DEBATE: Can we find any appreciation for Team Disney in this?

[DisneyKidds]

Given the extreme troubles at Vivendi Universal, which seem to keep getting worse by the hour and may have the company ready to divest itself of various business units, can we cull any appreciation for Team Disney out of the fact that they have avoided pitfalls that competitors haven't?

Now before you react, lets look at a couple of things before we say H*** NO! That may be the answer, but lets take it slow.

Vivendi is a direct competitor of WDW in Orlando and has gotten very much credit for investing wads of cash in USF and IOA over the past 3 years when Disney has kept park investment close to the vest. They have created some good stuff that is deserving of, and getting, attention - as evidenced by the current thread regarding the Universal article in the USA Today.

Vivendi is a company that is pulled in almost as many directions as Disney is today. Theme parks, movie studios, music, television, communications and more. Any company as diverse as Vivendi or Disney is going to have to make many investments in multiple business units to keep them all viable. Yes, we could debate whether these company should be so diverse, but lets leave that for another time.

Given that these companies had to make these varying types of investments, many important business DECISIONS (we want to look at those around here right?) that pull the companies in different DIRECTIONS (another focus for us right?), is it telling in any way that one is in true turmoil that threatens the company (while people in the parks are happier than pigs in s***) and the other company, while the stock may be down, is relatively secure (while people in the parks are a little upset at some cutbacks)?

Many think, present company included, that Team Disney has made some mistakes when it comes to some of the investments they have made in the recent past (in the form of acquisitions, buying up rights, motion picture choices, television programming, and more) while curtailing spending at the theme parks. However, Team Disney is running a company that is about more than just theme parks, whether we like it or not. Shareholders, Wall Street, the banks, the analysts - Team Disney has a lot of people they are accountable to. Given the reality that Team Disney may have had to make many of the investments they did (as they saw them as being in the best interest of the company) was there any merit in making the choice to hold back on theme park spending for a while if they believed the other investment were better for the company at the time?

If Team Disney invested wads of cash in the theme parks while making these other key investments (as they saw them), might Disney be in trouble similar to Vivendi is now? If Vivendi spent less on the theme parks over the past three years would they not be overextended as they are and not be in 'grave' danger?

Perhaps we think the focus of Disney spending has been in the wrong place, but they have spent money. At the same time they have kept the company more stable than others in what some consider a challenging business environment.

So, is Team Disney a better steward of all things Disney than they get credit for? Are they the inept morons that many feel they are, or are the truely inept morons at Vivendi, while Disney is weathering the storm?

Thanks Matt for pulling this out - you saved me some time .

An article on Vivendi's current cash crunch. Ouch.

OS article on Vivendi

Here's the text:

NEW YORK -- If the ouster of flamboyant chief executive Jean-Marie Messier was meant to calm the turmoil at Vivendi Universal, it didn't work.

Bond downgrades by rating agencies Moody's Investors Service and Standard & Poor's sparked near-panic selling in Paris where Vivendi shares on Tuesday plunged 25 percent to a 15-year low. The S&P report indicated Vivendi's debt obligation this year is $3 billion higher than many analysts had expected.

Suddenly, investors were less concerned about the media conglomerate's fuzzy strategic focus and management woes than its ability to survive a severe cash crunch. Vivendi's new management now must negotiate at a disadvantage with the big European banks that control the company's future and with potential buyers of properties that may need to be sold more quickly that originally planned, analysts said.

Some of the company's signature properties could go on the block, analysts said, including Universal Studios, Universal Music, French pay-TV unit Canal Plus, and French wireless-phone company Cegetel.

The company has scheduled a board meeting in Paris today, during which directors are expected to address the liquidity crisis and the appointment of Messier's successor. The top candidate is said to be Jean-Rene Fourtou, 63, vice chairman of the French-German drug company Aventis.

But there are more immediate problems. While Moody's dropped Vivendi's credit rating to junk-bond status, S&P sliced it to one notch above junk, with the explicit warning that the rating "would be lowered several notches" if the company does not secure "significant refinancing within the next few weeks."

Vivendi spokeswoman Anita Larsen said the company had no response to the credit agency reports and Vivendi stood by a previous statement that it has enough credit to meet its cash obligations for the year.

 

[DVC-Landbaron]

Two quick answers Mr. Kidds.

So, is Team Disney a better steward of all things Disney than they get credit for?

H*** NO!

Are they the inept morons that many feel they are,

H*** YES!

 

[DisneyKidds]

My good Baron, your in depth analysis always amazes me .

 

[DVC-Landbaron]

I know!! But it's been a long day and my wife is off tomorrow morning with four of the kids for WDW. And I'm off the day after that with my eldest. I will be on tomorrow afternoon and I promise a little more depth!! Or at least more humor!!!

Is that a deal?

 

[Bob O]

I wouldnt agree that disney is a better steward!!!
The comparsion is apples/oranges!!! Universal was purchased by a company that is trying to become a media giant when before they made their recent purchases the company was in large part more involved in industrial production ie-wtaer management etc. Disney has always been involved in the entertainment business and hasnt run water facilities.
Universal has been a mess since becoming a part of Seagrams.
And i do believe disney is currently run by inept morons!! Just because the company that owns Universal is poorly run doesnt mean disney is run in a proper manner. The stock price of dinsey now is furthur proof of how the company is being run into the ground by current management. And if the competition of disney falters there is more reason to believe disney will let the parks run furthur into the ground. They will have less incentive to spend money to improve the guest experience.

 

[DisneyKidds]

And so the season begins......... .

At your liesure, my liege . Have a great trip.

 

[DVC-Landbaron]

Thanks!!





Check PM Mr. Kidds

 

[DisneyKidds]

Bob O, ole boy - thanks for the input. One note - I am not looking for agreement (or someone to disagree with me) as I really don't have a firm position on this one. While I may not find current management as inept as others, I don't know if this situation can tell us anything. But I would like to learn, hence the thread (plus, I thought it would make for interesting discussion). You've already told me something about Vivendi I didn't know. Thanks again .

 

[Bob O]

disneykidds I thought by the tone you were implying something and if i read it wrong im sorry and wasnt trying to argue, just giving my opinion.
And i think the situation you brought up can tell us alot, escpecially the possible directions of the companies and their future prospects.

 

[DisneyKidds]

No need to apologize Mr. Bob. I actually appreciate that you gave me the opportunity to point out up front that I don't have a strong position either way on this one - before I get ripped a new one . It can be hard to ask questions without the assumption being made that one advocates a certain position - but, what the hey, figured I'd try .

Keep the opinions coming !

 

[Walt's Frozen Head]

The biggest difference between Disney and Vivendi (well, the biggest one that affects this discussion, I think) is that Vivendi's theme parks are a relatively small corner of the company, whereas Disney's parks account for about half-ish of the company's operating income.

The crux of that point being, I think it would be difficult to make the case that it was Vivendi's investment in their parks that led to their current cash woes, leaving the question "did Disney do 'better' by investing in the parks less" one of kiwis and kumquats.

I think you're exactly right to say that Disney's spending problem is a directional one rather than a quantitative one. While we were all discussing whether $750 million makes for a "cheap" theme park (DCA), Disney dropped over $5 billion for the Power Rangers and a third-tier cable channel to show them on (and I think I remember that about $2.3 billion of that shows up as debt. That was a damn big reach, even before 9/11 turned it into putrid timing, as well). Rather than investing in a stateside TDS that would continue to generate enjoyment and business for decades to come, they thought it would be a better idea to buy a method for selling the same products more times, via a business model that many already feel is on its last legs.

That's the kernel of (what I feel to be) truth that has me in Car #3 rather than Car #2: I believe that it is now part of Disney's corporate environment that Accounting and Marketing are where the "real" magic occurs, and that Imagineering is a commodity that can be shopped out to third parties, bought off the shelf, or simply zeroxed.

I don't think I've ever called Disney's management "inept morons," although I'm quite certain I've called them "wrong for Disney." If Eisner was running Wal-Mart with the same kinds of business philosophies that he now applies to Disney, I wouldn't have an issue. My issue is that I feel Eisner is running a business where the product is "Magic," but his methods are more appropriate for a business whose products are commodities.

"Pirates of the Carribean" is not toothpaste, to be acquired in an equivalent form from any of several vendors. That's an issue with DinoRama... you really can get pretty much that exact same toothpaste elsewhere.

I don't think Eisner is "bad," just "bad for Disney, bad for the Magic."

As is my wont, I went off on a tangent, here; let me say one more thing in regards to the actual question before signing off... the real question about Disney's "stewardship" will be answered over the next three years as the effects of the Fox Family purchase reverberate through the company. Massive speculation ahead, but I just don't see how they can possibly make money off of that purchase, considering the realities of home entertainment technologies.

-WFH

 

[larworth]

When Vivendi bought Seagrams the parks were essentially put on hold. It was unclear whether the parks held any stategic value for them. They are a small part of the portfolio and cash was needed for expanding the empire. Almost no new projects were approved until just recently. After the success of USJ they decided it would be OK to pump some money into the domestic parks again, and to look at further foreign expansion. I see little to compare regarding internal stewardship practices.

I guess we could give Disney credit for only making a $5B mistake and not a bigger one. When AOL/TW and Vivendi started to create their empires there was a lot of talk about Disney getting left in the media monopoly dust. The herd mentality is all too common on Wall Street and Disney flirted with buying into the game. Even as far as looking at cable lines. I believe Fox family was a late stage play with this concern in mind.

Good thing they were slow to react. Could have been much worse (that's glass half full thinking right?)

 

[Bstanley]

Disney didn't follow Vivendi on this particular adventure. They purchased Cap Cities in '95, setting the trend of how to be 'The' giant media conglomerate (even larger than Time Warner). It looked like a much better idea then - ABC was the #1 broadcast network...

Disney had Fox Family land in their lap. Haim Saban decided it was time to sell his piece of Fox Family and Rupert Murdoch (News Corp, the other owner) couldn't raise the cash. If I had to guess what went on inside Disney when Saban approached the big ME with the deal I would say that the discussion included a hefty amount of "if we don't buy it AOL-TW will"...

I give Team Disney credit for not borrowing too much money - like Vivendi. Vivendi is just about to come apart because of their enormous debt load. Disney needs to be very careful moving forward though they don't need any MORE debt...

I give Team Disney credit for allowing much of the park profits to stay in the park segment (although I chose to use the word 'much' since we DISers have had some pretty 'active' discussions about just how much of the profits truly stayed in the park segment... ;-).

I do wish Team Disney Park management had more people that loved Parks like I do. They seem to be ok as managers but they don't seem to have the passion for the parks that would allow them to use the resources they have to the best result.

 

[Another Voice]

To paraphrase that Russian author – happy companies are all alike. Unhappy companies are all unhappy in different ways.

The dynamics that truly led to Vivendi’s current problems are not really comparable to the ones causing Disney’s problems. Vivendi was a medium company that jumped in very late into the Major Media Mogul game and is has a completely unworkable French culture trying to run like an American company. Disney is a large and mature company with a strong and stable culture currently being run by individuals well outside the limits of their talents.

You seem to imply that Disney made a strategic (and proper) decision to invest in other areas of the company. With the exception of Fox Family – there have not been any investment in other areas of the company. In fact, there has been a considerable contraction. Disney Stores are closing; they cut $650 million from this year’s motion picture production budget. Other businesses like music and publishing are starved for any investment at all and no new business have been started. The Internet was given up as a total write-off. I’m sorry Mr. DisneyKidds, but this is not a case where investment capital has been redirected from the parks to other places.

And Disney is not an industrial company that needs to shuffle capital for equipment. Disney is a CONTENT company. It makes its living by creating new “products” that can be sold through all of its business. But creation is very hard to do and this is where Disney has run into problems. The Studio declined because it failed to produce successful films. Without successful films there was nothing to drive traffic into (and products for) The Stores. No successful programs stymied ABC and now ABC Family. Without good movies, Home Video takes a hit.

Without good CONTENT from its core businesses, an ever speeding spiral of lowered result, lowered quality, lowered public acceptance, back to lowered results set in. Creating content is mostly capital free. Spending more on ‘Pearl Harbor’ or ‘Bubble Boy’ would not have made either movie better. Ideas come from talent, skill and imagination – not from a checkbook. But creating good content is very hard. Disney simply lacks the people willing to put in the hard work to make good content*.

And now that philosophy has spread to the parks. California Adventure is not a failure because they spent “only” $750 million on it. The park is a failure because the ideas behind it are bad – every inch shows the Aspen corporate retreat mentality. There are no ideas in the place, simply calculations about the fastest and easiest way to make a return on investment. And when the public reacted to the park’s hollow soul – the Company reacted by simply to cut expenses even more so that their return is not imperiled.

The problems at the parks are not a case where capital is being redirected to other and better investments. The parks are being used to prop up the other businesses that have run into problems because of the quality of their products. Those problems have spread to the parks themselves now. In my opinion, the current management is directly response for the problems because they choose the get the money fast approach that sacrificed quality for easy cash. I also believe that they lack the skills needed to break out of the downward spiral they have throuwn the company into.

Mr. DisneyKidds, there is one things about your Vivendi analogy that I do agree with. The French have shown the world how to deal with a floundering CEO.


* - Yes Mr. Scoop, ‘Princess’, ‘Rookie’, ‘Signs’. They fired the executive who brought in those projects. It was easier to blame him than accept responsibility for ‘Pearl’ and ‘Atlantis’. Disney's problems have created a culture where failure is punished more than success is rewarded. Any wonder the creators of 'Lilo' bailed at the first chance they had?

 

[PKS44]

I have mentioned it before and mention it again here--look at the movie Executive Suite with William Holden from the 1950's...rent it or watch for it on TCM--at least watch the last 15 minutes...bad choices stem from bad philosophy which poisons the company- it ruins worker morale, it threatens brand loyalty, it is a cancer... and that cancer has been brought into Disney by current management--
Unrelated funny thing--as I am typing this I just was given a message that Mr. Eisner is waiting to see me...No relation, but happening just at this minute it made me stop for a second...

Paul