A whole new world for mickey

A year after Robert Iger became CEO of the under-performing The Walt Disney Co, the entertainment conglomerate is enchanting Wall Street and cinema audiences once again. Under the aegis of the former weatherman who is evangelical about upholding American family values, Disney enjoyed the biggest-grossing movie of 2006 — Pirates of the Caribbean: Dead Man’s Chest, which grossed more than US$1bn worldwide. But the new CEO unlocked more treasure. Disney’s ABC is now the most watched US television network; a Disney production, High School Musical, is the year’s top-selling CD and even the theme parks are on a high after a decade-long recent rollercoaster ride. And as a result the company’s shares have rocketed by 42% in 12 months — making them runner up to General Motors in Wall Street’s top performers of 2006.

Indeed, Disney’s net profits for the year to September jumped 33% to US$3.37bn. The biggest upswing came from films, where earnings rocketed from US$207m to US$729m. But theme parks rose 30% to US$1.53bn, helped by the year-old Hong Kong Disneyland. The group’s TV networks turned in a healthy 11% rise in revenue to US$14.6bn, aided by hits such as Desperate Housewives. Consumer products saw a 14% rise in operating profit to US$618m. Yet Iger is well aware that only successful expansion overseas will safeguard Disney’s future, as well as burnish his reputation, and Disney is working hard to expand its global reach. While media analysts have been excited by various forays into Asia, particularly China, the 'House of Mouse', as it is sometimes known, has quietly been setting down markers for another key area: The Middle East.

In November, Disney quietly signed a three-year video and DVD distribution deal with Saudi entertainment company Rotana Audio Visual Co for all its products across the Middle East and North Africa. Rotana is owned by Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud, reputedly the world’s eighth-richest man, and the deal, says Rotana President Salem al-Hindi, complements the prince’s international business interests that include Disney and Disneyland Paris. A new Dubai-based company Rotana Home Entertainment, has been in charge with distributing Disney films in the GCC region.

According to Cindy Rose, managing director of Walt Disney International, the region is a natural destination for such a family-oriented entertainment company. “The underlying values of community, optimism and decency, which are at the centre of everything we do, resonate extremely well in the Middle East. This is a dynamic, thriving region and we are really enthusiastic about it. We think that Rotana is going to open up a huge market for us”.

The findings of a recent Booz Allen study into global Household Leisure and Recreational (HLR) expenditure, underscore just how tantalising a prospect the Middle East is for Western entertainment companies. Egypt’s HLR is 4% of its income (in line with most Eastern European countries), which is slightly bettered in Kuwait (5%), with Saudi Arabia reaching 7%, and the UAE at more than 10%, and more or less on a par with most Western European households.

Moreover, there are no cinemas in Saudi Arabia — although Rotana is hopeful that this will change — and the harsh summer weather conspire to deliver a high take-up of home entertainment and multi-channel TV. Booz Allen says that 90% of homes in Saudi Arabia, Kuwait and the UAE have satellite TV, and 35% in Egypt.

DVD distribution, however, constitutes only one part of Disney’s Middle East expansion plans. In the last year, Disney consumer products ramped up its licensing business model, focusing heavily on product innovation and building direct relationships with key retailers. In summer 2006, the first DCP local hub office opened in Dubai Media City, supervising Disney’s business development in the GCC region, its two employees prioritising development at Toys R Us (TRU) and Carrefour.

The company recently implemented its first Disney Corners — a store within a store concept with the Al Safeer group. There are currently 35 Disney Corners, up from 15 in 2005, featuring items such as clothing and accessories. The company plans to roll out Disney Princess-themed corners in TRU, and also plan to expand the concept with Al Safeer outside the UAE. “This is a really terrific way of getting product into market and consolidating the brand,” adds Rose. Meanwhile, Disney’s consumer electronics business has a strong presence in the region. Having previously worked with Medion it is now seeking new partners. Local distribution partner Ariete handles an appliances range, which includes toasters and popcorn makers.

Media Networks, Disney’s TV sales and broadcast business which creates and distributes content, is increasingly expanding to encompass new media throughout the region. As well as The Disney Channel Middle East — which has a relationship with Bahrain’s Orbit Television and Radio Network – Disney distributes programming such as Grey’s Anatomy, Lost and Desperate Housewives to MBC, Showtime and Dubai Media via its distribution unit Buena Vista International Television (BVITV) which recently concluded an agreement with Dubai TV to launch a new Disney branded block. MBC also launched a new branded block ‘Disney On 3’ on its children’s channel MBC 3 in 2006. Meanwhile, Disney-owned ESPN, the world’s leading multinational sports entertainment company, teamed up with PepsiCo to return the high-octane ESPN X-Games to Dubai in December.

The Walt Disney Internet Group (WDIG) is also revving up in the Middle East. Disney recently launched a children’s mobile phone in the UAE on the back of research revealing high mobile use among eight to 13-year-olds. Disney says the D100 includes Disney ringtones, changeable handset covers, automatic vibration ring during school hours and various restrictions on handset use. Developed for Disney by Dubai-based Broadlink Research, the D100 costs US$109 and is available through distribution company Al Sayegh Brothers at stores including E4U. Disney’s mobile phone business in the US is currently losing money. The Middle East is also a growing market for Disney’s music labels and in September 2005, the company signed a long-term license agreement to represent its music catalogue throughout the region with the UK’s EMI Group.

Naturally though, it is the company’s film properties and theme parks that excite most Disney watchers.
Predictably coy about revealing financial details pertaining to any specific territory, Rose will only say “we’re enjoying double digit growth” in the Middle East. But more collaborative ventures with Rotana — Rose says the company “has expressed an interest to develop things further but we have a wait-and-see policy” — could greatly accelerate Disney’s Middle East activity. Disney films are currently released into cinemas throughout the Middle East via Lebanon-based licensee Italia Film, which has service offices in Dubai, Doha, Cairo and Safat in Kuwait. Strategic alliances between The Magic Kingdom and the Kingdom’s financial magician, in the field of film distribution, TV channels and even production are indeed looking increasingly feasible. Prince Alwaleed’s entertainment empire has dominated the Middle Eastern music and satellite TV market since the mid 1990s.
The prince entered the market as a reaction to millions of Arabs installing satellite dishes to receive American MTV and French channels as well as the then-fledgling Al-Jazeera. He created Rotana Audio Visual Company, based in the culturally more relaxed Lebanon, as a local version of MTV. The company also manages 120 leading Arab vocalists, owns the rights to their songs, and produces their video clips, which are a lucrative business on their own. During the clips a news channel-like tickertape at the foot of the screen shows messages that viewers have paid to transmit via their mobile phones. Tens of thousands of text messages scroll across the screen each week. Alwaleed told his biographer: “My channel pays for itself with just these text messages and advertising”.

Rotana now operates the five biggest satellite channels on which Arabic music is broadcast, drawing tens of millions of viewers a day, as well as controlling major concert venues where singers perform, from the big summer festival in the Jordanian town of Jerash to the ancient Roman amphitheatre in the famous Tunisian city of Carthage.

More recently Rotana has moved into film production, making Saudi Arabia’s first full-length feature film Keif Al-Hal (How Are You) in Dubai’s Studio City. The film was shown everywhere throughout the Middle East in the summer — apart from in Saudi Arabia where cinemas have been banned since the early 1980s. This month in a wide-ranging interview on the pace of change in Saudi Arabia with the McKinsey Quarterly, Alwaleed said: I’m frustrated that women can’t drive — we’re the only country in the world where they can’t — and that while it’s legal to buy a videotape and see it on the small screen, we don’t have any cinemas. These may be cosmetic issues, but they’re important”.

“It’s a big issue,” sighs Ayman Halawani, Rotana’s film production chief: “We hope there will be cinemas in the future, but for the time being they’re banned. We believe there are other means of reaching audiences in Saudi Arabia, such as cable TV and DVD, which we’re happy to explore if cinema is not an option”.

Nevertheless, Rotana plans to develop film production in Saudi Arabia, as well as in Lebanon, Tunisia and Egypt, where it was responsible for 50% of all film production in 2006. It has two dedicated movie channels, which fill their schedules from an archive of 2000 Arab films Prince Alwaleed has acquired, as well as a film division that produced 20 films last year, mostly with Egyptian co-producers. This figure represents nearly half the total pictures produced in the Arab world in 2005. “We want to expand film production in the entire Middle East,” Halawani says. He also says that Rotana is looking to start making dual-language Arabic/English films that can be shown in London and Paris and other Western cities with large numbers of Arabs.

Disney has already signalled its desire to co-produce more films with far-flung strategic partners. It is already making films in China and India — two countries it has prioritised for multi-front expansion. Last month Disney acquired Hungama children’s TV channel in India for US$30.5m as well as a 15% stake for US$14m in UTV Software Communications, an Indian media group of diversified film and television assets. While at present there might only be a few cinemas in the Gulf there will be 40 million televisions in Middle Eastern and North African homes by the end of 2010, according to the Arab States Broadcasting Union, with 68% of homes connected to cable and satellite television.

As well as being the region with the fastest-growing tourist industry, the Middle East is seeing purchasing power parity ballooning. By 2015 the share of the population aged over 25 could top 65% in the UAE, 51% in Egypt and 49% in Saudi Arabia.

The UAE comprises just 30% of Emirati nationals, a further 15% of expatriate Arabs and a massive 52% of Asians (and 2% ‘others’ including ‘Western expatriates').

The heady mix of increased spending power and leisure time is getting local and international companies excited. And while Disney theme park chief James Rasulo said in April his company has no plans to launch a Disneyland in Dubai — the epicentre of Middle East tourism investment — it seems inconceivable that Prince Alwaleed would pass on the chance to be involved in other Disney-branded leisure or hospitality ventures, either somewhere else in the region or even further afield.

The Chinese government paid US$2.9bn to build Disneyland Hong Kong, which has been open one year and Disney paid a relatively little US$314m for a stake in the project. Disney is mulling over a theme park for Shanghai and also India. “There are no plans and there have been no conversations,” was all Rose would say on the subject on any leisure co-ventures hatched between the House of Mouse and the prince.

But one reason why Disney might be particularly keen to cosy up with Prince Alwaleed right now is that while he has expanded his sizeable media ventures in the West — he is the third-biggest shareholder in Rupert Murdoch’s News Corp, and also has sizeable stakes in Time Warner as well as Disney — the West is suddenly keen to invest in him. Murdoch, who owns Disney’s rival 20th Century Fox as well as hundreds of competing TV channels worldwide, is close to acquiring a stake in Rotana.

The company plans to list on one of the three UAE bourses in 2007 and Murdoch is in negotiations with Prince Alwaleed, to buy a chunk of Rotana before it floats.

In the summer Prince Alwaleed told showbiz trade paper Variety: “The important thing is that Rotana is in discussions with the most important global media company. Mr Murdoch said, ‘Prince, we’re on board with you.’

It shows the extent to which the Western media are willing to entertain potential alliances with powerhouses in the media industry in the Arab world.”