Cruise News posted on Mon, 01/05/1998 - 11:18

Phase Three of our company's history has really just begun, and our

reach is already truly amazing. Consider the week of November 2-8 in the

United States. During these seven days, 34.2 million people watched

"The Wonderful World of Disney," 3.3 million people turned on "One

Saturday Morning," 3.6 million subscribers viewed The Disney Channel,

2.8 million listened to Radio Disney, 793,000 visited Disney theme parks,

810,000 made a purchase at a Disney Store and nine million copies of

"Beauty & the Beast: The Enchanted Christmas" were shipped to video stores

across the country.

And so it is that Phase Three puts our core Disney business in

remarkably healthy condition. Access to our audience is assured. We are

forging ahead with an array of new initiatives, such as the Disney Cruise

Line and Disney's Animal Kingdom, which will both launch (in the case of

the Cruise line, we mean this literally) in late April. Also in April, we

will unveil Toon Disney, a 24-hour basic cable channel featuring all-

Disney cartoons, as well as the new Tomorrowland at Disneyland. In the

summer, the first DisneyQuest, which is something of a theme park in a

building (a very large building), will open its doors. During the year,

we will also open our third through sixth Disney Clubs, allowing more

parents and their children to spend quality time in these unique play

sites. In 1998, we will release two new feature animated films

"A Bug's Life," coming from our partners at Pixar, the people who brought

us "Toy Story" (they're also working on a "Toy Story" sequel for 1999) and

"Mulan," the story of a brave young girl in ancient China. By the way,

last night at the Cineplex Odeon Theatre in Marina del Rey, California,

the first public preview of this new animated film was held. With only

40% in color, it was the highest testing animated film at this stage that

we've had in the last ten years. (I couldn't resist mentioning this.)

We will be releasing two new made-for-video animated films -- sequels

to "Pocahontas" and "The Lion King." In the very recent and very

successful tradition of major Disney live action event movies (i.e.,

"The Santa Clause," "101 Dalmatians," "George of the Jungle" and

"Flubber"), we will open "Mighty Joe Young" in July. It has the potential

to be the most successful release yet. Further down the road, there will

be our second theme park in Anaheim, Disney's California Adventure, our

second theme park in Japan, Tokyo DisneySea, and a wealth of other

projects I am not allowed to talk about yet.

One of the advantages of Phase Three is that, while Disney may

continue to be our number-one brand, it is no longer our only brand. In

addition to Touchstone, Hollywood, Miramax, Hyperion Books, Mammoth

Records, Lyric Street Records, the Anaheim Angels and the Mighty Ducks, we

now also have the ABC Network, ABC News, ABC Sports, ESPN, major ownership

in A&E, The History Channel, Lifetime Television and the E! channel

helping to make us a true family of entertainment brands. By the way,

synergy works both ways. Just as our company is enhanced overall by these

new brands, these brands benefit from being part of our company.

Certainly, ABC enjoys the values of Touchstone Television, which produces,

for instance, "Home Improvement"; it also gets the benefit of Touchstone,

Hollywood and Miramax, movies that eventually go on an ABC movie night;

and it benefits from the strength of the Disney company around the world

to help sell its programs globally. In addition, the American audience

knows that if they want Disney on broadcast television, they can find it

on ABC.

It is true that since we purchased ABC, the network has dropped in

prime-time ratings. This is certainly not what we would have preferred,

but I got my start in the television business and learned long ago that,

when it comes to prime-time ratings, what goes up always comes down

again... before it goes back up. Actually once we get it back up, we will

try to change that adage. What goes up can stay up... look at CBS from

1956 to 1970. However, it is important to know that ABC isn't just prime

time. Hardly. For example, ABC dominates daytime, where it has held the

number-one position in the all-important 18-to-49 demographic for two

decades. ABC-owned stations continue to enjoy the best profit margins in

the business. ABC local news shows lead in most markets. ABC radio

stations and networks are consistent ratings winners. In other words, in

the less volatile areas of the broadcast business, ABC is dominant. Prime

time continues to be cyclical, and the bad news is that we haven't broken

out of our down cycle. The good news: There's tremendous upside when it

happens (and happen it will). The ABC Network represents 8 percent of the

ABC corporate profits. I consider that small while they are doing badly

and will consider it large when ABC turns it around.

Among our other brands, A&E, The History Channel, E! Entertainment and

Lifetime are outstanding cable networks that are getting better and more

popular every year. That leaves us with ESPN, which was practically worth

the cost of the acquisition by itself. Okay, okay, I'm stretching the

meaning of the word "practically." But, ESPN is an exceptionally valuable

brand that resonates with consumers. Just as Disney means "family" to

families, ESPN means "sports" to sports fans. Consequently, as with

Disney, it is a brand that we can expand and enhance. And we are. In

1997, we opened the first ESPN Store at the same Glendale, California mall

where we opened the first Disney Store in 1987. In 1998, we will open the

first ESPN Zone in Baltimore, just a short walk from Camden Yards. This

will be a restaurant that is much more than a restaurant, featuring luxury

box-style eating areas, an ESPN broadcast booth, massive viewing screens

featuring ESPN sports feeds and a giant sports entertainment center that

should get armchair quarterbacks out of their armchairs. And, when fans

enter the ESPN Zone, no doubt under their arms they'll have a copy of

"ESPN Magazine," which will begin hitting newsstands this spring. As with

the Disney brand, we expect that these initiatives will lead to another

and another. ESPN has already led to ESPN 2, which led to ESPN News,

which led to the acquisition of Classic Sports. Indeed, it may turn out

that ESPN will be worth the cost of the acquisition in itself.

Lest I paint too rosy a picture, let me take a moment to address a

downside to the recent history of our company. Phases Two and Three have

ushered in an era of tremendous success. But as we have become

increasingly successful, we have also increasingly become a target for

groups that want to leverage our strength with the public for their own

ends, trade on our popularity if you will. I am not denying that some of

their issues are valid some of the time nor suggesting that we are better

than everyone else, but the fact is that these groups keep bringing their

issues forward by focusing on Disney because it is more effective than

citing one of our competitors. The issues they criticize us for mostly

surround some of our non-Disney-branded films and our non-Disney

television shows. It reminds me of the experience I sometimes have when I

go to one of our movies with my wife Jane. Halfway through the movie, she

will whisper to me, "How could you make this horrible thing?" I have

probably had this conversation with her 20 times over 30 years. Each time

I give her the same answer. "Jane," I say, "we just wanted to make the

worst, most boring movie we could. We set out to do that. We hired the

worst, most irresponsible director we could find. And we just let him do

whatever he wanted to do!!!!!" She looks at me, and smiles. She then

repeats the question on the way home. Of course, the truth is that we

don't want to make bad movies or television shows or publish bad books,

but when you are trying to break ground creatively, you do sometimes fall

short. That's risk, and we try to manage it well. In order to achieve a

creative triumph like "The Lion King" on Broadway, one must endure other

creative efforts that don't achieve their aspirations. To our critics, I

can only say that I regret when we fall short.

That addresses the issue of quality. But let me also say something

about "subject matter." In each of our divisions... Disney and non-

Disney, we seek to be in business with the best and most creative talent

we can find.

We then try to give them freedom to do their best work. We try not to

censor them and I will always defend the right of the talented artists who

work for us to push the limits of their imagination. We are all fortunate

to be in a country that protects out right to free expression. We will

not let a mayor, or a congressman, or a senator, or a particular interest

group or even a President attempt to control our content. At the same

time, we will not hide behind the protection of the First Amendment.

We are editors, and we accept responsibility for the products we produce.

If we sometimes make choices with which others disagree, it is not because

we have failed to look hard at our decisions. Sometimes we will make the

wrong choice. Hopefully we will more often make the right choice, but

either way we will always make these choices carefully and responsibly and

always within the context of each brand's audience. And rest assured that

when we fail, the first call I will get is from my family, or the larger

Disney family.

In a way, our critics are paying us the supreme compliment. What

they're basically saying is that they hold Disney to a higher standard.

And on this we can agree. We do try to hold ourselves to a higher