SHERMAN OAKS, CALIF. — Elea Nit, a full-time mother of two, sorts through a pile of Princess T-shirts in a Disney Store here, apparently dissatisfied.
"I hear they're closing a bunch of these stores," she says, "I'm not surprised.... The prices are much higher than they need to be," she says, picking up a stuffed Pooh bear.
She might easily be reciting from Roy Disney's letter of resignation. He and two other Disney board members stepped down this week, amid a swirl of publicity, charging that the Magic Kingdom is being mismanaged.
Ms. Nit, a US-born Israeli, points at the piles of Princess merchandise, a line of products based on classic Disney heroines. "They're just running the old stuff into the ground," she says. Motioning to a pile of "Lilo and Stitch" dolls, she adds, "when they try something new, it's just awful. Who wants to see such a crazy, mean creature?"
Charges that the Disney company has lost its way under current company head Michael Eisner are not new. But the departure of the final Disney family member from the fabled company has thrown the charges into a new relief. "Clearly there has been an emotional attachment to the Disney name in our culture for a long time," says George Geis, associate dean at the UCLA Anderson School of Management. "The fact that the only son of the company's cofounder is departing and with such acrimony, is bringing the company to a level of attention that it wouldn't have ordinarily had."
One of the ironies of the current dispute, say some pundits, is that Roy Disney helped bring Mr. Eisner on board back in 1984. In Eisner's early days, the company enjoyed what most analysts consider a renaissance in its core business of animated feature films, leading to the first ever Best Picture nomination for an animated film, 1991's "Beauty and the Beast."
Since then, the economy has nosedived and Disney's core animation and theme-park businesses have been battered by the competition. Mr. Disney and his fellow departing board members charge that the company is pushing profits over innovation and quality. They point to the numerous straight-to-video sequels of Disney's classic titles such as "Cinderella" and "Aladdin." Even one of the company's recent bright spots, this summer's hit "Pirates of the Caribbean," is based on an old Disneyland ride. Two other attempts to turn dated theme-park attractions into movies, "Country Bears" and the current "Haunted Mansion," have either tanked or been savaged by critics.
But more critical to the company's future, says Mr. Geis is the image the company has in the public mind. Disney has lost the special place it once had. "Typically, when people looked at the studios in Hollywood," he says, "they put Disney in a class by itself." That image has taken a beating by everything from fatal accidents at both Disneyland and Disney World to the current flap over Disney's association with the foul-mouthed holiday film "Bad Santa" and the ultra-violent "Kill Bill," both of which were produced by Disney-owned Miramax.
The public's attachment to the old Disney name has changed to such a degree in the past five years, adds Geis, "that the special pixie dust is no longer [there]."
Disney's board of directors has closed ranks around Eisner, defending its decision to retain him as CEO, pointing to the rising stock price, among other bright spots, such as their current relationship with Pixar Animation, which created the No. 1 film of the year, "Finding Nemo." Other observers suggest that Disney is suffering from its own desire to be special.
"I've watched Eisner for years and years," says Sam Hill, president of Helios Consulting and coauthor of "The Infinite Asset: Managing Brands to Build New Value." "Any time you have cult CEOs that sort of hype up the company and hype up the brand and love the PR god, well, that's a two-edged sword.... You go up the curve quickly, you come down the curve quickly."
Perhaps more to the point, though, the challenges the company faces are inevitable, says Joel Goldhar, professor at Illinois Institute of Technology in Chicago. As it becomes a media conglomerate with vast television and cable holdings (ABC, ESPN, ABC Family, The Disney Channel), it is experiencing all the problems shared by other entertainment heavyweights.
"This is a mature industry in a saturated marketplace," says Mr. Goldhar. And today, there are plenty of companies jostling to produce family entertainment. "Disney is not unique any more. It might have held a place in people's hearts when ... the only competition was Bugs Bunny."
The Irony, say some pundits, is that a unique identity is the one thing Disney can't afford to lose. "They've positioned themselves as being in the 'magic business,' " says David Shore, director of the Trust Initiative at the Harvard School of Public Health. "When you enter the Disney compound, there's a sign that says 'Welcome to 100 years of Magic.' " Mr. Shore calls this strong branding a power brand, something that consumers will pay more for, travel farther to see, and wait longer to experience, because their expectations are high. Fundamentally, he says, "Disney is not in the attractions or the movie business, they're in the trust business. Trust, not the dollar or the euro, is the currency of all commerce." Unfortunately, he adds, "there's been erosion of that trust."
Some might say consumers have become downright cynical about the Disney allure. Elea calls her 3-year-old daughter, Chinar, and explains what they're doing in the store. "I let her play here for a little bit while I rest from shopping in the mall. But we don't buy, we just rest. She likes the store, but she's just 3 years old," says the weary mother with a smile, "What does she know?"
• Staff writer Clayton Collins contributed to this report.