Fast-Food Chain Has Beef With Disney

When it comes to its relationship with Walt Disney Co., McDonald’s Corp. is hardly lovin’ it.

The world’s largest fast-food chain wants to revamp its super-sized movie, home video and theme park promotion deal with Disney. Discontent with the pact is bubbling up to headquarters in Oak Brook, Ill., from powerful franchisees, who own most of the 30,000-plus McDonald’s restaurants worldwide.

One of the beefs is that Burbank-based Disney isn’t churning out animated blockbusters as it once did. Hit movies for kids drive successful fast-food promotions, enticing children to drag their parents into restaurants for the toys and other items that so often accompany cheeseburgers and fries.

When the Disney-McDonald’s marketing deal was sealed in 1996, Disney was coming off a string of winners like “The Lion King” and “Aladdin.” Since then, it has been hits and misses for McDonald’s franchisees, who must purchase movie-related Happy Meal toys and pay for local advertising.

Although “Lilo & Stitch” and “Pirates of the Caribbean” were successful, franchisees also were saddled with promoting the outright duds “Treasure Planet” and “Atlantis: The Lost Empire.” Another gripe: Much of McDonald’s promotional schedule each year is spoken for by Disney, with half of the Happy Meals tied to Disney themes.

“The biggest complaint I hear is that the alliance doesn’t give them any flexibility. They get locked into whatever Disney decides to lock them into,” said Dick Adams, a consultant to 500 McDonald’s franchisees. He noted that they must promote not only major new releases but rereleases of classic films as well as such direct-to-video films as this year’s “The Lion King 1 1/2.”

Said one franchisee, who asked not to be identified: “It’s a better deal for Disney than it is for McDonald’s. We’d like to get the cream of the crop. There’s been some good stuff out there that’s gone to our competitors.”

Burger King franchisees, for example, currently have the pleasure of helping to plug DreamWorks SKG’s “Shrek 2.”

McDonald’s spokesman Walt Riker said the company expected to continue its “productive relationship” with Disney. “It would be inappropriate to speculate on what might unfold,” he added, “but nobody should jump to conclusions.”

The terms of the McDonald’s-Disney pact -- which expires Jan. 1, 2007 -- call for McDonald’s to pay about $100 million in royalties to Disney and to conduct about a dozen promotions a year for Disney films, videos, TV properties and theme parks. McDonald’s agreed to sponsor the Dinoland section of Disney’s Animal Kingdom theme park in Orlando, Fla.; Disney promised to allow McDonald’s to open restaurants at Disney parks.

Speaking about the pact, McDonald’s Chief Executive Charlie Bell last month told reporters after the company’s annual meeting, “Some things we both like about it and some things we both don’t like about it.” Chief Marketing Officer Larry Light added that “a 10-year partnership is a very long time for us.”

For his part, Disney President Bob Iger recently called the relationship “mutually beneficial” and said both sides had an interest in keeping their ties. But he also said, “For both of us the world has changed, so any new relationship would reflect that.”

The thinking at Disney is that it might no longer be wise to restrict its promotions to a single fast-food chain, according to a person close to the company. Meanwhile, McDonald’s is testing the waters for nonexclusive marketing arrangements with other studios and entertainment companies, several rival studio executives said.

And McDonald’s is changing its marketing strategy. Seeking to rejuvenate its brand, the chain is pushing healthful meals and aiming for teenagers and young adults, as evidenced by its hip-hop-themed “I’m Lovin’ It” ad campaign. Last week, McDonald’s announced that it was joining Japan’s Sony Corp. to give away music downloads.

“What this is about is really escape from kiddie land,” said Greenwich, Conn., marketing strategist Jack Trout. “These guys are trying to broaden their bases away from the 5- to 6-year-old crowd.... Their strategy doesn’t line up with Disney’s.”

The strains in the relationship with McDonald’s come at an inopportune time for Disney Chief Executive Michael Eisner, who is under fire from critics. He has been butting heads with Bob and Harvey Weinstein, head of Disney’s specialty film unit Miramax, over financial and creative issues. And Eisner has been blamed by some for letting a lucrative partnership with Pixar Animation Studios deteriorate. Pixar, which produced such hits as “Toy Story” and “Finding Nemo” for Disney, ended talks to renew its contract with the studio. Disney said Pixar presented unrealistic terms.

With the McDonald’s partnership, Disney can use the extraordinary reach of the chain to promote and advertise new movies both in stores and through ads the fast-food company funds. That’s especially valuable to a studio at a time when the costs to make and sell films are soaring.

“For them to lose McDonald’s would be a huge loss,” said Peter Sealey, adjunct professor of marketing at UC Berkeley. “When McDonald’s promotes a film, it exceeds the studio’s budget.”

The Disney-tilting deal was forged at a time when McDonald’s had few cards to play. The two companies had worked together in the 1980s until disagreements flared up over some film promotions. Burger King was more than eager to step in, and its “Lion King” promotion for Disney remains the industry’s high-water mark. After that, McDonald’s executives promised franchisees they would get Disney back.

“There was truly a mission to bring these two companies back together because they both embraced the same family audience,” said Brad Ball, a former head of U.S. marketing for McDonald’s who now runs a film production and marketing firm.

The arrangement was successful for several years. Some of the top-selling Happy Meals had Disney themes, including “Inspector Gadget,” “101 Dalmatians” and “Winnie the Pooh.” So were Disney-released Pixar films such as “Toy Story 2.”

But over time, much has changed for both companies. Pixar with “Finding Nemo,” DreamWorks with “Shrek” and 20th Century Fox with “Ice Age” proved that Disney didn’t own the blockbuster animation market. And McDonald’s chief rival, Burger King, has struggled.

“The reality is this deal was done in 1996 at a time when McDonald’s was on their knees and Disney was running real strong,” consultant Adams said. “It’s an entirely different negotiating environment.”

Few people familiar with the relationship think that McDonald’s will break with Disney. More likely, it will seek a less restrictive deal allowing it to venture beyond the Magic Kingdom.

“Nobody wants to snub Disney,” Adams said, “but there’s no reason to keep an exclusive arrangement.”

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Tied in

About half of the children’s Happy Meals sold at McDonald’s are tied to a Disney film, video, TV property or theme park.

Hits

101 Dalmatians (1996)

Toy Story 2* (1999)

Finding Nemo* (2001)

Pirates of the Caribbean (2003)

Misses

The Emperor’s New Groove (2000) Treasure Planet (2002)

Atlantis: The Lost Empire (2001)

*Produced with Pixar Animation Studios

Source: Times research