Disney's real battle is to keep good cartoons coming

Marlene, Leslie, and Stacy Almanzar shout out the names of their favorite films, such as Disney hits "Toy Story," "The Little Mermaid," and "Beauty and the Beast," as they rifle through a cabinet piled with a hundred videos.

But half of their collection - such films as "Shrek," "Space Jam" and "Antz" - are from other studios.

"I love 'Space Jam,' " says 4-year-old Stacy, belting out with perfect intonation part of the theme song from the Warner Brothers release.

Not that long ago, Disney wouldn't have had much competition for the girls' attention. But now, as the company undergoes a leadership battle via a shareholder fight, such issues are paramount. Whether or not Disney head honcho Michael Eisner keeps his job, the company has to find new ways to wow kids. In fact, among the multitude of issues Disney faces, improving its content - especially as it battles for the hearts and minds of youths - is one of the greatest challenges.

"Disney is going to have to focus on [its] content and investment in content," says Fred Paprin, a principal in the Wildflower Group and a children's entertainment veteran who has worked on marketing campaigns for Teletubbies and "Where in the World Is Carmen San Diego?"

It will be a difficult road ahead for the mouse. Some of Disney's own animation movies seem old, somewhat dated. And the company has lost one of its chief creative partners, Pixar, which told Disney it would not renew its contract. Pixar now joins a crowd of un-Disneys, capturing kids' minds and pocketbooks with movies like "Lord of the Rings" and "Harry Potter." Add to their problems an unfriendly takeover offer from Philadelphia-based Comcast, which Disney is trying to fend off.

For most companies, dissension over business plans might entail a disgruntled shareholder or two. But in Disney's case, it's practically an industry. The critics are led by Roy E. Disney, the nephew of the founder, and Stanley Gold, like Mr. Disney a former director. Some giant pension funds, which normally just sell their shares if they are unhappy, have joined the critics.

There's even a website, SaveDisney.com, which chronicles what it considers the company's errors.

With its back against the wall, Disney has loaded its own cannons. This week, in an attempt to show it still has movie muscle power, it ran huge color ads for "The Chronicles of Narnia: The Lion, the Witch, and the Wardrobe." The movie, based on the C.S. Lewis books, won't be released until Christmas 2005.

And this week, former Sen. George Mitchell, now the presiding director of the Walt Disney board, wrote a commentary in The Wall Street Journal, in which he said the company had listened to its critics and was changing. "As often happens, it is taking some time for perception to full catch up with reality," the former Maine senator wrote.

Much of the criticism has centered on Disney CEO and chairman Eisner. He now admits to some major mistakes that have cost the company hundreds of millions of dollars. For example, in 1996, only a year after hiring powerful Hollywood agent Michael Ovitz, Eisner fired him and had to pay him $140 million.

"In most industries, the CEO is the steward of the company, the face of the brand," says David Shore, director of the Trust Initiative at the Harvard School of Public Health and an expert on corporate brands. "That face is now tarnished, and with it the reputation and sales of the company often follow."

The Disney battle, in part, is also a collision over changes in technology.

The old-fashioned way of making animated features is very labor-intensive. Scores of artists draw pictures of cartoon characters. Some of the business is now outsourced to countries such as India.

"There is still a big market for the old style, but there's an even bigger demand for the new computer-generated images," says Thomas Inge, an authority on popular culture, particularly comics, at Randolph-Macon College in Ashland, Va. "What will Disney do?"

Disney's problems may relate to the fact that it is a mature industry, says Joel Goldhar, a professor at the Stuart Graduate School of Business at the Illinois Institute of Technology in Chicago. "It's hard to make money when there is a lot of competition," he says. "Have they lost touch with their customers?" he asks. "Do they know what excites kids?"

It's lunchtime at William Alexander Middle School in Park Slope, Brooklyn, and the kids come pouring out of every door like water from a leaky bag.

Movies are still a big priority in the lives of these kids, but their interest in Disney's animated features has waned. Now it is the computer-animated movies and films with hybrid animated-live action that grab their attention. "Shrek" is a favorite, and one of the middle-schoolers is counting the days before the sequel opens in May.

Twelve-year-old Morell even knows the DreamWorks logo. Daniel, another 12-year-old says he prefers "Antz" (DreamWorks) to "A Bug's Life" (Disney-Pixar).

That's not surprising to Lorayne Carbon, director of the Early Childhood Center at Sarah Lawrence College in Bronxville, N.Y. She recently took her 12-year-old son to see the Disney movie "Finding Nemo." "He loved it, but begrudgingly so," she says. "It's not cool to like Disney anymore when you are 12."

But what made "Nemo" work, says Ms. Carbon, is the basic themes that children - and adults - can relate to. "Family, love, and loss," she explains. "As long as Disney makes movies like that, children will relate."

• Adam Parker and Kimberly Chase contributed to this story.