Chương 658: Chapter 659: Brief Respite in Expansion
[Chapter 659: Brief Respite in Expansion]
The news that Disney's animation division had been successfully auctioned off for a staggering $2.5 billion reignited a flurry of media coverage. After both parties signed the deal, Summer Redstone seized the opportunity to announce the formation of Paramount Animation, appointing Roger Allers, director of The Lion King, as CEO of the newly established division. Meanwhile, Viacom declared that it would leverage the vast network of Blockbuster stores, along with Paramount Animation, Paramount Pictures, and MTV's programming, to jointly enter the lucrative film and television merchandising industry.
Just a day after securing his contract as CEO of Paramount Animation, Roger Allers held another press conference to announce the simultaneous initiation of three 2D animated projects from Disney: a sequel to The Lion King, Pocahontas, and Mulan. This move clearly aimed at his former employer, Disney.
The influx of good news in quick succession propelled Viacom's stock price up by 7.6%. The rise made the company's shareholders, who had previously criticized Redstone's aggressive expansion strategy, reevaluate their opinions and commend his decisive leadership.
However, where there were winners, there were also losers -- most notably, Warner Bros. CEO Terry Semel, who had lost to Redstone in the bidding war for Disney's animation division. Although companies like Seagram and 20th Century Fox, which also lost in the competition, faced some media backlash, the commentary surrounding Warner Bros.' defeat was almost derisive. After all, Warner Bros. had more than double the overall strength of Viacom, and its previous struggles in film left it with ample rationale to seize the Disney animation division. This loss negatively affected Warner Bros. even more than just the defeat itself; many media outlets speculated whether the company was facing a financial crisis.
Firefly's unexpected announcement on the auction day to extend the payment deadline disrupted Warner Bros.' carefully considered bidding strategies. While Semel was the head of the company, his authority was significantly less than that of his predecessor, Steve Ross. Consequently, he was unable to recalibrate the strategy quickly in response to Firefly's sudden move, leading to Warner Bros.' eventual failure in the auction.
While the fundamental responsibility for this failure rested on the shoulders of Warner Bros. shareholders and the board's constraints on Semel, it was clear they would never take the blame. Ultimately, Semel bore the brunt of the criticism.
Warner Bros.' stock price had already been suffering from poor box office performance over the summer, and with this auction loss, their hopes of breaking into the animated film sector withered away. The negative impact of this event caused Warner Bros.' stock to dive even lower, reversing a brief recovery following the summer slump.
Under immense pressure, Semel even toyed with the idea of resignation amidst his busy schedule. However, this thought was fleeting. Among the reasons to stay was the lucrative salary the CEO position offered, and anyone who had tasted the power of leading a major media conglomerate would hesitate to give it up. So, Semel had to grapple with the challenges and search for solutions to the ongoing predicament.
...
As the seller, Firefly Group celebrated their gain of $2.5 billion in cash from the deal, yet the media's tone towards the company was far from congratulatory. The general consensus among media outlets was that the $2.5 billion auction price for Disney's animation division was still significantly lower than its actual worth. They pointed out that the ongoing success of The Lion King alone could provide ample proof. With an estimated net profit of $1 billion over the next three years, that meant an annual net income of over $300 million for Firefly. By the industry standard, where a company's market value typically exceeds its annual profit by tenfold, the media believed the real value of Disney's animation division should be over $3 billion.
In contrast to Semel, who was desperately managing media interviews in hopes of turning around Warner Bros.' recent downturn, Firefly held a routine press conference during the signing with Paramount and subsequently refrained from engaging further with media commentary. This underscored the advantage of being a private company, which could evade the pressures of stock prices and profit reports.
Moreover, despite dampened expectations for Disney's theme parks and merchandise businesses following Firefly's decision to part with the animation division, the internal development strategy at Firefly Group remained crystal clear. After spinning off the traditional animation department, Jeffrey Katzenberg immediately began restructuring Disney's animation division.
While most of the top digital animators were at Pixar, the past few years had seen an explosion of advertising design firms and special effects studios utilizing computer graphics technology. Training a batch of skilled professionals with both computer and artistic backgrounds from these firms to reboot Disney's animation department seemed well within reach. Additionally, Firefly Software company and Pixar Studios could offer a complete suite of mature animation technologies and some management talent for the new Disney animation division.
Under Katzenberg's expert control, who had previously led the revival of Disney's animation department, everything could go smoothly, allowing the new Disney animation division to produce its first work within three years. Thus, the release schedule for Disney animated films would only see a slight interruption in 1996 before returning to a stellar output pattern with Pixar and Disney alternating releases.
The continuous divestiture of print media and the animation division had significantly boosted Firefly's cash reserves. However, Eric had no intention of pursuing aggressive expansion just yet.
Though the merger with ABC had proceeded without significant upheaval, at that moment, Firefly was akin to a recently combined large media machine; it had just achieved the basics of operation and was still far from optimal efficiency. With several issues requiring attention, brazenly pushing for the next round of expansion would lead to two possible outcomes: one characterized by excessive growth resulting in an unwieldy structure and systemic problems that might lead to overall collapse and financial crises; the other represented by a superficially strong entity like Warner Bros., riddled with internal discord, ultimately unable to avert decline.
Eric envisioned a Firefly that, even when encountering high-level transitions resembling Warner Bros., could operate smoothly. Thus, while rebuilding the Disney animation division, Firefly was also busy aligning operations across its two main segments -- film and television -- through continuous adjustments at ABC, Disney Channel, ESPN, Marvel Entertainment, and more.
Since internal restructuring usually didn't require excessive capital, the operating cash flow within Firefly was more than capable of handling these adjustments. Given the robust profitability of Firefly's various sectors and the significant funds flowing in from divesting those two assets, the company's accounts inevitably displayed a considerable cash surplus. Firefly's choice to extend the payment period during the auction of the Disney division was partly motivated by this reason: too large an inflow could lead to tax liabilities if it couldn't be invested promptly.
In the past, Eric's first reaction to such a situation would typically be to settle Firefly's debts. However, after several years of experience, his once-conservative approach to business began to shift. He gradually embraced the notion of a leveraged business model. Although Firefly's debt reached $10 billion, its debt-to-equity ratio stood at a healthy 30%. For most corporations, this level of indebtedness was quite sustainable and even beneficial, enabling tax avoidance through interest expenses.
Furthermore, while paying off debts early could save Firefly some interest costs, eliminating all $10 billion in liabilities in the short term would only save roughly $5 billion in interest. On the other hand, investing that same $10 billion could yield several times that amount within a decade, thanks to Eric's unique advantage in navigating such markets. Therefore, the decision between settling debts or investing practically made itself.
With abundant cash support, even though Firefly's internal expansion momentarily paused, Eric sought to hasten investments in the high-tech sector he was familiar with. It was the dawn of the late 90s tech boom, and this was an opportune moment to enter the fray.
...
To support the technical development of Yahoo's advertising and technology alliances, Eric injected another $200 million into Yahoo. The $200 million debt financing promised to America Online also hit their account in one lump sum. At the same time, per the original plan to expedite Yahoo's advertising alliance via an angel fund, Eric began accelerating investments in promising websites.
Nevertheless, these investments still represented only a small portion of Firefly's cash reserves. Eric was certainly not about to blindly increase investments and be taken advantage of. As such, leaving nearly $1 billion in cash after dividends for other shareholders also became a predicament for Eric.
...
"What a fortunate dilemma," he reflected while seated in his office at Firefly Studios, reviewing the latest financial statements of the group over a week after the auction of the Disney animation division.
Just as he was contemplating, Kelly walked in, gave him a light glare, and handed him a schedule across the desk. "I've booked a Gulfstream business jet. The Victoria's Secret team can fly to New York tomorrow morning. Miss Brighton has arranged a press conference there. Additionally, the set at the Manhattan Lexington Avenue Armory has been set up according to your blueprints, although the remote-controlled camera track you asked about is still in customization and might take another week. And your earpiece recorders..." she paused, adding, "I don't know what all these strange ideas of yours are, but Motorola is willing to customize them for free; they just want their logo prominently displayed on the equipment."
Eric nodded. "That's fine, but we need the equipment delivered within a week."
"Of course, I've already instructed them," Kelly acknowledged, then continued, "Regarding the Victoria's Secret plans, Mr. Katzenberg's assistant just called. He'll also be heading to New York tomorrow."
Looking up from a document he was reviewing, Eric asked, "What for?"
Kelly, skipping any playful banter, explained, "Tomorrow is the 19th, Monday, and Survivor airs Tuesday. Mr. Katzenberg likely wants to see the ratings news for Survivor as soon as possible. If any issues arise, he can make quick adjustments."
Eric nodded in realization. He simply remembered that ER and Friends were set to premiere on September 28th and 29th but had overlooked that Survivor's premiere was a week earlier. Given the strong positive response from its trial run, ABC wasn't overly worried about ER and Friends. However, for Survivor, an innovative reality show format that Eric personally selected, doubts lingered among many. Unique in its format, Survivor couldn't facilitate a trial episode. Thus, it wasn't surprising that Katzenberg wanted to be on hand at ABC's New York headquarters to react promptly to any implications stemming from the show.
In truth, Eric didn't worry too much about Survivor's performance, knowing that the show had proven immensely popular in his previous life -- even years after its launch, a slew of similar reality shows emerged. But he had no intention of interfering with Katzenberg's decisions.
Noticing his silence, Kelly passed him a thick file. "This is the information you requested. The radio communication technology company you asked me to look into is developing products that stray too far from the main GSM format. I don't see much investment potential unless you believe their technology can completely replace GSM, which seems unlikely. The first-generation analog signal transmission lasted over twenty years before GSM ousted it; even if this new communication format has more advantages, it seems unlikely to replace GSM quickly. After all, all the mainstream global communication technology companies and mobile device manufacturers currently use the GSM format and have heavily invested in R&D. Those world-class electronic giants wouldn't allow their newly acquired technological advancements to be easily supplanted."
*****
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