Restoring magic - Disney
The Economist 7/14/2005
Michael Eisner's successor, Bob Iger, is off to a good start
EVEN as Michael Eisner works his last summer as boss of the Walt Disney Company, his successor, Bob Iger, is rapidly solving the problems that Mr Eisner helped to create. Disney announced last week the end of its damaging feud with Roy Disney, nephew of the firm's founder. As a result, the company's executives and board members will avoid having to go to court in Delaware for a second time this year (the evidence phase of their trial over the severance pay of Michael Ovitz, a former executive, ended in January).
Mr Iger, who formally takes charge on October 1st, was a controversial choice by Disney's board. He was Mr Eisner's preferred candidate, whereas some investors and board members wanted a clean break from Disney's difficult recent past. So far, however, Mr Iger has shown that he is his own man and that he is prepared to change Disney's corporate culture.
Mr Disney and his investment adviser, Stanley Gold, resigned from Disney's board in 2003 and ran a campaign against Mr Eisner which resulted in 45% of shareholders withholding their votes from him at the firm's annual meeting in 2004. When Mr Iger was chosen to succeed him, they sued Disney's directors, accusing them of rigging the selection process in favour of the sole internal candidate. The trial was to begin in August.
The rebels have now agreed to drop the lawsuit and have promised not to run a rival slate of directors or to submit shareholder resolutions for five years. All Mr Iger had to do was show some respect to Mr Disney—who will become a consultant and, symbolically, “director emeritus”.
An important first step by Mr Iger, earlier this year, was to disband Disney's central strategic-planning department—hated internally for vetoing most ideas from Disney's divisions. Mr Iger said that he wants the heads of Disney's businesses to have more say in their strategy, not least to help make Disney nimbler.
Now Mr Iger is busy wooing Steve Jobs, founder of Pixar, a successful animation studio, and boss of Apple, a computer company. Mr Eisner fell out with Mr Jobs. Last year Pixar broke off talks about extending its current five-film deal with Disney beyond 2005. Much of the problem, it is said, was that Pixar, on a hot streak of films, made a surely impossible demand: that to get a new deal, Disney had to forgo hundreds of millions of dollars due on movies covered by the current one.
Disney now has a far stronger negotiating position says Lawrence Haverty, a fund manager for Gabelli Global Multimedia Trust, owing to the current weakness of the DVD market. In June, Pixar cut its second-quarter profit forecast after weak sales of “The Incredibles” on DVD. This week Dreamworks Animation, another small studio, cut its forecasts and cancelled a secondary offering of shares after disappointing DVD sales. Pixar, heavily reliant on DVD revenues, will probably now offer Disney more favourable terms.
Mr Iger's longer-term challenge is how to refine Disney's wider strategy. His current plan has three parts: creating attractive content; pursuing opportunities in new media; and expanding international profits. On profits, Mr Iger has been specific: he aims to increase overseas profits from 35% of Disney's total operating profit today to half within the next five years.
On current trends, that is likely to be difficult. Mr Iger is emphasising China, India and Russia as the high-growth markets that will help to achieve his goal. But competitors estimate that these three markets together generate revenues of barely $200m each year (Disney does not provide a breakdown). If these countries are to propel international profits to half of Disney's total profits by 2010, the company will have to nearly double their contribution each year for the next five years. Mr Iger must be aware that a more realistic way to reach his target would be to make a large acquisition in a developed market such as Germany, Britain or Japan. That may provide the true test of whether he really has the magic touch.
The Economist 7/14/2005
Michael Eisner's successor, Bob Iger, is off to a good start
EVEN as Michael Eisner works his last summer as boss of the Walt Disney Company, his successor, Bob Iger, is rapidly solving the problems that Mr Eisner helped to create. Disney announced last week the end of its damaging feud with Roy Disney, nephew of the firm's founder. As a result, the company's executives and board members will avoid having to go to court in Delaware for a second time this year (the evidence phase of their trial over the severance pay of Michael Ovitz, a former executive, ended in January).
Mr Iger, who formally takes charge on October 1st, was a controversial choice by Disney's board. He was Mr Eisner's preferred candidate, whereas some investors and board members wanted a clean break from Disney's difficult recent past. So far, however, Mr Iger has shown that he is his own man and that he is prepared to change Disney's corporate culture.
Mr Disney and his investment adviser, Stanley Gold, resigned from Disney's board in 2003 and ran a campaign against Mr Eisner which resulted in 45% of shareholders withholding their votes from him at the firm's annual meeting in 2004. When Mr Iger was chosen to succeed him, they sued Disney's directors, accusing them of rigging the selection process in favour of the sole internal candidate. The trial was to begin in August.
The rebels have now agreed to drop the lawsuit and have promised not to run a rival slate of directors or to submit shareholder resolutions for five years. All Mr Iger had to do was show some respect to Mr Disney—who will become a consultant and, symbolically, “director emeritus”.
An important first step by Mr Iger, earlier this year, was to disband Disney's central strategic-planning department—hated internally for vetoing most ideas from Disney's divisions. Mr Iger said that he wants the heads of Disney's businesses to have more say in their strategy, not least to help make Disney nimbler.
Now Mr Iger is busy wooing Steve Jobs, founder of Pixar, a successful animation studio, and boss of Apple, a computer company. Mr Eisner fell out with Mr Jobs. Last year Pixar broke off talks about extending its current five-film deal with Disney beyond 2005. Much of the problem, it is said, was that Pixar, on a hot streak of films, made a surely impossible demand: that to get a new deal, Disney had to forgo hundreds of millions of dollars due on movies covered by the current one.
Disney now has a far stronger negotiating position says Lawrence Haverty, a fund manager for Gabelli Global Multimedia Trust, owing to the current weakness of the DVD market. In June, Pixar cut its second-quarter profit forecast after weak sales of “The Incredibles” on DVD. This week Dreamworks Animation, another small studio, cut its forecasts and cancelled a secondary offering of shares after disappointing DVD sales. Pixar, heavily reliant on DVD revenues, will probably now offer Disney more favourable terms.
Mr Iger's longer-term challenge is how to refine Disney's wider strategy. His current plan has three parts: creating attractive content; pursuing opportunities in new media; and expanding international profits. On profits, Mr Iger has been specific: he aims to increase overseas profits from 35% of Disney's total operating profit today to half within the next five years.
On current trends, that is likely to be difficult. Mr Iger is emphasising China, India and Russia as the high-growth markets that will help to achieve his goal. But competitors estimate that these three markets together generate revenues of barely $200m each year (Disney does not provide a breakdown). If these countries are to propel international profits to half of Disney's total profits by 2010, the company will have to nearly double their contribution each year for the next five years. Mr Iger must be aware that a more realistic way to reach his target would be to make a large acquisition in a developed market such as Germany, Britain or Japan. That may provide the true test of whether he really has the magic touch.
