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The Walt Disney Company's objective is to be one of the world's leading producers and providers of entertainment and information, using its portfolio of brands to differentiate its content, services and consumer products.
A colossal force in the entertainment industry, The Walt Disney Company (Disney) is best known for bringing decades of fantasy and fun to families through its amusement parks, television series, and many classic live-action and animated motion pictures. Beginning in 1984, Disney enjoyed an enormous creative and financial renaissance, due to the leadership of CEO Michael Eisner; the success of such subsidiaries as Touchstone Films, Hollywood Pictures, The Disney Studios, Buena Vista Distribution, The Disney Channel, and Buena Vista Home Video; the sales of Disney consumer products through The Disney Stores and a multitude of licensing arrangements; and a recommitment to excellence in the making of original feature-length animated films. Under Eisner's reign, Disney acquired Capital Cities/ABC in 1996, a $19 billion deal that increased the company's stature enormously. Adding to the theme parks, cruise ships, professional sports teams, and dozens of other businesses owned by the company, the acquisition of Capital Cities/ABC gave Disney the power of broadcasting and the ability to meld entertainment content with programming. During the late 1990s, the company was aggressively building a presence on the Internet and adopting a concerted approach to international expansion.
The Birth of a U.S. Icon
Walt Disney, the company's founder, was born in Chicago in 1901. His appeal to the greater United States is said to have had roots in his humble, middle-class upbringing. Disney's father, Elias, moved the family throughout the Midwest seeking employment. Young Disney grew up in a household where hard work was prized: feeding the family's five children left little pocket change for amusement. Walt Disney began working at the age of nine as a newspaper delivery boy. His father instructed him and his siblings in the teachings of the Congregational Church and socialism.
Drawing provided an escape for Disney, and at the age of 14 he took his work on the road and enrolled at the Kansas City Art Institute. His art was temporarily put on hold when he joined the Red Cross at age 16 to serve as an ambulance driver at the end of World War I. In 1919 he returned to the United States and found work as a commercial artist. Together with Ub Iwerks, another artist at the studio, Disney soon formed an animated cartoon company in Kansas City.
In 1923, following the bankruptcy of this company, Disney joined his brother Roy O. Disney in Hollywood. By the time he arrived on the West Coast, word came from New York that a company wanted to purchase the rights to a series of Disney's live-action cartoon reels, ultimately titled Alice Comedies. A distributor named M.J. Winkler offered $1,500 per reel, and Disney joined her as a production partner.
A series of animated films followed on Alice's heels. In 1927 Disney started a series called Oswald the Lucky Rabbit, which met with public acclaim. The distributor, however, had the character copyrighted in its own name, so Disney earned only a few hundred dollars. It was while pondering the unfairness of this situation on a California-bound train that Disney first thought of creating a mouse character named Mortimer. He changed the name to Mickey Mouse, drew up some simple sketches, and went on to make several Mickey Mouse films with his brother Roy, using their own money.
On the third Mickey Mouse film, Disney decided to take a bold step and add sound to Steamboat Willie. The cartoon was synchronized with a simple musical background. The process provided some of the first technical steps in film continuity: music was played at two beats a second and the film was marked every 12 frames as a guide to the animator, and later an orchestra.
Film distributors laughed at Disney's idea. Finally one, Pat Powers, released Steamboat Willie in theaters. Audiences loved what they saw and heard, and suddenly Disney was a hit in the animation business. In 1935 the New York Times called Mickey Mouse "the best-known and most popular international figure of his day." Meanwhile, Disney suffered criticism from observers who judged him to be a cartoonist of only mediocre ability. (Iwerks was responsible for the actual design of Mickey Mouse and the other characters.) Disney was, however, given credit for his ability to conceptualize characters and stories.
The Mickey Mouse projects brought in enough cash to allow Walt Disney to develop other projects, including several full-length motion pictures and advances in Technicolor film. Disney's first full-length film, Snow White and the Seven Dwarfs, opened in 1937 to impressive crowds and led to a string of Disney hits, including Pinocchio and Fantasia in 1940, Dumbo in 1941, Bambi in 1942, and Saludos Amigos in 1943.
Around 1940 Disney decided to tackle live-action films, first with The Reluctant Dragon and to a greater extent with 1946's Song of the South. Meanwhile, during World War II, Disney lent his characters to the war effort, making shorts, including one in which Minnie Mouse showed U.S. homemakers the importance of saving fats. After the war, Walt Disney Productions was back in business with live-action features including 20,000 Leagues Under the Sea. The Living Desert was released in the early 1950s by Disney's new distribution company, Buena Vista, to tremendous box office success.
Taking on Television: 1950s
During the 1950s, as Americans began to spend more time at home watching television for entertainment, Disney's studio took full advantage of the small screen revolution. In 1954, the "Disneyland" television series premiered. The show included an introduction by Walt Disney and incorporated film clips from Disney productions with live action and coverage of Disneyland. Some four million people tuned in each week. Disney also made a national folk hero out of Davy Crockett when he devoted a three-part program to coverage of his life. Within a matter of weeks, U.S. boys could not live without coonskin caps and other Crockett merchandise, all of which earned Disney a fortune. Crockett's popularity led to the era of the Disney live-action adventures that included the 1950s hits The Great Locomotive Chase, Westward Ho, Old Yeller, and The Light in the Forest.
In October 1955 The Mickey Mouse Club debuted on the ABC television network. The hour-long show aired at 5 p.m. weekdays and made television history. Six years later, his groundbreaking Sunday night color TV show Walt Disney's Wonderful World of Color (later changed to The Wonderful World of Disney), began its 20-year run on NBC. At the same time, Disney was making stars out of Fred MacMurray, Hayley Mills, and Dean Jones in such movies as The Shaggy Dog, The Absent-Minded Professor, Pollyanna, and The Parent Trap. In 1964 Disney's Mary Poppins became one of the top-grossing films of all time.
Disney required professionalism of his staff and demanded the highest-quality Technicolor available, and as a result his live-action films topped competitors in both creativity and technical standards. He also had his hand in several other projects, including Audio-Animatronics (automatically controlled robots) and a Florida amusement complex that eventually became Walt Disney World, complementing California's vacation hot spot, Disneyland.
On December 15, 1966, Walt Disney died of lung cancer. Shortly after Disney's death, his brother Roy issued an optimistic statement pledging that Walt Disney's philosophy and genius would be carried on by his employees.
But no one could match Walt Disney's keen story sense or enthusiasm, and the studio floundered through most of the 1970s despite several strong CEOs, including E. Cardon "Card" Walker, who had joined the company as a traffic boy in 1938. The studio did manage a few successes during this period, including Blackbeard's Ghost, with Dean Jones and Suzanne Pleshette, and the 1969 release The Love Bug, which became the year's biggest box office hit. Other popular releases of the late 1960s and early 1970s included The Jungle Book, The Aristocats, Bedknobs and Broomsticks, and several live-action features.
But a run of box office disappointments followed in the mid-1970s before The Rescuers proved successful. Pete's Dragon, an experimental film combining human and animated characters, followed. Progress was slow but steady for the Disney studio in the late 1970s and early 1980s as well. The studio released three new live-action movies: The World's Greatest Athlete, Gus, and The Shaggy D.A. Return from Witch Mountain, a sequel to the popular mystery-fantasy Escape to Witch Mountain, premiered in 1978. A risky science fiction venture titled The Black Hole cost $20 million to produce but was lost in the amazing success of Star Wars, an all-time box office record-breaker. CEO Ron Miller brought in new directors and younger writers who produced such films as Watcher in the Woods and the computer-generated Tron, but achieved only mild success in the face of competition from other movie studios.
In 1983, beginning with the release of Mickey's Christmas Carol, Disney's fortunes finally began to look up. A string of successful movies followed, including the Arctic adventure Never Cry Wolf and a production of Ray Bradbury's Something Wicked This Way Comes. That same year the company also began marketing a family-oriented pay-TV channel called the Disney Channel, which quickly became the fastest-growing channel on cable television.
Corporate raider Saul Steinberg attempted a hostile takeover of the company in 1984. Disney ultimately bought Steinberg's 11.1 percent holding in the company for $325.4 million. A number of lawsuits were filed by shareholders against both Disney and Steinberg's Reliance Group Holdings, charging that Disney's managers had attempted to secure their positions and had lowered the value of the stock. The suits were settled in 1989 when the two companies jointly agreed to pay shareholders $45 million.
The Eisner Era Begins: 1984
Shortly after its purchase of 18.7 percent of Disney's stock, the Bass family of Texas supported the Disney board's hiring of Michael Eisner from Paramount Pictures to be Disney's new CEO and Frank Wells to be president.
Eisner, responsible for such Paramount blockbusters as Raiders of the Lost Ark and Beverly Hills Cop, immediately began to emphasize Touchstone Films, a subsidiary devoted to attracting adult movie audiences. Commentators began to note that Eisner, like Walt Disney, had the ability to predict and deliver movies people wanted to see. The 1985 release of Down and Out in Beverly Hills helped Touchstone build momentum, which it increased with Outrageous Fortune, Tin Men, Ruthless People, and other hits. In Eisner's first four years as CEO, Disney surged from last place to first in box office receipts among the eight major studios.
Eisner also set out to take full advantage of expanding markets such as cable television and home video. Disney signed a long-term deal with Showtime Networks, Inc., giving the cable service exclusive rights to Touchstone and other Disney releases through 1996. In addition, Eisner bought KHJ, an independent Los Angeles TV station; sought new markets for old Disney productions through television syndication; and began to distribute such TV shows as The Golden Girls.
Certain Disney classics, including Lady and the Tramp and Cinderella, were released on videocassette during the late 1980s. Eisner protected the value of the films by limiting the availability of the tapes. He also scheduled the re-release of many other films for the late 1980s and early 1990s, by which time a new generation of children would be ready to see the films in the theater once again. Disney's revenues soon began to increase, averaging an improvement of approximately 20 percent annually during the second half of the 1980s.
In 1989 Disney-MGM Studios Theme Park opened near Orlando, Florida, on the grounds of Walt Disney World. Despite its name, the park was not a collaboration between the two studios; Disney purchased the rights to include attractions based on MGM films. Euro Disney, of which Disney owned 49 percent, opened outside of Paris, in Marne-la-Vallée, on April 12, 1992; and Tokyo Disneyland, licensed though not owned by Disney, regularly drew phenomenal crowds in a powerful consumer market. Plans were made to open a second Disney-MGM Studios park, on a site adjacent to Euro Disney, in the mid-1990s.
In the early 1980s the parks were responsible for about 70 percent of the company's revenue. Although they continued to be a crucial part of the company, the theme parks found competition with Disney's newer projects, including hotel expansions, home video distribution, and Disney merchandising, which together in 1991 garnered an impressive 28 percent of fiscal revenues. Virtually as important, perhaps more so given their unrealized potential, were Disney's international operations--evident not only in Japan and France, but throughout much of Europe, the former Soviet Union, South America, and China--which contributed 22 percent of total revenues in 1991.
Meanwhile, Touchstone remained healthy. Hollywood Pictures, Disney's newest film-producing arm, also began making more films in the late 1980s. Disney continued to score hits with Three Men and a Baby, Good Morning Vietnam, Who Framed Roger Rabbit, and others. Most importantly, production costs, though constantly rising, were held by Disney in 1989 to an average of $15 million per movie, compared to an industry average of more than $23 million.
Taking a Roller-Coaster Ride: 1990s
The 1990s, termed the "Disney Decade" by the company, promised to witness perhaps the most dramatic changes and accomplishments of Disney's more than half-century history. The combined talents of Eisner, President Frank Wells, and studio Chairman Jeffrey Katzenberg caused a rush of excitement as the decade began. By the second quarter of 1991, the studio, under Katzenberg's strong leadership, had surpassed the theme parks in profitability, leading the company to commit to a record-high 25 new films in 1992. By far the greatest highlight of 1991 was Disney's 30th feature-length animated film, Beauty and the Beast. Amid a troubled year and a depressed economy, during which corporate net income plummeted by 23 percent and Disney, despite the success of its studio, experienced its first year with no growth since 1984, this film--nominated for best picture and winner of Academy Awards for best original score and best original song--provided much welcomed relief. Beauty, like its 1989 Oscar-winning predecessor The Little Mermaid, shattered previous records for the most successful opening of an animated film. It quickly became the highest-grossing picture of its genre.
Although Disney was notorious for undercutting its Hollywood competitors, it, too, was forced to pay exorbitant amounts for top creative talent. Both Bernard Weinraub, in a New York Times article, and Eisner, in the company's 1991 annual report, reported that Disney was going to try to stem the flow of high production costs for big-budget films and instead offer films with appealing storylines and engaging characters. According to Ron Grover, Katzenberg himself began pushing for such a redirection in early 1991. Presumably, films like the modestly budgeted 1990 sleeper Pretty Woman were expected in the future.
Disney's next forays--its creation, for example, of Hyperion Press and Hollywood Records for stakes in the publishing and adult music industries--were expected to further strengthen its reputation as an entertainment giant. Yet, here too, it became increasingly cautious. In August, the company revealed that its Imagineering division, responsible for theme park design, was laying off up to 400 of its employees. Further news that Euro Disney's profitability for its first year was in serious doubt indicated to some that Disney might be struggling. However, Disney's overseas investment was less than $200 million, "a fraction of the total," according to Stewart Toy. "And whether or not there's a profit, Walt Disney gets 10 percent of ticket sales and 5 percent of merchandise sales."
During the latter half of the 1990s, Disney grew at a prolific rate, but by the decade's end there was little cause to celebrate. The remainder of the Disney Decade was pocked with troubling developments that shook the foundation of the Disney empire, prompting some experts to suggest the previously unimaginable: that the omnipotent Disney name was losing its market appeal. The tumultuous period began with tragedy, when Frank Wells died in a helicopter crash in 1994. The fatal accident left Eisner without his most trusted aide and left Disney without a president, a title Katzenberg reportedly coveted. Two days after the helicopter crash, Katzenberg approached Eisner about the job, but his bid to become president was rebuffed. Katzenberg responded by leaving Disney, departing on decidedly unfriendly terms. An acrimonious feud between Eisner and Katzenberg erupted that became litigious. Upon his departure, Katzenberg was given the equivalent of ten year's pay, but the former studio head wanted considerably more cash. He filed a lawsuit against Disney, demanding $580 million in compensation.
Against the backdrop of a sordid legal battle, whose ugly details became the stuff of headlines, Eisner prepared to add a new dimension to Disney's operations. In 1994, Eisner attempted to buy the NBC television network from General Electric Company, but the deal fell through because General Electric reportedly wanted to retain ownership of 51 percent of the network. Eisner pressed ahead, determined to buy a television network. His search ended in 1995 when Disney announced its head-turning merger with Capital Cities/ABC, a $19 billion deal that gave Disney control over television stations, radio stations, cable networks, and legions of other properties. Applauded by industry pundits as a strategically sound move, the acquisition of Capital Cities/ABC married the vast content collection controlled by Disney to the expansive broadcasting capabilities of the ABC network, exponentially increasing the might of what, after the transaction was completed in 1996, stood as a more than $20 billion entertainment conglomerate.
The late 1990s saw Eisner steer Disney in several other strategically important directions. The growth of the Internet presented the company's chairman and CEO with another opportunity to disseminate Disney's entertainment content to the public. In 1998, Disney acquired Starwave, which maintained ESPN.com and Mr. Showbiz, as well as other web sites, and purchased 43 percent of Infoseek, acquiring the rest of the Internet search engine company in 1999. In January of that year, the company launched the GO Network Web portal. Other additions to the company's operations included the opening of the 540-acre Animal Kingdom park in Florida, the Disney version of a zoo, and the launching of an 875-stateroom cruise ship christened the Disney Magic, to be followed by the debut of a sister ship, the Disney Wonder. Eisner also acquired two professional sports clubs, the Mighty Ducks of Anaheim, a professional hockey team, and Major League Baseball's Anaheim Angels. Concurrent with the numerous acquisitions he presided over, Eisner endeavored to expand Disney's geographic reach. During the late 1990s, the company collected roughly 20 percent of its revenue from overseas business--too low of a percentage from Eisner's viewpoint. China and India were considered to be high-growth markets.
The scope and scale of Disney's properties by the late 1990s represented an impressive list of businesses that few companies in the world could equal. The additions to the Disney portfolio during the latter half of the decade turned an already sprawling empire into a multifaceted entertainment conglomerate of mind-boggling proportions, but no matter the size of a company, success depended on execution. As it became evident during the court proceedings to resolve Katzenberg's lawsuit, Disney's massive revenue-generating, profit-making engine was sputtering inefficiently. The details delineating the company's problems were divulged because of the nature of the Katzenberg case. Eisner, who had the opportunity to settle his former studio chief's compensation claim for $100 million, decided not to give in without a fight, believing the demand for as much as $580 million was preposterously high. It was a decision he later regretted. In court, Eisner learned that Katzenberg had negotiated a contract with Wells during the 1980s. A passage in the contract, as published by the Financial Times on June 4, 1999, read: "It is, of course, obvious but nonetheless worth pointing out that many of these pictures still have substantial revenues forthcoming from ancillary markets which continue to accrue to Jeffrey's benefit. ... Of course, some of these will continue 'forever' in the sense that even if he should leave one day, there would be an arbitrated amount as to future income from the pictures." The inclusion of the word "forever" in the contract struck a crippling blow to Eisner's hope of leaving the courtroom victorious.
Because the amount of Katzenberg's claim depended on the future profit potential of certain facets of the Disney enterprise, company lawyers were inclined to paint a bleak picture of the company's financial health at the end of the 1990s and its prospects for the years ahead. Despite the incentive to underestimate the company's financial might, it became obvious to onlookers that all was not right in the Magic Kingdom. The theme parks were performing well, but nearly every other aspect of the company's business suffered from disappointing results. ABC was at the top of the list, hobbled by low ratings and rising costs, including the $9.2 billion spent for ABC and ESPN to acquire the rights for the NFL through 2008. Internationally, the company was not making headway, notoriously evident in two cinematic failures. Mulan, the Chinese-themed animation film, generated a paltry $1.3 million during its run in China. The release of Hercules in India fell decidedly flat and actually led to a loss of $14,000. On the whole, the last year of the decade signaled a depressing end to the 20th century for Disney. For the first nine months of 1999, excluding the income gained from an asset sale, operating income was down 17 percent, net income dropped 26 percent, and earnings per share fell 27 percent.
The Katzenberg compensation claim was settled for a reported $200 million, although both parties refused to divulge the amount. More significant to industry observers than the exact dollar amount of the settlement was the information revealed during the proceedings, prompting some analysts to cast a wary eye toward the entertainment behemoth. Some critics charged that Eisner's autocratic leadership inhibited efficiency and progress, but the most threatening diagnosis struck at the company's fundamental strength. Some industry experts contended that "age compression," the theory that youths of the late 1990s emulated teenage behavior at an earlier age than in decades past, was draining the strength of the Disney name. Rebellion against the wholesome Disney image was the result, reducing the size of Disney's target audience. "They've never gotten past the problem that their core audience is girls 2 to 8 and their moms," a former, unnamed, Disney executive explained in the September 6, 1999 issue of Fortune magazine. Sociological intricacies aside, the future financial health of Disney depended on the ability of the company to reap the rewards inherent in its operations, on its effectiveness in churning out profits from a powerful entertainment machine that looked good on the outside but internally was suffering. The continued attraction of the Disney name in the 21st century represented the foundation upon which the company's return to soaring profits would be built.
Disney's finances improved in 2000, with a 9 percent increase in total revenues and an impressive 39 percent jump in net income. The boost in growth was due particularly to the success of the ABC Network and ESPN. Parks and Resorts also had an impact on growth, achieving record results for the sixth consecutive year. Creatively, Disney had a positive year, with the premier of The Emperor's New Groove, as well as the Broadway premier of its musical Aida. But the success of 2000 would be short-lived.
The September 11, 2001 terrorist attacks in the U.S. immediately impacted Disney's financial situation. The hardest hit were Disney's Parks and Resorts, as vacation travel came to a halt. The recession that followed the attacks did not help matters. The suffering economy, coupled with a drop in ratings, led to a dramatic decrease in advertising rates for Disney's Media Networks, and in particular, the ABC Network. By 2001's end, Disney suffered a staggering $158 million loss in net income. Also contributing to a loss of income was a costly acquisition of Fox Family Worldwide, Inc. (FFW), for $5.3 billion.
In reaction to troubled times, Disney implemented a number of cost-cutting measures. Such measures included decreasing operations at Disney parks; cutting its annual investment in live-action films; and minimizing Internet operations. Additionally, Disney cut approximately 4,000 employees from its payroll. On a more positive note, Disney's Monsters, Inc. premiered at this time, quickly becoming a top 20 film for the studio.
Revenues for 2002 dropped slightly below those for 2001; yet, largely because of Disney's cost-cutting measures, the company's net income jumped to $1.2 billion. The year 2002 also witnessed creative successes for Disney, with the releases of Peter Pan: Return to Neverland and Lilo & Stitch. The latter, in particular, was hugely successful. The Walt Disney Studios reaped large rewards in 2003, becoming the first in history to exceed over $3 billion in worldwide box office sales. Contributing to this success were the premieres of Pirates of the Caribbean: The Curse of the Black Pearl, Bringing Down the House,; Finding Nemo, and Brother Bear.
But the mood was partly spoiled by turmoil within the company, between CEO Eisner and board members Roy E. Disney (son of Roy O. Disney) and Stanley Gold. Conflict came to the fore when Eisner pushed the board to deny the reelection of Disney to the board, claiming the latter, at age 72, was required to retire. In response, Gold resigned from the board, urging other board members to oust Eisner.
Eisner's difficulties did not lessen in 2004. For one, Pixar Animation Studios, creator of such hits as Toy Story and Finding Nemo, chose to look for another distributor. The end of the 12-year relationship between the two--spawned by Pixar's longstanding battles with Eisner over issues of control and money--was anticipated to further damage Disney's financial situation. Also in 2004, cable giant Comcast Corporation placed an unsolicited $54 billion bid to acquire the Walt Disney Company, which the latter refused, but which spread doubt concerning the company's future. Uncertainty seemed to surround Disney, even within its movie division. The 2004 movies The Alamo and Home on the Range yielded poor box office earnings, especially considering their high price tags (The Alamo alone cost $100 million). In the face of such difficulties and general dissatisfaction among certain board members, Eisner was forced to cede chairmanship, with some members desiring to see his resignation as CEO.
Principal Subsidiaries: ABC, Inc.; A&E Network (37.5%); Anaheim Sports; Buena Vista Home Video; Buena Vista International; Buena Vista Internet Group; Buena Vista Pictures Distribution, Inc.; Buena Vista Television; Childcraft Educational Corp.; The Disney Channel; The History Channel; Disney Consumer Products International, Inc.; Disney Development Co.; The Disney Store, Inc.; EDL Holding Co.; Euro Disney S.C.A. (49%); E! Entertainment Television (39.5%); ESPN (80%); Fairchild Publications; Hyperion; Infoseek Corporation; KHJ-TV, Inc.; Lake Buena Vista Communities; Lifetime Entertainment Services (50%); Miramax Films; Reedy Creek Energy Services, Inc.; Touchstone Films; Touchstone Television; Walt Disney Attractions; Walt Disney Imagineering; Walt Disney Pictures and Television; WCO Parent Corp.; WED Transportation Systems, Inc.
Principal Divisions: Broadcasting; Creative Content; Theme Parks; Resorts; Sports.
Principal Competitors:DreamWorks SKG; Fox Entertainment Group, Inc.; Liberty Media Corporation; Lucasfilm Ltd.; MGM; Microsoft Corporation; NBC Universal; Six Flags, Inc.; Sony Corporation; AOL Time Warner Inc.