| The press
will no longer have Michael Eisner to kick
around. After become an irresistible magnet for disparaging
stories in the past decade, he announced last week that
he is retiring as head of Disney in September. At a minimum,
he had a real separation problem with the associates he
axed. His bad press began in 1994 soon after he forced
out the talented studio chief, Jeffrey Katzenberg, who then
sued Disney for additional compensation; greatly intensified
in 1997 after he fired-and paid off with $140 million-Michael
Ovitz; and turned into a media tsunami in 2003 after he
kicked Roy Disney (Walt Disney's nephew)
and his associate Stanley Gold off the board of directors.
The onslaught of criticism ranged from citing his name-calling-Mr.
Katzenberg was a "midget" and Mr. Ovitz a "psychopath"-to
his second-guessing decisions about movies, e.g. his passing
on distributing the crowd-pleasing, pseudo-documentary "Fahrenheit
9-11." Stories about
his bad behavior were sufficiently plentiful to allow journalists
equipped with moral compasses to locate his "dark side."
What is lost in the stories about Mr. Eisner's arrogance,
greed and insensitivity is the more illuminating tale of
how he transformed a faltering animation and amusement park
company into one of the world's most successful home entertainment
companies. When he assumed command in
1984, Disney had a market value of $1.8 billion. Today,
its market value is $57.2 billion. A 30-fold increase in
value is no minor accomplishment
in the mercurial entertainment economy-indeed, one in which
News Corporation and Vivendi-Universal almost went bankrupt,
and Time-Warner, Viacom and Sony were forced to take multibillion-dollar
write-offs. Even correcting for inflation, Disney increased
19 times in value between
1984 and 2005.
The answer to how Mr. Eisner, despite his many tactical
errors, added $55 billion in value to Disney lay in his
strategic vision that Disney's future would be in home entertainment
not movie theaters. Consider just two decisions he made
that brought about this incredible corporate transformation.
First, in the mid-'80s, he released Disney's library of
animated movies on video over the strenuous objections of
many, including Mr. Katzenberg, who opposed the move on
the grounds that it would kill their value as re-releases
in movie houses. Within a few years, with its animated features
accounting for seven of the 10 top-selling videos, Disney
had found a new El Dorado. By the early-'90s, video sales
were providing almost all of the movie division profits.
Skipping theaters entirely, Disney now releases sequels
to features such as "The Lion King" directly on
video.
Second, in 1995, Mr. Eisner totally reshaped Disney by acquiring
Capital Cities/ABC for $19 billion. With this coup, Disney
not only got 10 TV stations in the biggest advertising markets
and one of the three broadcast networks, it got control
of ESPN, the single most profitable cable network. Since
cable operators needed this sports network to
attract subscribers, ESPN was able to ratchet up its charge
for cable operators intercepting its satellite signals to
$1.75 per subscriber per month. This effective tax on cable
households- and ESPN's ability to raise it by 20% a year-gives
Disney (which owns 80% of ESPN) not only an
enormous cash flow ($1.1 billion in 2004) but, together
with The Disney Channel, leverage over the entire cable
industry. Mr. Eisner had moved Disney to the forefront of
home entertainment.
In many ways, his corporate success also proved his undoing.
The institutions that own two-thirds of Disney's shares
came to focus obsessively on his inability to deliver a
stock-market payoff. The writing was on the wall last March
after 43% of shareholders voted to withhold their support
from him. So Michael Eisner picked Robert Iger,
current president of Disney, as his successor. Free of his
boss's accumulated baggage-and especially of his bad press-Mr.
Iger will presumably continue Disney's transformation. And
we can all be sure of one thing: he will be using the Eisner
template.
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