Disney's China Problem

Disney must have had high hopes for The Little Mermaid in China. Instead, it was blown out of the water—pointing to much bigger problems for the company in future.

The live-action remake of the 1989 animated movie flopped in the country compared with other Western films, earning only around $3.7 million since opening on May 26. That's a paltry sum compared to its takings in the U.S. and worldwide, where it made $117 million and $413 million respectively on its opening weekend.

It highlights an urgent, growing problem for the under-pressure media titan. How can Disney tap into such a lucrative market, appealing to increasingly different Chinese values, while staying true to its push for greater diversity?

Many experts have blamed the racist backlash in China to casting Black singer Halle Bailey as the mermaid Ariel for the failure of The Little Mermaid, but this isn't the whole story. Others have pointed out that the popularity of Western films has been on the decline since the COVID pandemic, partly due to what some Chinese see as unfair criticism of their country over the origins of the virus.

This year, only one Western film has so far cracked the $100 million mark at the box office, Fast X, the latest instalment in the Fast and the Furious franchise. It's a marked contrast from five years ago when 11 Hollywood films made over $100 million in China.

The lack of appetite for Western films is a challenge for all Hollywood studios but particularly for Disney, which is both pushing for diversity and has been rocked in the past year by a fall in earnings, mass layoffs and former CEO Bob Iger being brought back in to steady the ship. Newsweek has contacted Disney via email for comment.

Chinese Racism and Disney's Push for Diversity

The Little Mermaid faced criticism by local Chinese media and social media users for casting Bailey instead of a white actress.

"Many Chinese netizens said that, like Snow White, the image of the mermaid princess in Hans Christian Andersen's fairy tales has long been rooted in their hearts and it takes a leap of imagination to accept the new cast," read an op-ed in the English-language Chinese newspaper The Global Times.

Oscar Zhou, a media studies professor at the University of Kent in England who dedicates much of his time to researching social media in China, said that racism was a factor, but not the only factor.

Many people also seemed put off by what they deemed "low production quality" thanks to the film's gritty cinematography, which did not align with the public's "high expectations" of Disney films, he said.

"We are so familiar with this story, that even in China people hold a really high expectation of Disney, so they tried to do something creative and innovative but I don't think they achieved it," Zhou told Newsweek.

On the question of race, he said that "Chinese internet users have a kind of nationalist sentiment and it's closely linked to discussions of race and racial identity. It really is an issue in China."

China's lack of acceptance of a Black lead is at odds with Disney's push for diversity on-screen. In 2022, Disney launched the "Reimagine Tomorrow" campaign, which promises that that 50 percent of regular and recurring characters across the Disney universe will come from "underrepresented groups."

Jonathan Sullivan, director of China Programs at the University of Nottingham in England, said that Disney's pursuit of "political correctness" was a strange concept in China.

"From what I have heard and seen, it is not Halle Bailey's race per se that people are unhappy with, rather it is that the familiar, red-headed hero has been subverted in the cause of 'political correctness,' a cause that is quite alien to Chinese people, who do not share the same kind of sensitivities," Sullivan told Newsweek.

"If fantasies are to become vehicles for political agendas, then to be successful they need to resonate. Hence the burgeoning oeuvre of Chinese films that depict how China wants to see itself—wolf warrior and the like."

The 2015 movie Wolf Warrior and its 2017 sequel portray Chinese special forces battling against American-led foreign mercenaries. This spawned the concept of "wolf warrior diplomacy," denoting Chinese assertiveness on the world stage.

Sullivan added: "Disney has avoided problems before because it stuck to the formula, which still has a chance to be successful in China, despite the tribulations in US-China relations."

Bob Iger Returns to Very Different Chinese Market

Disney CEO Bob Iger is no stranger to dealing with China. He was the driving force behind the challenging task of opening theme parks in Shanghai and Hong Kong, which he described as "one of the greatest investments in the history of the company," in his book, The Ride of a Lifetime: Lessons Learned From 15 Years As CEO of the Walt Disney Company.

After leaving Disney in 2020, Iger reportedly tried to become the U.S. ambassador to China, before making a shock return as CEO in November to replace Bob Chapek.

The Disney he returned to was in much worse shape than the one he left, with the costs of streaming service Disney+ ballooning and earnings underperforming Wall Street's expectations. Iger has already slashed 7,000 jobs across the company in a bid to achieve $5.5 billion in cost savings.

Iger also returned to a very different Chinese market. While Disney films such as Avengers: Endgame made a colossal $614 million at the Chinese box office in 2019, so far this year Disney's recent Marvel movies such as Guardians of the Galaxy Vol. 3, Black Panther: Wakanda Forever and Ant-Man and the Wasp Quantumania have all made less than $100 million in China.

U.S.-China tensions, the COVID pandemic and an increased appetite in China for domestic movies are all part of the reason for this change, according to experts.

The state of U.S.-China relations plays a role in which movies people buy to tickets for, Sullivan said. He said that the current tensions between the two countries, coupled with a rise in patriotism, means Chinese people are reassessing the value of Western culture.

"US-China relations are at a low ebb, patriotic passions [are] running high, debates about the appeal or utility of Western culture for China are as salient as ever," he said.

"Disney's appeal in China and elsewhere is in delivering universal themes beautifully packaged. It relies on familiarity and fantasy and aesthetics. When it's done surreptitiously Disney films can be an effective vehicle for socio-political messaging, and given Disney's history and cultural position it is probably obligatory that they do so."

Instead of foreign imports, Chinese audiences are instead lapping up domestic content. In 2021 The Battle at Lake Changjin—which depicts Chinese soldiers fighting back against American forces during the Korean War—made just shy of $900 million, more than four times the biggest U.S. release of F9: The Fast Saga with $216 million. And while Disney's Avatar: The Way of Water was easily the biggest movie of last year, making $2.3 billion worldwide, it made roughly $380 million less in China than the country's big domestic success, Water Gate Bridge, another war film set in Korea.

Zhou pointed out that Chinese people turned to domestic films during COVID over what they saw as the world's media berating their country for being the source of the pandemic and its response to it.

"Mainstream media criticized China a lot, and the public, you can imagine wanted to watch something to watch to make them feel proud of themselves," he told Newsweek.

Disney Won't Give Up on China Without a Fight

China's movie market is projected to be worth a vast $8.11 billion by 2028, almost double its 2022 value and meaning it will overtake the U.S. as the number one box office in the world. This is thanks to more theater screens opening across the country, ticket prices remaining low and the changing consuming habits of younger Chinese people, according to analysis by Market Research.

"In recent years, the Chinese market for imported films has flourished so much that Chinese movie consumer demand is already affecting the content of Hollywood's creative output," the report read.

This was a sentiment echoed by Sullivan, who said that Hollywood would have to start making films that catered more to Chinese tastes to remain successful there—a reversal of previous thinking that Chinese tastes would become more Western.

"I don't think this is the end for Disney in China, but I think there is a realization across Hollywood that the Chinese market has become much more distinct in its requirements," he said.

"Before, a few scene changes would suffice; now I think the industry realizes that China increasingly will require more bespoke offerings to take into account changing audience demands."

Those "few scene changes" have not been without controversy, either. Disney, and other studios, have been accused of self-censoring to access the Chinese market. In 1996, Disney was banned from China over Kundun, a Martin Scorsese film featuring repression in Tibet and sympathetic to the Dalai Lama. After initial resistance, then-Disney CEO Michael Eisner apologized, saying it was "a form of insult to our friends."

Disney also struggled to secure the release of 1998's Mulan in China, and held out the possibility of opening a theme park in the country. The theme parks were later built in Shanghai and Hong Kong.

In a foretaste of controversies to come, the 2013 Paramount movie World War Z, about a zombie apocalypse, reportedly originally contained a scene in which characters discuss whether the virus responsible for the outbreak could have originated in China, according to former U.S. Attorney General William Barr. "The studio, Paramount Pictures, reportedly told producers to delete the reference to China in the hope of landing a Chinese distribution deal. The deal never materialized," he said in 2020.

Despite these problems facing it and other studios, Disney is unlikely to give up the lucrative market in China without a fight.

"I think they're going to develop some ways to accommodate themselves to the Chinese market," Zhou said, adding it would be interesting to monitor Disney's future output to see how it tries to woo back Chinese audience.

Zhou said Disney has thousands of talented staff and is a powerful legacy brand, which meant it has the capacity to shift its creative output as needed, whereas the CCP's push for ideological films may not have the same kind of longevity.

"China is constantly changing... it is not stable, and it's difficult for any kind of creative professionals and industries to develop a long-term plan in China," he said.