Magic restored

Under its new boss Disney has staged an impressive creative turnaround—and is making synergy work

IN “RATATOUILLE”, the most recent animated film from Pixar, a film studio owned by Disney, a talented cook named Remy, who happens to be a rat, finds his way into the kitchen of a once-great restaurant. Its head chef has given up on creativity and instead plans to churn out ready meals branded with the name of the restaurant's revered founder, Auguste Gusteau. Eventually the chef loses control of the restaurant, the frozen meals are tossed out and Remy's cooking helps it regain its reputation and inventive flair.

Something similar appears to have happened at Disney. Four years ago it was in turmoil, with its then chief executive, Michael Eisner, under siege from shareholders who accused him of stifling the firm's creative culture. Today under Bob Iger, who took over as chief executive in 2005, Disney is enjoying a remarkable and profitable run of hit TV programmes and films. “Disney's creative momentum is so strong now that there's no comparison between it and other big media companies,” says Lawrence Haverty, a fund manager at Gabelli Asset Management.

In the past Disney concentrated mainly on the very young, but in recent years it has found a new audience among “tweens”, or nine- to 14-year-olds. In 2006 the Disney Channel in America started showing “Hannah Montana”, a TV series about an ordinary girl with a double life as a rock star, and broadcast “High School Musical”, a television film about a romance between two pupils from different cliques at school. Both turned into huge hits with staying power: in fiscal 2006 and 2007 combined, Disney made over $100m of operating profit from “High School Musical” and various spin-off products. Coming soon is “Camp Rock” a Disney Channel film starring the Jonas Brothers, a wholesome boy-band which has already sold over a million CDs for Hollywood Records, Disney's recorded-music label.

At the same time Disney's broadcast-TV network, ABC, is benefiting from a number of hits, such as “Desperate Housewives”, “Lost” and “Ugly Betty”. Disney has also improved the fortunes of its film business, which earned $1.2 billion in operating profit last year, up from $200m in 2005. Some of the increase came from the firm's acquisition of Pixar for $7.4 billion in 2006, but the performance of Disney's live-action films, such as “Enchanted”, drove most of the improvement. On April 8th Disney laid out ambitious plans for ten new animated films in the next four years.

What accounts for this renaissance? Mr Iger's management style is said by many to have unlocked Disney's creativity. “There was already creativity inside Disney, but Bob removed the barriers to it,” says Peter Chernin, chief operating officer of News Corporation, a rival media group. “Michael Eisner was all about his own creativity,” says Stanley Gold, a former Disney board director who led a campaign to oust Mr Eisner in 2004, referring to the way in which the former boss meddled in the detail of Disney's parks and movies. In contrast, he says, “Bob pushes creative decisions to the people below him.”

In addition, Mr Iger's acquisition of Pixar, a studio that insists on creative originality, has sent a signal to people inside and outside Disney. “A few years ago we weren't necessarily seen by the creative community as the place to be,” says Tom Staggs, Disney's chief financial officer, “but now that has changed and people want to work here.” Mr Iger immediately put Pixar's top people in charge of Disney's animation business, and last year he put an end to the practice of making cheap direct-to-video sequels of old favourites, such as “Cinderella II: Dreams Come True”—Disney's equivalent of frozen food.

Before Mr Iger took over, says Mr Staggs, Disney had a factory-like process for animation in which a business-development team came up with ideas and allocated directors to them. “With the arrival of the Pixar leadership, Disney has adopted the director-driven development and production approach that Pixar has used so successfully,” he says. The full proof of Pixar's impact on Disney's animation will be seen in November when the firm releases “Bolt”, the first film developed entirely under the new bosses. To be sure, Mr Iger paid a high price for Pixar, and box-office revenue in America for the studio's films has declined with each release since “Finding Nemo” in 2003, points out Ben Swinburne of Morgan Stanley. Pixar's next film is “WALL-E”, about the adventures of a robot in the year 2700, which will open in American cinemas in July.

One former Mouseketeer argues that Mr Iger cannot take much credit for Disney's recent string of hits. “All the great new shows from Disney were developed, and many of them launched, when Michael Eisner was leading the company,” says David Hulbert, a former president of Walt Disney Television International. “The TV and studio creative cycle lasts several years, so we will have to wait some time yet to see what Bob Iger's cautious, centralised and consensual management style produces,” he adds. Disney executives counter that Mr Eisner had made Mr Iger responsible for ABC, the Disney Channel and ESPN, its sports network.

What is certain is that under Mr Iger, Disney has perfected the art of media synergy. The firm has turned “High School Musical”, for instance, into a live concert tour, a stage musical, a show on ice, and a series of books and video games. Pixar's “Cars” may have slightly disappointed at the box office, but Disney sold 100m model vehicles on the back of it, plans to build a “Cars Land” attraction in its California Adventure theme park and is developing an online virtual world tie-in.

Disney now has ten “franchises” that it treats in this way, from Mickey Mouse to Disney Fairies. Every media conglomerate pursued synergy some years ago, but Disney is the only one to have made it work consistently across the whole company. It helps, of course, that so many of its customers are children, who tend to be more receptive to spin-off products than adults.

Mr Eisner certainly pushed synergy hard, but Mr Iger's collaborative management style is better suited to it, insiders say. In Britain, says a Disney executive based in London, the firm's programme-sales group worked hard to sell “High School Musical” to the BBC, even though it contributed relatively little to their own division's bottom line, because exposure on free-to-air TV then bolstered sales of “High School Musical” DVDs, pencil cases and other products. “A few years ago they wouldn't have bothered,” says the executive, “but now the key properties are so drummed into us that everyone is behind them.”

Not everything is perfect in the Magic Kingdom. Investors worry about the impact of a recession on Disney's theme parks, which accounted for just over a quarter of the firm's revenues in the first fiscal quarter of this year. Mainly for that reason, the firm's share price has fallen by 14% in the past year. Disney says that its American parks are more resilient during slowdowns than those of its rivals. Like its peers, Disney still earns most money from traditional media, and needs to expand its businesses online. But its creative momentum and proven ability to extract value from its hits means it can afford to feel more optimistic about the future than most big media firms.