DisneyWar

by James B. Stewart

  Initially, Roth favored the Columbia deal. But Ovitz had structured the Disney deal so that if Eisner decided to replace Katzenberg with Roth, Disney would have to buy out his company. “Let me assure you,” Ovitz told Roth and his then-wife, “at some point you’re going to be bought out.”

  When Eisner, Katzenberg, Ovitz, and Roth had lunch to close the deal, Roth took Katzenberg aside and warned him, “I’ve got the feeling they want to park me at your place, and I’m not sure that’s good for you.” But Katzenberg told Roth that hiring him had been his idea.

  Geffen, too, tried to warn Katzenberg that Roth was his replacement. Though Katzenberg usually heeded his friend’s advice, this time he disagreed, pointing out that he’d be number two at the company in the event Wells stepped aside, and Roth would then report to him.

  However much Eisner may have wanted Katzenberg to believe this, it appears to be patently false. Eisner had a habit of writing letters to his lawyer, Irwin Russell, who was also on the Disney board. The letters have the air of unguarded candor, as in this passage describing his feelings at the time about Katzenberg:

  Over the last two years [1992–93] Frank and I have become more and more frustrated with how Jeffrey conducts business and especially with his personal agenda. He has displayed more and more a desire to keep us out of the process, and this has made me particularly unhappy. I never really know where he is or what he is doing. And of course our dismal performance in live action features is what got Frank’s attention. We met on several occasions and discussed with Jeffrey our unhappiness with how it was going.

  Yet it’s not surprising that Katzenberg felt secure in his job and even anticipated a promotion. Beauty and the Beast and Aladdin were two of the most successful animated films ever produced, and would be generating millions in revenue for the foreseeable future. In 1992, Disney became the first studio to earn over $500 million in a single year. The studio was so profitable that even with the conservative accounting Disney used to calculate Katzenberg’s annual bonus, he was earning a significant amount—over $10 million in total compensation in 1991. The 2 percent lifetime annuity that Eisner and Wells thought wouldn’t amount to anything when they included it in Katzenberg’s original contract in lieu of stock options was beginning to look substantial, so much so that Katzenberg wondered just what it might be worth. After all, he did have the option to leave in 1994.

  In April, Arthur Emil, Katzenberg’s lawyer, wrote Disney asking for the amount of his bonus under the 2 percent formula. The letter was meant to satisfy his curiosity, but also to drive the point home to Eisner and Wells that Katzenberg’s departure would be costly.

  Wells, of course, was well aware of the soaring value of Katzenberg’s interest, thanks to the ongoing Project Snowball. According to an internal Disney document labeled “Project Snowball, Privileged and Confidential,” calculations were made for two “scenarios,” one in which Katzenberg left in 1994, the other if he stayed until 1996. For a 1994 termination, Katzenberg would receive $169.4 million; in 1996, $194.6 million. But instead, Katzenberg received a letter from Joe Santaniello, one of Disney’s in-house lawyers, which took the startling position—startling to Katzenberg at any rate—that Katzenberg wasn’t entitled to any bonus if he exercised his option to leave in 1994, two years before the expiration of his contract.

  Katzenberg took the letter straight to Wells and said that he assumed there had been some misunderstanding. He reminded Wells that Wells had been the one who pushed to include the bonus provision, that Katzenberg hadn’t been willing to give it up when they negotiated his new contract in 1988, and that he was sure that Wells would “put things right.” Wells said he’d look into the matter and get back to him.

  In the meantime, Katzenberg was busy negotiating a deal to buy Miramax, an independent production company named after the parents of the two brothers who founded it, Harvey and Bob Weinstein. Bill Mechanic set up a dinner with the Weinsteins and Katzenberg at the Cannes Film Festival in 1992, though he worried that Katzenberg might be put off by the brothers’ appearance, especially Harvey, who chain-smoked, was overweight, and sometimes disheveled. The Weinsteins were showing their movie Sarafina! a musical starring Whoopi Goldberg as an apartheid-era schoolteacher, and Mechanic stressed to Katzenberg that the Weinsteins had “incredible taste,” despite appearances.

  As soon as he met them, Katzenberg embraced the idea of extending Disney’s reach by acquiring Miramax. The Weinsteins needed capital. At the time, they were producing just 10 percent of their films, acquiring distribution rights to the rest after others produced them. Of course there were risks to the Disney brand. Miramax’s biggest critical and commercial success, The Crying Game, featured a transsexual. Again, Katzenberg pressed his case to Wells, who was initially skeptical, afraid that the Weinsteins would simply take the money and “retire,” as he put it to him. But with plenty of incentives for the Weinsteins built into their contract, Wells was persuaded, and Eisner agreed. Maybe Miramax could salvage the live-action film roster. Disney was able to buy Miramax for $60 million plus the assumption of debt, which amounted to about $40 million more; The Crying Game alone had earned $63 million. For their part, the Weinsteins had financing commitments, and, more important, contractual guarantees of independence. “Nobody can tell us what to do,” Harvey Weinstein boasted.

  Certainly not Dick Cook, Disney’s head of marketing and distribution. The usually genial Cook clashed with the Weinsteins almost immediately, so Katzenberg asked Mechanic to oversee them. Mechanic soon had his hands full, reviewing scripts for Pulp Fiction, by a new writing and directing talent, Quentin Tarantino, and another film called Priest. Pulp Fiction was filled with graphic violence and sadomasochism. Priest was about a gay priest in Ireland, likely to rile Catholics, including Patty Disney and her family.

  Just days after the deal was concluded with Disney, Harvey Weinstein called Mechanic from London and said he wanted to acquire Little Buddha, directed by Bernardo Bertolucci and starring Keanu Reeves. Mechanic was skeptical, but gave in when Harvey insisted that he had to act quickly. Miramax bought the rights. Months later, Harvey called Mechanic after the film was finished. “I just saw it,” he reported. “I’m killing Bertolucci and fixing the movie.”

  “Harvey,” Mechanic said. “It’s Bertolucci. All you can do is make it shorter.”

  “A slow-moving and pointless exercise,” critic Roger Ebert wrote of the finished Little Buddha, which did less than $5 million at the box office.

  Even after making the deal with Roth, Eisner continued to talk with Katzenberg about a new contract and about expanding his responsibilities at Disney. Eisner invited Katzenberg and his wife to stay overnight at the Eisner home in Aspen in October, when Disney executives would be having their next executive retreat, to discuss the possibilities. Despite Katzenberg’s request earlier that year to calculate his bonus payment, “It never occurred to me,” Eisner said, that Katzenberg might actually be planning to leave.

  Then, in mid-August, Katzenberg was startled by a letter from Santaniello, the in-house lawyer, asking him to state his “intentions.” Katzenberg asked his lawyer to respond by calling Wells to clarify the bonus issue. Wells was less than conciliatory, telling Emil that if he wanted an answer, he should “read the contract.”

  “I don’t have to read the contract,” Emil angrily retorted. “It’s not the deal that we made.”

  “Listen, it’s not going to be an issue. Jeffrey’s going to stay these next two years,” Wells said, “so don’t get upset about it.”

  Katzenberg, furious, called Wells and said he couldn’t understand why Disney was “playing games” with him. “If the point of this is to leverage me into staying with the company, then this would certainly cause me to do exactly the opposite,” he warned. Wells said again he wanted to look at the contract. “Let’s come to an understanding first as to what the contract says,” he said.

  “Okay. We’ll go back and look at the contract, but I have to say I know
what the deal is, Frank.”

  The next day Katzenberg met with Wells in Wells’s office. He said he’d read the contract and didn’t see what the issue was. “If you cannot confirm that the deal is as I understand it, then I’m telling you now I’m leaving.” Wells said the problem was Eisner, who had a “misunderstanding” and believed that Katzenberg wasn’t entitled to any bonus if he exercised the option to leave in 1994. Katzenberg said he’d have his lawyer write Eisner a letter, but Wells told him to wait. “I’ll handle it with Michael. I will take care of this.”

  Katzenberg thought the matter was settled. As he testified much later, in his lawsuit with Disney, “Frank was the person that, you know, kept Michael Eisner and I working well with each other. He was the one who handled these issues between us…he was the peacemaker, the marriage counselor.”

  Katzenberg had to give notice to preserve his option to leave, so on August 31, Katzenberg’s lawyer, Arthur Emil, responded to Joe Santaniello’s request for Katzenberg’s “intentions” by writing a formal letter to Eisner announcing Katzenberg’s intention to exercise his option to leave the next year. Eisner later said the letter “took me by surprise.”

  The next time Eisner saw Katzenberg, he acknowledged getting the letter, but thought it was a negotiating ploy. He couldn’t believe Katzenberg would actually quit and give up his compensation for 1995 and 1996, the two years remaining on his contract. “You really want to give that up?” Eisner asked incredulously, noting that it would amount to $100 million.* According to Eisner, Katzenberg didn’t take issue with the amount, saying he could “easily” earn that amount somewhere else. In any event, he said it didn’t matter because, “I have no intention of leaving. I’m just protecting myself legally, in case you don’t come up with new mountains for me to climb.” Eisner told Wells that “there is no chance he will do this.”

  Still, Eisner must have thought there was at least a slight chance Katzenberg would leave, because he later approached Joe Roth about taking his place as head of the studio. As Eisner described it in a memo to Irwin Russell, “I had had a conversation…with Joe Roth asking him if Jeffrey left (which I thought very very unlikely) would he take over. He said yes. But I told him Jeffrey was under contract, did not look like he would ever leave, but you never know. And of course there is always the truck that could hit him.”

  When Disney executives gathered in Aspen the first week in October, Eisner seems to have determined to use the occasion to get Katzenberg to stay through the end of his contract in 1996, and even to enter into a new longer-term agreement.

  Katzenberg and his wife, Marilyn, arrived at the Eisner home on Friday evening, their first visit to the Eisner’s lavish Robert Stern–designed “cabin.” They admired the view, then settled into comfortable chairs in the living room. According to Katzenberg’s later testimony, they had a pleasant conversation, and then Eisner raised the subject of Katzenberg’s contract. “I want to make a new deal,” Eisner said. “It’s time.” He added that he realized Katzenberg wanted some new challenges, and he wanted to expand his responsibilities.

  In a letter to Irwin Russell describing this encounter, which appears to be the closest thing to a contemporaneous record, Eisner wrote, “Jeff was in Aspen with me and we discussed his future. He asked for Frank’s job the first night. Of course I flatly denied this request.” (Katzenberg later said he had no recollection of any such conversation the first night.)

  The subject of Katzenberg’s contract arose the next day, as Eisner and Katzenberg waited on the sidewalk outside a bar and grill called Boogies, and their wives shopped for sweaters. In Katzenberg’s account, Eisner volunteered that he was negotiating a new deal with Frank Wells, but he didn’t think Wells would serve out his full term. “I think Frank will do this a year or two, then leave to run for governor, or climb mountains. If that happens, I’d expect you to assume the number two job. In the meantime, I’m prepared to make clear that you are number three. I’m prepared to make you vice chairman and put you on the board, if that’s what you want. I don’t necessarily think that’s what you want, but I’d be willing.” He pointed out that if Katzenberg went on the board there would be public disclosure requirements, such as his compensation. Katzenberg was naturally flattered.

  The mention of vice chairman gave Katzenberg an idea. “Would it be inappropriate if Frank became vice chairman and I became president?”

  “I could never do that to Frank,” Eisner said, saying it would be perceived as a demotion.

  “Well, I would never want you to do that to Frank,” Katzenberg said. “Forget it.”

  “I believe Frank would accept it because he would do anything to keep you in the company,” Eisner went on, “but in the quiet of his room he would feel hurt.”

  “I wouldn’t want to take anything away from the guy,” Katzenberg said, now feeling almost guilty that he’d asked.

  Eisner seemed eager to mollify him. “Of course, if for any reason Frank isn’t here; if he decides to run for political office; if he goes off to climb the summit; you are the number two person and I would want you to have the job.”

  If Eisner’s goal was to keep Katzenberg, he succeeded. Katzenberg was enormously heartened by the conversation, especially after the problems they’d been having that year. For the first time he began to look forward to extending his contract under the new deal Eisner was talking about.

  Eisner gave a somewhat different version in the account he wrote to Irwin Russell. “I made it clear it was unethical and the like,” he wrote of Katzenberg’s inquiry about being president. “He backed off and almost pretended he never suggested it. He went on to plan 2. Plan 2! Jeffrey told me three things that he needed to sign on ‘forever.’ If we made an acquisition then he could run that acquisition which would give him ‘a new mountain to climb.’ In other words, he felt he had done it all and wanted more to do. He also felt our company lacked forward thinking, maybe guts, entrepreneurial instincts, capital ‘balls’ or what-have-you; and that we were just not in the league with Rupert Murdoch, Sumner Redstone, Ted Turner and the like. When I would ask him his comments on how and why the value of the company went from $2 billion to $22.5 billion he says nothing. He values Rupert not Warren Buffett.* The second thing he wanted at that time was to be ‘anointed,’ his word to Frank Wells. I think this meant he wanted it to be known that he was clearly the number three person in the company and was the ‘heir’ behind Frank. And he wanted on the Board.”†

  Eisner provides a still different account in his 1998 autobiography, this time making no mention of any Friday-night conversation:

  “Much later, Jeffrey would claim that I had promised during our walk to make him president of the company should Frank ever decide to leave. Obviously, I remember the conversation very differently. The only issue in my mind is whether, in my phrasing, or my tone, or my body language, I might have inadvertently given Jeffrey a measure of false hope about someday inheriting Frank’s job. What I know with certainty is that neither Roy Disney nor the board was prepared to make Jeffrey president of Disney. I did hold out the possibility—even the wish—in my own mind that he might grow in ways that would someday make it possible to promote him. In any case, I deeply valued Jeffrey as the executive in charge of filmed entertainment, and I didn’t want him to leave the company or feel discouraged about his future prospects. I suggested we talk instead about what else we might do to satisfy him. ‘I need new mountains to climb,’ Jeffrey said again. I promised to give it some thought.”

  In neither of these versions does Eisner explicitly deny making such a promise. And in an interview with Tony Schwartz, Eisner all but conceded that he did say something to that effect. Schwartz had arrived in Los Angeles that fall to begin work on the long-delayed book collaboration, meeting with Eisner and other executives, sitting in on meetings, immersing himself in the company. Some Disney executives thought he’d joined the company as Eisner’s assistant, the latest in the line that had begun with Art Levitt. (Levi
tt has since left Disney to become chief executive of Fandango, an Internet ticketing service.) Schwartz carried around a laptop computer and typed his sessions with Eisner. When he was back in New York, he often met with Eisner at Eisner’s mother’s apartment in the Pierre hotel. Though he realized he was speaking to a journalist, Eisner seems to have been relatively candid, as though he enjoyed being able to speak freely to someone outside the company, while retaining full control over anything that would actually be published.

  When the subject of whether Eisner promised Katzenberg that he’d succeed Wells arose, Eisner said “I may have,” Schwartz’s notes indicate (and Schwartz later testified that the notes were a verbatim account of Eisner’s remarks). “Only thing I may have said is: if he [Wells] hadn’t signed a perfect seven year deal, if he wasn’t here…if I didn’t have this wife, you’d be great, you would be right.” And in another interview with Schwartz several months later, Eisner said, “[I] don’t know whether I did say he could have Frank’s job.”

  Frank Wells had returned to Los Angeles earlier in the day, and Eisner was eager to fill him in on his talk with Katzenberg. There’s no way of knowing just how Eisner characterized Katzenberg’s demands when they spoke, but according to Eisner, Wells replied, “Jeffrey really said that? I’m just amazed by his chutzpah.” Wells seemed more hurt than Eisner had expected, but nonetheless he evidently put his feelings aside. He and Eisner spent the rest of the conversation talking about ways they could expand Katzenberg’s responsibilities.

  One possibility they discussed, one that Katzenberg himself had been pushing for, was to acquire a television network, an idea that Eisner had never entirely abandoned ever since giving up on acquiring NBC back in 1984, when it was sold to GE. His main motivation was as a distribution channel for Disney-made television programs and films. Despite his strenuous intention for Disney to build its own businesses rather than acquire others, Eisner made an exception for television networks. True, Barry Diller had defied skeptics by creating a fourth network for Fox, but Murdoch’s Fox already owned a critical mass of television stations on which to build the network, and Disney did not. That fall of 1993, Eisner spoke to Dan Burke, Steve Burke’s father and chief executive of Cap Cities/ABC about a possible merger. Eisner even dangled the possibility of running the network before Katzenberg. They also discussed expanding Katzenberg’s responsibilities for Broadway theater, for records, and video games.