Issues@Hand
AFA initiatives, Christian activism, news briefs
March 1999 – As the boycott of The Walt Disney Company continues, more people appear to be taking their entertainment dollars elsewhere. And for the first time, some cracks may be appearing in the company many thought was invincible.
For the fiscal first quarter of 1999 (ending December 31), Disney’s earnings dropped 18%. The company’s first quarter earnings were down 38% compared to the same quarter last year.
That profit plunge was not an aberration, but had the makings of a nasty little trend for the Mouse. The last two quarters of fiscal 1998 also saw declines – 2% and 31% respectively.
Even when the bad news was leaking out about dramatically lower earnings for the fourth quarter, some analysts speculated that Disney would still exceed 1997 figures by 8%. The real earnings, however, only grew 4% in 1998, which followed a 48% growth in 1997. Disney Chairman and CEO Michael Eisner had been promising investors an average annual growth of 20%.
The weaker performance also led to a 9.1% drop in Disney’s stock price from 1997, while overall the Dow Jones industrials averaged a 16.1% increase over the same period.
In his annual letter to shareholders, Eisner explained why the company was now in relatively shallow financial waters. For the most part, he said, 1998 was a year of “key strategic investments and significant new initiatives.”
The Mouse was certainly busy last year investing in projects which the company hopes will be profitable in the long run. Among those investments: the new Animal Kingdom theme park near Walt Disney World; the launching of the first Disney Cruise Line ship; the renovation of Anaheim Stadium, home of the Disney-owned Anaheim Angels; and an investment in Starwave software and Infoseek, with which Disney has created the Go Network for the Internet.
But not all financial analysts agreed with the rosier picture Eisner tried to paint on the financial situation. Merrill Lynch analyst Jessica Reif Cohen pointed to Disney’s “underlying fundamentals, especially in creative content and broadcasting,” which she said would “continue to be sluggish.” And Jill Krutick, analyst at Salomon Smith Barney, cautioned that the outlook for Disney in 1999 is “bleak.”
The downward pressure created by Disney’s creative content division and its ABC network interests was certainly apparent in this fiscal year’s first quarter. Operating profits from broadcasting dropped 48%, according to CBS MarketWatch.
The creative content unit, which is responsible for the production and distribution of films, video products, sales at Disney stores, and merchandise licensing, also saw a drop. Operating profits from that divison fell 39%, offsetting the big monies churned out by first quarter movie hits like the animated A Bug’s Life and live-action films, The Waterboy and Enemy of the State.
Following the bad news for 1998, Disney halved Eisner’s yearly bonus to $5 million, down from $9.9 million last year. While still one of the highest paid executives in the U.S., the bonus cut was a reflection of the company’s less profitable year.
“His bonus is a report card. You get paid to perform,” said Mark Greenberg, an investment manager at Invesco Leisure Fund.
Seeking more families?
Eisner appeared intent on shifting some gears to make up for Disney’s mediocre film performance. In his stockholder letter Eisner cited the success of some bigger hits in 1998 – like the blockbuster Armageddon. But he also noted that “in too many instances, profits did not materialize from the revenues achieved by our films. Stated more bluntly, either the films and marketing cost too much, or the audience rejected our ideas.”
Whether or not people rejected Disney films because of the boycott, Eisner appeared to make a pitch for the family-friendly crowd.
“In an effort to improve our odds for continued success in the live-action film business, we are implementing a strategy that calls for the making of a higher percentage of Disney-labeled films,” Eisner said. “Disney continues to be the only brand name in the entertainment industry. For 75 years, it has earned the trust of the public. Under our new strategy, we hope to build on this trust with a renewed emphasis on Disney family films.”
AFA President Donald E. Wildmon said he sees encouraging signs produced by the Disney boycott. “People are deciding there are other things besides Disney products – other movies, other videos, other T-shirts,” he said. “Michael Eisner wants those families back in the fold, but he’s going to have to make more changes than that before those families will trust the Disney name again.”
Disney recalls animated film
The apparent recommitment to Disney’s family-friendly foundation was evident when the company recalled millions of video copies of an animated film which contained an objectionable scene.
In January the Mouse announced a recall of 3.4 million video copies of its 1977 animated feature The Rescuers. Although the image could not be discerned when the movie is played at normal speed, when slowed down one image contains a clear photo of a topless woman in the background.
This is not the first time Disney animation has stirred up controversy. Animators admitted to Peter and Rochelle Schweizer, who wrote Disney: The Mouse Betrayed, that they had put images including cartoon figures exposing themselves, being sexually aroused and making an obscene gesture in the 1988 Disney animated/live-action film Who Framed Roger Rabbit?
The Schweizers said other animated films, like The Little Mermaid (1989), Aladdin (1992) and The Lion King (1994), have also contained questionable scenes. None of those movies were recalled.
The Disney recall of The Rescuers represents a first for the Mouse. A company spokesman said the recall was announced “to keep our promise to families that we can trust and rely on the Disney brand to provide the finest in family entertainment.”
“I’m sure Disney was embarrassed to have one of its animators place nudity in a movie intended for families. But we’ve been saying all along that movies which are not family-friendly should have no place in the Disney tradition,” said AFA Vice President Tim Wildmon. "Perhaps Disney is finaly getting the message." 
