Disney Co. Faces Variety of Woes
By MICHAEL WHITE
AP Business Writer
LOS ANGELES (AP) -- Sluggish stock, weak
earnings and the prospect of a bleak summer movie
season hound the Walt Disney Co. as chairman Michael Eisner prepares to testify in what
may be the most dramatic Disney tale of the year: a high-profile legal fight with the
company's former studio chief, Jeffrey Katzenberg.
Eisner is scheduled to take the stand Tuesday in a trial to determine how much money
Disney must pay Katzenberg for projects he coordinated during a decade at Disney
before quitting in an angry huff over Eisner's refusal to promote him.
The trial is expected to reveal details about Eisner's souring relationship with one of his top
lieutenants.
Katzenberg claims Disney owes him $250 million for films and other products he
developed before leaving the company in 1994.
The trial and a big payout to Katzenberg wouldn't be the first, or worst, news for Disney in
recent months. As the bull market has continued to rage, Disney stock has been a
conspicuous underachiever.
Earnings fell 26 percent to $296 million in the company's second fiscal quarter. And
Disney's stock market performance has turned dismal. Disney stock is down 29 percent
over the past year and lags behind the S&P 500 and key rivals such as Time Warner,
whose share price has increased more than 60 percent in 12 months.
Monday, while the Dow Jones industrial average raced ahead 225.65 points to top
11,000 for the first time, Disney stock slipped 50 cents to close at $31.25 on the New
York Stock Exchange.
Disney also faces the prospect of its new animated feature ''Tarzan,'' being eclipsed by the
summer's preordained blockbuster, ''Star Wars: Episode I -- The Phantom Menace.''
Already, ''Tarzan'' merchandise is getting a lukewarm response from retailers who instead
are stocking up on toys tied to ''Star Wars.''
''There are so many different things going on, it's difficult to point to one issue and say this
is the exact problem with Disney,'' said Linda Bannister, an analyst with Edward Jones.
''I think Disney will get a handle on everything. The question is when? We thought this
was going to be the last quarter of difficult comparisons. Now it appears we are going to
have a few more quarters of difficulties with Disney,'' she said.
A Disney spokesman declined to comment, citing the company's policy of not discussing
its stock price. But Disney did outline its woes in its most recent earnings report.
Earnings have been hurt by big investments in new ventures, such as Disney cruise lines
and the Internet portal Infoseek. The company also has suffered from weaknesses in home
video sales and merchandising and licensing. Sales at Disney Stores have suffered
double-digit declines in recent months.
Another problem has been the high cost of sports programming for the ABC and ESPN
television networks.
Finally, there is the prospect of increased competition in the theme park business from
Seagram Univeral's new Islands of Adventure park scheduled to open this month near
Walt Disney World.
In the report, the company warned investors the company faced several more quarters of
lackluster earnings.
''Disney faces a clear challenge in pulling itself out of its near-term projected earnings
trough,'' Merrill Lynch analyst Jessica Reif Cohen wrote in a recent report.
Yet analysts believe Disney -- perhaps the world's best-known business brand -- still
looks good over the long haul.
The company's investment in Infoseek is widely expected to strengthen Disney's position in
electronic commerce. Advertising revenues from television and radio broadcasting were
up in the most recent quarter, operating profits from Disney theme parks remained strong
and the Disney cruise line was expected to begin making money over the next two years.
To enhance the appeal of its home video line, Disney plans to slow the release cycle of its
classic videos from every seven years to 10. The company also is hoping its home sales
effort -- a profit engine during much of the past decade -- will get a big boost as
consumers switch from video cassettes to new DVD players.
The company also expects to make money on ''Tarzan,'' slated for release more than a
month after ''Star Wars'' opens May 19.
Meanwhile, Disney is implementing a cost-cutting program designed to curtail ballooning
costs of film production and other ventures.
''Disney's assets just have a lot of value,'' Bannister said. ''A lot of people still go to
Disney World. People still go to Disney movies and people buy Disney videos for their
children. The strength of Disney's brand does mean a lot.'' |
