Robert Iger is officially the CEO of the Disney empire, though he has been busy reshaping the company since his embattled predecessor, Michael Eisner, announced his resignation a year ago.
Despite some recent box office clunkers, Iger seems to be off to a good start, including recent success rebuilding important bridges that Eisner burned during the turbulent closing years of a 21-year reign that culminated in shareholder revolt.
When Eisner was originally cast as the company’s chief executive in the 1980s, Disney operated a pair of theme parks and a second-tier movie studio that lived off its library. Over the next two decades, Eisner and his management team added eight new theme parks (the latest just opened in Hong Kong); acquired ABC television (along with 10 local stations); added 18 cable networks, including sports leader ESPN; expanded merchandising, records, radio and publishing; and reanimated the company’s movie business with in-house hits and partnerships with digital pioneer Pixar and the hugely successful indie filmmaker Miramax. The company Iger takes over is a sprawling entertainment giant (second in size only to Time Warner) that took in more than $30 billion last year.
But the Eisner script also included some major reversals, mostly in the third act. A series of contentious relationships — the recruitment and subsequent ouster of Hollywood kingpin Michael Ovitz, a nasty divorce with Pixar, and a falling-out with Miramax co-chairmen Bob and Harvey Weinstein — culminated in a shareholder revolt led by Roy Disney, nephew of the company’s founder, in which 45 percent of shareholders voted not to renew Eisner’s contract. Within six months, he announced he would step down — after shepherding Iger’s appointment to replace him.
Grimm box office
Iger faces several major repair projects as he takes over the keys to the Mouse House, starting with its movie business. The company last month warned Wall Street that earnings would fall short of expectations — largely because of a series of box office disappointments including “The Brothers Grimm,” “The Great Raid,” and “Dark Water.” The result is an expected operating loss of some $250 million to $300 million for the quarter.
Once the unrivaled producer of animated films, Disney has lost ground over the past decade to a wave of digitally animated hits from competitors Pixar and DreamWorks. Still, some analysts point to a more promising film pipeline for Disney next year, including “Chicken Little” and “The Lion the Witch and the Wardrobe,” along with a sequel to the successful “Pirates of the Caribbean.”
“While the studio’s performance in the quarter will look dreadful, we don’t think it reflects a significant negative turn in Disney’s film business,” Katherine Styponias, who follows the company at Prudential Equity Group, said in a recent note to clients.
Disney has had mixed success with its broadcast operations, which contribute roughly 60 cents of every dollar of profit. But the network has recently pulled out of a slump in ratings and ad revenues. Riding the success of hit shows “Desperate Housewives” and “Lost,” ABC sold 80 percent of its ads in this year’s “upfront” market in June, taking in some $2.7 billion in ad sales, about 30 percent more than last year.
Iger's background in television should serve him well as the company works to maintain that momentum. After a long climb up the ladder at ABC, Iger entered the Disney fold when the network was acquired in 1996.
Putting out fires
With plenty of work needed to keep Disney’s growth on track, Iger didn’t wait for his official coronation to get started. In March he disbanded the company's strategic planning group, which centralized decision making under Eisner, and moved to give operational mangers more autonomy.
He also began rebuilding many of the bridges Eisner burned: negotiating a truce with Roy Disney, burying the hatchet with the Weinstein brothers while retaining the profitable Miramax library, and restarting talks with Pixar’s chief executive, Steve Jobs, about renewing their distribution deal and developing sequels to some of the partnership's most successful releases, which have included “The Incredibles” and “Finding Nemo.”
“(Iger) has subdued most of the fires of the past,” said Harold Vogel, head of the investment firm Vogel Capital Management and a longtime Disney observer. “That gives management time to focus on the future more confidently.”
Part of that focus will be to continue expanding internationally, where the newly opened Hong Kong theme park is seen as the beginning of a major push into a potentially huge new market in Asia.
Iger has also said he wants to move aggressively to take advantage of new digital platforms, including the launch next year of a mobile phone offering family-oriented features and services. He has told Wall Street analysts to expect that business to post losses for the first few years.
Iger continues to face challenges with Disney's core businesses. About a quarter of the company’s revenues are ad-related, so any downturn in ad spending — either from an economic downturn or a shift away from broadcasting to other media — would hurt the bottom line. The threat of terrorist attacks has hung over the company’s theme parks since 9/11. And picking hits on television and at the box office remains a risky business.
With the continued growth of pirated content, Iger is also pushing the movie and television industries to change the way they release movies and rerun old shows. He argues that the window between a movie’s original theatrical run and DVD distribution needs to be compressed — possibly to a single release.
“Consumers have a lot more authority these days, and they know that by using technology they can gain access to content,” Iger told analysts on a conference call last month. “And they want to use the power that they have to do so. And we can’t stand in the way or allow tradition to stand in the way of where the consumer can go or wants to go.”
As for Eisner, he has been vague about his future plans. His contract with Disney officially runs for another year. Last month, he and a group of board members were cleared of any wrong-doing in his dismissal of Ovitz (including a $140 million severance package after only 14 months), ending a long-running lawsuit characterized by testimony that was especially nasty even by Hollywood standards.
But in a recent interview with the Associated Press he sought to downplay the turbulence that marked the end of his long career as Disney's chief.
“There is turbulence. Life is turbulence. Life isn't only Disneyesque,” he said. “Disneyesque is the end result of trying to do it better. A lot of people don't like to do things better. A lot of people like to take the easy road, short cuts. Some people even take the unethical cuts. We've never done any of that.”