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How Walt Disney Studios (DIS) Will Tackle China

NEW YORK (TheStreet) -- China's strict film guidelines have long been a scourge for Western filmmakers and studios. But Walt Disney Studios (DIS - Get Report) is seeking a path into the multi-billion-dollar market.

The film studio said it had signed a multi-year partnership agreement with Shanghai Media Group Pictures (SMG Pictures) to collaborate on movies specifically tailored for the Chinese market.

"US-based action, adventure and fantasy writers will team with locally-based Chinese writers and filmmakers to develop stories and scripts that bear all the hallmarks of Disney films and feature authentic Chinese elements fit for local co-production and aimed at the international market," the Burbank, Calif.-based company said in a statement.

Currently, China's National Film Censorship Committee polices strict guidelines on the content of films and enforces a strict quota of 34 foreign-made films allowed to be screened per year. The authorities upped its import restrictions to 34 from 20 films in 2012 but haven't budged from that quantity.

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If Disney can get into the market, it would prove a huge boon. According to PriceWaterhouseCoopers' overview of the international entertainment industry through to 2015, China's market is forecast to grow 23% to $148 billion by the end of next year. China's film industry is currently the second largest after Hollywood.

In 2013, Disney was able to skirt regulations with its international release of Iron Man 3, adding four extra minutes to its Chinese version which featured famous Chinese actress, Fan Bingbing, and scenes which were filmed in Beijing.

If Disney can work closely with the Chinese entertainment industry with this partnership, it might just be able to infiltrate the entirety of this lucrative market, Trojan Horse-style. 

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TheStreet Ratings team rates DISNEY (WALT) CO as a Buy with a ratings score of A+. The team has this to say about their recommendation:

"We rate DISNEY (WALT) CO (DIS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins."

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