DisneyWar

by James B. Stewart

  The GE pension fund was a major investor in a private equity fund run by Shamrock Holdings, the Disney investment vehicle run by Stanley Gold. Gold had been hearing from GE people that Jack Welch might be willing to sell the network, which didn’t fit with GE’s insistence on staying only in businesses it could dominate. After several discussions between Gold and Welch, Gold proposed that they get together with Eisner. In mid-September they all gathered at the executive dining room in the GE Building in Rockefeller Center. It was Eisner’s first trip since his surgery.

  Eisner was intrigued by NBC as a possible turnaround candidate, just as ABC had been when Eisner had helped elevate it to first from third place. On the flight to New York, Eisner told Gold that Bob Wright, the GE executive Welch had put in charge of NBC, was a corporate finance “suit” who knew nothing about the creative business of network television (a view curiously at odds with Eisner’s own oft-stated views that good managers were fungible and could manage any business). Eisner, by contrast, had proven programming abilities. And owning NBC would also guarantee an outlet for Disney-produced entertainment, which had always been the primary strategic rationale for Disney to own a network.

  When they met for dinner, Welch said he wasn’t yet willing to sell NBC outright, but he was prepared to offer Disney creative control of the network and a 49 percent interest, with an option to later acquire more. And he wanted to give Bob Wright at least two more years to turn the network around. The proposed deal appealed to the bargain-hunter in Eisner: He figured he could gain creative control of a network for just half the cost of buying it all, and secure an outlet for Disney-produced programming. And while he wasn’t thrilled with the idea of keeping Wright, he admired Welch for standing behind him.

  But after dinner, when Eisner presented the proposal to Sid Bass at Bass’s Manhattan apartment, Bass was cool. “I don’t think it’s favorable,” he said of the terms, which pretty much drained the room of any enthusiasm. Half the risk meant half the reward. The next morning Eisner called Welch. “The answer to the proposal is an unequivocal no.”

  Welch laughed. Still, Eisner felt a sense of disappointment and letdown. Buying NBC would have given Disney a “shot in the arm,” Eisner felt, at a time both he and the company needed it.

  The very next day, Eisner met with his strategic-planning advisers to discuss progress on Disney’s America, the ambitious theme park project planned for northern Virginia. Peter Rummell showed him new financial analyses that projected that the venture would operate at a loss. After the Euro Disney experience with cold weather, the operating season in northern Virginia was cut back to eight months, and attendance estimates were slashed. As at Euro Disney, costs had soared. The Imagineers, as usual, had introduced new attractions and expanded and upgraded others. But more worrying, opponents of the venture, many of them wealthy neighbors with influence in Washington, had succeeded in turning the theme park area into a historical and environmental cause célèbre. Although the site was actually five miles from the Civil War Manassas battlefield, the public perception was that Disney would be defiling sacred ground. Prominent American historians rallied in opposition; a group called Protect Historic America took out a full-page ad in The New York Times calling Eisner “The man who would destroy American history.”

  Eisner seemed genuinely surprised that Disney would be derided as much as admired for its values; as he told The Washington Post, “I thought we were doing good. I expected to be taken around on people’s shoulders.” Disney had the support of the Virginia governor and legislature, but “the issue was no longer who was right or wrong,” Eisner finally decided. “We had lost the perception game.”

  So after hearing Rummell’s projections, Eisner pulled the plug on Disney’s America, at least for the time being. (He insisted publicly that “I have no intention of giving up on a historical park permanently.”) Though he had yet to break the news to the Disney board, word of the decision soon leaked, and Eisner had to rush two of Rummell’s deputies to deliver the news to the Virginia governor before he read about it in The Washington Post, which ran the story on its front page the next day.

  The decision to scrap Disney’s America, widely perceived as a defeat for Disney, seemed uncharacteristic of the combative Eisner, and many at the company wondered if this was a new, postsurgery Eisner. Eisner himself noted that he hadn’t fully regained his strength when he made the decision, and said he didn’t want to subject the company, or himself, to more “trauma.”

  Potentially adding to Eisner’s distress was the news on October 12 that Katzenberg was forming a new studio with partners David Geffen and Steven Spielberg, a bold move hailed on the front Arts page of The New York Times as “the biggest merger of talent since Charlie Chaplin, Mary Pickford, Douglas Fairbanks and D.W. Griffith founded the United Artists movie empire in 1919.” After the success of Lion King, Katzenberg was widely perceived as the top studio executive in Hollywood; Spielberg, the director of E.T. and Schindler’s List, was the most sought-after director; and Geffen, who had parlayed the proceeds from the sale of Geffen Records into a $2 billion fortune, was the richest man in Hollywood.

  Eisner thought the announcement vindicated his intuition that Katzenberg would have a hard time finding another $100-million-a-year job, and he predicted the new studio would fail, as had United Artists eventually. Still, there was no doubt that Katzenberg had assembled a formidable trio, and prominent investors poured money into the new venture, including Microsoft co-founder Paul Allen, who invested $500 million, and Cap Cities/ ABC, which acquired an equity stake and made a TV production deal with the fledgling studio. There was no denying that the new studio—soon christened DreamWorks SKG—posed a competitive threat to Disney, at least in the near term. Katzenberg knew all of Disney’s secrets, and Disney now faced an exodus of executives from the studio who wanted to rejoin Katzenberg. As animator Randy Cartwright put it to Ron Clements, “I think everybody’s salary just went up.” This might have happened even if Katzenberg had simply joined another studio in some capacity, but Katzenberg was creating a new competitor altogether. He pointedly said that DreamWorks would be creating an animation division, a direct assault on Disney’s lucrative near-monopoly.

  Eisner made no public comment on the new venture, and conspicuously failed to call Katzenberg or any of the participants to congratulate them. Still, if nothing else, Katzenberg had succeeded in reigniting Eisner’s fierce competitive drive, which had seemed somewhat dormant after his surgery. The stage was set for a fierce battle between Disney and DreamWorks, fueled by Eisner’s barely repressed hostility toward his former protégé, his desire to see him fail, and Katzenberg’s fierce sense of betrayal.

  So when David Geffen approached Eisner at this juncture about settling the still-unresolved issue of Katzenberg’s bonus, Eisner was hardly in any mood to discuss it. Each of the DreamWorks partners was contributing $33.3 million to the new venture, and Katzenberg needed the money. “Jeffrey will take $60 million,” Geffen offered. After tax, that would leave him with the money for the DreamWorks stake.

  “He’s not entitled to anything,” Eisner countered.

  “This is going to get settled,” Geffen warned, “and it won’t be for $60 million. Each time the price is going to go up.” But Eisner wouldn’t budge.

  By Thanksgiving, Eisner was not only feeling better, jogging in the Vermont woods during the family’s annual Thanksgiving holiday, but he was reveling in Disney’s record profits for 1994. With The Lion King, Pulp Fiction, and November’s The Santa Clause all hits, Disney’s studio became the first ever to earn over $1 billion in a single year. Pulp Fiction alone earned $108 million in the United States, far more than the cost of the Miramax acquisition, and the film cemented the Weinsteins’ reputation for spotting talent, with director Quentin Tarantino winning an Oscar for Best Original Screenplay. Comedian Tim Allen, star of The Santa Clause, was also starring in “Home Improvement,” the year’s number one–rated television show, produced by To
uchstone for ABC, and Allen’s autobiography was the number one nonfiction book for Hyperion, the Disney publishing division. Allen was also going to be the voice of Buzz Lightyear in Pixar’s Toy Story. This was Eisner’s dream of synergy come true. Snow White, finally released on video, sold 10 million copies during its first week on sale.

  That year Disney earned nearly $2 billion on record revenues of more than $10 billion. In his annual letter to shareholders, Eisner sounded a triumphant note. While noting the “shocks and distractions” of the year, including Wells’s death, his surgery, and Katzenberg’s exit (which he characterized as Katzenberg’s “decision not to renew his contract”), he concluded that “Disney is stronger than most have given us credit for…. Our critics did not stop us. Frank’s death did not stop us. My heart surgery did not stop us. Our studio reorganization did not stop us.” Unmentioned was the fact that Lion King, The Santa Clause, and “Home Improvement” were all put into development by Katzenberg, who was also responsible for the Miramax acquisition.

  The failure of the NBC negotiations had only whetted Eisner’s appetite for a major deal. That same Thanksgiving weekend, Eisner flew to Orlando, his first visit to Disney World since his surgery. There he told a large gathering of Disney employees that “During the next several years we should make a major acquisition. The trick is not to make the wrong one. You have to be patient. You want to buy something for what it’s worth…You want to make a choice that complements the Disney brand, where the sum of the two companies is greater than the parts. That’s the deal we are looking for.”

  Over the Christmas holidays, Eisner took Joe Roth, the new studio chairman, on a whirlwind trip to Walt Disney World. Afterward, Roth met with David Vogel, the head of Walt Disney Pictures, saying he now saw Disney-branded “event” movies as a big opportunity. He asked Vogel what he had in development, and immediately singled out a live-action 101 Dalmatians and a remake of The Absent-Minded Professor for “event” treatment. He explained how Disney could market them the way he’d done with Home Alone. “Let’s make these big,” he told Vogel.

  Vogel was thrilled. Finally, he thought, the studio head was someone who understood the potential of Disney-branded live-action films. He seized the opening to discuss his own career with Roth. “Someday I want to make adult movies,” he said. “I’ve been here all these years, and I can’t do this for the rest of my life.” He pointed to Cool Runnings, a film about the Jamaican bobsled team that he’d championed for the Disney label, even though it didn’t have kids in it, as an example of the kind of thing he could do. “If I’m successful, I want to branch out beyond what’s considered appropriate for children,” Vogel argued. Roth agreed that if Vogel succeeded during two more years with the Disney label, he’d give him the budget to make adult films.

  That spring, Roth enthusiastically reported that he had “great news”: John Hughes, the writer of Home Alone, had agreed to write and produce 101 Dalmatians. Vogel tried to conceal his dismay. Hughes was one of the most expensive writers in Hollywood, and his contract guaranteed him 10 percent of the gross on Dalmatians. While attaching him to the film would be seen as a coup for Roth, and all but guaranteed it would be an event film, this seemed directly contradictory to Eisner’s mandate to hold down costs. After all, Dalmatians was a “talking-dog remake,” as Vogel described it, and didn’t need a star screenwriter.

  Vogel pointed out that he’d already commissioned a first draft of a script from writers with experience with animal-oriented, family films.

  “Then I guess you’ll have to be the one to say ‘no’ to John Hughes,” Roth replied.

  Vogel was in an impossible situation. He said he’d find a way to work it out.

  Many people experience profound changes after heart surgery, and not long after New Year’s, in January 1995, Eisner received a long, thoughtful letter from Larry McMurtry, the novelist who wrote Terms of Endearment, which was such a hit for Eisner while he was at Paramount. McMurtry had undergone heart surgery at age fifty-five, just a few years older than Eisner. He wrote that he felt “younger in body but older in spirit,” and described symptoms of depression, insomnia, loss of concentration, and an end to his “Type A” ambition. The letter prompted a lengthy and uncharacteristically revealing response from Eisner:

  A lot of what you write I understand and to some extent I have had similar feelings. But I do not have the problem to the extent you describe; only vague shadows of the problem…. This was my surface life: Great success at the office…Three great kids…great wife…Type A life…Conflict…and Mevacor…And finally Euro Disney…Then I stopped sleeping two years before my bypass…and like you, I hated that.

  I have had worse problems than Euro Disney. I had had the long arm of parental conflict but I could deal with it. I forgot about the pain under exercise and just accepted it as part of my emotional life. The pain, I believed, was psychologically induced. I was capturing the attention of my father or some other parent. I did not have real pain.

  He described the events leading up to his near heart attack and surgery, and continued:

  Something has happened to me that is a big deal. I am no longer immortal. I am no longer even young…I still go to the office and still am basically the same person, but there is this giant hole which I guess is called middle age. Or actually it is old age…52 is half of 104 and therefore 52 is not middle age. 52 for me is old age. That’s the rub…I went from kid to old guy in four hours.

  I do not like what has happened, but I guess it’s better than many I know. I don’t have cancer or any other horrible illness that I know about. But I am different. My life has a finite sense to it, and there is certainly a hollowness that comes with such realizations. I try not to think about it, but I think about it all the time…. I used to put up with betrayal as a reality in life and now I won’t let it in the door even if there is a blockbuster motion picture associated with it.

  When all is said and done, I do feel in the hollow of this new life one strange thing that you do not mention. I feel one positive. I feel one rush that offsets all the feelings you related. I feel one enormous explosion which I haven’t felt since my first son was born. I died. And I know what that is. Although I feel the ceiling of death, at the same time I accept death for the first time and even look at it without fear. Death has always been for me the feeling of air turbulence, hitting the shoulder of the highway…. Not now. It simply is. I have been there and it was okay.

  Board member and former Disney chairman Ray Watson raised the delicate subject of Eisner’s mortality in a January 13 letter in which he asked who would succeed Eisner if he were suddenly incapacitated or killed, hardly an unreasonable question in the wake of a year in which Wells had been killed and Eisner suffered a near heart attack. And yet Eisner seemed farther away than ever from picking a successor.

  “Let me address tonight just your first point, ‘The confidential plan on Succession.’ ” Eisner wrote (though he didn’t actually send the letter until October 8, nine months later). “Here’s the sad truth. I do not have one. I know a lot of bad plans, a lot of silly ideas, a lot of frustrating plans; but I have no solid recommendations…. We have a fantastic group of young executives that need line experience…but right now I cannot say who is really in the ‘batter’s circle.’ It is not Rich Frank…. It isn’t even Sandy Litvack who has become extremely helpful to me.”

  Eisner wrote Watson that he’d like to have a chief operating officer who could take over for him, but he had no candidate in mind. “This does not make Jane happy,” he added. “What I’m doing now looks crazy, no president, no CFO, no treasurer…. Right now I cannot say who is really in the batter’s circle…. Soon I hope to have a first class CFO.”

  This, of course, would have come as news to Richard Nanula, who was the CFO, and no doubt to Litvack, who increasingly saw himself as Eisner’s heir apparent. “If I do die or become incapacitated,” Eisner continued, “I suggest you talk to Barry Diller and Michael Ovitz and make a choic
e. Today I would choose Ovitz (I think because he is a hard worker, and good family man and motivated, maybe too motivated and somewhat untested. Barry is completely the opposite. He has been tested. He is smarter. Much more ethical…. He has a real moral compass and great taste. He is not a family man but I believe you do not have to be a chicken to know a good egg. He will adapt to family values quicker than Fred MacMurray. Maybe I would choose Diller. I don’t know. I do know there is nobody else…. I think my first choice now would be Diller. He is a creative executive. And the fact that he is a homosexual should have no weight. I mention this because some[one] will surely say something about his lifestyle or at least think it. You crossed a much larger hurdle in 1984 naming a Jew.”

  Eisner closed on an almost wistful note: “Life will go on. And so will the company. And there will be a nice memorial service for me that I wish I could go to, and then the next animated movie will go out, and the company will be peopled by really strong and talented men and women and somewhere in the archives will be files of my years that made some difference.”

  In the same letter, Eisner also mentioned his belief in moving executives around, the “counterprogramming” he often discussed with Ovitz, and the reorganization he’d been discussing with Wells before he died. As he had demonstrated with Steve Burke, when he moved him from running the Disney stores to Euro Disney, Eisner was convinced that good managers could run anything, and that it was healthy to shake things up before they became stale.

  “All the executives that have been doing their jobs for the last 10 years and are bored are being moved around,” he wrote Watson. “All the corporate guys must be moved out and around. We needed and are getting a corporate takeover from the inside…. I have worked for a decade at ABC and almost as long at Paramount. I saw what happened when people got bored. They cannot. We cannot let them. We must make the changes to keep everybody excited and working hard…. This is founding a new company under the same principles and culture…. So the pressure on me is great. I feel without me today it all falls apart.”