Businessweek Archives

Suddenly, It Is A Small World For Disney's Profits


News: Analysis & Commentary: MANAGING

SUDDENLY, IT IS A SMALL WORLD--FOR DISNEY'S PROFITS

It has been a busy month for Michael D. Eisner. Promoting his new book, Work in Progress, the Walt Disney Co. chairman has dashed from Katie Couric to Charlie Rose and on to other talk-show hosts. Then his pilot headed Mickey One to Atlanta for the opening of Elaborate Lives, the Disney musical based on the opera Aida.

Most recently, Eisner's itinerary turned decidedly less festive. With Disney expected to announce annual earnings growth of 3% or less in early November, Eisner headed for a strategy meeting with two dozen top executives at his farm in Saxons River, Vermont. There they surveyed the damage that Disney has suffered from the Asian meltdown--and braced for slower U.S. growth. Despite such popular summer movie releases as Mulan, Disney's film unit is facing lower earnings. And its ABC network is expected to earn less than $200 million, down from $490 million in 1996. Now, for the first time in years, Team Disney is being told to find ways to trim spending.OPPORTUNITY? But Disney dares not cut too deeply. Like other media giants, it is racing to strengthen its brands in an increasingly fragmented media and entertainment market. "The world economy hit a speed bump," Eisner said on the The Charlie Rose Show on Sept. 24. "That causes one of two things: no sleep, or opportunity. So I chose opportunity." Disney contends that its troubles are mainly the result of Asia's woes, which have hurt sales there.

But analysts say the problems go deeper. One example: Disney's film division spent a hefty $80 million-plus to make and market Six Days, Seven Nights, starring Harrison Ford and Anne Heche. So despite grossing $74 million, the movie is unlikely to be profitable. Mulan was a hit, but "Mulan will do less than half what Lion King did--good, but not the home run this company needs right now," says John Tinker, a media analyst for NationsBanc Montgomery Securities. Analysts expect Disney's creative unit, which includes the studio and consumer products, to earn roughly $1.6 billion this year, down from $1.9 billion in 1997.

Disney has already shaved about $500 million in annual costs from its film studio by reducing the number of films it makes and seeking partners. Capital Cities/ABC pared an estimated $30 million from its budget and has frozen hiring and bonuses. "I have the greatest respect for Michael Eisner and his ability to find a way," says Viacom Inc. Chairman Sumner M. Redstone. But "they definitely have some problems at ABC and in the foreign markets."RESISTANCE. The Vermont powwow, says one knowledgeable source, included reviews of other plans--including whether to keep opening a new Disney Store weekly for the next year. ABC is also talking to Time Warner's CNN about sharing the costs of news gathering.

Some of Disney's moves have met with resistance. Customers complained loudly when Disney tried to delay the opening of some Disneyland rides to midday. And Eisner himself raised a firestorm of protest by suggesting that ABC affiliates might have to pay for the added costs the network took on when it renewed its National Football League contract.

Still, Eisner is pushing ahead on other fronts. The company is aggressively expanding on the Net, and it's spending an estimated $1.4 billion to build a California Adventure theme park alongside Disneyland in Anaheim, Calif. But the Mouse Kingdom's business plan for dicey times remains a work in progress.By Ronald Grover in Los AngelesReturn to top

Return to top


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus