Eurodisneyland
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A15-99-0007 EuroDisneyland Only one year after the grand opening of EuroDisneyland, Robert Fitzpatrick left his position as EuroDisney’s chairperson, citing a desire to start his own consulting firm. In April 1993, Philippe Bourguignon took over the helm of EuroDisney, thought by some to be a sinking ship. EuroDisney publicly reported a net loss of FFr188 million for the fiscal year ending September 1992, though cumu- lative losses through April 1993 approached half a billion dollars.1 The European park also fell one million visitors short of its goal for the first year of operations, with the French comprising only 29% of the park’s total visitors between April and September 1992—a far cry from the predicted 50%.2 In addition to the financial woes weighing on Bourguignon, he was also expected to stem the flow of bad publicity which EuroDisney had experienced from its inception. Phase Two development at EuroDisneyland was slated to start in September 1993, but in light of their drained cash reserves (FFr1.1bn in May 1993)3 and monstrous debts (estimated at FF421bn),4 it was unclear as to how the estimated FFr8-10bn Phase Two project would be financed. Despite this bleak picture, Michael Eisner, CEO of Walt Disney Co., remained optimistic about the venture: “Instant hits are things that go away quickly, and things that grow slowly and are part of the culture are what we look for. What we created in France is the biggest private investment in a foreign country by an American company ever. And it’s gonna pay off.”5 The Dawning Of Disney After first attempting to start a commercial arts firm in 1917, Walt Disney, along with his partner Ub Iwerks, joined the Kansas City Film Ad Company, and began to learn the craft which would carry him to fame—cartooning. By 1919, Walt was making independent short cartoon ads for theatres. In 1920, Walt’s brother Roy became a partner, and soon thereafter the group moved to Hollywood. There, they developed a standardized cast of cartoon characters, which were mass-produced using a large staff and artists working on a single easy-to-draw cartoon. The year 1928 saw the creation of “Mortimer Mouse,” later renamed Mickey. 1 David Jefferson. “American Quits Chairman Post at Euro Disney,” The Wall Street Journal (January 18, 1993), p. B1. 2 Ibid. 3 “Euro Disney: Waiting for Dumbo,” The Economist (May 1, 1993), p. 74. 4 Peter Gumbel and Richard Turner. “Blundering Mouse: Fans like Euro Disney But Its Parents’ Goofs Weigh the Park Down,” The Wall Street Journal (March 10, 1994), p. A12. 5 Jefferson, “American Quits Chairman Post at Euro Disney,” p. B1. Copyright © 1999 Thunderbird, The American Graduate School of International Management. All rights reserved. This case was written by Research Assistant Tanya M. Spyridakis under the direction of Associate Professor J. Stewart Black, with the assistance of Associate Professor Hal Gregersen and Research Assistant Sonali Krishna, for the purpose of classroom discussion only, and not to indicate either effective or ineffective management. In 1955, Walt decided to send his entourage of characters into the real world, through the creation of Disneyland in Anaheim, California. Walt’s Disneyland dream was to create a place where people from all over would be able to go for clean, safe fun, unlike the less-than-wholesome carnivals of the day. He wanted a place that would teach both young and old about America’s heritage and about the diver- sity of the world. Since July 17, 1955, Disneyland has stood as the icon of Walt’s dream—a park for family-type entertainment that would provide clean, safe fun. Cleanliness is a high priority. By 8 a.m., when the park opens, the cleaning crew will have mopped and hosed and dried every sidewalk, every street, and every floor and counter. This begins at 1 a.m., when more than 350 of the park’s 7400 employees commence the daily cleanup routine. This routine includes using steam machines, razor scrapers, and mops towed by Cushman scooters to literally scour the streets and sidewalks in an effort to rid them of the chewing gum and other garbage left behind. Other examples of the emphasis placed on the small details include one person working a full eight-hour shift to polish the brass on the Fantasy merry-go-round; treating the meticulously manicured plantings throughout the park with growth-retarding hormones to keep the trees and bushes from spreading beyond their assigned spaces and destroying the carefully main- tained five-eighth’s scale modeling that is used throughout the park; the maintenance supervisor of the Matterhorn bobsled personally walked every foot of the track and inspected every link of tow chain each night, despite the $2 million in safety equipment built into the machine. All this old-fashioned dedica- tion has paid off. Since the opening day in 1955, Disneyland has been a consistent moneymaker. The death of Walt Disney in 1966 was a harbinger of turmoil for the Disney Corporation. Disney, under the direction of E. Cardon Walker from 1976 to 1983, lost touch with its traditional audience. In 1977, Roy Disney (nephew of Walt and son of Roy Disney, Sr.) quit as Disney’s vice president. Other Disney executives commented that Walker ignored any point of view but his own, which he based entirely on what he thought Walt would have done. This conservative approach led Disney to produce a “stream of tired, formulaic movies that fewer and fewer customers would pay to see”6—a phenomenon that eventually spilled over into television programming. By mid-1983, CBS canceled the hour-long program Walt Disney. For the first time in 29 years, the company was without a regular network program. Disney was a giant entertainment company that looked as though it might lose all channels to its audience. At this point, Ron Miller took over the helm with a style that fell at the other end of the spectrum from Walker’s. Where Walker’s reign could be described as dictatorial and “Walt-Centric,” Miller’s was delegative and decentralized. Sensing a need for rejuvenation, Miller did manage to produce the box- office hit Splash, under the newly created Touchstone label. Unfortunately, this did not become the norm, but rather was merely a blip on an otherwise unprofitable screen. One box-office bomb after another led to a sharp decline in profits. This decline extended to the theme parks, which represented about three-quarters of the company’s revenues. Revenues began to level off, and the stock price fell. During the period of April 1983 to February 1984, the stock price went from $84.375 per share to $48.75.7 As the company fell from riches-to-rags, Roy Disney, Jr., was forced to watch the Disney Empire built by his uncle, Walt Disney, and his father, Roy Disney, Sr., crumble. He also saw his personal holdings in the company drop from $96 million to $54 million. Roy had always held a firm belief that 6 Myron Magnet. “The Mouse at Disney,” Fortune (December 10, 1984), pp. 57-64. 7 Ibid. 2 A15-99-0007 the various divisions of the company were synergistic. For the theme parks to grow, movie and television production had to be strong. Few listened to Roy; he was labeled the “idiot nephew.” However, this idiot nephew outsmarted them all. In 1984, Roy Disney aligned himself with Stanley Gold, a tough-talking lawyer and a brilliant strategist. Together they persuaded Frank Wells, then vice-president of Warner Bros., to become presi- dent at Disney if all went as Gold and Disney, Jr., planned. It did. Old top management was forced out, and the company emerged from its past equipped with a skilled new top management team poised for a bright future. There was only one moment when the board leaned towards an older, more buttoned-down candidate for CEO (versus Michael Eisner, who had been proposed by Roy). In efforts to persuade the board, Gold made an impassioned speech to the directors: “You see guys like Eisner as a little crazy … but every studio in this country has been run by crazies. What do you think Walt Disney was? The guy was off the goddamned wall. This is a creative institution. It needs to be run by crazies again.”8 Eisner and Wells lobbied the individual board mem- bers to explain their vision for the company. In September 1984, Michael Eisner was officially ap- pointed CEO, and Frank Wells was named as President. Eisner attributed their success at convincing the board that “I did not come in a tutu, and that I was a serious person, and I understood a P&L, and I knew the investment analysts, and I read Fortune.”9 DisneyWorld, Orlando, Florida By the time Eisner arrived, DisneyWorld in Orlando was already on its way to becoming what it is today—the most popular vacation spot in the United States. However, the company had barely tapped into a rich aspect of the businesses: hotels. Disney had only three existing hotels at DisneyWorld and one hotel complex in Anaheim, probably the most profitable in the U.S., registering occupancy rates of 92-96% versus the industry average of 66%. Because there was little room in Anaheim for hotel expan- sion, Eisner set out to fill this void with an ambitious $1bn hotel expansion plan in Orlando. As a result, Disney’s Grand Floridian Beach Resort and Disney’s Caribbean Beach Resort opened during 1987-89. Disney’s Yacht Club and Beach Resort, along with the Dolphin and Swan hotels (owned and operated by Tishman Realty & Construction, Metropolitan Life Insurance, and Aoki Corporation, respectively), opened during 1989-90.