An amusing rivalry between 2 US entertainment giants is rapidly shaping up in Shanghai, with developers of the new Disneyland (NYSE: DIS) resort announcing a major new retail development just days after DreamWorks Animation (NYSE: DWA) broke ground on its own massive entertainment complex in the city. The close timing of these 2 announcements may be partly coincidental, but the rivalry certainly isn’t. Hollywood followers will know that DreamWorks Animation chief Jeffrey Katzenberg was formerly the head of Disney’s famous animation division, and only left the company after a famous fall-out with former Disney chief Michael Eisner.
But all of that history aside, there’s certainly room for both of these global entertainment giants in a city of Shanghai’s size. The clear winner in all of this will be the city itself, which will solidify its place as China’s entertainment capital with these 2 massive new projects that include entertainment, film-making and now a growing retail component. These kinds of major announcement are also likely to become more common as Shanghai Disneyland prepares to open for business next year.
All that said, let’s look at the latest news that has Shanghai Shengdi Group forming a joint venture with Value Retail to build a massive luxury retail compound next to the new Disneyland Shanghai resort. (English article; Chinese article) Shengdi is one of Disney’s main partners in the new resort, while Value Retail is a western developer of similar retail villages. The compound will be called Shanghai Village, and will cover a massive 50,000 square meters.
There’s not much more detail about the development, though I expect it will include not only luxury shops but also restaurants and movie theaters in a bid to become its own separate entertainment destination alongside the bigger Disneyland. The Disneyland park itself, which is being built in the largely undeveloped Pudong new area, was in the headlines last week with word that it would feature an entire themed area based on Disney’s “Pirates of the Caribbean” franchise.
This recent Disney headlines come after DreamWorks made its own major announcement last week with its ground-breaking on a $2.4 billion entertainment complex in Shanghai. (previous post) That project will be built in an older area of the city along the banks of the Huangpu River, and will feature a major new animation studio joint venture between DreamWorks and local broadcasting giant Shanghai Media Group. It will also feature a major theater for big movie premiers, as well as the usual mix of shops and restaurants, and is set to open in 2017.
This latest project by Value Retail reflects a snowball effect we’re likely to see in new investment as the 2 massive new developments take shape. The 2 core projects themselves already include a total investment of more than $6 billion. I expect this new retail complex could cost between $500 million and $1 billion, and that we’re likely to see 1 or 2 more projects of similar scale by the time the 2 attractions formally open.
Of course consumers will ultimately decide if all this investment puts Shanghai at the center of the Asia entertainment map. Disney has a strong record for developing strong entertainment complexes, though DreamWorks is less experienced in this kind of retail-style development. Still, I do expect the DreamWorks project will benefit as a secondary attraction for the many people who come to visit Shanghai Disneyland, and we could even see 1 or 2 major resort developers try to build additional attractions.
At the end of the day, I would expect to see Shanghai emerge as a top Asian entertainment destination alongside cities like Tokyo and Hong Kong, drawing visitors not only from China but also the nearby Japanese and Korean markets. Disneyland will emerge as the star attraction of the show and DreamWorks will be an important supporting player, but Shanghai should be the biggest beneficiary as it seeks to claim its place as a major actor on the global entertainment stage.
Bottom line: A major new retail complex being built alongside Shanghai Disneyland is part of a wave of new investment that will help to build Shanghai into a regional entertainment hub over the next decade.