DisneyWar

by James B. Stewart

  In March, staff members were notified that the project had been terminated before the outside firm completed its work. When they demanded an explanation, they were told that Staggs had presented the plan to Peter Murphy, who had vetoed it, declaring that strategic planning’s rosy projections were inconsistent with the valuation. Peter Murphy stressed that valuation is an “art” and that the low valuation produced by the Family executives was flatly wrong. He insisted that the channel is worth the $5.2 million Disney paid, noting that the channel’s ratings for December 2004 were the highest ever.

  People working on the project were nonetheless dumbfounded. One staff member declared that “this is outrageous. Someone should go to the board.” But cooler heads prevailed. “They’ll just say our valuations are wrong. Then you’ll be screwed,” another person warned. Nothing more was said about it.*

  That March, Eisner and I had our dinner at Nobu in Manhattan, where we discussed my writing this book and touched briefly on Eisner’s life and career. At the time I knew little about the tempest that was brewing in the Disney boardroom or the events leading up to it. Eisner didn’t volunteer anything about it, though surely it was on his mind. Just weeks later, in Denver, Disney’s board was scheduled to hold its first annual meeting since Gold and Roy opened their campaign for a management review.

  Both were planning to attend the meeting and confront Eisner with more tough questions. But the night before the meeting, Denver was blanketed by a snowstorm, and only a handful of shareholders arrived for the meeting. Neither Gold nor Roy could make it, nor could most of the board members.

  Instead, Disney directors met by phone. Items on the agenda included Disney’s relationship to Miramax founders Harvey and Bob Weinstein and the ongoing negotiations with Pixar. No action on Miramax was proposed, but directors reviewed a net present value analysis of Miramax prepared by strategic planning that suggested Miramax wasn’t making any money. Groundwork was obviously being laid to get rid of the Weinsteins, or at least sharply reduce their compensation.

  Pixar continued to be a thorn in Eisner’s side, and was now demanding a new deal in which it would receive as much as 92 percent of the profits, and Disney a small 8 to 12 percent as a distribution fee, with numerous other issues still unresolved, including the fate of the two films Pixar still owed under the current arrangement. Eisner warned that the terms being proposed were so onerous that it might not make sense for Disney to continue the relationship, especially if it had to give up profits on Pixar’s next two films. Eisner also posited a theory that all creative streaks in the movie business come to an end eventually, as Disney’s had in animation after Walt’s death, before reviving under Eisner, Katzenberg, and Roy. Pixar’s string of hits was defying the odds, and Pixar was headed for a fall, he predicted, as he had warned in the email about “Finding Nemo.” Maybe then Jobs would be more reasonable. Eisner told the board that he was “hopeful” a new deal could be worked out.

  Even Gold and Roy had to concede that the new terms being proposed by Pixar were onerous, but Gold argued that Eisner was to blame for letting such a successful partnership reach this juncture. While he hadn’t talked to Jobs himself, he knew from Roy that it was Jobs’s distrust and personal antipathy toward Eisner that were the root of the problem. “Forget the terms of what was or could be,” Gold told Eisner and the board. “This is bad management. It’s abysmal that we’re fighting with a creative content partner, and it’s abysmal that you’ve allowed this relationship to deteriorate.”

  “It’s impossible to negotiate with Steve Jobs. Jobs is a Shiite Muslim,” Eisner blurted out, at which point Gold started to raise his voice. Mitchell had to step in to quell the dissension.

  In the wake of this exchange, Eisner began testing a radical new idea with other Disney executives and confidants: force Roy off the board. At least some who heard the idea were dumbfounded. Roy was the largest individual shareholder, the vice chairman of the company that bore his name. He was still the face of Disney to much of the public, a direct link to Walt, and immensely valuable at the many premieres, openings of new attractions, and employee recognition dinners where Roy represented the soul of Disney. He was still chairman of feature animation, and the animators revered him. In any event, how could Eisner get rid of him?

  Eisner reminded them that Disney had a policy that called for the mandatory retirement of directors at the age of seventy-two, with the exception of former chief executives, who could stay until seventy-five. Roy would be seventy-three by the next board meeting. “Of course, we’ve ignored that rule,” Eisner mused in one encounter with Disney executives where he floated the prospect. Indeed, Disney was legendary for not enforcing any mandatory retirement policy. The legendary “old men” of animation had stayed as long as they liked. John Hench, an Imagineer who helped Walt design Disneyland, was still working until his death at age ninety-five. Lucille Martin, Eisner’s secretary who had worked for Walt, was careful never to reveal her age, but must have been in her eighties. Tom Murphy and Ray Watson were both over seventy-two.

  Some of those who heard the idea discussed it among themselves, and then discarded it as too far-fetched to ever happen. Eisner had a tendency to test controversial ideas by dropping them into conversations, and usually they just disappeared.

  On March 23, Miramax dominated the 2003 Academy Awards, with three of the nominees for Best Picture: Chicago, Gangs of New York, and The Hours. The musical Chicago won, along with Best Supporting Actress and four other awards, and was a huge box-office success, earning $306 million worldwide and rescuing Miramax’s fiscal year. Another Oscar winner was the provocative documentary filmmaker Michael Moore, for Bowling for Columbine.

  The glittering success of Chicago masked a multitude of problems between the Weinsteins and Eisner and Disney, a relationship that, at this juncture, both sides agree was dysfunctional. The Weinsteins were fuming when Disney issued a press release announcing that Disney had garnered forty-four Academy Award nominations, failing to mention that forty of those were for Miramax films. Chafing at the lack of recognition, Bob Weinstein asked Eisner if Disney might consider taking out an ad in the trades, congratulating Miramax and the Weinsteins. Eisner rejected the idea, saying that wasn’t the Disney way. “We don’t want any of our executives to stand out,” he said.

  “Except one,” Weinstein thought, though he didn’t say so. Paradoxical as it was, considering that Disney owned Miramax, the Weinsteins were convinced that Eisner resented their success and visibility.

  Despite the huge success of Miramax films like Pulp Fiction, Shakespeare in Love, and Good Will Hunting, the Weinsteins, especially Harvey, were a constant irritant to Disney executives. After Roth’s departure, Bob Weinstein refused to deal with the genial Dick Cook, so the brothers reported to Peter Murphy, the head of strategic planning, whom they held in thinly disguised contempt. But their real problem was Eisner and his insistence that they stick to their low-budget, independent agenda for Miramax just when Harvey Weinstein was chafing to make glamorous, big-budget, big-star event films that he felt he’d earned the right to produce.

  This ongoing contest of wills had only intensified after Eisner rejected Lord of the Rings. Costs for Gangs of New York, the Martin Scorsese–directed epic starring Leonardo DiCaprio, which lost out for Best Picture to Chicago, soared to over $100 million and was a constant struggle between Weinstein and Disney executives. To keep costs down, Miramax sold off foreign rights for $65 million.

  But the bitterest dispute was over Cold Mountain, based on the best-selling novel by Charles Frazier. This was the latest project from acclaimed director Anthony Minghella, director of The English Patient and The Talented Mr. Ripley, both for Miramax. With stars Jude Law, Nicole Kidman, and Renée Zellweger attached to the project, and a script calling for elaborate re-creations of Civil War battles, projected costs were in the $80–$100 million range. Eisner was opposed to such an expensive period drama, but Weinstein pried permission from Disney to go ahead as
long as he found a partner, which he did at MGM.

  Just as filming was getting under way in Romania (rather than the American South, to hold costs down), and with the budget at over $80 million, MGM dropped out, stranding Miramax with the bill. Disney informed Weinstein that it wouldn’t accept the full cost and told him he couldn’t proceed without a partner. No other studio was interested. Faced with the choice of obeying Disney’s orders—it had a contractual right to kill the project—and stranding Minghella and the cast and crew in Romania, or defying Disney, Weinstein went ahead with the movie. He promised Disney he’d find a partner, and in any event, even if he didn’t, he felt he could sell foreign rights for half the cost. In any event, the gambit worked, since Disney kept paying the bills.

  Just weeks before the Academy Awards ceremony, buoyed by Miramax’s forty nominations, Weinstein laid down the gauntlet by bringing in lawyer Bert Fields to represent him in contract negotiations, knowing that hiring Eisner’s nemesis in the Katzenberg dispute would infuriate him. Disney had the right to opt out of the Weinsteins’ contract in September 2005, and using that provision as leverage, was trying to renegotiate their deal, which Disney deemed overly generous. For good measure, the Weinsteins also hired famed Manhattan litigator David Boies.

  Then, just six weeks after Chicago’s victory, and as Disney was lobbying the Bush administration in Washington, D.C., over sensitive cable industry licensing fee issues, the Drudge Report carried an item on May 11 that “The Walt Disney Company is set to spend millions financing a new explosive Bush-bashing documentary from Michael Moore—a documentary which claims [Osama] bin Laden was greatly enriched by the Bush family!” Moore himself was quoted as saying that the film would demonstrate how “the senior Bush kept his ties with the bin Laden family up until two months after Sept. 11.”

  Eisner and other Disney executives were beside themselves. Kundun had been bad enough, but this promised to be offensive to the White House. It was no secret that Harvey Weinstein was an ardent Democrat and liberal activist and fund-raiser, but now his activism was spilling over into Disney’s business. Eisner promptly called Weinstein, who confirmed the Drudge Report. “Harvey, I really don’t want you to make this movie,” Eisner said. Disney followed up with two letters stating explicitly that Miramax could not release the film.

  Weinstein was in a difficult position. Contractually, he felt he had the right to make the film. The budget of $6 million was well below the level at which he had to seek Disney’s permission. Though Disney maintained it had the right to cancel Miramax projects that were politically partisan, Weinstein conceded only that Disney had the right to approve films designated NC-17 because of sexual and violent content. Still, Disney owned Miramax, and the Weinsteins were in contract negotiations. Rather than defy Eisner outright, Weinstein offered a compromise. “Let us make it,” he said. “If you don’t like it I’ll buy it back.”

  Disney responded by having Peter Murphy send Weinstein a letter. “We are pleased that Miramax has on its own concluded that it will reduce its involvement in this film. As you described to me, your plan is to provide only interim bridge financing for the project. Michael Moore and Wild Bunch will sell off all distribution rights at Cannes or through other means in order to raise permanent, take-out financing. Miramax would then have no interest in the film. In the meantime, you have told us that Miramax will publicly state that it does not control distribution of the film.”

  Though divested of his leadership positions on the board, Gold kept up the letter-writing campaign that he’d begun with his first missive to Ray Watson and then pursued in the month leading up to the September board meeting. He zeroed in particularly on the continuing failure to turn around the ABC primetime schedule. After the promising start in the fall, culminating in its surprisingly strong November sweeps finish, ABC’s worst fears had been realized when “American Idol” proved a ratings juggernaut for Fox, demolishing ABC’s Tuesday schedule. In the February sweeps, ABC again fell to fourth place. It was especially painful that “CSI,” the CBS hit rejected by Disney, was the nation’s number one show, and a spin-off, “CSI: Miami,” was also in the top ten.

  On April 3, Gold wrote to George Mitchell, copying Eisner and all the directors:

  “I am enclosing a recent article from USA Today [describing] the failure of our television season this year. We received approximately 50 emails last fall touting our progress and success in primetime television. When that success turned hollow, i.e., this year’s rating average for primetime will be less than last year’s, which was a disaster, we get no information, no explanation, no ownership of the problem, we just switch to a new subject. There are a number of people on this board who said to me that if Michael and Bob [Iger] can’t turn the 2003 primetime season around, they would have to go. The jury is in on this one. We are worse off than we were last year and this board refuses to discuss this issue.

  “I fear that our inability to discuss difficult problems and make hard decisions is an abdication of our fiduciary duty. The shareholders of the Disney Company have lost $50 billion in the last three years. Our board’s unwillingness to deal with the substantial issues of this business borders on the incompetent….”

  It fell to Iger to compose a reply to Gold’s letter, in which he maintained that ABC prime time was 8 percent ahead of the previous year in the “critically important” eighteen to forty-nine age group, and that, excluding the Super Bowl, ABC was “even with last year” in an “extremely close race” with just .6 of a ratings point separating the rival networks. “We had a great first half,” he wrote, while conceding that “the second half has been disappointing. But in no fair sense can the season be characterized as a failure…. The new comedies have been successful,” and “We are clearly in the midst of a turnaround.” Iger lambasted Gold for singling out the midseason replacement “Lost at Home,” claiming that he had used “one review to discredit the show,” which is “grossly misleading.” Noting that the show had only aired three times, he insisted that “the numbers are fine…. It is not a hit but it is not a failure. It has real potential and we own it.”

  The April board “retreat” was held at Disney World, where Epcot’s new attraction, “Mission: SPACE,” was nearing completion. Walt himself had long dreamed of a ride that would simulate space travel. Costing $150 million, “Mission: SPACE” used a huge centrifuge much like those used by NASA astronauts to simulate the gravitational force of liftoff and then the weightlessness of space travel. Imagineers had grafted the special effects onto a narrative of a trip to Mars, including travel through a meteor belt and a rocky landing on the red planet, all seen through cockpit screens. The ride would have been deployed much sooner had Disney found a corporate sponsor to help absorb the development costs, which Eisner had insisted on before agreeing to proceed. Compaq Computer had finally come aboard, only to have the deal put in limbo when it was acquired by Hewlett-Packard. But now HP had picked up the sponsorship, and the ride was scheduled to open in October. Board members sampled the ride, then had dinner in the courtyard entrance to the swooping pavilion that houses it. (They had to dine after the ride, since motion sickness was an unfortunate side effect for some. Some directors refused to go on the ride.)

  Gold did succeed in getting the plight of ABC on the agenda for the two-day retreat that began on April 28. After Iger’s presentation, in which he reiterated many of the points in his letter, he left the room. Even Mitchell had to concede that Iger hadn’t turned ABC around, and as a result, he and other board members didn’t see how Iger could be considered Eisner’s successor. Eisner again expressed reservations about Iger, saying he had “doubts” about his creative abilities and “If I had to choose, it would not be Bob.” Then Eisner also left the room, and the board continued the discussion, agreeing that they should look more closely within the company for a possible successor to Eisner and consider outside candidates as well. When Eisner returned, Mitchell said that it was the sense of the board members that if Ig
er didn’t turn around ABC within a year, Eisner should replace him.

  The attacks from Gold and the discussion of succession—a topic he invariably found unnerving—left Eisner irritated and anxious. Gold had stopped short of asking outright for his resignation. Eisner knew Gold didn’t have the votes on the board, so he decided to call his bluff. He said he was tired of his criticism. “So what do you want, Stanley?” he asked in front of the board members.

  Gold looked uncomfortable, and said nothing.

  “Do you want me out? Is that what you want? Tell me.” Eisner persisted.

  “No, I don’t want you out,” Gold conceded. “You’re the only person who can run the company. But you don’t listen to me.”

  “I listen to you,” Eisner countered. “I just don’t always do what you want. That’s your problem.”*

  Even as ABC continued to struggle with its “back to basics” strategy, Eisner could sense that his return to the tried-and-true, low-budget “singles and doubles” strategy at the movie studio was paying off with hits like Bringing Down the House. And opening the first week in May 2003 was The Lizzie McGuire Movie, a feature film based on the Disney channel’s “Lizzie McGuire Show,” starring Hilary Duff.

  If anyone embodied Disney’s approach to “synergy” in the entertainment business, it was Duff. Set in a middle school, where the thirteen-year-old Lizzie struggles with all the anxieties and tribulations of adolescent girlhood, “Lizzie McGuire” had become a sensation among preteen girls, simultaneously boosting the ratings of the Disney channel and creating an all-new market: so-called tween girls, falling somewhere between childhood and adolescence. Too narrow for conventional network programming, it was an ideal niche for cable. “Lizzie McGuire” clothing and paraphernalia were also a big hit for Disney’s consumer products division.