2004 was certainly a tumultuous year for the Walt Disney
Company. From a 45 percent no-confidence vote on CEO and former Chairman
Michael Eisner to his announced 2006 retirement plans, from ABC’s horrible
winter to its blockbuster fall, from a string of theatrical flops to a
big finish with The Incredibles and National Treasure, the
past year has been a roller coaster ride.
Motion pictures
In his recent article, Alex Stroup chronicled the uneven year of Disney’s
motion picture arm (link). While a couple of late hits with The Incredibles
and National Treasure brought the studio’s year up to a respectable
level, the year was marked by a series of films that, deservedly or not,
flopped: Hidalgo, The Alamo, Home on the Range, The
Ladykillers, Around the World in 80 Days, King Arthur,
and the list goes on.
But not all of the movie news was at the box office. Questions abounded
regarding the future of Disney’s relationship with animation powerhouse
Pixar after Pixar called off contract talks early in the year. A public
spat between Michael Eisner and Miramax head Harvey Weinstein over Fahrenheit
9/11 and production costs in general put that production arm’s future
in question. 2004 also saw the end of traditional animation at Disney,
with the shuttering of Walt Disney Feature Animation Florida, the conversion
of the California animation studio to a digital-only affair, and the release
of Home on the Range, the final traditionally animated feature
from Disney.
Television networks
What a difference a year makes! Last winter, ABC was mired in a years-long
slump with few prospects of improving that standing. Now, with hits on
its hands including Desperate Housewives, Lost and Alias,
the alphabet network is in the midst of a major resurgence. Getting credit
for the rebound is Disney President and COO Robert Iger, whose mission
it has been for the last several years to turn the network around. Many
of the key decisions in the process, however, were made by Lloyd Braun
(now with Yahoo) and Susan Lyne (now at Martha Stewart Living Omnimedia)
who were ousted in the spring, before their decisions bore fruit.
Meanwhile, the prized ESPN network celebrated its 25th anniversary with
a weekend of events and broadcasts from the Disney-MGM Studios in Florida.
Ratings, sales and income were all up for the network. Overall, the cable
channel was a very successful part of the company this year.
Theme parks
Hurricanes in Florida. Refurbishment tarps seemingly covering half of
Disneyland Park in California. Big Thunder Mountain Railroad reopening
after 2003’s fatal accident, then closing again after another accident,
then reopening again. Labor contracts with several unions at both domestic
resorts are rejected repeatedly over low salary increases and high health
insurance premium increases before finally being approved under threat
of unilateral imposition by Disney. Those don’t seem to be elements of
a successful year at the theme parks. And yet, attendance was up at all
Disney theme parks worldwide this year. Attendance at the Florida parks
increased for the first time since September 11, 2001.
The year saw the debuts of the Twilight Zone Tower of Terror at Disney’s
California Adventure and Stitch’s Great Escape at Walt Disney World’s
Magic Kingdom. Disneyland Paris averted its impending bankruptcy and pledges
to plow the newly generated cash into new attractions for the struggling
Walt Disney Studios Paris theme park.
On May 5, Disney announced the coming attractions for the celebration
of Disneyland’s 50th anniversary in 2005. So where are the bulk of the
new attractions opening? Why in Florida, of course. But why would Disney
be pushing people to go to Walt Disney World to celebrate the anniversary
of Disneyland? Many reasons, actually, most of which come back to the
fact that the current Disney administration is more focused on generating
revenue than celebrating heritage.
First off, Walt Disney World boasted four of the top five domestic theme
parks, with a total attendance of around 40.7 million visitors, as opposed
to the two Disney parks in California, which brought in a combined 19
million made up largely of annual passholders. Second, the Florida resort
also offers two huge water parks and a much larger nighttime entertainment
district, with much less competition than the Disneyland Resort. Third,
and perhaps most important, Disney has 22 resort hotels that it owns on
its property in Florida. Once you get there, they own you and all of the
money that you’re going to spend. Disney owns three hotel resorts in Anaheim,
only one (the Grand Californian Hotel) of which is themed to the extent
of the resorts in Florida.
Most visitors to Disneyland do not stay at a Disney hotel, and many meals
are eaten off of Disney property. Visitors go off and explore many other
attractions in California, and Disney loses its grip on the pocketbooks
pretty quickly. Why drive people to go to a park where they get less of
your money when they could just as easily drive people to go to an all-encompassing
property where, once you arrive, you and all of your money are theirs.
(If you doubt this, look at the new Magic Your Way tickets and packages
and the new Disney’s Magical Express shuttle service with this principle
in mind and decide for yourself.)
While Disneyland Resort’s Matt Ouimet appears to be doing a great job
of turning the original park around by bringing back the original principles
of Disneyland, all is not well in the Disney empire. The limited number
of attractions in the first phase of Hong Kong Disneyland is drawing fire,
Imagineering projects are getting contracted out and there’s been a shake-up
in staffing in Imagineering. We’ll have to see where this goes in the
New Year.
Acquisitions and divestitures
Rather than try to adjust the mix of merchandise to attract the buyers
that left when the stores became too child-oriented, the company sold
the Disney Stores sold to The Children’s Place in October. The only store
kept by the company was the flagship store on Fifth Avenue in New York
City, which became a World of Disney store run by Walt Disney Parks and
Resorts.
In February, Disney bought the Muppets and the Bear in the Big Blue House
characters from the Jim Henson Company. The company has moved to reintroduce
Kermit the Frog, Miss Piggy, Fozzie Bear, The Great Gonzo, and Dr. Teeth
& the Electric Mayhem to what is hoped to be a new generation of Muppet
fans. Time will tell if this move is successful.
Corporate and legal matters
In February, feeling that Disney’s stock was at bargain-basement levels
and having been spurned by Michael Eisner in attempting a friendly buyout,
Comcast Corp. launched a hostile takeover attempt, pricing its offer at
levels below Disney’s historical high, and below its price in early 2001.
In response, Disney’s share price rose to well above the offer price,
effectively putting the bid at bay. Comcast eventually gave up in April,
after deciding that it would be better worth its time to pay Disney for
content and spend its buyout money on enlarging its market share by buying
out competitors, instead.
In late March, a judge threw out the lawsuit by Steven Slesinger, Inc.
to get more royalties from Disney on videos, computer games, and other
merchandise featuring the Winnie-the-Pooh characters. The ruling was not
based on the merits of the case, but rather on illegal and unethical means
used by the Slesingers to obtain their evidence. The 13-year-old suit
was dismissed with prejudice, meaning that the Slesingers cannot file
a new suit on the same claim.
In September, a judge in Delaware Chancery Court ruled that a shareholder
lawsuit against Disney could go forward. The lawsuit claims that Disney
board members did not exercise due diligence to meet their fiduciary duties
in the contract approval, hiring, firing and paying of severance to Michael
Eisner’s (then-)friend Michael Ovitz as President and Chief Operating
Officer following the death of Frank Wells. The trial began in late October,
and recessed in mid-December until January 11. During that time, though,
some ugly internal corporate laundry was aired, and trial-watchers got
to see the unlikely sight of Michael Eisner, Michael Ovitz (who claims
that Eisner stabbed him in the back), and Eisner foes Roy Disney and Stanley
Gold all testifying on the same side of the case.
In December, Disney came to an agreement with the Securities and Exchange
Commission regarding charges that Disney failed to report that family
members of “independent” directors were employed by the company.
The company did not admit wrongdoing, no fine was assessed, and the company
promised not to do it again.
Governance and leadership
The year 2004 started with former Disney board members Roy E. Disney
and Stanley P. Gold launching their “Save Disney” Web site and
campaign. By the time of the annual shareholders’ meeting in March, the
duo had mobilized an army of shareholding Disney fans, as well as an impressive
array of public employee pension funds and other major investors. The
army of fans provided great PR for the campaign, and the institutional
investors provided the muscle in what turned out to be a 45 percent no-confidence
vote on Eisner.
The company spun the vote as a referendum on the good-governance issue
of a need to separate the positions of Chairman and CEO, and removed Michael
Eisner from the Chairman’s seat, replacing him with ally Sen. George Mitchell.
Of course, if they were so concerned about the separation of powers, one
has to wonder why they blocked a proposal on permanently separating the
positions from going before the shareholders at the 2005 annual meeting.
Before going into an apparent extended hibernation, Save Disney challenged
the board to follow through on the apparent will of the shareholders and
to find a replacement for Eisner. If they didn’t, continued Save Disney,
they would find themselves running against an opposition slate of directors.
Things were made easier for board members on September 9, when Eisner
submitted his resignation. However, always one to want control and final
word on every deal, Eisner dictated the terms of his departure. The resignation
would be effective at the end of his contract, which likely would not
be renewed, and he named Disney President Robert Iger as his preferred
successor, angering many who saw Iger as ineffective.
The board announced that they would undertake an international search
for a replacement, but that Iger would be the only internal candidate.
The search had a targeted completion date of June 2005. In addition, George
Mitchell announced that because he would reach the mandatory board retirement
age of 70 in 2005, he would not run for reelection at the 2006 annual
meeting, and that a search for a new chairman would immediately follow
the CEO search. Following that announcement, Save Disney announced that
it was not planning to run an alternate slate in light of the board’s
action, a decision that it affirmed in December.
In the meantime, the board gained two new independent directors. John
Chen, Chairman, CEO and President of computer software company Sybase,
joined the board after being named a new member in 2003. In December 2004,
Fred Langhammer, Chairman, Global Affairs, of The Estée Lauder
Companies, was named as an additional independent director, effective
in January.
With his resignation announced, the pressure from Save Disney off, and
stock prices climbing, Eisner appears to be in the driver’s seat. With
the sudden success of ABC, Iger appears to be a much stronger candidate
as Eisner’s successor. However, the fickle winds could cause a course
change at any time. It remains to be seen what the results of the executive
search will be, though the man considered to be the front-runner among
external candidates, Peter Chernin, is at a disadvantage due to the choice
of headhunting firm. Spencer Stuart, which has conducted many searches
for News Corp., Chernin’s current employer, was passed over in favor of
Heidrick & Struggles, which has worked with Disney directors in the past,
and is likely to lean in favor of Iger. The corporate intrigue promises
to be quite an interesting spectator sport for the next six months.
Shareholder issues
After starting the year at about $23.50, Disney stock hit $25 and then
$23 until the Comcast bid sent it shooting up to $28.50 before starting
a long slide. Disney stock prices jumped about $2 after the settlement
of the Slesinger/Pooh case before continuing the downward slide that lasted
until early May, when Disney announced second-quarter results that were
well ahead of expectations. After a rise through the end of July and a
dip until the middle of August, the stock price has been steadily rising
since positive third-quarter results were released. Disney closed the
year just shy of $28 per share, about a dollar below its post-Comcast
high.
Despite Walt Disney Company’s improved performance, Save Disney’s continued
absence from the front lines, and Eisner’s apparent control of the situation,
Disney announced last week that the annual shareholders’ meeting will be held on February 11 in Minneapolis, Minnesota, which averages a high of 27 degrees and a low of 10 degrees on that date.”
After last year’s annual meeting, it’s highly likely that nobody in the
Disney executive offices wanted to have to fill four to six hours with
endless presentations on the company’s various businesses in order to
push the Q&A session back long enough to lose most of the audience and
miss the deadline for most evening news shows. Therefore, unsure of what
acrimony the next year’s meeting might see, it was the safe move to locate
the meeting where few would be willing to go. And with the meeting on
a Friday, it’s a good bet that any real news coming out of the meeting
will be buried in the weekend newspapers, rather than a lead story in
the weekday papers. MousePlanet plans to bring you coverage from the meeting.
Wrapping it up
2004 was a very busy and news-filled year for the Walt Disney Company.
2005 looks to be more of the same, with the upcoming resolution of the
Eisner succession question, the worldwide “Happiest Celebration on
Earth” theme park promotion, the release of Chicken Little—Disney’s
first animated feature after the demise of hand-drawn animation—the
continuation of the Pixar and Miramax sagas, the wait to see if ABC can
maintain its newfound success, the continuation of the shareholder lawsuit
trial, and so much more.
We look forward to continuing our coverage on what’s going on. Stay with
us for what promises to be another wild ride, with or without Mr. Toad.
