Initially preoccupied with the live-action schedule, Katzenberg began devoting more of his time to animation, scheduling 6:00 A.M. meetings on Tuesdays and Fridays at the animation offices in Glendale that typically lasted three hours. Though invited to attend, Roy resented the early hours and when he came, tended to say little. When he did speak, Katzenberg listened impatiently and then ignored him, at least from Roy’s perspective. Though the animators had learned to be deferential toward Katzenberg, behind his back they drew cartoons lampooning him. Many of them were adolescent and scatological. In one widely circulated drawing, Katzenberg is urinating on one of the animators’ storyboards, one hand outstretched. The caption: “More Diet Coke!”
Just as Eisner had hired Art Levitt on impulse, he took an instant liking to Steve Burke, who, like Levitt, happened to be the son of a powerful father, Dan Burke, the chief executive of Capital Cities/ABC, which owned the ABC network. A recent graduate of Harvard Business School who’d worked a few years at General Foods and American Express, Burke was energetic, personable, and eager, even if his boyish good looks made him look, to Eisner, like a college freshman. Burke was hoping for work in movies or television, but was offered a spot in consumer products, the division that licensed the Disney characters. Disney generated about $100 million in annual profits on Mickey Mouse watches, plush toys, clothing, and other merchandise.
In his newly created job as director of business development, Burke found most employees were trapped in the what-would-Walt-have-done syndrome, so he launched a contest for new business ideas. First prize was a free dinner for two at a restaurant anywhere in the world, although the winners had to pay for their own transportation. He narrowed the finalists to twelve, then presented them to Eisner and Wells. “Let’s just do them all,” an exuberant Eisner responded.
One of the winning ideas was a concept for stand-alone Disney retail stores outside the theme parks. Larry Murphy was cool to the idea—“a small business with relatively low margins,” Murphy warned—and Wells tended to agree. “Can’t a company our size try something every once in a while just because it feels right?” Eisner countered. “What if it does fail? It’s still not going to cost as much as one expensive movie script.”
Eisner prevailed, and Burke was thrilled that Eisner would take such a risk with a young, unproven executive. Eisner rejected his first two store designs, but approved one meant to look like a working movie set, with scenes from the animated films in the windows and previews of upcoming films playing on monitors inside. Eisner insisted that Burke undergo the theme park “cast training” (he portrayed Friar Tuck) and Burke introduced a version of the training for in-store employees, so they could emulate the theme parks.
The stores were a huge success, with sales per square foot setting new records for specialty retailers. Like his earlier decision to develop his own hotel business and reject Marriott, Eisner decided that Disney could build its own retail store operation under Burke. Burke led a rapid expansion, with Disney stores sprouting in every major upscale retail area in the country, including Fifth Avenue in New York and North Michigan Avenue in Chicago. (The chain reached its peak in 2000, with 742 stores worldwide.) Eisner loved to drop in unannounced, and he and Wells showered Burke with notes containing suggestions and criticism. Burke, just thirty years old, suddenly found himself a featured executive at board meetings. He thought he’d found the perfect job. He loved walking down Main Street in Disneyland with his wife and kids, feeling he was an important part of the company.
Nor was Burke the only young executive whose fortunes soared in the new regime. Bill Mechanic, a young executive from Paramount, had followed Eisner and Katzenberg to Disney, hoping to become a movie producer. After he arrived, he met with Katzenberg. “We’ve got good news and bad news,” Katzenberg said. “We have a great job for you, but it’s not what you want.”
“What?” Mechanic asked.
“Home video.”
His spirits sank. Mechanic didn’t even own a video recorder, nor was there much of a market for selling videotapes of movies. They were expensive, and most people rented them at a retail outlet. But with an infant daughter at home, Mechanic thought maybe he could sell the classics as high-priced collectibles. After Pinocchio’s theatrical re-release, Eisner and Wells had convened a meeting to discuss releasing Pinocchio on video the following summer. At first the very idea of selling any of the Disney classics seemed anathema. If American households were filled with videocassettes of the Disney classics, why would families come to theaters every seven years? The films might lose their aura of exclusivity and seem like any other movie. The fledgling Disney cable channel was also counting on airing the classics to attract viewers. Moreover, mass-marketing videos might cheapen the Disney image. Roy was opposed to the idea, and Katzenberg, too, felt it was a mistake. Wells conceded that “there are overwhelming reasons not to do this, but it’s important to have the debate.”
After his arrival, Mechanic was the most forceful advocate for pushing ahead with video sales, and as a parent, Eisner was skeptical that Disney videos would become collectors’ items, handed down from one generation to the next. He could never figure out where all of his own children’s toys and books went, but in time they disappeared. Finally the group decided on a compromise approach: Disney would offer Pinocchio for sale on video, but at such a high price—$79.95—that almost no one besides video rental outlets could afford to buy it. This would force viewers to rent copies. And sales would be confined to a limited period, at which point the title would be retired to await a new generation. But initial sales at such a high price were modest.
In August, Mechanic decided to experiment by slashing the price to $29.95 and relaunching Pinocchio with a marketing campaign that included network television ads. He ended up spending over $7 million, an unheard of amount for a video. His superiors were too busy to pay much attention, but Katzenberg and Rich Frank, the chief operating officer of the studio, were distressed when they found out the ad budget. “Why are you spending money on a market that’s presold?” Frank demanded, referring to the fact that everyone already knew about Pinocchio.
“We’ve got to change consumer habits,” Mechanic argued. “It’s not that easy.”
Pinocchio sold out its 1.7 million units.
So Mechanic asked for Cinderella, which was that year’s Christmas re-release. Pinocchio was one thing, but Cinderella was a core classic. Katzenberg, backed by Roy, vetoed the idea. Mechanic took the issue to Eisner and Wells, who agreed the issue needed to be debated. They convened a meeting with Katzenberg, Frank, Gary Wilson, and strategic-planning executives. (Roy couldn’t attend, but reiterated his opposition to releasing Cinderella on video.)
Mechanic placed two large posters on easels at the end of a long conference table. One showed “emotional issues”—“Could releasing the animated classics on video undermine their uniqueness by making them too widely available in viewers’ homes?” and “Might such a move cheapen Disney’s image and cheapen the brand?”
“We’re not here to talk about theories,” Eisner began, pretty much dismissing the emotional issues. The ensuing discussion made it clear that, as with most “emotional” issues, there couldn’t be any definite answer; maybe it would cheapen the brand, but then again, maybe it wouldn’t.
The other poster was titled “economic issues.” Mechanic estimated that four theatrical releases of Cinderella over the next twenty-eight years (once every seven years) would generate $125 million in revenue. And $125 million in revenue spread over twenty-eight years had a present value of less than $25 million, given the effect of compound interest over time. By contrast, Mechanic estimated that sales of Cinderella videos at $29.95 would generate $100 million that year alone, in addition to the revenue from the Christmas theatrical release. Whatever the emotional issues, put this way, the numbers were compelling. “What are we waiting for?” Wells asked.
Katzenberg wasn’t pleased. He pulled Mechanic aside and said he had unde
rmined him by going to Eisner and Wells.
“Hey, I thought I was just doing my job,” Mechanic said.
Roy still wouldn’t budge on Cinderella, but agreed to a compromise: Sleeping Beauty. Like Pinocchio, Sleeping Beauty had never performed all that well at the box office.
Mechanic doubled the ad budget, marketing Sleeping Beauty as a regal masterpiece, the equal of Cinderella. It sold 3 million units.
In the wake of Sleeping Beauty’s runaway success, Katzenberg and Roy gave up their resistance to Cinderella, though they still wouldn’t let Mechanic release Disney’s crown jewel, Snow White, or Walt’s treasured Fantasia. The following year, with the aggressive expansion of distribution into discount chains like Caldor and Wal-Mart, Cinderella sold 6 million copies, with revenues of $180 million on top of the $34 million Cinderella earned in theatrical re-release. 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.
The success of Oliver & Company and the stream of video income, not to mention the ongoing sales and license fees from merchandise, slowly began to convince Eisner that animation, as Roy had always maintained, might indeed be the heart of the company.
By the end of 1988, just four years after Eisner’s arrival, Katzenberg’s audacious prediction that Disney would be the number one studio at the box office had come true, even earlier than Katzenberg had dared to hope. Roger Rabbit was the summer’s big hit (though it didn’t quite meet Katzenberg’s prediction that it would be the year’s number one picture;it was runner-up to Rain Man, which won the Oscar for Best Picture). Even though Disney had paid over $1 million for the rights to Three Men and a Baby, Katzenberg had kept costs to a modest $11 million by casting lower-priced television stars Ted Danson and Tom Selleck in the lead roles. Eisner’s prediction that the film would be “hugely commercial” was right: Three Men and a Baby grossed $170 million in the United States after it was released at Thanksgiving 1987.
The following January came Good Morning, Vietnam, starring Ovitz client Robin Williams, whose fee had dropped drastically after he went into drug rehabilitation to overcome a cocaine habit (which helped explain the manic performance I’d witnessed at the taping of “Mork & Mindy”). The latest in the line of stars whose careers had faltered, Williams joked that Disney cast its movies by hanging out at the back door of the Betty Ford Center, which offered drug and alcohol rehabilitation. “Vietnam” brought in $124 million.
Even Katzenberg, never bashful about predicting success, could hardly believe Disney’s good fortune in the cyclical film business. “We are going to run into a bad streak,” he warned in a 1987 New York Times interview. “We are going to fail big. Just so the scales get properly balanced, we are going to have one of the all-time big flops.”
In television, “The Disney Sunday Movie” hosted by Eisner was only a modest success, but “The Golden Girls” proved a bona fide hit for the Touchstone television studio. Eisner and Katzenberg seemed well on their way to repeating Paramount’s success at creating hits for television.
Eisner and Katzenberg also put some of the underemployed animators to work making programs for Saturday morning television and a two-hour weekday block called “Disney Afternoon.” Twentieth Century Fox owned the Metromedia chain of TV stations, and Eisner persuaded his old friend and colleague Barry Diller to program “Disney Afternoon” on his fledgling Fox network. “Disney Afternoon” soon became Disney’s most profitable television venture, earning $40 million a year.
Eisner, Wells, and Katzenberg had presided over the most astonishing studio turnaround in Hollywood history. In part this reflected both the disciplined approach to costs and sheer hard work. Katzenberg’s work schedule was legendary. After a few hours of sleep, he routinely arrived at the office at 5:00 A.M., which tended to overshadow the fact that Eisner and Wells worked almost as hard, often seven days a week, and expected the same of everyone else. Sometimes Wells nodded off from exhaustion, only to awake the minute someone stopped speaking. “Keep going, tell me more…” he’d say impatiently.
But if tight budgets and hard work were all that it took, there would have been plenty of rivals for the top box-office crown. Eisner’s insistence on the importance of the creative process seemed vindicated. As in many creative businesses, it’s very difficult to know whom, exactly, to credit for the decisions that created so many hits. Katzenberg essentially ran the studio. But Eisner created a highly charged environment in which creativity could flourish. He had an infectious enthusiasm, a seemingly unerring sense of what audiences wanted. He read scripts avidly and scrawled copious notes on them. He attended weekly meetings of the top film executives, and commented freely and bluntly. He convened intense creative meetings, locking everyone in until good ideas emerged. As the hits spewed out, the excitement was contagious.
Eisner and Wells seemed to manage the company on impulse. Most important decisions were made at Eisner’s weekly Monday lunches of division heads, or during casual visits with Wells, or at his Monday night dinners with Katzenberg. There was never a formal agenda. There was no strategic planning before Wilson brought in Larry Murphy. Eisner would ask for a presentation on animation, then suddenly ask, “What about Disneyland?” Conversation would roam freely through the company’s businesses. “You could never get to the point,” recalls Peter Schneider. “I’d leave scratching my head, wondering if anything had been decided.”
Sometimes Wells, and to a lesser extent Gary Wilson, had to restrain Eisner’s bolder impulses. Ever since working at ABC, Eisner had wanted to run a television network, and in 1985, Ted Turner made a hostile run at CBS, the “Tiffany” network, which put CBS in play. Eisner desperately wanted Disney to buy it. The proposed price actually made some sense, but Wells and Wilson insisted Eisner back off, arguing that network television was a declining business because of the rise of cable. In any event, Eisner finally agreed that they already had too much on their hands to absorb something as big as a television network. But it was clear he hadn’t given up on the idea.
Other than the weekly lunches, Eisner made it a habit to keep his schedule relatively clear. That way, he could convene meetings and make decisions spontaneously as problems arose. Other executives, however, had tightly packed schedules, which meant that whenever Eisner summoned them, they had to cancel other meetings or fall behind.
It fell largely to Wells to bring order to what was otherwise creative chaos. “Frank could be as abrupt as Michael,” says another top executive, “but he was rational. Michael was not rational. Frank was the mediator. He was compassionate. He could calm the warring factions.” Another executive maintains that “You had to keep Michael out of the room because you couldn’t get anything decided while he was there. Later, you’d call Frank, and he’d get Michael to agree to what you wanted.” But no one disputed that the process achieved results. “It was very exciting, intoxicating,” recalls Schneider. “There was real, not fake, synergy. One idea would spark another. Everything turned to gold.”
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). These decisions may seem simple and obvious; Wilson had already laid similar plans when Marriott considered taking over Disne
y. Still, the creative success of the company lent it a luster that was hard to value in dollar terms, but set the stage for even greater growth, through product licensing, new theme park attractions, and new distribution channels.
Disney’s success attracted the attention of the press, including Tony Schwartz, who, after his earlier articles about Eisner for New York magazine, had a major best-seller as co-author with Donald Trump of Trump: the Art of the Deal. Schwartz approached Eisner about a book on the transformation of Disney. Eisner was hesitant but agreed to record his thoughts on a tape recorder in his car in case he decided to go ahead. These tapes convey Eisner’s sense that, as he put it on one of them, he was “working in the world’s biggest candy store.”
Not everyone thrived at the new Disney. Stan Kinsey left after the CAPS project was approved to start a new entertainment technology company with Don Iwerks, a Disney engineer and son of the legendary Ub Iwerks, Walt’s chief artist, who had drawn the first Mickey Mouse cartoon. While he admired what Eisner, Wells, and Katzenberg had accomplished, Kinsey was so disillusioned by the cutthroat politics that he vowed never to work in a big corporation again. Wells, his onetime mentor, wished him luck but also showed a tougher side. “Don’t even think about doing anything this company is doing,” he warned him. “You’d better be damn careful.”
John Lasseter, the animator who worked with Kinsey on the CAPS project, joined Richard Williams’s studio and then Pixar, after Disney passed him over for a directing assignment. His first film at Pixar, Luxo Jr., about father and son appliances, won awards at the Berlin Film Festival and the World Animation Celebration, and was nominated for an Academy Award.
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