Disney Bear's Den
Rick Aristotle Munarriz (TMF Edible)

This one hurts. I walk past the extensive Disney video collection in my son's room, past the animated cels and sericels hanging on the wall, and think back to the first stock I ever owned. Back in 1986 my girlfriend bought me a share of a company I had been fascinated with since my first visit to Walt Disney World in 1972. Granted, I eventually framed the certificate and married the girl -- and have made the short drive to Disney World a quarterly ritual ever since.

But investing is one part passion and two parts logic, and the irrational valuation today for a company seemingly at its peak wins over the sappy sentiments. Disney -- hell to many, nirvana to my family -- is simply overpriced, and my argument is not as basic as a company selling for more than 30 times earnings yet growing at half that rate.

Disney has grown to be a huge entertainment conglomerate, and I can't find any division that justifies the present price tag. The cash machine has always been the animated features, but the rust is setting in. In the Eisner era, with every new feature came new box office records. Yet since The Lion King, the three films that have followed, Pocahontas, Hunchback of Notre Dame and Hercules have all fallen short of Pride Rock's peak. The relative softness is important since theatrical success is often what trickles down to the lucrative merchandising aspects of Disney's business plan.

At about the same time that Simba was peaking, Jeffrey Katzenberg was packing. Katzenberg, who many credit with revitalizing the animated classics, left to join Steven Spielberg's DreamWorks project. The DreamWorks team just happens to be entering into the animated feature film market, and with Katzenberg on board it is safe to say that Disney's days of being the sole proprietor of quality animated flicks is ending --

Or has already ended. 20th Century Fox had a stellar run with Anastasia this holiday season. Audiences and critics loved the animated feature. The Miami Herald ended its 3 1/2 star review, fittingly enough, with the words, "Quake Mouse, Quake."

The monopoly was great while it lasted. Disney taught Hollywood and now Hollywood has graduated. Disney had pioneered the entertainment synergy of films, theme parks, and retail, but now it is not alone. Viacom and Time Warner now excel on all three fronts.

The gap is closing. For now investors seem enthralled that theme park attendance rose in 1997. However, the patronage hike was largely the effort of the marketing muscle behind Walt Disney World's 25th Anniversary celebration. Surely the turnstiles will turn a little slower come 1998, as they did in Disneyland California, where attendance was down for the year. Disneyland Paris is now profitable, but still a major disappointment, and Disney does not have a financial stake in the Tokyo theme park.

Even a subtle drop at Walt Disney World, the country's largest tourist destination, would be dramatic given the various resort hotels Disney owns on those 40-something square miles. The overseas currency crisis is sure to dampen foreigner counts. The one hope is that Animal Kingdom, set to open in April, will bring in the curious. Yet, like the heavily touted Test Track attraction that has been delayed for a year at Epcot, Animal Kingdom will not have the entire park completed until early 1999. Will patrons pay $35 for a day at a glorified zoo with only 3-4 attractions (and the long lines they will obviously keep until more rides open next year)? Then there is 1999, when neighboring Universal Studios will open Islands of Adventure, complete with huge roller coasters and themed thrill rides that will probably steal even more of Disney's thunder in Central Florida.

April will also bring Disney's foray into cruise ships and the bookings for the Disney Magic are strong. Yet the real shipline money is made on booze and gambling. As a family ship, I doubt the markups on Shirley Temples will be much -- and there is no onboard casino.

Then there's ABC, arguably the weakest of the three major broadcast TV networks. The one prize in the ABC war chest, ESPN, is the undisputed TV sports leader, but there has been rumored dissension and actual defection of the on-air talent at the network. CNN has also teamed up with Sports Illustrated for CNN/SI to make a respectable dent in Disney exclusivity on cable sports programming. M-I-C, See you down below. K-E-Y, Why? Because you're peaking. Don't bet the H-O-U-S-E.

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