Disney: Top Bet for No. 1? No. 2

The surprise front-runner is its president, Robert Iger. And rising earnings are helping him shed the taint of being Eisner's pick for CEO

By Ronald Grover

It's awards season in Hollywood. Jamie Foxx won a Golden Globe for his star turn as legend Ray Charles in Ray and is the betting favorite to add an Academy Award in February. Oscar talk also surrounds The Aviator, which will likely be fighting against Million Dollar Baby and Sideways for Best Picture. But the biggest prize of all -- the CEO job at Disney (DIS ) -- won't be handed out for several months.

A funny thing has happened in the race to succeed current CEO Michael Eisner, who's scheduled to retire on Sept. 30, 2006. Derided for months for being the departing chief's choice -- Eisner is no hit with Disney shareholders -- President Robert Iger is seeing his bid pick up steam with both investors and, more important, the board. Some board members still aren't 100% behind Iger, and Disney dissidents -- and major shareholders -- Stanley Gold and Roy Disney are openly critical of anyone Eisner suggests. But if momentum counts for anything, Iger's prospects are improving.


  The Disney board has yet to begin interviewing actual candidates. At its most recent meeting, in early January, it simply winnowed down a list of more than 25 candidates to 11, according to sources with knowledge of the board's operations. Helped by executive-search consultants Heidrick & Struggles (HSII ), the board has said it intends to announce its choice in June. Among those on the shrunken list are News Corp. (NWS ) President Peter Chernin and Viacom (VIA ) Co-President and CBS head Leslie Moonves, both of whom have supporters on the Disney board.

Also on the list is Meg Whitman, eBay (EBAY ) chairwoman and a one-time Disney consumer-products expert. BusinessWeek Online has been told that the Disney board considers Whitman one of the hottest executives in the country. Heidrick & Struggles declined to comment, as did Disney and its board.

Even among this crowd, Iger, the lone internal candidate, has risen to the top, say knowledgeable Disney sources. Mostly, it's because Disney is on the upswing, with the company predicting double-digit earnings growth this year, after recording a 75% increase in net income before accounting charges. Indeed, Merrill Lynch analyst Jessica Reif Cohen said in a Jan. 14 report that Disney will likely boost earnings by 15%, to $2.69 billion, in 2005 and hike its revenues 14%, to $30.7 billion.


  Reif Cohen, who raised her 12-month target from $30 in November to $35, credits the improved showing to operating earnings growth in most of the areas directly under Iger's control, especially the ABC-TV network and Disney theme parks. "We believe he's the most likely successor to Michael Eisner," says Smith Barney investment analyst Jill Krutnick, who rates the stock a buy.

Moreover, the entertainment giant has been working the investment community to beef up Iger's visibility. The exec has met with more than a dozen of Disney's largest shareholders since September. "He makes a great impression, he says all the right things, and he knows the company well," says one. "If the company is performing, his chances go up."

Disney has also taken great care to put Iger before investors to show his smooth delivery and easy command of the company's inner workings. Since Eisner announced in early September that he would step down, Iger has been sent to conferences sponsored by Merrill Lynch and Smith Barney Citicorp.

At the Smith Barney conference in Phoenix, Iger listed the four areas he would tackle to improve Disney's operations. He didn't launch any thunderbolts -- mostly Iger stressed that he would focus on creativity and innovation. "It was what Walt was all about and what Michael is all about," Iger said.


  He also stressed that he would dig deeper to create Harry Potter-like brands for Disney to exploit. Exhibit A: The $150 million epic-in-waiting Chronicles of Narnia: The Lion, the Witch, and the Wardrobe. Disney is co-financing the film with billionaire Phil Anschutz' Walden Media and has the rights to six other C.S. Lewis adventure books, which have sold more than 85 million copies worldwide. "This represents real franchise potential for this company," Iger said.

His biggest claim to fame, however, is the turnaround at the ABC network, which has jumped from a weak-kneed No. 3 to a close second in the hot 18-to-49-year-old demographic, thanks to shows like Desperate Housewives and Lost. ABC had $500 million in red ink two years ago but is expected to have $100 million in operating income in 2005.

Moreover, Iger has been working hard to win over board members by pushing deals that could help Disney down the road. He's the point man with the Chinese government for a theme park in Shanghai. And sources say he's leading efforts to reopen talks with Steve Jobs's Pixar (PIXR ) animation studio, which created the computer-generated animated blockbusters The Incredibles and Finding Nemo. Jobs has said Pixar will end its co-production agreement with Disney next year after it completes their last film together, Cars, due to be released in summer, 2006.


  But knowledgeable sources say Pixar is eager to see who'll succeed Eisner and has listened to overtures from Iger about reopening the talks. That's a long way from starting talks, and Pixar has already had serious wooing from the likes of Fox (FOX ) and Warner Bros. (TWX ).

But Jobs, who's expected to make a decision sometime this year about which studio will release his films, is known to dislike Eisner and has pledged not to return as long as the Disney CEO remains. "Steve Jobs doesn't like Michael and doesn't know Bob -- but is willing to let [Bob] make his case," says one source familiar with executives at both Pixar and Disney. Pixar had no comment.

In the end, Iger's greatest strength may be that his calm demeanor and diplomatic ways could undo some of the damage wrought by the more autocratic, controversial Eisner. True, Iger may not be the perfect candidate. Critics point out that the former TV weatherman is light on creative experience, despite a five-year stint as head of ABC Entertainment. And he has always been a great No. 2 -- to ABC Cap Cities CEO Thomas Murphy and more recently to Eisner.

But he does know how to make the Disney machinery work. And as Disney earnings and its stock price rise, board members may be looking for someone to credit rather than blame.

Grover is Los Angeles bureau chief for BusinessWeek. Follow his Power Lunch column, only on BusinessWeek Online

Edited by Patricia O'Connell

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