"It's puny," a 32-year old mother from Beijing told me. One word to summarize her experience at Hong Kong Disneyland: underwhelming.
She loves Disney (NYSE:DIS) and has visited Disney World in Orlando three times and even skipped a day at the Louvre Museum to visit the Disneyland Park in Paris. Her experience in Hong Kong was not awful, but she sees no reason to visit again unless her son demands it. And he hasn’t.
Disney's problems there are well known. Although park attendance rose 13 percent to 5.2 million visitors in 2010, it lost nearly $100 million on the year. Yet, despite its struggles in Hong Kong, Disney broke ground for a new Shanghai Disney Resort last Friday.
Will it succeed? At first glance, the numbers are encouraging for the $3.7 billion investment, which is 43 percent owned by Disney and 57 percent owned by the government-backed Shendi group. Over 80 million people live within a several-hour train ride of the park.
Excitement for the park has gripped the country more than for the World Expo, which saw 73 million visitors last year. Even household help earning $150 a month told my firm they would be willing to shell out $50 for tickets.
One helper from Anhui, a poor province in eastern China, told us, “I only have one kid and I want to make him happy. What else is money for?” The potential is huge if Disney learns from its mistakes in Hong Kong – but the risk is high if it does not.
The scale of the Hong Kong park disappointed mainland visitors who planned to spend several days there. They expected grandeur on par with Disney World in Orlando – after all, that’s the park that they saw in commercials. What they got instead was Disney’s smallest park, an area that can be covered in less than a day.
Disney seems to have learnt that the Chinese like ‘big’ (people love to point out that China now has the world’s largest airport and museum, for instance) and has announced that Cinderella’s Castle at the Shanghai park will be the world’s largest.
But there’s a hitch: The park itself will only be 1.16 square kilometers when it first opens – even smaller than Hong Kong’s. The risk of disappointing consumers is huge if expectations are not managed. If it cannot deliver a truly large park because of budget or regulatory constraints, Disney should be careful to say that it won’t be huge and instead focus on how thrilling it will be.
Another problem Hong Kong Disneyland ran into is that it had too many characters and rides that mainlanders did not recognize. Relying on emotional connections with characters like Cinderella is critical in America, where generations have grown up watching the Disney animated film. The Chinese have little connection with Disney’s heritage.
Many consumers don’t know Cinderella – they know newer characters like Lilo & Stitch and the toys from Toy Story, but don’t get as excited by things like the Mad Hatter’s teacups or It’s A Small World.
There are not enough thrilling rides like Space Mountain at the Hong Kong park. It appeals to families with toddlers, but alienates twenty-somethings and young couples who want fast rides like those at Universal Studios. Since family sizes are smaller in China, Disney must appeal to a wider demographic than its core family target audience in America.
Disney also surprisingly did not localize enough for mainlanders considering that 42 percent of the park visitors to Hong Kong Disneyland come from there. Songs for the Lion King show are sung in Cantonese and English, leaving Mandarin-speaking children bewildered.
Despite its mistakes in Hong Kong, if I were a betting man I would still wager that Disney Shanghai will become its most profitable park per square meter, as Apple’s (NASDAQ:AAPL) flagship store in Shanghai has. Why? While Hong Kong citizens can get visas easily to travel to Orlando, it remains difficult for most mainlanders to get visas. The result is that most people will have no choice but to visit Shanghai.
Unlike in Hong Kong, there simply are not as many alternative leisure activities or competitors like Ocean Park on the mainland. Construction has geared towards shopping, and at some point, one can only shop so much. That’s why even IKEA’s furniture stores are more entertainment destinations than shopping ones as I wrote last week in IKEA: A Mini Disneyland for Cash-Starved Chinese.
If Disney learns from its Hong Kong experience to cater better to its target market with the right rides and offerings, the Shanghai park might be worth the 10-year wrangling it took to get permission to break ground.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.