Disney is poised to be the top entertainment industry beneficiary of a potential improvement in U.S.-China relations, according to a veteran Wall Street analyst.
On the occasion of talks in California this week between China’s Xi Jinping and President Biden, Tim Nollen of Macquarie singled out Disney, ad tech firm The Trade Desk and video game software maker Unity as having the most to gain from the diplomacy. China recently has become more isolationist and less democratic, by most measures, and the Biden Administration has made it a priority to mend relations after predecessor Donald Trump waged a trade war against China and engaged in other saber-rattling.
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Disney’s “long history” of doing business in China makes it “a truly global brand relative to other traditional U.S. media companies,” Nollen wrote in a note to clients. Disney originally started licensing its products and characters for use in China in the early 1980s, he noted. The company went on to build two theme parks in partnership with the Chinese government and find success at the box office with major tentpoles. Recently, however, film releases have become “strained,” Nollen observed, though it is notable that media rivals like Netflix have no presence in China and no plan to enter the market.
In addition to the diplomatic talks possibly restoring some vitality to the box office and the retail sector in mainland China, Nollen laid out a case for reciprocity rather than just a one-way relationship. The touchstone moment in modern relations between the two global powers, Nollen recalled, came more than a half-century ago when an international tournament match in table tennis was contested in 1971 between players from the U.S. and China. The resulting “Ping-Pong Diplomacy,” as it was known, played out during the presidency of Richard Nixon and notably eased tensions between the countries. The progress made during that period “underscores the importance of a cultural embrace being the first step in diplomatic engagement,” Nollen wrote.
Today, he continued, “we see the potential for the entertainment industry to once again renew the cultural goodwill between the estranged giants. There are numerous vehicles we see to accomplish this — several of which are already in the works, such as Netflix’s upcoming 3 Body Problem, a highly anticipated sci-fi series slated for release next year and adopted from the internationally acclaimed Chinese trilogy. This $200M budgeted series is just one example of the power of entertainment to bridge the two worlds and lead to more productive dialogue once again.”
Along with Chinese exponents like 3 Body Problem, Nollen said he sees a sizable opportunity in the U.S. for China’s entertainment apps. In the analyst’s view, they would be able to “lend their relative affordability to the living rooms of the U.S. consumer, whose discretionary income is currently suffering under the burden of above-average levels of inflation across the household budget.”
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