Going goofy in the Magic Kingdom

THERE may be a palace coup afoot in the Magic Kingdom.

For years, Michael Eisner has seemed invulnerable atop the Walt Disney Co corporate empire. But a parting shot from a member of the company's founding family may just have pierced the chief executive's armour.

Roy Disney Jr, the 73-year-old nephew of Walt Disney, revealed on Monday that he is being ousted from the company's board, because of a recently adopted mandatory retirement policy for directors. But on his way out the door, Mr Disney lobbed a grenade of his own, calling on Mr Eisner to resign.

"The company has lost its focus, its creative energy and its heritage," Mr Disney wrote to Mr Eisner. "It is you who should be leaving, and not me."

In a further upset, Disney has been joined by longtime associate Stanley Gold, who resigned on Monday, saying that the company's board used the new rule selectively to target Roy Disney after he became increasingly critical of Eisner's leadership.

It seems strange that Mr Eisner might be under pressure now. After all, Disney shares have risen 41.5% this year, far outpacing the Standard & Poor's 500 index. But during the past five years, Disney shares are down 23%, and that has raised the ire of major investors and insiders.

Shortly after Mr Disney's letter was released, another prominent board member, Stanley Gold, resigned and echoed the call for Mr Eisner's resignation.

"If you'd asked me 24 hours ago, I'd have said Eisner was totally secure," said one analyst who asked not to be named. "But now, with two high-profile board members speaking out against him, I think there could be something in the works."

If Mr Eisner is to weather this storm, analysts say he must find some way to remedy seven key failures outlined in Mr Disney's searing critique of his leadership.

The first and biggest criticism in Mr Disney's letter is "the failure to bring back ABC prime time from the ratings abyss it has been in for years".

Disney's main television asset has been stuck in third place among major networks for the past several years. ABC's only consistent ratings winners in recent years, have been Monday Night Football and the prime time comedy, 8 Simple Rules.

But even Monday Night Football has seen audiences dwindle in recent years, and 8 Simple Rules star John Ritter died suddenly in September, leaving the show's future in doubt.

Disney's cable networks haven't fared any better. The Disney Family channel, which Mr Eisner bought for $5.2 billion in 2001, has struggled and in the most recent quarter missed revenue targets by $100 million.

Overall, operating profit at Disney's television unit has fallen by 40.7% since 2000.

Mr Disney also slammed "the timidity of [Mr Eisner's] investments in our theme park business".

Indeed, the company's theme parks have been chronic underperformers of late. Revenue at the parks has fallen by almost $400 million since 2000, and operating profit is down by 40%.

The company has blamed the worldwide slowdown in tourism since the September 11, 2001, terrorist attacks for sluggish attendance and weak earnings. But some analysts say there are longer-term trends that are more worrying. Richard Greenfield, an analyst at Fulcrum Global Partners, recently told clients that, although there was improvement last quarter, many guests were attracted with deep discounts. Mr Disney also took aim at Mr Eisner's "failure to establish and build constructive relationships with creative partners". The most pivotal relationship is Disney's distribution arrangement with Pixar Animation Studios, the studio behind such hits as Toy Story and Monsters Inc.

Under the current deal, Disney and Pixar share all production expenses evenly, and Disney is paid a substantial distribution fee. All remaining revenues, including licensing and merchandise royalties, are divided 50/50 between Pixar and Disney.

Pixar has been pushing for a new deal that would give it a greater share of the revenues, but Mr Eisner has been slow to extend the relationship. And with each new success, Pixar's negotiating power and its demands have increased. Pixar is now the prime money maker in Disney's movie business. Pixar's recent feature Finding Nemo is on its way to becoming the highest-grossing children's film ever, and Disney faces the uncomfortable prospect of either giving up much of the economic benefits of the Pixar relationship, or losing it entirely when the current deal expires in two years.

More than anything, though, Mr Disney seems to object to Mr Eisner's management style. He laments the CEO's "micro management [and] the resulting loss of morale throughout this company" and "the creative brain drain [which] damages our company with the loss of every talented employee".

Since Mr Eisner took the company's reins in 1984, a string of underlings have gained prominence only to leave the company over personal conflicts with the chief executive.

Jeffrey Katzenberg was head of the company's movie business, until he left to found Dreamworks SKG in 1994. And Michael Ovitz quit just 15 months after he was hired as Disney's president. Other top executives Steve Bollenbach, Stephen Burke and Richard Nanula were all considered potential successors to Mr Eisner. But each left for senior positions at other companies. That, no doubt, fuelled Mr Disney's complaint about Mr Eisner's "consistent refusal to establish a clear succession plan". But nothing in the letter is so damning as Mr Disney's contention that the Walt Disney Co is now widely seen as "rapacious, soul-less, and always looking for a quick buck which is leading to a loss of public trust".

For the company that made Mickey Mouse a cultural icon, and ingrained the Magic Kingdom into the childhood memories of three generations, that is perhaps the most stinging indictment. Even more than the 35.5% decline in net income since 1997.