DisneyWar

by James B. Stewart

  Eisner was far more interested in the creative challenges than the practical problems, which as usual were Wells’s responsibility. Building Euro Disney was the most ambitious construction project Disney had ever undertaken, and translating the ideas of Eisner and the Imagineers in Burbank, not to mention those of the team of international architects responsible for the hotels, fell to European contractors and Bob Fitzpatrick, the former CalArts president whom Eisner and Wells had installed as head of the project. Eisner didn’t mind spending money, as he put it, “on the walls,” meaning on something spectacular that guests would see. But operating expenses drove him crazy. On an early visit to the site, Eisner and his entourage were ferried around the beet fields in four Land Rovers. Eisner called Wells. “Why do we have Land Rovers rather than Jeeps? This is just the tip of the iceberg. Nickels and dimes add up, and I can tell you right now we’ve got to get this under control.”

  No one at Disney had any experience with building in Europe, let alone dealing with contentious French labor organizations. When they arrived at the steps of the Paris Bourse, home to the nation’s stock market, to celebrate the first day Euro Disney shares were publicly traded, Eisner and Gary Wilson were confronted by angry demonstrators and pelted with eggs and ketchup. “Uncle Scrooge Go Home!” read one banner.

  Budgeted at $1.3 billion, costs were approaching $2 billion and construction was falling behind when Wells called in a consultant who warned, “You are headed for one of the biggest failures in construction I’ve ever seen.” Eisner and Wells tapped Judson Green, who had negotiated the Marriott deal at Disney World, to rescue the opening and get operations up to speed. Green airlifted over five hundred Disney employees from the American theme parks for a crash effort to prepare for an opening. The task force worked eighteen-hour days for the four months. Disney was also a victim of Eisner’s insistence that the company meet its pledge to open at a precise time in April, as Walt had done with Disneyland, and Roy with Walt Disney World. The deadline was an open invitation to blackmail from the contractors, who threatened work slowdowns unless they were given premiums to complete the work on time. One group of contractors demanded $150 million in overtime and “change orders.” Euro Disney ultimately cost a staggering $4 billion.

  Whatever the cost, Euro Disney did succeed in opening at precisely 9:00 A.M. on April 22, 1992. All the architects were on hand along with stars Candice Bergen, Eddie Murphy, and Melanie Griffith. Farmers blockaded the roads. French president François Mitterrand declined to attend, dismissing the expensive new investment with Gallic indifference as “pas ma tasse de thé” (“just not my cup of tea”), a comment that infuriated Eisner.

  For all Disney’s efforts, it was clear from early reactions that Europeans would not be easily won over by Disney’s American version of make-believe. International Herald Tribune critic Stephen Bayley wrote, “The Old World is presented with all the confident big ticket flimflam of painstaking fakery that this bizarre campaign of reverse-engineered cultural imperialism represents. I like to think that by the turn of the century, Euro Disney will have become a deserted city, similar to Angkor Wat….” The opening day attendance was just six thousand people, far short of the projected ten thousand. Although attendance through December reached seven million, it fell off drastically during the cold weather. Unlike the Japanese, the French were not willing to wait in lines in the cold. Nice as the hotels were, few wanted to stay so far from Paris. Occupancy at the hotels was just 60 percent, far short of the projected 85 percent. Wells confided that he “dreaded” going to the fax machine every morning to get the previous day’s Euro Disney attendance figures. More fundamentally, costs had so far exceeded projections that Euro Disney, now saddled with a staggering $3 billion in debt, would have had trouble earning a profit even under the most optimistic of assumptions.

  With the park open, Green returned to run the U.S. theme parks, and Bourguignon, a Frenchman, was named chairman and chief executive of the Euro Disney Resort. Frank Wells called Steve Burke every morning, and Burke tried to sound warnings, as did Bourguignon. But the message didn’t seem to get through to Eisner, who continued to predict that the clouds over Euro Disney would disperse as soon as warmer weather boosted crowds and as Europe emerged from the recession that followed Iraq’s invasion of Kuwait. Eisner was still intent on adding a second theme park to the site—a European version of the MGM Studios park in Orlando—and the Imagineers were hard at work. But early in 1993, Richard Nanula, the newly appointed chief financial officer, and Larry Murphy, head of strategic planning, who had consistently warned about overspending and optimistic assumptions, flew to Paris with a team from Disney to assess the financial health of the venture. It was even worse than Burke and Bourguignon had warned.

  Nearly all the assumptions Disney had made in the early projections and used to determine the budget had been wildly off base. Europeans’ vacation habits were dramatically different from Americans’, something that might have been anticipated had Disney relied on European data rather than projecting results from Disney World onto a European setting. For one thing, the average middle-class European had far more vacation time than did Americans. But this meant that they spent far less per day to make ends meet. They were not willing to stay in expensive hotels like the ones Disney had built, nor did they eat, drink, attend shows, or buy souvenirs at a rate anywhere near that of Americans. The hotel occupancy rate was less than 50 percent. Unlike Americans, 75 percent of Euro Disney’s visitors booked their trips through travel agents. Most Americans called Disney directly to make reservations. The resulting agents’ commissions that Disney was forced to pay made a dramatic dent on the bottom line. Given the cost structure, Euro Disney wasn’t making money on an operating basis, let alone able to service its massive $3 billion debt.

  Warmer weather did not bring a dramatic improvement. Indeed, it was clear to Larry Murphy that under the most optimistic operating assumptions, Euro Disney would not make money. The situation was so dire that Disney was rapidly heading toward breaching its debt agreements, which could cause the banks and other major lenders to force the project into bankruptcy, an almost unthinkable embarrassment.

  Determined to force Eisner to face reality, Murphy insisted on two full days at a retreat in Aspen in July, attended by Wells, Bourguignon, Burke, other top executives, and Sid Bass. The first step was to illustrate what had gone wrong, which, simply put, was the massive overspending undertaken largely at Eisner’s behest. Murphy and his team prepared charts that compared the initial budget to actual costs, which were more than $1 billion over the original pro formas, and the consequences for debt service and operating margins. Bourguignon and Burke added their pessimistic views; they’d decided they had to be brutally honest or risk losing their jobs when the weak numbers came in.

  As the meeting progressed, Eisner became visibly angry. It was the first time anyone in the company had so directly criticized something for which he was responsible. Finally he burst out, practically shouting, “I don’t understand this. The pro formas said we could spend this.” It was true the pro formas had been revised upward every time Eisner indicated he wanted to spend more. “That’s because people told you what you wanted to hear,” Murphy said. It was the first time anyone could remember Eisner raising his voice in front of Sid Bass.

  Murphy and Nanula outlined a drastic set of remedies: cutting the price of admission, hotel rates, food, and merchandise; slashing operating costs by firing a thousand employees; and restructuring management. Even then, the debt would have to be restructured or, Murphy projected, Euro Disney would lose several hundred million dollars a year in 1994 and 1995.

  When Murphy finished, everyone turned anxiously to Eisner, who looked sullen and withdrawn. “He made it perfectly clear to everyone trying to speak the truth that it was unwelcome,” recalls one executive at the meeting. Despite his claims to Katzenberg that he always wanted to be the first to hear about problems, Eisner did not like to be told bad news, nor was
he used to it. He had presided over a nearly unbroken string of successes, largely by acting on his creative impulses. In many ways, Euro Disney had been the grandest of these. From the beginning, it seemed as if Eisner craved critical acceptance and approval by the Europeans, which was the main factor driving the expensive quest for perfection in building the park. Still, the consequences of doing nothing were worse than the proposed remedy. Eisner reluctantly agreed that the second park would have to be put on hold, and told Burke and Bourguignon to return to Paris and drastically cut costs.

  Although Eisner later called this decision a “bitter pill to swallow” and “distressing,” he nonetheless demonstrated a characteristic sense of optimism even in the face of dire projections. As he put it, “There was never a single moment—including that moment—when I lost faith in [Euro Disney]. We still had a great park at a great location. We faced a business crisis, a blazing one at that, but I’d faced similar crises, albeit on smaller scales, nearly every week for thirty years. Although others at our meeting probably would have disagreed, my main feeling as we ended was one of optimism.”

  Be that as it may, it didn’t stop Eisner from casting blame for the Euro Disney fiasco on others. Gary Wilson and Frank Wells came in for the brunt of the criticism, Wilson for pushing for so many hotel rooms and for taking on so much debt, and Wells for the optimistic pro formas based on Disney World numbers. Wilson, of course, was conveniently gone, though still on the board. Judson Green replaced Richard Nunis as theme park chairman.

  Most strikingly, Euro Disney appeared to drive a wedge between Eisner and Frank Wells. To others, Eisner blamed Wells for everything—from the budget shortfalls, to bad personnel decisions, to skyrocketing operational costs. Wells did deserve some of the blame. Euro Disney exposed managerial weaknesses in Wells that had been apparent to many. He was overextended, he didn’t pay attention to details, and he had a short attention span. Still, he had simply been trying to implement the big decisions made by Eisner and his creative team. And he was invariably fair-minded, even-tempered, and good for morale.

  At their Monday dinners at Locanda Veneta, Eisner increasingly vented his frustrations with Wells to Katzenberg, going so far as to suggest that he’d have to fire Wells if Wells didn’t quit first to climb mountains or run for public office. (Given that Wells reported to the board, not to Eisner, he couldn’t have unilaterally fired him.) And Eisner frequently complained about Wells to Ovitz, seeming to ignore the fact that Ovitz and Wells were friends. On one occasion, when Eisner and Ovitz and their wives were dining at the Palm, Eisner arrived late, then immediately said, “That fucking Frank. He’s crazy.”

  “What happened now?” Jane asked.

  “He’s so scattered. I can’t get him to focus.” Eisner complained that Wells wouldn’t accept responsibility for the Euro Disney mess.

  Eisner had also managed to convert his former boss and friend Barry Diller into a bitter enemy. Just as with Larry Gordon, Diller and Eisner had stopped speaking, and were going to elaborate lengths to avoid each other in public. The feud began when Disney bought a Los Angeles television station, named it KCAL, and wanted to air “Disney Afternoon,” the block of children’s programs being carried by Diller’s Fox affiliates, including one in Los Angeles. Eisner had Katzenberg call Diller. In Diller’s recounting of the discussion, Katzenberg said, “We want to renegotiate ‘Disney Afternoon’ and we’re taking away the L.A. market.”

  Diller was shocked. They had a contract. “That’s not fair,” he protested. “I know you bought an L.A. station, but give us two or three years to replace this. Let’s be reasonable.”

  Diller called Eisner, who refused.

  “We were there for you when you needed us,” Diller reminded him, pointing out that he’d bought the original programming for “Disney Afternoon.” Eisner still refused. “Okay then, we’re out of business,” Diller said.

  Fox promptly dropped “Disney Afternoon” from all its wholly owned stations, and encouraged its affiliates to do the same. Then it developed its own series of cartoon programs, including the wildly successful “Mighty Morphin’ Power Rangers.” “Disney Afternoon” never recovered from the blow.

  Still, that wasn’t what put Diller over the edge, even though he felt Eisner had betrayed him. It was when Disney sued Fox on antitrust grounds, claiming that Fox was trying to monopolize children’s programming, and then complained to the FCC that Fox was a morally unfit broadcaster, with risqué programming like “The Simpsons” and “South Park.” When Disney lawyers approached Diller about a possible settlement, Diller said the only settlement he’d consider was an apology.

  Disney ended up dropping the suit in 1992, but Diller told Geffen, “I’m never going to speak to him [Eisner] again.”

  Frank Wells also felt the brunt of Eisner’s temper. Eisner had called Gold at one point to complain about Wells, and asked if he could fire him. “Are you out of your fucking mind?” Gold says he replied. “You’re a team. You both report to the board.” Eisner didn’t bring it up again. One morning after Wells’s usual jog around the UCLA track with Stanley Gold, he stopped at Gold’s house in Beverly Hills and sat on the terrace. They had juice and coffee. Finally Gold got up to shower and head to the office. “Time to go,” Gold said. Wells didn’t move. “I’m not going to work,” he said.

  “What’s the matter?”

  “I hate it. I hate Michael Eisner,” he said. “I can’t go in there anymore and take the shit.”

  Gold yelled to the maid. “Mr. Wells will be spending the day here.” He urged Wells to relax, unwind, and take his time. He knew he’d go back for the good of the company.

  That spring of 1993, Tony Schwartz called Eisner again, noting that September 22, 1994, would be the tenth anniversary of Eisner’s arrival at Disney, a good time to reconsider the book that Schwartz had proposed. “I should have done it when you suggested this before,” Eisner said, given the enormous success of his early years at Disney. He still had the tapes he’d been recording during that period, and he told Schwartz he’d consider it.

  Eisner later wrote that Schwartz’s call came at a time when, for a variety of reasons, he was amenable to the suggestion. “We were enjoying success on a variety of fronts—movies, television, theme parks, and consumer products. It was tempting to keep doing things exactly the way we had. But rather than a sense of confidence, we felt a growing apprehension. The problem, we sensed, was that some of our executives were feeling not just complacent and self-satisfied but bored and restless. The business equivalent of the seven-year itch was setting in…. Writing a book, I suggested to Frank, my partner and Disney’s president, might be one more way to keep our focus on the challenge at hand. If we committed our intentions to paper—and faced a deadline—we’d feel more compelled to implement significant changes, even if they proved unsettling to the company in the short term…. Above all writing a book simply seemed like something fun to do—a new adventure.”

  Eisner may also have had other reasons. Robert Sam Anson, a journalist best known for his reporting on the civil rights movement and from Vietnam, had just signed a contract to write an investigative book on Disney. Eisner’s book might blunt the impact of Anson’s book, if not preempt it altogether. Eisner later mentioned to Schwartz that he worried Katzenberg “could conceivably make an alliance with Robert Sam Anson,” according to Schwartz’s notes. Still, “Jane tells me I’m crazy to do this,” Eisner said to Schwartz when he called again to discuss the project further.

  After five months of negotiating, they reached a deal. Eisner would be the author and would retain absolute control over the content; Schwartz would receive a “with Tony Schwartz” credit. Eisner didn’t want Schwartz to negotiate a contract with a publisher, even though, after the runaway success of Trump: the Art of the Deal, Schwartz felt he could have commanded an advance of $4–$5 million for a book on Eisner and Disney. Instead, Eisner proposed that he pay Schwartz an equivalent amount (in later testimony, Eisner said he could
n’t remember whether he paid Schwartz or Disney did). Then, when the manuscript was finished, Eisner would negotiate a publishing contract. Schwartz worried he was making a Faustian bargain, but in the end he accepted Eisner’s terms.

  As Euro Disney’s fortunes were spiraling downward, Eisner continued to brood about his relationship with Katzenberg. Late in 1992, he’d called Ovitz. “I’ve got to get rid of him,” Eisner insisted. “I can’t take him any more.” He went into a long recitation of Katzenberg’s faults. Though used to Eisner’s complaints about Katzenberg, Ovitz was surprised, given the extraordinary success of animation.

  “I don’t think you should,” Ovitz said. “Why rock the boat?”

  But Eisner persisted. “You’ve got to find me someone,” he said.

  Ovitz thought the impulse would pass once Eisner vented his feelings, but Eisner called every day for a week. Finally Ovitz gave in. “Okay, I’ve got someone for you: Joe Roth.”

  Roth, then head of the Fox studio, where he’d been recruited by Diller, was leaving to start his own production company, and Ovitz was his agent. In his mid-forties, Roth had rugged good looks, modishly long hair, and was affable and charming, popular with directors and actors. He’d had a mixed record as a producer, but also some big hits, notably Home Alone. Columbia Pictures was also recruiting him for a production deal. Ovitz suggested that Eisner keep Katzenberg and bring Roth in as an independent producer working for Disney. If he decided he had to get rid of Katzenberg, Roth would be available, and in the meantime, Eisner could see if he got along with Roth.

  Eisner immediately called Katzenberg and told him to work out a deal with Roth’s production company, Caravan Pictures. Incredibly, given his conversation with Ovitz, Eisner told Katzenberg that he saw Roth as someone who could fill in for Katzenberg when it was time for Katzenberg to “move up” in the company.