In part due to the success of Michael Ovitz and his agents at CAA, costs soared for the kinds of stars, as well as for big-name directors and screenwriters, that could all but guarantee an opening-weekend audience. For Disney, the sequel to the low-budget Three Men and a Baby became the high-budget Three Men and a Little Lady. The year’s big hit wasn’t a Disney film at all, but Home Alone, produced by Joe Roth, now the head of Twentieth Century Fox.
The previous summer, Katzenberg had handed Dan Wolf, manager of public affairs for the studio, a copy of Eisner’s analysis of the movie business while he was at Paramount. “I’d like to do something along these lines,” Katzenberg told Wolf. “You know, put out my philosophy.” Both were too busy to work on it, though, until Wolf joined Katzenberg the following August, in 1990, at his house in Malibu, where the two spent hours together brainstorming, refining the “singles and doubles” strategy espoused by Eisner. Wolf wrote an eighteen-page draft, but then the project again languished.
Though Eisner had declared the 1990s the “Disney Decade,” and renewed a promise to deliver 20 percent annual earnings growth over five years, Roy and other board members worried that such a feat was becoming mathematically impossible given how fast Disney’s earnings had already grown. “At that rate, we would have been over the moon by 2000,” Roy noted. Business Week questioned Disney’s strategy in June of 1990, quoting an analyst to the effect that “There are reasonable limits to how big the pie can get,” and noted that former chief financial officer Gary Wilson unloaded his $60 million in Disney stock that year.
As the year drew to a close, Katzenberg felt drained of his usually irrepressible optimism. David Geffen worried that he was depressed, and recommended therapy. Katzenberg even thought about taking a leave from work. That Christmas, he retreated to the Kahala Hilton in Hawaii, where it rained every day. He read biographies of William S. Paley and Samuel Gold-wyn. He brooded about Dick Tracy and the performance of the studio. As his thoughts proliferated, he returned to the project he’d begun with Wolf, and started calling him from Hawaii every day. New drafts were faxed back and forth. As Katzenberg continued, he grew more excited about this developing “manifesto” and its potential to restore the studio’s magic. After he returned to Los Angeles, they polished the draft. Finally he sent copies of the twenty-eight-page memo to Eisner, as well as other Disney executives.
“As we begin the new year,” Eisner read, “I strongly believe we are entering a period of great danger and even greater uncertainty. Events are unfolding within and without the movie industry that are extremely threatening to our studio.”
As he read, Eisner couldn’t help but think of his own industry memo, written at Paramount almost exactly ten years earlier: “Success in the motion picture business is highly prone to prompting complacency and recklessness….”
Eisner continued reading. “Some of you might be surprised to read these words. After all, wasn’t Disney number one in 1990? Yes, but our number one status was far from a sign of robust health. Instead, it merely underscored the fact that our studio did the least badly in a year of steady decline for all of Hollywood…a year that was capped off by a disastrous Christmas for nearly everyone.
“Since 1984, we have slowly drifted away from our original vision of how to run a movie business. Once we had a fairly strict and pretty successful strategy, which we referred to as our ‘Singles and Doubles Philosophy.’ At some point we seem to have replaced it with a strategy that might best be called the ‘Yes, But Philosophy’ ”—here Eisner underlined the words and wrote “well said”—“as in, ‘Yes, he’s expensive, but it’s a great opportunity for us’ or ‘Yes, that’s a lot to spend on marketing, but we have too much at stake notto….’
“Our initial success at Disney was based on the ability to tell good stories well. Big stars, special effects and name directors were of little importance. Of course, we started this way out of necessity. We had small budgets and not much respect. So we substituted dollars with creativity and big stars with talent we believed in. Success ensued. With success came bigger budgets and bigger names. We found ourselves attracting the caliber of talent with which ‘event’ movies could be made. And more and more, we began making them. The result: costs have escalated, profitability has slipped and our level of risk has compounded. The time has come to get back to our roots. If we remain on our present course, there will be the certainty of calamitous failure, as we will inevitably come to produce our own ‘Havana’ or ‘Two Jakes’ or ‘Air America’or ‘Another 48 Hrs.’ or ‘Bonfire of the Vanities’ [all enormous flops] and then have to dig ourselves out from under the rubble.”
Katzenberg bemoaned the “blockbuster” mentality that had overtaken the industry, noting that “the shelf life of many movies has come to be somewhat shorter than a supermarket tomato.” His proposed solution was basically to go back to the earlier Disney formula.
Eisner had little trouble with these points, nearly all of which he considered his ideas in the first place. But he cringed when Katzenberg began discussing specific projects and naming names, especially Dick Tracy and Warren Beatty: “ ‘Dick Tracy’ is a case in point as to how the box-office mentality is affecting the movie-going experience,” Katzenberg wrote. We “knew that its success would be for the most part judged by its opening weekend box-office performance. So we did everything that we could in order to get the film [the] audience and recognition we felt it deserved…. It seems that, like lemmings, we are all racing faster and faster into the sea, each of us trying to outrun and outspend and outearn the other in a mad sprint toward the mirage of making the next blockbuster. In this atmosphere of near hysteria, I feel that we at Disney have been seriously distracted from doing what we do best.” Which was to say, movies like Pretty Woman, “the kind of modest, story-driven movie we tended to make in our salad days.”
Eisner could hardly miss the similarity to the situation at Paramount that had prompted his own memo: the costly failure of Reds, another Warren Beatty epic, and the huge success of Raiders of the Lost Ark, which masked a series of other failed movies. Then Katzenberg took a parting slap at Beatty: “When Warren Beatty comes to us to pitch his next movie—a big period action film, costing $40 million, with huge talent participation, [an obvious reference to Beatty’s upcoming film, Bugsy]…we must hear what they have to say, allow ourselves to get very excited over what will likely be a spectacular film event, then slap ourselves a few times, throw cold water on our faces and soberly conclude that it’s not a project we should choose to get involved in.” Dick Tracy, Katzenberg concluded, “was also about losing control of our own destiny. And that’s too high a price to pay for any movie.” Nor did Eisner like the fact that Katzenberg singled out Steve Martin, Bill Murray, Dustin Hoffman, and Sylvester Stallone—all of whom Disney had negotiated with—as examples of the “celebrity surcharge” that was driving up the cost of movies.
While free with his criticism of past films, Katzenberg exempted the studio’s current projects, citing Scenes from a Mall, Billy Bathgate, and What About Bob? (starring Bill Murray in a package negotiated by Ovitz) as “outstanding projects” while conceding there are “too many of them.” And he specifically hailed the $35 million The Rocketeer as “the kind of event film we must continue to make.”
Eisner began jotting down comments. Where Katzenberg called for films that were “affirmative and uplifting,” Eisner wrote “It would be fun for us to do a tragedy once a year or once every other year—even if it is a single or a double.” And later, he found it necessary to remind Katzenberg that profit isn’t everything. “Even if once in a while we would be successful with low life action ‘junk’—so what—we do not need that success,” he wrote. By the end, when Katzenberg makes an innocuous observation that “The theater is something special. The products we strive to put into them should be equally special,” Eisner can barely contain himself. “This sends the wrong and expensive signal and is contrary to everything you have said so far,” he scrawle
d in the margin.
Katzenberg concluded with a passage that struck Eisner as unmitigated self-promotion: “Passion is the only word that can explain why one would choose to burrow through 10 to 15 scripts every weekend on the chance of uncovering something great. Passion is the only word that can explain why one would spend a 60-hour week at a studio and then, for fun, on the weekend go see three movies…. So let’s go back to the drawing board and get back to basics. And, as we do, let’s not be afraid to admit to others and ourselves, up front and with passion…that we love what we do.”
Eisner evidently felt a mix of emotions. At the bottom of the page he wrote, “As I finished this paper I really felt good that we are more than basically on the same wave length—I could have written (not as well though) this paper—We agree!” Eisner stopped Dan Wolf in the hall and told him he thought the memo was “great.” However sincere at the time, the good feelings didn’t last long. Eisner was soon feeling a mix of resentment, suspicion, and anger. Katzenberg’s memo was in some ways so similar to his own memo at Paramount that it bordered on “plagiarism,” as he later put it. Yet Eisner’s name wasn’t even mentioned, nor was Frank Wells’s. (Katzenberg had cut an acknowledgment of Eisner from an earlier draft.) Katzenberg had usurped the royal “we,” speaking of “our” success. He had anointed himself some kind of “genius”; or, “I am Mr. Movie Mogul,” as Eisner later wrote.
On the front of the paper, Eisner wrote something that hinted at his real feelings: “I would demand that this paper never get into any hands outside our company, especially the press, but agents and lawyers as well.” If that wasn’t clear enough, nearly two weeks later, on January 23, Eisner sent Katzenberg a handwritten note: “I told Linda to collect your movie making paper so that it does not get out. I am really nervous, as you know, about the press. I would not let anybody else see it. Nobody needs to…We must keep some secrets—OK.”
Eisner was still brooding about the memo at his next Monday evening dinner with Katzenberg at Locanda Veneta. “Sometimes I get the feeling that I’m competing with you,” Eisner said at one point. A careful reading of Eisner’s marginalia might have given him some clues, but Katzenberg was startled. “How could you say that?” he asked. Loyalty was one of Katzenberg’s prized virtues; no one was more loyal to Eisner, or more grateful for what he’d done for his career. Katzenberg wouldn’t tolerate criticism of his boss. He’d stopped speaking to one of his best friends, producer Irwin Winkler, after Winkler criticized Eisner’s outsized compensation the previous year. But Eisner didn’t pursue the matter. Katzenberg decided it was just a passing comment, and tried to forget about it.
Despite Eisner’s explicit warnings to keep it private, it didn’t take long for Katzenberg’s memo to surface in the press. Variety printed it in its entirety. Perhaps this was inevitable, given that Eisner’s copy was one of at least two dozen that Katzenberg had dispatched to Disney executives. Eisner told Vanity Fair writer Peter Boyer that he didn’t believe Katzenberg had leaked it. On the contrary, Eisner was convinced that Katzenberg had done so. Eisner maintains that he was given a faxed copy of the memo that had his handwritten comments on them, which as far as he was concerned, proved that Katzenberg was responsible. (Katzenberg has denied leaking the memo.)
Eisner’s reservations about the memo were quickly vindicated. It was dismissed as “28 pages of banalities,” by one studio executive. Everyone mentioned in it was furious. Bill Murray denounced Disney on “Larry King Live,” even as he was supposed to be promoting What About Bob? Warren Beatty stopped speaking to Katzenberg. Alec Baldwin referred to Katzenberg as “the eighth dwarf—Greedy.”
Beyond the furor in Hollywood, the memo appears to have marked a critical turning point in Eisner’s relationship with Katzenberg, coming as it did on the heels of Katzenberg’s recent successes and attendant publicity. Eisner’s resentment was so intense that evidence suggests he wanted to fire his longtime partner. During the same month the memo was written, in January 1991, Frank Wells asked Cheryl Fellows, a company accountant, to undertake a top secret project to calculate the amount of the 2 percent “annuity” due Katzenberg in the event he was terminated or left the company. The project was given a code name: Project Snowball. Fellows was explicitly warned to conceal the project from Katzenberg. She moved from her cubicle into a private office so no one could see her work. It isn’t clear where the name Snowball came from, whether this referred to the massive amount of work this required on Fellows’s part (as Disney later maintained), or, more plausibly, whether it referred to the rapidly escalating value of Katzenberg’s percentage.
With the success of Little Mermaid and Pretty Woman, Katzenberg’s incentive, deemed virtually worthless when it was granted, had soared in value. Little Mermaid seemed sure to join the pantheon of Disney classics, which meant revenues in perpetuity from home video, re-releases, and merchandise tie-ins. If Eisner did, in fact, say he wanted to fire Katzenberg, Wells surely would have wanted to know what such a move would cost the company. (Eisner later maintained that he knew nothing about Project Snowball. But when I pointed out the timing, and asked if Eisner told Wells he wanted Katzenberg fired over the memo, he paused, then replied, “I may have.”) In any event, as the calculations began, Katzenberg knew nothing about them.
At Disney’s conference for Wall Street analysts in Orlando that September, Katzenberg made his manifesto the center of his presentation. To the music of “Also sprach Zarathustra,” the theme from 2001: A Space Odyssey, a video showed a mysterious space object that grew larger until it revealed itself to be…“The Memo.” Eisner happened to see a rehearsal. “I don’t think you should do that,” he warned Katzenberg. “The memo is old news.” But Katzenberg failed to take the hint, and the presentation went ahead, to Eisner’s obvious chagrin.
What was really galling to Eisner was that there was scant evidence that Katzenberg heeded the advice he had so freely dispensed in his memo. It was true that many of the films in the pipeline had been launched before he wrote the memo, but as the months and then years proceeded, Disney’s record in live action was, if anything, worse than when Katzenberg wrote the memo. A measure of how far the studio’s fortunes slipped was that Disney’s highest-grossing film for 1993 was Cool Runnings, about a Jamaican bobsled team, which made $69 million.
Just as it was difficult to pinpoint the source of the studio’s remarkable success, it was now hard to diagnose the cause of the stunning reversal. No doubt the creation of a new studio, the doubling of production in live action, and the even greater increase in production of animated films stretched the resources of the company and the attention spans of Eisner and Katzenberg. In part it reflected the changed landscape in theatrical film distribution identified by Katzenberg in his memo, which put enormous pressure on opening weekends, hugely expensive marketing campaigns, and the big budget “event” films that, in the wake of Dick Tracy, Eisner and Katzenberg had vowed to avoid. The big hits in the years 1991–1993 were Spielberg’s Schindler’s List, more films in the Aliens and Batman franchises, and In the Line of Fire, which Eisner had turned down.
On some level, the demoralizing string of failed films mirrored the deteriorating relationship between Eisner and Katzenberg. In their long and fruitful partnership, they had shared a remarkably similar taste in films. Now their views diverged. Finally Katzenberg confronted Eisner, complaining that Eisner was coming to meetings unprepared; that he wasn’t reading scripts, relying instead on brief summaries, or “coverage,” written by young assistants; and that his comments were unhelpful and “embarrassing.” Eisner interpreted this rebuke as a request that he stay away from the weekly meetings to discuss scripts and new live-action film ideas because he was “undermining” Katzenberg’s authority.
Eisner next became convinced that Katzenberg was scheduling screenings of rough cuts without including him. He assented to this diminished role, in part because he was so busy with other parts of the company, especially construction of Euro Disney. But h
e complained about it to Wells, and viewed it as a worrying indication that Katzenberg’s ego was running amok. To Katzenberg, the explanation was simple: He had to keep Eisner at arm’s length because his comments were erratic, in large part because he was being stretched too thin. In any event, Eisner’s attendance at weekly meetings at the studio did fall off.
The studio did have some hits: Whoopi Goldberg in Sister Act, and The Mighty Ducks, green-lit largely because one of Eisner’s sons played hockey; and the quirky Tim Burton feature The Nightmare Before Christmas. But as the money-losing failures mounted, Eisner complained to Wells that Katzenberg had abandoned the fiscal discipline that had made the studio such a success, giving in to agents’ demands in a misguided effort to ingratiate Disney with the kind of talent that might deliver a hit. Eisner, of course, could always have overruled him, but he said nothing directly to Katzenberg, and their Monday-night dinners continued as usual. Yet in his mind, blame for the studio’s failures increasingly rested with Katzenberg. Eisner’s bonus for 1991 sank to $4.7 million, a fortune to most people at Disney, but a fraction of his previous year’s pay.
Eisner responded by slashing the bonus pool for the live-action studios in half, a decision communicated by Wells in an unusually harsh memo to executives. Katzenberg protested, and some of the bonus pool was restored, but morale at the Touchstone and Hollywood studios sank.
Fortunately for Disney, animation was more than making up for the failures of live action. In March 1991, Katzenberg and Schneider arranged a preview in New York City of the still unfinished Beauty and the Beast, although it wasn’t really as unfinished as the work they actually screened. To build anticipation, Katzenberg had chosen a print from two months earlier. The opening sequence, “Belle,” was fully realized and in color, but most of the rest of the film remained in black and white. It had the effect of focusing attention on the remarkable score and lyrics. In the audience that night was a far more sophisticated crowd than was ordinarily drawn to children’s animated films: press, critics, Academy members who lived in New York. The screening was part of a carefully planned strategy to get Academy Award consideration for Beauty and the Beast, though no animated film had ever received a Best Picture nomination. (Snow White received a special Academy Award.)
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