DisneyWar

by James B. Stewart

  The next day, Eisner and Jane returned to Los Angeles on the short-lived luxury airline Regent Air. New York magazine’s Tony Schwartz had been tipped that Eisner and his wife were flying back to Los Angeles, and he managed to reserve the seat across the aisle from Eisner. Eisner had liked Schwartz’s earlier article, and after only brief hesitation, decided to unburden himself. The result was a sequel called “Son of Hollywood’s Hottest Stars: Behind the Quake at Paramount That Rocked the Business.”

  Eisner soon experienced firsthand the fate of deposed studio heads. Michael Ovitz was at Eisner’s home one evening when Eisner called Morton’s restaurant to book a table, only to be told that nothing was available. “Let me call,” Ovitz said, and quickly secured a reservation for Eisner.

  “In Hollywood, you’re only as good as your job,” Eisner commented, sounding dejected.

  He didn’t intend to stay unemployed for long, and immediately began strategizing with Stanley Gold to resurrect the Disney possibility. Gold’s solution to the Disney board’s reservations about Eisner’s business acumen was to reintroduce Wells, who was a lawyer and had more solid business credentials. Eisner still rebuffed the idea of sharing power as a co-CEO, but he could live with an arrangement where he was chairman and CEO, Wells was president and COO, and both reported directly to the board. Gold got Sid Bass on a speakerphone and Eisner made his case.

  “Companies like Disney are always founded by creative entrepreneurs,” Eisner began, “but eventually the founder dies or gets pushed out, or moves on to something else. Inevitably the businesspeople take over—the managers—and they focus on preserving the vision that made the company great in the first place. They don’t have any creative ideas themselves and they end up surrounding themselves instead with analysts and accountants to try to control the creative people and cut costs. In the process, they discourage change and new initiatives and reinvention. In time, the company begins to ossify and atrophy and die. It’s important to have financial parameters and never to bet the house, which is how we always protected Paramount. But in a creative business you also have to be willing to take chances and even to fail sometimes, because otherwise nothing innovative is ever going to happen. If you’re only comfortable running a business by the numbers, I can understand that. But then you shouldn’t get involved with a creatively driven company like Disney.”

  When Eisner finished, there was a brief pause, and then Bass spoke. “You’re right. We’re with you.”

  Support from the company’s largest shareholders was hardly decisive with the board, but it certainly helped; now Gold and Roy could threaten a credible proxy fight to replace the board members. To drive home the point, the Basses bought virtually all the Disney shares that came on the market, increasing their stake from 5.5 to 8.6 percent within a week.

  Eisner also reached out to Walt’s side of the family, especially Miller, with whom he felt he had a good relationship stemming from Miller’s attempt to hire him. After winning the support of the Basses, Eisner stopped by the Millers’ house in Encino. Miller was sitting in the backyard, suddenly unemployed, with nothing to do and nowhere to go. He greeted Eisner, who said he was hoping to get the Disney family’s support.

  “What are they offering you?” Miller asked.

  “My salary is the same as yours,” Eisner replied ($500,000 a year).

  “Stock?”

  “Five hundred thousand shares.”

  Miller was stunned. In his tenure at the company, Miller had been awarded a total of just 25,000 shares. “Michael, they’ll never give it to you,” he said—500,000 shares was astronomical.

  “Well, you’ve got to start somewhere.” Miller was amazed at Eisner’s audacity.

  “So, do I have your support?” Eisner asked.

  “You know what, Michael?” Miller said. “You don’t need it.”

  The key holdout was ex–chief executive Card Walker, who was on a fishing trip in Arizona. Walker was still hostile to Roy and his ally Gold, so Wells flew there to meet him. He proved the perfect emissary for the conservative Walker. Walker was no more enamored now of Eisner than he had been before, but he could see the writing on the wall. “I guess we bet on the wrong horse,” his wife had told Patty Disney, referring to Walker’s earlier support of Miller. Now Wells stressed that if he and Eisner prevailed, and Walker supported them, he could keep his board seat and its perquisites—trips on the company planes, events at the theme parks, openings, screenings, and, of course, director’s fees. Walker not only agreed to support him and Eisner, he volunteered to give the nominating speech to the board.

  Wells called Roy from the plane on the way home. “Bingo!” he said.

  The board met on September 22, 1984. Eisner invited his friends Larry Gordon and Michael Ovitz to await the final decision with him and Jane. The group made nervous small talk. Finally the phone rang at noon. “Congratulations,” Gold told him. “You got it.”

  “We should open a bottle to celebrate,” Ovitz said. “Don’t you have some champagne?”

  Eisner turned to his wife. “Where is that bottle we got for Christmas?” He left and returned with a bottle of red wine. As Eisner started to open it, Ovitz interrupted him, “Wait! Let me see that.” It was a 1982 Château Pétrus. “You can’t just open this and drink it,” he said. “You have to let it breathe.”

  Eisner rolled his eyes and pulled the cork.

  With Gordon and Ovitz still in the room, Eisner called his lawyer, Irwin Russell, to finalize an employment agreement. “I don’t care about salary,” Eisner told Russell. “Just get me all the stock and options that you can.”

  Russell and Disney arrived at a pay package that was even more lucrative than what Eisner had described to Miller: a base salary of $750,000 plus a signing bonus in the same amount; an annual bonus of 2 percent of any profit Disney earned in excess of $100 million (the most Disney had ever earned in a single year); and options to buy 510,000 shares of Disney at $57 a share, its current price. As Eisner had wished, it was the options that made the contract so potentially rich.

  That afternoon, Eisner and Wells joined the board for a lunch hosted by Roy at Lakeside Golf Club. Toward the end of the meal, Eisner turned to Roy. “Now that this is all over, what would you like to do?” Roy hadn’t given his future role at Disney much thought, but on impulse he said, “Why not let me have animation? It’s an arcane thing for you people, and I know the process and the people.”

  “Great,” Eisner said. He and Wells had been talking about shutting down animation, but if Roy wanted it, fine.

  That evening, Gold and his wife hosted a small celebratory dinner at his home on Alpine Drive in Beverly Hills. The Eisners and the Wellses were there, along with Roy, Patty, and an investment banker who had advised Shamrock. Everyone was in a festive mood, though not everyone loved the Italian grappa that was Gold’s favorite aperitif. Eisner had never met Roy’s wife before, and in contrast to the understated Roy, he found her to be acerbic, outspoken, and effervescent. Patty made it clear that it was her decision as much as Roy’s to force a management change at Disney, and he made a mental note not to underestimate her, or Roy, for that matter.

  As the dinner concluded, Gold made a toast to new management. Wells handed out elegant Mickey Mouse watches engraved with September 22, 1984, the date of the pivotal board meeting. “Thank you,” he said to Roy and Gold. “We know you’re responsible for our being here.”

  “Anytime we disappoint you, just tell me,” Eisner added. “You got me this job. I’ll never forget it. If I ever lose your confidence, let me know, and I’ll resign.”

  *Many years later, Reynolds had a play of his own produced at an off-Broadway theater. Eisner booked a $35 seat in the front row to accommodate his long legs. Afterward, he sent Reynolds a note saying how great it was that “after all these years, things are working out for you as a writer.” Eisner also gave $5,000 to the theater.

  Two

  Jeffrey Katzenberg was so eager to begin work at Dis
ney that he’d started meeting with Eisner and Wells the same weekend they got their jobs. These weekend sessions to plot strategy continued, usually at Wells’s house, even while Katzenberg was nominally still working at Paramount. And Eisner continued to advise Katzenberg on projects still under way at Paramount. Eisner had committed Paramount to a biblical epic, King David, starring Richard Gere as David and directed by Bruce Beresford. Katzenberg was now shepherding the production. Three weeks into filming, Katzenberg sent Eisner the dailies.

  Eisner called Katzenberg as soon as he saw them. “What’s going on?” he asked.

  “What do you mean?” Katzenberg replied.

  “Why is Richard Gere wearing a dress and earrings?”

  “That’s what Bruce said they looked like,” Katzenberg explained, referring to the ancient Hebrews.

  “I don’t see David in a dress,” Eisner said. He felt vindicated when King David failed at the box office.

  But what happened at Paramount was rapidly fading in importance to Eisner. At the weekend strategy sessions, Disney officials not already earmarked for dismissal were summoned to make presentations, among them Stan Kinsey, a young vice president in charge of operations, finance, and new technology. Kinsey, a Stanford Graduate School of Business graduate and Goldman Sachs alumnus, was a golden boy of the previous regime; Miller liked his golf game and had personally sponsored his admission into the exclusive Bel Air Country Club. But the new executives seemed impressed by Kinsey’s aggressive plan to reduce the studio’s overhead by 30 percent.

  Kinsey was also eager to share a more important project he had under way involving a new technology operation that was an offshoot of George Lucas’s Industrial Light & Magic, the Star Wars director’s special effects operation outside San Francisco. He’d been at the Disney animation building one afternoon the year before when three engineers—Lem Davis, Dave Wolf, and Mark Kimball—took him aside. “Can we show you something?” they’d asked quietly. They took him into a darkened room and showed him a computer screen displaying a boat that had been computer generated in vector form. There was no color, but the drawing was almost three-dimensional. “Can we get $12,000 to buy one of these vector graphics machines?” they asked.

  “What do the animators think?” Kinsey asked.

  “They love it,” the engineers said.

  “Then why aren’t you asking for $12 million?”

  Kinsey went into high gear. He’d been a Stanford classmate of Scott McNealy, chief executive of Sun Microsystems, and he called McNealy for advice about workstations that could handle computer animation. McNealy directed him to George Lucas. Kinsey, the engineers, and animator John Lasseter flew to San Francisco to visit Lucas’s operation. They were thrilled by the technology—not just that it replaced painstaking human labor, but that the results were so rich, both in color and dimension. The results could be every bit as good as in the golden age of Disney animation, an era that had been lost to prohibitive labor and camera costs. After looking at other computer animation labs around the country, Kinsey and his team zeroed in on Lucas’s operation.

  Card Walker had balked at the notion that a machine could replace hand drawing. But now Kinsey had another chance. He started to explain how computer technology could replicate the kind of animation that required seventeen cameramen for the opening scene of Pinocchio. He was disappointed when Wells cut him off. “We’re going to shut down animation,” he said bluntly. “It’s not making any money.” New management seemed far more interested in his plan to cut costs, and Kinsey didn’t think the name of the operation he was working with even registered: Pixar Advanced Computer Graphics.

  On the Monday after that weekend meeting, Kinsey was at his desk when Katzenberg, still at Paramount, called. “I’m a first impression kind of guy,” Katzenberg said, dispensing as usual with preliminaries. “I’ve never been so blown away by somebody at a first meeting. We’re going to take this studio to twenty movies a year. In four years we’re going to be the number one studio at the box office.” Then he hung up. The call had lasted no more than thirty seconds, but it was electrifying. Disney was barely in the movie business at all and Katzenberg was predicting they’d be number one! What a change from the old regime, Kinsey thought.

  Wells, too, was impressed by Kinsey, and started inviting the young executive to join him in his office at the end of the day. Wells would typically open a bottle of wine, pour two glasses, then pick Kinsey’s brain about Disney personnel and operations. One evening Kinsey was in Wells’s office when George Lucas called. “Is there anyone there worth keeping?” Lucas asked.

  “He’s sitting right here,” Wells replied, smiling at Kinsey. It almost seemed too good to be true.

  Though it seemed a foregone conclusion, Katzenberg still had to close a deal to join Eisner and Wells at Disney. Wells rented one of the storied bungalows at the Beverly Hills Hotel as a way to impress Katzenberg, and Katzenberg came to the meeting armed with a hastily scribbled “wish list” for his new job as chairman of the Walt Disney Studio. As opposed to Disney’s long-standing frugality, the list was larded with Hollywood status symbols, circa 1984: “2 secy’s, beach house, corporate jet, travel-family-etc., screening room, house maintenance? Butler?”

  More important, Katzenberg asked for a stock-option package like the ones Eisner and Wells had gotten. “The board will never go for that,” Wells insisted. But both Wells and Eisner agreed that Katzenberg both needed and deserved some kind of incentive compensation. So Wells offered Katzenberg an annual bonus amounting to 2 percent of any profit earned by anything he put into production, which would include live-action and animated films as well as television programs. In calculating profits, revenues would be included from “all forms of exploitation,” which meant not just ticket sales and broadcast fees, but video, merchandise, and theme park attractions based on his productions. Moreover, whenever he retired or left the company for any reason, Katzenberg would be entitled to a lump sum payment of the estimated future value of his 2 percent profit interest.

  Wells seemed proud of this plan, arguing to Katzenberg that the bonus would provide an annuity for his infant twin sons, while confiding to Eisner that he doubted the 2 percent bonus would ever amount to anything. Disney’s film studio was largely living on the animated classics of the past. The Christmas release for that year was the 1940 film Pinocchio, only a modest success even in its original incarnation. Disney re-released an animated classic every seven years, an interval calculated to reach a new generation of children and parents. Then it was returned to the vault.

  Even more than Eisner and Wells, Katzenberg’s arrival at the Burbank campus lent a new sense of urgency to the revitalization of Disney. The partnership Katzenberg had envisioned with Eisner while still at Paramount was reconstituted, albeit with Katzenberg as a junior partner. Though they had rarely socialized outside the office, they began having dinner together every Monday night at Locanda Veneta, an Italian restaurant in Beverly Hills, when they were both in town. Katzenberg moved into an office in the animation building next to Eisner’s.

  One afternoon Katzenberg walked into the boardroom, where plans for the renovations of his new office had been laid out. Katzenberg glanced at the plans, and without acknowledging the presence of the architect, whom he’d never met, said, “Let’s have a look at the office.” They headed down the hall, and as they walked, the Disney executive in charge of the project said, “Jeffrey, maybe I can take this moment to introduce you to…” Before he could finish, Katzenberg thrust his arm up, his hand in the air. Without turning or altering his stride, he said, “We just met.” Then he dropped his hand.

  Despite the sometimes frenzied schedules and long hours, in the early months and years of the new regime management was surprisingly informal. Many of the best ideas surfaced at Eisner’s Monday staff lunches, when the heads of the various divisions sat down together when they were in town. At some of the early meetings, division heads came prepared with the latest numbers and projec
tions, prepared to be grilled by Eisner. So they were taken aback when he opened one meeting by stating “Today we’re going to talk about whether Mickey and Minnie should get married.” A scenario was developed in which the iconic mice would get engaged on Valentine’s Day, shop for rings at Tiffany in April, get married in June and honeymoon in Paris, but the idea struck many as heresy, and Eisner dismissed it. Still, the episode showed Eisner’s willingness, even eagerness, to challenge conventional wisdom. “Give me the idea you didn’t want to embarrass yourself with,” Eisner often suggested. “Give me the idea that you think is going too far,” or, “What would you do if there was no budget?”

  Stanley Gold’s instinct that Eisner’s and Wells’s skills and personalities would complement each other proved correct. Eisner and Wells settled into a comfortable working relationship, with Wells shouldering most of the administrative burden of running the company and attending to financial affairs, while Eisner oversaw the creative aspects, from film and television production to the expansion of the theme parks.

  Eisner and Wells wandered in and out of each other’s offices at will, and Eisner felt he could trust Wells with any confidence. Wells was discreet, and from the beginning he never aspired to usurp Eisner or overshadow him. He was a natural manager and mediator, and when other executives had problems with Eisner, they went to Wells. “I’ll take care of it,” Wells would say, and almost invariably did.

  The flurry of changes and the vote of confidence from the influential Basses made an impression on Wall Street. Just one month into Eisner’s tenure, Disney stock had surged. One afternoon Eisner got a call from the ever-competitive Barry Diller. Referring to Eisner’s stock options, he asked, “Is it really true you’ve made $3 million on paper?”

  “I guess so,” Eisner replied, as if he himself had trouble believing it.