UPDATE 3-Disney wins China nod for Shanghai theme park

By Samuel Shen and Sue Zeidler SHANGHAI/LOS ANGELES, Nov 4 (Reuters) - The Walt Disney Co's breakthrough deal to build one of its signature theme parks in Shanghai marks a significant advance for Western media and entertainment firms trying to crack a tough China market. Wednesday's government approval for the theme park caps years of on-off talks between Disney and Chinese authorities, who are wary of too much foreign influence in the highly sensitive sectors of media and popular culture. The new park planned for the Pudong new district of China's financial capital will take years to contribute to a company that rakes in more than $30 billion in annual revenue. But analysts see the move as an important step forward for Disney and other Western media firms to make inroads into the vast and untapped Chinese media and entertainment market. "They've been laying the groundwork for a park for many years by exposing the population to Disney properties, film, TV and merchandising and adding a physical presence in the form of a park would really complete and add to the value chain in China," said Christopher Marangi, senior analyst with Gabelli and Co in New York. The breakthrough comes just two weeks ahead of a scheduled trip to China by U.S. President Barack Obama, a visit analysts had expected to help spur a decision on the park. The deal has been seen by some as a feel-good bilateral story, highlighting U.S. cultural influence and an investment that does not entail U.S.

manufacturing job losses, while China gets a boost to its leisure sector and to domestic demand as it tries to trim its dependence on exports. Disney will be hoping the Shanghai park, with an estimated price tag of $3.6 billion, will fare better than its Hong Kong property, which has struggled with lower-than-expected attendance and financial losses since it opened in 2005. SMALL STEP FORWARD Disney, Time Warner and News Corp have surprisingly little to show for their years of effort and extensive investments in China. "I wouldn't say this is a one-off gain," said Vivek Couto, executive director of Media Partners Asia, commenting on the deal's significance to the broader foreign media effort to gain a foothold in China. "But it's in a non-sensitive space. It's a theme park. It's got nothing to do with television content that can be politically sensitive or competitive with other major Chinese companies in the space." Even privately held domestic media can find the going rough, as leading Internet portal Sina found recently when it scrapped a merger with Focus Media due to government stonewalling over a deal that would have created a major new domestic media player. The key central government approval must still be followed by more detailed talks between Disney and Shanghai. Details that need to be finalised include ownership structure and local partners for the park, a source close to Disney told Reuters on condition of anonymity as talks were still ongoing. In the meantime, Beijing has handed down guidelines it wants followed on the deal's financial structure, as well as infrastructure requirements, the source said. "This means we have a new place to party and a new theme park to play," said Amanda Zhang, a Shanghai resident in her 30s. "I think whether it is for the government or for consumers like us, this is a very good improvement." HONG KONG COMPETITOR Disney's Hong Kong operation, which cost $3.5 billion initially and is preparing for a $465 million expansion, has not been as successful as initially envisioned. The new Shanghai park, which would be Disney's sixth, will inevitably affect the Hong Kong park, though the impact will be limited as the two will draw from different areas, observers said. "Visitors from Guangdong and southern China will still find Hong Kong more convenient, while Shanghai will attract visitors from northern and eastern China," said Paul Tang, chief economist at Bank of East Asia. Shanghai is close to a number of other major cities within easy driving distance, including Nanjing, Suzhou and Hangzhou. Shanghai's own population of around 19 million, combined with tens of millions more within a three-hour driving radius, would provide a more-than-ample base of local users for the park. Disney also doesn't view the two parks as competitors. "From our point of view, the Hong Kong and Shanghai parks are not competitors, they're complementary," said a Disney spokeswoman in Hong Kong. "We really believe that the greater China market is big enough to support multiple parks." (Additional reporting by Royston Chan in SHANGHAI and Doug Young, Don Durfee and Alison Leung in HONG KONG; Editing by Jonathan Hopfner and Lincoln Feast) (([e-mail]; [phone]; Reuters Messaging: [e-mail])) Keywords: DISNEY SHANGHAI/ (If you have a query or comment on this story, send an email to [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.