McDonald's looks to revamp Disney deal

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mcdonald's corp. wants to renegotiate or renew its troubled $750 million, 10-year entertainment marketing alliance with Walt Disney Co.

The unprecedented agreement links the fast-feeder to the entertainment giant until 2006, encompassing restaurants in 93 countries and cross-promotion with Disney theme parks and movie properties for theater and home video.

McDonald's Corp. and its franchisees have grumbled that the exclusive pact locks McDonald's into some kid and family films that have been mediocre box office performers-among them "Treasure Planet," "Atlantis," and "Mulan." Apart from "Toy Story," executives close to the restaurant chain complain that Disney hasn't done much to help it lure adults to its films-and, subsequently, McDonald's.

'one-sided'

For most films, McDonald's ponies up a hefty $25 million or more in media and marketing support, the highest spending, on average, of any theatrical marketing partner in the business.

Larry Light, McDonald's global chief marketing officer, told franchisees in recent meetings that the deal is "too one-sided," benefiting Disney far more than the Golden Arches. "The deal has been a bad business deal for McDonald's," said a franchisee who asked not to be identified."Disney is getting the best of the deal."

A spokeswoman for Disney said "We value our relationship with McDonald's, as it has been a tremendous success over the years and we both expect our joint efforts to improve financial performance for both companies for years to come."

A spokeswoman for McDonald's said only, "McDonald's and Disney enjoy a strong business relationship and as partners we are looking for ways to maximize synergies going forward."

Entertainment marketing executives expect the fast-feeder wants to free itself to pick and chose movies like rival Burger King has done. While Burger King has cut a long-term multi-year deal with DreamWorks, that agreement gives it "first look," allowing the chain to decline specific projects.

happy meals

Additionally, executives expect McDonalds will look to lower the royalty rate Disney charges for movie-based toy premiums given away in Happy Meals or through other venues. Companies such as Disney can command a 10% to 12% fee on all toy revenues.

Executives close to McDonald's said the chain had an option to end the deal after five years but opted to continue the agreement after an internal analysis.That analysis found sales of Happy Meals associated with Disney movies outperformed sales of non-Disney Happy Meals, according to a June 2001 internal McDonald's memo.

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