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by James B. Stewart


  Eisner said nothing in his annual letter about his decision to name Bob Iger as Disney’s president, but in mid-December he began to prepare other top executives for the announcement, a delicate task given that Eisner’s decision ended any lingering hopes on the part of Joe Roth and Sandy Litvack, not to mention reneging on the promise Eisner had made to Steve Bornstein. Eisner told Litvack of his decision, and tried to placate him by naming him vice chairman. But then Eisner publicly repudiated the notion that Litvack was his heir apparent or in line for further advancement. Afterward, Litvack seemed deflated. He congratulated Iger. “I always felt like I wanted to be a member of Michael’s club,” Litvack said, somewhat wistfully. “And then I discovered there wasn’t any club.” Litvack announced in October 1999 that he would leave at the end of the year.

  By mid-December, Roth, too, had decided to quit, and began forming plans to build his own production company. One afternoon Peter Schneider came into his office and announced that he was going to quit. “This isn’t working,” Schneider said. Roth had never trusted him, for obvious reasons, and the two had never felt comfortable working together. “I wouldn’t if I were you,” Roth replied. “I’m going to resign and then you can have the damn job.”

  Given how often Eisner had complained about Joe Roth, he seemed surprisingly reluctant to have him quit. Roth was spending the Christmas holiday with his family in Barbados, and he told Eisner that when he returned, he planned to resign. During the vacation, Eisner called him every day, just before dinner, urging him to reconsider. But when Roth got back, he walked into Eisner’s office and said his decision was final. Eisner reminded him that under his contract, Disney had an option to extend it.

  “You said you’d never exercise it,” Roth replied. Eisner nodded. But then, after lunch, he walked into Roth’s office and handed him a letter exercising the option and offering him stock options on 7.5 million shares, then walked out.

  Roth glanced at the letter, then followed Eisner back to his office. “I told you not to do this,” he said indignantly. “I’m going to make my own money.”

  Eisner abandoned his attempts to keep Roth, and once he’d reconciled himself to the idea that he was leaving, asked his advice on a replacement. “Put Dick Cook in my place,” Roth urged. Cook, who was in charge of marketing and distribution for the studio, was the last of the pre-Eisner studio executives still at Disney. “He’s solid, reliable, he can run the studio.”

  “No, he’s not creative,” Eisner countered. “I’m putting in Peter Schneider.”

  “No one likes him,” Roth warned.

  Eisner announced that Schneider would succeed Roth as chairman of the studio on January 7, 2000. A few days later, Eisner conceded that Roth had been right about Schneider, at least among studio executives like Garner who’d been reporting to Roth. When Eisner met with them to tell them of his decision to promote Schneider, he’d met stiff resistance. “I’ve been trying to tell you this for weeks,” Roth told him.

  “I didn’t believe you. I thought you were just being political,” Eisner said.

  “This is why I’m leaving,” Roth said. “I tell you the truth, but you won’t listen.”

  Eisner said nothing to Steve Bornstein of his decision to name Iger president. Bornstein only learned about it just before the news was released on January 24, and was taken by surprise. Stunned, he went to see Eisner in his office. “I feel incredibly abused,” he began.

  “I guess you’re fucked,” Eisner replied.

  “You gave me a commitment,” Bornstein reminded him. “You disregarded it.”

  “I changed my mind,” Eisner said.

  *Eisner denies saying this.

  Thirteen

  The long-awaited Fantasia 2000 premiered at Carnegie Hall in New York in mid-December 1999, with James Levine conducting a live performance by the Philharmonia Orchestra of London, flown in by Disney for the occasion. On New Year’s Eve, Disney ushered in the millennium with a $2,000-per-person black-tie benefit screening in Pasadena, also featuring a live performance by the Philharmonia. Fantasia 2000 opened commercially on New Year’s Day in the giant screen Imax format at just fifty-four theaters. Roy, credited in the film as executive producer, used the occasion to pay tribute to Walt. “What better way to recognize the vision of one man who began building on a dream in the twentieth century than by sharing the magic with everyone as we enter the new millennium,” Roy said.

  Dick Cook, the studio’s head of marketing and distribution, was doing his best to make Fantasia 2000 an “event” movie. Roy seemed delighted with all the promotion and related festivities. But Thomas Schumacher, the head of animation, had serious reservations. Each of the eventual seven “premieres” in the United States, Europe, and Japan, featuring Levine and the Philharmonia, cost more than $1 million. Excerpts from the original Fantasia seemed grainy on the huge Imax screen. And in an avalanche of press about the arrival of the millennium, Fantasia 2000, an old-style sequel to a 1940 classic, drew scant attention. Though it initially attracted crowds to Imax theaters, the seating capacity was so limited that total revenue was modest (less than $3 million for the opening weekend). Schumacher also worried that by the time the film opened nationwide, curiosity and interest would have been exhausted.

  The critical reception was also tepid. Fantasia 2000 contained a few segments as dazzling as anything Disney had produced—a sophisticated homage to Broadway caricaturist Al Hirschfeld, set in an animated New York City to George Gershwin’s “Rhapsody in Blue,” and the concluding episode, a vision of Earth’s destruction and renewal set to Igor Stravinsky’s “The Firebird Suite.” But not surprisingly, considering that every episode had a different director and group of animators, it was inconsistent. “ ‘Fantasia 2000’ often has the feel of a giant corporate promotion whose stars are there simply to hawk the company’s wares,” wrote Stephen Holden in The New York Times. The film “is not especially innovative in its look or subject matter…despite its science fiction title, the movie is really a compendium of familiar Disney attitudes and styles, one that looks to the past more than to the future.” The Eisner-inspired “Pomp and Circumstance” segment, now featuring Donald Duck trying to board Noah’s ark with the procession of animals, came in for particularly harsh criticism, confirming the animators’ view that the piece didn’t belong in the film.

  By the time Fantasia 2000 opened in wide distribution later that spring, Schumacher’s fears were borne out: Public interest had evaporated. By Disney’s reckoning, the film had cost $90 million and made roughly $60 million in the United States, and Eisner was impervious to arguments that at least $60 million would have been incurred anyway since so many animators were under contract. He didn’t say anything directly to Roy, but told others that the film was “Roy’s folly,” and that it had convinced him that Roy had little, if any, talent.

  On January 10, Eisner was startled by news that AOL and Time Warner were merging in a stock swap valued at $165 billion, the biggest merger in history. AOL’s Steve Case would be chairman of the combined companies, and Gerald Levin chief executive. Ted Turner, CNN’s founder, Time Warner’s largest shareholder and a board member, told The New York Times that he had voted to approve the deal “with as much excitement as the first time I made love 42 years ago.”

  Eisner realized that this was what Levin must have been worrying about at their lunch the previous month. Indeed, Case had first approached Levin the previous October, about the same time he was making overtures to Disney. Now Levin had decided to merge with AOL instead, trading Time Warner’s hard assets for AOL stock, which Eisner viewed as little more than inflated paper. Although he thought it was a terrible deal, Eisner was worried about the implications. Disney’s own Internet venture was going nowhere, and now Time Warner had secured the biggest Internet service provider. Along with its massive cable operations, Time Warner was aggressively expanding into other distribution methods, exactly the kind of vertical integration Eisner opposed, on both philosophical and
financial grounds. And then there was the still-unresolved issue of the Disney-owned channels being carried on Time Warner’s cable system.

  The idea that a combined AOL and Time Warner might use its distribution power to freeze out Disney products became a near-obsession with Eisner, bringing out his fiercest competitive instincts. He talked to Iger and emailed him constantly about the threat. It also brought Iger his first major test as Disney’s president. Unlike Ovitz, Iger secured the title of chief operating officer as well, the same title as Frank Wells. Iger’s standing in the company had never been higher. In the wake of the success of “Who Wants to Be a Millionaire” in the November sweeps, and the Super Bowl earlier that month, ABC had vaulted back into first place among the networks. But Iger knew he would still have to prove himself and overcome Eisner’s deep-seated anxiety about being upstaged by a strong number two. It hadn’t been lost on Iger that Eisner refused to let a Disney photographer take a picture of him and Iger together to accompany the press release.

  So if Time Warner posed a competitive threat, it was also a leadership opportunity. Eisner decided that it was best both for his and Disney’s image that he appear to be above the fray. Iger convened a strategy meeting at ABC headquarters in New York, where top executives argued that the very source of Disney’s anxiety—the power of a combined AOL/Time Warner—could be turned to Disney’s advantage by threatening to raise antitrust objections, a sensitive topic in light of the government’s recent antitrust case against Microsoft. Eisner suggested that Disney go to Time Warner and demand assurances that Disney’s programming would be treated the same as Time Warner’s. If not, he said, Disney would lobby against the merger in Washington.

  Iger broke the news to Time Warner in a telephone call to Levin and Joseph Collins, the chief executive of Time Warner Cable, who had been handling the negotiations with Disney. “We’re concerned about the AOL deal,” Iger said. Their cable deal was now “off the table.”

  Levin and Collins were surprised and angry. “We had a deal,” Levin said, referring to his handshake with Eisner.

  “The world has changed,” Iger said. “The players have changed. It’s AOL and you. It’s a more complicated world.”

  A relatively discreet business dispute over cable access had escalated into something much bigger. Levin argued that Disney was “abusing” the cable negotiations by tying them to the merger. But Iger wanted new terms, and, in what he considered an effort to be “deadly candid,” he added, “We feel you’ll be hard-pressed to cause trouble because of the merger process you have to go through.” The conversation came to an abrupt close.

  Iger followed up by instructing Anne Sweeney, the president of the Disney Channel, to send a new “term sheet,” which, he concedes, was “aggressive.” In addition to all the previous requests, it removed some assurances that Time Warner had sought with respect to ESPN, asked for about $100 million more in fees, and contained numerous nondiscrimination clauses—guarantees that Disney programming would get equal treatment. Disney’s focus on the merger was also made explicit in a provocative letter of February 18, 2000, from Sweeney to Time Warner’s Collins, in which Sweeney said that she was “even less optimistic that we will be able to bridge the material differences between us.”

  Time Warner executives estimated the additional cost of the proposed new deal at $300 million. Its officials were further galled by the emphasis on equal treatment in programming; in their view, Disney conspicuously favored its own programming on its networks. Time Warner responded with a term sheet of its own. It rejected nearly all of Disney’s requests and lowered the price it was willing to pay.

  One morning during the first week of March 2000, Eisner, still preoccupied with the AOL merger with Time Warner, got out of the shower with a plan for escalating the campaign. He went straight to his computer and drafted an email outlining the strategy he thought Disney ought to follow, which was to launch an attack in Houston, where Time Warner owned the cable system. Full-page advertisements in the Houston Chronicle warned that cable subscribers were at risk of losing ABC because of Time Warner’s refusal to agree to a deal. Disney offered to subsidize the installation of satellite dishes if subscribers switched to a rival service. Disney gave away vouchers for fifteen thousand satellite dishes in less than three weeks. To test the effect of the Houston campaign, Disney declared a unilateral truce on April 1. It suspended the satellite-giveaway program and the public relations blitz. And it proposed new terms for the retransmission agreement, softening the position it had staked out in February.

  But Time Warner’s bargaining position got tougher. With Levin and Collins angered by what they considered Disney’s betrayals and bad faith, Time Warner unveiled the ultimate threat: If Disney didn’t agree to an eight-month extension of the existing retransmission agreement, Time Warner would cease transmitting ABC when the current extension expired, on April 30. In other words, Time Warner threatened to use what Iger thought of as a “tactical nuclear weapon”—taking ABC off the air.

  Iger didn’t know how seriously to take this threat. Still, Disney scrambled to head off the crisis as the April 30 deadline approached by trying to extend the agreement for another month by letter and fax. April 30, a Sunday, also marked the beginning of the May “sweeps” period, which would determine whether ABC remained the number one network. Time Warner didn’t respond. ABC network and station executives, worried about the effect on ratings, were pleading with Iger to make a deal. Eisner was so absorbed by the affair that he couldn’t sleep; he was on the phone to Iger at 6:00 A.M. Sunday, April 30, which was 3:00 A.M. in California.

  Late Sunday afternoon, Iger organized a conference call of the roughly thirty executives involved in the crisis. He took a roll call, gave an impassioned speech (“We will stay the course,” he said), and assigned battle stations. Each station manager was told to record a message to viewers to be aired at 11:00 P.M. Disney, meanwhile, made one last effort—an offer that Iger insisted be simple and clear. Disney faxed Time Warner a one-paragraph document giving Time Warner “unconditional and unequivocal consent” to transmit ABC’s programming through May 24. After the 11:00 P.M. local news, Tom Kane, the general manager of WABC in New York, appeared live on TV to warn cable viewers about the possible loss of the network. At midnight, the Disney-owned channels, including ABC and ESPN, went dark on Time Warner’s cable systems.

  On Monday morning, Iger woke at his usual time, 4:30 A.M., and worked out at the Reebok Sports Club across Columbus Avenue from ABC headquarters. He reached the office at six, and shortly afterward left for Los Angeles, just as ABC’s phone lines were becoming jammed with callers, many of them from other media. In an approach modeled on James Carville’s all-out defense of President Clinton during the impeachment inquiry, he began a nonstop schedule of media appearances as soon as he landed in Los Angeles, attacking Time Warner for depriving people of the channels. In New York, Houston, and Los Angeles, Disney offered free satellite dishes to the first thousand callers willing to drop Time Warner and switch to DirecTV.

  Late on Monday, Time Warner executives were still hoping that Disney, facing a possible ratings disaster, would capitulate. But with public anger at Time Warner mounting, Disney didn’t consider the option. Even without Time Warner’s 3.5 million affected cable viewers, Monday night was a ratings coup for ABC. The network had scheduled a special “Celebrity Millionaire,” and that show alone pulled a rating of 22.1 (each point represents about a million homes). In the New York area, where the signal was missing from more than a million households, the show exceeded the national average.

  On Tuesday morning, Iger spoke to New York senator Charles Schumer. Schumer told Iger that his household was among those that had been blacked out by Time Warner the previous night: “My daughters are complaining that they couldn’t watch ‘Celebrity Millionaire.’ ” He wouldn’t take sides, he said, but added, “TV signals should not be pulled off the air because of corporate battles.” He said that he had already spoken to
Levin and had asked him to extend the agreement with Disney for six months and get ABC back on the air.

  In times of crisis, Levin had often called upon Time Warner’s co–chief operating officer, Richard Parsons. Parsons had been in Washington on Monday, tending to merger issues; when he got home that night, his wife, who had been watching the news coverage, said, “How could you be so stupid?”

  The battle essentially lost, Time Warner capitulated. “Work something out,” Levin told Parsons. “We’ve got to get this behind us.”

  At 3:21 P.M., ABC reappeared on the Time Warner systems, even though none of the underlying issues had yet been settled. Then Iger called Parsons, saying, “This wasn’t good for either of us, but it was worse for you.” Eventually, Disney got almost everything it wanted in a deal it valued at $3 billion.

  The victory was an early triumph for Iger, and vindication of Eisner’s firmly held belief that “content” was what mattered. In the end, “Millionaire” had trumped Time Warner’s access to millions of cable homes. Parsons promised that Time Warner would never again unilaterally stop carrying a broadcast signal. “We’ve apologized to our customers,” he said. “Our customers pay us thirty-two dollars a month to get a cable service that includes ABC, and they don’t care about our problems with Disney. They don’t care about the legal issues. And one thing we learned is that there’s no PR in the world that will overcome the ‘Millionaire’ show.”

  “Millionaire” had now proven itself to be more than a ratings juggernaut. Its soaring popularity made it a potent competitive and political weapon. But in the euphoria over the showdown with Time Warner, no one stopped to consider the implications of Eisner’s “content” strategy: What if ABC hadn’t had a mega-hit like “Millionaire”? Phrased another way, what if Time Warner had dropped ABC and viewers didn’t care?

 

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