Icy reception for Disneyland’s $1.4bn ‘Frozen’ reboot in HK

02-Dec-2016 Intellasia | FT | 6:00 AM Print This Post

City government to defer support for theme park expansion

Disney’s plans for a $1.4bn Frozen-themed reboot of loss-making Hong Kong Disneyland has met with an icy reaction from the city’s lawmakers, who must approve the government’s portion of investment in the joint-venture project.

Members of Hong Kong’s Legislative Council this week passed a motion to defer the city’s $740m support for the expansion, which would also see theme park revamp its Sleeping Beauty Castle and add a Marvel-themed zone, until The Walt Disney Company improves the “unfair terms and conditions”.

Plans for Hong Kong Disneyland were first agreed in 1999, when Hong Kong’s economy was in the doldrums. While Disney views the park as a commercial investment, the Hong Kong government sees it more as a loss-leader to boost the wider tourism industry.

The park, which is 53 per cent to 47 per cent joint venture between the Hong Kong government and the US entertainment group, has only turned a profit in three of its 10 years of operation. It has made cumulative losses of HK$3.3bn ($430m) since 2008, the first year in which financial figures were disclosed.

“I’m for the further expansion of Disneyland but the deal has been too skewered to Disney’s interest over the past 10 years,” said Michael Tien, a lawmaker from a pro-government party.

Tien, a retail entrepreneur, said Hong Kong was the victim of an “unfair treaty” because Disney was able to charge sizeable management fees and royalties despite the losses suffered by the joint venture.

“I’m asking for the government to negotiate with Disney a waiver clause for royalties in the years when we run a loss,” he said.

Disney charges the Hong Kong joint venture royalties of 10 per cent on ticket sales and 5 per cent on merchandise, food and hotel spending. It also takes a base management fee of 6.5 per cent of earnings before interest, tax, depreciation and amortisation, and a further variable fee based on performance.

Tien estimated that Disney had made “at least HK$1bn-HK$2bn” in such fees from Hong Kong Disneyland over the past decade, although the company declined to disclose the figures.

Attendance at Disneyland Hong Kong dropped 9 per to 6.8m in the year to October 2015, as heightened political tensions with Beijing led to a slide in mainland tourists. The park slumped to a net loss of HK$148m from a HK$332m profit the previous year.

The Hong Kong government and Disney are under pressure to keep investing to maintain the attractiveness of the park and see off competition from an explosion of rivals in mainland China, including the new, far bigger $5.5bn Disneyland in Shanghai.

James To, an opposition lawmaker, said that while the Frozen and Marvel zones would probably be popular, he was concerned about Chinese competition and the threat from new technology such as virtual reality.

“The life cycle of these attractions is only five or 10 years and it is getting shorter and shorter because of the pace of technological change,” he said.

To said that if Disney would not renegotiate the terms of its agreement with the Hong Kong government then “we should critically review whether to withdraw our shareholding”.

He said there was rare cross-party support for this tough negotiating line in the usually bitterly divided Legislative Council.

Gregory So, Hong Kong’s commerce secretary, said the expansion plan was important for the city’s economy but admitted he would need a “super power” to convince lawmakers.

Disney said the proposed expansion would end up “enhancing Hong Kong Disneyland and Hong Kong’s competitiveness in the region and creating tremendous economic benefits”.

https://www.ft.com/content/8d3487e4-b6e2-11e6-ba85-95d1533d9a62

 


Category: Hong Kong

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