The Ever-Expanding, Profit-Maximizing, Cultural-Imperialist, Wonderful World of Disney

The serious business of selling all-American fun.

By Jonathan Weber

It's a sunny afternoon at the Window on the World theme park in the southern Chinese city of Shenzhen, and Chen Ping and Wei Qing Hua are strolling the grounds. A cheerful young couple from China's Hubei province, Chen and Wei migrated to this city, a remarkable symbol of the new capitalist China, to make money - he's a taxi driver and she works in a factory. They've come to the park this Tuesday to, well, see the sights.

"It's nothing special," concludes Chen as he surveys cheesy small-scale replicas of the Roman Colosseum and the Arc de Triomphe that anchor the "Europe" section of the park. The sprawling grounds feature dioramas of tourist attractions from five continents - including the Sphinx, Mount Rushmore, and a life-size African village - but there aren't many people around. Bored vendors hawk cheap trinkets, without much success.

Just a half hour train ride away, a rather more ambitious theme park is under construction. Slated to open in 2005, Hong Kong Disneyland will offer the sizzle, polish, and attention to detail that's woefully lacking in Shenzhen. Chen and Wei, already well acquainted with Mickey and Donald, say they'll certainly visit, visas permitting. "It would be very brilliant," says Chen. "If it comes from outside China, it's going to be better than what comes from inside. You just know it."

There could hardly be a better summation of the opportunity that American pop culture companies like Disney are enjoying overseas. With the end of the Cold War, the opening of China, and the worldwide triumph of American-style capitalism, the brand-name purveyors of American food, fashion, and entertainment have never had it so good. Hardly a city on the planet is without McDonald's and CNN and Levi's and MTV. American films are omnipresent and in some markets dominant, accounting for nearly three-quarters of movie admissions in Western Europe. Who Wants to Be a Millionaire is a hit in several Asian countries.

"If it comes from outside China, it's going to be "better than what comes from inside,"says a visitor "to a Shenzhen theme park. "You just know it."

For many countries, especially in the developing world, the ever-growing presence of the US culture industry is a mixed blessing. On the one hand, the pervasiveness of Americana can be seen as a sign of progress. US brands are symbols of wealth and modernity and freedom. Drinking coffee at Starbucks or taking the family to Disneyland signals the rise of a worldly middle class. On a more concrete level, Western companies often bring a measure of quality and service that are both a boon for local consumers and a prod for domestic firms to raise their standards.

At the same time, the enormous popularity of US brands overseas can pose a threat not only to a nation's domestic industries but to its cultural traditions and sense of identity. For decades now, intellectuals in Europe have lamented the Americanization of their societies. Euro Disney, now known as Disneyland Paris, was once famously denounced by the French theater director Ariane Mnouchkine as a "cultural Chernobyl." In the developing world, cultural imperialism has long been seen as the handmaiden of political domination, another way for strong countries to take advantage of the weak.

Even champions of globalization increasingly fret that it may damage or destroy the diversity that makes the human race so fascinating, leaving nothing but homogenized, least-common-denominator forms of creativity. In the wake of September 11, there is a new urgency to these concerns. The fury of the terrorists - and of the alarming number of people around the world who viewed the attacks as a deserved comeuppance for an arrogant, out-of-control superpower - is sparked in part by a sense that America is imposing its lifestyle on countries that don't want it. And one needn't condone mass murder to believe that a new world order that leaves every place on the globe looking like a California strip mall will make us all poorer.

No company conveys more powerfully the image of a conquering cultural army than Walt Disney. Its founder was a true-blue patriot who saw himself as a proselytizer for the values of the American heartland. The company's products and services - unlike, say, fast-food hamburgers or sugary soft drinks - are not merely symbolic of the American way of life, but contain as part of their essence a set of beliefs about good and evil and human aspiration. Disney, moreover, has throughout its history been extremely shrewd about building mutually reinforcing products across many different kinds of media, with theme parks and TV shows, movies and merchandise, all working together in service of the Disney way.

The company's drive for the China market shows how this machine can work overseas. Seen from the outside, the strategy seems quite savvy. It began with elemental Disney - its cartoons - which first aired on Chinese television in the mid-1980s, just as the country was opening up. Chinese entrepreneurs kicked in a flood of pirated videos and counterfeit merchandise, which did nothing for Disney's bottom line but had the effect of spreading its characters at viral speed.

In 1997, Disney's Miramax label released Kundun, a Martin Scorsese film about Tibet that angered the Chinese leadership. But behind the scenes the company was also working on Mulan, an animated blockbuster that brought a traditional Chinese fable to a global audience with classic Disney production values. In the wake of Mulan's warm reception, Disney cut a deal with Hong Kong to build a theme park, and attendance there will no doubt get a boost from a major new television agreement, announced in December, under which Mickey Mouse cartoons will appear daily, in kids' prime time, on China's biggest television channel.

Disney executives, including CEO Michael Eisner and COO Bob Iger, make regular trips to China, meeting with top leadership to pave the way for more deals. One possibility: a theme park in Shanghai. Meanwhile, China has become the world's largest producer of licensed Disney merchandise, which helps company executives when they push the government to crack down on the unlicensed variety.

Despite all this, the image of Disney - and of America in general - as an unstoppable cultural juggernaut is misleading. The truth is that selling American culture overseas is a tricky business. Disney and other big global brands are driven not by grand plans to promote American values, but rather by incremental, pragmatic, financially oriented, market research-based business decisions - and even then, the companies struggle mightily to make their initiatives work. Success depends on some rather mundane factors: Have you selected good local partners? Do your executives understand local traditions and speak the language? Have you developed an organization that allows for strategic coordination across far-flung locations? Have you earned the goodwill of citizens groups and government officials?

In most countries, media-related industries in particular are still dominated by domestic firms, and there is little reason to think that will change in the near future. Disney gets less than 20 percent of its revenue from overseas, a share that's been stagnant even though management has long cited the international market as a major growth area. The company's experience abroad suggests that even in this age of interconnection, where the combination of technology and American hegemony makes a shallow global monoculture a possibility, that dull new world won't be arriving anytime soon.

Just as it did in France, Disney squeezed a sweet deal out of the Hong Kong government. For starters, the company threatened to build the park in Shanghai.

The Burbank, California, headquarters of the Walt Disney Company sits on the impeccably manicured Disney Studios lot, surrounded by paths with names like Mickey Avenue and Dopey Drive and featuring a roof held aloft by 19-foot-high statues of the Seven Dwarfs. But as self-consciously cheery as it is on the outside, there's nothing lighthearted about what's happening inside. In the sprawling executive suites, the ambience is high corporate rather than California casual, reflecting the relentlessly competitive, hierarchical style of the CEO Eisner.

It is Eisner who can claim credit for transforming Disney from a drifting, dated icon of American middle-class entertainment into a global media superpower, one that trails only AOL Time Warner in scope and scale. The ghost of Walt, the creative genius who invented most of the famous characters as well as the concept of Disneyland, still inhabits many corners of the company. But as befits a huge, publicly traded corporation, the true guiding spirit today is the bottom line. When Eisner took over in 1984, Disney had $1.7 billion in revenue, hardly any profits, and a miserable reputation both in Hollywood and on Wall Street. Today, thanks to aggressive exploitation of the signature characters, continued success in developing new animated hits, the revival of the movie studio, and the 1996 acquisition of Capital Cities/ABC Inc., Disney boasts revenue of more than $25 billion and employs 120,000 people worldwide. With its global outlook and willingness to experiment in multiple media, Disney is a member of the Wired Index, the 40 businesses charting the future of the economy. The company certainly has its share of problems: Growth has slowed, the stock has sunk, and the advertising downturn and post-terrorism tourism slump have made bad conditions even worse. Still, no one questions its staying power as a dominant media brand.

Disney, in fact, can be a remarkable machine, and over the last decade it has been one of the few businesses of any kind that gives real meaning to the term synergy. Take a hit animated film like The Lion King. Released in 1994, it has grossed more than $765 million at the box office worldwide - and that's only the beginning. There was a best-selling record album, live stage shows (currently in four cities), cartoons on the Disney Channel, a Toontown attraction at Disneyland, a vast array of merchandise, and extraordinarily lucrative home video and DVD sales. In all, The Lion King franchise has contributed more than $1 billion to Disney's bottom line, says Sutro &Co. analyst Dave Miller.

What's more, much of the Disney empire is easy to export. The characters have long been popular overseas; Mickey Mouse is among the most recognized icons in the world. The animated feature films travel particularly well, since they can be seamlessly translated into other languages, and they are often big hits abroad. (Tarzan, for example, has cleared $449 million at the overseas box office since its release in 1999.) Disneyland Tokyo, opened in 1982, has been an unalloyed success, and the new Tokyo Disney Seas park, which debuted in September, appears poised to repeat that performance. Disneyland Paris had a terrible couple of years after opening in 1992, but it's now doing well enough that a Disney Studios park is about to move in next door. More than half of the sales of Disney merchandise come from outside the US. And because Disney stands for family entertainment and steers clear of political issues, it's even been mostly immune to a rising anti-American corporate backlash.

Yet with all of that, until a couple of years ago, the company had no real international strategy. "We had a couple hundred legal entities overseas that needed to be consolidated - we were not world class in that," says Michael Johnson, a cheery veteran of the home entertainment division who now heads up the entity called Walt Disney International. "We were spending a huge amount of money. We didn't have a grip on some of our characters and how they were performing. It was a legacy of these huge silos."

The silos Johnson is referring to are Disney's five lines of business: Media Networks, Parks and Resorts, Consumer Products, Studio Entertainment, and Internet. In principle, each business unit should constantly reinforce one another. In practice, each often goes its own way - especially overseas. To fix this problem, the company in 1999 created a system of country managers explicitly charged with coordinating brand strategy. That made a lot of sense. But so far it hasn't made a difference to the bottom line: International revenue inched from $4.2 billion in 1999 to $4.3 billion in 2001 even as domestic sales jumped by $1.7 billion.

With its massive population and emerging economies, Asia is the promised land for American culture merchants. And Japan, by far the richest country in Asia, is the logical first stop. Disneyland Tokyo has helped the company's animated movies and toys become staples for Japanese children. The new Disney Seas is one of the company's most innovative projects; aimed at adults as much as kids, it features beautifully crafted, self-contained environments such as the American Waterfront and the Mediterranean Harbor. A visit in November found both Tokyo parks mobbed, not just with families but with teens on dates, middle-aged couples, and even the occasional group of retirees. "We grew up with the Disney characters, so we feel comfortable with them," said repeat visitor Hideko Seki, a 36-year-old magazine designer from Kawasaki, Japan. The two Tokyo parks expect to draw some 25 million visitors in the first full year of Disney Seas operations.

That's the good news for Disney. The bad news is that it does not actually own these parks. In order to reduce the financial risk, Disney licensed construction and ownership of both Japanese parks to the Oriental Land Company. As a result, it earns only royalties and management fees. That's pure profit - Sutro analyst Miller estimates it at $200 million a year - but not the kind of windfall that would come with full or even partial ownership.

All the synergy Disney can muster doesn't guarantee success in China. Plenty of Western companies have discovered this promising market to be a mirage.

Japan is famous for its willingness to adopt Western culture even as it remains highly insular. One of Disney Internet's rare successes has been in the Japanese wireless market, where for reasons few understand, people are willing to pay to download cartoon characters onto their cell phones. But even here, Disney faces challenges. For one thing, Japan has its own strong tradition of animation. (Disney has even licensed the works of one top Japanese animator, Princess Mononoke creator Hayao Miyazaki, for international distribution.) It is also adept at creating its own pop culture characters: Think Pokémon and Power Rangers and Hello Kitty. Finally, there's the slumping Japanese economy. So while Japan remains Disney's biggest market outside the US, it's still a niche player with limited growth prospects beyond the new theme park.

Which explains why Disney's been looking farther west, to China. There could hardly be a more enticing market: a billion people, rapidly getting richer, who turn to foreign brands both for symbolic value and superior quality, and who are devoted to their families. Disney products, moreover, are seen by the Chinese authorities as politically innocuous - unlike, say, how they view AOL Time Warner's CNN. Chairman Mao once referred to Western movies and art as "sugarcoated bullets" and sought to eradicate them during the Cultural Revolution. But the pragmatists who run the Chinese Communist Party today have no such qualms about Disney. "We're a family entertainment company, and that is pretty well understood by the government officials," says Jun Tang, Disney's vice president for China affairs. The characters, especially Mickey and Donald, are part of the fabric of Chinese culture. A hip teen wandering the Window on the World park in Shenzhen says Disney is no longer cool - and yet there's a battered Mickey Mouse doll hanging from her backpack.

For Disney, as for most Western companies, the China strategy begins in Hong Kong. In this citadel of commerce, the countless shopping malls could be straight out of an American suburb, and people snap up Western goods without a second thought. Tai-Lok Lui, a professor of sociology at the Chinese University of Hong Kong, attributes this to the fact that Hong Kong is a society of migrants who chose to leave their culture behind in order to pursue a new beginning. America, he says, has always represented "high tech, consumption, a comfortable way of life." Whether it was the moon landing or Star Trek or US soldiers coming ashore on leave, the image of America is of a distant but powerful and glamorous place. "We would watch Bewitched, and we'd be bewitched by the modern American kitchen," says Lui.

Disney began eyeing Hong Kong as a possible theme park location in the mid-'90s, just after it opened the Paris park. Asia was the obvious next market, and Hong Kong had the right mix of high per-capita income, solid infrastructure, and knowledge of the tourism business. And it had the hunger. The Hong Kong economy fell into the doldrums following the departure of the British in 1997 and the Asian financial crisis in 1998; local leaders were terrified that it would be overwhelmed by a resurgent mainland China. Unemployment was rising, and tourism was hurting. Disney looked like a good fix for both of those things.

Just as it did in France, Disney squeezed a sweet deal out of the government - in part by threatening to build the park in Shanghai. Mike Rowse, the Hong Kong government's lead negotiator on the deal, quips: "They had the S-word and we had the U-word," referring to Disney's theme park rival Universal. It's not clear whether Shanghai was a real option; Steve Tight, a senior vice president in the Parks and Resorts group who leads Disney's Hong Kong project, says there still aren't enough people in China who can afford Disneyland. But sources say the deal almost collapsed when Disney insisted that Hong Kong promise it exclusivity - meaning no other foreign theme parks - but was unwilling to reciprocate with a promise not to build on the mainland. In the end, there is no exclusivity, and there may yet be a park in Shanghai someday.

If Disney erred in Japan by not having ownership - and erred in the other direction in Europe by assuming too much financial risk - in Hong Kong it's determined to find the right balance. In exchange for an investment of $314 million, Disney will own 43 percent of the park and earn royalties and management fees. The Hong Kong government, meanwhile, gets a majority stake in the park, but only after spending $1.7 billion on land reclamation, roads, and other infrastructure, plus $417 million for its majority equity stake. In addition, the government will lend the joint venture another $718 million. All in all, it's a good enough deal for Disney that some in Hong Kong have denounced it as a giveaway.

The park is a key Disney wedge into the region - even though it's just part of a larger Asian strategy. At Disney's Asia Pacific headquarters off Hong Kong's Times Square, more than 20 different Disney entities are trying to build the brand. Jon Niermann, an ebullient young marketing maven, is charged with "bringing everyone together at one Disney table," as he puts it, persuading, say, Buena Vista Entertainment Asia Pacific to work with Consumer Products. There's a weekly meeting with all the regional line-of-business managers. There's a weekly conference call with all the country managers. There's a "synergy calendar" on Niermann's wall, charting the major film and video releases and the marketing programs that will go along with them. On this day, Niermann is excited about an initiative to roll out a new line of merchandise based on Marie, a cat, in local Disney stores. "Asians love cats," says Niermann. "Music came to the table, and we pulled in a local canto-pop duo" to help launch the promotion. "TV got behind it by giving local TV exposures. The people who worked on this all wore two hats."

Niermann has high hopes for Disney's new China Central Television deal, under which 142 episodes of Mickey Mouse cartoons will be featured on the leading children's TV program on a major Chinese station. The arrangement is something of a coup because the channel reaches 75 percent of all Chinese TV sets - a cool 225 million households - while most foreign programming is still relegated to satellite channels with far less reach. Disney's Jun Tang says it's just one in a range of brand-building initiatives, from book publishing to animated films to shows like Disney on Ice and the Broadway version of Beauty and the Beast, both of which recently played in China.

But all the synergy Disney can muster in China doesn't guarantee success. Plenty of Western companies have discovered this promising market to be a mirage. For Disney, the theme park is close to a can't-miss proposition; it needs to draw only 5.5 million people a year - just one-third of what the Tokyo park gets - to meet company projections. (Disney predicts about one-third of the visitors will come from Hong Kong, one-third from the mainland, and one-third from elsewhere in Asia.) The market research shows that locals want the original Disneyland, not Sino-Disney, so there won't be a lot of execution risk on the creative side. Some wonder whether the impatient Chinese will put up with the lines, but if Americans are willing to wait two hours for a five-minute ride, the Chinese probably will be, too.

"America is not a country, it's an idea, a place where you can be what you want to be. The Disney brand is almost exclusively dependent on that."

On other fronts, though, it's still an uphill battle. China Central Television has been making deals with most of the big Western broadcasters; Disney won't disclose the terms of its new arrangement, and it's not at all clear that it will be a significant moneymaker. "China has been very smart in the way it's done these deals," says Andrew Collier, Asian media analyst for Bear Stearns. "It's not going to let Western companies take a lot of profit." In the merchandising business, China has been home to so many counterfeit Disney goods for so long that it may be tough for the real thing - at Disney-style prices - to make inroads. And with movies, China retains strict caps on the number of Western films it will allow to be screened. Disney has enjoyed more than its share, but China is still a rounding error in overall box office statistics.

China's love-hate relationship with the West dates to the arrival of European colonialists in the 19th century. Even today, the increasingly pro-Western sentiment can quickly melt away. When NATO bombs accidentally hit the Chinese embassy in Belgrade during the Kosovo war, furious anti-American protests erupted throughout China. KFC franchises were stoned, and MTV was yanked off the air. "China is enthralled by America, and repelled by it, and at the same time overwhelmed by it," says Orville Schell, a China scholar who is now dean of the Graduate School of Journalism at Berkeley. "It's an absolute contradiction." Schell says the government tries from time to time to "curry popularity by surfing on anti-Western sentiment," but it's also eager to get the help of Western companies in building a more modern and prosperous country.

These contradictions exist in many countries; Islamic fundamentalists may denounce the Great Satan, but that doesn't stop them from drinking a Coke. In most industries, though, ambivalence about America doesn't much matter, because the products are basically value-neutral. A computer is a computer no matter who the manufacturer is, and while one might dislike modern multinationals, or believe that American computer imports are hurting local makers, IBM as a brand doesn't really represent anything other than good technology. Its machines don't speak any language other than binary.

But the culture industry is different. Disney and other media brands are fraught with emotional and psychological undercurrents. Disney represents certain ideas: fun, family, personal freedom, optimism about life and about the future, confidence that good will triumph over evil. These are in many respects universal Western Enlightenment values, rather than specifically American ones, and company executives say their market research shows that people are not drawn to Disney because of its connection to the United States. Yet analysts of global branding - as well as every Disney customer interviewed for this story - affirm that those who buy Disney products overseas are keenly aware that the items are foreign. Indeed that is part of the appeal.

"American brands are about anything being possible - the core value of all of them is optimism," says Martyn Straw, president of the consultancy Interbrand. "America is not a country, it's an idea; there is a distinction between America as a geopolitical entity and America as a concept, a place where you can be what you want to be. These themes play around the world, and the Disney brand is almost exclusively dependent on that."

The paradox, though, is that even as people are drawn to American brands as symbols, when it comes to actual cultural content, they are looking for something more. They want the production values they associate with modernity and technology, whether it takes the form of a state-of-the-art theme park or a fast-food restaurant that is clean, air-conditioned, and offers good service. At the same time, they want things tailored to their tastes. Disneyland Hong Kong, for all its loyalty to the original, will feature a broad selection of Asian food as well as shows and special events that are built around local holidays. Even McDonald's, a symbol of monoculture if ever there was one, insists that its success overseas is due to the creativity and innovation of its local franchisees, who can modify menus to suit local tastes.

In the TV business, the need to localize is especially evident. For one thing, most people want to watch television in their own language, even if they speak English, and dubbing imported programs goes only so far. "If you want to create things, they have to be of that culture," says James Murdoch, son of the Aussie magnate and head of the Asian satellite broadcaster Star Television. He cites the development of more local programming as the key factor in improving the performance of Star, whose original model was based on Pan-Asian English-language programming. In China and India, Star's Mandarin and Hindi channels outdraw its English ones by huge margins. Almost by definition, television programming in Mandarin or Hindi is going to be a local product, even if it carries the patina of an international brand.

The same is true over at MTV, another successful purveyor of American culture. "Our product changes dramatically from region to region," says Bill Roedy, head of MTV Networks International. "We're all about different languages, different VJs, different themes. We are the antithesis of homogeneity." He says MTV's 33 channels around the world tend to have 50 to 80 percent local content. Harry Hui - until recently head of MTV Asia and soon to move to Universal Music - says the glamour of MTV is what brings people in, but the quality of the programming is what keeps them.

Even in the Internet business, which ought to be intrinsically the most global, the trend is toward localization. In China, Disney handed over management of its Mandarin site to a local company, Sea Rainbow. AOL, which has a presence in 17 countries, doesn't use the America Online branding anywhere except in the US and Latin America, and while the overseas operations piggyback on the mothership's technology, they are otherwise locally run, mostly with partners who own a substantial equity stake.

Iconic brands have enormous power, but they also impose constraints. Disney is so closely identified with family entertainment that it can be difficult for the company to get outside that box. To grab its share of the teen and adult movie markets, for example, Disney produces films under the Touchstone, Hollywood Pictures, and Miramax labels. Likewise, Disney's biggest new international opportunity does not carry the Disney brand. Seeking to shore up its position in the fierce competition with the Cartoon Network and Nickelodeon, Disney recently spent $5.2 billion to buy the Fox Family Network from Rupert Murdoch. With 35 million viewers in Europe and Latin America, Fox Family has much greater penetration overseas than the Disney Channel. Its programming - edgier than Disney's, and thus in many ways more appealing to today's all- too-sophisticated kids - will be branded ABC Family, not Disney. Ironically, success with non-Disney brands, notably the ESPN sports network, will be a major factor in the long-term fortunes of the company's international operations.

Even more critical to Disney's success abroad is its performance in the US. After all, international customers are not going to be enamored of an American brand that's in decline at home. And Disney has had a tough few years. Network television is an increasingly difficult business as TV choices proliferate. The merchandising unit appears to be suffering from market saturation, and the company is closing about 100 of its roughly 750 Disney stores. Competitors are more powerful than ever, be they DreamWorks in animation or MGM/Universal in theme parks. The Internet business has been a fiasco - not only for Disney, to be sure, but it's been costly nonetheless. The setbacks have hurt Disney's stock price, which peaked in May 2000 at 43 7/8 and this past December was trading at 22. The current downturn in advertising and tourism will reverse itself eventually, but not before it takes a big bite out of profits. Eisner says the brand has never been stronger. But some analysts suggest that "age compression" - essentially kids growing up faster - poses a long-term threat.

Disney's challenges both at home and abroad illustrate just how hard it is for even the biggest of American brands to keep growing - and give lie to many of the fears people have about cultural imperialism. Unlike other industries - oil, say, or agriculture, or even technology - culture businesses depend on giving people what they want, as opposed to what they need. It is true that the giant media conglomerates can sometimes suffocate competition and choice. But in television and theme parks in most of the world, there has never been much competition anyway, and in the sale of plush toys it is hardly an issue. For the most part, people will decide what elements of American culture they want. The Disneys of the world are slaves to the tastes of Chen Ping and Wei Qing Hua, not the other way around.