Michael Eisner Defends The Kingdom

Disney's boss talks tough about boycotts, Hercules, ABC, and succession

With everyone from the Baptists to the Catholics to the blind protesting one of his policies or products, it's no wonder Disney Chairman Michael D. Eisner is a bit, well, defensive.

Thanks to a long string of missteps or disappointments in recent months, Walt Disney Co.'s stock is down 8% from its May high of 84 1/2, despite a rally on July 22 when the company surpassed Wall Street estimates with an 18% earnings increase. Each passing week seems to bring Eisner new troubles. The company recently recalled 100,000 Insane Clown Posse albums after a horrified Eisner belatedly got wind of the rap group's hard-core lyrics. ABC, acquired for $19 billion in a deal struck two years ago, continues to be a ratings loser, and its management turmoil is an acute embarrassment to Eisner, once a top abc programming executive himself. Shareholders are still smarting over the estimated $100 million it cost to get rid of short-lived company President Michael Ovitz, and a $250 million suit brought by another departed Eisner foe, Jeffrey Katzenberg, may go to trial this fall. Eisner still faces criticism that he can't share power.

But most troubling is the anemic performance of Disney's newest animated film, Hercules. Each of the three animated films Disney has released since 1994's The Lion King has had progressively weaker results. For a company that derives a substantial portion of its profits from its animated films, that's a disturbing trend.

Ever under the gun, Eisner took a break from his vacation in Aspen, Colo., to talk with BUSINESS WEEK's Los Angeles bureau chief, Ronald Grover, about his and the company's troubles.

Q: It's been a bad couple of weeks for the company. Why is everyone taking shots at you now?

A: The company is big, and therefore visible. A lot of people are interested in seeing whether we are going to slip up.

Q: Will the Baptist boycott hurt Disney?

A: No. I'm sorry if [the Ellen episode in which the lead character declared herself to be a lesbian] offends the Baptists. I may not be as religious as some, but I went to a Baptist college [Denison], and I grew up believing that tolerance was the basis of all religions. I think that's what's missing here--tolerance.

Now, I got this letter from a group of non-big-time Catholics about Nothing Sacred [a show about a doubting priest that debuts on ABC this fall]. They haven't even seen the show. They are criticizing it off of a sentence that they read in the press somewhere. I showed that show to five priests. We try to be careful, to make changes. And then we get this reaction. It's aggravating.

Q: Disney's stock price has taken a fall, largely based on the disappointing box office for Hercules. What's wrong with Disney's animation unit?

A: Nothing. I don't think people quite understand our company. We have many avenues to make money from one of our animated films. The video revenues from one of our animated films are large, the consumer products huge. We're soon going to open our 11th Beauty and the Beast stage show. I'm going to Minnesota soon to see Lion King [on stage]. This company has a multiple strategy to recreate and grow the Disney brand.

Q: But box office [performance of Disney's animated films] has been going down since Lion King, and that can't be a good trend for sustaining that strategy, can it?

A: The trend is just fine. You keep looking at trends, and pretty soon you've trended yourself right out of business. I think Hercules is a fabulous movie, I thought The Hunchback of Notre Dame was a fabulous movie. Look, the audience may or may not be with you with every film you make. But our job is to make the best entertainment that we can. If you could have great entertainment and not as great profits, or great profits and not as great entertainment, I'll take the great entertainment every time. You keep making great entertainment, and the profits are sure to come.

Q: ABC's recent decision to deny Fox airtime during Wonderful World of Disney for commercials for its animated film Anastasia shows increased worries about all the studios taking on Disney animation, no?

A: Look, I hope they all start making animated films, copying what we have done. As they copy [us], we went out and made the live-action version of 101 Dalmations, which was a big success. Our strategy has to be, if they go one way, we're going to go another.

Q: What was the problem with the Insane Clown Posse? How did that one slip through the cracks?

A: Has BUSINESS WEEK ever made a mistake? Have you ever made a mistake in your life? We made a mistake. The moment I heard the music, I knew this was something that this company couldn't release. But you can bet that it won't happen again.

Q: Can we discuss the problem at ABC?

A: ABC is not a problem. We bought ABC [because we wanted to ensure that] Disney [wouldn't] be shut out from getting to the audience--not by Rupert Murdoch, John Malone, or Bill Gates. It was apparent that we had to have distribution. [ABC] had a full range of distribution--the network, cable, radio stations--that were hedges against us getting shut out by someone else.

Maybe I share some of Walt's paranoia that we were the skinny kids on the block and you have to protect yourself if you're weaker than the others. With the deal, we added a lot of eyeballs. We added cable with [80% owned] ESPN and [50% owned] Lifetime, and with broadcast entering a digital world, those are powerful assets to keep the Disney brand available to the public.

Q: Sure, but did it justify spending $19 billion for a network that fell in the ratings so quickly?

A: We looked at other networks, and it made more economic sense to spend $19 billion and get the full range of ABC's assets. We sold off $3 billion of [publishing] assets, so we paid $16 billion for an asset that we think is worth $19 or $20 billion right now--or will be, when we get the ratings fixed.

Q: The concern among many is that you're spending too much time yourself trying to fix ABC and ignoring other aspects of the company. True?

A: I spend one-fiftieth of the amount of time at ABC that I do on animation, and one-hundredth the amount of time that I spend on the theme parks. And I spend zero time on development, zero. I join the pilot meetings, and I screen the pilots. But [ABC President] Bob [Iger] and his team don't need me. Where I think I can add something of value, I will. But my secret dream is that I could go down to the smallest ABC office somewhere, where people didn't know me, and really see what I could do.

Q: With all that's going on, don't you need a strong No.2 to help out?

A: At the moment, we have four or more strong No.2s. Joe Roth at the studio. I couldn't do better than Bob Iger. I couldn't do better than [Disney cable's] Gerry Laybourne or [ESPN's] Steven Bornstein or [theme-park chief] Judson Green or [CFO] Richard Nanula. We have the strongest team around.

I went in a different direction once with you-know-who [Ovitz], and it obviously was not successful. I like being part of a team, but the team doesn't have to be the same person each time. I can be a team with Joe on movies, with Bob at ABC. It's just a different way of looking at No.2.

Q: Sure, but back in '95, when you hired Michael Ovitz, it was your wife who suggested you needed the help because of your health problems, wasn't it?

A: Right, but things have changed.

Q: Is there a succession plan for the company?

A: Sure, I discuss my ideas of succession with the board all the time. If I got hit by a truck tomorrow, there would be someone to run this company, and my ego is such that they would probably run it better than I have. I am 54 years old, and if it hadn't been for my [heart] bypass, no one would even be talking about succession. A person at any age is vulnerable, so we've talked over what might happen. But there is no No.2 waiting out there if we had to use the plan. There is a group of people both inside and outside this company who could run it if I wasn't here. There isn't a concrete plan at the moment.

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