Why Is China an Important Market for Disney?



Disney is targeting China

Considering the rising popularity of English-language content around the world, US media companies are increasingly focusing on international markets such as China (FXI). The Walt Disney Company (DIS) has partnered with Alibaba (BABA) to operate DisneyLife, an OTT (over-the-top) content service in China.

However, late last month, the Wall Street Journal reported that DisneyLife was suspended in China at the behest of Chinese regulators. Last month, Chinese regulators also put a stop to Apple’s (AAPL) online book and movie service in the country.

One of the reasons for Disney’s tie-up with Alibaba to launch DisneyLife was that Chinese regulations prevent Disney from launching a channel in China. Disney has also tied up with Tencent Holdings (TCEHY) to distribute its ESPN sports programming in China.

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One of the reasons for the increasing popularity of English-language content in China has been rising Internet penetration in the country. According to a January 2016 report from the China Internet Network Information Center and as shown in the chart above, “China had 668 million Internet users” and Internet penetration of 48.8% as of June 2015.

Disney intends to leverage its box office success

Disney’s content has enjoyed rising popularity in China. Disney’s movie Zootopia has also proved to be successful in China. At a Deutsche Bank (DB) investor conference in March 2016, Disney stated that it believed its box office success in China could be successfully leveraged across its other businesses.

Piracy is a dominant issue in China when it comes to consumer merchandise. However, Disney believes that the growing Chinese population and the success of Disney’s movies creates an opportunity for the company to sell its licensed merchandise at affordable prices in China.

However, Disney considers censorship in China to be a big hurdle when it comes to television. Censorship issues have also been a hindrance for companies such as Netflix (NFLX).

Disney makes up 0.86% of the SPDR S&P 500 ETF (SPY). SPY holds 3.4% in the computers sector.


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