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Has Disney capitulated to the Chinese Communist Party?

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At least since the financial crisis of 2008, and perhaps before, Disney has been a company in decline.

Having thrown astronomical amounts of money at unsuccessful ventures like the TV channel ESPN – which still struggles to contribute 1% to the company’s overall revenues – Disney has found its share of the market ever-decreasing. In 2013 it was over ten times bigger than rival Netflix, now it is less than three times bigger. Netflix’s revenue has grown by almost five times in the same period, from $4 billion to $25 billion, while Disney’s barely doubled. Netflix and other tech firms exploded during Covid-19 while Disney hardly grew at all, perhaps because it came late to the digital battle. Even now, their latest financial statement sees growth largely coming from the reopening of theme parks, rather than innovative new business streams.

Perhaps it is in the context of this decline that Disney has been tempted by the massive and lucrative Chinese market. And, maybe out of desperation, decided to embrace the Chinese Communist Party.

While most international corporations have put their principles to one side in pursuit of the massive Chinese market, few have been as shameless about it as Disney. Following Beijing’s brutal crackdown on individual freedoms in Hong Kong, Disney’s streaming service in the region fails to offer The Simpsons episode that mocks China’s terrible suppression of the Tiananmen Square protestors. Its recent film Mulan was partly filmed in Xinjiang province, where China is widely alleged to be engaging in a genocide against the minority Uyghur population – and thanks the Chinese government in the credits. The leadership of Disney has apologised to the Chinese authorities for making films about Tibet in the past.

Of course, Disney has a huge commercial interest in China: it has long aimed for its own channel on Chinese TV, and spent $5.5 billion on its theme park in Shanghai (while operating a smaller park in Hong Kong). In this somewhat cynical way, its kowtowing to China might make a degree of business sense.

But for an entertainment company that depends on freedom of speech and freedom of expression, such a close and one-sided relationship with the authoritarian Chinese Communist Party is nonetheless an awkward position to be in.

As Matthew Brooker of Bloomberg points out, not all entertainment companies are going down this dangerous road. Netflix, for example, still offers viewers in Hong Kong a documentary on the pro-democracy activist Joshua Wong, who was imprisoned in May last year. It also offers a South Park episode that satirises the efforts of US companies (like Disney) to conform to Chinese demands.

It’s true that Netflix has been struggling this year so far: its share price has dropped over 30% since the first day of trading. Many investors fear that with over 200 million subscribers, the company has reached a “saturation point” and that further growth will be difficult. Burning bridges with the Chinese government, and therefore being unable to tap the Chinese market, would hardly help allay such concerns. Sticking to its principles in China and Hong Kong might end up costing Netflix’s bottom-line.

That said, there is also the danger that Disney is being far too naïve in its relationship with China. There is every chance that, for all their efforts, it will always fail to satisfy the Chinese authorities. We saw this with the disastrous launch of Mulan, which was controversial in the West precisely because of how greatly Disney had pandered to the CCP. For no apparent reason, the authorities silenced all coverage of the film just a few days before it was due to be released. Mulan only made around $40 million in China and became “one of Disney’s worst-performing remakes.” Disney had alienated audiences in the West for no discernible benefit in China.

There is also the very real danger that the nationalist Chinese government fully intends to replace Hollywood companies like Disney with domestic alternatives. In Erich Schwartzel’s book Red Carpet, the author outlines how China has essentially used its relationship with Hollywood as an educational process; a way to build up intellectual capacity and know-how. The result today is that domestic filmmakers, serving party interests, are able to thrive – and Hollywood threatens to be frozen out altogether.  

Indeed, US filmmakers are already achieving an ever-smaller percentage of the Chinese market. While figures may be somewhat skewed because of cinema closures during the coronavirus lockdowns, only 15.5% of Chinese ticket sales were for US and foreign films in 2021 – a drop of over 20% since 2019. Long gone are the days when US filmmakers commanded half of the Chinese market. Now, the best performing films are patriotic, home-grown alternatives. According to film consultancy firm Artisan Gateway, the leading film in China currently is The Battle at Lake Changjin II, which has grossed at least $400 million so far. Recent films made by Warner Bros or Disney have struggled to hit the $10 million mark in China. It seems that Hollywood firms have taught China everything it knows, and no longer have a use:

And this is where Disney could run into trouble. It is at risk of putting all its eggs in the China basket at a time when the country is freezing out foreign rivals. In kowtowing to Beijing, Disney is also alienating its natural, home market. Western consumers are increasingly aware of Chinese human rights violations and, as the Mulan controversy showed, prepared to punish corporations who disregard them. In most major Western countries, including the US, there is now a bipartisan acceptance that business dealings with the Chinese authorities should come under much greater scrutiny. If they continue down this road, Disney executives should prepare themselves to be dragged to Capitol Hill to answer hostile questions from Congressmen about their relationship with the CCP – and potentially even see their China-based operations come under some kind of sanctions regime. Disastrously, could Disney end up frozen out of both the US and Chinese markets?

Disney is not only surrendering the principles that creative companies depend on in its China policy, but all sense of reason. Yes, China might offer a huge, 1.3 billion customer market. But it is one they simply will never be able to thrive in because the government will never let them. Disney would be well-considered to remember where their friends, and consumers, are. Because one day in the not too distant future, they might find that they have none left.

Author: Harry Clynch

#Disney #China #NYSE #CCP #Beijing #HongKong #Shanghai #Netflix #Hollywood

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