DisneyWar

by James B. Stewart

  Bornstein was dubious that what ABC needed was yet another executive in the management hierarchy, which was already plagued by confused lines of authority and turf battles. It was hard to differentiate his duties from Wallau’s. He was especially concerned that he wasn’t given authority over the cable operations, including ESPN, which he’d supervised before going to the Internet operation. Iger retained responsibility for those operations, which were the biggest profit centers. But Eisner insisted that Bornstein would actually run the network, so he accepted.

  Iger was obviously unhappy with the choice, which put Bornstein into the ABC hierarchy between him and Iger’s close allies Wallau and Bloomberg. It was clear that Eisner had pitted Bornstein and Iger against each other, and there was immediate speculation within the company about who would emerge as the survivor.

  Already wounded by the Internet experience, Bornstein had his work cut out for him. By the end of the 2000–2001 season in May, ABC had fallen to third place in the key eighteen- to forty-nine-year-old demographic, behind NBC and CBS. CBS, on the strength of “Survivor: The Australian Outback” and its breakout weekly hit “CSI,” won the competition for total viewers. A barrage of press faulted ABC for ruining “Millionaire” by overprogramming it. Braun bore the brunt of the criticism, and was widely quoted defending the decision. Iger generally escaped criticism, leading Braun and Bloomberg to wonder what had happened to his assurance that he would take “full responsibility” for the decision to program “Millionaire” on multiple nights of the week. Braun and Bloomberg made a joke of it, with one or the other saying “I will take full responsibility” as they passed each other in the halls. (Iger confirmed that he and Eisner made the decision, and said he has never shunned responsibility for it. He noted that “Jeopardy!” and “Wheel of Fortune” ran successfully day in and day out, and so there was no reason not to do the same with “Millionaire.”)

  ABC rushed to order more pilots—thirty-four, as opposed to eleven the previous year—and slashed the rapidly fading “Millionaire” to two episodes a week for the 2001–2002 season. In a move that brought ABC News’s celebrity interviewer Barbara Walters to tears, the network bumped Walters’s long-running “20/20” newsmagazine from its traditional Friday-evening slot.

  At this juncture, Eisner was plainly worried about ABC, and at board meetings, distanced himself, stressing that the network was Iger’s primary responsibility. Indeed, he annoyed nearly all the ABC executives by proclaiming, as he did repeatedly, that “I could solve ABC’s problems if I devoted one day a week to the network.”

  Despite the success of the low-budget Titans, and the praise lavished on it by Eisner, Peter Schneider’s tenure as chairman of the studios had been personally and creatively unfulfilling, and he talked increasingly to Thomas Schumacher about leaving. His premonition that it would be hard to duplicate the excitement and success of The Lion King on Broadway had been borne out. It seemed like all he did was fight with producers like Bruckheimer and other Disney executives trying to carry out Eisner’s cost-cutting mandate. He didn’t want to end up like Katzenberg and Roth, bitter toward Eisner. He wanted to stay friends with Roy, who had done so much to support him when he ran animation, and it was becoming increasingly clear that Eisner would make that difficult.

  Moreover, in contrast to animation, where he’d gotten along well with the animators and other executives in the division despite his sometimes prickly and exacting nature, many people in live action seemed to resent him. Todd Garner made no secret of his disdain. Still angry over the Pearl Harbor clashes, Garner quit Disney in April, as soon as work was finished on the film, to join Roth at a new studio Roth would soon name Revolution. So did Rob Moore, the studio’s chief financial officer, who had clashed with Schneider within five days of Schneider’s arrival. Others who had stayed seemed barely to tolerate him.

  Bruckheimer, now Disney’s most important producer, was always professional and courteous, but the bruising experience over Pearl Harbor had alienated him from Schneider, and he treated him like a transitory studio executive who would be gone long before Bruckheimer stopped making films for Disney. It hadn’t helped Schneider’s popularity that he’d been forced to fire staff members. Even though he’d taken live action from a loss to a profit of $350 million in a year, he wasn’t enjoying himself. Schneider’s plan was to wait until Pearl Harbor opened on Memorial Day weekend 2001, then announce his resignation in the wake of what he expected to be a huge hit.

  And he wasn’t the only Disney executive confident about Pearl Harbor. Audience surveys at preview screenings were positive. Awareness of the film among potential ticket buyers was a remarkable 92 percent, higher than for any other film scheduled for release that summer. Despite “taking back” his prediction that Pearl Harbor was a sure thing in his annual letter to shareholders, Eisner couldn’t restrain himself, in part because he was so eager for a hit. The week before Pearl Harbor opened, he sent an email to all Disney “cast members”:

  “There are no sure things in the entertainment industry, but this comes close. It better, because I’ve already predicted this in the annual report letter I wrote in December. And, I’ve been on CNBC and CNN in the last two weeks proclaiming it a smash. I’ve been telling anyone who would listen that this will be our biggest live-action film ever.”

  With Eisner’s credibility on the line, little was left to chance. “Synergy” was squeezed from Disney’s assets: ABC ran a one-hour special hosted by David Brinkley. “Good Morning America” featured the movie every day for a week, with co-host Diane Sawyer calling it “the movie event of the summer” and reporter Jack Ford hailing it as “the biggest summer blockbuster of all time” before the film opened. The History Channel (co-owned by Disney with Hearst and General Electric) obligingly ran three Pearl Harbor episodes as well as a “history vs. Hollywood” segment that focused on the film. The E! Channel, also co-owned by Disney, lavished coverage on the film.

  Was the opening of a $140 million Disney movie legitimate news? As Frank Rich noted in The New York Times, the fiftieth anniversary of Pearl Harbor ten years earlier received little coverage. But it’s hard to fault Disney and ABC for blurring the lines when its rivals were doing the same. NBC ran a two-hour National Geographic special hosted by Tom Brokaw on Pearl Harbor to coincide with the film’s opening, and MSNBC ran a special about the making of the movie that could have been produced by Disney public relations. Newsweek did a twelve-page cover story. In addition to all the free publicity, Disney spent about $70 million marketing the film in the United States.

  For the premiere, the Navy brought the USS John C. Stennis aircraft carrier from San Diego to Honolulu. Disney screened the film on board. Navy SEALs parachuted onto the deck as F-15 fighters flew in formation overhead. Veterans of the Pearl Harbor attack were flown in as special guests. The Honolulu Symphony Pops provided music. After the screening, Disney staged a fireworks display. The tab came to $5 million.

  Given all the hype that preceded it, it was indeed news when Pearl Harbor opened to scathing reviews and disappointing box office, at least by the inflated standards of the preopening publicity fueled by Eisner’s boasts. The headline in The Wall Street Journal was “Snore-a! Snore-a! Snore-a!” Roger Ebert wrote that Pearl Harbor was “a two-hour movie squeezed into three hours. Its centerpiece is 40 minutes of special effects, surrounded by a love story of stunning banality.”

  No studio had dared challenge the Pearl Harbor juggernaut, so it was the only major movie opening over the lucrative Memorial Day weekend, traditionally the start of the summer movie season. It earned $75 million over the Memorial Day weekend, a more-than-respectable opening, but the box office plunged in ensuing weeks. Especially galling for Eisner was that the big hit of the summer, and the top-grossing film of the year, was Shrek, a computer-generated fairy tale based on a William Steig novel produced by Jeffrey Katzenberg at DreamWorks, which had opened just a few weeks earlier.

  With benefit of hindsight, it’s hard to
know what besides wishful thinking could have led to such hubris at Disney about Pearl Harbor. The film faced obvious hurdles, starting with a running time of close to three hours. Its length, its romantic plot, and the backdrop of tragedy invited unfavorable comparisons to the wildly successful Titanic. And surely Disney executives could sense that, however earnest and patriotic, or dazzling the special effects, the “storytelling”—the quality to which Eisner paid so much tribute—was flawed. Todd Garner, whose idea it was, had said he didn’t like the finished script or film. But by then no one was listening to him.

  Schneider’s plan to exit under the halo effect of a summer blockbuster was ruined. He decided to wait until the release of Atlantis: The Lost Empire, the latest animated feature, scheduled for June, even though he had never liked the film. Directed by the same team that produced Beauty and the Beast, Atlantis was a departure from the musical genre, an attempt to appeal to preteenage boys with an Indiana Jones–style adventure film, a quest for the lost continent. Atlantis garnered admiring reviews, but was hopelessly eclipsed by the success of Shrek, which took direct aim at the Disney canon with its edgy, irreverent send-up of the fairy-tale genre. Atlantis didn’t earn back its nearly $100 million cost and became the latest in a growing string of animated disappointments from Disney.

  These developments were especially worrisome to John Musker and Ron Clements, who were deep into work on Treasure Planet, another attempt at an action-adventure animated feature. Their target audience of preteen and teenage boys apparently still associated hand-drawn, 2-D animation with children’s fare and wanted no part of it. And other animators feared for their futures. Schumacher met with two thousand employees in groups of fifty or less to discuss plans for cost cuts, more computer-generated projects, and other “drastic changes,” including layoffs and salary reductions. Morale plummeted.

  When Schneider announced his departure on June 20, the press made almost no mention of a career that had included some of Disney’s greatest successes. Instead, his resignation was perceived as confirmation that Pearl Harbor was a failure and Schneider was taking the fall. Disney had to issue a statement denying that Schneider had been fired for Pearl Harbor. After the Katzenberg and Ovitz fiascoes, Disney’s credibility was nonexistent, even though, in this case, it was true.

  Eisner never got over what he considered the injustice of the press reaction to Pearl Harbor. In a sense he had a point: The film eventually grossed nearly $200 million in the United States, and another $253 million in overseas markets. Ironically, Bruckheimer, Bay, Affleck, and the others who waived their guarantees ended up making more than if they had stayed with their original deals—not that any of them wanted to repeat the experience. Still, even Eisner conceded that Pearl Harbor didn’t perform well enough to justify the enormous drain on resources that went into making the film. Just as Dick Tracy had marked a turning point during the Katzenberg era, Pearl Harbor marked the end of the Roth “tent pole” strategy, and yet another attempt to recapture the early success of Eisner’s “singles and doubles” philosophy.

  Disney did not announce a replacement for Schneider as chairman of the studios, instead naming Nina Jacobson and Dick Cook as co-heads of the studio. Eisner pledged to be more personally involved in running the studio.

  Since the success of the ABC acquisition, Eisner had shed some of his hostility toward mergers, especially since Disney wasn’t internally generating the 20 percent growth he’d promised shareholders. Despite Eisner’s aversion to having Ovitz do a deal to expand Disney’s faltering Hollywood Records business, Disney looked into the possibility of acquiring EMI Records, the venerable British record company. But the talks didn’t result in a formal proposal. Steve Bornstein advocated buying DirecTV, the television satellite company originally launched by Hughes Electronics, which was acquired by General Motors. In 2000, GM decided to put DirecTV on the block, and Bornstein thought it made a perfect strategic fit with Disney. As had been proven in the showdown with Time Warner, satellite offered a potent competitive threat to cable. If Disney owned a satellite distribution company, cable companies could never freeze out its “content.” Satellite also offered broadband possibilities that would enable movies-on-demand and interactive television. Bornstein was convinced that the lines between “content” and “distribution” were blurring as technology made new creative endeavors possible. But Eisner was cool to the idea. He insisted the world was still sharply divided, and that Disney should remain a “content” company. Satellite was a means of distribution that Disney knew even less about than it did cable. Just as he knew that Eisner wasn’t a real sports fan, Bornstein could tell that the technical aspects of satellite distribution simply didn’t interest Eisner.

  Still, Eisner had the strategic planning department under Peter Murphy continue to pursue other acquisition possibilities, and that spring, Eisner first mentioned to Stanley Gold that the Fox Family cable channel, jointly owned by Rupert Murdoch’s News Corporation and Hollywood entrepreneur Haim Saban, might be for sale. Gold was enthusiastic, commenting at a board meeting that “this has big potential outside the U.S.”

  Fox Family had been on the block four years before, in 1997, when Disney could have bought the channel (but not the programming) for $2 billion. But Eisner had dismissed the possibility because the cable channel had an ongoing deal to air Christian evangelizer Pat Robertson’s “The 700 Club,” repugnant to the secular Eisner. Since then, Fox Family had made significant strides, overtaking the Disney Channel in Europe with its 1993 hit series “Mighty Morphin’ Power Rangers.”

  But Fox Family’s main appeal to Disney wasn’t so much the Power Rangers and other programming owned by the channel as it was the channel’s wide distribution and the opportunity to “repurpose” programming that had already aired or been produced for the ABC network. Just as the SOAPnet channel had allowed ABC to rerun its daytime soap operas, Fox Family could be used to amortize the high cost of network programming by providing another broadcast outlet, another source of revenue. The channel could rerun established ABC programs; it could also be a development laboratory, airing new programming that, if successful, could then move to ABC. When strategic planning ran the numbers, they found it easy to project 20 percent annual growth rates, even before taking into account Disney’s vastly superior marketing and economies of scale. Indeed, the strategy seemed so foolproof that no one at ABC itself was consulted about the possible acquisition, even though, strategically, it would be vitally important to ABC.

  Eisner did mention the possible deal to Gold, who was a close friend of Saban. “Can I be helpful?” Gold volunteered. “I know Saban very well. I can get you there.” Eisner said he’d appreciate that. “Just give me the numbers,” Gold suggested. “I can be a messenger.” Eisner said he’d get back to him.

  A few days later, Eisner called. “He wants $5.5 billion,” he said of Saban. “I can’t get there. I can go to $5 billion, but not $5.5.”

  “Should I see if that gets a response?” Gold asked.

  “Yeah, why don’t you.”

  Late the following night, Gold met Saban at his house in Beverly Hills. “We can go north of $5, but not $5.5,” he said. Saban was noncommittal, but the next day, when he spoke to colleagues, he could barely contain his glee.

  The next morning Gold briefed Eisner. “Talk to Iger and Murphy,” Eisner urged. When Gold reached Iger, Iger said there would have to be a caveat to any offer. Fox Family had bought the rights to most major-league baseball games, a liability that was estimated to cost $700 million over the remaining life of the contract. Bornstein and others at ESPN thought the deal was grossly overpriced, considering that most games aired in the afternoon, when the potential audience for baseball was small. The deal had proved a huge financial drain for Fox. Iger told Gold that Saban should understand that Disney’s offer for something over $5 billion contained the proviso that Disney would not assume the major-league baseball contract. If so, it would have to cut the price by a billion dollars.
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  So Gold called Saban. “Just so there’s no misunderstanding, if we have to eat the baseball deal, we’re a billion lower.”

  Saban was silent. Then he said, “Oh, Stanley, you’re going to love baseball.”

  “Haim, it’s not whether I love baseball or not,” Gold said. “You should call Michael,” Gold added.

  Several weeks went by, and Gold heard nothing further. Then he got a call in mid-July from Peter Murphy, who was with Eisner at Herb Allen’s annual Sun Valley conference. “Michael met with Haim and Murdoch, and we’re about to do a deal,” Murphy explained.

  “How much?” Gold asked.

  “Five point three billion dollars.”

  “That’s without baseball?” Gold asked. Murphy said nothing.

  “Peter, is it with or without baseball?”

  There was silence again. Finally Murphy said, “With baseball.”

  “What the hell is going on?” Gold exclaimed.

  “You know Michael,” Murphy said.

  That Sunday, Steve Bornstein learned that Disney was buying Fox Family, the first that anyone at ABC had heard of the deal.* On Monday, July 23, Bornstein briefed key ABC executives, including Mark Pedowitz, the lawyer in charge of business affairs for the network.

  “What are we going to do with it?” Pedowitz asked.

  “They want to repurpose ABC shows,” Bornstein explained, meaning Disney would rebroadcast shows that had already aired on ABC.

  “Didn’t anyone realize we don’t have the rights to do that?” Pedowitz asked, evidently the first time anyone had asked him about the legal feasibility of rerunning programs produced by others who retained the syndication and rebroadcast rights.