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Writing about our company’s fiscal year that began 20 days
after September 11, 2001, is challenging, but not as challenging
as actually managing the company during this period. Helping to
shepherd a company during boom times, during times of rapid growth
in the economy and peace in the country is certainly more pleasant.
But managing in difficult times is a real test of our 112,000 employees,
a test of the very fabric of their talent and dedication. Whether
keeping a smile on at our parks or presenting the news at ABC, or
creating films and television shows or building attractions or stores
or covering sporting events, our cast came through. The dedication
of the working family of Disney was tremendous. And therefore in
this annual report, I wanted to start by thanking everyone who works
for your company for rising to the occasion. More than money was
at stake. Reputation and responsibility and honesty had to take
center stage. And they did.
Meanwhile, the fundamentals of The Walt Disney Company are sound
and, despite the ramifications of terrorist threats, the fear of
a war in Iraq and a very soft economy that affects all of our businesses,
your company continues to generate outstanding creative product.
The financial results are detailed in the pages that follow this
letter. Suffice it to say that were the economy more robust and
were the travel industry not in a slump, the numbers for 2002 would
be much more positive. That said, and, based on all of the information
at our disposal and barring a further downturn in the economy, we
have projected 25-35 percent growth in earnings in 2003 and continued
strong growth in 2004. This would put us soundly back on the growth
track that our company is known for and that you, as shareholders,
have every right to expect. We believe that this performance will
result from the strategic action plan that was unanimously endorsed
by the Disney Board of Directors in September. Central to the plan
is a recognition of the enormous competitive advantage our company
enjoys in the marketplace.
In business, competitive advantage can be established in a number
of ways – by being a low-cost provider, by having a technological
edge, by being first into a market or, at our company, by maintaining
strong and differentiated brands, most notably the Disney and ESPN
brands.
There are two principal attributes that make a brand powerful from
a business perspective. It must be unique … and it must be
relevant. Uniqueness is the quality that determines the ability
to use the brand to differentiate one’s products. In this
sense, the Disney brand is truly unique. And ESPN, through considerable
effort and investment, has also established its uniqueness despite
the tough competition in the sports programming business. However,
to be commercially powerful, a brand must also be relevant to consumers.
Clearly, both Disney and ESPN pass this test. Disney is about family,
fun and fantasy. ESPN embodies the edgy and irreverent excitement
of sports.
All of this may seem obvious, but it is critical to understanding
how we think about allocating time and capital in running our company.
The past years have been disappointing in terms of earnings and
stock price, but they have also been an exciting period of investment
in our key brands … investment that I am confident will pay
off well in the years ahead. These investments have protected, buttressed
and built our Disney and ESPN brands to secure their competitive
advantage for a very long time.
Let me give you one specific example. There is perhaps no single
asset that is more symbolically significant than Disneyland. It
was the first theme park and, in the eyes of many, it is still one
of the best because of the wealth of experiences that await guests
within its borders, delineated by its berm. However, outside the
berm, development was chaotic. So, we started on a campaign to revitalize
the resort district and to protect our surroundings through our
government/business partnership with Anaheim. We brought a hockey
team to Anaheim, kept the Angels from moving to another city (and
watched them become one of the all-time Cinderella teams!) and renovated
the stadium in order to help the overall Anaheim economy and strengthen
our relationship with the local community. These efforts helped
make it possible for us to expand Disneyland into a full resort
with a new theme park, new hotel, new shopping area and a garden
district around these assets, complete with improved transportation
access. It was a comprehensive solution, which is now in place and
will allow the Disneyland Resort to thrive for as close to forever
as we can foresee. And when you can count on a competitive advantage
approaching “forever,” you have laid the groundwork
for serious long-term financial returns.
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