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A Clear Eye from a Straight (Talkin') Guy

A Clear Eye from a Straight (Talkin') Guy

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Hey, folks!

Happy Monday to you all. Just a quick "heads up." I'm still in the process of sorting through the dozens of Disney-related stories that I dug up last week while I was down in Philadelphia last week. Look for a new series -- entitled "Okay. NOW what?" -- to start up on JimHillMedia.com tomorrow, which will discuss the direction we can expect Roy Disney and Stanley Gold to take their "Save Disney" effort in the weeks ahead.

But -- for today -- I thought that we'd welcome back one of the folks who actually helped start up JHM back in August of 2001: Jon Nadelberg. Jon (as you folks who regularly haunt the various Disney-based discussion boards around the Web already know) has a real gift when it comes to putting together a well-thought-out, clearly reasoned response to the news of the day.

This time around, Nadelberg weighs in on what just happened in "The City of Brotherly Love." Where Disney's CEO was told -- in no certain terms -- that 43.4% of Disney shareholders weren't all that enthusiastic about the way Eisner has been running the Mouse House lately.

In today's article, Jon asks JHM readers to look past all the emotion and rhetoric to see ... a CEO who really isn't doing all that badly as well as a founder's nephew who might actually a somewhat different agenda than the one he's been selling shareholders lately.

Here. Let's let Nadelberg explain ...


 

In hearing about Michael Eisner's problems, a main complaint is that he gets well paid ("Michael Eisner has never had a bad year") while the stock has gone nowhere for the last ten years.

There is quite a bit of spin in this. . And all you have to do to see the truth is look at a chart of the company's stock price over the last several years. In 2000, it had hit an all time peak. In fact, here's a link to a chart that shows this.

Then the nation was hit with very bad recession from which we have yet to recover. The stock floundered down with the rest of the economy as the entire stock market faced a massive amount of loss. Disney is particularly vulnerable to these sorts of economic problems. For -- when people are out of work or are in fear of being thrown out of work -- they usually don't take expensive vacations.

Then you have 9/11. The stock took a sharp dive after that. Everything took a sharp dive after that. The combination of these two events have really clobbered the stock value.

But -- as of September 2002 -- the stock started going back up, and is still on an upswing. This does not seem to be getting a whole lot of mention, but it does show that Disney as a company is not really in a tailspin. It had a very bad couple of years, and really, that's been it. The stock did plummet during that time, but this is the case for many similar stocks. It is now recovering. The idea that the stock went nowhere while ignoring these other factors is faulty deduction. If you look at other similar stocks such as AOL or VIA, you see them all running about the same.

In the last 10 years, the stock has done okay. In 1994, the stock was in the mid teens. It's now in the mid 20s and is climbing due to the recovery of the last year or so.

So these "(Disney Company) stock has gone nowhere" complaints are very weak. They are the ones Roy is making and they just don't hold up under even the barest scrutiny. Given the tenor of the meeting and how the votes went, it seems that most of this vote was emotional, and not based on any real study. Eisner is almost certainly being held as a scapegoat for a bad economy and terrorism that adversely affected the business that Disney is in. But since 2002, he's steadily been bringing the stock price back up to where it was prior to these external problems.

Now, on the other hand, some pretty bad things have been done under Eisner. The complete fall into crassness at WDFA (supposedly headed by Roy), for example. They spent hundreds of millions of dollars on features that were simply terrible, such as "Treasure Planet" or "Atlantis" (the absolute worst I think they've ever made). They also went and submarined their own Disney Stores by contracting to sell similar Disney themed items to WalMart which they could sell at lower prices. I have to wonder what on Earth did they expect to happen there? On his recent appearance on Larry King Live, Eisner blamed WalMart pricing for the Disney Store sales decline.

As to the parks, they so massively overspent at DLP that it was plunged into financial ruin from which it may never recover. This in turn caused them to become so timid regarding parks that those built subsequently have not been built up enough. On top of all that, they are flooding the market with just a lot of junk, like "Lion King 1½", which as far as I can tell from the previews, is 90 minutes of fart jokes.

So, neither side is really clean in this. Roy and his group are not really telling the whole story. And it certainly looks to me that the only reason this is being done at all is because Roy got kicked off the board. If Roy was truly concerned about Disney and these issues, he'd have quit in early 2002, when the stock was doing really poorly, and not waited until he coincidentally got fired from the board.

Eisner -- on the other hand -- does not seem to be able to get the company to follow through or execute well on initiatives. There is a long list of things that initially were right for them to do, and seemed like good ideas, but ended up being so badly done that they ended up as failures. Go.com comes to mind, but other things such as the Disneyland "Light Magic" parade also fall into this category.

After this vote, Eisner will probably be gone within a year. But, considering his contract runs until 2006, and the stock is on an upswing, it may be that he (well) stays until the end. He might stay as long as the stock continues to rise. If it doesn't, you might see him leaving pretty fast.

But what is going to happen with the next guy? Is there any CEO out there is going to be much different? They are all rather similar. Look at the CEO of HP (a company not recovering as well as Disney is), Carly Fiorina. This is a person who, in trying to explain why so many of the jobs her company has are being sent to overseas: "There is no job that is America's God-given right anymore." She's been sending jobs offshore because it's cheaper. Meanwhile, she gets to keep her job even though another CEO offshore would be perfectly able to do what she does for a lot less.

Another company, for example, is having problems because the top officers manipulated the books so that they could receive a billion dollar bonus. Meanwhile, the employees don't get raises because it's too costly. And in the meantime, they are also moving jobs offshore. As far as CEOs go, Eisner is neither the best nor the worst. Disney might do well with him replaced, and that would be good. But it could do far worse.

What would happen to Disney if someone like Carl Icahn or Kirk Kerkorian were put in charge? Carl Icahn didn't exactly do too much good at TWA, and Kirk Kerkorian turned MGM into a hotel company. So, what if someone such as Carly Fiorina gets put in charge? Will all animation get shut down completely and these jobs be sent to be done in sweatshops in Asia? Of course, it will be cheaper, but will it be quality? Would the next Disney animated feature end up looking like Speed Racer?

Some say that Eisner needs to go, and maybe he does, and maybe Disney would end up doing better. But there is also a major risk in someone being far worse who would end up destroying the company and selling it off for parts. It's not that unlikely, and getting rid of Eisner because you find cobwebs on a ride in a theme park is not a good reason to take such drastic and dangerous measures. Roy Disney claims to have a list of five or six people who could do the job to his satisfaction. But you might want to keep one thing in mind: It was Roy who helped put Michael Eisner in his job originally. Perhaps he doesn't have such a good track record at picking people to do the job.

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