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Source: www.asiaecon.org |


The magic of Disney may be fading in Hong Kong as the joint venture between Walt Disney and the Hong Kong government is in jeopardy. The park was supposed to be Disney's foothold into the lucrative Chinese market, but since opening in September 2005, the theme park has steadily been losing money. Now the company is laying off workers and putting expansion plans on hold.

The magic of Disney may be fading in Hong Kong as the company is laying off workers and putting expansion plans on hold.

The expansion of the theme park was originally scheduled soon after the opening, but the long-delayed growth plan has now beenput on indefinite hold after failing to agree with the government on a cash infusion. An agreement has been difficult to reach after Hong Kong Disneyland’s visitor number projections failed to reach initial bullish predictions and with the key Chinese tourist market now bogged down by a worldwide credit crunch and a decelerating economy.

The 4.27 million tickets sold in 2007 were well below the 5 million who visited in 2006, the first full year of operation and well below government projections before Hong Kong Disneyland opened. In 2007 Disney agreed to waive management and royalties fees for two years after the joint venture failed to meet performance targets. Although Disney does not release financial figures, EuroMonitor estimates the park made an operating loss of $46 million in the year ending June 2006, and lost $162 million the following year. Estimates for 2008 were not available.

The main complaint about the Magic Kingdom park is it diminutive size. The Hong Kong version is the smallest of Disney’s theme parks, and some visitors have carped that it’s too small to bother returning for a second visit. And now with the expansion plan on hold, the long term security of the park is in serious doubt.

Moreover, Disney said it would fire about 30 Hong Kong-based employees dubbed “Imagineers” that had helped conceptualize and plan the expansion. Some jobs might also go at Disney’s home-turf of Burbank, California, as a result of the work stoppage. Disney announced in an official statement that “The uncertainty of the outcome requires us to immediately suspend all creative and design work on the project.”

Scrapping expansion plans could threaten the park’s viability. The park occupies just 126 hectares and includes two hotels. Hong Kong Disneyland Managing Director Andrew Kam has said expansion is vital to the park’s success. Speaking to reporters back in September, Kam said the park had plenty of room to grow, since it was only using half of the land available. “Expansion is part of the strategy to make this park work for Hong Kong,” he said. Both Disney and the government are “very much interested in growing the business,” said Kam, adding that new rides and features “will drive our future growth.”

Local reports have put a $500 million price tag on the proposed expansion, which would increase the size of the park by about one-third. Although they are currently at an impasse about how to fund expansion, the two sides have agreed in the past to make some additions. For instance, the addition of the attraction “It’s a Small World” helped boost visitors for all of 2008 by 8% compared to 2007.

However, at least from Disney’s perspective, walking away from Hong Kong would not be a catastrophic loss. The company has another China option, since it is talking with Shanghai officials to open a theme park there that would be much larger and easier for many Chinese families to visit. “Now that the government has decided not to support Disneyland in Hong Kong, Walt Disney is going to shift its focus towards its newand arguably more exciting China project—Disneyland Shanghai,” Parita Chitakasem, an analyst with consulting firm EuroMonitor, wrote.

That’s why the threat of Disney walking away and focusing on the Shanghai project may force the hand of Hong Kong government officials. “The bottom line is that the government needs Hong Kong Disneyland to keep expanding in order to stay as competitive as possible as a tourism destination,” says Chitakasem. “With this in mind, it would definitely be in the Hong Kong government’s best interest to come up with the cash, despite its disappointment in Disneyland Hong Kong so far.”

Source: www.asiaecon.org |

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