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This song is about a dancer who tries on a cursed pair of red shoes, which make her dance "Until her legs fall off." The song was inspired by a character in the Michael Powell and Emeric Pressburger film of the same title, which itself was inspired by the fairy tale of the same name by Hans Christian Andersen.
In the video, actress Miranda Richardson plays the mysterious woman who gives Kate the shoes. (thanks, Simon - Southampton, England)
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