Disney: The mousetrap

There will be no Oscar for Disney in 2002. And there's trouble afoot throughout the empire. So, wonders David Thomson, how will Mickey get out of this fix?

In the years since 1937, when Walt Disney introduced the full-length animated feature film with Snow White and the Seven Dwarfs, there has been no Academy Award in that category. To be sure, Disney was given a special honorary Oscar in 1938 for the "great new entertainment field" offered by Snow White. The company got another such award for Fantasia, and in 1941 Disney himself was only the fourth recipient of the Irving Thalberg Award. But this year, at last, the Academy has introduced an Oscar for the category of full-length animated film.

There are three contenders: the outsider, Jimmy Neutron, Boy Genius (made by DNA Productions, Nickelodeon and O Entertainment); Shrek (made by DreamWorks, inspired by Jeffrey Katzenberg, once of Disney, and with a central character that bears a subversive resemblance to Michael Eisner, chief executive at Disney); and Monsters, Inc (the work of the Pixar studio in northern California, and merely distributed by Disney).

In other words, there is nothing nominated that was made by the studio, the name of which, for many people, is nearly a synonym for animation. But that is only part of the worry.

For the first time in years, Miramax faces a quiet Oscar season. Miramax is the maker and distributor of artistic or independent pictures, and it has been owned by Disney since 1993 when they purchased the art house for $50m (£35m). The payback has been lush: Miramax has had 11 Best Picture nominations in 10 years, and it has won with The English Patient and Shakespeare in Love. This year it has only one film contending for Best Picture – In the Bedroom – and insiders have noted that Miramax has not been campaigning for it with its usual zeal. In recent years, the studio has spent lavishly on Oscar advertising, but this year its restraint is marked – and that could help Halle Berry (Monster's Ball) sneak past Sissy Spacek (In the Bedroom).

But Miramax is not doing well. Its other big releases in late 2001 – Kate and Leopold and The Shipping News – did very badly. It was only two months ago that Miramax pulled out of its deal (with Hearst Magazines) to finance Tina Brown and Talk magazine – after estimated losses of $50m in a year and a half. And just 10 days ago Miramax laid off 75 people (15 per cent of its work force). At the same time, it declared that Anthony Minghella's Cold Mountain – maybe a future hit – would have to be shot in Romania instead of North Carolina to save money. The Miramax boss, Harvey Weinstein, was heard to admit a desire to get back to the old days of smaller movies.

No one is accusing Disney of putting pressure on Miramax. Indeed, the Weinstein operation has done so well that he has been left alone. But there is another sore point, and maybe the biggest mistake. Miramax paid all the early development costs on The Lord of the Rings. Then that project reached a budgetary level (an investment of more than $250m) that required Disney approval. Eisner ordered a stop. New Line eventually picked up the movie (the first of three) and is now set to take a huge profit from it. And some say that The Lord of the Rings was too sophisticated for the Disney approach, and too esoteric for its merchandising.

At the same time, Disney seems to have dropped back in the intense competition over animated films. At this moment in America, they are offering only an Imax version of Beauty and the Beast and a rather wan sequel to Peter Pan – The Never Land – which has done very poorly, just as Ice Age (from 20th Century Fox) has done very well.

There's no doubt that, between them, Pixar and DreamWorks have taken away a good deal of the best animation talent. Equally, they've found a way of developing fresh styles and wittier material that appeal to adults as well as to children. In the age of Shrek, Monsters, Inc and the Toy Story pictures, Disney has suddenly seemed old-fashioned instead of ground-breaking. Last week, the Disney animation division cut 265 jobs – and this after 500 cuts and salary reductions in the previous year.

In the realm of live-action features, a similar affliction has been felt. After all, Disney's big film of last year was Pearl Harbor – not so much a financial loser (though it was a disappointment) as a woeful sign of anachronism. So there's a lot of pressure on Martin Scorsese's The Gangs of New York (a Miramax production), which has already been delayed because of arguments over its length and effectiveness.

Of course, the movies are a modest part of the entire Disney operation. But the events of 11 September have taken a large bite out of Disneyland (in southern California) and Disney World (in Florida). These are expensive resorts, designed to attract families (no one ever said this is a sane country). And to reach them requires the kind of air travel – internal – that has been most hit by public trepidation. The parks are struggling. Michael Eisner has spoken recently about the economy turning around and the parks picking up. But that has yet to occur.

Most destructive of all has been the deterioration of Disney's television operation. Disney bought Capital Cities/ ABC six years ago, and in the time since the ABC network has slipped to third, and then fourth place as the old contest with NBC and CBS was joined by the Fox Network. That slippage is a vivid portrait of how perilous a business television is in America.

Three years ago, ABC had a terrific boost from Who Wants to be a Millionaire?. With its deft host Regis Philbin, the game took off so fast that ABC let it run four times a week. Philbin, among others, complained at the over-exposure, and warned that the excess would likely kill the show.

So it proved, but in their glory days ABC executives cut back on other programme development, thinking that Millionaire would solve all problems. Hence their current bottom place in the ratings – and hence the dismal showing of Disney stock prices for the past 18 months.

Under fire, Michael Eisner (who is plainly identified with the Disney empire in the public mind) said that he could solve the ABC problems if he could just find a couple of hours a day to devote to the network. That did not inspire or encourage those people trying to run ABC, and thus there has been some silent rejoicing at what has happened recently.

ABC is clearly in need of fresh blood and new programmes. Their eyes fell on David Letterman, whose late-night talk show has been at CBS for years, winning many awards and doing well enough in ratings. Letterman is one of the great talents on American television: neurotic, insecure, but unique and brilliant when he's in the mood, and very much a cult among the young audience ABC has been missing. Well, Letterman's contract was up for renewal.

It was clear that he might be ready to move. ABC and Eisner plunged after him, leaving no doubt in anyone's mind that if they could get Letterman they would use him to replace or push aside their own Nightline, a distinguished but rather long-in-the-tooth news analysis show hosted by the much respected and venerable Ted Koppel. The move was sudden and ugly, and it prompted many distinguished TV people to support Koppel. Then Letterman decided that he would stay with CBS, leaving ABC without a coup but with a good deal of internal resentment. Those precious Eisner hours had not exactly turned the trick. And so there has been increasing talk in the financial press that if present trends continue, then Disney could be the object of hostile take-over bids.

Eisner has just turned 60. He has been one of the great success stories in American business. But he has had serious heart trouble, and now he is beginning to look like someone who might have lost his touch. It's well known that, several years ago, Eisner's cheerful arrogance alienated his long-time friend, Jeffrey Katzenberg, who left for DreamWorks with a burning ambition to surpass Disney in animation.

That's one way in which Disney has shown a slowness in facing up to competition. Clearly, it's fallen back in the rapidly changing landscape of American television where Fox, HBO and other cable channels have undermined the old network monopoly

Worse still, with all the current stress on extreme sports, survival programmes and the outdoor life, the Disney theme parks have begun to seem dated. Eisner may have to step down, or share more of his power.

Disney is a large, broadly based corporation, one that could easily make a comeback – especially if it can find a couple of hit TV shows. On the other hand, we may be seeing the beginning of the end of an empire that invented whole realms of American entertainment, yet couldn't see the light of change seeping under the door. More than ever since its earliest days, the Mouse is fighting for its life.