Disney, McDonald's may end their marketing marriage
Monday, June 06, 2005 By Merissa Marr and Steven Grey, The Wall Street Journal
The exclusive marketing partnership between Walt Disney Co. and McDonald's Corp. has outlasted many Hollywood marriages: For the past decade, McDonald's has had access to the family audience for Disney characters, while Disney got access to the powerful promotional platform that McDonald's 30,000-plus restaurants represent.
But with the iconic marketing pact set to expire next year, McDonald's is signaling that it is ready to play the field. The world's largest fast-food chain has been courting other studios -- including Disney's animation rivals DreamWorks Animation SKG and Pixar Animation Studios Inc. -- in a bid to revamp its movie-related promotions, according to people familiar with the situation.
Since 1996, McDonald's has promoted only Disney movies, television shows and theme parks. In contrast, closely held Burger King Corp. and other chains pair up with several studios on a case-by-case basis. The Disney-McDonald's deal specified how much TV advertising McDonald's would provide and how many promotions would run in its restaurants each year.
For McDonald's, the deal made sense a decade ago, when Disney ruled the animation business by churning out blockbusters like "The Lion King." But as Disney's winning streak faded, the relationship became strained, and McDonald's found itself locked into promoting flops like "Treasure Planet." McDonald's franchisees have blamed such duds in part for declining sales of the chain's Happy Meals.
But Disney, too, is eager for change. The 10-year agreement has limited Disney's flexibility in picking release dates for movies in an increasingly crowded marketplace. According to people familiar with the matter, it also locked Disney-owned TV networks into selling some advertising time to McDonald's at below-market rates.
Still, the Golden Arches beckon, representing a powerful launching pad to the family audience and the increasingly elusive young-adult market. And movies remain valuable marketing tools for drawing customers into a fast-food restaurant. But McDonald's, like other chains, wants to increase its chances of landing a blockbuster by working with a range of studios.
McDonald's has been in talks with DreamWorks Animation, the studio behind recent animated hit movies such as "Shrek." Under a potential McDonald's-DreamWorks deal, McDonald's could partner with other studios although DreamWorks wouldn't be free to work with other fast-food chains, according to people familiar with the situation.
DreamWorks Animation Chief Executive Jeffrey Katzenberg earlier this year addressed McDonald's marketing managers at a meeting in Chicago, say people familiar with the situation. Mr. Katzenberg gave an overview of the Glendale, Calif., studio and outlined its aggressive strategy for tapping promotional and licensing partners to help sell its movies, these people said. For its latest movie, "Madagascar," for example, DreamWorks has a list of promotional agreements valued at close to $100 million in all, including Denny's Corp., Krispy Kreme Doughnuts Inc. and the National Association for Stock Car Auto Racing, or Nascar.
Fast food has long had a starring role in promoting DreamWorks movies. The studio has had a longstanding relationship with Burger King and signed a five-picture deal with the chain. It isn't clear what would happen to that deal if DreamWorks were to partner with McDonald's, although any McDonald's deal is unlikely to kick in until "Shrek 3" in 2007.
McDonald's also has had discussions with Pixar, according to people familiar with the situation. The fast-food chain has promoted Pixar movies such as "Finding Nemo" and "The Incredibles" as a result of its pact with Disney; Disney co-produced and distributed those Pixar films. But the Disney-Pixar deal is due to come to an end after Pixar's next movie, "Cars," and it isn't clear whether it will be renewed. Either way, Pixar may be free to strike its own deal with a fast-food partner.
Both DreamWorks and Pixar declined to comment. McDonald's spokesman Walt Riker said: "We're talking to many creative studios with the mission to get the best properties for our customers. It's inappropriate to name any individuals. ... Talks are going broadly."
Some people would say Disney came out ahead in the current deal. "The perception is that McDonald's gave away the store," said Richard Adams, a former McDonald's executive who is now a franchisee consultant. The reason: Disney reaps the benefits of the promotional and advertising support no matter what, while the benefits to McDonald's hinge in large measure on how good the movie is.
Still, the relationship has had drawbacks for Disney. The Happy Meal promotions leave Disney with little wiggle room on the timing of its movies, even as rival studios are jostling for position so as to avoid bumping up against the competition. When Disney decided last year to delay its animated "Chicken Little," for instance, it caused considerable tension with McDonald's. And even though Disney receives a guaranteed amount of advertising from McDonald's, some of its networks would prefer to sell that space at better rates in the open market.
Of the-- Happy Meal promotions McDonald's ran last year in North America, seven were Disney-related. The partnership has also extended to other activities such as openings of McDonald's restaurants in Disney theme parks. It hasn't yet been determined whether those outlets would remain when their deal expires, people familiar with the situation say. In any event, Disney also has been testing the waters for new marketing partners, the people said.
Forging deals with others doesn't mean that McDonald's partnership with Disney is completely finished. McDonald's Chief Executive Jim Skinner said recently that the company has enjoyed a "productive relationship" with Disney, but that "we're looking forward to the opportunity to have flexibility around these promotional activities." New marketing arrangements might include music and sports, Mr. Skinner said, declining to elaborate. "We don't speculate about what kinds of deals we'll have."
Some marketing experts say increasing its share of the preteen and teenage market is a major consideration for McDonald's. Much of the chain's successful "i'm lovin' it" marketing campaign features pop stars like Justin Timberlake and Destiny's Child, who appeal to a slightly older customer.
McDonald's, however, says it isn't looking to cultivate the preteen and teenage market at the expense of younger kids. "Our marketing is inclusive, and that means having an opportunity to bring the best properties to McDonald's, from toys and movies to fashion, sports and music," said Dean Barrett, McDonald's senior vice president for global marketing. He added: "We will continue to talk with leaders in the creative industry, including Disney."