WHY DISNEY ONCE ALMOST WENT BANKRUPT
Today, Disney looks almost impossible to destroy.
Mickey Mouse.
Marvel.
Pixar.
Star Wars.
Theme parks.
But in the early 1980s, Disney was in serious trouble.
It wasn't literally bankrupt.
But the company was vulnerable enough that investors believed its assets could be worth more if Disney were broken apart and sold.
DISNEY HAD LOST ITS WAY
After Walt Disney died in 1966, the company became increasingly conservative.
Its movie business was struggling.
Disney had fallen behind competitors like:
George Lucas
Steven Spielberg
Other major Hollywood studios
The company was also failing to capture the growing teenage and adult movie market.
At the same time, Disney's stock was considered undervalued compared with the value of its assets.
BUT DISNEY HAD SOMETHING VERY VALUABLE
Even while the company struggled creatively, it owned incredible assets.
Disneyland
Walt Disney World
EPCOT
Tokyo Disneyland
A huge film library
Characters and licensing rights
The problem was that Disney wasn't exploiting these assets aggressively enough.
That attracted Wall Street investors.
THEN THE CORPORATE RAIDERS ARRIVED
In 1984, two investors targeted Disney:
Saul Steinberg
and
Irwin Jacobs
Steinberg's group launched a takeover offer worth roughly $1.4 billion for 49% of Disney's stock, with plans that could eventually have led to taking control of the company.
Their strategy was essentially:
Buy Disney
↓
Unlock the value of its assets
↓
Sell or restructure parts of the company
The threat was real.
DISNEY STARTED FIGHTING BACK
Disney needed money and financial flexibility to defend itself.
In March 1984, the company was reportedly negotiating to increase its bank credit line from $400 million to $1.3 billion.
Wall Street interpreted the move as Disney building a financial war chest against a takeover.
Disney was fighting for control of its own future.
THEN DISNEY MADE A DESPERATE MOVE
Disney eventually bought back Steinberg's roughly 11% stake for about $328 million.
It was a classic Wall Street tactic known as:
Greenmail.
The company essentially paid a raider a premium to go away.
Steinberg reportedly made tens of millions from the transaction.
But Disney had bought itself time.
It hadn't fixed the underlying problem.
THE BIGGER PROBLEM WAS MANAGEMENT
Disney's leadership had become increasingly criticized.
Even people inside the Disney family were unhappy.
Roy E. Disney, Walt Disney's nephew, became an important voice against the existing management.
The company needed a different direction.
And eventually, the board replaced CEO Ron Miller.
THEN MICHAEL EISNER ARRIVED
In September 1984, Disney brought in:
Michael Eisner
as chairman and CEO,
and
Frank Wells
as president and COO.
This became the beginning of one of the biggest transformations in Disney's history.
EISNER DIDN'T SELL DISNEY
He did almost the opposite.
He looked at Disney's existing assets and asked:
“How can we make these assets produce much more money?”
Movies.
Television.
Merchandising.
Theme parks.
Licensing.
The company had the ingredients.
It needed a new strategy.
THE MOVIE BUSINESS CHANGED
Disney created Touchstone Pictures to release films aimed at older audiences without putting the Disney name directly on them.
The first Touchstone movie was:
Splash
released in 1984.
It became a major success.
THEN TELEVISION BECAME IMPORTANT
Disney had historically been cautious about television.
Under Eisner and Wells, that changed.
Disney expanded its television presence and launched successful programming, including:
The Golden Girls
The company also began using its enormous film library more aggressively through syndication and home video.
THEN THE THEME PARKS EXPANDED
Disney also started exploiting its parks more aggressively.
New hotels.
New attractions.
New experiences.
New parks and partnerships.
The company wasn't simply relying on people coming to see Mickey Mouse.
It was building an entire ecosystem around the Disney brand.
AND THAT'S WHY THE STORY IS SO INTERESTING
Disney's problem wasn't that it had nothing.
It had too much valuable stuff that wasn't being fully monetized.
Its film library was valuable.
Its characters were valuable.
Its parks were valuable.
Its brand was valuable.
But the company wasn't turning those assets into enough growth.
IT WASN'T REALLY A BANKRUPTCY STORY
This distinction matters.
Disney did not actually file for bankruptcy in the early 1980s.
It remained profitable, helped by theme parks, licensing and re-releases of classic films.
The danger was that the company had become vulnerable to a takeover and breakup because investors believed its underlying assets were worth much more than the market valued the company.
That's arguably even more interesting.
Disney didn't need to disappear.
It needed to change.
THE TURNAROUND
The sequence was basically:
Stagnant Disney
↓
Undervalued stock
↓
Corporate raiders attack
↓
Disney fights takeover
↓
Ron Miller leaves
↓
Michael Eisner arrives
↓
Touchstone
↓
More television
↓
More merchandising
↓
More aggressive theme-park expansion
↓
Disney Renaissance
THE BUSINESS LESSON
A company can own incredible assets and still perform badly.
The assets aren't always the problem.
Sometimes the problem is:
How they're being used.
Disney already had the characters.
Already had the parks.
Already had the movies.
Already had the brand.
What changed was the management strategy.
SIMPLE IDEA
Disney wasn't saved by inventing Mickey Mouse.
It was saved by realizing that Mickey Mouse could be:
A movie character
A merchandise product
A theme-park attraction
A television character
A licensing business
A global brand
One asset.
Multiple revenue streams.
MAACAT PERSPECTIVE
One of the most valuable things a company can own isn't always cash.
It can be:
An audience.
Disney had generations of people who already knew and trusted its characters.
The turnaround came from finding more ways to monetize that relationship.
Sometimes the business doesn't need a new asset.
It needs a new way to use the assets it already owns.
