Muppet hassle spotlights tough world of Disney.

Muppet hassle spotlights tough world of Disney

The warm fuzzy image of Walt Disney Co. and its innumerable creations has ingratiated people for generations the world over. But a spate of recent events has spawned unflattering portrayals in newspapers articles - and the entertainment giant is appearing in a different light these days.

Increasingly, it seems, there is a hardball management style at work behind the sweetness and light projected by the company's theme park veneers. Burbank-based Walt Disney Co. is getting tough, analysts say.

"THey are absolutely getting more aggressive," an entertainment industry expert said. "They're getting more onerous."

While tripling revenues and multiplying the company's earnings eightfold, Chairman and Chief Executive Officer Michael Eisner and his team have started generating bad publicity and flaring tempers. Disney's aggressive moves have been splattered on the nation's business pages in recent times, while last month's legal battle with hopping-mad Henson Associates was awarded front page status and is considered especially odious.

Disney and Henson went toe-to-toe last month over the rights to the Muppets, created by the late Jim Henson. The suit was settled last week after Disney apologized for any harm that may have been caused (see related story).

Analysts say the publicity has not helped Disney's image, but it won't stop kids from riding the Matterhorn. The company continues to rake in big bucks.

Disney Co. was known in the 1950s and 1960s as a Cinderella company that could do almost no wrong. Founder Walt Disney made everybody laugh, according to a 1962 Newsweek article. But after his death, the company's seemed to ramble and eventually came under attack from two corporate raiders.

After repelling those boarders, Disney brought in Eisner, former president and chief operating officer at New York-based Paramount Pictures Corp., in 1984.

Since then, Disney has expanded its range of activities and gotten more litigious in the process. The company is building more theme parks - its biggest revenue producer - and expanding into previously unheard of arenas for Disney, including the fast-food and retail business, while boosting its activities in such areas as cable television and commercial videos.

But success in business has brought with it a more hard-nosed business stance. While more aggressively deploying its assets, for instance issuing videotape versions of its classic animated features, it has become more aggressive in protecting those assets.

From suing the Academy of Motion Picture Arts and Sciences for using the Snow White character during the 1989 Oscars to threatening to sue three Florida day-care centers for painting Disney characters on its walls, the Eisner regime has not hesitated to flex its legal muscle.

But within the last year, Disney's vigilance has gotten even more tenacious. "They are getting much tougher," said one source. "We get letters from their lawyers where we didn't used to."

"The Disney organization is far more aggressive and entrepreneurial than at probably any other time in its history," said Jim Harmon, a partner at Tustin-based Management Resources, a consulting firm in the leisure time commercial recreation industry.

Recently, Disney has been causing a ruckus in Southern California in its pursuit of a new theme park. It has been trying to "modify" the California Coastal Act so it can build a water-based theme park on a landfill addition at the Port of Long Beach.

Disney is pushing a state bill that basically changes the Coastal Act to clear the way for its Port Disney proposal, said Jack Liebster, a spokesman for the California Coastal Commission. "It's clearly making a change in the law," he said.

But Disney development executive David Malmuth, head of the Long Beach project, viewed it differently. "We think the Coastal Act currently would allow us to use landfill. The Coastal Commission staff disagrees," he said.

Liebster added a goofy twist to the issue. "It would have been the ultimate irony if a project glorifying the sea is built in a way that destroys part of it," he said.

In addition, Disney has been accused of playing Anaheim and Long Beach off one another by encouraging them compete for the right to host Disney's next theme park.

"The company is pitting Anaheim and Long Beach against each other to see which city will offer the best inducements," said an August 1990 New York Times article. At one time Eisner said he was making to commitment to either site, saying the location of the new project "depends a lot on which community wants us more."

Then there is the Henson suit.

Heirs of the late Jim Henson filed a law-suit last month against Disney over alleged trademark and copyright infringement of the Muppet characters.

The irony of the conflict was not lost on industry observers. Disney, renowned for tenaciously defending its copyrights, was suddenly being sued for millions of dollars for allegedly having committed that very offense, noted Jeffrey Thomison, a security analyst with J.J.B. Hilliard, W.L. Lyons, a brokerage firm based in Louisville, Ky.

Although Disney may be tarnishing its corporate reputation with its tough management ways, its image on the screen and in the theme parks has not been harmed, industry experts say.

Disney "has a very positive image among the public at large," said David Stewart, a professor of marketing at the University of Southern California. "Those kinds of activities are not generally known to the larger population."

"Most of us don't read the paper looking for lawsuits," Stewart said.

Disney's business practices may alter ever so slightly the image the public has of Disney, but it "won't change the family plans" for going out to the movies or visiting theme parks, said David Presson, a research analyst with Edward D. Jones brokerage firm.

Disney's aura is one to be reckoned with. "They may be second only to Coca-Cola in terms of the pervasiveness of their image," Stewart said.

But the company's leadership has undergone a transition since Eisner came on board. "In the 1970s, the creative folks ran the show," a source said. Now the "spectrum may have swung to the other end" with the business side dominant, he said.

Walt Disney ran the company from its beginnings in 1923 until his death in 1966. His brother, Roy Disney, took charge until his death in 1971. From then until 1984, the company was run by Donn Tatum, E. Cardon Walker and Ray Watson successively, until Eisner arrived in 1984.

Walth Disney has been described as both a "ruthlessly ambitious and cunning businessman," and a creative genius. After he died, the creative spark and business drive dwindled. The company's theme park business thrived, with Walt Disney World being built in Orlando, Fla., but the studio division lagged.

"After Walt passed away, we were so concerned with Disneyland and Disney World that we sort of ignored the foundation of this company," President Ron Miller (Walt's son-in-law) said in a 1977 Los Angeles Magazine article.

Disney had 7 percent of the nation's box office business in 1976, but its share shrank to only 4 percent by 1981, and from 1972 to 1982, the contribution of film and television proceeds to Disney's profits dropped from one-half to one-fourth.

The drop is attributable both to increased park business, especially after the opening of Disney World, combined with a lag in the film department, said Disney spokesman Michael Ferguson.

"Had Walt been alive, such movies as the blockbuster hit 'Star Wars' would have been made by Disney instead of 20th Century Fox," said a former Disney employee in a 1980 Los Angeles Times article.

Don Bluth, a top animator, and 15 staff members from Disney's animation department walked off the lot and formed their own company in 1979.

By 1980, Disney was deemed a takeover target.

Four years later, the company found itself fighting off two corporate raiders. First, Saul Steinberg bought 12 percent of the stock and Disney defended itself by incurring debt via the acquisition of a Florida land development company principally owned by Bass Brothers Enterprises, a Texas investment company. Eventually, Disney turned Steinberg away by paying "greenmail" to get back his shares.

Before the year was out, Disney crossed swords with another raider: Irwin Jacobs.

Then Eisner was lured from Paramount Communications and tried on Disney's slipper. He expanded the scope of the company. He and his team have introduced a division that produces movies aimed at adults, Touchstone Pictures, and he has created a mainstream record label, Hollywood Records, among other things.

"They're beginning to stretch it a bit," one industry expert said, noting that getting into the fast food business is a little much. Disney has opened a Mickey's Kitchen restaurant in Montclair.

But one analyst said this diversification is necessary. "Disney has to keep expanding and diversify to keep growth," said securities analyst Thomison.

Financially, Eisner's performance at Disney has been widely hailed. The company's earnings and revenues soared under his auspices. Revenues have tripled from $1.66 billion in 1984 $5.8 billion in 1990, and earnings have grown from $97.8 million in 1984 to $824 million in 1990.

But Disney's earnings have declined during the past two quarters, and the stock price has fallen with them. The company's second quarter 1991 earnings of $126.4 million on revenues of $1.44 billion were 29 percent lower than earnings in second quarter 1990.

The stock, meanwhile, closed at $115.50 a share on April 30, off from a 52-week high of $136.50.

Disney's stock dip is more a result of lower company earnings than a reflection of Disney's changing image, said analyst Presson.

Disney's future looks bright. The company has a solid product base that will propel it in the future as long as its managers are cautious and invest prudently, said John Robinett, principal with Economics Research Associates, a leisure and real estate industry consulting firm based in Los Angeles.

And one consultant said the company's activities are highly publicized simply because they're done by "Disney," and its publicity is a function of its magnitude.

"If Disney hiccups, it seems to make news," Harmon said.