The Walt Disney Company - Has Disney lost the Magic?

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Authors: Sanjib Dutta,
Senior Faculty Member,
ICMR (IBS Center for Management Research).

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Disney over the Years Contd...

At this point, the Disney board installed Eisner as the chairman and CEO of Disney and Frank Wells (Wells) as its president in 1984. The decision to bring in Eisner was a wise one, and Eisner and Wells helped Disney reestablish its position in the entertainment industry. They restructured the company and developed a new culture of complete commitment, expecting employees to stay late every night and work seven days a week. A new strategic planning department was set up, and focus was on strategic alliances and acquisitions that would help the company move forward.

By the early-1990s, Disney established itself as a diversified media company. It opened a theme park in Paris, called Euro Disney and set up the Disney Stores, which sold Disney merchandize exclusively. The company also set up or acquired film studios, which helped it make a foray into adult entertainment. In the mid-1990s, Disney acquired ABC networks and started an internet portal called Disney.Go.com. In the first thirteen years under Eisner (between 1984 and 1997), Disney's revenues rose from $1.65 billion to $22 billion.

Things began to change suddenly after the tragic death of Wells in a helicopter crash in 1994. Analysts had often felt that the success of Disney was primarily due to the fact that Eisner and Wells made a good team. Eisner was an aggressive person who tended to dominate people to get his own way. Wells, on the other hand, was people oriented and could tackle people and situations in a more subtle way. "When people came out of Michael's office wounded, Frank was the emergency room" said a Disney insider.⁵ The leadership style of one complemented the other and together, the two of them were able to get people work for the company's growth.

After Wells died however, Eisner's working style began to fail. He was often criticized for being too aggressive and for not giving people enough importance. Unable to put up with Eisner's overbearing attitude, several key people left the company. A series of wrong decisions in the 1990s also increased the strength of Eisner's opposition.

The appointment of Michael Ovitz (Ovitz) as the company's president in 1995, the failure of the company's internet venture, fighting out a long drawn lawsuit with Katzenberg, and the acquisition of the Fox Family Network⁶ , were counted among the major mistakes made by Eisner. In the early 2000s, ABC began to experience a decline in viewership, due to a rut in the programs and the overexposure of its most popular show 'Who Wants to be a Millionaire?' ⁷

Problems intensified after the terrorist attacks of September 2001. The recession that gripped the US in the late-1990s and early 2000s also affected Disney. The consumer-products division, which had been struggling for years had to be revamped and Disney closed 50 of its 530 American stores in 2001. In the same year Disney also closed it's a web portal which had been losing money since it was launched in the late 1990s. All this cost the company in terms of money as well as reputation. In 2002, Eisner developed a new plan for turning around the company and obtained approval from the board. By 2003, the company started showing signs of a turnaround and during 2003 the company's share price rose by about 34 percent. Disney also made a profit of $1.26 billion on revenues of $27 billion. (Exhibit-I for Disney's performance in relation to the Standard& Poor Index)

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5] Marc Gunther "Has Eisner Lost The Disney Magic", Fortune, January 7, 2002.
6] The television channels of Rupert Murdoch's NewsCorp.
7] A popular game show on which a contestant could win a million dollars by answering certain questions correctly.