Revitalizing Underperforming Areas (i.e., Home Video and Consumer Products)
There were two primary reasons for our company's disappointing performance in 1999 -- downturns in Home Video and in Consumer Products. We are now implementing plans designed to return these operations to growth. These are immense businesses, each of which would rank in the Fortune 500 and each of which is the undisputed leader in its field. Of course, given their size, they cannot be turned on a dime. But, when they do turn around, they should be fundamentally pointed in the right direction and headed for renewed long-term success.
Throughout the `90s, our approach to Home Video was to release all of our major library titles for relatively brief designated periods of availability. In fact, one of the reasons our home video revenues were down in 1999 was because of this strategy, since we released four fewer major library titles in the U.S. during the year, resulting in a sales decrease of roughly 40 million units compared to 1998. The strategy of limited release periods served us well during the rapid-growth phase of the video business. Now, VCRs are in virtually every home, and we believe that consumers are best served by making most titles available on a year-round basis, similar to the music and book businesses.
So, beginning in January, 2000, we will start sequencing into the video market all but ten of the titles that were previously held in limited availability. Separately, these ten classic animated films will comprise what we are calling The Disney Platinum Collection. One of these films will be released each fall on a ten-year cycle, starting with "Snow White" in the fall of 2001. This will allow us to build a company-wide marketing event around each release, thereby maximizing the value of these ten films and reinforcing their special appeal among consumers. We believe this strategy will also help to optimize the library as the home entertainment market transitions from the VHS format to DVD.
We will now be issuing all of our video releases simultaneously on VHS and DVD. The availability of Disney films should give consumers greater reason to add a DVD player to their home entertainment centers. There are currently four million DVD players, plus 10 million DVD-capable computers in the U.S. As DVD penetration levels increase, the potential significance for our library is considerable, since the switch from VHS to DVD could parallel the earlier switch from audiotape to CD's in the music business. We have positive research regarding the rising demand for DVD, but my gut tells me DVD will come on even more strongly than the forecasters suggest. Why? Because I find that I've finally gotten the DVD "bug" and am now back in electronic stores cruising the DVD aisles the way I did just as Beta and VHS were taking off in the `80s and as the personal computer started to explode in the `90s.
The challenge in Consumer Products has two major facets -- Licensing and The Disney Stores. One major step we have just taken to improve both of these areas is the appointment of Andrew Mooney as President of Disney Consumer Products. Andy brings outstanding experience, great insights and creative know-how to this position. He comes from Nike, where he wore several key hats, most recently serving as Chief Marketing Officer and head of its Global Apparel business. I believe Andy's leadership will help accelerate the improved performance we are expecting in this important area.
During recent years, our licensing business has been a victim of its own success. We built a successful strategy during the first half of the 1990s that was geared around the unprecedented success of such animated films as "Beauty & the Beast," "Aladdin" and "The Lion King." We built our market share by signing as many licensees as possible -- reaching a peak of more than 4,000. This became far too many relationships to productively manage as the market shifted. We are currently cutting the number of licensees in half. By having broader relationships with fewer licensees, we will be able to more effectively build new merchandise campaigns to strengthen such established characters as Mickey Mouse and Winnie the Pooh. For example, next summer, we will launch our first-ever national TV ad campaign promoting a new apparel line themed around our favorite mouse. Meanwhile, merchandise featuring Pooh and his pals should directly benefit from this February's release of "The Tigger Movie." This film also comes in the midst of major international growth for Pooh, whose merchandise sales in non-English-speaking countries nearly doubled during the past two years.
Our strengthened licensee relationships should also help Consumer Products take advantage of such new film properties as "Dinosaur" and "102 Dalmatians" later in 2000 ... as well as an anticipated surge of interest in all things "Toy Story" early in the year. And, throughout 2000, you should start seeing the results of new relationships with retailers. These include Toys `R' Us, which is rolling out front-of-the-store Disney-themed spaces, and Target and Macy's, for which we are developing merchandise exclusives featuring our characters. The fact is that Disney Consumer Products has a collection of the best-loved and most valuable licensed characters in the world, which, over time, will underpin Licensing's return to growth.
The Disney Stores' fortunes have paralleled those of Licensing. They grew explosively through the decade, but lately their performance has dipped. A new management team is overseeing the implementation of new ways of doing business, including a redesign of the typical Store. It is amazing how quickly fashion changes. It is not unlike the movie or television business. I loved the carpets in the Disney Store just five years ago. Now I feel I'm walking into the past. Similarly, we had to get rid of the orange chairs and tables in Tomorrowland at Walt Disney World because it was looking like Yesterdayland. But the redesign of the Stores is about much more than just carpets. Among other new features, it will integrate computer kiosks that will enable consumers to purchase items through The Disney Store Online that are not available on the floor, helping to create a new business model for growth. Accordingly, we are also reducing the number of separate items of merchandise in each store by more than half to focus on key, showcase products. New merchandise lines are being developed for the Stores that will be available by summer. And, throughout the year, we will be better defining shopping "events" like Halloween, back-to-school, Christmas and Valentine's Day, making the Disney Store an event-based experience like our movies and theme parks. You wouldn't believe how many Halloween costumes we sold this year. Unfortunately, I can't tell you the precise number. We're saving it for a question on "Who Wants to Be a Millionaire."
By the way, market shifts can work both ways. Changes in market conditions may have hurt us recently in Home Video and Consumer Products. However, I believe shifting market conditions are about to help us in the all-important area of animation. Throughout its 76-year history, animation has been the fundamental driver of much of the success of our company. During the past few years, most other studios have tried to emulate our performance in this field, resulting in increased competition and increased costs. It now appears that all of these studios have learned that the animation business isn't so easy and almost all of them are pulling back. As a result, cost pressures should be easing, allowing us to more effectively manage this business which truly is the heart and soul of our company.