My analysis so far, No major improvements planned for the theme parks. It looks like they plan on watching their capital investments yield results.
Let me know what you think
TO FELLOW DISNEY OWNERS AND CAST MEMBERS:
Like other fiscal years, 2001 was a year of many high points and many challenges. But all of it pales in significance in light of one date on the calendar -- September 11, when those terrifying images of America under attack were seared into our collective consciousness. It was a day of unspeakable horror. It was a day that changed everything and nothing -- ``everything'' the way an earthquake never leaves you as confident about the stability of the earth mass as before and ``nothing'' because this is our terra firma, our nation, and it will endure. Just as America will overcome, so too will American business, driven by our ingenuity and creative know-how. The challenges may be great. But so are the opportunities ... opportunities that abound across this nation and, more and more so, around the world.
In the days and weeks following September 11, your company and its cast members responded in a wide range of ways. The Walt Disney Company Foundation/DisneyHand: Survivor Relief Fund was established, and collected more than $700,000 from cast members in addition to a corporate gift of $5 million. ABC News did an extraordinary job covering the crisis non-stop and commercial-free. New York's ESPN Zone handed out meals, bottled water and boxes of clothing to relief workers. Our Miramax film group organized and co-sponsored the Concert for New York, which raised more than $25 million for the Robin Hood Relief Fund. During the telethon, America: A Tribute to Heroes, which aired on all the networks including ABC, 650 reservationists at Walt Disney World took more than 40,000 calls offering donations. The manager of the Jersey City Disney Store, along with his family, spent the entire night of September 11 feeding emergency workers, while the Pentagon Disney Store cast members comforted and entertained anxious guests and their children with spontaneous storybook readings and play groups with Disney toys. The list goes on and on. You should simply know that, along with so many other Americans, the cast members of The Walt Disney Company made a difference.
Looking forward, I would like to discuss the challenges that Disney currently faces, and then outline what I see as the many opportunities that will return us to solid and dependable growth.
The first area of challenge is at our parks. Disney theme parks are among the most distinctive and valuable venues in the travel and entertainment industries. This was certainly evident this past weekend when I spent the day at the Disneyland Resort in California to view the Christmas decorations at Disney's Grand Californian Hotel, to ride the ``new'' Haunted Mansion with its holiday Nightmare Before Christmas theming, and to shop at Downtown Disney. For good reason, most families share the vacation priorities of Barry Bonds, who, after setting the new major league homerun record, proclaimed, ``I'm going to Disney World!''
But it's one thing to want to go to Walt Disney World or Disneyland and another thing to get there. We are now officially in a recession and people have less disposable income for travel. However, when the economy does come back, and as confidence in America's safety continues to grow, there is every reason to believe that the performance at our parks will be stronger than ever. This has been the pattern of every recession in the past. America and Americans always bounce back. And when they do, demand for Disney theme parks only increases. Time and again, we have found that people hardly ever actually cancel their Disney vacations ... they only defer them until the time is right.
For prudent managers, it is not enough simply to wait for an economic and emotional recovery. So, we have been actively adjusting the operations of our parks to optimize bottom-line performance. We have also taken advantage of our broadcast holdings to promote the parks on the ABC network and our local television stations, and we have marketed price promotions, especially for local guests. Most important, we continue to offer an extraordinary entertainment experience. At Walt Disney World, in the fall, we began the 100 Years of Magic celebration, which honors the 100th anniversary of the birth of Walt Disney. As I write this, I am at Disney World, and we are showing the press and the travel industry the new parades in each of the four theme parks and the new attractions. 100 Years of Magic is an exciting entertainment event, and it reminds all of us inside and outside Disney of the company's roots and the decades-long appeal of what we do.
Our Broadcasting business also faces challenges that were partly caused by the overall economic environment. Because of the softness in the economy, advertising rates were down for all of the broadcast networks. ABC was the number-one rated network in primetime during a very healthy overall ad market in 2000. But, this year, it has suffered the one-two punch of a down economy and a drop in ratings. This is why we are heavily focused on developing shows that will help propel ABC back to the top. Of course, there is no formula for creating great content. But, it is what we must do to reap the considerable rewards of owning a broadcast network. Both Bob Iger and I grew up professionally at ABC. This is a business we understand, and one of our top priorities is to develop the kinds of programming that will underpin resurgent long-range success. It is important to keep in mind that ABC remains number one during daytime and is building on that lead, while our news division is building as well, and is getting closer to being able to claim number-one bragging rights.
But primetime does present a problem, and we are determined to solve it. So here's a little primer on the network television business. It takes decades to build a daytime schedule. Daytime is about loyalty and familiarity and quality. Consequently, we are in a rather secure and enviable position as ABC continues to lead solidly when the sun is up. Similarly, in news, it takes years and years to establish the kind of loyalty and trust among the viewing audience that ABC News enjoys. And then there is primetime. You can move from the number-three or number-four network to the number-one network in two years by having one new hit, say, every six months. When I was at ABC in the '70s, we went from last to first. NBC in the '80s had the same kind of success and pushed ABC out of the leadership role. Under Bob Iger in the '90s, ABC recaptured the lead. Now we have to do it again.
The rules for network TV success have remained largely the same as long as there have been networks. But there is no question that the broader TV landscape has changed dramatically in the past two decades because of the advent of cable. In this regard, our company has a major advantage, since our broad range of cable programming services, including the recently added ABC Family, provide outlets both for original programs and for the multi-purposing of programs from our other networks. With ever-increasing consolidation among cable and satellite distributors in the U.S., the addition of ABC Family will further enhance our portfolio of programming services and allow us to reach all demographic groups with both broad-based and narrowly focused channels. Our last major acquisition, of course, was Cap Cities/ABC, which involved a remarkably seamless integration with Disney. Our acquisition of Fox Family in the U.S. and Fox Kids in Europe and Latin America will be even easier. These assets are completely complementary to our existing holdings, and they all go to Disney's ``sweet spot'' of entertainment for children and families. For this reason, I anticipate a remarkably swift integration into the company, followed by rapid growth and increases in profitability.
Looking at the rest of our company, a great number of steps have been taken to safeguard Disney during these anomalous days. During the year, we trimmed our workforce by approximately 4,000 positions, primarily through voluntary separations. Our Strategic Sourcing (i.e., buying stuff) initiative will save the company at least $200 million annually beginning this year through the implementation of more sensible purchasing policies. The Walt Disney Studios has cut its annual investment in live-action films by $600 million, in part by eliminating unproductive talent deals and streamlining the script development process.
It's not just in the Studios where we're attacking costs. We have scaled back our Internet operations to core initiatives that we expect to achieve profitability by the end of this fiscal year. We have completed the several-year process of closing 51 Disney Stores that were achieving sub-par performance, with current plans to close about 50 more. We are continuing to review individual store performance and expect the number of North America stores to stabilize at a level of between 300 and 400.
None of these cost-cutting efforts represents a one-time approach. Rather, they are part of what has become an ingrained culture of ever-increasing efficiency. It's kind of like going on the treadmill and eating non-fat food. You never seem to get anywhere, but you stay healthier and more alive -- and that is getting somewhere very important!
In addition to being lean and disciplined, we are mobilized on a number of fronts to seize and create a range of opportunities that we see across the country and around the world. Indeed, it is outside of the U.S. that some of the greatest growth opportunities can be found. For this reason, I thought it would be useful to survey our company's various strategic efforts under the headings of International and Domestic.
INTERNATIONAL
At the end of 1998, we added the Walt Disney International organization to coordinate and optimize our international operations. Our international expansion is occurring on three fronts. First, there is the creation and acquisition of new businesses. Second, there is the growth and increased penetration of existing businesses. Third, there is that culture of efficiency, which we have also exported overseas, with Walt Disney International consolidating numerous Disney office functions in countries around the world.
For our company, the primary driver for international success is the strength of our brands. This is most dramatically demonstrated by the strength of our mouse. It is virtually impossible to travel anywhere in the world and not see someone wearing a piece of clothing adorned with Mickey's beaming face. The world loves Mickey and Disney, but the fact is that, relative to what we have achieved in the United States, we still have enormous opportunities to increase per capita penetrations in most overseas markets.
The pervasiveness and potential of the Disney brand is demonstrated by a recent brand equity study. It concluded that, in the 14 primary world markets, 1.2 billion (that's not a typo and is indeed a ``b'' at the beginning of that word) consumers had used at least one Disney product over the preceding 12 months. This doesn't even include developing markets such as Russia and China. People around the world know and love what we offer. But outside of the U.S. and Canada, our penetration levels are much lower. In other words, if you're a shareholder standing somewhere in North America and are wondering where to find Disney's greatest growth prospects, just look to the east, west or south.
Consider what has been achieved in the past year with wireless phone technology in Asia. In 2000, we established a company called Disney Mobile in Japan, which entered into an agreement with NTT DoCoMo Wireless, allowing subscribers to pay roughly $1 to $3 a month for a range of Disney offerings on their cell phones. Cell phones in Japan are dazzling mini-computers, featuring a wealth of services that are not yet available here. The Disney Mobile deal took off at the light speed of cellular transmission, and we already have more than two million subscribers, who are able to play Disney games, send Disney greeting cards, hear Disney ring tones and download special Disney promotions. Early in 2002, Disney Mobile will expand to Taiwan, Hong Kong, Korea, England, Austria and Germany (with European subscribers getting to choose from 100 Disney ringtones!). And, presumably, this is just the beginning. There is every reason to expect that, as cell phone technology in other parts of the world becomes more sophisticated, we will see these and further enhanced opportunities emerge elsewhere, including the United States. Packs of kids will be walking down the streets of Chicago, not talking to each other, but talking to kids in another part of town as they play computer games, check movie times, sports scores and maybe even their Disney stock price.
Japan was the scene of another tremendous success story in 2001 -- the opening of the Tokyo DisneySea theme park, adjacent to Tokyo Disneyland. DisneySea is certainly a crown jewel in the sparkling creative bundle of projects your company has built. As my wife and I stood at the entrance to that park at the opening on September 4, we had the feeling we were seeing something of such significance that we literally could not speak ... something that usually isn't a problem for me. Since the park opened, both Tokyo parks have achieved attendance levels that have greatly exceeded our projections, with Tokyo Disneyland setting a new record for the year. We expect our royalties from Oriental Land Company to increase by 80 percent thanks to Tokyo DisneySea and our two Disney-themed hotels. Beyond the direct economic benefit for our company, these spectacular theme parks play a major role in defining the Disney brand in this important market.
Also in Asia, work is progressing on Hong Kong Disneyland. What a site! I think this will be the most spectacular park location we have anywhere in the world. Maybe I'm too enthusiastic, but looking back across the bay to central Hong Kong is awesome. During a recent trip, we all got on a bus for a one-day excursion among the 90 million people who live in Guangdong province just north of Hong Kong. I was impressed with the warmth of the people, the height of the skyscrapers, and the live seafood and frogs for sale in the grocery section at the local Wal-Mart. You can expect me to be writing about this project for a good four more years, as I will keep trying to think of new ways to describe its enormous significance as a beachhead for the Disney brand in the most populous nation on earth.
On the immediate horizon is an all-new theme park adjacent to Disneyland Paris, called Walt Disney Studios Paris. This park is modeled after the Disney-MGM Studios at Walt Disney World and will give guests a behind-the-scenes look at film, television, music and animation production. In the process, we will offer them the thrills of Catastrophe Canyon, a stunt show spectacular and the inverted loops of the Rock 'n' Roller Coaster Starring Aerosmith. Disneyland Resort Paris is already the most visited tourist destination in Europe. With the creation of this park, our Paris property will become a true multi-day resort, offering a tremendous range of entertainment experiences just outside one of the greatest cities in the world.
I must take a moment, at the risk of writing too long a letter, to comment on our parks in general. We have just completed one of the most ambitious building periods in any company's history. Through the efforts of Walt Disney Imagineers and architects around the world, we have created the highest level of construction quality and innovation for people's enjoyment ever. I'm sure I will have to fight the editor of this annual report to leave in this somewhat over-the-top enthusiasm, but if it is here, you'll know I won the argument. I can say this because around the world we have established four Disney destinations, not just theme parks. From Florida with its four theme parks, two water parks, 25 hotels, entertainment venues and an actual town, to Anaheim with its new second theme park, Disney's California Adventure, hotels and entertainment complex, to France and its (soon-to-be) two theme parks and entertainment complex and hotels, to Tokyo with the same, we have established spectacular three-dimensional environments where one generation can pass the Disney baton to another. We have invested the intellectual and financial capital. Now we can spend the next decades enjoying the returns.
Disney Consumer Products has also been adversely affected by the economic downturn and the international markets are a key to the turnaround of this business. In 2001, new direct-to-retail licensing agreements were made with some of the leading retailers in Europe, including H&M, Tesco and C&A. There are now 211 international Disney Stores, including a new flagship store that was recently opened in Milan. In Japan, we concluded an agreement to sell the Japanese Disney Stores to our colleagues at Oriental Land Company, who will continue to operate the business under a licensing arrangement with us.
And, among the products that we will be offering at retail overseas and domestically will be the Baby Einstein line of merchandise. In November, we acquired this great company from its founders. Baby Einstein's innovative and educational videos, books and toys for infants and young children are an ideal fit for our company and should benefit substantially from our worldwide distribution and marketing resources.
One of Consumer Products' businesses -- Publishing -- is perhaps our longest-running international success story, having begun in the early 1930s, and encapsulates why Disney's potential is so enormous overseas. We are now the world's largest publisher of children's books and magazines, putting out publications that are read by 100 million people in 55 languages in 74 countries. To kids everywhere, Mickey Mouse is not an American character. He is whatever they are -- Belgian, Brazilian or Bengali. And, this goes for Donald Duck, Goofy, Winnie the Pooh -- also known as Donarudo Dakku, Gao Fei and Kubus Puchatek -- and all the rest. They provide us a connection with consumers everywhere that gives us an incredible advantage in the marketplace ... wherever that marketplace happens to be.
Walt Disney Studios has been number one at the international box office five of the last seven years, grossing more than $1 billion for seven years in a row -- a completely unmatched record. We also continue to be the number-one video distributor internationally. One Studio business that illustrates the eternal Disney truth that great content leads to new opportunities is Walt Disney Theatrical, which currently produces two live stage musicals in England, two in Germany, one in Spain, one in Canada and one in the Netherlands. Of course, all these shows are great, but arguably the most unusual one is the stage play in Berlin, because it is a production of Hunchback of Notre Dame. Unlike our other shows, all of which had their initial runs on Broadway, this is the premiere production of Hunchback. By the way, we now have plans to produce an English language version for ABC's Wonderful World of Disney, so this is one Disney stage show that is going to be ``exported'' to America.
Television represents one of our greatest growth opportunities overseas and has major significance in developing and growing the Disney brand. We have aggressively built up the Disney Channel Worldwide business so that it now comprises 12 channels, with Brazil and Portugal having been added in 2001. These channels reach more than 15 million subscribers in 56 territories. The first international channels we started are already profitable and the overall business will be in the black by 2003. Complementing our Disney Channel holdings will be our recent acquisition of a majority interest in Fox Kids International, which will be appropriately renamed. This cable- and satellite-delivered family program service already reaches more than 24 million additional homes in Europe and 10 million in Latin America. Since Disney Channel is a premium cable service and Fox Kids is an advertiser-supported service, together they comprise a perfect fit, providing us with an enormous reach among our prime Disney audience around the world.
To demonstrate the progress we are making in China, we just returned to the most-watched national television network in China -- CCTV1 -- with a regularly scheduled Mickey Mouse animation program at 6:00 p.m. In addition, Disney.com became available on the Chinese Internet, bringing Disney entertainment and news to more than 20 million Internet users in that nation.
Then there is my favorite radio station, Radio Disney, which has proved tremendously successful in the U.S. and is now starting to go abroad, beginning with an Argentina station that launched in 2001. And, don't forget that Disney is not our only brand that is embraced by media consumers overseas, since ESPN is also a major success story, with its programming now reaching more than 125 countries. And the launch of ESPN Classic in Europe will expand its presence even further.
DOMESTIC
Of course, our domestic business is what you're used to hearing me expound about and, to be sure, it remains the bulk of what we do.
Certainly, the big event of our domestic theme parks this year was the expansion of the world's very first theme park -- Disneyland -- with the addition of a second park -- Disney's California Adventure -- a shopping district -- Downtown Disney -- and a magnificent resort hotel -- Disney's Grand Californian. Put them all together and we now have a fantastic destination resort. Unfortunately, we launched it in a year of abnormal rain (for Southern California), a softening economy, a California energy crisis and, of course, the uncertainty following September 11. Unlike Tokyo DisneySea, the crowds that the expansion has attracted have not been of the magnitude we had hoped for in its inaugural year. But we now have a vastly improved asset in Anaheim, which -- as the economy improves, and the lights stay on, and the Bug's Life children's land opens this fall, and The Twilight Zone Tower of Terror opens in a few years -- will turn the park, like our others, into the blockbuster we all know it is. As Richard Corliss of Time magazine wrote, ``At this splendid Disney adventure, visitors need never stop glowing.''
I have already mentioned the 100 Years of Magic celebration that will be enhancing our Walt Disney World properties in 2002. Further down the road, in 2003, we will be unveiling Mission: Space, sponsored by Compaq. For the price of admission to Epcot, this amazing ``E ticket'' attraction will allow guests to experience what it's like to travel beyond earth's gravitational pull. Considering that, in 2001, Dennis Tito spent $20 million for a similar outer space experience, our guests will be getting quite a bargain! I rode it in test phase. No comment other than to say I'm still walking!
At Disney Consumer Products, significant new models of doing business are being developed. As in Europe, we are pursuing direct-to-retail relationships with major apparel retailers, such as JCPenney and Kmart. Working with these leading companies, we will have more control over the quality, creativity and presentation of Disney-branded merchandise. Also during the year, we established two major global relationships to produce Disney-branded food products -- with Coca-Cola's Minute Maid unit for non-carbonated children's beverages and Kellogg's for breakfast foods. These arrangements will allow us to work closely with these great companies to create innovative and healthy products that reflect the fun and fantasy of Disney.
An area of great potential growth is our Interactive games business. Here, technology is opening up new entertainment possibilities for us as the capabilities of gaming platforms keep increasing. Of course, people don't generally think of Disney as a high-tech company ... at least, we didn't think they did until we saw an article in Wired magazine that asked Internet users in the 10 biggest markets of the world to rate 250 tech brands. Disney ranked in the top 10 in every one of the nations surveyed ... and in the top five in eight of them. Remember, this survey rated tech brands among tech users. These people should know what they're talking about, and they ranked Disney higher than brands such as Intel in Germany, Panasonic in Japan and Microsoft in England. I never used to be a believer in this kind of research, but I think I'll be a convert going forward. Clearly, the cutting-edge technology of Interactive games is a natural fit for our company. For example, we are currently working on a game called Kingdom Hearts, which Square Soft of Japan is developing with us. It creates a dazzling and imaginative interactive Disney universe on the screen, and will be available for PlayStation 2 later this year.
I've already mentioned the measures being taken at the ABC Network. However, our cable holdings are performing well. This is in part because Disney Channel is not advertiser supported, and in part because these assets are so strong. And, the addition of ABC Family will further solidify our presence on cable. We have interests in the premier sites for history with The History Channel, for culture with A&E, for entertainment with E! and for women with Lifetime. And of course we own 100 percent of SoapNet, a cable channel that airs daytime serials during primetime. Then there is the category of sports, which is all but owned by ESPN, ESPN2, ESPN Classic and ESPNEWS. Indeed, ESPN continues to be an extraordinary asset. In this age when brand recognition is so valuable, we clearly own the two strongest brands in the entire field of entertainment -- Disney and ESPN. Which brings me to the family audience, for which we have Disney Channel, Toon Disney and now ABC Family, which has a reach of 81 million households. Whereas broadcast networks face the daunting challenge of creating programming for all tastes, cable channels are able to cultivate devoted viewership because they can tailor programming for specific tastes. In this realm, we truly have the field covered.
Finally, there is our Studios unit, which had an excellent year and I believe is poised for even greater success. The combined grosses of Walt Disney Pictures, Touchstone Pictures, Miramax and Dimension films have made us number one at the U.S. box office for six of the past seven years, at the international box office for five of the last seven years and in domestic home video for the last 13 years.
In live action for 2002, Touchstone will have the next film from M. Night Shyamalan, who directed The Sixth Sense and Unbreakable. This one is called Signs and stars Mel Gibson. Also from Touchstone is Bad Company, starring Chris Rock. Reign of Fire about real live dragons is in post production. Among the offerings from Walt Disney Pictures will be The Rookie about a 38-year-old high school baseball coach who tries out for the major leagues, and Country Bears, which is a really hysterical film that is based on the classic theme park attraction at Walt Disney World and Tokyo Disneyland. Our Walt Disney Pictures live-action franchise has been a particular success story, with films like The Kid and Remember The Titans and this past summer's surprise hit (it was a surprise to the industry, not to us) The Princess Diaries.
Then there's Miramax, which continues to amaze. In 2001, they released a remarkable range of successful films -- from Bridget Jones's Diary to Spy Kids to The Others to Scary Movie 2. And, for 2002, they have what looks to be their best slate of movies ever, including films based on the critically-acclaimed bestsellers, The Shipping News and Cold Mountain starring Tom Cruise, plus Martin Scorsese's period epic, Gangs of New York.
Home Entertainment is performing increasingly well, in part because of the rapid growth of DVD. Snow White and the Seven Dwarfs was a hit on DVD, Pearl Harbor will be one of the leading video releases of the year and our Disney Video Premieres continue to be an outstanding business. Lady and the Tramp II: Scamp's Adventure sold more than 10 million units worldwide and, in 2002, we will have two more Disney Video Premiere animated releases -- Cinderella II: Dreams Come True and 101 Dalmatians II.
With regard to theatrical animation releases, 2002 also looks to be particularly strong. Of course, the fiscal year started off with Monsters, Inc., produced with our partners at Pixar, and it is an instant classic and true franchise. In January, we are re-releasing Beauty and the Beast in IMAX® and other large format theaters. I've seen it projected that way. It's like a whole new movie. And it will feature a witty and moving sequence never before seen -- Human Again, in which the Beast's servants dream of what it would be like to return to their human forms. In February, we have the sequel to Peter Pan -- called Return to Never Land. I just walked out of a screening. It's a hit, he said confidently! For summer, there is the extremely funny, endearing and original Lilo & Stitch, which is shown on the cover of this report. It must be great. We wouldn't put it there if it weren't. And for the fall, we have the graphically cutting-edge, futuristic adaptation of Robert Louis Stevenson's classic Treasure Island, called Treasure Planet.
WISE WORDS
As it turns out, I am putting the final touches on this letter on December 5, Walt Disney's 100th birthday. Of course, Walt has always been a guiding light for this company, all the more so during these challenging times. Consider what he had to say during another troubling time, on March 1, 1941: ``Once a man has tasted freedom he will never be content to be a slave. That is why I believe that this frightfulness we see everywhere today is only temporary. Tomorrow will be better for as long as America keeps alive the ideals of freedom and a better life.''
As my own personal observance of Walt's birthday, I have been listening to a series of interviews that he conducted between 1956 and 1961. They provide revealing insights into his genius and also into the fact that this company has been tested many times throughout the years. Again and again during these interviews, Walt talks about precarious periods that he and his brother Roy went through. First they lost the rights to their star character, Oswald the Lucky Rabbit ... but then came Mickey Mouse. Later, they were struggling to make a profit with their shorts ... but then came The Three Little Pigs. Subsequently, they went into enormous debt to make Snow White ... but the film went on to become the biggest box office hit of the year.
Then came World War II and the disappearance of their international markets. Around this time, they took the company public, issuing stock that plunged from an initial price of $25 a share to $3 a share ... then the stock steadily rose on the strength of such films as Cinderella, Peter Pan and 20,000 Leagues Under the Sea. Next came Disneyland, which sucked up the company's capital and even required Walt to cash out his personal life insurance policy ... needless to say, Disneyland went on to become a complete sensation. Of course, in the early '80s, long after Walt and Roy were gone, the company again encountered problems and was on the verge of being sold off in pieces by corporate raiders.
All of these difficulties -- and many more -- are generally forgotten because, in the end, The Walt Disney Company has only grown stronger and more vital. And it has always done so through the power of its product. With this in mind, we are taking appropriate measures to ride out the current turbulence before ultimately moving on to new levels of success.
Of course, you can never predict an entertainment phenomenon like Monsters, Inc. or Tokyo DisneySea or Toy Story or The Lion King or Home Improvement or Disneyland or Cinderella or Snow White or Three Little Pigs or Mickey Mouse. But, at this company, they do come along with remarkable regularity.
In closing this letter, I want to make clear my disappointment with the fact that the overall equity value of the company as I am writing this has not risen as it has in the past. It doesn't work to point out the tremendous value creation during most of the years since 1984 nor the enormous growth of Disney to become a worldwide media company. We are a public company, and we want you to own a growth company. At the same time, I don't think about The Walt Disney Company quarter to quarter. I think about The Walt Disney Company quarter to quarter to quarter to quarter to quarter; in other words, over the long term. It is important for this great institution to always be positioned for the future, to spend the needed capital, to steer the prudent and moral course, to make sure we are here to entertain another day. I think therefore we are poised for another growth spurt as investors around the world recognize what we've done and where we are headed creatively and how strong our brand and balance sheet are.
I cannot guarantee what our growth will be. But I do respond with a knowing smile to financial analysts, Disney family members, large investors and journalists when asked. We believe we are on the right track. Frankly, with the Disney brand and the great assets of our company, it isn't easy to fail. It's much easier to succeed. And we will.
Sincerely,
Michael D. Eisner
Chairman and CEO
December 5, 2001
Let me know what you think
TO FELLOW DISNEY OWNERS AND CAST MEMBERS:
Like other fiscal years, 2001 was a year of many high points and many challenges. But all of it pales in significance in light of one date on the calendar -- September 11, when those terrifying images of America under attack were seared into our collective consciousness. It was a day of unspeakable horror. It was a day that changed everything and nothing -- ``everything'' the way an earthquake never leaves you as confident about the stability of the earth mass as before and ``nothing'' because this is our terra firma, our nation, and it will endure. Just as America will overcome, so too will American business, driven by our ingenuity and creative know-how. The challenges may be great. But so are the opportunities ... opportunities that abound across this nation and, more and more so, around the world.
In the days and weeks following September 11, your company and its cast members responded in a wide range of ways. The Walt Disney Company Foundation/DisneyHand: Survivor Relief Fund was established, and collected more than $700,000 from cast members in addition to a corporate gift of $5 million. ABC News did an extraordinary job covering the crisis non-stop and commercial-free. New York's ESPN Zone handed out meals, bottled water and boxes of clothing to relief workers. Our Miramax film group organized and co-sponsored the Concert for New York, which raised more than $25 million for the Robin Hood Relief Fund. During the telethon, America: A Tribute to Heroes, which aired on all the networks including ABC, 650 reservationists at Walt Disney World took more than 40,000 calls offering donations. The manager of the Jersey City Disney Store, along with his family, spent the entire night of September 11 feeding emergency workers, while the Pentagon Disney Store cast members comforted and entertained anxious guests and their children with spontaneous storybook readings and play groups with Disney toys. The list goes on and on. You should simply know that, along with so many other Americans, the cast members of The Walt Disney Company made a difference.
Looking forward, I would like to discuss the challenges that Disney currently faces, and then outline what I see as the many opportunities that will return us to solid and dependable growth.
The first area of challenge is at our parks. Disney theme parks are among the most distinctive and valuable venues in the travel and entertainment industries. This was certainly evident this past weekend when I spent the day at the Disneyland Resort in California to view the Christmas decorations at Disney's Grand Californian Hotel, to ride the ``new'' Haunted Mansion with its holiday Nightmare Before Christmas theming, and to shop at Downtown Disney. For good reason, most families share the vacation priorities of Barry Bonds, who, after setting the new major league homerun record, proclaimed, ``I'm going to Disney World!''
But it's one thing to want to go to Walt Disney World or Disneyland and another thing to get there. We are now officially in a recession and people have less disposable income for travel. However, when the economy does come back, and as confidence in America's safety continues to grow, there is every reason to believe that the performance at our parks will be stronger than ever. This has been the pattern of every recession in the past. America and Americans always bounce back. And when they do, demand for Disney theme parks only increases. Time and again, we have found that people hardly ever actually cancel their Disney vacations ... they only defer them until the time is right.
For prudent managers, it is not enough simply to wait for an economic and emotional recovery. So, we have been actively adjusting the operations of our parks to optimize bottom-line performance. We have also taken advantage of our broadcast holdings to promote the parks on the ABC network and our local television stations, and we have marketed price promotions, especially for local guests. Most important, we continue to offer an extraordinary entertainment experience. At Walt Disney World, in the fall, we began the 100 Years of Magic celebration, which honors the 100th anniversary of the birth of Walt Disney. As I write this, I am at Disney World, and we are showing the press and the travel industry the new parades in each of the four theme parks and the new attractions. 100 Years of Magic is an exciting entertainment event, and it reminds all of us inside and outside Disney of the company's roots and the decades-long appeal of what we do.
Our Broadcasting business also faces challenges that were partly caused by the overall economic environment. Because of the softness in the economy, advertising rates were down for all of the broadcast networks. ABC was the number-one rated network in primetime during a very healthy overall ad market in 2000. But, this year, it has suffered the one-two punch of a down economy and a drop in ratings. This is why we are heavily focused on developing shows that will help propel ABC back to the top. Of course, there is no formula for creating great content. But, it is what we must do to reap the considerable rewards of owning a broadcast network. Both Bob Iger and I grew up professionally at ABC. This is a business we understand, and one of our top priorities is to develop the kinds of programming that will underpin resurgent long-range success. It is important to keep in mind that ABC remains number one during daytime and is building on that lead, while our news division is building as well, and is getting closer to being able to claim number-one bragging rights.
But primetime does present a problem, and we are determined to solve it. So here's a little primer on the network television business. It takes decades to build a daytime schedule. Daytime is about loyalty and familiarity and quality. Consequently, we are in a rather secure and enviable position as ABC continues to lead solidly when the sun is up. Similarly, in news, it takes years and years to establish the kind of loyalty and trust among the viewing audience that ABC News enjoys. And then there is primetime. You can move from the number-three or number-four network to the number-one network in two years by having one new hit, say, every six months. When I was at ABC in the '70s, we went from last to first. NBC in the '80s had the same kind of success and pushed ABC out of the leadership role. Under Bob Iger in the '90s, ABC recaptured the lead. Now we have to do it again.
The rules for network TV success have remained largely the same as long as there have been networks. But there is no question that the broader TV landscape has changed dramatically in the past two decades because of the advent of cable. In this regard, our company has a major advantage, since our broad range of cable programming services, including the recently added ABC Family, provide outlets both for original programs and for the multi-purposing of programs from our other networks. With ever-increasing consolidation among cable and satellite distributors in the U.S., the addition of ABC Family will further enhance our portfolio of programming services and allow us to reach all demographic groups with both broad-based and narrowly focused channels. Our last major acquisition, of course, was Cap Cities/ABC, which involved a remarkably seamless integration with Disney. Our acquisition of Fox Family in the U.S. and Fox Kids in Europe and Latin America will be even easier. These assets are completely complementary to our existing holdings, and they all go to Disney's ``sweet spot'' of entertainment for children and families. For this reason, I anticipate a remarkably swift integration into the company, followed by rapid growth and increases in profitability.
Looking at the rest of our company, a great number of steps have been taken to safeguard Disney during these anomalous days. During the year, we trimmed our workforce by approximately 4,000 positions, primarily through voluntary separations. Our Strategic Sourcing (i.e., buying stuff) initiative will save the company at least $200 million annually beginning this year through the implementation of more sensible purchasing policies. The Walt Disney Studios has cut its annual investment in live-action films by $600 million, in part by eliminating unproductive talent deals and streamlining the script development process.
It's not just in the Studios where we're attacking costs. We have scaled back our Internet operations to core initiatives that we expect to achieve profitability by the end of this fiscal year. We have completed the several-year process of closing 51 Disney Stores that were achieving sub-par performance, with current plans to close about 50 more. We are continuing to review individual store performance and expect the number of North America stores to stabilize at a level of between 300 and 400.
None of these cost-cutting efforts represents a one-time approach. Rather, they are part of what has become an ingrained culture of ever-increasing efficiency. It's kind of like going on the treadmill and eating non-fat food. You never seem to get anywhere, but you stay healthier and more alive -- and that is getting somewhere very important!
In addition to being lean and disciplined, we are mobilized on a number of fronts to seize and create a range of opportunities that we see across the country and around the world. Indeed, it is outside of the U.S. that some of the greatest growth opportunities can be found. For this reason, I thought it would be useful to survey our company's various strategic efforts under the headings of International and Domestic.
INTERNATIONAL
At the end of 1998, we added the Walt Disney International organization to coordinate and optimize our international operations. Our international expansion is occurring on three fronts. First, there is the creation and acquisition of new businesses. Second, there is the growth and increased penetration of existing businesses. Third, there is that culture of efficiency, which we have also exported overseas, with Walt Disney International consolidating numerous Disney office functions in countries around the world.
For our company, the primary driver for international success is the strength of our brands. This is most dramatically demonstrated by the strength of our mouse. It is virtually impossible to travel anywhere in the world and not see someone wearing a piece of clothing adorned with Mickey's beaming face. The world loves Mickey and Disney, but the fact is that, relative to what we have achieved in the United States, we still have enormous opportunities to increase per capita penetrations in most overseas markets.
The pervasiveness and potential of the Disney brand is demonstrated by a recent brand equity study. It concluded that, in the 14 primary world markets, 1.2 billion (that's not a typo and is indeed a ``b'' at the beginning of that word) consumers had used at least one Disney product over the preceding 12 months. This doesn't even include developing markets such as Russia and China. People around the world know and love what we offer. But outside of the U.S. and Canada, our penetration levels are much lower. In other words, if you're a shareholder standing somewhere in North America and are wondering where to find Disney's greatest growth prospects, just look to the east, west or south.
Consider what has been achieved in the past year with wireless phone technology in Asia. In 2000, we established a company called Disney Mobile in Japan, which entered into an agreement with NTT DoCoMo Wireless, allowing subscribers to pay roughly $1 to $3 a month for a range of Disney offerings on their cell phones. Cell phones in Japan are dazzling mini-computers, featuring a wealth of services that are not yet available here. The Disney Mobile deal took off at the light speed of cellular transmission, and we already have more than two million subscribers, who are able to play Disney games, send Disney greeting cards, hear Disney ring tones and download special Disney promotions. Early in 2002, Disney Mobile will expand to Taiwan, Hong Kong, Korea, England, Austria and Germany (with European subscribers getting to choose from 100 Disney ringtones!). And, presumably, this is just the beginning. There is every reason to expect that, as cell phone technology in other parts of the world becomes more sophisticated, we will see these and further enhanced opportunities emerge elsewhere, including the United States. Packs of kids will be walking down the streets of Chicago, not talking to each other, but talking to kids in another part of town as they play computer games, check movie times, sports scores and maybe even their Disney stock price.
Japan was the scene of another tremendous success story in 2001 -- the opening of the Tokyo DisneySea theme park, adjacent to Tokyo Disneyland. DisneySea is certainly a crown jewel in the sparkling creative bundle of projects your company has built. As my wife and I stood at the entrance to that park at the opening on September 4, we had the feeling we were seeing something of such significance that we literally could not speak ... something that usually isn't a problem for me. Since the park opened, both Tokyo parks have achieved attendance levels that have greatly exceeded our projections, with Tokyo Disneyland setting a new record for the year. We expect our royalties from Oriental Land Company to increase by 80 percent thanks to Tokyo DisneySea and our two Disney-themed hotels. Beyond the direct economic benefit for our company, these spectacular theme parks play a major role in defining the Disney brand in this important market.
Also in Asia, work is progressing on Hong Kong Disneyland. What a site! I think this will be the most spectacular park location we have anywhere in the world. Maybe I'm too enthusiastic, but looking back across the bay to central Hong Kong is awesome. During a recent trip, we all got on a bus for a one-day excursion among the 90 million people who live in Guangdong province just north of Hong Kong. I was impressed with the warmth of the people, the height of the skyscrapers, and the live seafood and frogs for sale in the grocery section at the local Wal-Mart. You can expect me to be writing about this project for a good four more years, as I will keep trying to think of new ways to describe its enormous significance as a beachhead for the Disney brand in the most populous nation on earth.
On the immediate horizon is an all-new theme park adjacent to Disneyland Paris, called Walt Disney Studios Paris. This park is modeled after the Disney-MGM Studios at Walt Disney World and will give guests a behind-the-scenes look at film, television, music and animation production. In the process, we will offer them the thrills of Catastrophe Canyon, a stunt show spectacular and the inverted loops of the Rock 'n' Roller Coaster Starring Aerosmith. Disneyland Resort Paris is already the most visited tourist destination in Europe. With the creation of this park, our Paris property will become a true multi-day resort, offering a tremendous range of entertainment experiences just outside one of the greatest cities in the world.
I must take a moment, at the risk of writing too long a letter, to comment on our parks in general. We have just completed one of the most ambitious building periods in any company's history. Through the efforts of Walt Disney Imagineers and architects around the world, we have created the highest level of construction quality and innovation for people's enjoyment ever. I'm sure I will have to fight the editor of this annual report to leave in this somewhat over-the-top enthusiasm, but if it is here, you'll know I won the argument. I can say this because around the world we have established four Disney destinations, not just theme parks. From Florida with its four theme parks, two water parks, 25 hotels, entertainment venues and an actual town, to Anaheim with its new second theme park, Disney's California Adventure, hotels and entertainment complex, to France and its (soon-to-be) two theme parks and entertainment complex and hotels, to Tokyo with the same, we have established spectacular three-dimensional environments where one generation can pass the Disney baton to another. We have invested the intellectual and financial capital. Now we can spend the next decades enjoying the returns.
Disney Consumer Products has also been adversely affected by the economic downturn and the international markets are a key to the turnaround of this business. In 2001, new direct-to-retail licensing agreements were made with some of the leading retailers in Europe, including H&M, Tesco and C&A. There are now 211 international Disney Stores, including a new flagship store that was recently opened in Milan. In Japan, we concluded an agreement to sell the Japanese Disney Stores to our colleagues at Oriental Land Company, who will continue to operate the business under a licensing arrangement with us.
And, among the products that we will be offering at retail overseas and domestically will be the Baby Einstein line of merchandise. In November, we acquired this great company from its founders. Baby Einstein's innovative and educational videos, books and toys for infants and young children are an ideal fit for our company and should benefit substantially from our worldwide distribution and marketing resources.
One of Consumer Products' businesses -- Publishing -- is perhaps our longest-running international success story, having begun in the early 1930s, and encapsulates why Disney's potential is so enormous overseas. We are now the world's largest publisher of children's books and magazines, putting out publications that are read by 100 million people in 55 languages in 74 countries. To kids everywhere, Mickey Mouse is not an American character. He is whatever they are -- Belgian, Brazilian or Bengali. And, this goes for Donald Duck, Goofy, Winnie the Pooh -- also known as Donarudo Dakku, Gao Fei and Kubus Puchatek -- and all the rest. They provide us a connection with consumers everywhere that gives us an incredible advantage in the marketplace ... wherever that marketplace happens to be.
Walt Disney Studios has been number one at the international box office five of the last seven years, grossing more than $1 billion for seven years in a row -- a completely unmatched record. We also continue to be the number-one video distributor internationally. One Studio business that illustrates the eternal Disney truth that great content leads to new opportunities is Walt Disney Theatrical, which currently produces two live stage musicals in England, two in Germany, one in Spain, one in Canada and one in the Netherlands. Of course, all these shows are great, but arguably the most unusual one is the stage play in Berlin, because it is a production of Hunchback of Notre Dame. Unlike our other shows, all of which had their initial runs on Broadway, this is the premiere production of Hunchback. By the way, we now have plans to produce an English language version for ABC's Wonderful World of Disney, so this is one Disney stage show that is going to be ``exported'' to America.
Television represents one of our greatest growth opportunities overseas and has major significance in developing and growing the Disney brand. We have aggressively built up the Disney Channel Worldwide business so that it now comprises 12 channels, with Brazil and Portugal having been added in 2001. These channels reach more than 15 million subscribers in 56 territories. The first international channels we started are already profitable and the overall business will be in the black by 2003. Complementing our Disney Channel holdings will be our recent acquisition of a majority interest in Fox Kids International, which will be appropriately renamed. This cable- and satellite-delivered family program service already reaches more than 24 million additional homes in Europe and 10 million in Latin America. Since Disney Channel is a premium cable service and Fox Kids is an advertiser-supported service, together they comprise a perfect fit, providing us with an enormous reach among our prime Disney audience around the world.
To demonstrate the progress we are making in China, we just returned to the most-watched national television network in China -- CCTV1 -- with a regularly scheduled Mickey Mouse animation program at 6:00 p.m. In addition, Disney.com became available on the Chinese Internet, bringing Disney entertainment and news to more than 20 million Internet users in that nation.
Then there is my favorite radio station, Radio Disney, which has proved tremendously successful in the U.S. and is now starting to go abroad, beginning with an Argentina station that launched in 2001. And, don't forget that Disney is not our only brand that is embraced by media consumers overseas, since ESPN is also a major success story, with its programming now reaching more than 125 countries. And the launch of ESPN Classic in Europe will expand its presence even further.
DOMESTIC
Of course, our domestic business is what you're used to hearing me expound about and, to be sure, it remains the bulk of what we do.
Certainly, the big event of our domestic theme parks this year was the expansion of the world's very first theme park -- Disneyland -- with the addition of a second park -- Disney's California Adventure -- a shopping district -- Downtown Disney -- and a magnificent resort hotel -- Disney's Grand Californian. Put them all together and we now have a fantastic destination resort. Unfortunately, we launched it in a year of abnormal rain (for Southern California), a softening economy, a California energy crisis and, of course, the uncertainty following September 11. Unlike Tokyo DisneySea, the crowds that the expansion has attracted have not been of the magnitude we had hoped for in its inaugural year. But we now have a vastly improved asset in Anaheim, which -- as the economy improves, and the lights stay on, and the Bug's Life children's land opens this fall, and The Twilight Zone Tower of Terror opens in a few years -- will turn the park, like our others, into the blockbuster we all know it is. As Richard Corliss of Time magazine wrote, ``At this splendid Disney adventure, visitors need never stop glowing.''
I have already mentioned the 100 Years of Magic celebration that will be enhancing our Walt Disney World properties in 2002. Further down the road, in 2003, we will be unveiling Mission: Space, sponsored by Compaq. For the price of admission to Epcot, this amazing ``E ticket'' attraction will allow guests to experience what it's like to travel beyond earth's gravitational pull. Considering that, in 2001, Dennis Tito spent $20 million for a similar outer space experience, our guests will be getting quite a bargain! I rode it in test phase. No comment other than to say I'm still walking!
At Disney Consumer Products, significant new models of doing business are being developed. As in Europe, we are pursuing direct-to-retail relationships with major apparel retailers, such as JCPenney and Kmart. Working with these leading companies, we will have more control over the quality, creativity and presentation of Disney-branded merchandise. Also during the year, we established two major global relationships to produce Disney-branded food products -- with Coca-Cola's Minute Maid unit for non-carbonated children's beverages and Kellogg's for breakfast foods. These arrangements will allow us to work closely with these great companies to create innovative and healthy products that reflect the fun and fantasy of Disney.
An area of great potential growth is our Interactive games business. Here, technology is opening up new entertainment possibilities for us as the capabilities of gaming platforms keep increasing. Of course, people don't generally think of Disney as a high-tech company ... at least, we didn't think they did until we saw an article in Wired magazine that asked Internet users in the 10 biggest markets of the world to rate 250 tech brands. Disney ranked in the top 10 in every one of the nations surveyed ... and in the top five in eight of them. Remember, this survey rated tech brands among tech users. These people should know what they're talking about, and they ranked Disney higher than brands such as Intel in Germany, Panasonic in Japan and Microsoft in England. I never used to be a believer in this kind of research, but I think I'll be a convert going forward. Clearly, the cutting-edge technology of Interactive games is a natural fit for our company. For example, we are currently working on a game called Kingdom Hearts, which Square Soft of Japan is developing with us. It creates a dazzling and imaginative interactive Disney universe on the screen, and will be available for PlayStation 2 later this year.
I've already mentioned the measures being taken at the ABC Network. However, our cable holdings are performing well. This is in part because Disney Channel is not advertiser supported, and in part because these assets are so strong. And, the addition of ABC Family will further solidify our presence on cable. We have interests in the premier sites for history with The History Channel, for culture with A&E, for entertainment with E! and for women with Lifetime. And of course we own 100 percent of SoapNet, a cable channel that airs daytime serials during primetime. Then there is the category of sports, which is all but owned by ESPN, ESPN2, ESPN Classic and ESPNEWS. Indeed, ESPN continues to be an extraordinary asset. In this age when brand recognition is so valuable, we clearly own the two strongest brands in the entire field of entertainment -- Disney and ESPN. Which brings me to the family audience, for which we have Disney Channel, Toon Disney and now ABC Family, which has a reach of 81 million households. Whereas broadcast networks face the daunting challenge of creating programming for all tastes, cable channels are able to cultivate devoted viewership because they can tailor programming for specific tastes. In this realm, we truly have the field covered.
Finally, there is our Studios unit, which had an excellent year and I believe is poised for even greater success. The combined grosses of Walt Disney Pictures, Touchstone Pictures, Miramax and Dimension films have made us number one at the U.S. box office for six of the past seven years, at the international box office for five of the last seven years and in domestic home video for the last 13 years.
In live action for 2002, Touchstone will have the next film from M. Night Shyamalan, who directed The Sixth Sense and Unbreakable. This one is called Signs and stars Mel Gibson. Also from Touchstone is Bad Company, starring Chris Rock. Reign of Fire about real live dragons is in post production. Among the offerings from Walt Disney Pictures will be The Rookie about a 38-year-old high school baseball coach who tries out for the major leagues, and Country Bears, which is a really hysterical film that is based on the classic theme park attraction at Walt Disney World and Tokyo Disneyland. Our Walt Disney Pictures live-action franchise has been a particular success story, with films like The Kid and Remember The Titans and this past summer's surprise hit (it was a surprise to the industry, not to us) The Princess Diaries.
Then there's Miramax, which continues to amaze. In 2001, they released a remarkable range of successful films -- from Bridget Jones's Diary to Spy Kids to The Others to Scary Movie 2. And, for 2002, they have what looks to be their best slate of movies ever, including films based on the critically-acclaimed bestsellers, The Shipping News and Cold Mountain starring Tom Cruise, plus Martin Scorsese's period epic, Gangs of New York.
Home Entertainment is performing increasingly well, in part because of the rapid growth of DVD. Snow White and the Seven Dwarfs was a hit on DVD, Pearl Harbor will be one of the leading video releases of the year and our Disney Video Premieres continue to be an outstanding business. Lady and the Tramp II: Scamp's Adventure sold more than 10 million units worldwide and, in 2002, we will have two more Disney Video Premiere animated releases -- Cinderella II: Dreams Come True and 101 Dalmatians II.
With regard to theatrical animation releases, 2002 also looks to be particularly strong. Of course, the fiscal year started off with Monsters, Inc., produced with our partners at Pixar, and it is an instant classic and true franchise. In January, we are re-releasing Beauty and the Beast in IMAX® and other large format theaters. I've seen it projected that way. It's like a whole new movie. And it will feature a witty and moving sequence never before seen -- Human Again, in which the Beast's servants dream of what it would be like to return to their human forms. In February, we have the sequel to Peter Pan -- called Return to Never Land. I just walked out of a screening. It's a hit, he said confidently! For summer, there is the extremely funny, endearing and original Lilo & Stitch, which is shown on the cover of this report. It must be great. We wouldn't put it there if it weren't. And for the fall, we have the graphically cutting-edge, futuristic adaptation of Robert Louis Stevenson's classic Treasure Island, called Treasure Planet.
WISE WORDS
As it turns out, I am putting the final touches on this letter on December 5, Walt Disney's 100th birthday. Of course, Walt has always been a guiding light for this company, all the more so during these challenging times. Consider what he had to say during another troubling time, on March 1, 1941: ``Once a man has tasted freedom he will never be content to be a slave. That is why I believe that this frightfulness we see everywhere today is only temporary. Tomorrow will be better for as long as America keeps alive the ideals of freedom and a better life.''
As my own personal observance of Walt's birthday, I have been listening to a series of interviews that he conducted between 1956 and 1961. They provide revealing insights into his genius and also into the fact that this company has been tested many times throughout the years. Again and again during these interviews, Walt talks about precarious periods that he and his brother Roy went through. First they lost the rights to their star character, Oswald the Lucky Rabbit ... but then came Mickey Mouse. Later, they were struggling to make a profit with their shorts ... but then came The Three Little Pigs. Subsequently, they went into enormous debt to make Snow White ... but the film went on to become the biggest box office hit of the year.
Then came World War II and the disappearance of their international markets. Around this time, they took the company public, issuing stock that plunged from an initial price of $25 a share to $3 a share ... then the stock steadily rose on the strength of such films as Cinderella, Peter Pan and 20,000 Leagues Under the Sea. Next came Disneyland, which sucked up the company's capital and even required Walt to cash out his personal life insurance policy ... needless to say, Disneyland went on to become a complete sensation. Of course, in the early '80s, long after Walt and Roy were gone, the company again encountered problems and was on the verge of being sold off in pieces by corporate raiders.
All of these difficulties -- and many more -- are generally forgotten because, in the end, The Walt Disney Company has only grown stronger and more vital. And it has always done so through the power of its product. With this in mind, we are taking appropriate measures to ride out the current turbulence before ultimately moving on to new levels of success.
Of course, you can never predict an entertainment phenomenon like Monsters, Inc. or Tokyo DisneySea or Toy Story or The Lion King or Home Improvement or Disneyland or Cinderella or Snow White or Three Little Pigs or Mickey Mouse. But, at this company, they do come along with remarkable regularity.
In closing this letter, I want to make clear my disappointment with the fact that the overall equity value of the company as I am writing this has not risen as it has in the past. It doesn't work to point out the tremendous value creation during most of the years since 1984 nor the enormous growth of Disney to become a worldwide media company. We are a public company, and we want you to own a growth company. At the same time, I don't think about The Walt Disney Company quarter to quarter. I think about The Walt Disney Company quarter to quarter to quarter to quarter to quarter; in other words, over the long term. It is important for this great institution to always be positioned for the future, to spend the needed capital, to steer the prudent and moral course, to make sure we are here to entertain another day. I think therefore we are poised for another growth spurt as investors around the world recognize what we've done and where we are headed creatively and how strong our brand and balance sheet are.
I cannot guarantee what our growth will be. But I do respond with a knowing smile to financial analysts, Disney family members, large investors and journalists when asked. We believe we are on the right track. Frankly, with the Disney brand and the great assets of our company, it isn't easy to fail. It's much easier to succeed. And we will.
Sincerely,
Michael D. Eisner
Chairman and CEO
December 5, 2001
