The Disney You Knew Was Never Quite the $150 Billion Giant. Now It Is

Disney has struck a deal with SMG, its latest move to "enter China." But "Disney is coming" isn't quite fair: the company has been in China all along, and policy and other limits have only let it in "a little at a time." This year marks the 90th anniversary of Mickey Mouse, Disney's classic cartoon character, and Chinese audiences are about to see the most complete Disney they have ever seen.

At the end of last month, The Walt Disney Company (Shanghai) Ltd. and the Shanghai Media Group (SMG) signed a partnership, which means the two will work together on film and television over the next few years. In 2016 we will see Born in China, a Disneynature documentary about China's wildlife and natural landscapes. Before that, Disney had also announced a cooperation agreement with SMG Pictures. Either way, we will see many Disney brands developed by the two together.

Disney's deals with SMG, together with the Disney theme park opening in Shanghai in 2016, add up to the most complete Disney Chinese audiences have ever seen. Until now it has appeared only in scattered pieces, at different times: on store shelves, on cinema screens, in television programs. Set against a company with a vast media network in the United States, 180,000 employees worldwide, revenue of US$45 billion in 2013 and a market value of US$150 billion, the Disney that Chinese people knew was only ever the tip of the iceberg. That is why we wanted to write this article: the company is much bigger than you think.

In fact, this year is the 90th anniversary of Mickey Mouse's birth, and Disney has never stopped trying to enter China since 1930. People born after the 1970s probably remember certain moments more clearly: Mickey Mouse and Donald Duck on China Central Television (CCTV), the release of The Lion King, the first time they saw someone on the street with a Mickey Mouse school bag. Disney's business in China is like an unfinished jigsaw puzzle, with new pieces added in different periods, and now we are about to see almost the whole picture.

1. In the 1930s, Snow White and Mickey Mouse Came to China

"Disney is here." People waiting for the Shanghai Disney theme park to open may say this without thinking, but for a company that first greeted Chinese audiences in the 1930s, the phrase is hardly fair. On February 8, 1938, Snow White and the Seven Dwarfs, Disney's first feature-length animated film and the first full-length color animated film in American film history, premiered in Shanghai, the first place in Asia to show a Disney animated film. The Shanghai premiere came only a few months after the film's worldwide release. In the 1930s and 1940s, wartime China could watch a great many Hollywood films, which took more than 75% of the Chinese film market. During the Sino-Japanese War, cinemas showed Charlie Chaplin, Shirley Temple and Snow White.

Disney's 1930s belonged to Snow White and Mickey Mouse, but Mickey stood out more. He was Disney's first cartoon character. On November 18, 1928, he reached the big screen in Steamboat Willie, Disney's first animated film with sound, and became a huge hit. By the early 1930s Disney was already making money by licensing Mickey merchandise, and in the 1940s it made its first stereophonic film, Fantasia, also starring Mickey. Over the following 86 years, Mickey appeared in more than 130 animated shorts.

2. Disney Went On to Create Many More Characters, but China Couldn't See Them

From 1949 to 1986, that is, from the founding of the People's Republic to ten years into reform and opening up, Disney released in the United States Winnie the Pooh and Cinderella, both of which also became classics, as well as Mary Poppins, its first film to combine live action and animation. In China, though, Disney could do little, like every other foreign company. Still, in 1978 Robert Iger, now Disney's CEO and then working at the American Broadcasting Company (ABC), visited China, and his ideas about the country began to take shape from then on.

It was also during these years that Disney grew from a content maker into a company that produced and distributed its own work and could run theme parks on its own. In 1952 Disney set up WED Enterprises by itself to plan its theme parks, and the following year it founded Buena Vista, a dedicated distribution company, to handle Disney releases. Disney theme parks opened in California and then Tokyo, the Disney Channel went on air, and the famous touring ice shows got under way.

But for the time being none of this had anything to do with China. By the time the company re-entered China, it had changed its name from "Walt Disney Productions" to "The Walt Disney Company," and its revenue had passed US$200 million for the first time.

3. When Chinese Audiences Saw Disney Cartoons Again, Disney Was Already Building a Media Network

"Mickey Mouse and Donald Duck" is the first thing Chinese people think of when they talk about Disney today. The company re-entered China in 1986, when a licensing agreement with CCTV put the cartoon Mickey Mouse and Donald Duck on air on Sundays, but its room to maneuver remained very limited. Hong Kong was Disney's way in. Two years later Disney set up its regional consumer products headquarters there, and its cartoons began airing on TVB.

In the early 1990s, products once found only in Hong Kong finally reached stores in China. While Chinese people still thought of Disney as just "Mickey Mouse and Donald Duck," or "the company that makes cartoons," Disney had long been making live-action films, the first being Treasure Island in 1949. Its China business still moved slowly until 1994, when a television program called The Little Dragon Club began airing on more than 40 city TV stations. It was in fact an ABC program, but not long after it launched, ABC was bought by Disney, and only then did a generation of primary-school children who watched TV behind their parents' backs get to see many Disney-made programs.

The Little Dragon Club still airs on CETV-1 at 4:30 every afternoon. But since 2006, when foreign cartoons were banned from prime time (5 p.m. to 8 p.m.), it has shown only Chinese animation.

In those years Disney concentrated on building its own media network. Besides ABC, it owned ESPN, the most profitable sports channel and the largest sports cable network in the United States, which now has paying subscribers in households covering more than 32% of the American population (97 million). When Comcast once tried to buy Disney for US$66 billion, this money-making sports channel was what it wanted most. ESPN has also worked with partners in Asia on and off since 1992, but it never entered mainland China.

4. The Lion King Opened in Mainland China, but That Too Was Only the Tip of the Iceberg

The Fugitive, released in 1994, was the first imported blockbuster shown in China since the founding of the People's Republic. A year later Disney's The Lion King opened. Disney made nine films in 1994, and this was the only one brought into China. In 2003 China loosened its limit on foreign blockbusters but still capped revenue-sharing films at fewer than 20 a year; two years ago the cap rose to 34. And it was not only Disney: many more films were kept out.

Even so, Disney was quietly building its business in China, and not only through films. In 1996 it opened branch offices in Beijing, Shanghai and Guangzhou, though at the time people only glimpsed it now and then, on screens and pencil cases. Disney also brought its "Disney on Ice" tour to those three cities, and most of its film and television content reached people's homes on discs.

Meanwhile, Disney kept strengthening its content. Its acquisitions of Pixar, Marvel and Lucasfilm after 2006 brought it huge box office and profits, and film and television entertainment became its most competitive business.

5. In 2005, Disney Began to "Speak Up"

Around the time Hong Kong Disneyland opened, Chinese people began to notice Disney as a huge media group. Disney moved its Asia-Pacific consumer products headquarters from Hong Kong to Shanghai, which it hoped would be its main battlefield in China from then on, and appointed Zhang Zhizhong, formerly managing director of Johnson & Johnson (China) Ltd., as its first managing director for Greater China. What followed was the booming consumer products business we have watched over the past decade, which through brand licensing spread into every category of daily life a consumer might need. Stationery and clothes printed with Mickey filled licensed stores across China. From licensing Lianzhong Stationery to make Mickey and Princess school supplies, to setting up Disney Pictures Development Co. in Shenzhen; from launching children's gummies in China with Nature's Bounty, to breaking ground on the Shanghai theme park and, most recently, partnering with SMG, Disney keeps entering China step by step.

In the United States, though, Disney had started on consumer products as early as 1986, when it set up its consumer products division. Over the next few years it tried running its own shops, opening 50 Disney Stores, and began selling its goods through big channels such as Sears and McDonald's. Disney developed a new product line for Winnie the Pooh and pushed it into these channels. By 1998, Winnie the Pooh toys sold US$316 million in November alone, against only US$114 million for Mickey products in the same month.

The consumer products division then added several more lines, including Disney Princess and lines tied to Pixar films (Toy Story, Cars). By 2012 Disney had become the world's largest licensor. After it completed the acquisition of Lucasfilm and added Star Wars to the consumer products division, Disney owned 6 of the world's 10 biggest licensed merchandise properties: Disney Princess (No. 1), Star Wars (No. 2), Winnie the Pooh (No. 3), Cars (No. 4), Mickey and Friends (No. 6) and Toy Story (No. 8). In 2013 the division brought Disney US$3.56 billion in revenue and US$1.11 billion in net profit.

6. Theme Parks Come to China: First Hong Kong, Then Shanghai

Because its business had advanced so slowly, building a theme park with the Hong Kong SAR government meant a great deal to Disney. A theme park means hotels and shopping districts; it means DVDs, games, spin-off merchandise and more. It opened a bigger window for Disney into China, even a "shortcut," but that was only Hong Kong. Disney had always had its eye on mainland China, and four years after Hong Kong Disneyland opened, it confirmed it would build a theme park in Shanghai.

Under the original plan, the first phase of Shanghai Disneyland, with a total investment of 24.5 billion yuan and covering 39,000 square meters, will open next year. It will be the sixth Disney park in the world and the third in Asia, and it expects 25 million visitors in its first year. Yet even for Disney, the most experienced operator there is, the theme park business is seen as highly uncertain. Hong Kong Disneyland took seven years to turn a profit, and this October Euro Disney accepted a US$1 billion financing plan in an attempt to escape its losses. Whatever happens, this is the farthest step Disney has yet taken into China.

7. After the SMG Deal, Disney Will Have a Bigger Say in the Chinese Market

In recent years the Chinese film market has become Hollywood's second front. Last month Universal Pictures formally opened an office in Beijing, and co-productions and copyright deals for TV series have been under way for some time. Hollywood's most important player has also never been stronger. Disney holds two aces in animation, Disney and Pixar, and through acquisitions it has gained Marvel and Lucasfilm, perhaps the most valuable film brands in Hollywood today. These help it steadily gain ground on the other major distributors.

8. A Look Back: What Has Happened in the 91 Years Since the Company Was Founded?

Cover image: a still from the Disney film Mulan