(continued)

Following my visit to Japan, I went on to meet with leaders in China and be exposed to more of this extraordinary nation. I saw a number of exotic sights, but there was one recurring sight that, given where I was traveling, seemed especially exotic to me — the golden arches of McDonald's. I am completely confident that the Chinese people love Mickey no less than Big Mac. I plan to have lunch with Jack Greenberg, the CEO of McDonald's, to ask him how they managed to make the fries taste just as good in Shanghai as on Sunset Blvd. As evidenced by the popularity of McDonald's, we could be getting close to the time for a major Disney attraction in the world's most populous nation.

Our efforts in China underscore the growing importance of the international market in general. The coming century will not be the American Century, it will be the World Century. It used to be that in order for a company to be successful, it had to devise strategies that would work in Maine, Montana and Missouri. Now, the list includes all the nations of the world. Outside the United States, we must still remember we are guests, and not just export our American product, but produce locally created entertainment that reflects local cultures as well. This makes our work more challenging, but it also makes it vastly more exciting as we can see possibilities anywhere we spin the globe.

Of course, China already had a markedly favorable impact on our company this year, since it supplied the folktale around which we built our 36th animated film — Mulan. Mulan just won 10 first place awards presented by the International Animated Film Society. The film's commercial and artistic success was all the more remarkable since it was the first feature to come from our new Florida animation studio. It provided one more example of the incredible ability of our Feature Animation group to marry an emotional story to an artistic vision. Would it be too much like a father to dreamingly say nobody does it as well, that no one comes close to this level of work? Probably!

1999 will be a historic year for Walt Disney Feature Animation. For the first time in the 75 years that Disney has been animating movies, we will be releasing three feature-length animated films in a single year — TarzanŽ, Toy Story 2 and, to close out the year, Fantasia 2000. In addition, from our growing TV Animation group, we have the terrific shows being produced for ABC's One Saturday Morning, which has become the top-rated Saturday morning show for kids 2 to 11. Then there's our made-for-video product line, the latest of which, The Lion King II: Simba's Pride, is performing exceptionally well. Next year, we will have four made-for-video films, including Mickey's Once Upon a Christmas. Another development that may or may not have an impact on our animation business is the digital video disk. I say "may not" because, over time, it may simply replace videotape. Therefore, I will restrain my enthusiasm for the potential of this new format, which of course is difficult for me. In 1998, we began releasing our films onto DVD. We are hopeful that, in the coming decade, this technology will grow to the point where we can profitably release more of our animated library titles in this format.

We will be greeting the new decade, the new century and the new millennium with Fantasia 2000, a film that hearkens directly to our creative roots even as it leads the way into a new era. Fantasia 2000 will be part of a year-long millennial celebration that will be centered at Epcot and will include entertainment spectaculars, special welcoming ceremonies and exhibits from around the globe. To further memorialize the millennium, we have commissioned two symphonies by the world-renowned composers Michael Torke and Aaron Jay Kernis.

Of course, every CEO in every annual report this year will feel obliged to talk in grand and expansive terms about the millennium. And, at Disney we will be firing off more than our share of fireworks when the calendar turns. But, personally I think the year 2000 will offer a quiet moment to reflect on the past, present and future of our company (once all the bugs are out of our computers, and I am assured that we are ahead of schedule in this effort). To put it mildly, the little business that Walt and Roy founded 75 years ago grew to have an important and positive impact throughout the 20th century. Now, it is up to all of us, the 120,000 cast members of The Walt Disney Company, to make sure that this heritage is honored and built upon in a new century.

Mickey poses for his 70th birthday portrait. Thanks to copyright extension legislation enacted in Washington, Mickey will be celebrating many more birthdays at the Walt Disney Company.

To be sure, the years of the 21st century will include ups and downs, just as did the years of the 20th.But, through all our fiscal seasons, I am confident that, over the long term, Disney will continue to be a leader in offering creative new ways — and creative old ways — for people to spend their most precious possession: their time.

Sincerely,

Michael D. Eisner
Chairman and CEO
December 8, 1998