by Erik Deckers
American Reporter Correspondent
March 29, 2002
POOH v. MICKEY IS A BATTLE ROYALE
SYRACUSE, Ind. -- It's being called "the biggest case you've never heard of," and it could end up costing The Walt Disney Company as much as $6 billion per year in revenues. Two parties are both fighting for the same honey pot, and it all comes down to greed.
Here's what's happening:
Shirley Slesinger Lasswell, widow of Stephen Slesinger, claims that Disney is withholding hundreds of millions of dollars in Winnie the Pooh royalty payments, and is considering terminating the licensing agreement that has been in effect since 1961.
New York literary agent Stephen Slesinger originally licensed Winnie the Pooh from British children's author A.A. Milne in 1930. After successfully placing a line of Pooh clothing and toys in major department stores, she licensed Pooh to The Walt Disney Company, which has made Winnie the Pooh the most popular character in Disney's lineup and the best-selling children's video in America.
The problem? Slesinger claims that Disney has failed to pay royalties on sales of videocassettes, DVDs and computer software, which Disney says it doesn't have to pay. And because it was discovered that Disney shredded 40 boxes of records that may have pertained to the case, Judge Ernest Hiroshige has told Disney they may not argue that they do notowe royalties on the sale of billions of dollars in Pooh-related items.
Moreover, Slesinger family attorney Bert Fields has said the Slesingers are considering terminating the license to U.S and Canadian commercial rights to Winnie the Pooh, ending their 41-year contract with the company. Fields, by the way, recently helped former Disney president Jeffrey Katzenberg get several hundred million dollars in a settlement after being forced out of the number two spot at Disney.
And although Disney celebrity-lawyer Daniel Petrocelli says the contract rescission can never happen, it has already sent chills into the heart of Disney shareholders. Disney's stock price dropped $2.75 from its January high of $23.25.
Petrocelli earned fame by winning a $35 million judgment from O.J.Simpson in the wrongful-death lawsuit he brought on behalf of the heirs of Nicole Brown Simpson and Ronald Goldman. He never collected much of it, though.
Meanwhile, Disney is now facing all sorts of legal and financial sanctions because of their document shredding and attempts to hide documents related to the case.
But let's forget about that for a moment. Let's forget about the fact that the Slesingers have spent nearly all of their Pooh royalty money - nearly $12 million annually - to win this case.
Let's forget about the fact that accounting firm turneduber-shredder Arthur Andersen was working for Disney on the case, and that we may learn more about that when the paper dust settles. And let's forget about the fact that Disney may have actually defrauded the Slesingers out of several hundred million dollars in back royalties.
Let's consider what will happen if the Slesingers actually do succeed in getting the termination they want. What will happen?
For the termination to take place, the Slesingers will actually have to prove gross misconduct on Disney's part. And since Disney effectively cannot say "No, we didn't," that could happen. And this means that Disney will be forced to pay all the money they've allegedly withheld.
However, a full rescission of the contract also means the Slesingers will have to pay back all of the money they've been paid in the past - something Petrocelli says they cannot do. Fields says Disney would be forced to pay back everything it's earned, too; Disney is likely to dispute that.
Second, and perhaps most painful, Disney could lose the rights to sell Winnie the Pooh merchandise in the U.S. and Canada, two of the most lucrative markets in the entire world (Europe, Latin America, Asia, Africa, and Australia are apparently not at stake). However, since sales of Winnie the Pooh merchandise reportedly account for as much as 20 percent of their $25 billion annual revenues, and the original contract was set to expire in 2026, we're talking about as much as $144 billion in lost revenues.
But Disney may have the option of keeping the contract intact by making larger royalty payments in the future, or paying a huge up-front sum for keeping the rights through the term of the contract.
Third, if the Slesingers do terminate, North American rights to sell Winnie the Pooh merchandise will be up for grabs. So who's going to buy them? Who has the marketing muscle to earn the same $12 million annual payment Shirley Slesinger is now receiving?
While previous speculation has focused on Vivendi-Universal, owner of Universal Theme Parks, it's obvious they don't have the same brand-name power that Disney enjoys.
Let's look at the two companies. The Walt Disney Company owns Disneyland in Anaheim, Calif., and Disneyworld in Orlando, Fla. Disney world alone attracts tens of millions of visitors.
In addition to owning the ABC tv and radio network and Disney cable channel, there are three different Disney-branded cable stations that all carry some sort of Pooh programming. There are nearly as many Disney Stores as there are Starbucks in Seattle. And there are enough Pooh videos in existence that gathering them all in one location would cause serious changes to the Earth's gravitational path.
What about Vivendi-Universal? It's not even close. While they have Universal theme parks in California and Florida (the latter an attempt to exploit Disney World's success), and they own the U.S.A and Sci-Fi networks, they just don't have the same financial capital, brand name awareness, or retail resources that Disney does. Universal Studios doesn't have the same appeal as Disney, and the U.S.A and Sci-Fi Networks just aren't burning up the Nielsen ratings, are they?
What could they possibly offer? Special guest appearances on "Farscape?" Maybe the U.S.A Channel could cross-promote their old "Walker Texas Ranger" reruns and have Chuck Norris make a special cameo appearance on "New Adventures of Winnie the Pooh."
So what makes anyone think that a company like Vivendi-Universal can successfully promote Winnie the Pooh the way Disney has done for the past 41 years? Let's face it, while Vivendi-Universal is an extremely successful company with some good entertainment options - and they're probably the best option available - they probably can't earn the Slesingers much more than a down payment on a slightly-used Saturn.
Back in January, Disney attorney Petrocelli told the American Reporter, "They have received more money than they ever dreamed of, and all of it is due to Disney's efforts." While I wouldn't bet against the Slesingers winning this case, they need to remember where their wealth came from in the first place.
It wasn't from major department stores across the country carrying Pooh and his pals. If Disney were smart, they would settle this thing fast. And if the Slesingers were smarter, they would quit their whining and take the deal.
During mating season, the bald eagle will fly to incredible heights and lock talons before beginning the mating process. The two eagles will be so committed to the act that they will not stop, even if it means slamming into the ground and meeting their end.
If the current legal affair continues the way it has, the same tragic end could easily happen to Disney and the Slesingers. Disney doesn't have a reserve to replace the billions in lost revenues, and Slesinger's legal fees have nearly totaled her yearly income from Disney. Add that to the fact that Shirley Slesinger Lasswell will lose millions in royalties when she finds that nobody can market Winnie the Pooh like Disney can.
But can they break out of their obsessive grip? Will either side realize that the ground is rushing up to meet them at a rapid rate, and that their attempts to screw each other may only result in their own demise? Let's hope for everyone's sake that someone opens their eyes soon,and sees what's about to happen, because the end won't be pretty.
Erik Deckers is an Indiana-based freelancer who also writes a humor column for AR. See the index drop-down bar at left for The Pooh Papers archive and more on this case.