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Monday, March 8, 2010

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Disney warms to brain-eating zombies - Calgary Herald


When Walt Disney Co. asked publisher Dan Vado to make a series of comic books based on its Haunted Mansion theme-park ride, he worried the empire built on the likes of Snow White and Tinker Bell would reject his brand of creepy humour. Vado gave Disney skeletons dangling from nooses, scattered corpses and a ghostly poodle that says "crap." To his surprise, Disney signed off on his vision.

"Everything we did was really strange," says Vado, founder of San Jose, Calif.-based SLG Publishing, as in Slave Labor Graphics. "The interesting thing about Disney is, for a company perceived as being stodgy, they do a good job of reinventing themselves."

Disney chief executive Robert Iger, 59, is on a spending spree at the world's biggest media company to transform his film studio, amusement parks and stores. In fiscal 2009, net income at Disney fell 25 per cent to $3.3 billion US -- the worst annual performance in Iger's five-year reign -- and was almost flat in the first quarter of 2010 compared with a year earlier.

The global recession has hammered the company's 11 theme parks, which are offering promotions and discounts. The Burbank, Calif.-based company's studio is also struggling: in 2009, it churned out box offi ce flops such as G-Force, which featured wisecracking guinea pigs.

Iger is pouring billions into attracting a new generation of kids -- boys, especially -- raised on violent video games and reality shows.

In December, Disney completed its $4.3-billion purchase of Marvel Entertainment Inc., home of Iron Man, Spider-Man and the X-Men, paying a 40 per cent premium over the stock price.

The company is now building two additional cruise ships, one of which includes an AquaDuck water coaster that plunges four decks. Park guests will see more-complex, life-size electronic robots made to look like U.S. presidents and Disney characters. And with input from Apple Inc. CEO Steve Jobs, Disney's largest shareholder, Iger is giving his 350 retail stores a high-tech makeover and opening a new one in New York's Times Square in the fall.

The total price tag for all of the upgrades through 2014: more than $12.3 billion, according to New York-based Soleil Securities Corp. analyst Alan Gould, a 59 per cent increase over the prior five years.

Investors give mixed reviews of Iger's moves to refresh the entertainment giant, which was founded as a cartoon studio by Walt Disney and his brother Roy Disney in 1923.

After Iger took over in October 2005, the stock rose 53 per cent to a seven-year peak of $36.30 in May 2007 before crashing in 2009 during the credit crisis to a low of $15.59. From that bottom last March through Feb. 26, the shares doubled to $31.24 as of Feb. 26, beating the Standard & Poor's 500 index gain of 63 per cent, but lagging rival News Corp.' s 179 per cent rise.

"What we look for is a company that is constantly refreshing its operations, improving and continuing to build a business, and that's true of Disney," says Michael Cuggino, president of San Francisco-based Permanent Portfolio Family of Funds Inc., which owns 720,000 Disney shares.

In December, S&P affirmed its earlier revised outlook on Disney's debt to negative from stable, citing concerns about the company's recovery, the growth in spending and threats from deep-pocketed rivals.

"Disney is going to be basically doubling what they are spending," says James Tarkenton, a managing director at Lateef Investment Management. Greenbrae, Calif.-based Lateef has sold all of the 149,984 Disney shares it held in April 2009. Disney spokeswoman Zenia Mucha declined a request for an interview with Iger.

Iger has proved to be a serial acquirer. Three months after taking the helm as CEO, he agreed to pay $7.4 billion for Pixar, which was co-founded by Jobs, to improve Disney's flagging animation pipeline. In all, the CEO has snapped up 28 companies in whole or part, according to data compiled by Bloomberg.

When announcing the deal for Marvel and its cast of superheroes in August, Iger said they would add to Disney's stable of characters and attract more boys to its cable cartoon offerings.

"Content and products for boys have been less consistent for Disney than those for girls," says UBS AG analyst Michael Morris in New York. "When Disney looks for growth opportunities, it sees big potential with boys."

Last year, Disney also bought Wideload Games Inc., maker of the violent video game Stubbs the Zombie in Rebel Without a Pulse, featuring brain-eating zombies. And the company rebranded its Toon Disney cable cartoon channel into Disney XD. The channel's new programming features shows such as Kick Buttowski, aimed at boys age six to 14, the company said.

During a conference call in May, Iger criticized his studio, led by 40-year Disney veteran Dick Cook, which had produced clunkers such as Bedtime Stories about a hotel handyman.

"It's about choice of films and the execution of the films that have been chosen for production, and we've had a rough year in terms of the performance," Iger said. Four months later, Cook resigned, replaced by Rich Ross, then-president of Disney Channels Worldwide.

Soon after, Ross named new heads of studio production and distribution. "Everyone liked Dick Cook, but the results weren't coming through," Gould says.

In 2009, Disney finished No. 5 in box office sales among the six major studios, according to Box Office Mojo.

To fill theatres, Ross, 48, can't yet rely on several of Marvel's most popular comic-book characters. They're tied up in licensing deals: News Corp. has the rights to the X-Men, Sony Corp. controls Spider-Man and Universal Studios Inc. claims several Marvel characters for exclusive use in its Orlando, Fla., theme parks.

Ross has to mine the likes of Captain America, Thor and lesser-known figures like Ant-Man until the bigger superhero licences expire beginning in 2013. The licensing deals soured some analysts on the Marvel purchase.

"Over the long run, we suspect this will be viewed as Mr. Iger's first major mistake as CEO," Citigroup Inc. analyst Jason Bazinet wrote in September.

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