Tencent ducks media questions on Walt Disney deal

The pudgy penguin, the well-known icon of China's biggest Internet company Tencent Holdings Ltd, might join "hands" with Donald Duck in a bid to tap into China's animation industry, media reports say.

Tencent is negotiating with the Walt Disney Co on a cooperation deal to explore the nation's blooming animation market, the China Business News reported on Thursday, citing an anonymous source from the Chinese company.

The report did not disclose the details of the potential venture.

"There is a 50 percent chance that the companies could reach a deal," said Sun Mengzi, an analyst at Beijing-based Internet research firm Analysys International.

In late March, Tencent announced a year-long strategy for its entertainment business in which it stressed the importance of the animation sector. The company pledged to develop spin-offs from its animation programs.

Tencent declined to comment on a possible team-up with Disney, saying this was "not a good time" to make any statements.

Tencent's huge user base in China could be its biggest bargaining chip in negotiations with Disney, according to Zhao Xufeng, an analyst at iResearch Consulting Group based in Shanghai.

Disney will also need a platform to promote its movies and its theme park in Shanghai, which is scheduled to open in 2015.

China's animation industry was valued at 47 billion yuan ($7.5 billion) in 2010, according to the Ministry of Culture. However, analysts said that the industry was still maturing and profits were thin.

Zhao said the animation market wasn't a good place to invest.

"TV stations are still the major channel for China's animated programs, and the low prices paid for programs have squeezed the profits for animation developers to almost zero," she said, adding that protection of animation intellectual property rights remained weak.

"Tencent has been treated as a symbol of knockoffs for a long time, and it needs to shake off this label by developing products with intellectual property rights," said Sun.

Sun added that it might be a good move for Tencent to shatter the stereotype by developing some of its own products in a market where intellectual property is poorly protected.

Tencent shares have risen 13.7 percent since March 6, data from Hong Kong Exchanges and Clearing Ltd show. The shares closed at HK$222.80 ($28.70) on Thursday.

The Goldman Sachs Group Inc on Monday recommended buying Tencent. The bank said that the Chinese company's strategies in sectors such as online games, social networking and the mobile Internet could help expand profits.