Why? (a Disney business question)Updated

[lodgelady]

As I was brushing my teeth this morning I was thinking about what I have read off-and-on on this board for a while:
** that the Parks carry the company.**

It seems this is still true even with all of the hoopla since 9/11. I do have enough knowledge of the economy of corporations to know that it is wise to diversify their product for many reasons including:1) to make themselves big fish which are harder to swallow (take over) 2) to provide corporate stability (when demand for one sector of their market falters, the others carry it) *BUT* ( finally, the question!)

why does the Disney corporation continue to put it's money into media when it has been proven time and again that what people want is wholesome family experiences? I understand that the Broadway shows have been successful, and of course you have to stay true to the Vision that started it all by making films that EVERYONE can enjoy- but what is with wanting to be mega media mights? Why? Doesn't that dilute what made Disney great to begin with? If the Parks are always carrying the load, why don't they dump some of the other sectors and consolodate?

Does anybody understand their business strategy here????


"Thanks for noticin' me...."



I have added more questions in the post at the bottom of this page for your kind consideration

 

[HBK]

In my honest opinion, they're doing something that Walt did quite a bit (although the reasoning behind it are totally different).

Walt seemed to me to be intruiged by the latest and greatest....by things that pushed the envelope. It seemed to me that he really pushed one product so he could focus on another. Take WDW for example. I've heard that he didn't want to build a Magic Kingdom in FL. He did it to appease the bean counters. His big vision for FL was EPCOT (although nothing like it is today). He mearly went along with MK in order to finance his pet project.


Now, the current management team is a bit different. It seems like they are using the profits generated from the old reliable (theme parks) to finance their "get rich quick" schemes (i.e. the Go.Com Disaster, the ABC Purchase, etc).

Walt was always searching for the next big thing to attach his name to (i.e. Snow White, his initial forray into theme parks, Audio Animatronics, EPCOT, etc....). Ei$ner & co are searching for the next big thing to make a KILLING profit wise (i.e. jumping into the Internet game too late, spending BILLIONS on broadcast networks and cable channels, etc)

Seems Ei$ner isn't content being a great movie / theme park company...which is a shame since it's the thing the Disney company did best....and I think still could if they focused hard enough on it.

 

[YoHo]

HBK, you have your history Slightly off.

For this you have to go back to 1955 and earlier when Disneyland opened.

Walt built Disneyland for a number of reasons. One of the Biggest reasons was money. Before Disney parks, the studio would release a picture, make a lot of money and then slowly spend that money until by the time of the next picture, they were nearly broke again. This cycle was worse when the picture didn't do well (which many didn't in initial release) From a financial perspective, Walt saw his theme park as a source of consistant income. From the day Disneyland opened its gates, its profits were intended to fund new projects. Projects like E.P.C.O.T. New movies, meet payroll, etc.

From a historical perspective. the Disney Parks have always funded the rest of the company.

The biggest difference? Walt created success. numerous current Disney enterprises are failures. If the Disney Internet group had been a sucess, nobody would complain that the Theme Parks fianced it.


Another historical note.

When Micheal Eisner, Frank Wells and Jeff Katzenberg came in, they had the goal of making the movie division pay for itself. With the release of the Little mermaid, that started to work. So, in the recent past, they hadn't been relying on Theme Park profits as heavily.

 

[HBK]

I was basing my previous post on my own observations (which were magnified while looking through the new exhibit @ MGM).

From a financial perspective, Walt saw his theme park as a source of consistant income. From the day Disneyland opened its gates, its profits were intended to fund new projects. Projects like E.P.C.O.T. New movies, meet payroll, etc.

I'd like to know where you base this information on. I've never seen this reported anywhere.

Yes the theme parks were profitable, and they were able to carry the company during some of Walt's misses...but I've never seen this reported anywhere. Please expand and show me the source.

That being said, I'll spot you the fact that the parks have been the financial backbone of the company. My point in my inital post is what was done with that money.

Walt was always trying to stay one step ahead of the Joneses. He was always trying to find a way to improve American lifestyle through technology & various entertainment advances.

When you goto WDW, play with one of the interactive kiosks. One point of information shown is how Walt first heard about a revolutionary means of travel called a Skyway. It also points out Walt's entusiastic purchase of the skyway as soon as he heard about it. He wasn't content to let the theme park division sit around as a cash cow so he could realize a return on investment. He viewed each adittion's profits as a way to fund another improvment.

Walt didn't purchase the skyway to try to turn a profit off of it. He saw a way to introduce something he really felt strongly in to the American Public. He didn't try to get into the transportation business...it was just something he felt would make an improvement in American's lives. And any profits derived from the skyway would allow him to explore his next idea.

Ei$ner & Co don't make purchases to try to weave themselves into American Culture or History. They make purchases to try to "get rich quick". No purchases are made without trying to figure out a Return on Investment. Why do you think they haven't improved the transportation system?

Would I feel differently if the Go.Com fiasco had turned out differently? No. It just means they struck a profit goldmine. They didn't invest in Go.Com to try to show off technology or make ANY type of advancement. They did it because everyone else was doing it.

 

[YoHo]

My source is the "Walt Disney Railroad Story" Written By Micheal Broggie, son of Roger Broggie who was the first Imagineer.


Walt built his first park for many reasons, most of them were not financial, BUT there were financial reasons.

DON'T tell me Walt was always spending money on forward looking projects. he made movies to meet payrolls, he was running a buisness still.


I suppose I will grant you that Disney Acted more then Re-acted. I would have expected him to be an AOL, A pioneer in the field, rather then a follower.
Still, my main point is that traditionally, the parks fund the rest of the company.

 

[Another Voice]

The theme parks carry the company financially, but the motion pictures carry the company creatively.

Ideas are the raw materials for Disney and the studio acts like the “new product development” division. If Disney is working right, these new ideas/products can be used by all the other areas within the company for their new products – a hit film becomes a new ride, merchandise in the Disney stores, a new television series, a Broadway musical, etc. It’s been estimated that ‘The Lion King’ has generated more than $5 billion in direct profits for Disney, plus untold billions in crossover profits.

Disney’s strategy had been an attempt to expand the creative (also called the production) side of the business and to buy other businesses that can exploit its media properties. The move on to Broadway was the clearest examples – take a movie, turn it into a play and collect the money. Miramax expanded Disney’s production capacity (and expertise). The purchase of ABC was seen as a way of expanding the distribution for Disney’s programs (with mixed results).

Some of us would argue that the strategy is better than its execution; a lot of really dumb things have been done (the sports teams, the Disney Institute) and a lot of projects have been bungled (anything involving the Internet, DisneyQuest). But what is most troubling is that the company has turned on its core in order to fund the company’s expansion. What is the point of buying Fox Family (a means of distribution) if the company guts Feature Animation (the most creative and productive area of the company)?

The long-range strategic plans of the past are now being implemented by those with only a short-term mentality. The balance between production and distribution has tilted to one side because it’s much easier to sell someone else’s creation than it is to create something new. Creation is long, hard and expensive – but in the end you end up owning the product. Distribution is a quick way to make a buck, but in the end all you have left is a bunch of empty seats. That’s way all the wealthy people in Hollywood are the ones that make the movies, not the theatre owners that show the movies.

Media outlets are worthless without product to show. Disney ought to be worried about putting something up on the screen instead the theater.

 

[JeffJewell]

Walt created success. numerous current Disney enterprises are failures. If the Disney Internet group had been a sucess, nobody would complain that the Theme Parks fianced it.

...I fall a bit closer to HBK on this, largely because of this addendum to your point: Walt's Disney tried to create entertainment, Eisner's Disney tries to create a balance sheet that shows a profit. The difference really is as simple as that.

Disney Acted more then Re-acted

Walt had a personal mission that guided his actions, and central to that mission is the wonder and delight of the guest. The dedication to that mission could be seen in all Walt's projects. Current management also has their mission, but the focus is sales and marketing, not entertainment.

The very different natures of those two missions might be a factor in Walt appearing pro-active and the current batch of management re-active: Walt would build a ride because it would provide more entertainment; pro-active. Current management builds rides when sales dictate that they have to do so; re-active.

Jeff

 

[YoHo]

I was thinking more along the creative lines then that. Walt didn't wait for someone else to come up with say the Matterhorn, or feature animation. Walt Acted, he took a chance and created these concepts.


Hmm, Capt Crook had a post here before the board mysteriously crashed. I wonder where it went?

 

[Captain Crook]

I was wondering the same thing!

 

[JeffJewell]

I was wondering the same thing!

...the only plausible theory is that your post here was somehow responsible for the crash, and had to be eliminated for the greater good of the boards.

I can only imagine what you must have written... or perhaps it was a smilie-server overload related problem...

Jeff

 

[Captain Crook]

You make a good point about my post causing the crash! You know, once my daughter & I rode ToT with a Disney bag, I'd just bought presents (nightshirt for wife & hat for me)...Well, I held it real tight yet when we departed the ride my package was no longer on my wrist or anywhere to be found. Even scarier was that by the time we exited ToT the ride was down due to mechanical problems...Was it my bag? hmmm....

But in my now missing post, I believe I was agreeing with Yoho about Walt's desire to be very profitable with all of his ventures. His belief was that anything done better than ever before, anything done to the best of their ability, was bound to shine through and be profitable. Well, sometimes he was right and sometimes he was wrong (& yet he never learned that lesson - but he had Roy). The moral of the story is that it is too simplistic to say that creativity & quality will always provide the necessary result...Just as it is too simplistic to say that following a particular business edict eliminates any chance for quality & creativity. This may very well be true on many occasions, but it is certainly no given.

Now, I know my original post was sooooo good (really, I'm sure of it)) it would have converted all of you 'screemin' three-meees', but alas it's gone and I don't know what the hell I said!

 

[HBK]

I know one of Walt's driving factors was to make money. I'm not arguing the fact he tried to make a buck.

My point, which was illustrated well by Jeff is how he hid that from the American public, and where on the totem poll profitability was compared to creativity & curiousity (the need to use the newest & greatest things the public hadn't seen).

The current management's first priority, which is rather transparent, is profits & returns on investments. Creativity happens second. My main evidence would be the transportation system.

Walt didn't need to use a monorail. Busses worked just fine. But he didn't want something people see everywhere. He wanted something which was new, fresh & cutting edge. Something that if it was adopted outside the park, he would look like a pioneer in the same vein as a Ford (Auto), Graham-Bell (telephone), etc. He didn't make any money off of the monorail specifically. But he still went ahead and installed it.

The current company doesn't install more monorail systems due to them being unable to return enough revenue to justify the investment.

So in closing....

Was Walt trying to make a profit? Yes. Do I think he based ANY of his decisions by a Return on Investment? No.

 

[Captain Crook]

I don't totally disagree with you HBK, but I do have some exceptions.

My problem, which was illustrated well by Jeff is how he hid that from the American public, and where on the totem pole profitability was compared to creativity and curiosity (the need to use the newest and greates things the public hadn't seen).

Walt didn't "hide" anything, IMO, it's just that no one was looking or maybe more to the point, no one cared. No one expected Walt to be benevelolent and fully expected him to be a profiteer, quite different from many people's opinion of "what" Michael Eisner should be today.

I also believe that Walts curiosity & creativity were purely personal (maybe even selfish) in nature. He wanted to do HIS things, HIS way for HIS reasons. He didn't have to specifically worry about cost analysis because Roy would do that, but in orer to finance whatever would become HIS next "dream" he was aware that the money had to be there first. We can go back to all of the "family sanctioned" biographies and learn that Walt wanted "DL for families", etc. & so on, but closer to the truth was he wanted it for himself (read profit & success) - Heck he built a real, working steam train railroad at his house (was that for the good of the American family, too?) and lets not forget that the fact that the "building it for the children" or "building it for the family" line was used to the great benefit of Walt Disney both from an attendance viewpoint at DL and as a personal image creator. Further, this indicates that he was also a master of "spin" before we even knew about "spin"!

Most historians point to Walt as a rather unfriendly, calculating, self centered and gruff but driven genius... But a true genius & well respected & admired, nonetheless.

Walt didn't need to use monorails. Busses worked just fine.

While this is true, remember that Walt also "wanted" the monorail. It fit the image he wanted to create and (agreeing with you) the cost of expenditure meant very little to Walt...He still believed that if it was truly fantastic, people will come (and pay for it)...It just occurs to me that perhaps Walt was also the first "build it and they will come" guy!

Anyway, the world was different then and the Company was different then. Walt had Roy looking at things Walt didn't want to and there was very little history to be followed but a lot of history to be made. Walt made the absolute most of his time, and for that we are all grateful. Corporate Disney, too, has had some successes but the genre is no longer new, they have different gods to appease & "One Man" can no longer make the decisions.

Whew...I hope somebody reads this!

 

[Another Voice]

Walt sold his vacation home and borrowed against his personal life insurance policy to pay for the ‘Mark Twain’ at Disneyland. Does anyone here truly believe Michael Eisner would pass up a slice of cheesecake on an expense account lunch to save the Company $4.95?

Disneyland was many things, but it was not a grand “get rich” ploy. It was considered an absolute folly at best, and would force the company into bankruptcy in the most likely scenario. The Park was so violently opposed by Roy that Walt took his own money and started his own company to develop the idea – and that particular family feud lingers even today. There was no “cost analysis”; no great plan to profiteer from the gullible public. Walt spent every cent he could raise (and then some more beyond that) because he was building something that he wanted to create. His business philosophy has always been that the public would respond to quality and to his visions. He was occasionally wrong (‘Fantasia’ comes to mind), but most of the time he was damn straight on.

Michael Eisner is a merchant. He buys things, turns around and resells them with a mark-up. It’s a legitimate business and for a while (and with tremendous amounts of help), he was able to run it well. Like any retailer, his mind is focused on only one thing – profit. He needs to pay as little for his inventory as possible, and then sell it for the highest price he can obtain. Eisner cares little for the quality or type of the goods that he purchases; his only concern is that there is a market that will buy his inventory. Good, bad, indifferent – only measure of “quality” is the profit margin. Personally craftsmanship and personal interest play no roll in his business.

There is no “right” or “wrong” business approach here – just to different ways of running a company. It’s the old “artisan” verses “shopkeeper” spat that’s been going on for 500 years – although the “Mike’s okay because Walt was no better” argument is really stretching things. Personally, I’m much more interested in those that can create rather than those who can drive a good bargain.

P.S. Captain, sir. Welcome to The Essay Club.

 

[lodgelady]

I found all your viewpoints fascinating. I'll have a lot more to think about when I brush my teeth tonight! All of your replies led me to another couple of questions:

*Was Disney a privately held company until Walt died?

* Do you think that it is ever possible for a publicly-held company to act as boldly/creatively when a corporations' stated reason for existing is to continually maximize profits?

* If YOU were CEO of Disney, what would you keep/get rid of to make both stockholders happy and stay true to the Disney traditions?


Thanks Everybody-

 

[YoHo]

If I recall correctly, One of the ways that Disneyland was financed was to sell stock. During Walt's Lifetime and up until Eisner/Wells came in. Disney was publicly heald, but closely held. there were only a few stockholders.

I'm about to use info that Another Voice gave us, so I may mis-quote, it is not intentional.

Eisner and Wells made it widely held in order to help protect it from corporate raiders and increase profits to stablize the company and save it. Frank Wells had more to do with this and was more savvy at this kind of game then Eisner.

As to question 2. : I think that a widely help public company can be creative and satisfy the stockholders. Disney Did it for 10 years. As in anything the success is based on the people in charge. Frank Wells and Jeffery Katzenberg were great forces for keeping the company on the right track. I will garuntee that their are people out their with Jeff and Frank' skills that could come in and right the ship and reunite the Idea with the Company. That will only happen if the board or the powers that be make it happen.



Question 3: What would I do?

I'll try to make this short, because I would love to be CEO (well, I would hate the pressure, but I'd love to be Walt)

The first thing I'd do is find someone who I could work with that Wall Street respected that could talk the talk and keep them off my back. Sometimes, Wall Street has very little to do with Facts.
From a creative perspective, I would demand that each division at the very least break even and have plan for being profitable over a reasonable time (I won't give specific time, because I don't have all of the facts.) I would focus on Filmed Entertainment and Feature animation. This is what started the brand and that is what I would use to save it.

I would respin WDI into a seperate company forced to remain profitable (or break even more likely) just like every divison. They would have sole creative control over all park decisions although the thempark groups themselves would pay for the additions. As CEO I might make suggestions, or even demand that something be done, but I would let the experts do their thing.

In some ways I'm sure that is too simplistic, but it is what I'd do.

 

[lodgelady]

For your quick reply. I am bumping this to see if I can get more responses

 

[Another Voice]

Walt Disney Productions became a public company sometime in the 1940’s (I’ll have to look up the exact date). While a large portion of the stock

I think it’s very possible for a company to be bold and still do well on Wall Street. Apple does fantastic every time they get innovative; it’s when they act like a corporation (worrying about market share, delaying new products, etc.) that they are hammered on the street. Besides, Wall Street only cares about results. It doesn’t matter if they’re from “boldness” or “stodginess” as long as the money is on the bottom line. Xerox used to be bold and innovative, and then they began to worry about the stock more than their products. Look what happened there.

What would I do as CEO (I feel there are people trembling in front of their computer screens)…

Get back to basics. There are little things: sell off Michael’s toys (the Angels are going anyway, and that’s a good start); close The Disney Stores (do it right or move on); make some sense out of all those partial holdings in those cable networks (Lifetime, History Channel, etc.) – the basic control it or sell it mentality ought to apply here. Being a partner in something means you’re risking money without being able to fully control what happens. It’s either a sign of stupidity or desperation (or both).

But there are really two big things that have to happen right away:

THE STUDIO NEEDS TO MAKE GOOD MOVIES. Instead of dropping $150 million to make ‘The Alamo’ – I’d take $100 million and fix the craters in Feature Animation. It is the core of the company and nothing good will happening until it’s fixed. Then I’d give $10 million each to five of the best young filmmakers I could find and tell them to make me the best movie they can with that money. I could get five duds, I could find the next Lucas – it’s worth the risk.

Then I’d FIX THE PARKS. Guests need a reason to visit; the company’s relied on their guest’s force of habit and goodwill too long. WDW is quickly becoming a very big Graceland – a spot visited only by the faithful and kind of a joke to the rest of the country. Elvis is dead, and cheesy roller coasters with cheap spinners don’t appeal to people who aren’t already fans. I’d lock WDI up in their building on Flower Street (and lock out all those hotel and shopping mall folks) with orders not to show their faces until they’ve come up with a concept so imaginative, so appealing, so innovative, so unique that we’ll have to sell tickets 30 days in advance. WDI has done it before, and they already have the concepts to do it again. They just lack the boss to go ahead with the plans.

And if it costs $1.5 billion dollars – we’ll just take that out of Mike’s severance package.

 

[lodgelady]

It sounds like you both feel that if the corporate culture at Disney was willing to give the creative guys the front seat again, and the right captain was at the helm- that Disney could still be a money machine- but one that was powered by innovation rather than the mediocrity that so often accompanies safety. From your lips (or keyboards) to Gods' ears......I appreciate your sharing your thoughts.

 

[YoHo]

AV, How would you feel about a clandestine rendevous in the Cellar at Hook's (what better place for a pirate) to plot the overthrow.