Tuesday, March 01, 2005

Willful Blindness

"Willful blindness involves the conscious avoidance of the truth"
-- Merriam-Webster Dictionary of Law

In Hollywood reporting willful blindness can be found in the media’s avoidance of any performance measures for moguls that might get undercut "gotcha" personality stories. This eyes-wide-shut practice serves a truly gawkeresque purpose: it allows entertainment journalists to focus on juicy tidbits about the bad manners of moguls while ignoring, or at least holding in abeyance, readily-available facts that might distract their audience from them.

Consider, for example, the field day. or, more precisely, field decade, that the media has enjoyed in its disparagement of Disney’s Michael Eisner. The stories about Eisner’s bad behavior began soon after Jeffrey Katzenberg, Disney’s talented studio chief, left in 1994, intensified after Eisner’s clumsy firing of Michael Ovitz in 1996, and became a veritable feeding frenzy after Eisner got rid of Roy Disney, Walt Disney’s nephew, in 2003. The rehash of items about Eisner's insensitive language (eg. describing Katzenberg as a "midget"), nepotistic decisions (eg. hiring his friend Ovitz), back-stabbing (eg. firing Ovitz) and rich payoffs (eg., honoring the compensation committee’s negotiated $140 million settlement with Ovitz) gradually coalesced into a media morality play: how Eisner's "dark side" led to Disney’s near downfall. To keep the story plausible, entertainment journalists kept their eyes wide shut to the numbers that showed that Eisner, even with the "dark side" that their moral compasses located, had transformed Disney into a huge financial success.

Willful blindness conveniently allowed these journalists to miss the most obvious measure of performance: the valuation of Disney by the stock market. Here are the actual figures: in 1984, when Eisner took over Disney, the (split corrected) Disney share price $1.20, giving Disney a market value of only $1.7 billion; in 1994, when Katzenberg left, the share price was $12.90, Disney had a market value of $18.6 billion; today the share price is $28.5, giving the company a market value of $55.8 billion. So under Eisner, his bad manners and questionable pay offs not withstanding, Disney’s market value has increased $54 billion. Even taking inflation into account between 1984 and 2005, the company increased 18 times in value under Eisner. In view of this enormous business success, it is not surprising that Fortune’s 2005 poll of 10,000 business executives rated Disney as the most admired company in the entertainment industry. These executives evidently valued good performance over bad manners.

Eisner achieved the $54 billion increase in the company’s value not because of his "dark side" but because he recognized that Disney’s future would be in home entertainment– not movie theaters– and, to move Disney in this direction, boldly bought Capital Cities/ABC in 1996 for $19 billion. Disney acquired not only 10 ABC television stations in the biggest advertising markets and the ABC network, but 80 percent of ESPN which turned out to be a huge money-machine. With this coup, Disney moved to the forefront of home entertainment, which is now the heart (if not the soul) of the new Hollywood. As I demonstrate in my book The Big Picture, the logic of money and power behind the new Hollywood is not always transparent. For a closer look at why Disney makes record profits even when its movies bombed at the box-office, see the answer to my Question of the Day on my web site.

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