Rean­i­mat­ing the Dis­ney brand

Dis­ney’s Robert Iger will leave a legacy of ac­qui­si­tions that trans­formed the com­pany. It could be a tough act to fol­low.

Los Angeles Times - - FRONT PAGE - By Daniel Miller

Ac­quir­ing Pixar, Marvel and Lu­cas­film paid off big for Walt Dis­ney Co. and its “fear­less” deal­maker, CEO Robert Iger.

On his sec­ond day on the job as chief ex­ec­u­tive, Robert Iger steeled him­self for a cru­cial pre­sen­ta­tion to the Walt Dis­ney Co. board of di­rec­tors.

Dis­ney was still smart­ing from a hos­tile takeover at­tempt, a share­holder re­volt and ex­ec­u­tive suite in­trigue spawned in the sun­set of the Michael Eisner regime.

But there was a more ur­gent prob­lem: The once-proud an­i­ma­tion unit was in a rut.

“If I didn’t turn Dis­ney An­i­ma­tion around quickly … there was a drum­beat that was go­ing to get louder and louder in terms of whether I was wor­thy of the job and how long I would last and all those things,” Iger re­called con­fid­ing to his wife, jour­nal­ist Wil­low Bay. “So I knew that the pres­sure was on.”

At the Oct. 2, 2005, board­meet­ing, Iger floated an idea that would be­come a hall­mark of his ten­ure. He made a risky, even au­da­cious, pro­posal: What if the com­pany bought Pixar An­i­ma­tion Stu­dios?

The com­puter an­i­ma­tion up­start owned by Ap­ple’s Steve Jobs was at odds with Dis­ney over the terms of ex­tend­ing the two com­pa­nies’ part­ner­ship. Iger wor­ried about the di­rec­tors’ re­ac­tion to pur­su­ing a high-stakes ac­qui­si­tion so soon af­ter tak­ing over.

“To the credit of the board, they did not throw me out of the room,” he said.

Three months later, Dis­ney said it­would buy Pixar for $7.4 bil­lion. It­was the first of three ma­jor pur­chases en­gi­neered by Iger, lay­ing the foun­da­tion for the sub­se­quent ac­qui­si­tions of Marvel En­ter­tain­ment in 2009 and Lu­cas­film in 2012.

Fast for­ward to 2015, which marks the first time that each of the ac­quired com­pa­nies is re­leas­ing a film in the same year, un­der­scor­ing the cen­tral role they now play in the Dis­ney em­pire.

But the ac­qui­si­tions didn’t al­ways look like sure things.

“These deals were ques­tioned by an­a­lysts on Wall Street, in­clud­ing me,” said Tuna Amobi, an an­a­lyst forS & PCap­i­tal IQ. “But with the in­vestors I speak to, the per­cep­tion is that the deals could be the best deals in the me­dia space of all time, pound for pound.”

The ac­qui­si­tions are a big rea­son Dis­ney’s stock price has more than quadru­pled dur­ing Iger’s ten­ure. Be­yond that, they kept Dis­ney from a fate that has be­fallen many a cor­po­rate gi­ant that tried to live off its past suc­cess. Sears Roe­buck& Co., U.S. Steel, East­manKo­dak, Pan Am — the an­nals of

Amer­i­can busi­ness are filled with com­pa­nies that ei­ther failed or fell fromtheir peaks be­cause they didn’t adapt to com­pe­ti­tion and chang­ing tech­nol­ogy.

In the rare case of a com­pany get­ting back on top, it is usu­ally re­ju­ve­nated by an out­sider — like Louis Ger­st­ner Jr., who re­vived a bat­tered IBM in the 1990s— rather than an in­sider like Iger, who had been at Dis­ney for nearly a decade be­fore be­com­ing chief ex­ec­u­tive.

Like many suc­cess­ful cor­po­rate lead­ers, Iger, 64, de­cided early on to try to con­trol events rather than re­act to them. To be “fear­less,” as he put it in a re­cent in­ter­view.

“I just was built with an in­nate abil­ity to not let fear guide me in how I run my life,” he said. “You can look at all the num­bers in the world, but at some point some­body … needs to dig down deep, search his soul, an­a­lyze or get in touch with his own or her own in­stinct, and de­cide.”

Former col­leagues say Iger pos­sesses an ex­pan­sive vi­sion for Dis­ney and is dar­ing enough to act on it. He so­lic­its opin­ions, notes former Dis­ney­land In­ter­na­tional Chair­man Jim Cora, but ul­ti­mately goes “where his gut tells him to go.”

Iger has not been in­fal­li­ble. Dis­ney’s live-ac­tion stu­dio busi­ness has had its share of misses, in­clud­ing the dis­as­trous “Lone Ranger” in 2013 and its cur­rent dis­ap­point­ment, “To­mor­row­land.”

It also re­mains to be seen how Iger’s $500-mil­lion gamble last year to buy Maker Stu­dios, which pro­duces low-cost videos for YouTube, will pay off.

Still, if Iger were to step aside to­mor­row, he would have left Dis­ney in far bet­ter shape than when he be­came chief ex­ec­u­tive. Iger is ex­pected to re­tire in 2018, when his con­tract ex­pires, and this year Thomas Staggs was named Dis­ney’s chief op­er­at­ing of­fi­cer, mak­ing him the top in­ter­nal can­di­date to be­come the next CEO.

Who­ever it is, Dis­ney’s next chief ex­ec­u­tive can be ex­pected to face an en­tirely new set of chal­lenges. But it’s also likely that its next leader will be study­ing the Iger play­book.

Aim­ing for Pixar

Emerg­ing fromthe Oct. 2 board meet­ing, Iger be­gan map­ping out a pos­si­ble pur­chase of Pixar. The next day, he di­rected a small group of trusted ad­vi­sors, Staggs among them, to do more home­work. And he told them he planned to call Jobs.

The team wasn’t sold on the idea, but Iger made the call any­way, reach­ing Jobs that af­ter­noon as he drove home from Dis­ney head­quar­ters in Bur­bank.

“I said, ‘Steve, I’ve got a crazy idea,’ ” Iger re­called.

Iger told Jobs that he wanted to visit him to make apro­posal. But Jobs in­sisted on know­ing what was on Iger’s mind right away.

“I hes­i­tated. I was kind of ner­vous, be­cause the last thing I wanted was for him to ba­si­cally hang up on me,” Iger said. At first, he strug­gled with how to ar­tic­u­late his pitch.

“I fig­ured I might as well just cut to the chase and I said, ‘Youknow— Dis­ney ac­quir­ing Pixar?’ And there was com­plete si­lence,” Iger said. “My heart was rac­ing. And he said, ‘ You know what? It’s not the cra­zi­est idea in the­world.’ ”

Iger said the im­por­tance of Pixar to Dis­ney’s fu­ture had be­come clear to him dur­ing open­ing cer­e­monies for Hong Kong Dis­ney­land in Septem­ber 2005, just a month be­fore he be­came chief ex­ec­u­tive. He no­ticed the many char­ac­ters from Pixar films fea­tured in the kick­off pa­rade. But there was noth­ing from Dis­ney’s re­cent an­i­mated movies, whose lat­est char­ac­ters weren’t pop­u­lar.

“It was a light bulb at a very high wattage,” Iger re­called.

The phone con­ver­sa­tion with Jobs even­tu­ally led to Dis­ney’s pur­chase of Pixar at a 3.8% pre­mium to its stock price. The deal, which made the mer­cu­rial Jobs Dis­ney’s big­gest share­holder, was widely ques­tioned by an­a­lysts who be­lieved the price­was too dear.

But the ac­qui­si­tion ar­guably saved Dis­ney An­i­ma­tion from a long de­cline that had been punc­tu­ated by flops such as 2002’s “Treas- ure Planet.” The an­i­ma­tion unit’s box-of­fice prospects were quickly lifted and Dis­ney also net­ted Pixar’s lead­ers, John Las­seter and Ed Cat­mull.

In an ef­fort to con­vince the an­i­ma­tion gu­rus that they could thrive at Dis­ney, Iger shared with them his own ex­pe­ri­ence of work­ing for a com­pany that was ac­quired.

In 1996, Dis­ney bought Cap­i­tal Cities and its ABC TV net­work for $19 bil­lion. Iger was pres­i­dent of the com­pany, hav­ing risen through the ex­ec­u­tive ranks for two decades. Such ac­qui­si­tions of­ten lead to ex­ec­u­tive de­par­tures. But then-Dis­ney Chair­man Eisner re­tained Iger, who was pro­moted to pres­i­dent and chief op­er­at­ing of­fi­cer of Dis­ney in 2000.

“I was a liv­ing, breath­ing ex­am­ple of how some­one could not only sur­vive an ac­qui­si­tion but thrive,” he­said.

And in the same­way that he was given an op­por­tu­nity at Dis­ney, Iger gave Las­seter and Cat­mull a big one too, putting them in charge of Dis­ney An­i­ma­tion. The di­vi­sion has since re­leased hits in­clud­ing “Frozen,” the top­gross­ing an­i­mated film of all time.

Buy­ing Pixar, Iger said, “was the sin­gle most im­por­tant thing that has hap­pened to me in the 10 years I’ve been in this job.”

A film gi­ant

By most ac­counts, Dis­ney is king of the hill in Hol­ly­wood. The world’s largest en­ter­tain­ment firm, it owns tele­vi­sion net­works, a film stu­dio and grow­ing theme park and con­sumer prod­ucts busi­nesses — all of which work to­gether to get max­i­mum mile age out of the com­pany’s sta­ble of in­tel­lec­tual prop­erty.

Although the fi­nan­cial per­for­mance of each Dis­ney di­vi­sion has im­proved un­der Iger, he has ar­guably made his big­gest im­pact in film. In 2005, Dis­ney was fifth among the six ma­jor stu­dios in do­mes­tic box-of­fice re­ceipts, ac­cord­ing to Ren­trak. Now it’s near the top: In 2014, Dis­ney was No. 2 be­hind 20th Cen­tury Fox. So­far this year, Dis­ney again is in sec­ond place, trail­ing Warner Bros. by a nar­row mar­gin de­spite hav­ing re­leased fewer films.

The dif­fer­ence? The Pixar and Marvel ac­qui­si­tions, which have tur­bocharged Walt Dis­ney Stu­dios, pro­vid­ing the di­vi­sion with a slew of block­buster fran­chises, in­clud­ing “Cars” and “Iron Man.”

Those films are ex­ceed­ingly valu­able to Dis­ney be­cause they’ve be­come a cen­ter­piece of the com­pany’s strat­egy of in­te­grat­ing in­tel­lec­tual prop­erty through­out its five busi­ness units.

In Dis­ney’s hands, amovie like “Frozen,” which was re­leased in Novem­ber 2013, can spin off cash years af­ter it ex­its the­aters. The film’s mer­chan­dise sales, for ex­am­ple, were cred­ited with help­ing boost the con­sumer prod­ucts di­vi­sion’s op­er­at­ing in­come 32% in the quar­ter that ended March 28.

“Dis­ney mon­e­tizes its con­tent bet­ter than any­one else out there,” said Scott Krisiloff, chief in­vest­ment of­fi­cer at Avondale As­set Man­age­ment. “They don’t just sell you the movie ticket, they sell you the fig­urine, the theme park ticket, they sell you on the ex­pe­ri­ence.”

Dis­ney gen­er­ated $7.5 bil­lion in profit last year, dwarf­ing the earn­ings of ri­vals such as Time Warner, Vi­a­com and 21st Cen­tury Fox. (Com­cast posted a big­ger profit than Dis­ney in fis­cal 2014, but the bulk of that com­pany’s net in­come comes from its telecom­mu­ni­ca­tions busi­ness.)

Iger has reaped his re­wards for Dis­ney’s suc­cess. He was paid $46.5 mil­lion last year, and he holds about 1.14 mil­lion shares of Dis­ney stock, ac­cord­ing to re­cent reg­u­la­tory fil­ings. His stock hold­ings were worth more than $125 mil­lion as of Fri­day.

But not ev­ery­thing Iger has touched has turned to gold. In 2009, he put TV vet­eran Rich Ross in charge of the film stu­dio. Three years later, Dis­ney parted ways with Ross af­ter the re­lease of “John Carter,” the poorly re­ceived sci-fi epic that re­sulted in a $200-mil­lion write-down. Ross had also put “Lone Ranger” into pro­duc­tion.

But af­ter Ross’ exit, Iger moved swiftly to cor­rect course. He brought in a vet­eran stu­dio hand, former Warner Bros. Pres­i­dent Alan Horn.

That will­ing­ness to make a de­ci­sive move is also ev­i­dent in Iger’s ap­proach to deal-mak­ing. Iger said that when he’s con­sid­er­ing an ac­qui­si­tion, he doesn’t get caught up in what-ifs.

“It’s not that I’m a dare­devil,” Iger said. “But I’m just gen­er­ally not a fear­ful per­son. I don’t con­duct my life wor­ry­ing about what could hap­pen, what may hap­pen.”

Piv­otal pur­chases

The Pixar deal may be the one that es­tab­lished Iger’s ac­qui­si­tion bona fides, but Dis­ney wouldn’t be where it is to­day with­out the Marvel and Lu­cas­film pur­chases.

Marvel had long been a gleam in Dis­ney’s eye. The com­pany had a sta­ble of pop­u­lar comic book char­ac­ters such as Iron Man, Spi­der-Man and Wolver­ine and by the mid-2000s had found suc­cess re­leas­ing su­per­hero movies with ri­val film stu­dios.

To get Marvel, Dis­ney would have to con­vince owner Isaac Perl­mut­ter, a sharp-el­bowed Is­raeliAmer­i­can busi­ness­man, that it­was time to sell.

“Ike was dif­fi­cult to reach, didn’t en­gage very much and never came to Hol­ly­wood,” Iger said.

Iger even­tu­ally got on Perl­mut­ter’s sched­ule: They would meet in June 2009 at the in­scrutable Marvel ex­ec­u­tive’s of­fices in Man­hat­tan.

Iger walked into Perl­mut­ter’s of­fice by him­self and told the story of buy­ing Pixar, ham­mer­ing on the op­por­tu­ni­ties it cre­ated. Iger also sug­gested that Perl­mut­ter tele­phone Jobs, who could share his ex­pe­ri­ence of sell­ing Pixar to Dis­ney.

“I ba­si­cally tried to con­vince him that I was a trust­wor­thy guy — not only was my hand­shake good but I’d be a good stew­ard of his peo­ple and the brand,” Iger said.

He said that the $4-bil­lion deal was ef­fec­tively clinched over din­ner with their wives at an Up­per East Side steak­house.

Un­der Dis­ney, Marvel has re­leased three films that have topped $1 bil­lion at the box of­fice: “The Avengers,” “Iron Man 3” and “Avengers: Age of Ul­tron.” “Star Wars” is next. As with the Marvel deal, Dis­ney’s ac­qui­si­tion of Lu­cas­film — the pro­ducer of the sci-fi fran­chise— hinged on a piv­otal meal.

Iger and Lu­cas film owner Ge­orge Lu­cas met for break­fast at Walt Dis­ney World’s Hol­ly­wood Brown Derby (pat­terned af­ter the long­gone L.A. eater­ies) in 2011 while both­were in Florida to un­veil a new 3-D Star Tours at­trac­tion.

Iger’s pitch in­voked the suc­cesses of Marvel and Pixar and drew a tan­ta­liz­ing re­sponse from Lu­cas. “What he said to mewas, ‘If there is any­one I want to sell to, it is you,’ ” Iger re­called.

Six months later, Lu­cas rang him. “Re­mem­ber that break­fast?” Iger re­called Lu­cas say­ing.

The$4.06-bil­lion deal was an­nounced in Oc­to­ber 2012. “Star Wars: The Force Awak­ens” will be re­leased Dec. 18, the first of sev­eral new films planned for the fran­chise.

Pro­ducer Brian Grazer, who has known Iger for­more than 25 years, be­lieves that the ex­ec­u­tive’s tough­ness— “he’s kind of black ops” — has made him im­per­vi­ous to pres­sure. But it is Iger’s abil­ity to con­nect per­son­ally with lead­ers like Lu­cas that may be his se­cret weapon, Grazer said.

“All of these guys — be­gin­ning with Steve Jobs, then Ike Perl­mut­ter and Ge­orge Lu­cas — are the most dis­crim­i­nat­ing founders. When you are a founder, you re­ally look for vi­sion and trust. I think Bob has that in the high­est or­der,” Grazer said. “That im­me­di­ately gave him a com­pet­i­tive edge.”

Dig­i­tal fu­ture

Last week, Dis­ney gath­ered re­porters to show off a new line of toys, called Play­ma­tion, aimed squarely at a de­mo­graphic the com­pany calls the “dig­i­tal gen­er­a­tion.” Iger didn’t pre­side over the re­veal — those du­ties fell to Staggs, mark­ing the first time he’s been given such re­spon­si­bil­i­ties in his role as the com­pany’s No. 2.

Dressed in a trim gray suit, Staggs ex­plained how Play ma­tion would show­case Dis­ney film fran­chises, start­ing with “Avengers.”

“Since its in­cep­tion, the Walt Dis­ney Co. has been about imag­i­na­tion, in­no­va­tion and sto­ry­telling,” he said.

But now more than ever, dig­i­tal in­no­va­tion will be im­por­tant to Dis­ney’s fu­ture. It’s al­most cer­tain that the big chal­lenge for the next CEO of Dis­ney won’t be an­i­ma­tion or live-ac­tion film, as it­was with Iger, but with the dig­i­tal revo­lu­tion.

On this front, es­tab­lished me­dia con­glom­er­ates like Dis­ney are fight­ing hard to es­tab­lish beach­heads in ar­eas where up­starts such as Net­flix and Ama­zon have found quick suc­cess. It’s a sea change that af­fects many ar­eas of the com­pany, but es­pe­cially tele­vi­sion, Dis­ney’s most lu­cra­tive busi­ness.

It also re­mains to be seen what will come of Dis­ney’s pur­chase of Maker, a ma­jor dig­i­tal bet that could end up cost­ing Dis­ney as much as $950 mil­lion if the com­pany meets cer­tain goals.

The pre­sump­tion of many is that these will be bat­tles for Staggs, now seen as the in­ter­nal front-run­ner for the CEO job. But his as­cen­sion is not pre­or­dained: Be­tween now and 2018, his lead­er­ship will be scru­ti­nized by Dis­ney’s board, which will select the com­pany’s next leader. The com­pany could also eye an out­sider for the job.

Staggs seems to be cut from the same cloth as Iger. Both are fit­ness buffs, both are ex­pe­ri­enced in ac­qui­si­tions (Staggs was in­volved in the Cap­i­tal Cities/ABC deal) and are said by former col­leagues such as Cora to have a sim­i­lar man­age­ment style.

“He lis­tens to peo­ple, he trusts those who work for him or those in other di­vi­sions of the com­pany,” Cora, the former Dis­ney­land In­ter­na­tional chair­man, said of Staggs. “He gath­ers opin­ions too.”

Sim­i­lar or not, Iger, who was made Dis­ney’s chair­man in 2012, has set the bar high, and his suc­ces­sor will have to con­tend with out­sized ex­pec­ta­tions. Dis­ney’s suc­cesses have been so grand and so reg­u­lar — it has de­liv­ered record net in­come, earn­ings per share and rev­enue four fis­cal years in a row — that Wall Street has be­come ac­cus­tomed to home runs.

That’s a heavy bur­den for any CEO.

Iger, in talk­ing about the risk of ac­qui­si­tions, noted that the chief ex­ec­u­tive is al­ways the one in the spot­light.

“Yes, you’re putting risk on a com­pany,” he said. “But from a rep­u­ta­tional per­spec­tive, nooneis tak­ing on more risk than the CEO. And it’s a risk that is per­sonal and firmly teth­ered to a CEO.”

Robert Carter

June 5, 2015


Phe­lan M. Ebenhack

IGER and Lu­cas­film owner Ge­orge Lu­cas ap­pear at the 2011 open­ing of Dis­ney’s new 3-D Star Tours at­trac­tion at theWalt Dis­neyWorld Re­sort in Florida.

Paul Sakuma

FROM LEFT, Pixar Pres­i­dent Ed Cat­mull, Pixar CEO Steve Jobs, Dis­ney CEO Iger and Pixar cre­ative head John Las­seter meet af­ter an­nounc­ing Dis­ney’s deal.


IGER’S $4-bil­lion deal to ac­quire Marvel En­ter­tain­ment has helped tur­bocharge Walt Dis­ney Stu­dios with block­buster fran­chises, in­clud­ing “Iron Man.”

Mark Davis Getty Im­ages

WALT DIS­NEY CO. Chief Ex­ec­u­tive Robert Iger, who took the helm in 2005, de­cided early on to try to con­trol events rather than re­act to them.

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