This is one of those columns that seeks to address the major corporate issue of the week after everyone else has already done so. But don’t stop reading just yet.
In taking on the subject of Walt Disney’s $19bn takeover (there is no such thing as a merger) of US television network ABC, I want to address three esoteric business issues that will have gained little attention elsewhere.
These are: the creative ability of management to change its mind; the future of Euro Disney; and the difference, which this deal celebrates, between US and UK attitudes to reward.
So, to the mind-changing matter. The mind that appears to have executed a most formidable volte face belongs to Walt Disney’s chairman and architect of recovery, Michael Eisner.
It was Eisner who inherited a rag-bag of interests when he took over as chief executive of Disney, which he joined from Paramount in 1984. In those days, Disney was capitalised as $2bn, with around three-quarters of its revenues supplied by theme-park businesses and only one per cent of profit contributed by movies.
With Disney president Frank Wells – killed last year in a helicopter accident – Eisner proceeded to renovate the fairytale castle. The company became far more cosmopolitan – witness Euro Disney – and imbalances in operating profits were re-adjusted. Theme parks now contribute more than one-third, and movies something under a half of total revenue.
But throughout this decade of renaissance, Eisner was guided by a principle that now looks distinctly discredited by the monumental events of the past week.
Eisner believed and consistently argued that Disney is a software provider – that is, a company that produces content and, as such, had no role as a network distributor.
This view found its greatest challenge in Eisner’s relationship – and subsequent lack of one – with Jeffrey Katzenberg, Disney’s volatile studio chief. Katzenberg believed Disney needed, more than anything else, a TV network – and was thwarted by Eisner.
When Wells was killed, Katzenberg saw the job as his. Eisner recognised the threat – Katzenberg as president would have had considerable influence in pushing through a TV network strategy – and blocked him. Katzenberg quit and has threatened to sue Disney for $100m.
Eisner subsequently appears to have had a Damascene conversion of some kind. How else to explain the abandonment of his no-network philosophy? And it is not just any network that Eisner has decided to abandon his principles for – the ABC deal ranks second only to the $25bn-plus takeover of Nabisco by KKR in the Eighties.
There is nothing like the anti-smoking evangelism of the ex-smoker and, to some extent, Eisner’s U-turn can be explained away as part of this condition. He didn’t believe it was the way forward, but when he changed that view he went out and bought the biggest and, some would argue, the best.
Another – and, in my view, more likely – explanation is that he simply didn’t want Katzenberg to do it. Personal animosity can generate some strong professional motivations. There are those who will claim Eisner was motivated to purchase ABC out of pique, when Katzenberg’s new company, DreamWorks, partnered by Steven Spielberg and David Geffen, won a $200m production deal from ABC last year.
These are the ungenerous interpretations of Eisner’s extraordinary conversion. But what we do know, at least, is that Eisner changed his mind. Such a capacity is a valuable asset in business life and all too rare on this side of the Atlantic.
Perhaps we are still too driven by the Tina creature, who emerged during the socio-political revolution of the Thatcher years. She stood for “There Is No Alternative” and she got the economy into a right old pickle.
There is no justification for such a policy in commercial life. Markets, like languages, are in a state of constant flux and cannot therefore be addressed with rigid strategies. There is much that British business could learn from Eisner’s change of mind.
So to my second point – the future of Euro Disney. As you know by now, I believe that Euro Disney is a mistake that is doomed. Now that Walt Disney has made the quantum leap with ABC and, a couple of weeks ago, Euro Disney returned tentatively to profit, the argument goes that everything looks brighter for the Parisian outpost of Disney’s empire.
I disagree. Remember that theme parks are contributing about half the revenue, in proportionate terms, that they were a decade ago. More importantly, Disney’s move into broadcast distribution shows which way it considers is marked “forward”. The ABC deal follows Viacom’s takeover of Paramount for $10bn and the altogether more modest in financial terms – though no less significant in strategic terms – $2bn partnership between MCI and News Corp. You don’t find Rupert Murdoch or Viacom’s Sumner Redstone in theme parks.
Euro Disney found a guardian angel in the shape of a wealthy Arabian, rather than in Eisner’s group management. A return to profit in Paris makes Euro Disney more saleable. It will go to some starry-eyed buy-out consortium, possibly Arab-led, and without the Disney brand it will wither.
Sorry, but that’s business life. And media business life, as Eisner has confirmed, is in the relationship between production and distribution in the cable and satellite age. That will provide enough white-knuckle rides without the roller-coaster fortunes of theme parks.
Eisner cashed in $200m of share options in 1993 and continues to hold options worth a further $170m. He also enjoys a salary with bonuses of $10.5m. Those earnings can be expected to improve significantly as the ABC revenues come on-line.
No one appears to be suggesting that some American equivalent of Sir Richard Greenbury – QVC’s Barry Diller, perhaps – should be appointed to ascertain whether this amounts to corporate greed or not.
That is possibly because Eisner appears to be working in the best interest of his shareholders and is likely to make them a great deal of money too.
Of course, Eisner could be persuaded to abandon share options, cap his salary and be beholden to all sorts of committees of non-executive remuneration gauleiters. But then again, that might not be to the long-term benefit of Disney shareholders.v
George Pitcher is joint managing director of media consultancy Luther Pendragon.