Will China have a super-large IP that rivals Disney in ten years?

We always think that the core of Disney is IP, so China should be able to produce a company like Disney in the future. after all, there are a lot of high-quality IP in Chinese culture, but is this really the case?

We have always thought that there will be a company like Disney in China. The core of Disney's business model is IP manufacturing and output, starting with Mickey Mouse and Donald Duck, constantly producing image-level IP. Then make a profit through a whole set of linkage such as movies, theme parks, surrounding products and so on.

We always think that the core of Disney is IP, so China should be able to produce a company like Disney in the future. after all, there are a lot of high-quality IP in Chinese culture, but is this really the case?

< strong > what company is Disney? < / strong >

what kind of company is Disney? Many of us can always feel Disney around us, whether it's Disneyland in Shanghai, all kinds of Disney toys, the Marvel series in Disney movies, or even Disney English cram schools. So what kind of company is Disney?

according to Disney's own division of the sector, it is basically divided into four sectors: TV media, playgrounds and resorts, entertainment division, and consumer extension products. We also split them one by one.

TV media: TV media contributed $23.6 billion in revenue in 2016, making it Disney's largest source of revenue, with revenue growth slowing to 2 per cent in 2016. This area is actually cable TV station, of which ESPN, the sports TV station acquired that year, accounts for the largest proportion of revenue.

ESPN has a large number of sports competitions and content every day, as well as highlights of Sports Center sports news. The biggest trend in American television in the past few years has been the rise of streaming media. Netflix just announced a better-than-expected share price of close to $80 billion. In this general trend, ESPN is less affected than other TV stations. After all, sports games still have to be watched live, not suitable for streaming.

< strong > playgrounds and resorts < / strong >

amusement parks and resorts contributed 16.9 billion of revenue in 2016, an increase of 5% over the same period last year, which is also the Disney business in the minds of most people. Disneyland can be said to be the most dreamy amusement park in the world, where adults, children and even the elderly can have a good time. There are a lot of cartoon scenes. The roller coaster is not exciting, but it is warm, and many details are excellent.

Disneyland, which opened in Shanghai on June 16, 2016, attracted more than 10 million visitors in less than a year. Of all the amusement parks, Disney does the best Loyalty Program and uses a lot of technology. For example, this time to Disney, there is a Disney exclusive bracelet, you can go in and out of all the amusement parks, get Fastpass, hotel consumption and so on. These consumption data can be generated in App and paid directly by binding credit cards. When we went this time, we found that almost everyone already had Disney bracelets, indicating that they were all repeat visitors.

the United States is still the biggest player, with revenue of $14.2 billion, up 5% from a year earlier. Growth in the United States is what I call a stronger Loyalty Program. Overall, users' spending at Disneyland is increasing. In fact, Disney's unit price has increased by 5% over the past year, and passenger traffic has declined. The international business mainly benefited from the opening of Shanghai Disneyland, an increase of 7%.

< strong > Entertainment Division < / strong >

revenue from Disney Entertainment Division increased by 28% to US $9.4 billion in 2016, the fastest growth of all Disney editions. This is the film division of Disney.

in fiscal year 2016, Disney had several blockbuster films, including Star Wars, Captain Civil War, Crazy Zoo, looking for Dolly, and so on. After the acquisition of Marvel, it is a good commercial supplement to the Disney movie IP. From Marvel's various superheroes to the big melee of superheroes, each egg predicts a new hero. One link after another, it can be said that Disney is an old driver of commercial ability.

the other is Disney's content distribution, including the distribution of some streaming movies and TV dramas, which is common to buy Pixar streaming content in the United States, although many domestic friends are not aware of it. The revenue in 2016 was 3.6 billion yuan, almost the same as the box office revenue of the movie.

< strong > the last segment of the derivatives business < / strong >

is Disney's derivatives business, with revenues of $5.5 billion in 2016, the only business with negative growth. The bulk of this revenue comes from IP, which licenses Disney, contributing $3.8 billion, while the other is physical retail, which contributes $1.7 billion.

that is, the Disney toys we often see are not produced by Disney, but authorized by them. Disney has many classic cartoon characters, everyone goes to Disney store, Disneyland will buy a few back. There are also some mobile games authorized by Disney, but the sales have always been mediocre. Including Frozen, Star Wars and so on.

< strong > success Gene: commercialization and Cultural output < / strong >

when we briefly analyze the changes in Disney's various business segments over the past year, let's reflect on how the company, which started with Mickey Mouse and Donald Duck, has become a global entertainment giant with a market capitalization of $160 billion.

is it really that easy to cash in IP?

A negative example is Super IP Batman and Superman, who didn't cash in IP at all in the hands of Warner Brothers.

the following picture shows the market share of the North American box office in 2015. We see that UniversalStudio and Disney account for 42% of the market. Disney's rise over the past few years has come from its continuous realization of Marvel IP, launching a series of superhero films, including the Avengers and Iron Man. And these films have super-high gross margins: 44%. In contrast, Warner Bros. did not release a superhero film series after the great Nolan Batman trilogy. And the previous series of money printing machines, the Lord of the Rings, has been realized. It also caused Warner Brothers' market share to fall from 20% in 2009 to 14% in 2015.

so although superhero series account for an increasing proportion of US box office films, this is a result and the result of the commercialization of Disney.

Marvel, as a super IP, was criticized for every film it released before it was acquired by Disney. Disney, on the other hand, has done a good job of commercializing it, turning the Avengers and Iron Man into a super money printer through a grand worldview and a balance between independence and coherence in the storyline. Moreover, Disney maximizes its ability to commercialize through theme parks, peripheral products and so on. This commercialization ability is unique to Disney, not simply buying a few big IP and then copying it.

secondly, let's take a look at Disney's cultural output. Almost all of Disney's animations and superhero stories have a strong American culture behind them. The pricing power of culture is the most valuable. It is also the foundation of a big country.

at its peak, China exported Chinese characters and Chinese culture to surrounding South Korea and Japan. After becoming the largest superpower in the world, the United States continues to export its culture. There is a distinct American culture behind Coca-Cola, McDonald's hamburgers and Disney products. Disney's success is that these animated characters, superheroes and even values come from the United States, and the universal culture of the United States is becoming more and more accepted. Why are we having coffee with Starbucks today? Because Americans are drinking. Why few people drink Malaysian white coffee, because Malaysia is not strong enough.

< strong > Why can't China get out of Disney? < / strong >

back to the beginning of this article, whether it is the ability to commercialize or the export of culture, China is far from this. Although we have a large number of high-quality IP, we find that whether it is movies, games, or even animation, there is still some lack of commercial ability. China's production ability in animation is actually not poor, but there is a big gap between China's overall commercial operation ability and that of the United States. At present, the overall content operation is still short-term, after the decline in the growth rate of the entire Chinese film market, the future commercial operation capacity will become more and more important.

another classic case is neighboring Japan, although there are a series of super anime IP, including the Seven Dragon Balls, Naruto, Saint, and Haize King.

but we don't see theme parks based on these super IP. They are more likely to sell games or peripheral products. The reason is that IP has never been a necessary condition for the success of theme parks, and there are only a handful of theme parks that have won by IP in the world. On the one hand, not all IP have the value of combining with theme parks. For example, a large number of theme parks about Journey to the West in China ended up dead. On the other hand, it is strange for IP to combine with the park type and put IP into the amusement park.

Let's look at cultural output, which is similar to the pattern of the Internet. Cultural output is also winner take sall.

only the leader in the world has the pricing power for cultural export, and we rarely see people identify with the culture of the second. For example, the Soviet Union at that time and Japan later. Let us take Japan as an example, its content often reflects the social problems at this stage. On the other hand, Japanese culture is often based on high-pressure and repressed culture, so it is difficult to be recognized by other countries. At present, although China has also become the second in the world, it has not yet established a culture of values that can be transmitted around the world. On the contrary, as it becomes more and more open, China will be more willing to accept American culture and inherit less and less native culture. Many young people can understand the various colored eggs of the Avengers, but for Journey to the West, the culture behind the Romance of the three Kingdoms is difficult to understand.

to sum up, although there are a large number of high-quality IP, these IP also have a great history and world outlook, but with China's existing commercialization ability, it is difficult to have an entertainment giant like Disney. Fortunately, China's overall spiritual consumption is on the rise, and this soil will cultivate a number of enterprises that produce high-quality cultural and entertainment content, perhaps sowing the seeds for the cultural giants that may be born in China in 10 years' time.

Edit: xiongwei