A year ago, when I wrote about Dalian Wanda Chairman Wang Jianlin’s boast that he would “devour” Disney’s theme parks in China (“Mickey’s Adventures in China: Theme Park Wars and Copyright”), Wanda was riding high. From humble beginnings as a property developer in the Chinese city of Dalian, Wang had become China’s wealthiest man through building mega shopping centres, many of them anchored by large cinema complexes, and had gone on to expand abroad, buying AMC Cinemas for $2.6 billion in 2012 and Legendary Pictures for $3.5 billion in 2016. Wang’s hunger for entertainment assets (he was eyeing Paramount) created such a political backlash in the US that 18 members of Congress signed a letter to the US General Accounting Office urging that the mechanism used in the US to review foreign investments from a national security angle (the Committee on Foreign Investment in the United States, or CFIUS) consider investment from China in the entertainment sector as a possible “strategic threat”. Why? Because, according to these members of Congress, such investment could result in exerting foreign propaganda control over US media. As I wrote at the time, this was a xenophobic over-reaction, but it illustrates the reach of Wanda.
While it was a gross overstatement to consider Wanda a threat to American values, this was no more off-base than Wang’s threat to crush Disney in China, as recent events have borne out. Wanda’s theme parks in China are in trouble, the company is facing investor unrest and it appears to be on the wrong side of Chinese regulators with regard to its overseas expansion. The theme parks are now up for sale for a reported $6.5 billion, and grandiose plans to build up to 15 parks to compete with the Shanghai Disneyland have been abandoned. What happened?
First, Wang seems to have been caught up in the “irrational exuberance” of the China market, where for many entrepreneurs bigger is always better. Given the size of the market and trajectory of economic growth over the past two or three decades such over-confidence is understandable, but the laws of gravity apply in China as they do anywhere else. Unbridled expansion leads to over-capacity; a “build it and they will come” philosophy does not always work, especially as Chinese consumers become more sophisticated and discriminating.
Second, even though Wang has excellent political connections and good political antennae, the shifting political winds in China are not always easy to read. Until recently China pushed a “going out” policy, encouraging Chinese enterprises to invest and acquire assets abroad. Some of this effort is ongoing, such as the so-called “One Belt One Road” initiative and the “Maritime Silk Road”, major infrastructure initiatives to link China to its trading partners, both near and far (mostly state-financed and controlled). However, at the same time, the Central Government has been tightening controls on outward flows of capital, especially on the part of Chinese private investors. Criticism in China is mounting of “irresponsible” and “irrational” overseas investments, such as investments in European soccer teams, which Wanda has done. As part of this tightening, Chinese banks (all state controlled) have reportedly been instructed not to finance several of Wanda’s overseas acquisitions.
Third, hubris. Wang seemed convinced that he could out-Disney Disney because he was Chinese, and knew more about China and Chinese tastes than a western conglomerate. Judging from the financial results of his initial theme parks, he was wrong. The WSJ reports that his $500 million Wuhan park closed last summer for refurbishing and hasn’t reopened, the Wanda park in Nanchang had only 3000 visitors one week at a property that can accommodate 40,000 and half the attractions at the Hefei park were closed during a visit earlier this year.
What went wrong? After all, Wanda is very good at pouring cement and building on a mega scale. Until recently it had plans to build what would, if completed, become the world’s largest film studio in Qingdao, the once-upon-a-time German concession that produces the beer (Tsingtao) that has put China on the world beer map. Now even these plans have changed, and the project is being sold to another property developer. Perhaps Wanda is learning that building a good film studio (or theme park) and having a film studio that makes good films, or a theme park that attracts good attendance, are two different things. What seems to be missing in Wanda’s theme parks is the soft infrastructure, the copyrighted content that makes the Disney experience so special for so many visitors, whether in China or elsewhere.
The content ecosystem is what has driven the success of Disney parks, although marketing, technical innovations, and crowd management are also part of that formula. Even with all of Disney’s experience, it has not always been easy to transport the model to foreign shores. The Paris and Tokyo Disney parks have struggled over the years, and it took 7 years for Disney’s Hong Kong JV to turn a profit. Those lessons from Hong Kong seem to have been learned and Shanghai Disney appears to be well launched, with 11 million visitors in its first year of operation, exceeding forecasts. It is the virtuous cycle of the movie launch that builds recognition of the characters, that in turn attract customers to the rides and attractions, and to the merchandise. Without the “secret sauce” of copyrighted content, a park is just a collection of rides and buildings, with some vague and unrecognizable characters wandering around.
The “secret sauce” is what Wanda is missing, and what China generally (there are exceptions, such as the Monkey King) does not have. China can of course build upon its traditional stories, just as Disney initially built on folk tales or traditional children’s stories, but this will take time and a respect for copyright protection that is generally lacking. Protected by its copyrights, Disney has carefully nurtured its crown jewels, the copyrighted and trademarked denizens of the Magic Kingdom and other parts of the Disney universe. It has been careful to ensure that the value of its stories and characters has been protected and not diluted or distorted. As far as the Walt Disney Company is concerned, Snow White remains as pure today as she was when the first Disney film version was launched in the 1930s.
The tale of Disney versus Wanda in China is a story of experience versus upstart, of care and patience over impatience and speed but most of all, of “softpower” content over hard infrastructure. It is a tale that illustrates convincingly the value of copyright and of content, and is a lesson that Wanda has learned the hard way. Without the protection of its content enabled by strong intellectual property policies—within the company, and through domestic legislation and international agreements— Disney’s attractions would also be just a collection of shopping malls, rides and food outlets of diminishing interest to media-savvy consumers.
In time, China will probably have its own Disney equivalent, (although with a Party content apparatus that puts Winnie the Pooh on the blocked list this will be an uphill struggle) but the bulldozer approach of Wanda’s Chairman Wang will not likely be the way to achieve it. It will require a longer and stronger investment in content creation and protection, leveraging the value of copyrighted content to turn bricks and mortar into the “magic” that generates strong economic returns generation after generation.
© Hugh Stephens, 2017. All Rights Reserved.
