Gold walked the board through a detailed series of PowerPoint slides comparing management’s assertions to actual results. Among other data, he noted that Eisner’s five-year strategic plans had failed to meet projections every year for the past six years, falling short, on average, by 23 percent the first year, 33 percent the second, 47 percent the third, and 55 percent the fourth. He also highlighted the startling dependence of the Disney Studio on its relationship to Pixar, showing that Pixar’s contribution to the studio’s operating income ranged from 97 percent in 2000 to 47 percent in 2001, with 2002 projected to be 39 percent. “Is management confident we can extend the Pixar relationship or replace its recent contributions to studio EBITA [Earnings Before Taxes, Interest, and Amortization]?” Gold asked.*
When he finished, Gold asked if there were any questions. There were none. Gold couldn’t believe that after an hour and a half, there wasn’t a single question. It fell to Tom Staggs to argue that Gold had carefully chosen years calculated to show Disney’s results in the worst possible light. No one else spoke, as Eisner sat in stony silence. So Gold called for a vote on his proposed “diagnostic review.” George Mitchell asked him to withdraw the request, indicating that Tom Staggs would prepare a written response to Gold’s presentation and present it to the board “in due course.” Gold agreed, realizing he lacked the votes to force the issue.
Next Eisner rose and, ignoring Gold’s remarks entirely, presented his “action plan,” a revision of June’s five-year plan necessitated by the continuing deterioration in Disney’s financial performance. The essence of the plan was two-pronged: that Disney’s long-term profitability derived from the strengths of its brands, primarily Disney and, more recently, ESPN, and that after a period of large capital investments—especially in new theme parks, in acquiring the rights to professional sports, and in buying ABC Family—Disney could boost profits by slashing spending and reaping the cash flow from those earlier investments. The key to the plan was protecting the Disney and ESPN brands by building a “protective moat” around them.
At the end of the presentation, Eisner said that in light of all the recent publicity about divisions within the board, it was important that the directors send a public message that Eisner and his management team had the board’s full support. He called for a vote of confidence, and urged that it be unanimous.
At this, Roy made a rare comment in a board meeting: “I couldn’t vote for that. You don’t have my support,” he said.
Eisner’s face colored in anger, but before he could say anything Mitchell suggested that Eisner, Iger, and other executive directors leave the room so the board could continue the discussion in executive session. A heated discussion ensued, in which both Roy and Gold reiterated their opposition to any vote of support for Eisner. Finally Mitchell suggested that Eisner’s recommendation be tabled rather than go forward with a vote that would only formalize the split within the board. Instead, he said he would craft a statement from the board expressing its “overwhelming support” for Eisner.
Eisner and the other executives returned. It fell to Mitchell to break the news that no vote had been taken. But even before he could finish, Eisner spoke in anger: “I can’t live with this,” he said, glaring at Gold and Roy. He brandished a piece of paper. “They’re undermining me, leaking to the press, and this proves it. While we were in this room I’ve been emailed by someone at the L.A. Times about something we talked about three hours ago.” He read from what he said was a copy of an email he’d just received from Richard Verrier, a reporter for the L.A. Times, urging Eisner to give him an interview because “we’ll be talking to the other side.” Gold started to deny the accusation, but Eisner plunged on. “Stanley and Roy are trying to get rid of me. They don’t think I can run this company. But who do you think can? Bob?” He turned toward Iger. “Bob can’t run this company,” he said dismissively.*
There was an awkward silence. Eisner sat down. Several other directors looked shell-shocked. Mitchell quickly adjourned the meeting.
The next day Roy sent Iger a short handwritten message of condolence. “I’ve never seen anyone treated so badly,” Roy said.
Iger reported this to Eisner, who immediately phoned Roy. “I know you sent Bob a note,” he said accusingly.
*Iger also told me that no one would have criticized the strategy had Letterman agreed to come to ABC.
*Braverman said the decision was a business, not a legal, decision, and that he and other executives were well aware that “Pink” posed a threat to Lifetime.
*Braverman said that he was well aware of the affiliate agreements, and that “XYZ” was rejected for content reasons, not because of legal impediments.
*Eisner said that early screenings of Nemo were disappointing, but that the film improved dramatically by the time it opened. Still, others said Eisner was never enthusiastic about it.
*Disney said the correct Pixar numbers were 45 percent, 35 percent, and 29 percent, respectively.
*Four directors confirmed this account. Eisner said he meant that Gold and Roy didn’t believe Iger could run Disney, and that this was also Iger’s interpretation of the remark.
Fifteen
For all Eisner’s concern over leaks, the article in the Los Angeles Times by Verrier and James Bates had sketchy details of the September 24 board meeting. Although “sources” described a “blunt meeting during which Chief Executive Michael Eisner was repeatedly questioned about whether he could meet a series of financial targets,” it also stated that “details of the much-anticipated meeting at Disney’s Burbank headquarters remained mostly under wraps.” Most of the information in the article appeared to come from Disney itself. The company announced the appointments to the nominating and governance committee, and Eisner said, “Today, we furthered our commitment to ensure that Disney remains among the most progressive boards in America on governance issues.”
Reveta Bowers, the much revered head of the Center for Early Education, also continued to feel the brunt of the independence issue. Although Bowers’s son no longer worked at Disney, the Center had been the beneficiary of Disney largesse. The school’s library was called the Disney library, because the Disney Foundation had funded it. More recently, Eisner had indicated that Disney would donate $250,000 toward a younger children’s library decorated in a Winnie-the-Pooh motif. But Disney wrote a letter saying that it was improper for Disney to contribute to an organization headed by a director. More to the point, the chairman of the Center’s board was Susan Disney Lord, one of Roy’s daughters, which meant Bowers’s loyalty to Eisner couldn’t be taken for granted in the looming battle with Roy and Gold. (Bowers told me she sided with neither Eisner nor Susan and “I always voted my conscience.”)
That summer, Susan, who was also on the school’s building committee, noticed that both the Winnie the Pooh theme and the Disney name had been dropped from the building plans. When Susan asked Bowers what had happened, and what had happened to the promised Disney gift, Bowers said, “Michael pulled it.”*
In the wake of the contentious September meeting, Eisner asked Roy to have lunch with him, anxious to see if there was any way he could mollify him, and drive a wedge between him and Gold, whom Eisner perceived as the real troublemaker. The two met in a private dining room off the Disney commissary. “Roy,” Eisner began. “I don’t understand this. You have a great life. You’ve made a fortune. I protect you. Why are you doing this?”
“I agree with Stanley,” Roy replied.
“What do you mean you agree with Stanley? What, exactly, do you agree with?”
“You shouldn’t have bought ABC.”
The response made Eisner furious. “We’d be gone by now! Taken over! There wouldn’t be any Disney!”
“Pixar hasn’t been taken over,” Roy said, pointing out that it was small, but so successful creatively that its high stock price made a takeover prohibitively expensive. “They’re Disney people, you know.”
The comparison to Pixar also annoyed
Eisner. “What else don’t you agree with?”
“Andy Mooney,” Roy replied, referring to the head of consumer products who had put Tinker Bell on T-shirts.
“Why?”
Roy felt the discussion was getting nowhere, so he saw no point in answering. But he took advantage of the occasion to remind Eisner of his oft-repeated promise that if he lost Roy’s support, he’d resign.
“I never said that,” Eisner replied, leaving Roy speechless.
Eisner stressed once more to company confidants that he wanted Roy monitored more closely than ever, and that he wanted every conversation reported to him. One day Eisner gestured toward several thick binders on his desk, and said that he had collected every email Roy had sent and received. Some animators blanched at the thought, wondering how discreet they had been. They certainly hadn’t expected their emails to wind up on Eisner’s desk.
As instructed, Thomas Schumacher had dutifully reported his conversations with Roy to Eisner, but the tensions between the two were growing intolerable. Schumacher was caught squarely in the middle of the intensifying feud. That fall, Eisner demanded that Roy be excluded from animation meetings, even that the locks be changed on his office and that he be barred from the lot.
Schumacher considered Roy a friend. Roy and Patty had hosted Schumacher and his partner, Matthew White, at their castle in Ireland. Roy had shepherded Schumacher’s career, backed his decisions, and championed animation. So Schumacher refused. “Michael, I cannot betray Roy and I won’t do that.” (On Eisner’s orders, he did warn Roy to stay away from animation meetings, but Roy ignored him.)
Just as Schumacher reported Roy’s conversations to Eisner, he reported Eisner’s remarks to Roy, including Eisner’s demand that Roy be barred from animation meetings and from the studio lot. Despite these distractions, Schumacher tried to concentrate that fall on the finishing touches to Treasure Planet, the much anticipated—and expensive—animated feature from Clements and Musker.
Treasure Planet cost $130 million—$10 million underbudget. It opened on November 17, the key pre-Thanksgiving kickoff to the holiday season. Warner Bros.’ Harry Potter and the Chamber of Secrets had already opened to critical acclaim and huge box-office revenues. Most reviewers hailed Treasure Planet’s arresting visual imagery—“A Treasure for the Eyes” was the Chicago Tribune’s verdict—but overall, critics wallowed in an anti-Disney backlash. A. O. Scott in The New York Times was especially devastating. Calling Treasure Planet “brainless” and “mechanical,” he added that the movie “is less an act of homage than a clumsy and cynical bit of piracy, designed to steal time and money from schoolchildren and their harried, Pottered-out parents during this long holiday weekend…. The adventures that youngsters act out on the French fry–littered seats of the family minivan will surely be more exciting, and imaginative, than the film itself.”
Treasure Planet director Ron Clements was skiing with his family at Mammoth Mountain when the bad news came in: Treasure Planet grossed just $12 million in its opening weekend. The following Sunday, Schumacher called him with even worse news: Disney was announcing that it would take a $74 million write-down on Treasure Planet, the biggest financial write-down in animation history. Under SEC rules, Disney had no choice, but animators interpreted the write-down tantamount to an announcement that Disney had no faith in the film, even as it was just beginning its U.S. release, and before it opened in international markets. Until Disney branded it a failure, Clements, Musker, and Schumacher had hoped that Treasure Planet might still gross $100 million or more worldwide. Now, box-office receipts plummeted.
Not since the early days of the Eisner/Wells regime, when Eisner and Katzenberg had banished the animators to Glendale, and they had feared for the future of the division, was the animators’ morale so low. The Paris animation studio had been shut down after Hercules. The only 2-D projects still in production were Brother Bear and Home on the Range. Once again, rumors circulated that Disney would abandon hand-drawn animation altogether.
The more cynical observers among the animators, and there were many, couldn’t help but notice that Eisner now shifted the blame to Roy for the failure of Treasure Planet. The Los Angeles Times reported that Eisner had “raised a red flag” about the movie and it was Roy who intervened to have Eisner green-light the project. This came as news to the animators. While Roy, as usual, had supported their efforts on the film (using his sailing expertise, for example, to make sure that the sailing knots used on the ship in Treasure Planet were accurate), he had nothing to do with green-lighting the project, as far as they knew. How convenient that the write-off took place, and Roy could be blamed, just as the boardroom showdown was intensifying.*
The decision to write off Treasure Planet was the last straw for Schumacher. A year earlier, he had told Eisner he didn’t plan to stay beyond the end of his contract, which expired in March 2003. Given the lead time of four years for most animated features, Schumacher was making decisions that should be made by his successor. There had been some discussion of his staying on in an advisory capacity in animation while continuing to oversee Disney’s theatrical operations based in New York, but now he decided it was better to make a clean break from animation. As the Christmas holiday approached, Schumacher met with Eisner and told him he’d move to New York to run the theatrical division, but added, “You don’t want me running animation. I’m too loyal to Roy. The longer I’m in animation, the longer you’ll have Roy around.”
Eisner didn’t disagree. David Stainton, head of television animation, was named to succeed Schumacher as president of feature animation. Roy attended a hastily organized farewell for Schumacher on January 3. After Schumacher left work that day, someone else packed up his office, and he never returned to the animation studio where he’d spent the last fifteen years.
After his promotion, Stainton met with Roy. “I might as well tell you,” he said, “that Michael wants to know everything you tell me.”
This was hardly news to Roy. “Don’t worry,” he said. “I’ve been there before.”
In the fall of 2002, CNN’s Jamie Kellner made a presentation to the AOL Time Warner board on the status of the negotiations to merge CNN with ABC News. It went without saying that the key board member was Ted Turner, who’d made his reputation and much of his fortune by founding CNN, and remained AOL Time Warner’s largest shareholder even after the merger. Kellner had met with Turner several times as the discussions continued, and while Kellner couldn’t quite say Turner was enthusiastic about the deal, he had conceded that the merger made financial and strategic sense. So it came as a surprise when Turner announced that he opposed the merger.
Other directors, fresh from accusations that they had been far too passive in approving the AOL merger, jumped in with questions: “What if the Pope were killed? Who would break the story first?” Kellner wasn’t prepared for such a barrage; this was just a preliminary discussion to introduce the directors to the concept. But when it ended, he called Iger to report that he’d met stiff resistance. Ultimately, the merger proposal was shelved. Whatever the merits of the deal, Time Warner wasn’t in any position to consider another controversial merger.
As 2002 drew to a close and Eisner sat down to write his annual letter to shareholders, his tenure as Disney’s chairman and chief executive was at a low point. Disney stock had sunk to $14.14 on October 7, 2002. Much of the blame could be laid on the weak economy, the plunge in tourism, and the ongoing aftershocks of September 11, all factors beyond Eisner’s control. But as Gold’s boardroom presentation had made clear, the downward spiral had begun long before September 11, which had only intensified the decline. The tone of this year’s letter was far from the gleeful optimism of the earlier letters, which had established the tradition of Eisner’s chatty, personal, optimistic assessments of the company’s progress. Now they were as much a burden as a welcome opportunity to highlight Disney’s achievements.
There was of course no mention of any boardroom dissension— some
thing that would have been of real interest to shareholders—but much of the 2002 letter was nonetheless devoted to restating the “moat” strategy that Eisner had unveiled at the September board meeting. Predicting 25 to 35 percent earnings growth in 2003, and “continued strong growth in 2004,” Eisner wrote “we believe this performance will result from the strategic action plan that was unanimously endorsed by the Disney Board of Directors in September…. The past years have been disappointing in terms of earnings and stock price, but they have also been an exciting period of investment in our key brands…investment that I am confident will pay off well in the years ahead. These investments have protected, buttressed and built our Disney and ESPN brands to secure their competitive advantage for a very long time…. What these expansions and investments in Disney and ESPN have in common is that they all build on the uniqueness and relevance of these brands. In so doing, they have created a protective moat around these assets.” He added that “We now have a wide-ranging infrastructure supporting Disney and ESPN that will allow us to hold down capital expenditures while we seek to increase cash flow by building audiences for the branded businesses we have created.”
Conspicuously missing from the brand analysis was ABC, which had now been entirely eclipsed by its younger sibling, ESPN. While acknowledging that the 2001–2002 prime-time season had been “lousy,” Eisner lauded the new season as “very encouraging,” singling out “8 Simple Rules,” “Life with Bonnie,” “Less Than Perfect,” and “The Bachelor” as “solid successes,” and pointed to the continuing strength of “My Wife and Kids,” “George Lopez,” “Alias,” “The Practice,” and “NYPD Blue.” He also promised that ABC had “a number of great new shows for the mid-season and fall of 2003.”
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