Coming soon to movie screens in China: “Pudgy Penguin: The Movie”. That may sound like fantasy for now, but it could soon become reality following a newly announced partnership between animation giant Disney (NYSE: DIS) and Chinese Internet leader Tencent (HKEx: 700), whose ubiquitous logo featuring a pudgy cartoon penguin is practically synonymous with the web in China. (company announcement; English article) Talks of the tie-up were first leaked last week, at which time I predicted the pair would form a joint venture animation studio similar to the one announced earlier this year between another US industry leader, DreamWorks Animation (NYSE: DWA) and local partner Shanghai Media Group (SMG). (previous post) The structure of Disney’s partnership looks a little different from a traditional joint venture, with the 2 sides announcing they would set up an animation R&D center along with China Animation Group. The Ministry of Culture also appears to be heavily involved, meaning the venture should have good government connections to help it steer clear of China’s huge bureaucracy governing the sensitive media sector. Despite its name as an R&D center and the emphasis on developing local talent for China’s animation industry, which look mostly like a public relations exercise, this initiative closely resembles an animation studio in everything but name, with the announcement saying it will develop content for the China market. From my perspective, I really do like this particular tie-up, as it brings together a major foreign player in the form of Disney, together with a major new media player like Tencent and government connections from the Ministry of Culture and the China Animation Group. Tencent is currently making aggressive moves in the online video market, and, joking aside, its animated pudgy penguin would make a great character for a future animated movie or TV or Internet series to help promote the Tencent brand and the partnership in general. While the government’s close involvement has its positive elements, it could also be one of the new venture’s weak points, as government involvement in anything tends to add an extra layer of bureaucracy from officials who often have other agendas besides running an efficient business. But then again, no one ever said this was an official business, which could be another weakness in this partnership if and when it ever starts to earn profits. Comparing this Disney-Tencent tie-up with the DreamWorks-SMG one, I would have to say I personally like the DreamWorks one better, since SMG, as China’s second biggest media group, is also a quasi-government organization but lacks formal government ties, giving it more room to innovate. But that said, China’s animation market is certainly big enough for major joint ventures led by 2 of the world’s top players, and I would fully expect both to see strong success both in China and also potentially through exporting their products to other Asian markets.
Bottom line: Disney’s new tie-up with Tencent looks well positioned to capitalize on China’s animation market, though close government participation remains a medium-sized risk factor.
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