Disney not afraid of big bad internet

The Walt Disney Co. Chairman and CEO Robert Iger wants everyone to know that he watched this week's episode of ABC's "Desperate Housewives" not on a television, but via computer on ABC.com.

And in case there were any doubts about his commitment to rapidly emerging media platforms, Iger also added he really enjoyed a Tylenol spot that played during a commercial break that included some unique online elements.

"As we see it, this is not an experiment," Iger said while reporting Disney's robust second-quarter earnings earlier this week. "We're in this for the long run."

David Miller, managing director and media manager of Sanders Morris Harris in Los Angeles, said Iger is sending an important message to Wall Street that he is not afraid of new technology.

"Every time you have seen a shift in technology, you tend to see a lot of paranoia with regard to how those business models will play out," Miller said. "When TV began in the '40s and '50s, people thought it was the end of radio. When the VCR came to the market in the late '70s, they thought it was the end of the theatrical movie business. So here we go again and I think what Disney is trying to convey is that this can increase earnings."

Disney Chief Financial Officer Thomas Staggs said the company expects digital earnings to generate $500 million in revenue during the current fiscal year from paid content and online advertising.

Other media companies, including Time-Warner, Viacom and NBC Universal have also recently begun delving into wireless and online platforms to distribute their programming.

Last week, Viacom-owned CBS announced the launch of branded broadband channel relying on a mix of Web-created shows and CBS network-related content including "Beyond Survivor," while Warner Bros. on Monday said it will use peer-to-peer technology developed by BitTorrent to distribute its films and television shows over the Internet beginning sometime this summer.

But Disney has been at the forefront of new platforms and Iger the most vocal advocate.

"He has to distance himself from the (former CEO Michael) Eisner years and one of the things he has hit upon has been new technologies," said media analyst Dennis McAlpine. "Does it add anything to the bottom line now? Probably not. But this establishes him as a spokesman in this area."

This month and next, ABC.com is offering some of the Disney-owned broadcast networks' shows for free, with commercials, including "Housewives," "Lost" and "Alias." The online trial is expected to continue after that possibly with other free shows and some paid content.

"We are already showing you a glimpse of the future, which we've pretty quickly made the present," Iger said Tuesday.

The online trial came after Disney made commercial-free episodes of some of its shows available for downloading, for a fee, on Apple Computer's iTunes last fall. Iger said there have been more than 5 million downloads of the ABC shows since October.

NBC Universal, Fox and CBS followed ABC's lead in making some of their shows available for download on iTunes for $1.99 per download.

Still to be determined is what kind of impact these services will have on television ratings or whether they will devalue reruns of the programs.

"I doubt the impact will be that strong but they are sure to be ticking off some affiliates and they will likely come to some appeasement," McAlpine said.


Disney’s “Tarzan” musical wins mixed reviews in NY

Disney's latest mega-musical "Tarzan" swung into town with a spectacular shipwreck scene and bungee-jumping apes but the critics were lukewarm and several resorted to phrases such as "bungle in the jungle."

"Tarzan," which opened on Wednesday night, is among the most expensive musicals on Broadway with a budget reported at between $15 million and $20 million (8 to 10 million pounds). It is Disney's latest effort to match the success of hit movie-based musicals such as "The Lion King" and "Beauty and the Beast."

"Almost everybody and everything swings in 'Tarzan.' Which is odd, since the show itself, to borrow from Duke Ellington's famous credo, definitely ain't got that swing," was Ben Brantley's verdict in The New York Times.

"'Tarzan' feels as fidgety and attention-deficient as the toddlers who kept straying from their seats during the performance I saw," Brantley said.

Several critics had warm words for the special effects, particularly the opening scene, which uses aerial acrobatics to create an eerie underwater shipwreck scene in which the baby Tarzan and his parents end up washed up on an African shore.

"The opening minutes of 'Tarzan' … are among the most exciting and inventive I have ever witnessed in the theatre," Charles Spencer wrote in London's Daily Telegraph newspaper.

But he added that despite some other fine effects — "most notably a trippy hallucinogenic sequence involving huge jungle plants with human actors nestling amid their petals" — the show "almost invariably looks much better than it sounds."

The Star Ledger of Newark, New Jersey, and the New York Post both settled on the headline "Bungle in the Jungle," and Post critic Clive Barnes opened his review with the words: "You, 'Tarzan,' Me, Agonized."

Washington Post critic Peter Marks also praised the opening sequence but his review was summed up in the headline "Fumble in the Jungle: Disney's Tame 'Tarzan.'"

"The show … has gorillas in midair, a potential teeny-bopper idol in loincloth and Phil Collins as show-tune guy," Marks wrote. "What it doesn't have much of is drama."


The show's star, Josh Strickland, whose most notable previous engagements include a stint on the TV talent show "American Idol," won mixed notices. Marks described him as "a slender, wiry, sweet-faced variation of the ape man."

"It's hard to tell what kind of career is ahead of him because in this outing he's called on mostly to act with his torso," he said.

While there was plenty of criticism for the show, Disney appeared to have emerged a clear winner against rival Hollywood studio Warner Bros., whose vampire musical "Lestat" was almost universally trashed by the critics two weeks ago. "Lestat" had a budget estimated between $10 million and $12 million.

USA Today's Elysa Gardner gave "Tarzan" three stars out of four, praising the "lush, fanciful scenic and costume design," the "sprightly libretto" and its "good-natured exuberance."

The Philadelphia Inquirer's Howard Shapiro also was impressed, describing the show as "an eye-popping treat of lighting, streamers and fabrics."

"Some people will inevitably call the shimmering stars, massive fluttering fabrics, and huge strutting fauna downright corny. I call them master stagecraft," he wrote.



Disney Says Hong Kong Park Attendance Down

Attendance at Hong Kong Disneyland has fallen below expectations, but the park's finances are solid, The Walt Disney Co. says.

The park, Disney's latest, has been hit by a slew of bad publicity and reports of poor attendance since its opening last September. Park officials recently offered free entry to more than 40,000 taxi drivers to promote the theme park.

In a statement late Wednesday, Hong Kong Disneyland said the park was in good financial shape.

"Hong Kong Disneyland is on a very firm financial footing. We are in our first year of business and are showing a positive cash flow and great liquidity," it said.

The statement called the park "a solid asset that is going to be a real lynchpin for both Hong Kong and The Walt Disney Co. for decades to come," adding that more than 80 percent of guests surveyed rated their experience at the park as positive.

The statement said Hong Kong Disneyland expects a busy summer season, with three new attractions opening by early July. The attractions are the Autopia car ride, UFO Zone and Stitch Encounter, inspired by the Disney character Stitch from Lilo & Stitch.

Announcing its earnings earlier this week, Disney said crowd figures at Hong Kong Disneyland have been lower than expected, but that it still expects to hit a one-year goal of 5.6 million visitors.

Disney provided no details about the number of visitors or revenue from its Hong Kong park.

"We clearly have a lot to learn about the market," Disney Chief Executive Robert Iger said Tuesday. "Overall, I don't think our marketing efforts have been as effective as they could be. But we're going to figure this out."

Hong Kong Disneyland came under attack last year from environmentalists for planning to serve shark's fin soup _ a plan it later abandoned. Critics also accuse the park of exceeding its powers by asking health officers investigating suspected food poisoning at the park to remove parts of their uniform.

In February, park officials sparked backlash by turning away guests, who had tickets, but were not allowed to enter because the park reached full capacity.

Hong Kong Disneyland is a joint venture between Disney and the Hong Kong government, which holds a 57 percent stake and shouldered most of the construction cost.


Optus moves in with Disney, the family friend

WALT Disney is on a global mission to dominate what the masses will see on broadband and mobile phone platforms and this week Optus became the latest player to help the entertainment company's cause.

Optus's deal on Tuesday with the Walt Disney Internet Group to offer a "family friendly" line-up of Disney content on its website portal is a departure for the telecom, which has had a limited line-up of offerings to date.

Optus is not convinced about the ambitious plans of its arch rival, Telstra BigPond, to create exclusive material for its broadband internet and mobile customers.

However, Optus's strategy seems to mirror that of its rival.

From July, Optus will carry Disney Connection on its portal, offering video clips, music videos, movie trailers and soundtracks, interactive games and cartoons all aimed at kids.

Optus argues the alliance – which for Disney is non-exclusive in Australia – will reinforce its kid-safe-zone credentials to parents. It already allows them to set controls on what their children can do on the internet.

"We're not trying to build up channels of our own," says Chris Lane, group director, products and delivery for Optus Consumer, in a reference to BigPond's approach of buying exclusive rights to material and producing in-house. "The difference here I guess is … as you move into family [broadband internet take-up], we saw a gap in that there are obviously concerns about some of the content available on the internet … Disney has helped us to develop a safe, secure family friendly area where people can trust their kids can play and they don't have to worry."

Lane says Optus will launch a marketing campaign based on the family theme in July when Disney Connect starts on the Optus portal. The telecom is in the final stages of merging and relaunching its mobile and broadband portals and there is growing but unconfirmed speculation that the Disney offerings will be carried across to Optus mobiles.

Lane admits there are more third-party options carried on its Optus Zoo mobile phone portal than its broadband internet site because of speed, navigation and payment limitations. He says the mobile line-up is about aligning with third-party providers – downloadable MTV-branded music is one new offering.

"It's a bit naive for a [telecommunications] operator to think they can build up enough content channels to make it really worthwhile," Lane says. "We have partnered with ninemsn … and when we launch our new portal there will be a lot more rich media content which is localised because of that vast library that PBL and Channel Nine have. But our philosophical belief is that content should not be an exclusive domain of anyone. There may be other brands that bring interesting content which we will add to our portal but it's not our fundamental driver. And when we do, we would rather partner with best in breed."

It's precisely what Mark Handler, executive vice-president, international, of Walt Disney Internet Group wants to hear. Handler has been overseeing a rapid expansion of Disney's content for digital media. The company has licensed the online rights to games such as Trivial Pursuit and Rubiks and has purchased a German games developer to bolster its portfolio of game producers for interactive TV, internet and mobile phone carriers.

Disney is extending its push into new demographics – in Japan it has launched a mobile channel targeting women aged 25 and over while in North America it's producing "motherhood" information and educational material.

"The point is consumers are now getting a bigger percentage of content being offered to them by the carrier coming out of the Disney company," he says. "People are getting much more selective about what they want to watch and if we, as a content company, can respond with great content then it's an opportunity.

"In mobile, we are very aggressive. Between 2005 and 2010 there will be an increase of 25 per cent in terms of mobile users, which will be 3 billion.

"But at the same time the content market will more than double. So content is clearly a growth business in mobile. What we're trying to do is take advantage of good relationships with operators.

"There's real skills in terms of porting to different devices and just getting digital content moved around the world. And we think we've got good expertise in brand development so we're actually going beyond the Disney brand in our mobile assets."


Disney reshapes nightlife complex

Once a haven for grown-ups looking to dance the night away, Disney's Pleasure Island is morphing into a place where Mom, Dad and the little ones can feel comfortable — but the wild uncle is still welcome.
The transformation, part of a revamped night-life strategy for Walt Disney World, is not just an image makeover. Bulldozers are involved.

Disney is tearing out bridges, building a bigger, more prominent new bridge, knocking down two outdoor music stages, cutting a building in half, leveling a hill, opening up vistas of the lake and getting away from the back-alley warehouse-district look.

The goal is to merge Pleasure Island more with the other two districts of Downtown Disney — geographically and in appeal.

"We're going away from the traditional, adult-only nightclub environment to an environment where we can appeal to all groups, including adults," said Djuan Rivers, vice president for Downtown Disney.

Disney created the adult entertainment complex in the 1980s when it saw visitors leaving its hotels to club hop in downtown Orlando. Though Pleasure Island has helped keep nightlife-seeking tourists on Disney grounds for 17 years, the area also has presented challenges — partly because of its location and its mix of businesses.

Centrally located in the 120-acre Downtown Disney, it sat like a no-kids land, blocking traffic between the shopping and entertainment area's two all-age districts, Marketplace and the West Side.

And nothing says "not Disney" quite like a place where partyers wander from bar to bar with beers in their hands while loud music blares.

The changes began last year, when Disney opened up Pleasure Island to people younger than 18. The cover charge just to walk there was eliminated, the turnstile gates were ripped out and the hours were expanded. It used to open at 7 p.m. It now opens at 3 p.m. Someday, it will open at 11 a.m.

Already, a difference is showing. Before the turnstiles came down, 22 percent of Downtown Disney visitors came into the island. Today, it's 75 percent, Rivers said.

Disney also is tinkering with the mix of bars, restaurants and shops on the island, starting with the broader appeal of the new Irish-pub-themed tavern, Raglan Road.

The pub sits in stark contrast with many of the more boisterous music, comedy and dance clubs down the way — which some visitors appreciate.

Paul Scully and his friends recently found refuge there from a busy Walt Disney World vacation. The men, visiting from Ireland, were relaxing over cold pints late one night while their families were back in the hotel.

"It's nice, then, when you have somebody minding the kids," he said. "It's nice to get out on your own for a while."

David Marks, president of Marketplace Advisors in Winter Park, said tweaking Pleasure Island's image so that it's not just thought of as a place for club-hoppers is a smart move.

"Disney has done a great job," he said. "They're improving the clubs and continuing to refine what they're doing."

The company is not giving up on adult-oriented nightlife, nor the current clubs, such as the Adventurers Club, the BET SoundStage or Mannequins Dance Palace. Partyers are still welcome. But so are people seeking to relax. Or a father with children, Rivers said.

"He can walk through here, and if he wants to have a drink on the street, he doesn't feel awkward with his children, and you won't feel awkward either," he said.

Such a mix may set Downtown Disney further apart from other area nightspots.

There already are key differences between Pleasure Island and two principal competitors, downtown Orlando and CityWalk at Universal Orlando.

Downtown Orlando is cheaper and centrally located to Orlando's population; it draws a younger and mostly local crowd. It's a favorite of college students. CityWalk, also cheaper and more centrally located, also tends to draw more locals. And Universal's bar district curves around the main part of CityWalk, keeping partyers off the beaten path.

Rivers said both competitors have market segments he would like to grow. Still, Downtown Disney does well with the local market, he insisted. But the main draw is, was and always will be tourists, driven by the caravan of buses moving between the district and Disney's hotels and parks.

Downtown Disney as the family-friendly adult spot makes sense to Mike Castillo, 41, who owns a construction company in Sacramento, Calif., and a time share in Orlando. He was at CityWalk one recent night with his wife, Jackie.

"I think Downtown Disney is a little bit better; I've got daughters, and they like it there. This is, like, more for grown-ups. Today, we dropped them off for a couple of hours and came over here," he said. "But yeah, I like it over there. The atmosphere is way more for families. I think this is more for grown-ups."

Disney's challenge is nurturing that family-friendly atmosphere without scaring off the young, single crowd that has helped make many of its clubs a success. Rivers thinks most youngsters will be in bed by the time the party really gets going on Pleasure Island.

Still, it worries Sabrina Carter, 26, from Orlando, who was out having a hurricane cocktail with a friend last week at CityWalk. She's an occasional Pleasure Island and downtown Orlando visitor.

"You don't want to be drunk in front of a bunch of kids," she said. "You're going to be paranoid. You don't have to worry about that downtown."


Disney profit up, but revenue disappoints

Walt Disney Co <DIS.N> reported a 12 percent rise in quarterly profit on Tuesday as strength in its television business and theme parks outweighed a sharp drop in profits at its film studio.

Earnings topped Wall Street expectations at Disney but revenue lagged analysts' targets, and share rose only 1.7 percent to $30.05 in after-hours trade.

In the second quarter, Disney saw its TV advertising rates and viewership soar on hit shows such as "Desperate Housewives" and "Lost."

Disney posted net income of $733 million, or 37 cents per share, compared with $657 million, or 31 cents per share a year ago.

Revenue rose to $8.03 billion, from $7.83 billion in last year's second quarter. Analysts, on average, expected net and adjusted earnings of 31 cents per share and revenue of $8.2 billion for the second quarter, according to Reuters Estimates.

"It's a killer upside surprise on the EPS line," said Sanders Morris Harris analyst David Miller, who had forecast earnings of 31 cents per share for the quarter. The media networks division results showed "an explosion" in growth, he added.

"It looks like the revenue line came up a little shorter than our models due to weakness in the studio," he said. "Consumer goods did much better than we thought. Parks and Resorts were in line with our models," he added.


In a conference call with analysts, Disney Chief Financial Officer Tom Staggs said the company expects its all-stock purchase of Pixar Animation Studios Inc. to dilute its fiscal 2006 earnings by 10 cents a share.

Staggs said the impact would be nearly equal in its fiscal third and fourth quarters.

But Staggs said the company looks forward to double-digit earnings growth in fiscal 2006 compared with one year ago even after the Pixar dilution.

Staggs also said a recent spike in gasoline prices was not expected to affect Disney's theme park business this summer, and that combined hotel room reservations were running higher than last year's third quarter at a rate of high single digits.

Media networks earnings rose 20 percent to $969 million, more than half total segment operating income. Parks income rose 17 percent to $214 million, while studio profit fell 39 percent to $147 million and consumer products income fell 8 percent to $104 million.

Disney last week completed its $8.1 billion acquisition of Pixar Animation Studios Inc <PIXR.O>, giving Apple Computer Inc <AAPL.O> Chief Executive Steve Jobs a 6.3 percent stake in the company and a seat on its board of directors.

Disney shares were trading at price-to-estimated 2007 earnings ratio of 17.8, compared with a price-to-earnings ratio of 16.5 for Time Warner Inc <TWX.N>, and of 17.3 for Viacom Inc <VIAb.N>.

Disney shares are trading at a 52-week high.


Disney’s Hong Kong Headache

Disneyland is supposed to be "The Happiest Place on Earth," but Liang Ning isn't too happy. The engineer brought his family to Disney's new theme park in Hong Kong from the southern Chinese city of Guangzhou one Saturday in April with high hopes, but by day's end, he was less than spellbound. "I wanted to forget the world and feel like I was in a fairytale," he says. Instead, he complains, "it's just not big enough" and "not very different from the amusement parks we have" in China. His seven-year-old daughter Yaqin disagrees, calling the park "fantastic," but her father grumbles: "If she wants to come again, "I'll send her with somebody else."

Hong Kong's Magic Kingdom has so far been a little short on magic. The $1.8 billion theme park, which opened last September, was touted by Disney executives as its biggest, boldest effort to build its brand in China, a potentially vast new market for its toys, dvds and movies. The Hong Kong government—which aggressively wooed Disney and is the park's majority owner"hoped Disneyland would help secure the city's reputation as one of Asia's top tourist destinations. However, the conservative approach of Disney and its partner has produced a pint-sized park that so far hasn't matched visitors' lofty expectations. Hong Kong Disneyland has a mere 16 attractions—only one a classic Disney thrill ride, Space Mountain—compared to 52 at Disneyland Resort Paris. Meanwhile, management glitches involving everything from ticketing to employee relations have further tarnished the venture's image. In a recent survey conducted by Hong Kong Polytechnic University, 70% of the local residents polled said they had a more negative opinion of Disneyland since its opening. "Disney knows the theme-park business, but when it comes to understanding the Chinese guest, it's an entirely new ball game," says John Ap, an associate professor at the university's School of Hotel and Tourism Management.

Nonetheless, Disney executives insist the park is on track. Jay Rasulo, chairman of Walt Disney Parks and Resorts, says: "I feel great about how Hong Kong Disneyland is doing." Disney's own surveys of park visitors show an 80% satisfaction rate, among the highest of any of the company's parks, says Rasulo: "People feel this is a great experience."

The Burbank, California, headquartered company knows what it is talking about; it welcomed its 2 billionth visitor last week. And it is no stranger to tempestuous beginnings at an international park, at times caused by imposing a very American sensibility on foreign guests. When Disneyland Paris opened in 1992, Disney famously banned wine from park restaurants, much to the dismay of European bons vivants. In Hong Kong, Disney went out of its way to tailor the park to local tastes. Its "imagineers" installed Main Street's first Chinese eatery, along with Fantasy Gardens where Mickey Mouse, local favorite Mulan and other Disney characters reside so tourists can readily snap pictures with them—a priority for many Chinese visitors. Ironically, Disney's most high-profile stumble resulted from being too local. When executives decided to serve shark-fin soup, a Hong Kong favorite, environmentalists howled and Disney ignominiously yanked it from the menu.


Another embarrassment came over the Lunar New Year holiday beginning in January, a popular vacation time in China. Disney neglected to block off the entire week as "special days" for which visitors required specific tickets. Tourists with valid tickets got turned away at the front gates after the park quickly filled up; the jilted travelers screamed at park employees, while TV cameras filmed one family trying to pass a child over the fence. Henry Tang, the city's Financial Secretary, voiced concern that this disarray "might affect the image of Hong Kong's tourism industry." Bill Ernest, Hong Kong Disneyland's managing director, says the company "had no idea" that demand would spike so sharply at that time and adds that Disney has since expanded the number of "special days" to improve crowd control during holidays: "We don't make the same mistake twice."

Disney has also strained its relationship with Chinese travel agencies, which play a crucial role in funneling tourists into the park. Victor Yu Limin, a general manager at China CYTS Outbound Travel Service in Beijing, complains that Disney originally demanded several weeks' notice when the agency wanted to reserve a guaranteed number of rooms"a nearly impossible deadline, he says, as Chinese travelers often don't finalize trips more than a few days in advance. Agents also say they make so little money organizing Disneyland trips that they don't have any incentive to market the park. Disney has tried to improve its ties to travel agents by, for example, boosting the commission they earn on selling tickets and reducing the advance notice needed to secure hotel bookings. "We're listening to everything they have to say and adjusting where we can," says Josh D'Amaro, Hong Kong Disneyland's vice president for sales and travel-trade marketing. But, Yu says, Disney is "still far from understanding the real market in China. They started off doing business the American way, so they have encountered problems."

Some workers assigned to play the parts of supposedly cheery characters like Mickey and Tigger have also complained. In April, the Hong Kong Disneyland Cast Members' Union made public a litany of gripes over poor pay, excessive work hours and, most of all, the sweltering conditions inside their costumes. Disney counters that the complaints are an "inaccurate representation" of the work environment at the park, that staffers have been granted extra rest days beyond those mandated by their contracts, and that their costumes are no different to those worn at its hot park in Florida.

Given the complexity of the Hong Kong operation, such "teething pains" are hardly surprising, says Rasulo. What may be tougher to solve, though, are the yawns the miniature park is generating among tourists. Rasulo says the park wasn't built on a grand scale because the Chinese didn't grow up with Disney and don't know the characters as well as Americans and Europeans do, which acts as a constraint on its potential audience. Ernest calls it a "great introductory park." They also point out that the company plans to keep adding new attractions at Hong Kong Disneyland, including an updated version of Disney's classic Autopia racing game, scheduled to open this summer. The government is reclaiming land on an adjoining site to expand the park further. But James Zoltak, editor of Amusement Business, a trade magazine for the theme-park industry, says Disney isn't moving quickly enough: it needs to "get on a crash course in terms of expansion. The rate of building it up has to be swifter than anything they've done at any of their parks."

While Ernest concedes that attendance is "a little behind" expectations, Disney is sticking to its target of 5.6 million guests in its first year. To hit these numbers, Disney is running aggressive promotions. Last month, the park offered free tickets for 50,000 Hong Kong taxi drivers, says Susan Chan, Hong Kong Disneyland's director of publicity, so they "can experience the Disney magic themselves [and] better share it with their passengers." And even if attendance lags for a while, Disney says the park is already benefiting its other businesses in Asia. Andy Bird, president of Walt Disney International, says there's been "a noticeable lift in our brand and character awareness" in China since the park's opening—for example, sales of Buzz Lightyear merchandise have jumped, in part because the character features in Disneyland's popular Astro Blasters ride. David Miller, an analyst at investment-banking firm Sanders Morris Harris in Los Angeles, agrees: "Hong Kong Disneyland has been a solid success in terms of opening up the brand in China."

Indeed, Disney continues to bet that its long-range investment plans in China will pay off, regardless of the recent headaches in Hong Kong. The firm is still in talks with Chinese officials about opening a mainland theme park, possibly in Shanghai, says Rasulo. "Have we made some mistakes?" he asks. "Absolutely. We are in a brand-new market. We have to keep listening and keep learning." Restoring Tinkerbell's health only requires a round of applause, but Hong Kong Disneyland will need a bit more work.


Jobs stake in Disney valued at $3.9B

Steve Jobs, the former chief executive of Pixar Animation Studios Inc., has received shares in The Walt Disney Co. worth $3.9 billion as part of Disney's acquisition of Pixar, according to a regulatory filing Monday.

Disney's purchase of Pixar for $7.4 billion in stock was completed Friday. Pixar shareholders received 2.3 shares of Disney stock in exchange for each of their shares.

That makes Jobs the single largest holder of Disney stock with 138 million shares, or 6.3 percent of outstanding stock.

Jobs was also named to Disney's board as a non-independent member.

Disney shares fell 32 cents to close at $28.77 Monday on the New York Stock Exchange. The stock has risen more than 20 percent so far this year.


Mouse website reaches Oz through Optus

The Walt Disney Internet Group is partnering with Australian broadband services provider Optus to launch its Disney Connections broadband site in the country this summer.

The arrival of Disney Connections in Australia in July marks the ninth country for the Mouse's broadband website, which features an array of interactive games and video content based on its various brands. The site is already live in countries including Argentina, Brazil, Mexico, the US, Spain and Japan.


Disney losing appetite for fast food

Marketing ties with McDonald's hit lean times

For 10 years Disney and McDonald's appeared to have a beautiful billion-dollar marriage. Happy Meals bore little figurines of Nemo, Mr. Incredible, and Peter Pan.

But no more. This is one relationship that's ending because of the children.

Disney is not renewing its billon-dollar, cross-promotional pact with the fast-food giant, which ends with this summer's release of Cars and Pirates of the Caribbean: Dead Man's Chest. The reason, in part, say multiple high-ranking sources, is the family-friendly entertainment giant wants to distance itself from fast food — and its links to the epidemic of childhood obesity.

Disney's not the only studio that thinks french fries loaded with trans fats may be too hot to handle.

DreamWorks is working with McDonald's to promote Shrek 3, due out in 2007. But according to one top-level studio source, there is already internal debate about whether the lovable green ogre should steer clear of chicken nuggets and Big Macs in favor of the healthier fare on McDonald's menu, such as salads. Compounding the issue is the fact that Shrek is, after all, overweight.

The ending of the McDonalds-Disney partnership comes at a time when the processed and fast food industries are under fire on a number of fronts because of growing concerns about childhood obesity. Just last week, former President Bill Clinton succeeded in yanking sugary sodas from elementary school campuses.

But some say the more discreet actions of the movie industry could ultimately have a much greater impact, especially if other corporate giants follow suit.

"I think it would have impact in contributing to the cultural change that is necessary," says Dr. J. Michael McGinnis, the chairman of a National Academy of Sciences panel that just released a study showing how food marketing affected children's diets. "The committee thought it was important for the use of cartoon characters that appeal to children only to be used in the marketing of healthy products."

One of the industry's most prominent critics, Fast Food Nation author Eric Schlosser, said it will be hugely significant if the Hollywood studios don't want to be associated with Happy Meals. "It will put more pressure on McDonald's to change what they sell in Happy Meals. The obesity issue would be irrelevant if the food in the Happy Meals was healthy."

This month Houghton Mifflin releases a new book by Schlosser and co-author Charles Wilson: Chew on This: Everything You Don't Want to Know About Fast Food, that has already put McDonald's on edge.

Animated ambivalence

Disney declined to comment about the end of its arrangement with McDonald's. The company has not signed any new promotional deals with any fast-food providers even though its recent purchase of Pixar Animation Studios gives it an even bigger slate of potential family-oriented blockbusters to market to youngsters.

In a conference call with analysts last August, Steve Jobs, the chairman of Pixar and now Disney's largest shareholder, was asked about the end of the McDonald's deal, and signaled the company's ambivalence about the fast-food sector: "There is value in [fast food tie-ins]. But there are also some concerns, as our society becomes more conscious of some of the implications of fast food."

Skipping the fast-food sector would certainly impact Disney's promotional strategy, says analyst Lowell Singer, from A.C. Cowen. "Fast food has been a very important promotional partner in promoting films to children. As the animated marketplace gets more competition over the next few years, Disney will need to be much more aggressive and creative in reaching children though other promotional outlets."

Restaurant analysts don't expect the Disney decision to affect McDonald's, which is free to work with other movie studios, as well as toy companies as disparate as Lego and Build-a-bear. In fact, while McDonald's relationship with the entertainment giant boasted hit promotions for such films as 101 Dalmatians, and Lilo and Stitch, some franchisees began to chafe when the studio churned out clunkers like Treasure Planet. The company also had to abide by Disney's strict rules regarding use of their characters, which were not allowed to be seen eating McDonald's food.

While even nutritionists caution that fast food isn't the only culprit when it comes to childhood obesity, it's certainly a factor.

Happy Meals are specifically marketed to children between the ages of 3 and 9. A regular six-piece Chicken McNugget Happy Meal with fries and Hi-C contains 620 calories, 28 grams of total fat, and 5 grams of trans fat. In recent years, McDonald's has also added healthy alternatives such as apples and low-fat milk.

All about the toy

At the end of the day, what often sells a Happy Meal is the toy, not the food. A good toy promotion can double or triple the sales of Happy Meals.

Blame impressionable young minds and "the `nag' factor," said Prof. Jerome Williams, an advertising expert at the University of Texas.

"Kids see a movie, and see it's being promoted with a particular product, they'll nag their parents about it," he said. "Studies have shown that, after a while, parents will give into their children. They're not so much expressing a preference for a Happy Meal but for the character the Happy Meal is associated with."

According to study released last month by the National Center for Health Statistics of the Center for Disease Control, 19 percent of children ages 6-11 are overweight, and 17 percent of teenagers are overweight.

Those figures may be conservative, said Prof. James O. Hill, director of the Center for Human Nutrition at the University of Colorado. He says the new governmental data suggests that as many as 40 percent of young children are overweight, and about 20 percent fall into the obese category.

But Disney isn't divorcing itself from McDonald's, either. The fast-food giant will continue to be a staple in the theme parks. They're also leaving open the possibility of McDonald's promotions geared towards adults.

"Our relationship was ongoing before the agreement and will continue after," said Dean Barrett, senior vice-president of global marketing for McDonald's.

Other factors contributed to the unraveling of the McDonald's-Disney alliance.

For its part, Disney grew disgruntled with some of McDonald's more recent advertising efforts, and had problems with the fast food giant's toy production schedule, according to a source. The studio had to lock down release dates at least 18 months ahead of time to accommodate McDonald's needs. If the studio moved the date, it had to pay a steep penalty to McDonald's.

Hollywood and fast food have been closely aligned since the 1980s, with almost every major film targeting children boasting a fast food tie-in of some sort.


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