<B>Betting on Comcast in the new Disney era</B>

David Allen & Raul Eguía. Professors. Instituto de Empresa

24 April 2004

“When a man cannot find himself, he cannot find anything,” said Goethe. The authors argue that Disney is lost, unable to discover its true raison d’être.

Ever since Michael Eisner took control of Disney in 1984, he has achieved everything he has set his mind on. He created a company that is big and strong enough to block offers from Viacom, Universal, AOL Time Warner, News Corp and Sony. He transformed Disney into a de facto member of the media and entertainment industry oligopoly. But nowadays, all that doesn’t matter; something far more important is at stake.

In just under a month, a series of events threw Disney up against the ropes. The company closed its traditional animation studios in Florida, the successful alliance with Pixar came to an end and Comcast threatened a hostile takeover. The Disney Empire wobbled, as did the Eisner Era. When, on March 3rd, 43.4 percent of the investors present voted against Eisner, an act that led to his dismissal as chairman, it made clear shareholders’ new power and readiness for change. Just one month, and something in Disney had snapped.

What has led Disney into this downward spiral? We believe it is due to the loss of its IDENTITY, CREATIVITY and CONTENTS – in short, its reason for being.

Disney had lost its identity before parting with Pixar and before Comcast launched its offer. Why? The answer is simple: Michael Eisner thought Disney had to be a member of the select club that is today’s media and entertainment industry oligopoly. To this end, with Jeffrey Katzenberg, he set out to compile a miscellaneous group of successful film projects, far removed from the traditional Disney format. In addition, he ensured that the company took maximum advantage of its assets, launching new products based on Disney’s historical stock and expanding the business to theatres and cruises. When Eisner bought ABC, Disney’s IDENTITY started to blur.

Finding Jobs

At the same time, new entertainment producers, highly CREATIVE ones, took over the leading position. Luckily for Disney, its alliance with the most important among them, Steve Jobs’ Pixar, let it maintain its crown with films like Finding Nemo. Disney believed so strongly in this alliance that it even closed its traditional animation studios in Florida – it had closed studios in Paris and Tokyo – perhaps a sign that it was seeking renovation with Pixar. However, negotiations on renewing the partnership did not go as Disney planned. Steve Jobs placed an enormous price on the table to maintain an association with the king of creative CONTENTS. This was a price Disney was not prepared to pay. The renovation did not take place and Disney lost its CREATIVITY and its CONTENTS.

Then came the hostile takeover bid, Eisner’s dismissal and the new offensive from Comcast. The fresh onslaught revolves around Comcast’s desire for reconsideration of their offer and a meeting with the independent Disney board members. Analysts believe the Comcast threat has had a direct impact on the Disney board, causing Eisner to maintain his chief-executive post as defensive strategy. This strategy is useless, since Disney’s greatest weakness is it no longer knows who it really is.

Disney needs to find itself. It is possible that to do so it needs the creative spirit of Steve Jobs or some similar alter ego. A major argument in favor of Comcast is that it could reach an agreement with Jobs and return Pixar to the Disney family. The fact is that Comcast really has nothing to offer Disney, other than this key access to what consumers want – CREATIVITY and CONTENTS.

We advise shareholders to say YES to Comcast and maintain confidence that this action will lead to recovery of Disney’s identity, creativity, contents, as well as creation of a new entertainment universe. We would like to see the true Disney produce fabulous contents again. Make no mistake: this is NOT nostalgia. Disney is, simply, a great business.

But it has said ADIOS IDENTITY, GOODBYE CREATIVITY, AU REVOIR CONTENTS and now faces the exceedingly difficult task of recovering them. Can it do so via Comcast, Steve Jobs and Pixar? It is possible. Do not forget that some dreams are difficult to fulfil.

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