FOOL ON THE HILL
10 Tips to Save Disney

Disney had it all. Network ratings. Growing theme park attendance. Animated flora and fauna that ruled the box office uncontested. Now everyone has an ax to grind with Mickey Mouse. Rick Munarriz thinks it's not too late to heave the pixie dust and awaken the sleeping princess.

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By Rick Aristotle Munarriz (TMF Edible)
August 9, 2002

An open letter to Disney's (NYSE: DIS) chairman and CEO, Michael Eisner, from a kid at heart.

Dear Mr. Eisner:

It must be hard to be you right now. It's like Beauty and the Beast, isn't it? You're locked away in the enchanted castle that once felt so warm and ideal, while an angry mob donning torches and pitchforks takes a battering ram to your front door.

I was going to join the mob, but then I realized the last of the rose petals is starting to fall. You were so great for Disney when it needed new leadership in the 1980s. I believe you have what it takes to save the same company twice, only this time, from yourself. We don't have much time, Mike. I have a plan. Come with me.

1. Buy the better Katzenberg
The departure of Jeffrey Katzenberg coincided with the end of Disney's revival in animation. You and I both know there's only one person out there who can steer Disney's animated division back to greatness.

I'm talking about John Lasseter. The guy is four for four at Pixar (Nasdaq: PIXR) -- which has provided the only high-quality productions backed by Disney distribution in recent years, and is currently threatening to walk into the hands of another distribution partner three theatrical releases from now. Unfortunately, Lasseter is locked into a 10-year contract with Pixar.

What's worse: Taking your 50% from Pixar through 2005, only to lose Pixar to a competing studio, or coughing up around $3 billion to get 100% of the action forever? Pixar's stock has been a stagnant disappointment, and the $3 billion buyout price would be a bit more than the company has ever been valued. Warm up to Steve Jobs. Sell him on the potential of a stock deal with Disney at rock-bottom prices as legal tender. The deal would be only marginally dilutive in the near term, but the confidence and credibility down Wall Street makes it worth doing.

2. Play the Pressler card
Are you even remotely aware of how hated Paul Pressler, the chairman of your theme parks, is in Disney-enthusiast circles? His shrewd, cost-cutting ways helped him climb the executive ranks and garner analyst praise, but, now that he's at the helm of the plum theme park gig, he's become the poster child for the domestic malaise.

Look into Pressler's eyes and decide whether you want him to be the scapegoat or the savior. You can cut him loose and roll up your sleeves, with the resources to return the parks to their former glory, or you can let him garner the praise, backed by the maintenance capital and "imagineering" ingenuity the company once possessed. You win either way.

3. Use the mouse ears
Have you been listening? You had Britney Spears, Christina Aguilera, and some of the chaps from 'N Sync on your Mickey Mouse Club. You had some of the Backstreet Boys working as entertainers at Disney-MGM Studios. They went on to make millions for someone else. You're trying to canvas the country with Radio Disney, yet you insult the audible intelligence of kids by doing so on lousy-sounding AM radio.

With so much media ammo in your exposure arsenal, is SHeDAISY and the occasional successful soundtrack all you can muster out of your music labels? Perhaps, after watching the five major labels crumble under mismanagement and the growing popularity of peer-to-peer piracy, your failure was relative to success. But now's the time to walk through the ruins and pick up the bargains. Rumor has it Disney's interested in scooping up garage sale Picassos like Universal Music at Vivendi's (NYSE: V) distressed asset sale. Make it so.

4. Knit a new Letterman jacket
What was the point of publicly pining for David Letterman, beyond destroying the morale at ABC news? If the deal worked, CBS would've found a replacement, the young demographic you were hoping for would've been divided by three instead of two, and your slice would've been small because Letterman would relish ripping apart the dreadful ABC primetime lineup every night.

Be thankful for the relative success in your failure. Play the hand you're dealt, and tweak the Nightline model to your satisfaction. If you want someone cheaper or hipper than Ted Koppel, make the transition with class. If you want to stretch the show longer, tackling more news stories and slapping on more lively debate with entertaining eye candy to appease the late-night audience, then go for it. You have little to lose and everything to gain.

5. Keep history on retainer
What did you learn from the Disney Stores over-expansion fiasco? You had a good thing, appealing, in part, because it was in limited supply, and you still brought in the cookie cutters. Too much of a good thing is not a better thing. You didn't learn with Who Wants To Be A Millionaire. You're not learning it as you make plans to build more and more Disney parks all over the world before building out your two most recent stateside parks beyond half-day destinations. You're not learning it as you slap a triceratops head on Dumbo and call it a new attraction.

Attendance down at the parks this year? Sure, your parks. Cedar Fair's (NYSE: FUN) flagship Cedar Point is showing a slight uptick in attendance, with hotel revenues clocking in 10% higher. It added a new coaster this season and started offering on-site resort guests early entry into the park. At Holiday World in Indiana, a park that predates Disneyland by eight years to brand itself the country's original theme park, attendance was running 22% higher early into the summer season. It added a major addition to its water park, and word keeps spreading about this small, clean, friendly park in the middle of the country that doles out free sodas, free sunscreen, and free parking.

See the difference? They added. You subtracted. At Disney World, there have been no new E-ticket attractions in years, and on-site resort guests were recently stripped of early entry access.

It's a vicious cycle. Attendance and resort-occupancy rates are down, so you trim hours, guest perks, and new attractions. Attendance and occupancy fall farther because the hours are shorter, there are fewer reasons to stay on-site, and there's less to do. Don't let the lessons of this summer go ignored. This was a time to give, not take.

Five more tips coming Monday
Rick will finish off his top 10 ways to save Disney in Monday's Fool on the Hill column, so tune back in for the rest. In the meantime, does anything he's said make sense? How would you save Disney? Take it to the Disney discussion board, and let 'er rip.

Rick Aristotle Munarriz lives in Florida and can be found at Disney World far more often than he would care to admit. He owns a piece of Disney, more than just the brick that bears his surname in front of the last turnstile at Magic Kingdom's monorail-side entrance. He also has a few shares of Pixar in his youngest son's IRA. Rick's other stock holdings can be viewed online, as can the Fool's disclosure policy.