DisneyWar

by James B. Stewart

It was Walt’s genius to recognize that it is not only children who want an escape from reality.

When he arrived at Disney in 1984, the company was faltering, its studio and legendary animation division moribund, its assets coveted by corporate raiders eager to break up the company and sell off the parts. Eisner had not only saved Disney, he had transformed it into the world’s leading entertainment company and protected its beloved brand name.

Despite the family wealth, Eisner’s grandparents displayed a frugality often associated with Old Money. The young Eisner was once riding in a taxi during a snowstorm when he spotted his grandmother, in her eighties, boarding a bus outside Bloomingdale’s department store. He had the taxi stop, intercepted his grandmother, and insisted she join him. “Why are you wasting money on a cab?” she demanded. His grandfather insisted on crossing into Manhattan on the Willis Avenue Bridge rather than the Triborough Bridge to save the twenty-five-cent toll.

the New York article was un-sparing in its depiction of Eisner and Diller as tough people to work with (“Paramount is the studio that gives you a green light and then dares you to make the picture”),

Ten years later, with payments to Walt’s WED and Retlaw soaring, and shareholders threatening a lawsuit (the board had never approved Walt’s self-serving arrangements), Roy confronted Walt during a weekend the families spent together at Walt’s Smoke Tree Ranch in Palm Springs. The moment the subject of WED was broached, the brothers boiled over. They yelled at each other the entire weekend. “Dammit, I want to be on a par with what other people are making in this industry, Roy,” Walt yelled at one point. “If you don’t do that, I’m going to leave.”

Eventually, after contentious negotiations, Walt Disney Productions bought back WED from Walt, including the rights to use the Disney name, for $60 million.

But the rift between the families never fully healed. The huge payment by Walt Disney Productions to Walt, which ended up making the Walt side of the family enormously wealthy, rankled throughout the Roy side.

Though Walker had nominally retired in 1982, ceding his chief executive position to Miller, he kept his office, remained chairman of the board, and blocked nearly every innovation Miller and other executives proposed. When they wanted to raise the price of parking at Disneyland from a ridiculously low $1 per car, Walker vetoed the move. “The parking lot is the first thing the guest sees,” he argued. “Walt wanted them to think that this is the greatest place on earth.” Likewise the admission price couldn’t be touched. “We have to keep our prices low,” Walker argued, “so that guests feel they’ve gotten good value.”

Tron, an expensive, computer-generated science fiction picture, opened a few weeks after E.T.: the Extraterrestrial and Annie. The competing studios were spending a then astronomical $10 million each on advertising and marketing campaigns. Walker refused to raise the minuscule marketing budget, citing Walt’s adage that the only publicity worth the money was free. When Tron finished its opening weekend in a dismal sixth place, Walker still refused to increase advertising, insisting that word of mouth would come to the rescue. Much of the $17 million cost had to be written off.

Disney was also hobbled by its increasingly outdated notion of “family” fare, which had hardly budged in the face of the civil rights movement, the women’s movement, the decline of the nuclear family, and a soaring divorce rate.

Diane found Eisner charming, if a little overeager, like a puppy. Afterward they were standing outside, waiting for their cars. Eisner got a grin on his face and leaned toward Diane. “There’s something I’ve been wanting to ask you,” Eisner said. “Is he…” Diane cut him off. “I know what you’re going to ask, and no. Dad isn’t frozen.” She couldn’t believe Eisner would ask her about the rumor that her father’s corpse had been used for an experiment in cryogenics, which she considered as credible as reports that Elvis was alive.

With almost no demand for their skills beyond Disney, the animators were barely paid above scale, and lived so modestly that at a retreat for the top artists at the Santa Barbara Biltmore, several asked if they could keep the soap and shampoo from their hotel rooms.

In other words, Cinderella alone generated more revenue in one year than the estimate of $200 million Eisner gave the Bass brothers as the value of the entire Disney film library. Home video sales rapidly became Disney’s biggest profit center apart from the theme parks. Despite their initial disagreements, Mechanic felt that Katzenberg and Roy became enthusiastic supporters.

Eisner, Wells, and Katzenberg had presided over the most astonishing studio turnaround in Hollywood history.

Operating income at Disney jumped from less than $300 million when Eisner and Wells took the helm to nearly $800 million in 1987. Though the live-action film and animation studios attracted most of the attention, curiously little of the revenue growth actually came from the company’s more creative initiatives. An internal analysis commissioned by Gary Wilson to help understand the company’s burgeoning profit found that nearly all of it came from just three sources: raising admission prices at the theme parks; greatly expanding the number of company-owned hotels; and distributing the animated classics on home video (a technological development that had happened since Eisner’s arrival).

In one of their first meetings, Eisner went over with Ovitz a list of executives that he considered “problems.” Much to Ovitz’s surprise, the list included Joe Roth and Bob Iger.

The most egregious example was Irwin Russell, Eisner’s personal lawyer, who negotiated Eisner’s lucrative contract and who had a professional duty of loyalty to Eisner simultaneous to his duty to shareholders. Yet Russell was also the chairman of Disney’s compensation committee. (Incredibly, during the Eisner contract negotiations, Russell represented Eisner, and Ray Watson stepped in for Disney.) Everyone on the board seemed to think that Russell was an inherently fair-minded and decent person, and so no one appears to have raised any questions about such a blatant conflict of interest.

Eisner kept close tabs on the film’s progress, and after a trip to his son Eric’s high school graduation, insisted that Edward Elgar’s “Pomp and Circumstance” be one of the compositions featured in a segment. “Everyone can relate to ‘Pomp and Circumstance,’ ” he said at a meeting with Roy and the animators, noting that he’d just heard it at his son’s graduation. Roy said nothing, but everyone could tell from the strained look on his face that he didn’t like the idea. Eisner proceeded to outline a plot for the segment: all the classic Disney heroes and heroines—Cinderella and Prince Charming, Ariel and Eric—march in a wedding procession carrying their future babies, which they would present in a ceremony. There was dead silence in the room. “Okay,” Roy finally said, with notably little enthusiasm.

In the course of renegotiating the Disney relationship with Pixar, Roth presented Eisner with a proposal that would both solve the issue of succession and address the faltering performance of the animation division. It was admittedly bold: Disney should buy Pixar (as it could have done years earlier) and merge its own animation division into it. “Make it all digital,” Roth urged. “That’s the future.” As part of the deal, Eisner should make Steve Jobs, Pixar’s chairman, president of Disney. “Jobs is a darling of Wall Street,” Roth argued, “and you’d get John Lasseter, the greatest creative mind that’s come out of Disney.” That idea went nowhere.

The possibilities for intrigue, politics, and betrayal were tremendous, which, when they thought about it, wasn’t all that different from life at ABC.

Under pressure from the judge originally assigned to the case, Sandy Litvack and Katzenberg’s attorney, Bert Fields, had negotiated a settlement in 1997 in which Disney agreed to pay Katzenberg $117 million, which Disney insisted was all that it owed. Katzenberg maintained that the company owed him more, plus interest. Disney and Katzenberg would have a trial before an arbitrator to determine the total.

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.

Although Eisner had long argued that chief executives should be measured by what they did—the movies they green-lit, the TV pilots they bought—as opposed to the things they turned down, rebuffing an offer from AOL was arguably Eisner’s best decision of the decade, since the consequences would have been ruinous.

(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.”)

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.

Many at the meeting were astounded that Disney was spending over $5 billion to acquire a cable network and its programming and that Steve Bornstein and others at ABC had not been consulted.

Letterman issued a far stronger statement of support for Koppel than Disney did, saying he wouldn’t join ABC if it meant displacing Koppel. Moreover, Letterman stated that he had cause to wonder how Eisner and Iger would treat him, if this was how they treated Koppel, one of their most respected on-air talents. A full week after the story broke, Iger apologized to Koppel.

“It’s impossible to negotiate with Steve Jobs. Jobs is a Shiite Muslim,” Eisner blurted out,

Ultimately, it’s determined that 43 percent of the shareholders have withheld their votes from Eisner, and 24 percent from Mitchell. Even more devastating to Eisner, though not released to the public, 72.5 percent of Disney “cast members” voting through their 401(k) retirement plans, have voted “no” on Eisner. A remarkable 63.7 percent voted against Mitchell as well.