Business
Disney's Hong Kong Headache
The launch of its new theme park got off to a rocky start, but Disney's still got an appetite for the China market 
BY MICHAEL SCHUMAN

ILLUSTRATION FOR TIME BY HARRY HARRISON

Monday, May. 08, 2006
Disneyland is supposed to be "The Happiest Place on Earth," but Liang Ning isn't too happy. The engineer brought his family to Disney's new theme park in Hong Kong from the southern Chinese city of Guangzhou one Saturday in April with high hopes, but by day's end, he was less than spellbound. "I wanted to forget the world and feel like I was in a fairytale," he says. Instead, he complains, "it's just not big enough" and "not very different from the amusement parks we have" in China. His seven-year-old daughter Yaqin disagrees, calling the park "fantastic," but her father grumbles: "If she wants to come again, "I'll send her with somebody else."

Hong Kong's Magic Kingdom has so far been a little short on magic. The $1.8 billion theme park, which opened last September, was touted by Disney executives as its biggest, boldest effort to build its brand in China, a potentially vast new market for its toys, dvds and movies. The Hong Kong government—which aggressively wooed Disney and is the park's majority owner"hoped Disneyland would help secure the city's reputation as one of Asia's top tourist destinations. However, the conservative approach of Disney and its partner has produced a pint-sized park that so far hasn't matched visitors' lofty expectations. Hong Kong Disneyland has a mere 16 attractions—only one a classic Disney thrill ride, Space Mountain—compared to 52 at Disneyland Resort Paris. Meanwhile, management glitches involving everything from ticketing to employee relations have further tarnished the venture's image. In a recent survey conducted by Hong Kong Polytechnic University, 70% of the local residents polled said they had a more negative opinion of Disneyland since its opening. "Disney knows the theme-park business, but when it comes to understanding the Chinese guest, it's an entirely new ball game," says John Ap, an associate professor at the university's School of Hotel and Tourism Management.

Nonetheless, Disney executives insist the park is on track. Jay Rasulo, chairman of Walt Disney Parks and Resorts, says: "I feel great about how Hong Kong Disneyland is doing." Disney's own surveys of park visitors show an 80% satisfaction rate, among the highest of any of the company's parks, says Rasulo: "People feel this is a great experience."

The Burbank, California, headquartered company knows what it is talking about; it welcomed its 2 billionth visitor last week. And it is no stranger to tempestuous beginnings at an international park, at times caused by imposing a very American sensibility on foreign guests. When Disneyland Paris opened in 1992, Disney famously banned wine from park restaurants, much to the dismay of European bons vivants. In Hong Kong, Disney went out of its way to tailor the park to local tastes. Its "imagineers" installed Main Street's first Chinese eatery, along with Fantasy Gardens where Mickey Mouse, local favorite Mulan and other Disney characters reside so tourists can readily snap pictures with them—a priority for many Chinese visitors. Ironically, Disney's most high-profile stumble resulted from being too local. When executives decided to serve shark-fin soup, a Hong Kong favorite, environmentalists howled and Disney ignominiously yanked it from the menu.

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Another embarrassment came over the Lunar New Year holiday beginning in January, a popular vacation time in China. Disney neglected to block off the entire week as "special days" for which visitors required specific tickets. Tourists with valid tickets got turned away at the front gates after the park quickly filled up; the jilted travelers screamed at park employees, while TV cameras filmed one family trying to pass a child over the fence. Henry Tang, the city's Financial Secretary, voiced concern that this disarray "might affect the image of Hong Kong's tourism industry." Bill Ernest, Hong Kong Disneyland's managing director, says the company "had no idea" that demand would spike so sharply at that time and adds that Disney has since expanded the number of "special days" to improve crowd control during holidays: "We don't make the same mistake twice."

Disney has also strained its relationship with Chinese travel agencies, which play a crucial role in funneling tourists into the park. Victor Yu Limin, a general manager at China CYTS Outbound Travel Service in Beijing, complains that Disney originally demanded several weeks' notice when the agency wanted to reserve a guaranteed number of rooms"a nearly impossible deadline, he says, as Chinese travelers often don't finalize trips more than a few days in advance. Agents also say they make so little money organizing Disneyland trips that they don't have any incentive to market the park. Disney has tried to improve its ties to travel agents by, for example, boosting the commission they earn on selling tickets and reducing the advance notice needed to secure hotel bookings. "We're listening to everything they have to say and adjusting where we can," says Josh D'Amaro, Hong Kong Disneyland's vice president for sales and travel-trade marketing. But, Yu says, Disney is "still far from understanding the real market in China. They started off doing business the American way, so they have encountered problems."

Some workers assigned to play the parts of supposedly cheery characters like Mickey and Tigger have also complained. In April, the Hong Kong Disneyland Cast Members' Union made public a litany of gripes over poor pay, excessive work hours and, most of all, the sweltering conditions inside their costumes. Disney counters that the complaints are an "inaccurate representation" of the work environment at the park, that staffers have been granted extra rest days beyond those mandated by their contracts, and that their costumes are no different to those worn at its hot park in Florida.

Given the complexity of the Hong Kong operation, such "teething pains" are hardly surprising, says Rasulo. What may be tougher to solve, though, are the yawns the miniature park is generating among tourists. Rasulo says the park wasn't built on a grand scale because the Chinese didn't grow up with Disney and don't know the characters as well as Americans and Europeans do, which acts as a constraint on its potential audience. Ernest calls it a "great introductory park." They also point out that the company plans to keep adding new attractions at Hong Kong Disneyland, including an updated version of Disney's classic Autopia racing game, scheduled to open this summer. The government is reclaiming land on an adjoining site to expand the park further. But James Zoltak, editor of Amusement Business, a trade magazine for the theme-park industry, says Disney isn't moving quickly enough: it needs to "get on a crash course in terms of expansion. The rate of building it up has to be swifter than anything they've done at any of their parks."

While Ernest concedes that attendance is "a little behind" expectations, Disney is sticking to its target of 5.6 million guests in its first year. To hit these numbers, Disney is running aggressive promotions. Last month, the park offered free tickets for 50,000 Hong Kong taxi drivers, says Susan Chan, Hong Kong Disneyland's director of publicity, so they "can experience the Disney magic themselves [and] better share it with their passengers." And even if attendance lags for a while, Disney says the park is already benefiting its other businesses in Asia. Andy Bird, president of Walt Disney International, says there's been "a noticeable lift in our brand and character awareness" in China since the park's opening—for example, sales of Buzz Lightyear merchandise have jumped, in part because the character features in Disneyland's popular Astro Blasters ride. David Miller, an analyst at investment-banking firm Sanders Morris Harris in Los Angeles, agrees: "Hong Kong Disneyland has been a solid success in terms of opening up the brand in China."

Indeed, Disney continues to bet that its long-range investment plans in China will pay off, regardless of the recent headaches in Hong Kong. The firm is still in talks with Chinese officials about opening a mainland theme park, possibly in Shanghai, says Rasulo. "Have we made some mistakes?" he asks. "Absolutely. We are in a brand-new market. We have to keep listening and keep learning." Restoring Tinkerbell's health only requires a round of applause, but Hong Kong Disneyland will need a bit more work.

—With reporting by Jeffrey Ressner/Los Angeles and Jodi Xu/Beijing

From the May. 15, 2006 issue of TIME Asia Magazine