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Last Updated: Thursday, 12 February, 2004, 12:28 GMT
The end of the Disney fairytale?
By Will Smale
BBC News Online business reporter

Michael Eisner
Can Mickey help Michael Eisner through the challenges ahead?
Disney has always aimed to be a sugar-coated microcosm of American life.

Its theme parks serve up a rose-tinted image of the classic American dream, a place where everyone is happy and wholesome, friendly and fun.

It is a vision of perfect 1950s America, an apparently more simple time when the front lawns were manicured and the little fences were always bright white in the sunshine.

Yet Disney, which now faces a hostile takeover bid from US cable television giant Comcast, is being reminded of the American dream's downside - you have to make more and more money, and woe betide you if you don't.

It does not matter if you are a much-loved iconic institution and home to Mickey Mouse - the laws of capitalism demand ever increasing profits.


And on that front Disney just hasn't been doing the business in recent years.

Comcast smells blood in the water at Disney
Analyst James McGlynn
Yes, it still makes pots of cash, but profits have been constantly getting smaller.

So where did it all go wrong?

Many analysts would immediately point the finger at Disney's 61-year-old chief executive Michael Eisner, and it has to be said that there is a great deal of evidence against him.

In the position for the past 20 years, ex-Disney employees have long accused him of having a brusque personal style, and running the company like a gulag.


So much so that Disney employees have in recent years come up with a rather distasteful nickname for the company - "Mousewitz".

Pirates of the Caribbean was a huge earner for Disney
Mr Eisner himself gave a glimpse of his management technique during a highly publicised 1999 compensation trial brought against Disney by former director Jeffrey Katzenberg.

"I hate the little midget," was what Mr Eisner admitted to the court he may very well have said about Mr Katzenberg.

And in more recent times Mr Eisner has faced a continual campaign for him to stand down, led by former Disney directors Roy Disney, nephew of the founder Walt, and Stanley Gold.

They now want him to step down at Disney's 3 March annual meeting, and have received support from a number of Wall Street heavyweights, such as fund adviser Institutional Shareholder Services (ISS).


"While Mr Eisner may indeed be trying, he still hasn't gotten it quite right," said ISS.

It added: "Sadly, it has often appeared that reconstituting the board was aimed at quieting healthy boardroom dissent rather than creating it."

Mickey and Minnie
Employs 112,000 worldwide
Four theme parks
Revenues of 27.1bn in 2002
Owns US TV network ABC
But perhaps most damaging for Mr Eisner was his recent failure to renegotiate Disney's distribution deal with leading computer animation firm Pixar.

Pixar's films, such as Toy Story and Monsters Inc, have made more than $2.5bn at the box office since 1995, but Disney ended the partnership after failing to come to agreement on how to split future revenues.

The failure to renew the deal was said to have particularly incensed Roy Disney.


"This is the beginning of the end for the chief executive reign for Michael Eisner," said Michael Holland, head of New York money management firm Holland & Company.

Yet Mr Eisner is nothing if not tough, and his fightback has already begun.

On Wednesday, just hours after Comcast announced its takeover bid, Disney rush-released its quarterly financial results, which showed that profit for the quarter to 31 December jumped to $688m, from $36m for the same period of 2002.

And despite the inevitable financial pain of losing Pixar when the current deal ends in 2005, it is an understatement to say that Disney still has its own successful film-making studio.

Yes, it has had a few flops in recent times, but last year's Pirates of the Caribbean made more than $261m in the US and $100m overseas.


And overall Disney still made a profit of $1.27bn in 2003.

Yet again however, this was down on previous years, something Wall Street investors do not like to see.

Added to this is the ever growing exasperation at Mr Eisner's reported abrasive style, and you would not bet against Disney losing its independence for the first time in its illustrious history.

Analyst James McGlynn from the company Summit Fund, which has owned Disney shares, said continuing with the status quo was impossible.

"Comcast smells blood in the water at Disney," he said.

The fairytale may be over at the house of Mickey Mouse.

The BBC's Steven Evans
"The irony is that Disney has grown massively under Eisner"

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