Previously, on As the Eisner Turns…
Ambitious young Michael Eisner and his boon companion Frank Wells took over control of Walt Disney Productions, which was struggling to make its way in the modern film industry. Disney began to cash in on underexploited assets, and the eyes of management shifted from theme parks to film and television production.
As Eisner ramped up production, the money started to roll in. Yet many of the company’s promising new initiatives, aside from the marked price increases that Eisner levied on the parks, stemmed from programs that had started under the previous management – Touchstone Pictures, The Disney Channel, and plans for Euro Disneyland. Still, Eisner was capitalizing on unused assets, and getting Disney back into the network and syndicated TV markets. But would it come at the expense of the theme parks?
Then, in our last episode, Eisner was fully in charge. Having seized sole authorship of the annual letter from Wells, he was free to spin us yarns of his children’s antics and oh-so-relateable escapades. Profits were taking off, and a series of low-budget adult comedies were about to get Disney back in box office clover.
I suggest that you take a moment and read the comments by our esteemed Another Voice under the previous article. They’re a very instructive encapsulation of the dynamic at Disney at the time, and one can see how the Eisner-Wells-Katzenberg trifecta held things somewhat in check. Eisner’s aspirations of moguldum were reined in by Wells’s assumption of the Roy O. Disney role, and Katzenberg assisted by producing a series of modestly-budgeted minor successes that would soon and often be referred to with baseball metaphors (better to have several solid singles and doubles rather than swing for a home run and strike out!). Eisner was kept from literally selling EPCOT Center to underwrite a series of cinematic escapades, and Disney was in turn rewarded by success and growth in the theatrical division.
Eisner’s aspirations weren’t all entirely misplaced; they allowed him to be convinced of the need to resuscitate Disney feature animation and they eventually enabled the grand plans for projects like Euro Disney. It was a dynamic that worked fairly effectively until 1993-94.
But now we’re back in 1987, so let’s see what was brewing at the House of Mouse.
TO OUR OWNERS AND FELLOW DISNEY EMPLOYEES:
This year I am having trouble writing my letter for our annual report, and Frank Wells (our president and my partner) told me this morning if I do not complete it on my present airplane flight back to Los Angeles, our printers will be forced into overtime. One sets policy by example, so if Jeffrey Katzenberg, our chairman of The Walt Disney Studios, can
be on budget and schedule with Disney and Touchstone films and television shows, I can get one letter completed on time.
I would like to say that the only reason for delay in writing this letter is my difficulty in communicating how well we have done without sounding too cocky, too confident and certainly too proud. How does one present an 80 percent increase in net income and pretend such improvement is nothing special?
But honestly, my delay has been caused by the numerous ice hockey games in which my 14-year-old son has played over the last two weeks in Southern California (four in one weekend, each 50 miles from the previous one) plus college interview time in four cities for my 17-year-old high school senior.
I now have no excuses. I am over the middle of our country looking down
upon cornfields and thinking about the idea of Dick Nunis (our president of Walt Disney Attractions) and Jack Lindquist (our executive vice president of Creative Marketing Concepts) about renting a large field and cutting the crop to create the face of Mickey so that every person who flies over will be reminded about Mickey’s 60th birthday. Have we gone too far? Jack, I don’t think so.
The next few paragraphs, which outline Disney’s accomplishments, are directed to Frank Wells’ mother, Betty, and my mother, who must have wondered in 1955 how their sons would ever earn a living. Of course, Frank was at Oxford University as a Rhodes scholar, with reasonable prospects, while I was a 13-year-old sports fanatic. The answer, of course, is to get lucky and find a team of people . . . each much better than you . . . and pray. Then you’ll earn a good living.
We really have done well this past year, with dynamic growth and progress in every area of our business: parks and resorts, film and TV, and consumer products.
Our figures are remarkable. The filmed entertainment segment achieved a 153 percent increase in operating income during the year. Consumer products had a 34 percent increase. Operating income from our theme park and resort operations at Walt Disney World and Disneyland was up 36 percent in 1987, contributing to a 34 percent compounded annual growth rate in operating income over the last five years.
We had record revenues of approximately $2.9 billion for the year, an increase over 1986 of 33 percent, and record net income of $444.7 million, an increase of some 80 percent (which I now have pointed out for the second time), all of which added up to earnings of $3.23 per share compared to $1.82 per share a year ago.
More significantly, we also showed a return on equity of 27 percent,
compared to eight percent in 1984.
While we are sure Betty Wells and my mother are proud of these numbers and the countless individual achievements they represent, I hasten to add that Frank Wells, Gary Wilson and our entire management team are aware that the task we originally set for ourselves some three years ago has only just begun.
A number of people (I was on the top of the list) troubled by the so-called stock market “meltdown” in October have asked what impact, if any, recession would have on our plans or future performance. My answer in every case is that the fundamentals of our company are stronger than they have ever been and our past experience and current surveys encourage me to be optimistic about the future.
I am supported in my confidence by the views of several prominent industry analysts (professionals whom I admire enormously when they agree with me) that Disney is “recession resistant” if not “recession proof.” One who summarized it best said, “Disney represents a haven of quality.”
We plan to continue on our charted course, which calls for the aggressive and pragmatic pursuit of growth in stockholder values. I suppose I should outline the records we broke in 1987, although the essence of our company is the feeling we get walking through Epcot Center and seeing families having the time of their lives . . . or laughing and crying during an episode of “The Golden Girls” . . . or sitting at Thanksgiving and watching 10 kids enjoying a Mickey and Donald cartoon on The Disney Channel . . . or feeling and sensing enormous pleasure and amusement with an audience at our smash hit movie “Three Men and a Baby.”
But records do say something: Our theme parks topped the 50 million mark for the first time ever; our movies were third in total box office gross, moving swiftly toward second (if “Three Men” continues to do well), all the way up from 12th among the major studios in 1984; in home video we moved to second in the industry (up from sixth in 1985); at The Disney Channel, we continued to be the fastest-growing pay-TV service.
Meanwhile, in consumer products, we extended our worldwide lead, increasing the number of licensees to more than 3,000 covering 14,000-plus products in more than 50 countries.
In addition to these broad gains, 1987 will be recorded as the year we repositioned ourselves strategically to best grasp the opportunities of tomorrow.
Our long-range strategic plan consists of two elements: continued dramatic growth and success of our existing businesses (naturally) plus selective expansion into new related business areas.
With that as a backdrop, I believe 1987 will be remembered long into the future as the year in which we:
Signed our agreement with the French government to proceed with the development of Euro Disneyland (for those of you who plan to be stockholders into the 90’s, and I assume that’s everybody, our French project is very important, and for those of you who are studying French like I am, our park will be a great place to visit);
Sold Arvida Corporation, a community development operation (a good company but a business we should leave to others); we are in the entertainment, recreation and leisure-time business;
Agreed to purchase KHJ, Los Angeles, a major independent television station, our first venture into the realm of TV broadcasting outside The Disney Channel (a business we should be in and not leave to others) and one that we hope will be approved by the FCC;
Jointly agreed (with Industrial Equities, Ltd.) to acquire the Wrather Corporation, owner of the Disneyland Hotel (buying what most people thought we already owned) and contiguous Anaheim acreage;
Signed a 10-year strategic alliance with Sears, Roebuck and Company’s Merchandise Group covering development of new Sears/Disney products, Sears promotion of Disney animated films and Sears sponsorship of major attractions at the Disney-MGM Studio Tour opening in 1989;
Developed a year-round program of tie-ins with McDonald’s, which has agreed to be our partner in jointly beneficial promotional programs involving all parts of our business;
Opened our first three Disney retail stores outside theme park environments in preparation for a nationwide rollout (to use show business terms, “a boffo opening with good legs”).
My experience in the entertainment industry is analogous to the sports world, where interest in last season is minimal. Anybody can win once, but the true champion wins over and over again. As a result, my Disney philosophy is simple:
We would rather be the Boston Celtics than the New York Giants. For the record, I was born in, lived in and worked in New York City. I was and still am a Giants fan. Since I now live in Los Angeles, I’ve become a Laker loyalist. So please, no letters!
Some of the seeds of growth sown over the past few years will come to fruition in 1988 and should help keep us a contender (to continue my sports reference) for growth. I’m thinking particularly about the opening of four major new facilities and attractions at Walt Disney World: The Grand Floridian Beach Resort (900 rooms and fantastic), the Caribbean Beach Resort (750 rooms in the first phase and our first moderate-priced facility), Pleasure Island (a most exciting nighttime Disney-style entertainment complex) and the Norway Pavilion at Epcot Center (the best and only backward-moving themed Disney ride – trust me).
All of these will add to the overall attractiveness of what is already the world’s number one destination resort and will contribute substantial new revenue.
In addition, 1988 will witness at least six new Disney retail stores and many movies and television shows. I will not talk specifically about our movies for 1988 because talking or bragging about movies brings bad luck . . . but remember the name Roger Rabbit.
And on into 1989, we will have other new wonderful Disney projects that we hope will continue to place us in the Super Bowl – the Disney-MGM Studio Tour, Typhoon Lagoon, retail stores, movies, TV and some surprises we have not thought of yet.
As part of a continuing survey among its readers, the marketing research department of The Wall Street Journal issued a “corporate report card” in June that ranked leisure and entertainment companies in four categories: familiarity, quality of management, reputation and investment merit. By every measure, Disney surpassed all competitors,
whose names will go unlisted because of prior, present and future friendships with our competitors.
No other entertainment company made the list of 42, which the magazine dubbed “America’s Leanest and Meanest.”
I consider this ranking a major tribute to all the Disney cast members, the dedicated and talented employee force that constitutes our company’s greatest strength, but I would emphasize that Disney may be “lean” . . . but never “mean.”
In December, we were named one of the five best-managed companies in the United States by Business Month magazine.
These honors are not directed at one individual. If Disney is one of the best-managed companies in America, it is because the entire management team and cast have blended their dreams, talents and dedication to the advancement of the enterprise we call Disney.
This past year has been a good one for The Walt Disney Company, and we are working to make next year even better. The foundation is set, the Disney name and consumer franchise are strong, the strategies are in place and we are ready to move forward to even better tomorrows.
But I do want to point out that managing a successful company, like managing a happy family, is difficult. It is easier to have children than to bring them up. It is easier to change diapers than to change schools.
We are, as corporations go, very young . . . in our adolescence, if you will . . . with much ahead of us.
I speak on behalf of Frank Wells, Roy Disney, Gary Wilson and all our cast members when I say I sincerely appreciate your past support.
December 8, 1987
Michael D. Eisner
Chairman and Chief Executive Officer
There you go – 1987. First of all, we need to stop and bow our heads in tribute to the very first mention of the young Eisner’s hockey games. And the other young Eisner is going to college! And Michael Eisner and Frank Wells both have mothers! Who are proud of them! Oh, I mock because I love. Seriously, though – hockey.
I was amused that they divested Arvida because they wanted to stay just in the entertainment business, but in almost the same breath he mentions the Disney Stores. Soon they’d be buying sports teams and heaven knows what else. They finally managed to get a hold of Wrather, though, after decades of trying to obtain the Disneyland Hotel.
It’s hard to argue with those profit increases, though; it’s also fascinating to watch Disney ride from the absolute Hollywood cellar to become one of the top grossing studios. I always thought that Eisner’s biggest problem was that he expected this kind of exponential growth to continue, well, exponentially. Disney went from making a few pictures each year that no one saw, to making several pictures that did pretty well – and some that did very well. Statistically, it looked like a miracle. But it was insane to expect that kind of growth to continue.
Sadly, Wall Street never met a reality it liked, so in later years those massive annual gains were still expected. At that point, the cuts began. But that’s several years off, and now we have Roger Rabbit and the Disney-MGM Studios Theme Park Tour to look forward to!