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David Koenig

All the Wrong Moves

Is Disney repeating the mistakes that almost destroyed the company 20 years ago?

Tuesday, July 10, 2001
by David Koenig, staff writer

From the Desk of Roy E. Disney:

It is with deep regret that I hereby tender my resignation (from) Walt Disney Productions, due to what seem to me to be deep and irreconcilable philosophical differences with present management…

As I have previously told you… the creative atmosphere for which the Company had so long been famous and on which it prides itself has, in my opinion, become stagnant. I do not believe it is any longer a place where I, and perhaps others, can realize our creative capacities.

Motion pictures and the fund of new ideas they are capable of generating have always been the fountainhead of the Company; but present management continues to make and remake the same kind of motion pictures, with less and less critical and box-office success…

…This represents to me that the Company is no longer sensitive to its creative heritage. Rather, it has substituted short-range benefits, obtainable from exploitation of the Company's past productions, for long-range creative planning.

Under the present circumstances, I believe it is best that I attempt to express myself elsewhere in the industry, while continuing to serve as a member of the Board of Directors and, as always, remaining vitally interested in the affairs of the Company…

Regretfully yours,
Roy E. Disney

No, Roy E. Disney hasn't left his current position at Walt Disney Co. The above are excerpts from his letter of resignation as a vice president of Walt Disney Productions on March 4, 1977. Back then, Roy had grown fed up with the company's financial and artistic stagnation. You see, the company had continued to make money, but disappointingly so. Worse, Walt Disney Productions was bankrupt creatively.

He could see that Disney's tired products and tarnished reputation were a direct result of misguided management—individuals who because of ineptness, laziness, fear and greed had become reactive rather than proactive. No longer could Roy stand idly by (he'd long been maneuvered into a position of powerlessness, despite being the company's largest individual shareholder). He refused to be a party to the agonizing decay of the family business. The corporation would, in fact, approach the brink of dismemberment before the financial cavalry (led by Roy himself) would seize control in 1984 and appoint Michael Eisner & Co. to set things right.

Roy E. Disney riding California Screamin' at the opening of California Adventure
Roy E. Disney riding California Screamin' at the opening of California Adventure. MousePlanet file photo.

Disturbingly, many of the problems Eisner was hired to correct strongly parallel the wrong moves that Eisner himself is making today. Is history repeating itself?

(1) Stagnant stock price after years of healthy growth.

Similar to 20 years ago, Disney continues to make barrels full of money—just not as many barrels full as Walt Street thinks it should. Moves by management, then, have become efforts to appease the Street rather than to better the business. Disney's desperate pursuit of imperfect acquisitions like Arvida and Gibson in the early '80s don't seem that much different from its recent Internet strategy. (The Internet division's one bright spot is, of course, the foolproof Disney.com).

"What I've noticed are some financial curves," noted one Hollywood numbers man. "If you compare key sectors of Walt Disney Productions to the Walt Disney Co., you will see the beginning of the same downward curves. It may be too early for senior analysts to declare this yet, but they're all watching for the same indicators. However, the end result could be very different from what happened last time. The stock could plummet and then stay there." (See this analyst's "Eerie Comparisons" at right.)

(2) Resentment toward rather than enchantment with the brand.

This is what long-term investors worry about. Not so much Disney's quarterly or even annual earnings. It's the worth of its most valuable asset, the Disney name. The company controls its own stamp of approval, one that's word-of-mouth-proof; no matter what critics or friends may say, people have already made up their mind about buying (or avoiding) Disney's products.

In the 1970s, that priceless asset became a joke in Hollywood, as Disney fell hopelessly out of touch with contemporary audiences. After decades of popularity, it took a torrent of dissatisfaction to turn the good luck charm into a curse. And, it would take critical and commercial movie mega-hits like The Little Mermaid, Beauty and the Beast, and park attractions like Star Tours to regain audiences' trust in the Disney name.


The Rocket Rods slow march into history continued this summer—last week the sign was removed from the Tomorrowland building. MousePlanet file photo.


…While a lone Rod was salvaged and installed as a prop near the Hollywood & Dine buffeteria in California Adventure. MousePlanet file photo.

Unfortunately, today's audiences, desensitized by multiple animated features a year and unimpressed by second-rate theme park attractions, are again losing confidence. Witness Animal Kingdom's three years of slipping attendance and California Adventure's desperate attempts to get any attendance at all. (This is the factor I failed to recognize six months ago in predicting "10 Reasons Why DCA Will Be a Smash Success.")

(3) Bleeding the theme parks to fund lesser ventures.

Disney, like other multi-divisional companies, has always shuffled earnings from stronger-performing operations to help prop up weaker operations. The profits from Snow White and the Seven Dwarfs, for instance, financed construction of Disney's Burbank headquarters and movie studio. Revenue from Mary Poppins helped to pay for Disneyland's New Tomorrowland of 1967.

But in the 1970s, the company began sucking money out of its most reliable asset, Disneyland, and left the vacuum running. The park not only cut back on operational expenses, but stopped receiving money for new developments. Whereas Disneyland added multiple attractions almost every year for its first 14 years, it added only four major attractions (Country Bear Jamboree, America Sings, Space Mountain and Big Thunder Railroad) during the next 14 years.

Parades are cheaper to put on, but don't add to the attraction mix when gone
Parades are cheaper to put on, but don't add to the attraction mix when gone. MousePlanet file photo.

Disneyland was revitalized in the mid-1980s by a steady stream of new attractions and promotions. But the park has little new to show for itself over the last four years—and far less on the horizon.

(4) Copying the competition instead of setting the pace.

Walt's reign at Disney was marked by innovative entertainments that others often tried to copy—with far inferior success. His cartoons, animated features, TV shows, theme parks and attractions all inspired imitators.

Post-Walt, the company for the first time looked at competitors for their cue. Six Flags and Knott's Berry Farm were succeeding with roller coasters, so Disney got into roller coasters. Fox made Star Wars, so Disney made The Black Hole.

Eisner reversed the trend. He again had competing amusement parks watching Disney's lead in creating highly themed attractions. The pinnacle was the billion-dollar success of The Lion King, which convinced most of the other major studios to launch their own animation department.

One internal Paradise Pier presentation actually said "If it's good enough for Six Flags…"
One internal Paradise Pier presentation actually gave as a point: “If it's good enough for Six Flags…”

Today, Disney's most-publicized attractions, such DCA's California Screamin', were bought "off the shelf" and their movies, like the Titanic-inspired Pearl Harbor, seem derivative.

(5) Recycling instead of innovating.

Even less expensive than buying off-the-shelf thrills is recycling what was thrilling years before. First came the live action remakes (Jungle Book, 101 Dalmatians, Flubber, Parent Trap, even Freaky Friday, for goodness sake). Now, the entire animation library has been ransacked for source material for even the unlikeliest direct-to-video sequel (In time, expect Fox and the Hound II: Copper's Evil Twin).

The latest attraction at the Magic Kingdom as well as the next at Animal Kingdom are no more than rethemed Dumbo rides. And the big summer addition to DCA? A resuscitated Electrical Parade.

New park, old parade
New park, old parade. Mouseplanet file photo.

Personally, I would have welcomed an updated, high-tech Electrical Parade. But the old one was cheaper and safer. Plus, Disney blames the failure of its short-lived replacement, Light Magic, on die-hard fans who unfairly compared it to the Electrical Parade. Nonsense. If Light Magic was a great show, people would have supported it, no matter what a few kooks said. Its problem wasn't that it was so ground-breaking. It turned off audiences because it incoherently borrowed effects that worked better in their original productions (Fantasmic, Electrical Parade, Lion King Celebration, River Dance).

(6) Driving away talent due to executive interference.

Disney's lapses in creativity never have been because of lack of talent. On the contrary, Disney has always attracted the finest minds in animation, theme park design, and other family-oriented side businesses. It's just that, following Walt's lead, Disney executives (and accountants) must always have their say. And now that Jeffrey Katzenberg is long gone, the "suggestions" are viewed as meddlesome, creating a difficult atmosphere—that talented artists increasingly refuse to tolerate. Inept management drove away songwriters Richard and Robert Sherman in the early 1970s. In 1979, Don Bluth cited similar causes in walking out with more than a dozen of Disney's finest animators. A similarly stifling atmosphere has contributed to a current mini-exodus in Feature Animation.

As well, through the 1970s, several star Imagineers quit to form their own consulting companies—another trend that began resurfacing a few years ago. The winners are Disney's competitors, like Universal Studios, who now have equal access to the industry's best ideas and ideamen.

Universal's Islands of Adventure benefited from Imagineering know-how
Universal's Islands of Adventure benefited from Imagineering know-how. MousePlanet file photo.

Those who aren't driven away are often promoted into positions of powerlessness. Nowadays on the theme park side, anyone who stands up for quality is marginalized, from former chairman Dick Nunis to veteran Imagineer Tony Baxter.

The saddest part is that most of these artists would have loved to stay. Even as one veteran animator headed out the door, he noted, "Disney will always have the rep. For animators, it's still the Tiffany's, the Rolls Royce you want to be associated with. It would take decades of gross mismanagement to change that."

(7) Blind allegiance to one aspect of the business.

A healthy company doesn't concentrate on just one aspect of the business. It looks at the larger picture and strives for balance. An active, forward-moving business is built on both shoring up and expanding, cashing out and reinvesting, mining existing assets and experimenting with new ventures.

Create and follow a strategic plan. Support and nurture valuable employees, whether composers or custodians. Reward everyone in the company when the company does well, thereby motivating everyone to better the company. Listen to the customers.

Seventies management ignored all that, mindlessly repeating procedures of the past. Today's management has forgotten that there are other lines besides the bottom line. Worse, they're obsessed with squeezing out short-term pennies at the cost of long-term dollars. What good is saving a few hundred dollars building inferior products, if they cost thousands more to repair or replace?

Toontown continues to lack in upkeep -the Gadget's Go-Coaster building used to be red
Toontown continues to lack in upkeep -the Gadget's Go-Coaster building used to be red. MousePlanet file photo.

Disney's theme parks used to have preventive maintenance programs to regularly inspect attractions and replace parts before they wore out, greatly reducing downtime. Now, many parts aren't replaced until after they break—if they're replaced at all. And annual rehabs on poorly maintained attractions cost more and last longer.

Why would Disney skimp so dramatically, seemingly with no regard for tomorrow? This is tearing down, not building up, a company. One long-time insider postulated, "The view in recent years shows all the earmarks of an Eisner under criticism from all sides who maybe is designing the most colossal Golden Parachute in history… cook the books, sprinkle copious pixie dust on potential buyers greedier than him, then execute a quick secret deal. Upset stockholders might just be ready to go for it."

Certainly Disney is far from its vulnerable state of 17 years ago. Still, it does seem to be well on its way down the same path. It's not too late to turn back. Avoid another coup (with possibly a less happy ending) by taking the same measures that rejuvenated the company in the mid-1980s.

  • Remember that it takes money to make money. Quality endures. And, it's cheaper to do things right the first time.
  • Capitalize on under-utilized assets without prostituting them, thereby jeopardizing their long-term value.
  • Refocus on animation as the spark that feeds other divisions. Never cut corners with story, songs or characters.
  • Use the company's proud heritage as a springboard not a shackle.
  • Never forget that the goal is entertaining the audience, not tricking it or pacifying it.

It's time to right the ship immediately or—if Roy is truly a man of his convictions—expect another resignation letter soon.


EERIE COMPARISONS

'70s: Over-reliance on parks to bail them out.
Today: Over-reliance on parks to bail them out.

'70s: Unprepared for economic downturn
Today: Unprepared for economic downturn.

'70s: Top management shielding itself in the name of Walt to protect itself.
Today: 100th Birthday of Walt Disney celebration.

'70s: Scaring away creative talent because of executive interference.
Today: Scaring away creative talent because of executive interference.

'70s: Making the same story for animated films over & over again.
Today: Wanting to make the same story for animated films over & over again.

'70s: Producing big bloated films with lots of special effects that don't break even: The Black Hole, Tron, The Black Cauldron.
Today: Producing big bloated films with lots of epecial sffects that don't break even: Armageddon, Dinosaur, Pearl Harbor.

'70s: Got rid of Tom Wilhite. (OK, not so bad.)
Today: Got rid of Jeffrey Katzenberg. (Errr….)

'70s: Network ratings of Wonderful World of Disney down.
Today: Ratings of ABC networks down.

'70s: Licensing agreements down.
Today: Disney Store sales down.

'70s: Blowing off Jim Henson (and then paying for it in so many ways).
Today: Blowing off Henson again?

'70s: Invested in Cal Arts.
Today: Threatening to buy Pixar.

'70s: No real long-term plan in place.
Today: Definite short-term plan in place, to drain everything now.

'70s: Reworking the library via shows such as The Mouse Factory.
Today: Selling off the library via DVD sales.

'70s: One smart idea: Creating Touchstone.
Today: One smart idea. Buying long-term rights to Winnie the Pooh.

'70s: Events drive Roy Disney, Jr. to drink.
Today: Events occasionally stop Roy from drinking.

'70s: Top creative exec hides in office pretending he's Darth Vader.
Today: Top exec circling the globe crushing creativity.

'70s: Preparing for a fight over the company's stock.
Today: Preparing for a fire sale?

ABOUT THE AUTHOR

David Koenig is the senior editor of the 80-year-old business journal, The Merchant Magazine.

After receiving his degree in journalism from California State University, Fullerton (aka Cal State Disneyland), he began years of research for his first book, Mouse Tales: A Behind-the-Ears Look at Disneyland (1994), which he followed with Mouse Under Glass: Secrets of Disney Animation & Theme Parks (1997, revised 2001) and More Mouse Tales: A Closer Peek Backstage at Disneyland (1999); all titles published by Bonaventure Press.

He lives in Aliso Viejo, California, with his lovely wife, Laura, their wonderful son, Zachary, and their adorable daughter, Rebecca.

You can contact David here.

LINKS

Click here to go to David's main page for a list of archived articles.

Visit MouseShoppe to purchase copies of David's books. (Clicking on the link opens a new window.)

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