DisneyWar

by James B. Stewart

  To all appearances, Katzenberg was reassured by what Eisner promised him at Aspen. Yet Eisner wrote his lawyer/confidant Irwin Russell the following April that Katzenberg “was confident that they [the conditions for his staying] would happen which goes to his unrealistic expectation about everything. And I did not dissuade him. He knew we were talking to ABC and I never told him it was a ‘no shot’ just a ‘long shot.’ He kind of settled in although we kept having terrible results in our live-action business and he became more secretive…. If Jeffrey was on his way to Washington, I wouldn’t even know. I would say to my secretary, ‘I need to talk to Jeff.’ She would find him on the plane. I would say, ‘Where are you?’ He would answer ‘On the plane.’ ‘Oh,’ I would respond. ‘Where are you going?’ He would simply say ‘Washington.’ He would never give either Frank or me any more information. We would have to dig and dig. Mostly we gave up.”

  As his letter suggests, Eisner was troubled by Disney’s continuing dismal performance in live-action films. Under Katzenberg’s direction, the studio was having a great year thanks to video sales of Beauty and the Beast and the continuing success at the box office of Aladdin. But the bonanza from animation masked the continued weak performance of live action now that Disney was running both Touchstone and Hollywood studios and churning out forty films a year. There were a few modest successes—What’s Love Got to Do with It?, a biography of Tina Turner; The Joy Luck Club; a remake of Tombstone with Val Kilmer and Kurt Russell; and a Walt Disney production, Homeward Bound, a low-budget remake of The Incredible Journey—but the only memorable work was The Nightmare Before Christmas, produced by former Disney animator Tim Burton.

  But given the studio’s track record in live action, Eisner was increasingly derisive of Katzenberg’s manifesto of two years earlier. Unfortunately for Katzenberg, almost every film that he’d singled out for praise—Scenes From a Mall, Billy Bathgate, and especially The Rocketeer—had been huge box-office flops. Eisner attributed much of the live-action failures to his exclusion from meetings and screenings and his belief, as he later put it, that “most successful movie studios and television networks have had at least two strong executives at the top, supporting and counterbalancing one another.”

  Eisner complained about the Katzenberg manifesto to Tony Schwartz, characterizing it as “insubordination,” showing that it was still on his mind two years later. Schwartz’s notes read: “wrote the memo, he didn’t write anyway, because he was so proud of it…he wanted me to read it, thought it was so brilliant…so I read it and say, Jeffrey, this is dynamite, putting down a lot of actors, it is also self-serving…don’t show it to anyone; I wrote on the memo: ‘Do not Xerox or send this to anyone’…he completely disobeyed me; Frank and I discussed throwing him out…from that moment on I knew it was over. It wasn’t the memo, fact I told him not to show it, and faxed it, and lied about it…I just let him have it;just sits there and stares at you and walked out; everyone I knew was pissed off…from that memo on never made a decent movie.”

  At their weekly dinners, Eisner expressed at least some of these concerns to Katzenberg, but he felt that Katzenberg didn’t take them seriously. Katzenberg was baffled. From his vantage, Eisner had approved every movie the studio produced. He had always stressed that Eisner had the right to veto any project he didn’t believe in. And he had carried out Eisner’s directives, even when he disagreed. A case in point was the movie Cabin Boy starring Chris Elliott, a comedian who was performing skits on “Late Show with David Letterman.” Adam Resnick, a former writer for Letterman, wrote the script. Katzenberg thought the idea—a pampered rich boy takes to sea with some salty fishermen—was trite, the script terrible, and told Eisner so. Not one person on the Touchstone staff wanted to make the film. But Eisner insisted it would be a comic hit.

  When the movie was released, the reviews were scathing and it barely earned $3 million at the box office. Katzenberg was pummeled in Hollywood, yet out of loyalty to Eisner, he said nothing to defend himself. But Katzenberg’s shouldering the blame for Cabin Boy seemed to generate scant goodwill from Eisner. He complained about Katzenberg to Ovitz, faulting his bad manners, his lack of education, his rudeness. At a meeting with animators developing The Hunchback of Notre Dame, Eisner spoke about the historic Paris cathedral and Victor Hugo’s classic novel. “How do you know all that?” Katzenberg asked, and Eisner gave him a withering look.

  “I went to college,” Eisner said.

  At Frank Wells’s sixtieth birthday party, hosted by his wife, Luanne, and held at the Beverly Hills home of a close friend, Eisner was appalled that Katzenberg left after the first course, citing another business engagement. Wells didn’t seem to care, but he, too, complained to Ovitz from time to time about Katzenberg’s lack of polish, aggressive manner, and naked ambition, so different from the urbane aura that Wells cultivated.

  In his letter to Irwin Russell, Eisner wrote, “Jeffrey acted like he was staying forever, and both Frank and I were perplexed. On one hand he was doing his job, almost with a voracious appetite. Meetings, meetings, meetings, deals, and more deals; volume at any expense. Frank and I had such mixed feelings that we discussed him all the time. Every day we obsessed over Jeffrey Katzenberg. Basically Frank really did not like him. He treated Frank as a necessary obstacle to getting his agenda done. He never was really polite to him, actually quite rude. He left his surprise sixtieth birthday party after the first course for some meaningless ‘business dinner.’ Of course he was always rude to those of us inside the company. He left everything early. Jane would never invite him to anything at our house because he was so rude. Why should I be surprised about Frank’s feelings. Jeffrey was the only one who never mentioned or wrote to me after my father’s death.”

  It is striking that in his letters to Russell, Eisner never said anything nice about Katzenberg. Even the animators, who were generally hostile to Katzenberg, thought Eisner’s condescension toward him bordered on cruelty. Yet from a business perspective, it was hard to fault Katzenberg given the stupendous success of the animation division. Thanks to the recent animated hits and home video sales, the studio had record earnings in 1993 of $622 million despite huge losses in live action and television. Operating income at Disney dropped sharply from $817 million in 1992 to $300 million in the year ending September 1993. Because of the accompanying slide in Disney’s share price, Eisner and Wells received no bonuses. It was no longer possible to gloss over the alarming problems at Euro Disney, which in December 1993 reported a loss of more than $1 billion. In his annual letter to shareholders, Eisner acknowledged Euro Disney to be his “first real financial disappointment.” “This has been a serious problem, one that has cost an enormous amount of time and anxiety, and one on which Frank Wells has concentrated his—and the rest of our—full attention.”

  Disney had created a reserve sufficient to fund Euro Disney’s losses through March 31, 1994, but Eisner used the annual report to declare that this could not continue indefinitely, and that others would have to bear their “fair share,” meaning that the creditors would have to forgive or restructure a large part of the crushing $3 billion in debt. “We will deal in good faith with our fellow Euro Disney shareholders and Euro Disney creditors. But in doing so, I promise all shareholders of the Walt Disney Company that we will take no action to endanger the health of Disney itself.”

  Given the studio’s financial success, especially when contrasted with the performance of the other divisions, it still seemed inconceivable to Katzenberg that Eisner would want him to leave the company. The issues of staying until the end of his contract and the 2 percent bonus if he chose to leave were still unresolved—he’d never heard back from Wells about Eisner’s “misunderstanding”—but Katzenberg let them go in the wake of his conversations with Eisner at Aspen and the ongoing efforts to expand his responsibilities, such as running any acquisitions. From a legal standpoint, his letter from the previous fall announcing his intention to leave the following year still stood as his
last word on the subject.

  At some point during the following spring, Katzenberg’s tenure again became an issue. He told Eisner and Wells that he wanted to make a new five-year deal with David Hoberman, who was running the money-losing Touchstone operation. Eisner thought it made no sense to enter into an expensive, long-term contract with Hoberman if Katzenberg himself was leaving, so Katzenberg promised to tell Eisner where he stood by April. But before then, at one of their weekly dinners, Katzenberg said he’d like to stay, but only under a contract that gave him the right to leave with thirty days’ notice. In other words, Katzenberg would be free to accept a high-level job at another studio, network, or entertainment company and extricate himself within a month from Disney. Under this arrangement, Katzenberg said he didn’t want to be on the Disney board. He didn’t want his compensation to be disclosed, as it would be if he were a board member.

  To Katzenberg’s surprise, Eisner seemed comfortable with the arrangement. Eisner said he understood that Katzenberg didn’t want to make a long-term commitment unless the conditions they’d discussed at Aspen were met, and used the occasion to once more express his surprise that Katzenberg was willing to walk away from $100 million by leaving two years before his contract expired.

  In fact, as Eisner wrote to Russell, Eisner was only too happy to give Katzenberg the option to leave, or for Disney to fire him, with just thirty days’ notice. “I was pleased to hear this,” Eisner wrote, “because neither Frank nor I knew if we wanted him to stay at all. And he now did not want to go on the board under this arrangement. Certainly I was thrilled about that. His pontificating on the board would be unbearable. Frank and I were still undecided but he was working hard. If we could only get him back to being a team player maybe it would work. I think Jeffrey was surprised to hear that I accepted his 30-day out, but seemed OK with it.”

  As Katzenberg was falling from favor, others, especially Peter Rummell and general counsel Sandy Litvack, were ascending. Rummell, who’d worked in real estate for most of his career, both for Arvida before it was acquired by Disney, and then Rockefeller Center, ran the Disney Development Corporation, which had built the hotels and infrastructure for the theme parks in Orlando and Paris. Rummell, age forty-six, was articulate, personable, and conversant with architecture and leading architects, which impressed Eisner. He was in charge of developing a new planned community near Orlando, called Celebration, and was also overseeing Disney’s rehabilitation of the landmark New Amsterdam Theatre on Forty-second Street in New York. Eisner found both projects a welcome diversion from the intrigues of the film studio and the woes of Euro Disney. Eisner confided to Tony Schwartz that Rummell was a “rising star,” a possible successor to himself.

  In late 1993, Eisner had been meeting in New York with Robert Stern when Stern suggested they walk over for a look at the New Amsterdam Theatre, built in 1903, home to the Ziegfeld Follies, and once the “jewel of Forty-second Street.” Eisner had resisted efforts to involve Disney in the proposed rehabilitation of Times Square and Forty-second Street, which had descended into a drug-, crime-, and prostitute-infested urban blight in the decades since Eisner had watched movies and theater there as a teenager. But negotiations with the Shubert Organization, which, along with the Nederlander Group, owned nearly all the theaters on Broadway, to find a theater for Beauty and the Beast had convinced Eisner that Disney needed to own its own theater if it hoped to make money on Broadway.

  Stern took Eisner, Jane, and his son Anders over to the theater, where they donned hard hats and carried flashlights. Water was leaking through the roof, forming puddles; bird droppings were everywhere; crumbled plaster and other debris was scattered over the floors. Still, the potential grandeur of the theater was evident: remnants of allegorical murals, friezes, and mosaics; Art Nouveau architectural details.

  By the time they finished the tour, the prospect of salvaging a landmark theater and restoring its fabled grandeur had captured Eisner’s imagination. This was a project that would cast Eisner in the role of Renaissance patron, not just another corporate CEO. As soon as he got on the company plane that day, he called Rummell and told him to follow up. “This is going to be much more expensive than you think,” Rummell warned. “And a lot of headaches.” But by Monday, Rummell was negotiating with people from the Times Square Redevelopment Project.

  Eisner insisted on driving a hard bargain: Disney put up just $8 million of the $34 million budget, using low-interest city and state financing for the rest. Though details remained to be ironed out, in February 1994, Disney’s deal to acquire and restore the New Amsterdam was announced at a press conference at City Hall in New York. Mayor Rudolph Giuliani called Disney and Times Square a “match made in heaven” and predicted that Disney’s involvement would jump-start the redevelopment of Times Square. In a few months, other companies and developers followed Disney’s lead, including Tishman Realty, Disney’s partners in the Dolphin and Swan Hotels; Condé Nast, publisher of Vogue and Vanity Fair; and the AMC Entertainment movie theater chain.

  After the success of his negotiations for the New Amsterdam, Eisner named Rummell to head the Imagineering unit, the latest executive to follow Rochlis in an effort to rein in the burgeoning unit, which, besides Euro Disney, was now hard at work on a new theme park to be called Disney’s America. Eisner had embraced the idea of a theme park that captured the sweep of American history after Dick Nunis suggested he visit Colonial Williamsburg. Strategic planning had vetoed tidewater Virginia as too far from a major population center, but Eisner liked the concept and Rummell soon turned his attention to potential sites near Washington, D.C., settling on three thousand acres outside Haymarket, Virginia, most of it owned by Exxon, which had abandoned ambitious development plans during the 1991 recession. The tract was twenty miles from Washington, adjacent to hunt country, and just five miles from the historic Manassas Civil War battlefield.

  In its determination to capture the complexity of the American experience throughout its history, Disney’s America may have been Eisner’s most ambitious undertaking, intellectually if not logistically. In January 1994, he convened an all-day meeting with Rummell and the Imagineers. “The most difficult job,” he told them, “won’t be to tell important stories about our history, or to deliver an enjoyable experience for our guests, but to achieve both these goals without having either one dilute the other…. We need to keep working to create a daylong experience that makes our guests laugh and cry, feel proud of their country’s strengths and angry about its shortcomings.”

  Some Imagineers thought it was too great a burden for a theme park to carry. So the idea of a working steel mill, which guests would view from the perspective of a roller coaster running through it, was scrapped as an inherently inconsistent hybrid of thrills and education. So, too, was a Lewis and Clark white-water raft ride against the backdrop of Manifest Destiny. Nevertheless, the Imagineers developed ambitious plans for seven themed areas, including a Native American village, a Civil War fort, Ellis Island, a state fair, and a working family farm. Eager to attract a major potential tourist attraction, the Virginia legislature approved a $140 million bond issue to finance highway improvements and a $20 million marketing campaign to promote Virginia tourism. As in France, Disney could dangle the possibility of a theme park in return for substantial public benefits.

  Of course, many of Euro Disney’s shareholders and creditors were now regretting their eagerness to entice Disney to a site outside of Paris. Despite Eisner’s public warnings that the lenders had to accept their “fair share” of the losses, and that Disney would consider letting Euro Disney go bankrupt, if necessary, the European lenders had been intransigent, saying that salvaging the park was Disney’s responsibility. As general counsel, Litvack reported to Wells, but had been complaining to Eisner that Wells hadn’t given him sufficient responsibility. Given Eisner’s tendency to blame Wells for Euro Disney’s problems, this fell on sympathetic ears, and Eisner encouraged Litvack to take on the lead negotiating rol
e in Paris. When a lawyer for the lenders threatened to sue Disney for fraud based on the representations it made at the time of the original financing, Litvack was so angry that he made only a brief rebuttal, then walked out and boarded a plane for Los Angeles, refusing to continue negotiations.

  Litvack’s dramatic gesture broke the logjam. Negotiations soon resumed, and Litvack arrived at an agreement that essentially divided the burden of reducing the debt by $1 billion among Disney and the lenders. Among other provisions, it gave Euro Disney a reprieve by suspending interest payments for sixteen months and deferring principal payments for three years. “Close the deal as best you can,” Wells told Litvack.

  Soon after, an anxious Philippe Bourguignon interrupted Steve Burke, who was in the middle of a meeting, and took him into a small room. “Our phones have been tapped,” he reported. The offices had been swept for listening devices. “Yours and mine have been tapped. We don’t know by whom, or for how long, but they’re trying to find out our end game.” Burke was in a meeting later that day, about to leave for London, when Wells’s secretary called him and said he should call Wells from a pay phone as soon as he landed in London. When Burke reached Wells from a phone at Heathrow Airport, Wells said, “Sorry about this, but our feeling is, if they’re tapping you in the office, they could be tapping you elsewhere.” He noted that the French government was believed to have voice recognition eavesdropping technology, and the French government was one of Euro Disney’s biggest creditors. “Go see Sandy [Litvack] at the Bristol Hotel, take him out into the street, and explain that we may say things we don’t really mean.”