VIEWPOINTS : THE NEW AND SUCCESSFUL DISNEY : Walt Disney Co. is on the rebound in a big way, and its shareholders are benefiting from the company’s growth as much as are the officers--a real rarity in the corporate world.

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BENJAMIN J. STEIN <i> is a lawyer, economist, and writer in Los Angeles</i>

And now for a few words about Walt Disney Co., modern management, capitalism and Zen.

In the early 1980s, Walt Disney was (to coin a phrase) “a pitiful, helpless giant.” It ran extremely successful theme parks in Anaheim and Orlando, Fla., but the earnings from those parks were basically flat. It had some merchandising, but not much. The movie arm of Disney was a joke, except for reruns of the animated classics. That joke was, “Walt Disney: We make movies for people who don’t like to wait in line.” The company had been the subject of raids, rumors of breakup and successful greenmail pickups by looters, both fat and sprat.

In the midst of all of this Sturm und Drang, the Disney directors, heavily prodded and encouraged by the Bass brothers of Ft. Worth and Roy Disney (Walt’s brother), in 1984 brought on a whole new management team led by Michael D. Eisner, the gangly, successful former president of Paramount, and Frank Wells, a canny corporate executive from Warner who was also famous for climbing seemingly unclimbable mountains. In turn, they brought in a new head of movies, Jeffrey A. Katzenberg, who makes a Paris Island drill instructor look like a mermaid and who had previously headed movie production at Paramount; Rich Frank, a former Paramount TV chief, and, a little later, Gary Wilson, a former high-finance official at Marriott.

In short order, the new management team set up a Draconian work schedule of seven-day-a-week, round-the-clock effort to make Disney the most successful recreation company in history. And they succeeded.


That happened for several reasons. First of all, the new managers gambled that the Disney characters were so popular, so genuinely unique, that they could collect monopoly rent for displaying them at their theme parks. And they were right. There were and are no substitutes for Mickey, Minnie, Goofy and Donald, not to mention Mary Poppins and Snow White. This meant that even though the merchandising use of Disney characters was drastically accelerated and admission prices at the parks were similarly raised, customers kept coming and revenue and income for both kept rising.

Revenue Up 26%

But the most noteworthy success came in Katzenberg’s filmed entertainment division. From his team’s arrival on the scene, Disney’s output of live action films almost quintupled on an annual basis. Gross revenue went from $165 million in 1983 to about $876 million in 1987. Operating income went from a loss of $33 million in 1983 to a positive $130 million in 1987.

For 1988, Disney has, for the first time ever, become the box office leader among all studios in Hollywood, beating out perennial champ Paramount with such gorillas as “Three Men and a Baby,” “Good Morning, Vietnam” and “Who Framed Roger Rabbit?”

The theme parks in America have been joined by a huge megasuccess park in Japan, one soon to come in France, and who knows where else. Disney has, for the first time in more than a decade, gotten back into the hotel construction business in a major way with the opening of the mammoth, beautifully wrought Grand Floridian at Walt Disney World, with many more to come.

In other words, Disney is hot. Since new management appeared on the scene, revenue has grown by a compounded annual rate of nearly 26%. Net income has risen by a shocking 66% on an annual, compounded basis since the Eisner-Wells team came on board. The value of shareholders’ holdings has about quadrupled since the Disney team was changed.

Trees do not grow to the sky, of course. A gasoline crisis could affect the theme parks. The movie business is notoriously whimsical. But so far the results at Disney have been genuinely amazing.


By hard work, or by chanting, or by some other way, Disney management has gotten into a kind of Zen satori harmony with their own success and that of their stockholders that is turning everything they touch (except their faltering network TV division) into gold (and I would not bet against eventual success in TV).

Now, the point I offer is not just that Disney management is hot, but that Disney managers have done that rarest of acts in today’s world--they have actually served their shareholders ahead of themselves. To be sure, Eisner, Wells and Wilson have been extremely well-rewarded with eight-figure stock options. But they could have taken far more.

In today’s world, it could easily have been expected that new management would come on board, survey the boundless possibilities for success and monopoly exploitation, and done what many another manager has done: issue tearful 10-Qs about what bad shape the company is in, take huge discretionary charges, and then proclaim that they needed to “grow” the company without having to look over their shoulders at public stockholders and securities analysts and issued a plan to go private. They could have gotten a “fairness letter,” that used-car guarantee of the 1980s, saying the stock was worth $50 a share ($12.50 accounting for the recent 4-to-1 split) from Bear, Stearns & Co. or any other investment bank, financing with glee from Morgan Stanley & Co. or Drexel Burnham Lambert, and taken Disney private.

Exceptional Management

Then they could have done all that they did to make the company a huge success, sold off a few divisions and then brought the company public again with its new super-earnings--and pocketed a profit of about $4 billion for Eisner, Wells, Wilson and Katzenberg, personally. They would have had to share some of it with equity partners brought in by Drexel Burnham or Morgan Stanley (probably mostly Drexel and Morgan executives), but at the end of the day, Eisner and Wells would have been on the lists of the 400 richest persons in America.

In today’s world, where the frequent management rule is, to paraphrase Adam Smith, “everything for ourselves and nothing for anyone else,” Disney’s management has been an exception. It has really showed not only a redemption of the company, but a redemption of the whole idea that capitalism might really work for someone other than the insiders on Rodeo Drive or Broad Street, and this is Disney’s real triumph.

This achievement is so close to being sui generis in the modern corporate world that perhaps Disney should think of putting up a mini-park somewhere west of the financial district in Manhattan, with Michael and Frank and Jeffrey and Gary as characters. I suspect that they are already fairly close to legends in the theme park that is simply called America.