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Why are investors so furious with Michael Eisner? It's not just the stock price. The faithful think his singular focus on marketing has cost the company its soul
By David J. Jefferson and Johnnie L. Roberts
Newsweek
March 15 issue - The drama inside the Philadelphia convention center last Wednesday was worthy of a Disney epic. The audience of 3,000—many of them looking like folks dressed for a day in Orlando, Fla.—sat spellbound as Michael Eisner and his nemesis Roy Disney, nephew of the fabled Walt, launched into a pitched battle of words. The prize: the hearts and minds of the shareholders. Laying out his plans for a Disney turnaround, a hoarse Eisner delivered a speech that only a Wall Street analyst could love. "This is the precise strategy that separates the Disney and ESPN brands from their competitors, allowing us to generate returns that exceed our cost of capital," he said. For emotional effect, Eisner added, "I love this company. The board loves this company. And we are all passionate about the output from this company." But the audience was passionate about Roy Disney. Looking and sounding eerily like his Uncle Walt, seemingly back from the dead after nearly four decades, Roy took the microphone and spoke to the masses. "Branding is something you do to cows," he said. "Branding is what you do when there's nothing original about your product. But there is something original about our products. Or at least there used to be." The audience erupted in cheers. In that instant, the days of King Eisner's unchallenged rule came to an end.
For now, Eisner is wounded, but he can claim a minor victory: he remains chief executive, even though directors stripped him of the chairman's title. But it is clear that he has lost the soul of Disney. Shareholders don't want him there—in an unprecedented show of no confidence, 43 percent withheld their votes for his re-election to the board—and they are storming the gates of the Magic Kingdom as if it were the Bastille. Why are they so angry? On paper, Disney seems to be doing better than it has in quite some time. The stock and profits are back up, and the company is anticipating double-digit earnings growth through 2007. The real reason for the fury: Eisner confused marketing with magic, and somewhere along the way customers and shareholders began to notice and felt betrayed. Determined to milk the most profit out of Disney with his beloved "synergy," spitting out endless iterations of existing properties, Eisner lost sight of the fact that what people really want from Disney are original dreamscapes that fire their emotions first, and their stock portfolios second. Worse still, he seemed to act as if he'd invented the company, not just been hired to run it.
Eisner insists he's staying put as CEO until the end of his contract in 2006. But everyone else is taking bets on when he'll get the boot from the board, which is now chaired by former senator George Mitchell—himself the recipient of a 24 percent no-confidence vote. Disney directors are under intense pressure to begin searching for a successor, even as they remain publicly committed to Eisner. People close to the situation say News Corp.'s Peter Chernin and Viacom's Mel Karmazin are top contenders, though with Eisner in the picture and Comcast hovering with a takeover offer, neither man is likely to be lured to Disney. Meanwhile, Eisner says he still has the magic touch.
But the magic Eisner is talking about and the one shareholders say he's lost aren't exactly the same thing. The difference is how you define it. "Magic is about deception," Eisner told NEWSWEEK in a lengthy interview last year—a comment that elicited a panicked rebuke from his spokeswoman, who reminded him that " 'deceive' is really a bad word" and he might want to use the term "create." Eisner, never one to lose an argument, was insistent. "No, but it's creative deception." What he meant was that Disney has found a way to cut costs and still put on a good show. "In a [Disney] ride, if you turned around, which you would never do, you would see unfinished backs of a lot of things,'' he said. "Our whole job is to deceive you into having a good time."
That approach—one eye on the creative and the other on cost—is exactly what has made each share of Disney 19 times more valuable than it was when Eisner took over in 1984. But that idea is blasphemous to shareholders who were asking Walt's nephew to autograph their stock certificates last week. Obsessive to a fault, the real-life Walt Disney had touch-up painters roaming Disneyland each night while seamstresses mended clothing of animatronic children inside It's a Small World. To trim costs, Eisner did away with the compulsive cleanliness, and now those once ubiquitous street sweepers seem like a faded memory. "The deterioration in the appearance of the parks is awful," says Roxann Grzetich of Chicago, who attended Roy's Save Disney shareholders' rally last week clad in a red vest embroidered with a sequined Mickey.
There is a tidy symmetry to the rise and fall of Michael Eisner. The chain of events that brought him to Disney from Paramount in 1984 began when Roy Disney quit the board and, with the help of his financial adviser Stanley Gold, began engineering the ouster of Walt's son-in-law, whose creative sense is best summed up by such flops as the movie "Tron." As with Comcast today, the sharks were circling, and Disney's employees fretted for their future with a mix of dread and hope. Gold and Disney helped fend off the suitors, and then brought in Eisner and former Warner Brothers exec Frank Wells to run the kingdom.
For the decade that Eisner and Wells worked together, Disney was unstoppable. Along with studio chief Jeffrey Katzenberg, they churned out a series of low-cost sleepers like "Down and Out in Beverly Hills" and rebuilt the animation department by marrying classic Disney storytelling with Broadway musical pizzazz to deliver new hits like "Beauty and the Beast." When the company lost the quiet, understated Wells in a tragic helicopter crash in 1994, it became painfully apparent that he'd been much more than the bean counter to Eisner's creative genius. "In retrospect, we all realize that Frank was the glue that kept Michael's dark side hidden from other managers," Gold said last week. In the months following Wells's death, Eisner began to look a lot more menacing than his Mickey ties suggested. He refused Katzenberg the No. 2 slot, calling him a "little midget" in the process—a comment that wound up costing Disney shareholders $280 million when Katzenberg sued the company ($30 million more, NEWSWEEK has learned, than the $250 million previously believed to have been the settlement). As one executive after another departed, Eisner earned a reputation for having the unique ability to spot talent, and then crush it once it threatened his own power. The rap isn't entirely fair. Today's Disney has plenty of talented execs, like ESPN president George Bodenheimer and Consumer Products chairman Andy Mooney. Eisner and his No. 2, Robert Iger, made a big point of parading them before shareholders last week.
All might have been forgiven had Eisner not been paying more attention to Wall Street than to Main Street, U.S.A. Unlike Walt, who kept a modest apartment above the firehouse in Disneyland, Eisner prefers to wheel and deal from the Team Disney building, an imposing structure whose vibe belies the seven dwarfs on its facade (unless you count Grumpy). "Mauschwitz," disgruntled employees call it.
A common misperception about Eisner is that he wanted to be Walt Disney—understandable, given how quickly he stepped into the founder's shoes on "The Wonderful World of Disney." But in hindsight, what he really seems to have wanted is for Disney to become Michael Eisner. The big difference between Walt and Michael is that Disney was a gambler, a man who bet everything to fund projects like "Snow White" and Disneyland. Eisner is more of a risk manager, spotting something that works and then marketing it like a madman (thus the decision to air "Who Wants to Be a Millionaire" four nights a week). Acknowledging the abundant riches Walt had left for him to harvest and peddle when he took over in '84, Eisner told NEWSWEEK last year: "If I had done nothing, I would have been a hero, just being there to catch the fruit." What he never anticipated is that, one day, Disney shareholders would rise up and start throwing that fruit back at him.
© 2004 Newsweek, Inc.
Link to article
Why are investors so furious with Michael Eisner? It's not just the stock price. The faithful think his singular focus on marketing has cost the company its soul
By David J. Jefferson and Johnnie L. Roberts
Newsweek
March 15 issue - The drama inside the Philadelphia convention center last Wednesday was worthy of a Disney epic. The audience of 3,000—many of them looking like folks dressed for a day in Orlando, Fla.—sat spellbound as Michael Eisner and his nemesis Roy Disney, nephew of the fabled Walt, launched into a pitched battle of words. The prize: the hearts and minds of the shareholders. Laying out his plans for a Disney turnaround, a hoarse Eisner delivered a speech that only a Wall Street analyst could love. "This is the precise strategy that separates the Disney and ESPN brands from their competitors, allowing us to generate returns that exceed our cost of capital," he said. For emotional effect, Eisner added, "I love this company. The board loves this company. And we are all passionate about the output from this company." But the audience was passionate about Roy Disney. Looking and sounding eerily like his Uncle Walt, seemingly back from the dead after nearly four decades, Roy took the microphone and spoke to the masses. "Branding is something you do to cows," he said. "Branding is what you do when there's nothing original about your product. But there is something original about our products. Or at least there used to be." The audience erupted in cheers. In that instant, the days of King Eisner's unchallenged rule came to an end.
For now, Eisner is wounded, but he can claim a minor victory: he remains chief executive, even though directors stripped him of the chairman's title. But it is clear that he has lost the soul of Disney. Shareholders don't want him there—in an unprecedented show of no confidence, 43 percent withheld their votes for his re-election to the board—and they are storming the gates of the Magic Kingdom as if it were the Bastille. Why are they so angry? On paper, Disney seems to be doing better than it has in quite some time. The stock and profits are back up, and the company is anticipating double-digit earnings growth through 2007. The real reason for the fury: Eisner confused marketing with magic, and somewhere along the way customers and shareholders began to notice and felt betrayed. Determined to milk the most profit out of Disney with his beloved "synergy," spitting out endless iterations of existing properties, Eisner lost sight of the fact that what people really want from Disney are original dreamscapes that fire their emotions first, and their stock portfolios second. Worse still, he seemed to act as if he'd invented the company, not just been hired to run it.
Eisner insists he's staying put as CEO until the end of his contract in 2006. But everyone else is taking bets on when he'll get the boot from the board, which is now chaired by former senator George Mitchell—himself the recipient of a 24 percent no-confidence vote. Disney directors are under intense pressure to begin searching for a successor, even as they remain publicly committed to Eisner. People close to the situation say News Corp.'s Peter Chernin and Viacom's Mel Karmazin are top contenders, though with Eisner in the picture and Comcast hovering with a takeover offer, neither man is likely to be lured to Disney. Meanwhile, Eisner says he still has the magic touch.
But the magic Eisner is talking about and the one shareholders say he's lost aren't exactly the same thing. The difference is how you define it. "Magic is about deception," Eisner told NEWSWEEK in a lengthy interview last year—a comment that elicited a panicked rebuke from his spokeswoman, who reminded him that " 'deceive' is really a bad word" and he might want to use the term "create." Eisner, never one to lose an argument, was insistent. "No, but it's creative deception." What he meant was that Disney has found a way to cut costs and still put on a good show. "In a [Disney] ride, if you turned around, which you would never do, you would see unfinished backs of a lot of things,'' he said. "Our whole job is to deceive you into having a good time."
That approach—one eye on the creative and the other on cost—is exactly what has made each share of Disney 19 times more valuable than it was when Eisner took over in 1984. But that idea is blasphemous to shareholders who were asking Walt's nephew to autograph their stock certificates last week. Obsessive to a fault, the real-life Walt Disney had touch-up painters roaming Disneyland each night while seamstresses mended clothing of animatronic children inside It's a Small World. To trim costs, Eisner did away with the compulsive cleanliness, and now those once ubiquitous street sweepers seem like a faded memory. "The deterioration in the appearance of the parks is awful," says Roxann Grzetich of Chicago, who attended Roy's Save Disney shareholders' rally last week clad in a red vest embroidered with a sequined Mickey.
There is a tidy symmetry to the rise and fall of Michael Eisner. The chain of events that brought him to Disney from Paramount in 1984 began when Roy Disney quit the board and, with the help of his financial adviser Stanley Gold, began engineering the ouster of Walt's son-in-law, whose creative sense is best summed up by such flops as the movie "Tron." As with Comcast today, the sharks were circling, and Disney's employees fretted for their future with a mix of dread and hope. Gold and Disney helped fend off the suitors, and then brought in Eisner and former Warner Brothers exec Frank Wells to run the kingdom.
For the decade that Eisner and Wells worked together, Disney was unstoppable. Along with studio chief Jeffrey Katzenberg, they churned out a series of low-cost sleepers like "Down and Out in Beverly Hills" and rebuilt the animation department by marrying classic Disney storytelling with Broadway musical pizzazz to deliver new hits like "Beauty and the Beast." When the company lost the quiet, understated Wells in a tragic helicopter crash in 1994, it became painfully apparent that he'd been much more than the bean counter to Eisner's creative genius. "In retrospect, we all realize that Frank was the glue that kept Michael's dark side hidden from other managers," Gold said last week. In the months following Wells's death, Eisner began to look a lot more menacing than his Mickey ties suggested. He refused Katzenberg the No. 2 slot, calling him a "little midget" in the process—a comment that wound up costing Disney shareholders $280 million when Katzenberg sued the company ($30 million more, NEWSWEEK has learned, than the $250 million previously believed to have been the settlement). As one executive after another departed, Eisner earned a reputation for having the unique ability to spot talent, and then crush it once it threatened his own power. The rap isn't entirely fair. Today's Disney has plenty of talented execs, like ESPN president George Bodenheimer and Consumer Products chairman Andy Mooney. Eisner and his No. 2, Robert Iger, made a big point of parading them before shareholders last week.
All might have been forgiven had Eisner not been paying more attention to Wall Street than to Main Street, U.S.A. Unlike Walt, who kept a modest apartment above the firehouse in Disneyland, Eisner prefers to wheel and deal from the Team Disney building, an imposing structure whose vibe belies the seven dwarfs on its facade (unless you count Grumpy). "Mauschwitz," disgruntled employees call it.
A common misperception about Eisner is that he wanted to be Walt Disney—understandable, given how quickly he stepped into the founder's shoes on "The Wonderful World of Disney." But in hindsight, what he really seems to have wanted is for Disney to become Michael Eisner. The big difference between Walt and Michael is that Disney was a gambler, a man who bet everything to fund projects like "Snow White" and Disneyland. Eisner is more of a risk manager, spotting something that works and then marketing it like a madman (thus the decision to air "Who Wants to Be a Millionaire" four nights a week). Acknowledging the abundant riches Walt had left for him to harvest and peddle when he took over in '84, Eisner told NEWSWEEK last year: "If I had done nothing, I would have been a hero, just being there to catch the fruit." What he never anticipated is that, one day, Disney shareholders would rise up and start throwing that fruit back at him.
© 2004 Newsweek, Inc.