Eisner’s Big Fiscal Adventure

Anaheim’s newest theme park is Disney’s California Adventure, but Michael Eisner’s Fantasy Resort might be more fitting.

In August 1995, the Walt Disney Co. chief executive penciled in phrases such as “California at Play,” “Beach,” “La Brea Tar Pits” and “Hollywood” during a three-day brainstorming session of Disney executives in Aspen, Colo. Since then, the $1.4-billion theme park has carried his imprint everywhere as it rises in Disneyland’s former parking lot.

The sunny colors? Eisner chose them. An acre devoted to farming? Eisner’s idea. The slope of the water rafting ride? Eisner ordered it scarier. The Craftsman-style drapes and wallpaper in the new 750-room Grand Californian Hotel? Eisner’s choice. The location of pegs where hotel guests will hang their coats? Don’t ask.

Even parking garages carry his touch. Having shepherded the new $90-million, 10,000-car garage that even a finicky parker like himself would love, Eisner is now an expert on the subject. He’ll wax on about how garages should be landscaped, what an individual space should cost and how a Disney garage in Burbank is the happiest place on Earth to park.

“I’ve spent hours on the parking garage because I hate those things,” he says.

Eisner is certain what people want in a theme park and will obsessively tweak until he gets it. That’s because the least sexy business in Disney’s vast entertainment portfolio most consistently reaps huge profits. So he frets over whether people stay an extra night at a Disney hotel, fork over $28 for a T-shirt and spend $10 on a sandwich. In short, he doesn’t want to blow it.

The Disney chief has dispatched a team of publicists to meet with the media and investors in New York beginning today, unveiling the company’s latest expansion. The new park will open Feb. 8.

For Eisner, California Adventure offers a challenge Disney hasn’t always met: Can the company build a popular theme park without busting a budget? In the past, the company has spared few expenses. Eisner estimates that by the time Disneyland Paris opened in 1992, he had overspent to the tune of $1 billion, in part to imitate the lush look of European gardens and palaces.

Now, stricter corporate financial controls aim to prevent such lavishness. If Disney pulls off California Adventure and creates another successful park, it will prove that financial discipline can coexist with theme park creativity.

What if it falls flat? Disney risks not only a financial headache but tarnishing its image in a business it has ruled supreme for 45 years. Accusations of cutting corners where it once spared no expense will prompt cries that Walt’s legacy is in tatters.

Despite being 60% the size of Disneyland, California Adventure is expected to charge the same admission prices, already a steep $41 for adults. If Disney miscalculates and the park proves a bust, Wall Street and investors will also be quick to punish, as they did during the rocky start of Disneyland Paris.

Haunted by Ghost of Coney Island

To be sure, it isn’t just theme parks that worry Eisner. Since he was first hired to run Disney in 1984, Eisner has had a reputation for tinkering with the smallest of details.

He brings his personal point of view to movies, TV shows, merchandise, theme parks and, especially, the architectural style of company buildings. He nixes jokes in movies that he finds unfunny and surfs the Internet anonymously to see what people in chat rooms are saying about Disney. Last year’s “Fantasia 2000” featured “Pomp & Circumstance” because Eisner liked the piece after it was played at the high school graduation of one of his sons. His criterion for the park rides is whether his wife, Jane, 58, enjoys them.

“I want my wife, the mother of my children, to be able to go on a ride,” says Eisner, who is also 58.

But driving his scrutiny of Disney’s theme parks is something relatively foreign to the Disney chief: fear. Lurking in his mind, he says, is the ghost of the once-grand Coney Island amusement park in his native New York.

“Coney Island is gone, and it was the biggest thing in the world. It’s a good lesson,” he says.

To get the point across to his executives, Eisner sends them videotapes of a 1991 Ric Burns documentary detailing Coney Island’s demise. Once the nation’s grandest amusement park, Coney Island suffered from neglect after World War II as the surrounding neighborhood deteriorated.

“I’m paranoid about our customers exceeding their expectations every time out,” Eisner says. “I keep looking at that Coney Island footage. You can screw it up if you’re not really good. You get too tacky, you get too greedy.”

Disney’s parks are light-years from becoming decaying Coney Islands. Nonetheless, Eisner’s worries underscore the constant pressure he is under to protect Disney’s lucrative theme park franchise that started when Walt Disney opened Disneyland in 1955. Like Eisner, Disney obsessed over details, taking his daughters to amusement parks after Sunday church as research. In the end, the company spent $17 million to open Disneyland, a little more than 1% of the cost of California Adventure.

“We practically spend on a bathroom what Walt spent on all of Disneyland,” Eisner says.

Today’s Disney is a more diverse collection of entertainment enterprises--a movie studio, the ABC network, cable channels such as ESPN and sports franchises such as the Anaheim Angels--than in Walt’s day. But while those divisions have big ups and downs, it’s theme parks that year after year consistently mint the most money. Parks account for roughly $4 out of every $10 of Disney’s operating profit.

Which is why Disney has spent a fortune--an average of $1.7 billion a year over the last five years upgrading its seven existing theme parks and investing in four new ones. With construction on California Adventure ending, that spending will taper off to about $700 million a year for routine upkeep.

That income is critical for Disney because it also helps buy time to fix two lingering problems: sagging sales of Disney merchandise, especially in its Disney Stores, and a softening of its video business.

“The theme parks have got to fire on most cylinders, if not all cylinders,” says Prudential Securities analyst Katherine Styponias.

Eisner’s overall strategy is simple: Open a batch of new parks worldwide, keep a tight lid on costs and get people to stay longer and spend more money, especially on high-profit food and Disney merchandise.

Disney soon will open second parks in both France and Japan and a new park in Hong Kong. The big payoff comes in 2002, when Disney’s expanded theme park machine is expected to start pumping out an extra $1 billion.

“There were a lot of people all over the place who said we were doing too much,” Eisner says. “We built billions and billions of dollars’ worth of attractions. It’s all paid off.”

In the early 1990s, Disney’s theme parks hit a bump caused by recession, the Northridge earthquake, the Los Angeles riots and a highly publicized crime spree against Florida tourists. That prompted strict belt-tightening and streamlining of the division to boost profit. Now, the combination of more financial discipline with expansion of the parks is paying off for Disney.

Still, there are clouds, the largest being the economy. Disney theme parks have flourished while riding the long economic boom. But they also remain highly vulnerable to any downturn. Even a continuing rise in fuel prices might cause families to tighten their travel and entertainment budgets.

Eisner Keeps Up With Every Detail

When he came to the company in 1984, Eisner spent days walking around the company’s parks because they were foreign to him. All he knew about theme parks, he says, is “you had to stand in line.”

Now he can’t get enough of them. Wearing a blood-red construction helmet with “Michael” emblazoned in gold across the front, Eisner inspects the new park monthly. He inundates his executives with a barrage of e-mails about parking and every other little thing at California Adventure.

Shortly before a recent interview, theme park chief Paul Pressler received yet another e-mail suggestion from Eisner. He wouldn’t say what it was, except to let on that he wasn’t that crazy about the suggestion. Nonetheless, Pressler and other Disney executives say they welcome Eisner’s input, arguing that his instincts are often on the mark.

“Michael is the chief creative gut,” says Disney Chief Financial Officer Thomas Staggs.

One idea that has obsessed Eisner is to build a theme park devoted to the workplace. Why? Because since he was a boy, Eisner has been enamored with factories.

“I remember going to see my grandfather’s razor company, going to Corning Glass or Hershey, Pa., or Lawry’s here in Los Angeles where they make the salt and pepper. Or going to a farm in Wisconsin or Vermont and seeing how they milk 500 cows in 20 minutes. The workplace is a really entertaining and interesting thing,” he says.

So Disney’s California Adventure will include mini-factories showing people making tortillas, bread and wine--sponsored by Mission Foods, Andre-Boudin Bakeries and Robert Mondavi.

Another section, Paradise Pier, is being built to look like a seaside amusement park.

That idea first appeared as the word “POP,” which Eisner scribbled on his pad during the last of three days of meetings in Aspen, referring to the defunct “Pacific Ocean Park” in Santa Monica. Eisner says he has always been enamored with old-fashioned amusement parks. By his own count, he visited the 1964 New York World’s Fair 40 times.

Ironically, Walt Disney disdained these same local amusement parks, believing they were seedy.

Eisner recalls his first visit to Disneyland as a tourist in 1967. His main recollection is getting stuck in a traffic jam after leaving, a problem he hopes to alleviate by a freeway overhaul negotiated with public officials in anticipation of the new park’s opening.

His vision for Disney’s California Adventure took shape at the 1995 Aspen meeting called to decide what to do about Disney’s “Anaheim problem.” Eisner had pulled the plug on a previous idea there, Westcot, patterned after the company’s part-multicultural, part-futuristic Epcot park in Florida. Westcot park would have been too expensive, Eisner says now, and also little more than an Epcot clone.

After organizing three dozen executives into competitive teams, Eisner, his German shepherd “Cadillac” at his side, listened to a day’s worth of pitches. Still stuck in his mind was the ego-bruising battle over “Disney’s America.” The company dropped the proposed historical theme park in Virginia in 1994 following intense local opposition.

So Eisner shifted the idea to “Disney’s California” as a theme park. “There are a lot of parallels between California and America,” he says, such as immigration and people seeking to fulfill their dreams.

For his part, Eisner insists he’s not the sole creator of the park but rather likens his job to that of an editor who picks the best suggestions offered.

“We sit there like sponges and have everyone come to us and say, ‘Red, green, pink, orange, yellow.’ And we say, ‘Oh, I like blue and I like pink. Let’s do that,’ ” he says.

But it’s green that’s most often on his mind.

Prompted largely by two straight years of disappointing corporate earnings in 1998 and 1999, along with a lagging stock price that only recently recovered, Disney CFO Staggs now makes Disney division heads jump through hoops to justify corporate spending.

Staggs insists on double-digit returns on Disney’s capital, going as far as billing each division interest on the capital it consumes just as he would bill it for new bricks or tiles. As the biggest spender of Disney’s funds, the theme park group is affected the most.

“Tom has raised the bar pretty high,” Pressler says.

Staggs says that the discipline has helped the new park come to within $20 million of its budget, a “spitting distance.”

Analysts expect California Adventure to generate about $200 million in operating income by 2002. Last year, Disney’s entire operating income was $3.2 billion, with $1.4 billion of that coming from its seven existing theme parks.

Disney’s highly favorable international theme park deals will help. Going forward, the company won’t be risking as much of its own money. Disney is spending only about $450 million combined on new parks in Europe, Japan and Hong Kong. Foreign companies and governments will shoulder much of the construction costs, yet Disney will enjoy lucrative royalty and management fees from those parks, including $200 million annually from Japan alone. In an especially prudent investment, Disney is paying just $300 million for a 43% stake in the $4-billion Hong Kong park.

Disney Has Its Eye on Overseas Expansion

Theme parks are booming overseas and Disney aims to be the leader through a strategy Pressler describes as “planting the flag” in virgin Disney territories. Within the next decade or two, Disney is considering opening theme parks in Latin America, Eastern Europe and India and another in China. At the same time, the company aims to use as little of its own money as possible and keep a tight lid on costs.

Still, all of the financial considerations that go into building a Disney theme park only go so far as long as Eisner is in charge. As any executive who works for him knows, an idea that pops into his head in the morning and makes its way into an e-mail before lunch can result in new plans being drawn up by afternoon.

California Adventure, one of Eisner’s ideas was to have a relatively inexpensive 1-acre farming exhibit with two Caterpillar tractors in a yard, a water area for kids to play in and a farmers market.

But as the exhibit was being built, it occurred to Eisner that bugs and farms were a good mix. So he suggested to Pressler that they import a popular 3-D “A Bug’s Life” show from Florida and plop it down next to the farm exhibit.

“I know you can’t afford it,” Pressler recalls Eisner telling him. “But we need to do bugs on the farm.”

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Mr. Eisner’s Wild Ride

Since its genesis in 1995, Disney’s California Adventure has borne Disney CEO Michael Eisner’s imprint. Among the touches:

Eisner’s lifelong fascination with how companies manufacture things led to an exhibit on farming. He also ordered a 3-D “A Bug’s Life” film imported from Florida.

Eisner didn’t think the rafting ride on Grizzly Peak was scary enough, so he ordered it changed to feel more treacherous.

Disney’s Grand Californian Hotel includes numerous Eisner touches, from wallpaper and drapes to the location of pegs where coats are hung.

Eisner spent hours planning the 10,000-car parking garage because, he says, “I hate those things.”

Paradise Pier, a boardwalk-style amusement park, reflects Eisner’s fascination with old-fashioned amusement parks such as New York’s Coney Island and New Jersey’s Palisades Park.Sources: Times research, Disney Co.