DisneyWar

by James B. Stewart

  The settlement itself was a major breakthrough, given the stubbornness with which Eisner held to the view that Katzenberg had forfeited his bonus by leaving early. No doubt Eisner genuinely believed this; perhaps Wells had told him this in order to mask his own mistake in granting Katzenberg such an open-ended bonus. The bonus concept had been Wells’s idea in the first place, negotiated in a bungalow at the Beverly Hills Hotel as an “annuity” for Katzenberg’s twins. No one had expected it to amount to much, but that’s hardly an excuse for such a vague, poorly drafted, potentially limitless liability that Wells imposed on the company. Eisner may have been right about Wells’s deficiencies as a business executive, and right to be incredulous that there was no penalty for Katzenberg quitting before the end of his contract. But that didn’t change the contract.

  During the discovery process, it had become increasingly clear that Eisner’s understanding about the bonus was untenable. The language of Katzenberg’s contract, the history of the negotiations, and the extensive analysis contained in Project Snowball all supported Katzenberg’s claim that he was entitled to a bonus. Although Eisner had always maintained he knew nothing of Project Snowball, the document itself had his initials typed on it, indicating he had received it.

  Moreover, Katzenberg’s lawyers had subpoenaed all the notes taken by author Tony Schwartz for Eisner’s autobiography, replete with unguarded and devastating evidence of Eisner’s hostility toward Katzenberg: the concession that Eisner might have offered him Wells’s job; his petulant outburst that he wouldn’t pay him anything; not to mention plenty of indiscreet remarks about Ovitz and others still at Disney.

  Schwartz was horrified at having to turn over the notes, but he could not claim that Eisner had been a confidential source speaking to a journalist. Disney lawyers resisted the subpoena on his behalf, but the court ruled the notes had to be handed over, and Schwartz had to give a deposition, in which he swore that the notes reflected a near-verbatim account of what Eisner had told him. Schwartz wished that he hadn’t written so much down, especially things that he knew Eisner would never allow in the book. Yet he had had no way of knowing it would come to this.

  As a result, it seemed incomprehensible that in the ensuing year and a half, having already conceded the key liability issue, Disney and Katzenberg could not settle the case. Katzenberg dreaded the thought that everything about his career at Disney would become public. He knew Disney lawyers would try to put his actions in the harshest possible light, suggesting that he had tried to capitalize first on Wells’s death and then Eisner’s heart attack to advance his own interests, not to mention revealing his compensation at Disney. For Disney, the stakes were even higher. By going to trial, Disney and Eisner risked all the negative publicity it had hoped to avoid, as well as an order to pay far more than it thought Katzenberg deserved.

  Yet Eisner remained intransigent. Since Katzenberg’s acrimonious departure, their relationship had deteriorated, if such a thing were possible. Eisner blamed Katzenberg for the ruinous competition for animators from DreamWorks. Eisner and Pixar’s Steve Jobs accused Katzenberg of stealing the idea for DreamWorks’s animated feature Antz from the latest Pixar project, A Bug’s Life. Pixar had been talking about A Bug’s Life before Katzenberg left Disney, though Katzenberg maintained he’d never heard of it. A DreamWorks film executive, Nina Jacobson, who had no knowledge of the Pixar project, first suggested Antz. Then Katzenberg had had the audacity to move the release date for Antz ahead of A Bug’s Life.

  Stanley Gold viewed the approaching trial as an impending train wreck. He repeatedly urged Eisner to settle, even though it was obvious that this wasn’t advice Eisner wanted to hear. Even Litvack, who had helped derail the earlier Ovitz-brokered settlement, now pushed for a settlement. At their lawyers’ behest, Eisner and Katzenberg met to try to resolve the dispute, but the meeting quickly descended into acrimony, and Katzenberg walked out. At another point, Katzenberg appealed directly to Disney board member Tom Murphy, who spoke to Eisner. Lawyers for the two sides again met to negotiate, but Katzenberg was furious that Disney’s lawyers wouldn’t budge. His lawyer, Bert Fields, said he wasn’t going to waste any more time on settlement talks.

  Finally Gold reached out to David Geffen. Though he didn’t know Geffen, Gold urged him to call Bruce Ramer, his former partner at the law firm of Gang, Tyre, who was Steven Spielberg’s lawyer. “Ask Bruce if my word is good,” Gold urged him. After talking to Ramer, Geffen agreed to meet with Gold, and Gold visited him at his Malibu beach house. He was surprised to discover that he was comfortable with Geffen. Geffen summarized the case from Katzenberg’s point of view, emphasizing the many ways that Eisner had mistreated him. He stressed that Katzenberg was determined to go to trial and that he would win.

  Much of what he heard from Geffen was news to Gold. Thus far, he’d only heard Eisner’s point of view. For the first time, he began to wonder if everything Eisner had told him was accurate. Gold told Geffen that Disney maintained that its maximum additional liability was $30 million.

  Geffen said he’d take $150 million.

  Gold said he couldn’t get there. “I want to settle this, but I don’t think I can sell the deal,” he said.

  “Stanley, let me assure you, it will cost you more the next time,” Geffen insisted. “This is the lowest that number is ever going to be.”

  The trial date arrived with no resolution. Katzenberg was the first witness. He was calm on the stand, recounting the history of his employment contract and the origins of the bonus provision. He described the crucial meeting with Wells when Wells said Eisner had a “misunderstanding” about Katzenberg’s contract, but that he would take care of it. His lawyers introduced numerous documents to support his position: the contract itself; notes taken by Arthur Emil, Katzenberg’s lawyer in the salary negotiations; Wells’s notes; a copy of the notes Irwin Russell took of his 1988 conversation with Wells about Katzenberg’s contract.

  The portly, aging Russell was Disney’s first witness. His demeanor was nervous and uncomfortable. Asked about the language in his notes confirming that Katzenberg’s bonus would “continue” even if he left before the end of his contract, Russell testified that he had forgotten to write the word loses before the word bonus.

  “These were very quick notes strictly for my own purposes,” he testified.

  “You had enough time to write the word loses,” Fields injected.

  “Maybe, maybe not,” Russell said.

  Eisner was the star witness. As his testimony began, he seemed calm, if slightly irritated that valuable time was being wasted in a court proceeding. The key issue was whether Disney had breached Katzenberg’s contract by refusing to pay him his bonus, in which case it owed him the bonus plus interest. Thus, any motive on Eisner’s part to breach the contract, such as personal hostility toward Katzenberg, was also an important element of the case.

  On the critical contract issue, Eisner insisted that he never agreed to continue Katzenberg’s 2 percent bonus, notwithstanding various deal memos in Wells’s handwriting that contained the provision.

  “You never heard or saw the name Project Snowball?” Fields asked.

  “No,” Eisner said. “Not that I recall.”

  Fields handed him a memo addressed to him, titled “Project Snowball.”

  “I don’t think I ever saw this memo,” Eisner said.

  Fields handed him another one, labeled “Project Snowball, Highly Confidential, from Frank and Cheryl F. to Michael Eisner.” “You didn’t see that one either?”

  “I don’t recall seeing it, no.”

  After more testimony on the 2 percent bonus, and how Wells and Eisner had long assumed it would be worthless, Fields abruptly switched subjects, turning to notes taken by Tony Schwartz for Eisner’s autobiography. “Did you consider yourself the cheerleader and Mr. Katzenberg merely the tip of your pom-pom?”

  “No.”

  “Didn’t you say that to Mr. Schwartz? That’s how you looked at him?” />
  “Mr. Schwartz has that in his notes, I believe. I don’t believe I said it. If I said it, I’m quite sure it was in humor….”

  “You don’t think Mr. Schwartz made that up, do you?”

  “I don’t know.”

  “Do you think he made it up?”

  “Probably not.”

  “So you probably said it?”

  “In humor,” Eisner finally conceded.

  Fields continued: “Did you tell Mr. Schwartz that you hated Mr. Katzenberg?”

  “In one conversation when he pushed me on things that Mr. Katzenberg had [done], I did say that.”

  “You said, ‘I think I hate the little midget’?”

  Eisner looked uncomfortable. “I think you’re getting into an area that…is ill-advised,” he warned. “I don’t think it’s productive, Mr. Fields, to ask what he was referring to that prompted that response. It was completely private. It has never been in a rough draft or in my book, which only looked at the bright and light side of my relationship with Mr. Katzenberg predominantly, and if you pursue this line of questioning, it will put in the public record those things that I think are not necessary to be in the public record.”

  “Didn’t you say on more than one occasion that you hated Mr. Katzenberg to Mr. Schwartz?”

  “I probably did hundreds and hundreds of hours of interviewing Mr. Schwartz…Probably out of humor. Out of gross unpleasantness. I did not hate Mr. Katzenberg. I still do not hate Mr. Katzenberg. We had a very long and fruitful relationship. There were things that I’m sure that I did that provoked his dislike and hatred of me and vice versa at any one moment in time. But to characterize it as me hating him is absurd and is going down a direction that I think is not in your client’s best interest or mine, but particularly your client’s, but that’s up to you.”

  Fields turned to more of Schwartz’s notes. “Did you say to Mr. Schwartz, ‘I don’t care what he thinks. I am not going to pay him any of the money’?”

  “I would say again, in anger I said that.”

  With that, Fields rested. He had gotten exactly what he wanted out of Eisner: an admission of personal animus toward Katzenberg that meant he wouldn’t pay him any money, even if he owed it. Eisner seemed surprised by Schwartz’s notes (and later contended that he was surprised), which, if true, was an inexcusable lapse on the part of his lawyers, who should have reviewed them with Eisner before he took the stand.

  The thankless task of extricating Eisner from this evidentiary mess fell to Disney lawyer Lou Meisinger. “What were the circumstances, Mr. Eisner, which caused you to tell Mr. Schwartz, in substance, that you didn’t care what he thinks, ‘I am not going to pay him any of the money’?”

  “I was particularly annoyed with a practice that he had of negotiating with the press, you know, talking about company business to the press, bringing up the whole financial arrangement in the media,” Eisner explained. “I get that very day a misdirected fax that was sent from Jeffrey Katzenberg to Bert Fields, thanking him for all the help of talking to the media on the New Yorker story, which inadvertently went to me, which annoyed me.” With respect to Katzenberg’s bonus, “I now was saying to Tony Schwartz, screw that. If he’s going to play this game, this media game, this deceptive game, this disingenuous game, and do the kinds of things I was angry about him for doing anyway…[not] keeping his word, being rude, things like that…I simply was not going to pay him his money. And I was aggravated and I’m sure…this was just one of the dark sides of an otherwise effective executive…. There is occasion when somebody does something that goes toward the dark side that makes you so aggravated that you get annoyed.”

  Oddly, given Ovitz’s deal to settle the case with Katzenberg for $90 million, Eisner also testified that he never received any settlement offers. “We never got a figure, period, and the figure that was kind of out in the ether was so much higher, catastrophically higher…that we never had a definitive conversation that I know of.”

  The press, of course, had a field day with remarks like “the little midget” and “the tip of my pom-pom.” Kathryn Harris, the former Los Angeles Times reporter now working for Bloomberg News Service, summed up, “Michael Eisner is a charming, intelligent and facile executive who shouldn’t be allowed near a witness stand…far worse…was the ebbing of Eisner’s credibility—that most precious commodity in a witness, and certainly in a chief executive who has fused his likeness to a company.”

  With Wells dead, there will always be an element of mystery about the Katzenberg bonus: exactly what Wells told Katzenberg and Eisner, and what he meant in drafting the contract language. Even so, Breckenridge ruled swiftly in favor of Katzenberg, finding that the evidence made the conclusion “inescapable” that Disney had in fact breached his contract, and thus owed him interest. The precise amount would be the subject of further proceedings.

  Geffen called Gold after the verdict. “I told you so,” he said, though his intention wasn’t to gloat. The next day, Gold visited Geffen at his newly restored palatial estate in Beverly Hills, formerly owned by Jack Warner. As Geffen had warned, the cost of settlement had now gone up—to $200 million. On Saturday, the negotiations continued at the Four Seasons Hotel. Katzenberg’s lawyers and an expert witness gave Gold a presentation on the value of Katzenberg’s bonus and the interest calculation. After conferring with Eisner and Litvack, Gold called Geffen to say he’d failed to persuade them. Geffen reminded Gold that the longer Disney delayed, the higher the ultimate cost would be.

  The second phase of the proceedings began on May 25. This time Gold sat in, and Litvack replaced Meisinger as Disney’s lead attorney. A series of expert witnesses made clear how open to interpretation was Wells’s promise to pay Katzenberg a percentage of “all proceeds” from his work at Disney. Did this include the sale of plush toys in India and China—the subject of much testimony? Eisner was again slated to take the stand. Gold didn’t like what he was hearing in testimony.

  Over the July 4 weekend, Gold again met with Geffen at Geffen’s beach house in Malibu and dropped any argumentative pretenses. He wanted a deal. As Geffen had promised, the price to settle had risen yet again. This time he and Gold agreed on a number: $275 million. Still feeling burned from his experience with Ovitz, Geffen asked, “If I shake hands with you on this, does this mean we have a deal?” Gold assured him it did. But when Geffen called Katzenberg to announce the momentous news, it was Katzenberg who balked. “I’d always expected something that began with a three.” Then, “Okay, I’ll take $280 million,” he said—$5 million more than the deal Geffen had just shaken hands on.

  Now it was Geffen’s turn to be furious. “Jeffrey, you can’t do this to me. I’ve given my word.” But Katzenberg, sensing another imminent victory in court, stuck to his guns. Finally Geffen agreed that he would personally pay the extra $5 million if it meant so much to Katzenberg.

  The final settlement was, in fact, $280 million; Disney agreed to pay the extra $5 million, sparing Geffen from reaching into his own pocket. The settlement was announced on July 7 without specifying the amount.

  The irony of the settlement wasn’t lost on Ovitz. The merits of many of the deals he negotiated but failed to consummate for Disney were debatable. But this much was incontrovertible: He could have settled the case for $90 million. Now Disney was paying $280 million.

  Michael Davies had left ABC, but he wasn’t about to give up on “Who Wants to Be a Millionaire.” With the backing of both Eisner and Iger as well as Bloomberg, he knew that “Millionaire” had momentum, no matter what Tarses thought about it. He still believed that the show was destined to change his life, so he persuaded Paul Smith to make him an executive producer. Smith agreed that “Millionaire” needed someone like Davies, who could steer it onto an American network, and who understood American sensibilities.

  It took months of negotiations with ABC to complete a deal. Although Davies wanted Regis Philbin to be the host, someone he’d already lined up for his “$64,000 Questio
n” project, ABC initially held out for someone with more gravitas, who would give the show a more serious image—both Phil Donahue and Bob Costas were suggested. But Philbin called and practically begged to host the show. He was just the kind of reassuring presence Davies wanted, someone who wouldn’t intimidate a post “Jeopardy” audience. Besides, Disney’s Touchstone studio was already producing “Live with Regis and Kathie Lee,” so it had a relationship with Philbin.

  Another sticking point was how “Millionaire” would be broadcast. Paul Smith felt that a critical element of the show’s success in Britain was that it was an event—it was “stunted,” meaning it ran every night for two weeks, and then stopped. Smith insisted that ABC commit to eleven episodes, which it would run on successive nights, but the network resisted. Davies eventually got ABC to agree. The entire development cost was a modest $1.9 million, plus $1 million in prize money, a relative bargain for eleven prime-time episodes. Davies further narrowed the financial risk by lining up sponsors: People magazine, AT&T, McDonald’s.

  ABC scheduled the first run of “Millionaire” for the week of August 16, 1999, as a summer replacement, a time of traditionally weak viewership when it could afford to risk eleven consecutive nights. Davies had spent weeks reviewing old 1950s game shows for inspiration, and used the British version as a model for the set design, which was built at a Sony television studio on West Fifty-third Street in Manhattan. Paul Smith flew in from London to oversee the first tapings, armed with his 120-page program guide containing the game’s rules and production instructions.