Disney decade winding down

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It seemed like a good deal at the time.

And through a raft of moneymaking tie-ins between the all-American burger chain and the family-friendliest entertainment company, the 10-year exclusive alliance between McDonald's Corp. and Walt Disney Co. was as golden as the arches.

"It was a perfect storm of an alliance between two companies," says Brett Dicker, Disney exec VP-marketing. "For its time, it was the gold standard of marketing alliances."

As the deal nears its completion at the end of next year, though, the world around it, and the challenges facing each marketer, have changed dramatically.

McDonald's has shifted its focus away from the youngest consumers, the ones Disney has long held sway with, and turned to teens and young adults. Everything about the burger chain, including its uniforms, is on a hip-seeking mission, where music downloads, sports stars and videogames are more likely to pull in the desired demographic.

If and when the chain decides to court children, there are a number of serious competitors like DreamWorks Animation Studios and 20th Century Fox, where once there were few.

At the same time, Disney and other Hollywood studios have found that new categories of players are looking for extensive tie-ins with their properties and are willing to pay dearly for the right. These marketers also command the kind of media budgets, real estate and broad consumer appeal that have supplanted fast-food restaurants as the only must-have partners.

When the McDonald's-Disney agreement came together, Disney was riding a box office high with G-rated blockbusters like "The Lion King," "Toy Story" and "Beauty & the Beast." Disney was the one true player in family films and certainly the only brand name in the otherwise generic world of Hollywood studios.

McDonald's, which already had a longstanding relationship with Disney, had passed on a few key movies in the 1990s that turned out to be major hits at the box office and in their co-promotions with rival Burger King Corp. One former McDonald's executive says that Ed Rensi, then president of the chain, recounted in senior-level meetings with some chagrin being dragged to Burger King by his grandchildren for "Lion King" kids meals.


That was 1994. Discussions that led to the 10-year deal, pegged at $2 billion to $3 billion in promotional value/royalties, began the next year. Part of the appeal was Disney's constant stream of product, which could supply the McDonald's calendar with promotional fodder that would speak to kids. Of the chain's top 10 best-selling Happy Meals over the years, five were pegged to Disney properties. The conglomerate's theme parks, which had never featured branded food, were open to McDonald's for the first time.

"This deal amazed people in its scope and scared people at its commitment level," says Brad Ball, principal of branded entertainment company Ball Entertainment Group and a former McDonald's executive. "But it certainly accomplished a main goal-Disney could count on a significant media boost for its properties, and McDonald's had a consistent source of entertainment with a built-in level of credibility for its global promotional calendar."

The downside, as some franchisees said over the years, was the inflexibility and the corporately handed-down decisions on which properties the chain would promote.

"We were expecting to get all A-list properties, and we got a lot of B and C properties that we made successful by the $30 million-$50 million we spent promoting them," says a former McDonald's executive. "A lot of first-rate properties [from other studios] went to our competitors because we couldn't get involved with them."

The exclusive terms of the deal didn't allow McDonald's to bid on such movies as Fox and Lucasfilm's "Star Wars" or Sony Pictures Entertainment's "Spider-Man."

Burger King hasn't exactly gone begging. Its tie-ins have included blockbusters "Shrek 2" from DreamWorks ($920 million globally at box office) and "Lord of the Rings: The Fellowship of the Ring" from New Line Cinema ($871 million), as well as "Star Wars" and "Spider-Man."

Disney executives say they gave McDonald's the cream of the crop, while noting that for every dud like "Country Bears" and "Treasure Planet" there were runaway hits like "Finding Nemo" and "Lilo & Stitch." The studio says it's delivered $7.5 billion in global box office during the alliance so far.

Franchisees also complained they promoted Disney too heavily at the expense of their own products. Disney countered by saying it weathered some storms alongside the chain, including failed menu items attached to Disney properties.

Disney was drawn to a number of McDonald's attributes, including its megamedia budgets, its unequaled global reach, and its close relationship with families and children. Having a fast-food partner was de rigueur for an animated film in the '90s, and having McDonald's in the fold was a strong bargaining chip with filmmakers. It also boosted Disney's credibility in live-action films, with tie-ins to such fare as "Armageddon."


The deal was more advantageous to Disney, says Jack Trout, president of marketing consultancy Trout & Partners.

"The Disney relationship just reinforced what people already knew about McDonald's-that it had a stranglehold on little kids," Mr. Trout says. "But they want to escape from kiddieland now and become hip and cool."

They are committed to working together through 2006, with McDonald's planning links and global Happy Meals with upcoming Disney movies "Chicken Little," the first all-computer-generated film that Disney has created; "The Chronicles of Narnia: The Lion, the Witch & the Wardrobe" for this holiday season; and "Cars," a Pixar production slated for next summer.

Executives on both sides have said they expect to continue working together, though terms haven't been ironed out. Those inside and outside the companies think it will be a flexible setup in which McDonald's may retain a favored-partner status but will have the ability to cherry-pick properties from various suppliers.

McDonald's execs will visit Disney headquarters this month to look at the 2007 film and home video slate, while they're also meeting with other studios. Meanwhile, Disney has started talks with other marketers for future projects.

"The relationship will continue but in a new form," Mr. Dicker says. "The marketplace has changed. We need to adapt, and so does McDonald's."

Such a rigid long-term deal wouldn't be made today, industry mavens say, particularly because marketers have a better grasp on their value in the equation.

"It was a seller's market for the studios then, and Disney was in its heyday," says Stephanie Sperber, exec VP of Universal Studios Partnerships, the NBC Universal division that creates alliances with marketers. "There's a new recognition now that both parties bring something very valuable to the table."


Some top films at box office among McD’s/Disney tie-ins:

--"Finding Nemo," $865 million

--"Pirates of the Caribbean," $654 million

--"The Incredibles," $631 million

--"Armageddon," $554 million

--"Monsters, Inc.," $525 million

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