To merge the Internet assets and run the new portal, named “Go,” Eisner tapped Jake Winebaum, an executive at Disney who’d started Family PC magazine and had been running the Buena Vista Internet Group. The Go venture was troubled from the outset. As Murphy had predicted, it was hopelessly behind Yahoo!, AOL, and the Microsoft portals. It never gained the critical mass of users necessary to attract advertisers and content. Its operations were far-flung, from Seattle to Sunnyvale to Burbank to New York to Bristol, Connecticut, where ESPN ran its site. The divergent cultures of Starwave and Infoseek were hard to meld. Nonetheless, in the summer of 1999, Disney announced that it would acquire the remaining 53 percent of Infoseek by issuing a tracking stock for the Go assets. (Owners of tracking stocks are allocated earnings from a line of business, so the stock mirrors the performance of that business, in this case the Internet.) It was a clever way for Disney to capitalize on the Internet mania in the stock market, since it simply issued stock to acquire the rest of a company valued by the market at $2.8 billion. Still, it assumed all its liabilities, and Infoseek had lost more than $42 million in the last six months alone.
Then Winebaum left in 1999 to start a new website, Business.com, even before the tracking stock was issued. In September 1999, Patrick Naughton, formerly an executive vice president at Infoseek and now one of Winebaum’s top deputies, was arrested for possessing child pornography and soliciting sex with a thirteen-year-old girl over the Internet. For a family-oriented company like Disney, it was a public relations disaster, and Naughton was fired. (He was later convicted and sentenced to home detention, probation, and a fine but no jail time, in return for helping the Federal Bureau of Investigation create computer programs to detect sexual predators.)
Eisner’s answer to the mounting problems had been to recruit Bornstein to replace Winebaum. Bornstein refused. He said he didn’t feel he really understood the Internet, notwithstanding the success of ESPN online. He didn’t want to move to California. Eisner tried a second time. He reminded Bornstein of his conviction that a talented manager could run anything, and insisted, “We are going to be the number one portal.”
“How?” Bornstein asked.
“We’re Disney,” Eisner replied. “We’re storytellers. Anyone can get email to work, and do the technical stuff. But we can make it a better experience than AOL or Yahoo!.”
Bornstein wasn’t swayed. He thought this was the Eisner of the ESPN stores, blindly optimistic in the face of common sense. Bornstein had already established a reputation building ESPN, and now he had a chance to turn around ABC. Why venture into a business he didn’t have any feel for? But then Tom Murphy called him. Like many Cap Cities employees still at ABC, Bornstein revered Murphy. “When the chairman of the company calls and asks you to do something, you’ve got to do it,” Murphy said.
But Bornstein had one other reservation: Bob Iger. Rumors persisted that Eisner was going to name Iger as president. Bornstein did not want to report to Iger. “ABC is still a problem,” Bornstein said. “It’s your most important asset. If you promote Bob and move me to the Internet group, who’s going to manage ABC?”
Eisner scoffed at the idea of promoting Iger to president. “That’s impossible,” he said. “I’d end up with another Ovitz problem. There’s not room at the top of this company for two people. We’d be stepping on each other’s toes.”
Bornstein said he wanted Eisner’s word that he would not name Iger president, and Eisner gave it. Finally Bornstein agreed to take the Internet position.
When he took up his new post, he was stunned to discover the extent of the problems. Organizationally, it was a mess, with two thousand employees in nine countries. The various Disney sites, separated from the operating divisions that created them and merged into Go.com, had no common purpose and no one championing them. Technological issues were far more complicated than Bornstein had imagined. He was at a loss to see how Disney’s motley collection of assets could be forged into a profitable business operation. His first recommendation to Eisner was to admit defeat and shut down the portal, focusing instead on four areas where Disney could make money by operating its own sites: the Disney brand, ESPN sports, Disney travel, and ABC news.
Bornstein, blunt and direct, didn’t yet know Eisner well enough to know that his suggestion was heresy. Disney didn’t admit defeat. Eisner derided Bornstein’s pessimism, arguing that “You’re running a railroad while the planes are flying overhead”—a refrain Eisner taunted him with in one form or another nearly every day. Eisner insisted that the Internet was the future and that Disney had to dominate it. The public offering for the tracking stock was scheduled for November.
Bornstein found himself scratching his head, plagued by self-doubt. Did everybody else know something he didn’t? It was one thing for a start-up to be losing money, but Go.com didn’t even have a plan. He couldn’t see how, given the cost structure and revenue base, Go.com would ever make money. Still, he thought of himself as a company man. He’d do his best.
The next installment of “Who Wants to Be a Millionaire” blanketed the ABC prime-time schedule during the November 1999 sweeps period. Originally scheduled for fifteen hour-long episodes, ABC at the last minute asked for eighteen, and Davies had to complete a marathon Sunday session in which the three additional episodes were taped in one day. Not only did the new episodes have momentum from the previous summer, the show fulfilled its full creative and dramatic promise when John Carpenter, a thirty-one-year-old Internal Revenue Service employee, had the opportunity to win a million dollars. His question: “Which of these U.S. presidents appeared on the television series ‘Laugh-In’? A. Lyndon Johnson; B. Richard Nixon; C. Jimmy Carter; D. Gerald Ford.” As suspense mounted, Carpenter used one of his lifelines to call his father. “Hi, Dad. I don’t need your help. I just wanted you to know I’m going to win the million dollars.” He correctly answered Richard Nixon.
New York Times cultural critic Frank Rich wrote that when historians looked back on the approaching millennium, they would find “a country drunk on a TV quiz show called ‘Who Wants to Be a Millionaire.’…Not only is the ‘Millionaire’ viewership huge, but in an era of ‘niche’ audiences, when every fractionalized demographic in the nation is pandered to by its own cable channel, ‘Millionaire’is gathering Americans from all walks of life around the electronic hearth in the way ‘I Love Lucy’ once did. Low-attention-span kids and surly teenagers watch. Parents watch. The elderly watch. Who could imagine a happier ending to our long siege of White House sexual revelations and workplace massacres? At last, a G-rated cultural value that unites the entire American family—greed! All brought to us by the wonderful world of the Disney Company, which has finally found a dirt-cheap entertainment formula that pleases Wall Street without offending any major faith.”
Thanks to “Millionaire,” ABC was so far ahead in the ratings race during the November sweeps that it was able to declare victory even before Nielsen had tallied the final results. On the last night of its run it drew more than 30 million viewers, and averaged over 24 million, dominating every demographic group. “Millionaire” also boosted the ratings of shows adjacent to it on the schedule, especially “The Practice,” a law drama on Sunday nights from producer David E. Kelley that also won that year’s Emmy for best drama.
The case for placing “Millionaire” in the regular ABC schedule now seemed stronger than ever, and ABC announced that it would begin airing “Millionaire” three times a week beginning in January. Without mentioning Eisner or Iger by name, Bloomberg and Braun told The New York Times that “virtually every senior executive at ABC and Disney had weighed in” on the scheduling decision. “We decided if we were going to do this, it was take no prisoners,” Braun said, describing the decision to milk “Millionaire” for every bit of profit as quickly as possible. ABC doubled the ad rate for “Millionaire” and Disney estimated that the decision would boost ABC profits by $50 million a year.
With ABC suddenly in the ascendancy, the case
for Iger’s promotion to the Disney presidency seemed compelling, despite Iger’s plan to quit in January. Under pressure from Wall Street to name a successor, or at least a strong number two executive, Eisner had again broached the possibility that fall. This time Iger was skeptical. “Are you sure?” he asked. “You seem to be hot and cold on me.”
Eisner had looked startled. “What do you mean?”
Iger felt like mentioning the call from Tom Murphy, and Eisner’s remarks to other board members, but he remained silent.
Eisner himself seemed ambivalent about the prospect of any successor. With a characteristic mix of humor and irritation, he complained to The New York Times about constant speculation about his successor. “Everybody looks at me and says, ‘Oh, well, he is 57. He must be nearing death, so why doesn’t he have six successors lined up outside his office? Nobody asks Sumner Redstone, who is 117.” (Redstone was born in 1923.)
In December, after the sweeps results, Eisner again brought up the possibility of naming Iger president, and invited Iger and Willow Bay to join him and Jane for dinner. Iger figured that if Eisner offered him the job in front of witnesses—both Bay and Jane—he had to mean it. But again Eisner vacillated. “Every time I think of naming a president, I feel like I’m competing with myself,” Eisner said.
“That’s ridiculous.” Iger countered. “I’m not trying to take your job. It’s enough to be president of the Walt Disney Company.”
On December 10, Eisner had lunch with Gerald Levin, chairman of Time Warner, at Levin’s private dining room in Time Warner’s Rockefeller Center headquarters. Since Eisner had rejected Bollenbach’s plan for Disney to acquire Time Warner, Disney and Time Warner had frequently been at loggerheads, especially after Disney acquired Cap Cities/ABC. Disney and Time Warner were both fierce competitors and important business partners. Time Warner owned the nation’s largest cable system, paying Disney to transmit the ABC network, ESPN, the Disney Channel, and other cable channels. Disney was trying to persuade Time Warner to distribute its new soap opera channel, SOAPnet, and Time Warner was balking. It was also resisting the higher fees Disney was charging for ESPN.
More fundamentally, Time Warner had embarked on a different strategy for growth: “vertical integration,” meaning it would own businesses that both created and distributed “content.” Disney had taken a step in this direction by acquiring ABC, in part to ensure access for its television productions, but Eisner was hostile to the Time Warner concept.
Eisner felt little affinity for his counterpart at Time Warner. In contrast to the often impulsive and combative Eisner, Levin was a self-styled philosopher and visionary, contemplative, introspective, and sometimes cryptic in his pronouncements. Eisner found this pretentious and off-putting. Still, Levin had been prodigiously effective at corporate political maneuvering, having emerged on top first at Time Inc. and then Time Warner after the notoriously fractious merger of Time, Inc. and Warner Communications.
By the time of the Eisner-Levin lunch, the “irrational exuberance” of the Internet boom, to quote Federal Reserve Board chairman Alan Greenspan, was in full force. Levin told Eisner he was “nervous” that a big Internet company was likely to try to take over either Time Warner or Disney, or even both of them. Levin argued that stock valuations of “old media” companies like Time Warner and Disney were depressed, whereas the stock prices of dot-com companies were so high that they could buy almost anything, using their stock as currency. Both Time Warner and Disney, he suggested, were in “jeopardy.”
“We’d never do a deal using that currency,” Eisner said, referring to the inflated stock of the dot-com companies. He added that Levin was crazy to even consider exchanging Time Warner’s solid assets for the speculative frenzy of Internet stock. Levin pointed out that he and Eisner might not have a choice if a dot-com company made a tender offer for stock and shareholders accepted it. “One of us is going to be taken over,” he warned. “Mark my words.”
Eisner and Levin discussed the fact that one way to ward off such a possibility was for Disney and Time Warner to merge themselves—something that, unknown to Levin, Eisner had at least briefly considered at Bollenbach’s urging. Just who raised this possibility is a subject of dispute. Eisner maintains that it was Levin’s suggestion; Levin that it was Eisner’s. (They were the only ones in the room at the time.) Neither, it seems, took the idea all that seriously, given that the delicate question of who would run the combined companies—Eisner or Levin—wasn’t addressed. Still, the combination of Time Warner’s cable systems with Disney’s cable channels and broadcast network made for an intriguing possibility.
Given the magnitude of such a potential merger, Eisner nearly forgot to mention the impasse the two companies had reached over their cable negotiations. It was only as he was leaving that he brought up the ABC issue. “Gerry, I don’t want to fight with you over this,” Eisner said, sounding a conciliatory note. “I hate this deal, but I’m not going to stop it. Just get it done.” He and Levin shook hands, and Levin took the handshake as a sign that they had an agreement to settle the dispute.
But Levin’s fear that an Internet company might be stalking Time Warner or Disney stuck in Eisner’s mind. The very idea angered him, and not least because, as an unreconstituted “old” media executive, he would be superfluous in such a company. One Friday afternoon, he was talking to Peter Murphy when Murphy said he had to get to a meeting. “With?” Eisner asked.
“The head of strategic planning for AOL,” he said.
Eisner practically exploded. “Get him out of here! He’s a Trojan horse. Cancel the meeting. Get rid of him.”
Late that night, Eisner reached Steve Case, AOL’s chairman. He was still furious. “Our company is not for sale,” he said. “But if you’re interested, call me directly. Do not send some emissary.” Case started to argue with him, but Eisner insisted they had nothing to discuss. The conversation lasted less than ten minutes.
On Monday morning, Case called Eisner. “Have you calmed down?” he asked. “I thought you were going to have a heart attack.”
“Just go away,” Eisner replied.
“It is a good idea, you know, AOL and Disney,” Case persisted.
“Go away!” Eisner yelled.
Late in the year, as Eisner sat down to draft his annual letter to shareholders, he had the approaching millennium to consider as well as the discouraging prospect of sharply lower earnings and a sagging stock price. And this was despite the remarkable success of “Millionaire,” The Sixth Sense, the rapid climb of ABC in the ratings, and the continued burgeoning success of ESPN. The biggest reasons for the decline in financial results were areas in which Eisner had scant interest: consumer products and home video. But soaring costs in the more creative areas of the company also took their toll: live-action film, animation, and theme parks, where spending continued to build expansion parks like California Adventure at Disneyland and TokyoSea in Japan in an effort to create “destination” resorts and induce guests to stay longer.
“The last ten years comprised a spectacular decade for Disney,” Eisner wrote. “Unfortunately, in financial terms, it ended on a down note.” With the continuing dearth of animated hits, Disney was feeling the aftereffects of the Lion King bonanza. The company now had more than seven hundred Disney retail stores, no longer novel as they were a fixture in malls and shopping areas across America, with nothing fresh to sell. And Disney was also reaping the inevitable repercussions of the decision to release its classics on video. While the decision had yielded enormous short-term profits, the library was now exhausted. All the classics had been released. Roy’s concerns about the future value of the library were being borne out.
The creation of the Go tracking stock had also failed to mask the mounting losses from Disney’s Internet venture, not that anyone really expected Internet ventures to show a profit in those heady days of 1999. But as Bornstein kept stressing, he couldn’t see how Go would ever make a profit. Eisner sidestepped the issue in
his letter, writing “There can be little question that the Internet is the next major development in the realm of information and entertainment. During the coming years, broadband transmission will make it possible for the Internet to become a true entertainment medium…. In Go.com I believe we have brought together a collection of assets and skills that will allow us to seize the opportunities that emerge as the Internet evolves and grows in the years ahead.”
Eisner could honestly extol the virtues of the ABC acquisition, noting that the cable assets alone were probably worth the $19 billion Disney had paid. “The full value of a single show like ‘Who Wants to Be a Millionaire?’ is almost impossible to calculate, since it is profitable in itself, helps position the entire ABC network (it played a key role in ABC’s remarkable November sweeps win) and provides a promotional platform for all of Disney. Our ABC properties have become so integrated into our company that I simply can’t imagine Disney anymore without them.”
And Eisner had his usual optimism about the future. “In January there’s ‘Fantasia 2000,’ which is a remarkable continuation of a completely distinct Disney legacy. For Memorial Day weekend, there’s ‘Dinosaur,’ which is truly like nothing you’ve ever seen before. Further down the road, ‘Kingdom of the Sun’ and ‘Atlantis’ are looking to be wonderful additions to the Disney animation legacy. Then there are our new theme park projects, each of which is dazzling. On the Internet, Go.com is an exciting venture into an entirely new world of information and entertainment. I’d like to tell you which of our upcoming films and TV shows will be the next ‘Sixth Sense’ or the next ‘Who Wants to Be a Millionaire?’ but that’s impossible to predict. However, I believe that these kinds of mega-hits are in the pipeline, and when they break through, their impact will reverberate throughout the company.”
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