The Iger difference

'We are much more resilient,' says Iger, 'than our competitors.'

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(Fortune Magazine) -- At a time of upheaval in the media business, Walt Disney has had a string of hits the likes of which it hasn't had since, well, the early tenure of former CEO Michael Eisner in the 1980s. Three years after succeeding Eisner - and confounding skeptics in the process - CEO Bob Iger talked to Fortune's Richard Siklos about buying Pixar, pulling Disney (DIS, Fortune 500) out of a creative slump with new megafranchises like "Hannah Montana" and "High School Musical," working with Steve Jobs, and wrestling with the image of a certain mouse. Edited excerpts:

Around the time you became CEO, there was a widely held view that Disney's brand had become dated. When did this issue first hit your radar?

It was in Michael's later tenure that we realized we had some brand issues. There were some speed bumps, so to speak, creatively. There was a perception that there was too much Disney product in the marketplace. And by the way, the combination of lack of quality and too much product is really deadly. And there was a sense that our audience was young and that Disney products couldn't be of interest to older kids. The other thing was that the brand was more tied to the Disney heritage than it was to relevance and innovation.

One of your messages is there's now a "Disney difference" that sets it apart from other media companies - and that difference is your ability to take franchises like "Hannah Montana," which was launched on TV, and move them across different platforms, like the recent "Hannah Montana 3-D" concert film.

This is a company that does not revolve around a movie studio; we have multiple creative engines. "High School Musical" is probably one of the best recent examples. I was in Hong Kong recently, and I pulled into a parking lot and there were 150 cast members there rehearsing for a performance that we're now showing five times a day at Hong Kong Disneyland. We have versions of "High School Musical" under way in India, Russia, and other markets.

Certainly you have plenty of that synergy in the marketing sense also.

If you asked [Walt Disney Pictures head] Dick Cook the single most important way for him to market a movie - it's on the Disney Channel. Interestingly enough, we don't take commercials on the Disney Channel, but there is an exclusive sponsor, and it's Disney.

Let's stick with "High School Musical," because after two highly successful cable movies, it's being made into a feature film. How is a decision like that made, and are there sore feelings from the Disney Channel folks?

You do want what I'll call some business chauvinism - you want people to believe in their businesses and fight for them. But you want to understand in the end that the whole is much greater than the sum of its parts. Now, there's always politics in companies. But the walls between the businesses are much thinner and much lower than they used to be.

One of the decisions you made was to change the approach to managing these big franchises.

That was the result of a belief that these great character franchises were all brands unto themselves. But nobody was really managing those brands, and decisions were being made in a vacuum. So if we determine that "Toy Story" is a real franchise for the company, then "Toy Story" should get made. Now, you still have to have a great story and great execution - and in the absence of that, you shouldn't make it. And not everything has to be a franchise. I was recently asked whether "Ratatouille" was a franchise. I said no: "Ratatouille" is an extremely good animated film and will be a classic unto itself, but it is not a franchise. You are not going to see "Ratatouille" attractions in parks. When you look at "Toy Story," we're making our third film, we're opening two Toy Story Mania attractions at parks this summer, we have a very strong consumer products line, we have a "Toy Story" musical opening on the cruise line, we have a game in development - that's a franchise.

How does it work?

We get together about every six weeks with the heads of the Disney business units. Sometimes we'll even focus on a market - say, what's going on in Japan with Pooh? We've also created financial metrics to track them against each franchise so we can see what's going on financially. If we see a trend that is worrisome - or the opposite - we bring it up at this meeting. We also have creative champions for all of these franchises. Even though "High School Musical" is being made for the studio, the creative champions are the Disney Channel folks Rich Ross and Gary Marsh - and they're working very closely with the studio people. Similarly, the studio is the arbiter of taste when it comes to "Pirates," Pixar is the arbiter for "Toy Story" and "Cars," and so on.

Are Mickey Mouse and Winnie-the-Pooh still the company's largest franchises?

Yes.

So who at Disney owns those franchises?

I do. It sounds funny, but I'm the steward of the Mickey brand, which in a way is the steward of the Disney brand. We're actually having an interesting discussion about Mickey. I'm not the only voice. John Lasseter from Pixar has taken a real interest.

Mickey does seem overly nostalgic.

If you read about Walt and his history with Mickey, he struggled with the same stuff in the 1930s - that Mickey had become too sanitized. You're talking about an unbelievable franchise in the billions of dollars for a character that is 80 years old. But we'd like to grow it.

One competitor said to me that by putting less emphasis on animation you are diminishing the company's core brand strength and legacy.

There's no question that animation is a great wavemaker for the company. We believe we have a very vibrant creative engine there, mostly driven by Pixar, and we hope that Disney Animation will once again experience glory days too. We believe we're on the right track. But you raise something interesting that I deal with a lot. When you deal with a company that has a great legacy, you deal with decisions and conflicts that arise from the clash of heritage versus innovation versus relevance. I'm a big believer in respect for heritage, but I'm also a big believer in the need to innovate and the need to balance that respect for heritage with a need to be relevant.

The film "Enchanted" - which integrated but also parodied some Disney cartoon characters - is an example of that.

A very good example of that. It's interesting as it relates to Mickey. I love classic Mickey, but to kids today, classic Mickey is meaningless. They want modern Mickey, but what is that? If you just keep it in the past, it typically doesn't survive the present.

You recently produced your first feature film in China, "The Magic Gourd," for that market, and you have your first Indian production, "Roadside Romeo," set for release. Is it still a surprise or disappointment that after all your efforts to expand the Disney brand and business globally, the international unit still generates only 20-odd percent of your overall revenue?

The initial goal was to be bigger, but we made a big mistake: We made a lot more money in the U.S. ESPN grew more than we expected, ABC turned around, and Walt Disney World recovered from 2001. The growth internationally has probably been bigger off a lower base, but unfortunately - or fortunately - the businesses in the U.S. did better proportionately. We're also shifting our look at the world a lot. People have been misled by that access to new markets to think that there is a homogeneous, one-world culture. We've discovered that pride in local culture and demand to own it is much greater than we had previously thought.

An interesting thing about your efforts to revitalize the Disney brands is that you turned to an outside company, Pixar - and, it seems, largely left it alone.

A major priority when we did the deal was to protect their culture. But we also wanted to give Pixar a much broader canvas to paint on. Before we did the deal, we had gotten to the point when there was tension in the relationship, and it was almost impossible to accomplish what we wanted. Now that we're one company, it's much easier. I just played an alpha [test] version of the "Cars" virtual online world. I would say that if we had not done the deal, "Cars" would have been the last movie that we made with Pixar, and we couldn't have created this virtual world. And even if we had, we wouldn't have had John Lasseter sitting at the table with our Internet guys developing it.

What's your relationship with Steve Jobs, who as a result of the Pixar deal is on Disney's board and your largest shareholder? There was an initial reaction that somehow he was going to take over.

We talk about once a week on average, sometimes just to say hello, sometimes to ask his advice. We don't have to agree on everything, but the value of that advice to the company is enormous. And I am lucky to have access to a lot of Apple's (AAPL, Fortune 500) product. Yes, I was one of the first kids on my block to have the MacBook Air. People are aware that Steve tends to be opinionated, which is misconstrued as being bad - I actually think it's a good thing because it provides perspective. We've always embraced technology, but thanks to Steve we've done even more. A lot of media companies see technology as more foe than friend. I want the opposite at this company.

Since becoming CEO you've done one big deal, Pixar, and some smaller, including virtual world Club Penguin and a stake in Indian broadcaster UTV. Do you think the time for big media deals is over?

I don't rule out something large, but it doesn't mean something is looming. Nothing is. We kick tires, big and little. It's something Steve and I have talked about a lot fairly recently, including Yahoo (YHOO, Fortune 500) - not post-Microsoft (MSFT, Fortune 500) but pre-Microsoft. We make decisions based on whether something is a good fit for the company. [At press time Time Warner's (TWX, Fortune 500) AOL and Yahoo were in talks about combining their Internet operations; News Corp. and Microsoft, meanwhile, were considering a joint bid for Yahoo. Time Warner is Fortune's parent company.]

Why was Yahoo not a good fit?

It's an interesting business but expensive for us, and I don't know that we necessarily brought anything to the table in terms of management expertise. We're trying to stay away from what I'll call distribution. You can argue whether that's distribution or content - it's probably a little of both.

Over the past five years - April 11, 2003, to April 10, 2008 - Disney is up 77%, versus 56% for the S&P 500. For the past year - April 11, 2007, to April 10, 2008 - Disney is down nearly 12%, versus a drop of 6% for the S&P. Some of it is analysts wondering if you can keep up the hits. But it also seems as though Disney is facing a double whammy: the technology issues facing media companies, plus the fear that the theme-park business will be hurt by the economy. Does the Disney difference shield it from those issues?

Strength, creativity, and a product that is in demand are good things. Also, through some very deliberate moves from a divestiture perspective, only 20% of our revenues now come from advertising - we sold radio and did not buy more television stations the way many of our competitors did. At our parks, we've worked very hard to create a competitive advantage. If families are going to go on a vacation, they're likely to either come to us first or abandon us last. I don't think it would be fair to say that we're recession-proof, but we're much more resilient than our competitors.