenues, and copyright protection is critical for Walt Disney Co. We've spent time with the government trying to address some issues of intellectual property violations. We're impressed with steps they have taken to crack down here in Hong Kong. We recognize there are issues in mainland China, where you can go across the border and find a significant amount of pirated IP. That concerns us because it could impact our overall revenue in the theme park.

Q: What's the status of a second park on the mainland?

A: In the last couple of years, Disney has been in discussions with China on a number of opportunities -- TV, film, new-media initiatives, theme parks. Hong Kong Disneyland is the beachhead for Disney in China. A second park in China is a possibility. [Right now, however] our focus is on a successful Hong Kong Disneyland in 2005 to 2006.

Q: What's Disney's position on the fact that the environmental impact assessment was conducted after the project had already been agreed upon?

A: I don't recall the exact order.

Q: The study didn't happen until after the government made its agreement with Disney. It was already a done deal.

A: That's a question you have to ask the government.

Q: But we're talking about the role of a major corporation in setting standards of openness.

A: From our perspective, we were committed to supporting the government in an EIA process that would be as comprehensive as possible. The timing, I think, was partly in order to open Hong Kong Disneyland as soon as possible, [so the region could derive the benefits] as soon as possible. I'm not sure it's appropriate for me to discuss the government's decision on how to proceed with the EIA. We're extremely comfortable with the analysis that was done and the conclusions.

[The day after this interview, the Hong Kong government announced that the cost of cleaning up toxic waste from a former shipyard at the Disney site would be $47 million, roughly 10 times the amount projected from the EIA. The cost of the cleanup will be borne by the government.]

Q: Are you comfortable with the quality of Hong Kong's environment?

A: Air quality is an important factor in a region becoming a successful tourist destination. The government appreciates that, and they're taking steps to improve it, such as with [the] quality of diesel fuel. Taxis and buses have been converting -- faster than planned -- from heavily polluting diesel engines to cleaner-burning propane engines. We hope that in the next four years that will continue to improve.


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