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Buzz. In the media world, you desperately want to have it. Buzz helps sell movies, TV shows, even toys and other tchotchkes. But for media world executives, buzz is sometimes the last thing you want. And the buzz surrounding perhaps the media world's most powerful player, Walt Disney Chairman Michael D. Eisner, is very, very bad, indeed.
In recent weeks, one major newspaper after another has printed stories that Eisner, the hero of Disney's 1984 revival, is under pressure from at least two very powerful members of his board, Walt's nephew, Roy, and Roy's financial guru, investor Stanley Gold. Ironically, it was Gold who helped hire Eisner in 1984, when Disney faced the unwanted advances of takeover artist Saul Steinberg. Now, as Disney's stock price has sunk to eight-year lows and earnings continue to decline, the buzz is that Gold especially is pressuring Eisner to step up his turnaround efforts, finally name a successor, or risk being swept out of office.
The 60-year old Eisner, who declined to comment for this story, is in no immediate danger of getting the boot. Disney's 16-member board, long known for its close ties to its chairman, sided with Eisner against what it saw as an effort by Gold to orchestrate the media blitz, according to a source close to the company. "There is no board revolt here," says Disney board member Ray Watson. Indeed, like his board colleagues, Watson argues it isn't wise to bounce management when economic times are uncertain. "You like to think you have the right management for tough times, and we think we do," says Watson.
RUSH FOR THE DOOR. Still, buzz can be a funny thing. When newspaper articles of boardroom confrontations mushroom, the story takes on a life of its own. Michael Eisner, in the minds of investors and other media moguls, is very vulnerable right now. And when media moguls look vulnerable, bad things can start to happen. Unsure of who might be calling the shots down the road, top producers stop bringing scripts to studios. Creative talent decides to leave. And other moguls try to take advantage of the wounded by pushing more difficult terms, figuring the besieged executive desperately needs to show his board that the company is moving forward.
There is, as yet, no indication of any of this happening at Disney. But you know that cable operators -- who don't need much of an excuse to hardball Disney in contract talks -- are already contemplating ways to force tougher terms on Disney to renew carriage of the ABC Family Channel, a top priority right now for Eisner and Co. Last year, Eisner spent a very steep $5.2 billion for the channel, prompting critics to say he overpaid.
The buzz already has brought out critics who might otherwise have kept quiet, including fund managers who have waited in vain for Eisner to pump life into their stock holdings. "This is a great company with great assets, and it just isn't performing," says James D. Wineland, who runs the Core Equity Fund for Waddell & Reed Asset Management, which owns nearly 5.4 million Disney shares. "Maybe a change in management is what this company needs."
EVERYONE'S A CRITIC. Fund managers are quick to click off Eisner's recent failures. They cite the exodus of top managers in the last few years, and the lackluster performance of films from Disney's animation unit. Last year's opening of the $1.3 billion California Adventure theme park in Anaheim was a bomb, they say. Then there is ABC, Disney's most glaring problem area, where ratings were off this past season by 22%. "A board has to take a look at those decisions and make some hard choices," says Basu Mullick, a portfolio manager at Neuberger & Berman's Partners Fund, which owns 6.6 million Disney shares.
Can Eisner turn it around? He says he has a plan. The company, he insists, has dramatically cut costs by slashing overhead and reducing its capital expenditures. Where money once was going out to build theme parks, it will start coming back once visitors start traveling again, he asserts. The cost-cutting has increased cash flow, he says, even as the company has added new properties, including the SoapNet cable channel and new theme parks in California, Florida, Tokyo, and Paris. When the economy turns, he told The Wall Street Journal, Disney will see a "gusher" of new earnings.
Maybe. But the history of fighting negative buzz is one of uphill battles. The Hollywood rumor mill was buzzing that former Disney president Michael Ovitz was on his way out almost from the moment he joined the company. He lasted 16 months at Disney. Robert Pittman, ex AOL Time Warner president, was a lame duck in the press from the moment that outgoing CEO Gerald Levin passed him over for Richard Parsons in December, 2001. Pittman quit in July. And after a fight that was stoked by press accounts, it now looks like Gemstar's once-powerful chairman, Henry Yuen, may step down as CEO after losing to Rupert Murdoch's News Corp., his largest shareholder.
RATING HIS CHANCES. True, Eisner's situation is very different. And unlike several recently departed top executives at other companies, he faces no accounting problems, and no court has ruled against him. He also enjoys a reservoir of good will from his first 12 years, when earnings were strong and Disney's stock price lofty. To show support for Disney's
prospects -- and to no doubt help combat the buzz -- Eisner is spending $10 million to buy Disney stock, it was announced Aug. 15.
Yet the clock is clearly ticking. He has a few months for the company to show signs of improvement. That's when ratings numbers will start to tell whether ABC has the first of the hits Eisner has predicted in a two-year turnaround for the network. If the Nielsens don't come in, the negative buzz will almost certainly start again. "Michael is not the quitting kind, and certainly not in the face of pressure," says a source close to the board.
The same source also knows his way around media circles, and he understands the power of negative buzz. "Guys at his level get driven out when the drumbeat from you guys in the press gets so loud that you can no longer hear his message," he says. "It's over when Michael becomes the issue instead of Disney." For Michael Eisner, that drumbeat may have just begun.
Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BusinessWeek Online Edited by Patricia O'Connell
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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