DisneyWar

by James B. Stewart

  Ovitz’s hiring as Disney president was announced on August 14 to widespread acclaim. “Ovitz Pick Ideal Choice for Global Giant,” read the Los Angeles Times headline. “Walt Disney Co. has reached out for the kind of powerful, globally connected executive needed to run the biggest of the new breed of giant entertainment and media complexes,” the article gushed. Only that morning did Irwin Russell tell Ignacio Lozano, the fourth member of Disney’s compensation committee, that Ovitz was being hired as president, and Lozano didn’t recall that any terms were mentioned.

  That same morning, Ovitz and Eisner signed copies of a letter memorializing the terms of his employment: a five-year contract with an annual base salary of $1 million; a discretionary bonus of at least an additional $1.5 million; and options to purchase 5 million Disney shares.

  Ovitz arrived for work at Disney just after Labor Day. He had expected to occupy Frank Wells’s former office next to Eisner on the sixth floor of the Team Disney building, but Sandy Litvack had already moved in. “Why doesn’t Sandy move?” Ovitz asked, but Eisner dismissed the idea. Bollenbach, the CFO, and Larry Murphy, head of strategic planning, also had offices on six. Of the various division heads, only Joe Roth had an office on the same floor with Eisner. The others were on five. Ovitz moved into a small office next to Dennis Hightower, who was running television. Eisner told Ovitz that an office on six was being renovated and he could move in when it was finished. Still, Ovitz’s presence on five was a signal of his diminished status. At one point, Ovitz suggested building a staircase between floors five and six, so that he and the division heads would have easier access to Eisner and the other top executives. Eisner looked at him like he was crazy. It was a waste of money, he said, and besides, he’d deliberately designed the building so as to prevent easy access to his office.

  One of the first things that greeted Ovitz after his arrival was a copy of a newsletter from Roy Disney to all the animators noting that Peter Schneider, who ran feature animation, would report directly to Roy and Eisner, not Ovitz. This, too, came as a shock to Ovitz, another painful reminder of his ever-diminishing status.

  The following Monday, Ovitz attended the first of Eisner’s weekly staff lunches, which Eisner had often told him was the focal point of his management of the company, extolling the freewheeling, spontaneous exchange of ideas and “synergy” that he was so proud of. But Ovitz was struck by how little exchange there was. Most of the lunch was a stream-of-consciousness monologue by Eisner. No one disagreed with anything he said. As the weeks went by, Ovitz came to think of the lunches as a waste of time. He was sometimes late and excused himself to make phone calls, which annoyed Eisner greatly.

  As one of the country’s most successful agents, Ovitz was, by nature and experience, a deal-maker. He had revolutionized the motion picture industry by creating lucrative “packages” for his clients, and often negotiated multifilm production deals, “first-look” or exclusivity arrangements, and office and overhead arrangements on studio lots. Ovitz, of course, was nearly always representing the talent, not the studios. The deals obviously gave his clients far more money than they could hope to earn on a single project. What they yielded the studios was often less tangible: ongoing access to creative talent, as well as the cachet of being identified with star directors, actors, and writers through long-term commitments. Ovitz was aware of the pitfalls of such deals—“a killer application as an agent and a disaster if you ran a studio,” as he later put it. But naturally, Ovitz’s determination to “make things work” immediately manifested itself in a flurry of attempted dealmaking.

  One of the first people Ovitz contacted about doing business with Disney was Brad Grey, chairman and chief executive of Brillstein-Grey, a television production and talent management company with high-profile clients like Brad Pitt and Jennifer Aniston. Grey had been a client of Ovitz at CAA, and he was already in talks with Disney, as well as other studios, about some television production deals. As Ovitz later explained his reasoning, he wanted to arrange a deal for exclusive access to Grey’s projects as well as the talent he managed, and in return, Disney could offer Grey a chance to break out of television and into movies, with a production deal similar to the one that Ovitz had negotiated for Roth when he came to Disney.

  “Mr. Grey is an excellent executive,” Ovitz explained. “He is the kind of person we needed to come into the Walt Disney Company and bring his company. He represented over 150 writers. Since he was a manager and not an agent, it would have been an amazing opportunity because you would have the opportunity to really get a first crack at the management clients without having to pay for it…. My point of view was that ABC was sliding at a geometric rate and having worked in the network business, once a network goes on a downhill road, it can take five years to turn it around and it’s all cyclical. So we were watching NBC dominate and I knew, because I represented Les Moonves [head of CBS], that CBS would really start to pick up because he is very aggressive. And I thought we needed to be aggressive.”

  Ovitz suspected Joe Roth wouldn’t be happy about bringing Brad Grey in as a potential movie producer. But he assumed Roth would go along for the benefit of the TV studio and for the company overall, even if some of the cost had to come out of his studio budget. On that Monday afternoon, still Ovitz’s first day at the company, Roth was back on Martha’s Vineyard, resuming his vacation after talking to Ovitz in Aspen and on the subsequent flight to Los Angeles. He got a call from Jake Bloom, Grey’s lawyer, who told him that Ovitz was offering Grey a deal that gave him the right to produce multiple feature films. “I can’t make that deal,” Roth protested. “I’ve never even developed a script with Brad.”

  “This is what Ovitz wants to do,” Bloom said.

  Roth was incensed, both at the proposed deal and the fact that Ovitz hadn’t cleared it in advance with him. He immediately called Ovitz, who seemed puzzled that Roth was so upset. “We can do a Caravan deal, can’t we?” Ovitz asked, referring to the deal he’d done for Roth.

  Though he nominally reported to Ovitz, Roth immediately called Eisner. “Six hours,” Roth said.

  “What do you mean?”

  “It’s taken exactly six hours for my fears to be realized,” Roth said.

  It didn’t take long for the Grey news to reach Bob Iger at ABC and Dean Valentine, who was running Disney’s TV animation department under Hightower. They, too, were upset that they hadn’t been consulted.

  As the tempest unfurled, Eisner called Tony Schwartz. “For Christ’s sake, here we go,” he said.

  At CAA, Ovitz had been advising a group of telephone companies on a programming venture called Tele-TV; Disney had been working on a competing venture called Americast. “Why don’t we invite the Tele-TV companies to become part of the Americast venture?” Ovitz suggested that same Monday. “That sounds like a terrible idea to me,” Eisner replied. He was concerned about the antitrust implications, especially while Disney was still awaiting approval for the ABC merger. “But why don’t you check with Sandy Litvack?”

  This gave Litvack an opportunity to ridicule the suggestion, but Ovitz reported back to Eisner the next day that “Sandy didn’t take a strong stand one way or the other.” Suspicious, Eisner checked with Litvack. “I was polite,” he told Eisner, “but I was very clear that I did not think it was a good idea.” As he had so many times with Katzenberg, Eisner uncritically accepted Litvack’s version of the conversation, which confirmed his suspicions, already voiced by Sid Bass, that Ovitz couldn’t be trusted to tell the truth. Eisner again wondered if he could get rid of Ovitz.

  Later that day, Eisner told Ovitz, “Between Brad Grey and the Telcos, you’ve just had about the worst two days imaginable. You’ve got to slow down and take a deep breath. You need to learn to walk before you can run. There’s no need to do everything at once, and there’s no reason for us to make deals that create headlines, only to have them come back to haunt us later.”

  “I feel terrible,” Ovitz replied. “I really screwed up.
I’m sorry.”

  Still, Ovitz thought the ideas were good ones on the merits. He just had to master the internal politics.

  Despite these early missteps, the reservations about Ovitz he expressed to Tony Schwartz and Sid Bass and his own thoughts about getting rid of Ovitz, Eisner recommended that the Disney board approve Ovitz’s appointment as president on September 26, 1995. Although Eisner maintained that he had kept all members of the board fully informed about the courtship of Ovitz in various phone calls, it’s clear that only a few—Stanley Gold, Ray Watson, and, of course, Irwin Russell—knew anything in any detail. Ignacio Lozano, a member of the compensation committee, testified that he thought Ovitz’s hiring was a “done deal” even before the board meeting. Neither the board as a whole nor the compensation committee had met to discuss Ovitz after the announcement and prior to the vote. To the extent most board members even knew the terms of Ovitz’s employment, they were reflected in a brief summary of the deal that omitted numerous details. The minutes of the meeting reflect merely that Eisner “reviewed Mr. Ovitz’s professional and educational credentials.”

  Directors later testified that they did discuss Ovitz, albeit briefly. Neither Litvack nor Bollenbach, both board members, said anything about their refusal to report to Ovitz or their reservations about his hiring. No one asked what would happen if Ovitz didn’t work out, or under what circumstances he could be fired, and neither Eisner nor Russell volunteered anything on the subject. No one raised any questions about the fact that Ovitz retained an ongoing economic interest in his former clients at CAA, since he still earned commissions on revenue received under agreements he’d negotiated while at the agency. Though Ovitz never concealed this arrangement from Eisner or anyone else, it posed an obvious potential conflict, since Ovitz had a financial interest in having Disney hire his former clients.

  The board unanimously approved the appointment of Ovitz as Disney’s president. Moreover, it agreed that Irwin Russell should be given a $250,000 payment for his “extraordinary services” in negotiating Ovitz’s contract and persuading him to come to Disney.

  As he had with Frank Wells, Eisner was happy to delegate to Ovitz tasks that he found distasteful. 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. Just as Ovitz had found Joe Roth to replace Katzenberg, Eisner wanted him to line up replacements.

  And Eisner wanted Ovitz to fire Dennis Hightower immediately, just months after naming him the head of the television division. Hightower seemed always to be traveling, to European capitals for days at a time, to Houston for video conferences. Rumors circulated that he was still working for the CIA. But perhaps he was just trying to flee the unpleasant reality that he was completely out of his depth in television, and had no one to guide him. In any event, Eisner had been hearing a stream of complaints. Hightower had become an embarrassment to him, and Eisner did his best to ignore him.

  “You’ve got to fire him,” Eisner told Ovitz.

  “I’m not going to fire him,” Ovitz retorted. “You hired him. You fire him.”

  Eisner looked annoyed. “Then you’ve got to do something for him,” Eisner said.

  During their walk in Aspen, Ovitz had made clear that he expected to at least maintain, if not enhance, the lifestyle he’d acquired while at CAA, which included the usual perquisites of a top-level Hollywood executive—personal assistants, access to a corporate jet, a car and driver when in New York, and a virtually unlimited entertainment budget. The same night the board approved his contract, Ovitz had hosted a party at his house for the prominent contemporary artist Chuck Close. To Ovitz, the party served numerous synergistic purposes, cementing his stature as a prominent art collector with stars like Tom Hanks and directors like Steven Spielberg, who might also want to do business with Disney.

  Such entertaining was a way of life for a high-profile agent, and it was second nature to Ovitz. Indeed, he felt one of the reasons Eisner had so few personal relationships with creative people in Hollywood was that he didn’t do enough of that sort of thing. “Chuck Close was used as a centerpiece for the party because Disney is in the creative business and he is probably one of the four most important living artists in the world today,” Ovitz explained. “So to have a party in his honor, people thought it would be very good for a company that was not known to be particularly talent friendly and to try to mix and match a lot of people that had worked in Disney movies, had worked in Disney animation. I had theme park people there. I had people from the Imagineering group and I mixed everybody up with directors. It was interesting. The Imagineering guys loved talking to Spielberg because he was exclusive to Universal and they sat and picked his brain.”

  The party cost about $90,000, which Ovitz felt was a bargain—less than half what he would have spent had he still been at CAA. He was later criticized for exceeding the $125 per person maximum allowed by Disney, but in fact the limit applied only to noncatered events. Under the terms of Ovitz’s contract (as well as Eisner’s), catered events were reimbursed in full. In any event, Ovitz left expense account details to one of his assistants. Indeed, at one time or another Ovitz had five assistants, including one who oversaw gifts from Ovitz on Disney’s behalf.

  To Ovitz, gift-giving was another integral part of doing business in a creative industry where “talent relations” were paramount. But it was not how Eisner functioned. He sent the same Christmas gift to everyone every year—apples from an orchard near the family’s Vermont farm, or a wheel of aged Vermont cheddar cheese. Years earlier, Ovitz had accompanied Eisner on a shopping trip to buy a special gift for Eisner’s longtime assistant at Paramount, and Eisner had selected a letter opener. As Eisner said in a note to Tony Schwartz, “I knew from the beginning that I had to treat company money as though it were my own. Maybe it is because I came from wealth or my father drummed it into my head, but I had it. I have noticed through the years that most do not. They treat the company like they would the government. It is big and it doesn’t matter. Michael [Ovitz] was that way.”

  Eisner asked both Litvack and Irwin Russell to closely monitor Ovitz’s expenses, looking for infractions of company policy—beginning with the Chuck Close party. He sent Russell a handwritten note, saying “Michael is obviously not reporting gifts,” and “He told me some of his stock pickers were buying Disney,” suggesting that Ovitz might be inappropriately discussing Disney with brokers. (Ovitz later denied any wrongdoing.) It was almost as if Eisner wanted to find infractions. Litvack kept up a steady drumbeat of ethical and other concerns, which fueled Eisner’s suspicions that Ovitz was heedless of such issues, and spent Disney’s money like it was CAA’s.

  Eisner addressed some of these concerns obliquely in an October 10 letter he wrote Ovitz while flying cross-country to look at Georgetown University (his son Breck’s alma mater) and other colleges with his son Anders. He began by complimenting Ovitz on his work and saying he was “particularly delighted with a personal relationship that will grow and flourish between us.” At the same time, the letter was a little like his Paramount manifesto, meant as a reminder to Ovitz that he was working at a public company. “We are the hired managers of this great institution, but subject to and responsible to all the owners,” he wrote. “We must remember that, not because either of us think otherwise, but because that will keep us on course, human, humble, vulnerable, sharp, responsible and ethical…. We must lead by ethical standards that the whole company sees and buys into…. Frank Wells and Barry Diller taught me to act like ‘Caesar’s wife.’ That is good practical advice for all executives, but especially public company executives and doubly appropriate for executives in the public eye.”

  In addition to the sermon on ethics, he warned Ovitz about his dealmaking. “The ‘deal’ is not the essence of Disney…. Operations are the thing. The deal is a means to an end, to get television series made, movies made, theme parks built, consumer licen
ses awarded, talent connected. But the deal cannot take the lead…. I feel about acquisitions exactly as I feel about everything else. We don’t need them. We don’t need the overly expensive movie or television show. We do not need the actor who has priced himself out of the market. We do not need the acquisition that, even if we feel it fits strategically, is economically ridiculous. I guess what this letter states is all so obvious, but it did take me many years to be able to even state the obvious. What better time to put the thoughts in writing as we begin this new chapter in our lives? Let’s find some time to discuss the future. Michael.”

  Eisner later explained the letter by remarking that Ovitz was “running like crazy, trying to do everything, working, you know, 17 hours a day. I was excited about how interested and committed he was but I wasn’t getting his attention completely on some of the things that I thought were important. And therefore I thought by writing a letter that basically complimented him, and told him that I was excited about his being in the company but that these should be things that he should be looking at.”

  Eisner maintained that Ovitz never replied to the letter or even acknowledged receiving it, though Ovitz later testified that they discussed it on numerous occasions. He was nonetheless oblivious to the possibility that the letter was in any way a criticism. He said he found it “incredibly helpful and very supportive of me. This is the kind of instruction that I had asked him for on that August walk and previously, and I thought he was being wonderfully responsive.” At the same time, Ovitz didn’t agree with parts of the memo, especially Eisner’s professed opposition to acquisitions (which was in any event hard to reconcile with his multi-billion-dollar acquisition of ABC). “We had some spirited discussions about publishing and recorded music,” Ovitz recalled, two areas where Ovitz was supposedly in charge and where he felt it was essential to grow through acquisitions.