The Nation's Pulse/Disney's Cinderella Story
Stein, Benjamin J.
THE NATION'S PULSE DISNEY'S CINDERELLA STORY by Benjamin J. Stein M aria Bane of Fort Lee, New Jersey, writes, "Mr. Stein, you always write so negatively about businessmen. Do you hate all...
...Revenue from the theme parks rose by about 80 percent between 1984 and 1987...
...In addition, Disney merchandising, while successful, was on a modest scale...
...Its operating income went from a loss of $33 million in 1983 to a positive $130 million in 1987...
...Marty Kaplan, former chief speechwriter for Walter Mondale...
...This had something to do with the phenomenal stinginess of Disney management with the stockholders' money...
...Rich Frank, former head of Paramount TV, to run Disney's TV side...
...Eisner had been president of Paramount Pictures Corporation, then the leading studio, and Wells had been a high official of Warner Brothers, vice chairman to be specific, and was famous for climbing mountains...
...I am saying that their work well end up as permanent characters in tunities at Disney, the real estate, the again and realized an arbitrage of has been so successful and so relative- the legend of the theme park that is monopoly value of the characters, about $4 billion...
...It has a tireless corporate communications veep, Irwin Okun, who has helped Disney to become about the most widely covered company in America, if only favorable press is counted...
...Leading the team was Michael Eisner, a mere child of forty-three at the time, and Frank Wells...
...A s one might say, the Eisner-Wells team at Disney worked as hard as managers do when they have just taken their companies private—only Disney was still owned by its stockholders...
...But, and this is a big but, fighting this dispiriting trend is another form of management, which is in basic harmony with its stockholders, with the needs and hopes of investors, and with the best of the spirit of capitalism—and which would confound and disappoint Karl Marx...
...Do you hate all businessmen or capitalism or what...
...thirds from 1983 to 1987, while the that $50 per share was a fair price for whole economic system look less In fact, the Disney management number of employees remained about the dog ($12.50 adjusted for splits), and tawdry...
...Gary Wilson, a former exec at Marriott, and other players...
...When that conflict exists, the basic force animating capitalism is attacked in that a crucial link is broken: the link between investors and profit...
...In the 1860s, a little-known crank journalist named Karl Marx wrote an essay entitled "Political Developments in France in 1848 and 1849...
...These people immediately established a work routine which resembled Parris Island, South Carolina's schedule...
...Now, if any of that reminds you of certain famous names in finance today, Benjamin J. Stein is a writer and producer living in Hollywood, California...
...There are even rumors of a Disney park in Hungary...
...That is, as Eisner and company raised prices for the theme parks, attendance did not fall at all...
...Revenues for these segments rose, but income rose much faster...
...Shareholders' holdings have about quadrupled in value since Eisner and Wells took the helm...
...Moreover, Americans had become addicted to those characters, as well as to Mary Poppins and Snow White and her dwarfs...
...It con- written about who are interested in wishes is truly profound...
...But, said Marx, if you closely examined who the great men of finance capital were in that day and age, you would find that they were no more or less than the lumpenproletariat turned upside down, rising from the bottom of society to the top, by means of using basic tricks of theft on a grand scale in finance capital...
...The Zen bond between ter surveillance by securities analysts, ran it for the good of the stockholders, compared with certain others I have stockholder wishes and management and the need to "grow" the company is the real miracle of Disney...
...The company had been the subject of raids, rumors of breakups, and greenmail paid to certain roly-poly characters in the world of "finance...
...To put it mildly, Disney is hot...
...then taken the company private...
...Also in that category would come "restructurings," which simply make stockholders liable for money borrowed and then paid to bribe them not to sell to a raider, "greenmail," in which management bribes raiders to stay away with money belonging to stockholders, and certain forms of "spinoffs," which are in fact a predecessor to almost certain management looting of the spun-off companies...
...The results were nothing short of phenomenal...
...They would have had ly altruistic that they appear on the simply called America...
...Every effort of government, the press, and the entire culture, as Marx said, was directed toward legitimizing and even sanctifying that effort...
...Thus, financing deals which seemed to be adding wealth, but were really just adding debt or simply shuffling paper, became the rage of 1848 and 1849...
...And in thinking of a more detailed answer, I could not help but recall one of the best social analyses ever written, a company called Walt Disney, and a few other odds and ends which come under the general heading of Zen and the Art of Modern Management...
...If you need at a pace secure from the turmoil of the founds the Marxist explanation of how pocketing pools of already extant further proof, the number of Disney market...
...that is just my intention...
...This national mania for gold did not reflect any wish to add further to the capital structure or productive capacity of France, said Marx...
...But the earnings from those parks, while large, were fairly flat...
...If Disney managers are in Zen THE AMERICAN SPECTATOR DECEMBER 1988 43 synch with their audiences and at- and done what many another manager to split it with a few equity partners, margins of uniqueness along with peotendees, they are in even greater synch would have done: issue tearful reports but overall, they would have done ex- ple like David Packard and Thomas , with their stockholders, who have about what bad shape the company is tremely well...
...44 THE AMERICAN SPECTATOR DECEMBER 1988...
...Coverage of Disney is so intense that one wonders if at some point Michael Eisner might actually become a Disney character himself...
...This essay analyzed the reign of Louis Philippe and said a few hauntingly familiar things...
...The ink about Disney is so astonishingly profuse that itmay well have an effect on the Disney p/e ratio, which makes every shareholder better off...
...This year its revenues will be off the charts, since it has had three consecutive blockbusters, a hitherto unknown phenomenon in studio history—Three Men and a Baby, Good Morning Vietnam, and Who Framed Roger Rabbit...
...Operating income al42 THE AMERICAN SPECTATOR DECEMBER 1988 most tripled in the same period...
...David Hoberman, one of the most successful young agents in the history of Hollywood...
...There is hardly any better example of this kind of management in Zen harmony with its stockholders than a company which I can see literally outof my office window (when there is no smog), called Walt Disney...
...They could have gotten a let- capitalism works, generates enthusiasm wealth that rightly belong to someone stockholders increased by almost two- ter from an investment bank saying for free enterprise, and makes the else...
...Its cash on hand is about fifteen times what Disney had in 1983, and just the earnings from its cash management are now a substantial source of income...
...In short order, Eisner and Wells assembled a powerful cast of characters to re-animate the great house of Disney...
...In other words, this is a phenomenon...
...team is so close to uniqueness that constant...
...Top executives were expected to be in their offices by seven, to work Saturdays and Sundays, and to take work home...
...Disney also has a rapidly growing cable channel, a burgeoning hotel business, a theme park in Tokyo, and another to come in France...
...Disney turned out only a few live-action movies each year, and hardly ranked as one of the major studios any longer...
...Not everything, though: their success at network TV has been pretty much limited to "The Golden Girls...
...For consumer products, from 1983 to 1987, revenues increased by about 50 percent, while operating income increased by about 70 percent for the new management...
...Disney has also introduced some fresh financing techniques as well...
...The great mass of any benefit they obtained would flow to the shareholders...
...If the profit that rightly belongs to investors is simply attached by management and taken away from investors, eventually investors will (one hopes) get wise, and start to refuse to invest...
...In that sad category one must put management leveraged buyouts (LBOs), in which an arbitrage between stock price and asset value is observed and then simply pocketed by management with the aid of powerful law firms, investment banks, and the biggest shill in the whole game, the Securities and Exchange Commission...
...They brought in Jeffrey Katzenberg, former head of production of features at Paramount, to run the studio part of Disney...
...Thus, capital, the basic ingredient in capitalism, dries up, and with it, capitalism...
...And, in fact, said Marx, the government of Louis Philippe was no more than the political arm of the great houses of capital and finance...
...Murphy and Warren Buffett, and that _gotten rich, despite a stock market in, take huge discretionary charges, bit- The fact that they did not simply all of these people are working to crash, off Michael and Mickey's terly complain about quarter by guar- take the company and run with it, but ensure the survival of capitalism, as efforts...
...This put about $700 million cash in Mickey's little pockets . . . and took a great big hunk of risk out of the future operation of the Tokyo park...
...Hollywood generally runs at a far more hectic pace than outsiders imagine, but the stamina required at Disney would have broken all but the most determined managers...
...They were sworn in on a Friday and started to work on Saturday...
...Eisner and Wells had extremely substantial stock options, but they were not by any means proprietors of the firm they ran...
...Its gross revenues rose by more than a factor of five, from $165 million in 1983 to about $876 million in 1987...
...The era of Louis Philippe, said the young Marx, was characterized by a national mania for making money...
...Rather, the obsession was with "pocketing already existing pools of wealth...
...I n the early 1980s, the Disney Com- l. pany was, in the words of my former boss, "a pitiful helpless giant...
...The movie arm of Disney was a Hollywood joke: "Walt Disney Company—we make movies for people who don't want to wait in line...
...In short order, Disney discovered several things: First of all, they found they were owners of a genuinely unique, monopoly necessity of American life—the characters who had been created by the old prewar and 1950s Disney Company...
...But I suspect they will not stop trying...
...The management of Disney have used the monopoly power of their characters, and a combination of hard work, imagination, and innovation, to make Disney into by far the fastest-charging studio, and by far the most awesome recreation company in America...
...When managements act in this way, they are—it seems to me—in direct conflict with their most basic obligations to their stockholders...
...But the point I am making is not just that it is hot...
...Its annual output of live action films just about quintupled...
...In fact, the demand curve might even have defied marginality theory by being upward sloping, so that more of the Disney entourage was demanded as the price of it rose...
...The company got its Japanese partners to put up, in yen (at a better yen-dollar ratio than today's), an amount equal to the forecast Disney stream of earnings from the Tokyo park for twenty years, discounted to present value, and thento pay that sum in cash yen, which it converted to dollars...
...Further, since the Disney characters were so powerfully ingrained in the American imagination, Eisner and his pals discovered that they could merchandise them far beyond what anyone had previously imagined...
...In the midst of crisis, the Disney directors, apparently led by Roy Disney, brought on board a whole new management team in September 1984...
...The problem with American capitalism today, as I humbly see it, is that too much—though far from all—of the power and expertise of modern management is used not to create any new wealth or productive factors, but to pocket wealth that already exists—and belongs to someone else...
...Overall, revenues have grown by a compounded annual rate of close to 25 percent since new management appeared, and net income has risen by a compound annual rate of almost 66 percent in that time...
...The demand for these characters and the rides they hosted was so powerful that their demand curve was almost flat...
...Disney, which is in the field of image and imagination, has also been smart enough to realize that its appearance as a reborn giant with an unlimited future, especially its appearance to the investment community, can greatly add to stockholder value...
...Now, I am by no means saying maybe all of its top brass will appear The point also is that Disney man- They could then have done what they that Disney management is unique in at a capitalism theme park somewhere agement could easily have come did to make the company a huge suc- working for the good of the share- west of the Battery, and that they may aboard, surveyed the incredible oppor- cess, and then taken it to the market holders...
...Ricardo Mestres, a hot production vice-president at Paramount...
...But the most staggering success was in Jeffrey Katzenberg's filmed entertainment division...
...It ran extremely successful theme parks in Florida and California...
...The answer, of course, is "or what...
...The pointis that Disney managers, by hard work, or by meditation, or by chanting, or somehow, have achieved a kind of harmony with the satori of success so profound that almost everything they touch turns to gold...
...There were no substitutes for Mickey and Minnie, Goofy and Donald Duck...
Vol. 21 • December 1988 • No. 12
