Did Childhood-Obesity Worries Kill Disney-McDonald's Pact?

Are overweight Americans to blame for the fact that McDonald's Happy Meals might stop offering Disney action figures after this year? Maybe, maybe not.

The dissolution of a 10-year promotional partnership between the Walt Disney Co., the parent company of ABC News, and McDonald's made waves today when a newspaper report said Disney might have concerns about marketing fast food to children, which it might not believe is in keeping with its family-friendly image.

Disney and McDonald's are not renewing an agreement that saw the fast-food chain promote Disney movies exclusively for the past 10 years, often with tie-ins to the restaurant chain's Happy Meals for children. A report in today's Los Angeles Times suggested that Disney chose to end the relationship because it did not want to be linked to childhood obesity, which is often associated with fast-food menu items.

Both companies issued rebuttals to the Times story, saying the deicision to end the relationship was mutual.

"Today's Los Angeles Times story involving the McDonald's-Disney alliance is based on Hollywood hearsay from unnamed sources, and the entire premise is a misrepresentation of the truth," McDonald's said in a statement.

McDonald's spokeswoman Lisa Howard said the decision to end the partnership had nothing to do with the McDonald's menu or health concerns. She said the two companies might even work together on future promotions, and she emphasized the company intends to continue forging promotional partnerships with movie studios, including an agreement with DreamWorks studios to promote the movie "Shrek 3" in 2007.

"The only thing that's changing is that it's no longer an exclusive arrangement. Previously, if we wanted to partner with Sony, we couldn't. Now we can go to Sony, DreamWorks, Disney, et cetera," Howard said. "We're talking about a number of other studios about a variety of promotions."

In a statement, Disney left the door open for future promotions with McDonald's and noted that the partnership will include two more Disney movies this summer -- the upcoming summer releases "Cars" and the "Pirates of the Caribbean" sequel.

"While our contract with them will expire at the end of the year, we look forward to a more flexible, non exclusive relationship where we will be working with them on a case-by-case basis," a Walt Disney spokesperson said in a statement.

Promotions Are Mutually Beneficial

One analyst familiar with the arrangement cast doubt on whether concerns about the McDonald's menu played any role in the decision. While the exclusive partnership will come to a close at the end of this year, Morningstar analyst John Owens pointed out that McDonald's maintains a presence inside Disney's theme parks.

"If the level of concern was so high, would they still allow McDonald's to operate restaurants in their theme parks? I'm a little skeptical," said Owens, who covers McDonald's.

Analysts said the mutual benefits are probably too high for any diet concerns to put an end to the cross-promotion of family movies and fast food. The restaurants often pay millions of dollars for the right to market their menu items alongside blockbuster movies.

In turn, demand for promotional paraphernalia from such blockbusters as Disney's "101 Dalmatians" can create an influx of customers during the promotions, which typically last six to eight weeks around the movie release. The restaurants, known as quick-serve restaurants, or QSRs, see an increase in traffic as children ask parents for the latest toy or action figure associated with the movie.

"If there's a hugely popular movie that really resonates with kids, it can really drive customer traffic," Owens said.

One drawback from the exclusive nature of the Disney agreement was that it tied the McDonald's name and promotional machine to Disney's flops as well as its hits. Media analyst Dennis McAlpine noted that McDonald's was probably unlikely to see a spike in customers when promoting box-office failures like Disney's "Treasure Planet."

"McDonald's can pursue any movie they want. That's probably the silver lining in the fact that this deal was nixed," Morningstar's Owens said.

Studios Get Free Promotions

For movie studios, the deals offer a promotional vehicle that reaches a customer base known to see children's movies multiple times in theaters. It's free marketing, a fact that might outweigh any negative exposure from being linked with foods that some consider unhealthy.

"A lot of it is just exposure. You get kids going into those QSRs, and they're surrounded by Disney promotions," McAlpine said. "The key is whether Disney is saying they're just not doing promotions with McDonald's, or not doing promotions with any QSRs. If that's the case, then they could lose out on a lot of free promotion."

In recent years, McDonald's has introduced new, healthier menu items like fruit cups and salads in response to public concerns about diet. But McDonald's spokeswoman Howard said that there had never been any discussion about pegging movie promotions to the healthier foods rather than the traditional Happy Meals.