"Jobs for Disney (NYSE:DIS)?"
It was a few years ago that I stumbled across that sentiment in an Internet newsgroup. No, it has nothing to do with hiring back displaced animators and park imagineers. Well, maybe it does. Eventually. No, this was the suggestion that Apple Computer (NASDAQ:AAPL) and Pixar (NASDAQ:PIXR) chief Steve Jobs would be the ideal replacement for Michael Eisner. It was as ludicrous as it was bold.
Apple was staging a corporate comeback based on quality personal computers with cutting-edge design while Disney sifted through the formulaic. Apple was getting users to pay up for premium systems. Meanwhile, Disney was ramming uninventive, low-cost animation into the direct-to-video distribution channels, opening incomplete theme parks, and draining its only hit show on ABC by overexposing it. Jobs was breaking the mold. Eisner was making the mold moldy.
You have to pity Eisner. He's toiling away under the shadow of the Disney family who pioneered feature animation, and the shadow grows longer with every passing blunder. Disney traditionalists are a difficult lot to please, and it doesn't help that in the past few weeks he has found two outspoken critics as prolific as Jobs and Walt Disney's nephew Roy E. Disney.
In Roy, Jobs has a kindred spirit. Both were involved in power struggles at their companies during the 1980s, culminating in their departure. Each one came back with a lifeline and a last laugh. Roy arrived just in time to spare Disney from being gutted with Eisner and President Frank Wells by his side. Jobs returned to Apple in 1997, just in time to spark the company's revival the following year with the launch of the iMac.
Lately, they are even more in sync with their disdain for the direction that Disney has taken under Eisner. After breaking off talks to extend Pixar's production deal with Disney beyond next year, Jobs had some sharp words for the latter during this week's Pixar conference call. Calling Disney's penchant for low-budget sequels "pretty embarrassing" and lamenting the demise of the "original spirit of Disney," it may have been Jobs talking, but it echoed Roy's SaveDisney.com sentiments exactly.
I am not much for conspiracy theories. I don't believe that venom can be orchestrated. Yet if you shuffle back two decades' worth of pages in your history book, this is starting to look awfully familiar. A disgruntled Roy butts heads with the company's leadership and walks away. He finds capable visionaries to bring the company that bears his family name back into prominence. However, Disney is not in the same state of financial disarray that it was back in the early 1980s. Yet, in some ways, it's worse.
Why Eisner should go
Few will argue that Eisner didn't turn Disney around early in his tenure. He did. Theatrical animation was revived. The theme parks were reinvigorated. Yet everything came undone with Wells' death in a tragic helicopter accident in 1994. Brilliance became bungle. Pixie dust became anthrax.
Over the past decade, Disney has been riddled with executive defections, costly hiring mistakes, and brainless acquisitions. The uninspiring buildout of Disney's flagship parks and the diluted quality of its feature animation studios may have prompted the arrival of the Web-clicking lynch mob, but it was also Eisner's audacity to shoo away top talent while weaving a golden parachute for Michael Ovitz that made him the enemy of both the bean counter and the mouseketeer.
Although the company can point to financial improvement over the past year, it is illusory. Its operating profits and share price are nowhere near their highs of four years ago. Awarding bonuses for that kind of performance only prompts deeper dips into failure if baby steps from the gutter are met with monetary applause.
Eisner regrets not acquiring Viacom (NYSE:VIA) when Disney had the chance, but what about the dud deals that he did make? ESPN may have been Disney's saving grace after its $19 billion acquisition of Capital Cities/ABC, but why buy into individual teams that blur the bias of sports coverage? He has tested and soured the working relationship with the company's two most important partners in Pixar and Miramax.
What can you praise? That the company has finally built attendance at Disney's California Adventure to 42% of the foot traffic at the adjacent Disneyland theme park? That the company scored a theatrical smash hit in Pirates of the Caribbean: The Curse of the Black Pearl -- a movie themed to the kind of quality family dark ride that it is no longer investing to build?
Why Jobs should come
There are two parts to arguing the case for Jobs as Disney's next CEO. The first is convincing Apple and Pixar shareholders that this would be in their best interests. Then it's off to prove his worth to Disney.
Apple investors would probably cringe at the thought of a three-way merger between Apple, Pixar, and Disney. While the only person who stands between Pixar and Disney coming together is Jobs as Pixar's majority shareholder, that is certainly not the case with Apple.
Apple and Disney are entirely different companies at first glance. Disney is debt-laden while Apple's balance sheet sports $4.4 billion in net cash. Apple is leading the "Rip, Mix, Burn" digital music revolution while Eisner was one of the loudest critics of Apple's marketing mantra. Yet there are synergies to the combination.
Ever since Apple slipped below 5% of the personal computing market share, it has become pretty apparent that the company won't be more than a class act in a premium-priced niche in the near term. Where the company is making major headway is with its popular iTunes legal downloads and its portable music players. This past quarter, the company sold nearly as many iPods as it did Macs.
Like it or not, Apple is becoming a media company. With its stock trading for a little more than twice its net cash balance, the time has come to look beyond organic growth. Apple has always had a great story to tell; it just hasn't been afforded the platform to tell that story. With Disney comes mainstream exposure through various media outlets.
Apple lost its lead in the educational computing market to Dell (NASDAQ:DELL) a few years ago. Disney has the top family destinations in travel, cyber-surfing, and cable programming. Think you can make the iPod and Radio Disney jigsaw pieces come together? Sure, you can.
Apple acquired NeXT and landed Jobs; will Disney acquire Apple? Will Apple acquire Disney? Is this all too farfetched and Jobs will have to decide if Disney is worth giving up Apple for? The combination of all three companies would be dreamy. Can you imagine what Pixar's John Lasseter would achieve with Disney's feature animation in his grasp? Computer rendered or hand drawn?
But, yes, we also have to validate Jobs as worthy to lead Disney. Before one argues that Jobs lacks related experience, it's worth noting that Eisner had no experience in Disney's service lines beyond live action movies and television programming. Yet that was Disney's biggest weakness at the time. If one argues that Disney's biggest weakness right now is its ever-shrinking in-house animation studio, is there any company more worthy than Pixar to turn that around?
Running an entertainment empire requires more than a bit of self-assured arrogance and the ability to work a crowd. Jobs can do that. Naturally, the charismatic cocktail often contains a shot of megalomania. You can't drink down the visionary without the required egoistical chaser. Yet Jobs has done just that without micromanaging his star talent, particularly at Pixar. He has given Lasseter and his crew creative freedom and it has paid off nicely. That, in turn, has made Pixar a natural equity recommendation in our Motley Fool Stock Advisor newsletter.
Unlike Disney, Apple has managed to keep a clean balance sheet while keeping costs in check without sacrificing quality. Jobs would please the bean counter and the mouseketeer. Isn't it about time for an audition?
Has Rick gone nuts? Is Steve Jobs really the ideal replacement for Michael Eisner? Share your opinion in the Disney and Apple discussion boards.
Rick goes to Disney World roughly every other month. Not to give Disneyland the short shrift, he will be there come June. His two-parter entitled 10 Tips to Save Disney was written two years ago yet it still rings true today. He owns shares of Disney and Pixar. Rick's other stock holdings can be viewed online, as can the Fool's disclosure policy.
