Eisner Faces Difficult Year at Disney


LOS ANGELES, March 16 -- When Michael D. Eisner takes the stage at the Walt Disney Company's annual meeting in Denver on Wednesday, the most notable thing for many people in the audience may be that he is there at all.

Last fall, after years of a steadily underperforming stock price for Disney, Mr. Eisner successfully fended off a boardroom coup and bested his chief critic and fellow board member, Stanley P. Gold, investment adviser to the family of Roy E. Disney, Walt Disney's nephew. And yet, on the eve of Mr. Eisner's 19th annual meeting as Disney's chief executive, analysts and media executives predict that the coming year will be no less challenging for him.

Although the ailing ABC network surged to No. 2 last November from its previous fourth-place prime-time ranking among 18-to-49-year-old viewers, that momentum seems to be waning. ABC is now tied for No. 3, putting pressure on Mr. Eisner to prove that last fall's resurgence was no fluke.

Mr. Eisner, who declined to comment for this article, faces challenges in other divisions, too. Disney's movie arm, which was forced to write off the cost of two major flops last year -- "Treasure Planet" and "Bad Company" -- is bracing for a tough negotiation with its partner Pixar Animation Studios. The current contract with Pixar, with which Disney has shared in the success of hit films like "Toy Story" and "Monsters, Inc.," frees Pixar in April to seek a new partner. Disney is also haggling with Harvey Weinstein, the co-founder of Miramax, which is owned by Disney and which has received 40 Oscar nominations this year, over how to calculate profits.

And despite gains last quarter in attendance at Disney's American theme parks, the threat of a United States-led war with Iraq has analysts and Disney executives nervous about the prospects for a much-needed boom in tourism -- so much so that Merrill Lynch and Lehman Brothers lowered their earnings estimates for the company last week.

Factor in the general economic uncertainty, and investors seem to be barely noticing Disney bright spots like the Lizzie McGuire television show franchise or the hot-selling Disney Princess line of dolls. Since last year's annual meeting, the stock has fallen 31 percent to close at $16.42 on Friday, not far from the seven-year low it reached in August when the rumblings of a boardroom coup began.

"ABC bought them a little time," according to Tom Wolzien, an analyst at Sanford C. Bernstein & Company. Beyond that, he said, "it's an issue of the war and the economy."

How much additional time investors are willing to grant Disney and Mr. Eisner is anybody's guess. Media investors may be focused more just now on Disney's troubled peers, including Vivendi Universal and AOL Time Warner, both of which ran into trouble through big acquisitions and are considering the sale of assets.

Disney is considering sales of its own, including the Anaheim Angels, which won the World Series last year. Also potentially on the block are some of the patents and technology that Disney acquired when it bought the Internet search engine provider Infoseek in the late 1990's. Disney merged Infoseek into its Internet operation, Go.com, which it scaled back after the dot-com bust.

Recent changes to Disney's corporate structure have helped muzzle some of Mr. Eisner's stronger critics. Mr. Gold, who was demanding that Mr. Eisner settle on a succession plan, was stripped of crucial posts, including his job as chairman of the influential governance and nominating committee.

Nominally, the changes were made because Mr. Gold's status as investment adviser to Roy Disney, who is also a director, raised appearance problems that the company wants to avoid as corporate boards have come under new scrutiny.

But two people who attended board meetings said that Mr. Gold had been rebuked by Mr. Eisner and other directors for making his complaints public instead of bringing them up in private meetings.

One of the people who attended the board meetings said of the showdown between Mr. Gold and Mr. Eisner, "Basically it was a great contest."

"In this situation," the person said, "Michael was totally focused on fighting for survival while Stanley had a lot of other things going on. He who concentrates wins."

Mr. Gold declined to comment.

Another director, Andrea Van de Kamp, was asked to leave the board as the company moved to trim its ranks -- a decision those two people said she resisted because she saw it as Mr. Eisner's payback for her having sided with Mr. Gold.

In an interview Ms. Van de Kamp declined to discuss her term on the Disney board, which ends on Wednesday.

"Any disagreement I had, I did it with the people who needed to hear it," she said.

Although Disney executives say the turmoil was an unnecessary distraction, some investors, analysts and board members say the upheaval was a much-needed wake-up call for Mr. Eisner.

Sarah Teslik, the executive director of the Council of Institutional Investors, a Washington advisory group for big shareholders, said Mr. Eisner visited her last fall, the first time she could recall him seeking her counsel.

During the 45-minute meeting, Mr. Eisner "went one by one through his directors explaining why each was good," Ms. Teslik recalled. "I think it was uncomfortable for him."

She said she told him he should appoint a first-class chief financial officer to the board and gave him some names of executives who might be interested. (The one new board member that Disney has named since the fall, Robert Matschullat, a former Wall Street banker, was not on her list.)

"I think I did compliment him for coming," Ms. Teslik said. But, she added, "it was clear his job was on the line."

Some directors say they are heartened by the changes, even if Mr. Eisner remains a dominant presence in the boardroom. "Stanley is beginning to raise new issues in the board meetings," one director said. And Mr. Eisner "is going through an evolution, too," the director said, citing his new habit of keeping board members more up to date by e-mail.

Another board member applauded the new policy of having two meetings a year without Mr. Eisner present, and with the director George J. Mitchell, the former United States senator, presiding.

"When you had a board meeting without Michael it was very different," said the director, who expressed optimism about the more prominent role for Mr. Mitchell. "If he can negotiate peace in Ireland," the director said, "he can handle this group."