Setting the Stage at Disney

Since being tapped as Michael Eisner’s successor in March, Robert Iger has taken Walt Disney Co. for a spin as de facto chief executive.

On Saturday, he gets the keys, and with them a chance to exhaustively look under the hood to figure out how to finally get the company firing on all four cylinders.

For years, the Burbank entertainment giant has been unable to get its movies, television, theme parks and merchandise operations working in sync.

Its once-ailing network and cable operation finally roared back, thanks to a turnaround by the ABC network and its ESPN profit juggernaut. But its venerable film studio tumbled into the red and is struggling to regain its perch atop the animation field.

Unlike the moribund studio and theme park company Eisner took over in 1984, Iger inherits a top-tier media conglomerate, albeit one that faces steep challenges. Among them: changes in moviegoing and DVD-buying habits, the continued splintering of television viewership as the number of channels proliferate and figuring out how to exploit Disney’s vast array of entertainment in the digital and wireless world.

Here’s an analysis of Disney’s four major operations Iger inherits:

With its $100-million-plus computer-generated “Chicken Little” due out in November, Walt Disney Studios is out to show investors that it can revive an anemic animation division that used to crank out box-office and home-video profit. Disney also has yet to prove it can compete in the digital animation arena.

Once known for such blockbusters as “The Lion King” and “Beauty and the Beast,” Disney’s homegrown animation foundered with such disappointments as last year’s “Home on the Range,” “Brother Bear” in 2003 and “Treasure Planet” in 2002. Meanwhile, rivals DreamWorks Animation SKG and News Corp.’s 20th Century Fox are taking a bigger bite out of the genre Disney long dominated.

Look for Iger to try to salvage Disney’s long and lucrative distribution relationship with Pixar Animation Studios -- maker of such blockbusters as “The Incredibles” and “Finding Nemo” as well as the highly anticipated “Cars” next year -- or risk losing the computer animation leader to a rival.

Iger has resuscitated talks with Pixar Chief Executive Steve Jobs that collapsed under Eisner, but both sides must come to terms on money. In the meantime, about 700 Disney animators have moved from pencils to computers.

The studio’s struggling live-action business finally received a much needed box-office lift last weekend when the Jodie Foster suspense thriller “Flightplan” debuted as the top-grossing film with $24.6 million.

But other recent offerings, including “Dark Water,” “Herbie: Fully Loaded,” “The Hitchhiker’s Guide to the Galaxy” and “Ice Princess,” have been disappointments. The studio said it would take a quarterly write-down of as much as $300 million, mostly attributable to losses associated with movies from its Miramax Film unit.

Concerned about escalating production and marketing costs, Iger recently promised investors that Disney would look for ways to significantly reduce its film expenses. This summer, Disney raised about $500 million from outside investors to spread its financial risk, returning to a strategy it pioneered in the 1980s.

Another concern: whether this year’s drop in box-office receipts and flattening DVD growth are blips or represent long-term shifts.

Disney Studios Chairman Dick Cook is hoping “Flightplan” marks the beginning of a turnaround.

At a splashy preview at the Kodak Theater in Hollywood last Thursday, featuring appearances by “Pirates of the Caribbean” star Johnny Depp and entertainer Elton John, the movie chief also touted upcoming releases.

In addition to two “Pirates” sequels, Cook is counting on “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe,” which opens in December, to launch a major film franchise.

Not So Desperate Now

Iger is intimately familiar with the company’s biggest and most profitable division, Media Networks.

Powered by ESPN and ABC, the unit now brings in nearly half of all Disney’s operating profit and is on track for an even bigger year.

ABC is already is off to a fast start, finishing the premiere week of the new TV season in first place in the prized demographic of viewers ages 18 to 49. It marks the first time in 10 years the network has accomplished that feat.

As little two years ago, ABC was in fourth place among the major networks.

Iger, who worked two decades at ABC before Disney bought it in 1996, staked his future on the network’s recovery. He can now roll down his shirt sleeves since ABC is back in the black. The network last year launched a string of monster hits, including “Desperate Housewives,” “Grey’s Anatomy” and “Lost,” which this month won the Emmy for best drama series.

Four months ago, advertisers rewarded the network with $500 million more in commitments for prime-time commercials for this season. To further strengthen the network’s finances, Iger punted on ABC’s biggest money loser, “Monday Night Football,” moving it to ESPN next year.

ESPN, long a company profit engine, is transitioning to an era of slower growth. Recent contracts with cable operators resulted in smaller rate increases than Disney had previously enjoyed.

ESPN also must figure out how to capitalize on digital platforms, such as mobile phones, and increase revenue to help pay for its NFL and Major League Baseball deals.

Four years after agreeing to pay $5 billion for the ABC Family Channel, ratings have improved along with ad revenue. But the channel is still hunting for breakout hits, as is the Disney Channel now that production of its popular “Lizzie McGuire” has ended.

Iger also must decide whether to sell the ABC radio network amid a soft radio advertising market.

Roller-Coaster-Like Ride

Customers are steadily returning to Disney’s theme parks, which were hammered when tourists cut back on travel in the wake of the Sept. 11 attacks.

Hotel bookings are up at Walt Disney World in Orlando, Fla., and attendance is growing at Anaheim’s Disneyland, which is celebrating its 50th anniversary.

But Disney would like to see more international tourists, who tend to spend more money and stay longer at the parks than Americans.

Analysts also worry that a tourism recovery could be damped by high gasoline prices and airline financial woes.

Visitors also aren’t flocking to the money-losing Euro Disney near Paris, which continues to struggle with massive debts and steep losses. Creditors last year bailed out the resort, which is 41% owned by Disney, for the second time in a decade.

Disney also has much riding on Hong Kong Disneyland, the $3.2-billion theme park that opened this month.

Although the park is expected to do well, prospects for a possible second park in Shanghai are less certain.

Toying With New Ideas

Disney’s consumer-products division -- the operation behind Disney toys, lunchboxes, Mickey Mouse figurines and Winnie the Pooh dolls -- has undergone its own extreme makeover in recent years.

The troubles of Disney’s animation business have been especially painful because animation historically has driven demand for character merchandise.

Disney tapped former Nike executive Andy Mooney in hopes of turning around the once struggling unit, has shuttered or sold most of the money-draining Disney Stores and slashed the number of companies Disney licenses its products to while forging relations with such mass merchandisers as Wal-Mart Stores Inc. and Target Corp.

The company has introduced new merchandise lines including Disney Princess, which has generated more than $3 billion in retail sales, and developed high-end Mickey Mouse fashions.

Analysts expect more modest growth this year compared with 2004 as Disney invests $40 million in its video game business.

In April, Disney acquired small Salt Lake City-based video game developer Avalanche Software. The company also is developing video games for adults.

For Disney, another challenge is how much green it can squeeze out of Kermit the Frog.

Disney acquired the Muppets from Jim Henson Co. last year with plans to relaunch the characters in theme park attractions, DVDs, movies and TV shows. One of its first projects was “The Muppets’ Wizard of Oz,” which aired on ABC in May.