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Regime change might restore Disney's sparkle
Michael Eisner built an entertainment empire before his reign lost its luster. New CEO Robert Iger might bring back the magic -- and then some.
By Robert Walberg
The Eisner era at Disney comes to an end Saturday. Outgoing CEO Michael Eisner will be remembered for taking a sleepy theme-park company with a struggling animation division and building it into an entertainment empire.
However, the emperor's choke hold on this magic kingdom had begun to squeeze the life out of the company. From the huge loss of Jeffrey Katzenberg years ago, to the recent split with movie moguls Bob and Harvey Weinstein, Eisner was increasingly perceived as doing more harm than good. Investors, insiders and the board grew restless, and the call for new leadership was, finally, heeded.
Stepping into Eisner's Goofy-sized shoes will be Robert Iger, the company's president and chief operating officer for the past five years. Since being tapped as CEO-in-waiting in March, Iger has moved quickly to patch up relations with the Weinstein brothers and is working hard to renew Disney's (DIS, news, msgs) profitable relationship with Steve Jobs and Pixar (PIXR, news, msgs).
Putting out Eisner's personal fires is the easy part, though. Keeping Disney's recent revival going is the real challenge. If he can, investors will profit handsomely.
Iger's to-do list
Disney has renewed growth over the past couple of years by streamlining its operations, by reviving theme-park traffic that lagged after Sept. 11, 2001, and by performing CPR on ABC. Now Iger says he's comfortable with the current size of the company, so don't expect him to prune more deadwood. As such, investors shouldn't expect the company to enjoy the same earnings leverage from improved operating efficiencies that it has in recent years.
At the theme parks, Iger also isn't in a position to raise ticket prices to generate income, as Eisner did when he first took the reigns, because the economy wouldn't support such a move. Growth on this front will have to come from new park openings. There are reports that Disney plans to open a park in South Korea. New parks are good for the long-term, but the costs associated with building could dampen results over the near-term. There's also no guarantee that the new park will be well received. Euro Disney, though successful, has never lived up to its original hype.
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More urgent is the need to fix the company's sagging film division. Keeping the Weinstein brothers and Miramax in the fold is a good first step, but Disney needs to breathe life back into its animation studio. Renegotiating a distribution deal with Pixar isn't enough. To millions of young moviegoers, Disney is no longer the king of animation -- it's barely a player. Pixar's string of mega-hits and Dreamworks' success with "Shrek" and "Madagascar" has left Disney on the outside looking in.
Slow to switch from hand-drawn animation films with splashy musical numbers -- while the competition favored computer animation and sly wit -- Disney animation hasn't scored a hit in years. That may soon change. The early buzz surrounding the soon-to-be-released "Chicken Little" is encouraging. If the computer-animated movie is the hit Wall Street expects, Iger will have a nice honeymoon period as CEO. If not, the pressure will intensify.
Disney has other computer-drawn films in development, and the question now is whether the animation unit will finally emerge from Katzenberg's long shadow. The fickle tastes of young moviegoers make that tough to answer. But at least investors can see, at long last, that Disney is giving it a shot.
Can Mickey be hip again?
There's more good news for Iger at ABC, as the much anticipated "Commander in Chief" easily won its time slot on Tuesday night. If the show keeps its audience, it will join "Desperate Housewives," "Grey's Anatomy," "Extreme Home Makeovers" and "Lost" as bona fide hits.
Iger's biggest challenge, though, is making Disney's beloved characters relevant in the digital age. Mickey, Donald, Winnie-the-Pooh and Kermit are being marginalized by the onslaught of hipper animated characters found everywhere from theaters to computers to television sets. Kids today are much more likely to tote a Spiderman, Batman or Mr. Incredible action figure than a stuffed Mickey Mouse or Donald Duck. Turning around that trend is crucial to the long-term prospects of the company.
While change at the top is often reason to avoid a stock, this is one instance in which new management should help breathe life back into the company. Eisner had become a distraction, a stock-price drag. The change is refreshing.
Assuming Disney merely hits the consensus earnings target of $1.29 in fiscal year 2005, the house the mouse built should move back to the $28 to $30 range, for a gain of 19% to 27%.
With the stock trading near its recent lows, and given its promise over the next year, I'll add it to my portfolio as of today.
At the time of publication, Robert Walberg did not own or control shares of companies mentioned in this column.
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