A controlling interest

As it goes online, Disney faces new challenges in everything from its corporate culture to its international status as an American family icon.

Mike Yamamoto Staff Writer, CNET News.com
Mike Yamamoto is an executive editor for CNET News.com.
Mike Yamamoto
5 min read
Jane Kuenz has strong feelings about the world of Disney, and they're not warm and fuzzy.

It seems that somehow over the years, the Magic Kingdom Special report: Wishing on a star has cast something of a disturbing spell over her family. Her parents have visited Disney's theme parks with unusual frequency, and her sister even got engaged at EuroDisney outside Paris.

"People say it's 'safe,'" said Kuenz, co-author of the book Inside the Mouse: Work and Play at Disney World. "But I found it very strange."

Whatever the characterization, the Walt Disney Company's formula has succeeded for decades, and there is no intention of changing it at corporate headquarters just north of Hollywood in Burbank, California. But as the entertainment monarch ventures beyond its established domain into the free-wheeling world of cyberspace, Disney faces new challenges in everything from its internal corporate culture to its international status as an American family icon.

The empire built by the Disney brothers and maintained by current CEO Michael Eisner owes much of its success to strict control over its products, services, and its coveted brand name. At the same time, in going online, this image-obsessed conglomerate must address the stubborn perception of the Internet as a haven for illicit activity and sexual deviance. Even if it succeeds in securing a closed network, Disney must still adapt to the unpredictable nature and speed of this entrepreneurial-driven industry.

"My guess is that they will go the way they usually go and

try to keep as much control over it as they can," Kuenz said. "They may be ill-prepared to deal with the people who do this kind of work, who are used to a lot more freedom."

Disney has already encountered its share of protest from conservative Christian groups who have criticized the company for adopting such policies as a domestic partner plan that extends spousal benefits to gay couples. On a different front, the company has been accused of racial insensitivity, cultural arrogance, and factual manipulation in such films as Aladdin, Pocahontas, and The Hunchback of Notre Dame.

"There is a backlash against Disney. The Christian right is organizing in a way we have not seen against a media company," said Jonathan Carson, president of the Family Education Network, a potential Disney competitor that runs an advertiser-supported Web site with information aimed at education and other issues of importance to parents. "I don't know whether its presence on the Web will affect its image, but Disney continues to have PR issues."

Others say these problems would exist regardless of Disney's online plans, noting that this is not the first time that the media giant has faced controversy or revolutionary change.

Besides, industry analysts say, Disney is more than willing to take the chance on the occasional hacking because the potential of the online market is so high. It isn't worried about veteran Netizens who might be inclined to attack the company technologically or philosophically because those aren't the people it's targeting anyway.

"What everybody says is that Disney likes to exert control and it won't fly on the Internet. It's one thing to have an open chat room where anyone can come in, but how is anybody going to assault a private network?" said Diana Simeon, an analyst with Jupiter Communications who specializes in the children's online market. "Disney's much more interested in the 90 percent not on the Internet, who are going to their movies."

Her conclusion is simple: "The bottom line is if they want to be a player, they'll be a player. They have the resources and the brand name."

Those resources, however, are not as plentiful as they were only a year ago. Disney's finances have been strained by its colossal $19 billion purchase of Capital Cities/ABC last year. Although the stunning deal raised Disney's profile as an international media conglomerate transcending its theme parks and movie holdings to an estimated $36 billion in assets, it also raised the company's debt to $16 billion, most of it in loans needed for the merger.

Moreover, Disney's leadership has reportedly suffered since the highly publicized departure of Jeffrey Katzenberg from the company's senior ranks last year. The December issue of Vanity Fair released this week contains a scathing account of Disney as a company in serious disarray and mired in internal politics under the stewardship of Michael Ovitz, the super-agent who joined the company as president in a surprising move last year after the death of his widely respected predecessor, Frank Wells.

Such high-powered corporate concerns couldn't have been imagined by Walt Disney and his brother Roy when they started their small film studio in 1923. It was there, in Hollywood, where the first Mickey Mouse cartoon was created, called "Plane Crazy." From those early days through the opening of Disneyland in 1955, the company remained founded on a business model based on the creation of fantasy, and to maintain this facade, Disney has become almost manic about its public image.

This insistence has led to numerous accounts of the company's controlling ways. In his 1982 book "Stalking the Nightmare," Harlan Ellison contends that he was fired on his first day as a writer for Disney Studios after Roy Disney and other executives overheard him jokingly suggest that the company make an animated "porn flick." In 1989, Disney demanded that three day care centers in Hallandale, Florida, remove drawings of Mickey Mouse and other trademarked characters from their walls, threatening legal action.

In her book, Kuenz writes of stringent rules of at Disney's parks, "a realm with its own rules and its own language, one that borrows phrase from both the language of real estate and the language of theater."

In one passage, she wrote, "One Disney spokesperson I talked to refused for an hour to acknowledge even that there are actual human beings inside the character costumes: 'That's one of the things I really can't talk about. Not because I work there, but because it keeps it kind of sacred.'"

It is this kind of stringent culture, according to some who know Disney well, that may also hamper the company's ability to move with the Tron-like speed that has become necessary for survival in the high-tech industry.

A telling example of Disney's lack of preparedness for the computer market made itself known a year ago when it prematurely released an interactive CD of The Lion King rife with technical problems that rendered thousands of discs useless. The situation, which led to reports of children in tears on Christmas Day, was reportedly exacerbated when panicked parents found the company's technical support lines closed for the holiday. (Playing off the blockbuster's theme song "Hakuna Matata," industry insiders mockingly referred to the incident as "Hakuna Errata.")

But this lesson, as painful as it was, also serves as a testament to the company's tenacity and, in particular, the power of Disney's reputation. For Disney not only recovered from the Christmas failure but also went on to sell hundreds of thousands more Lion King CDs successfully.

"A company like ours must create an atmosphere in which people feel safe to fail," CEO Eisner said in a speech at the Executives Club in Chicago this spring. "If not, people become too cautious. They hunker down...afraid to speak up, afraid to rock the boat, afraid of being ridiculed."

Then, however, he summed things up in this quintessential Disney way: "Failing is good as long as it doesn't become a habit."