For much of the 1990s, the Walt Disney Co. consumer products division was a runaway revenue engine. Operating income grew $100 million per year, topping out at $893 million in 1997, as Disney stores sold out of rack after rack of merchandise inspired by "The Lion King" and other animated hits. No self-respecting fourth-grader would let his parents push him out the door without an "Aladdin" lunchbox.
Then the bottom fell out.
Part of the drop-off was attributable to the whims of fashion and was experienced by others in the field, such as Warner Bros., whose Daffy Duck and Road Runner shirts, jackets and ball caps were the staple of mid-'90s mall fashion. At its peak, Warner Bros. had about 180 U.S. studio stores; they were shut down during the AOL-Time Warner merger because they were deemed too expensive to run, and the animation fashion had passed. Now, Warner Bros. merchandise is found only in stores such as Kmart.
Disney is trying to retrench as well. The company has cut costs by closing hundreds of Disney stores and has reduced its emphasis on merchandise tied to movies whose performance is unpredictable.
One element of the changing strategy was announced yesterday by Andy Mooney, president of the consumer products division. Beginning in May, Mooney told a conference of analysts, Disney will sell its own brand of electronics, including pastel-colored televisions, DVD and CD players, and clock radios. They will be manufactured in cooperation with Memcorp Inc., maker of Memorex electronics goods.
The new products are one way Mooney, who was hired in 2000, is trying to defibrillate the ailing unit. When he started the job, the division's operating income had fallen to less than $400 million, and it has remained essentially flat.
"The business was significantly more fractured, I guess, than certainly I thought, but also more than was known to be the case internally," Mooney said. "To actually even hold the fort over the last three years, I think, is viewed internally as being a success." He predicted low single-digit growth for this year.
In Disney's 2002 fiscal year, which ended in September, the consumer products division booked $2.4 billion in revenue, down 7 percent from the previous year, accounting for about 10 percent of the company's bottom line. It is the company's smallest division in revenue, trailing the theme parks, the movie studio, and the ABC and cable television networks, in ascending order.
Disney overexpanded during its salad days; it grew beyond top-line malls and opened stores in second- and third-tier malls, where profit margins were almost nonexistent. In 2000, Disney operated 515 U.S. stores. This year, that number will hit 375 on its way to a target of 300.
Competitively, Disney merchandise no longer has the field to itself. Disney's "Lion King" was one of the few animated features released in 1994. This year, 17 animated films were up for Oscar consideration. Further, Disney has failed to produce a reliable string of animated features in recent years. It also has faced competition from live-action movies, such as the "Harry Potter" films, which have inspired their own products.
Mooney told analysts yesterday that Disney's consumer products division has de-linked itself from the volatile film industry, so the stores' fortunes will no longer rise and fall based on how a Disney movie performs; that's why the bombing of "Treasure Planet" barely registered in Disney stores.
Further, he said, the consumer products division has shifted from a passive to active licensing strategy, moving from "logo slapping" the Disney brand on existing products -- many of which were substandard and rejected by the consumer, Mooney said -- to working with manufacturers to create products exclusively for Disney.
Disney-branded Motorola two-way radios and cordless phones introduced last summer were an early taste of this strategy. They set the stage for the planned May rollout of the televisions, DVD players and other goods.
The new Disney electronics will be manufactured in a pastel pink-and-blue motif and sold in retail stores such as Circuit City and Best Buy, Mooney said. The television has speakers on top resembling Mickey Mouse's ears.
Disney hired Frog Design Inc.'s Sunnyvale, Calif., studio to create the electronics, which incorporate familiar Disney icons. On the two-way radios, for instance, the "talk" button is the Mickey Mouse head-and-ears logo. The 2.4-gigahertz Disney cordless phone costs $59.99 at Circuit City; comparable GE and Bell phones sell for $29.99.
The next generation of Disney-brand consumer electronics will be karaoke machines loaded with Disney music, digital cameras, and computer keyboards, terminals and accessories, Mooney said.
The fastest-growing revenue generator out of Mooney's shop is probably the "Princess" line of merchandise. Instead of creating new characters, Disney assembled several of the princesses who have appeared in Disney movies -- such as Cinderella and Ariel from "The Little Mermaid" -- into a cohesive line of dolls, toys, clothing, art and games. In 2001, Princess merchandise brought in $136 million in revenue; this year, that number is expected to hit $1.3 billion.
Traditionally, media companies spin off merchandise from movies or television shows. Disney now does it in reverse, as well.
For instance, last year Disney merchandisers identified a market for dolls smaller than the standard foot-high models. Problem: The only candidate in the bullpen was Tinkerbell. So Disney merchandisers approached the Disney publishing division to see if they could create a back story for something called "Tinkerbell's Friends" -- new characters that could also be turned into small dolls. Now, Disney's television division is reviewing scripts for "Tinkerbell's Friends," and small dolls will soon follow, Mooney said.