Disney Works Its Magic On China… No Wishing on a Star Required
by Tony D’Altorio, Investment U Research
Monday, July 12, 2010
Walt Disney Company (NYSE: DIS), like many other businesses, has taken to China.
Most companies that do make good money.
Yet for some reason, many U.S. executives are griping about their cash cow. Citing various government and business practices there, they cry foul left and right.
General Electric (NYSE: GE) CEO Jeff Immelt has been the most notable complainer so far… even though China contributed $5.3 billion to the company’s bottom line.
Fortunately, not every American company is busy behaving like a spoiled child. Some companies are showing good old American ingenuity in their Chinese dealings.
And Disney is definitely one of them.
The Disney Touch… China Style
Like GE and its fellow complainers, Disney faces a lot of obstacles in China.
For one thing, it has to deal with heavy amounts of piracy. It’s easier to come across illegal Disney DVDs or merchandise than the real deal.
The Chinese government certainly doesn’t help either. It limits the number of films shown in cinemas and on TV. Naturally, that places severe limitations on Disney’s reach into the country.
But the company’s executives aren’t complaining. Russell Hampton, president of Disney Publishing Worldwide, calls China “a challenging market for any international content company. But it is a promising market and as a company, it has a high priority for us.”
Because of that, the corporation bit the bullet, did the research and rose above it all. It even thought of a unique way to beat the counterfeiters.
The new strategy disperses Disney products and characters more widely throughout the country. And it brings in a pretty profit as it does.
Disney launched a chain of English language schools in China called Disney English. Geared towards children, the first education center opened two years ago in Shanghai.
That made it the first western media company to operate a school in China. And it now runs several more in the city, as well as a new one in Beijing.
By year-end, Disney expects to open another one there, to total 20 schools nationwide. In five years, it plans to have 148 across the country, teaching 150,000 children.
The schools are open to children ages 1 to 11, and feature a clever curriculum. All the content relates to Disney in some way, usually through its lovable cartoon creations.
China’s English Education Market… And Disney’s Cut.
That’s the way to go, considering the high demand for English education in China.
EF English First, the Chinese market leader in English instruction, recognizes this. A company spokesman, Ming Chen, says, “People in China – from primary school to university – spend more than 2,000 hours learning English but still cannot speak it.”
At the same time, opinion polls showed that Chinese parents want their children to have fun while learning the new language. So since Disney knows fun and Chinese parents know Disney, the schools caught on quickly.
Despite tuition costs of $1,770 – $2,200, business is booming. The rapidly growing middle class with rising disposable income means there is no shortage of willing parents.
Disney is already making money too. And Mr. Hampton foresees further profit. “It is a very sizable opportunity, something that can deliver operating earnings of well over $100 million in the next five years.”
China is the fastest growing private English education sector, worth an annual $2 billion.
So Disney’s estimate is probably conservative.
Best yet, the schools give the company greater exposure to Chinese consumers. They offer a bonding experience with a new generation that might otherwise be unaware of Disney characters, stories and products.
Overall, Disney is showing other American companies that they can succeed in China. It just takes a little ingenuity… and a magic touch.
Good investing,
Tony Daltorio
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- Money Talks… And Rosetta Stone is Speaking the Right Language
- Is China Being Overvalued?
- How One U.S. Manufacturer is Turning the Tables on Chinese Auto Makers
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