Disney WarDisney War

How One Man Toppled the How One Man Toppled the EmpireEmpire

The Success of Disney After WaltThe Success of Disney After Walt

The 1970’s and early 1980’s were marked The 1970’s and early 1980’s were marked by a difficult transition.by a difficult transition.– Walt dies in 1966Walt dies in 1966– Roy dies in 1971Roy dies in 1971

Animated Division stumblesAnimated Division stumbles– New picture every four yearsNew picture every four years

Winnie the Pooh series Winnie the Pooh series The AristocatsThe Aristocats

Live Action Pictures mediocre; 3 per year; Live Action Pictures mediocre; 3 per year; minimal marketingminimal marketing– Apple Dumpling GangApple Dumpling Gang– TronTron– Escape from Witch MountainEscape from Witch Mountain

Production Costs 4x other studiosProduction Costs 4x other studios

Disney Management after WaltDisney Management after Walt

Roy Disney – largest individual Roy Disney – largest individual shareholder at 3%shareholder at 3%

Walt’s family combined had 11%Walt’s family combined had 11% Ron Miller appointed to head Disney, Ron Miller appointed to head Disney,

Roy resignsRoy resigns By 1984 shares had plunged from By 1984 shares had plunged from

$123 to $50$123 to $50 EPCOT costs soared to $1.2 billionEPCOT costs soared to $1.2 billion Miller starts Touchstone to break Miller starts Touchstone to break

moldmold

Disney meets EisnerDisney meets Eisner

Roy Disney meets Eisner through the Roy Disney meets Eisner through the Board of Cal ArtsBoard of Cal Arts

Disney had resigned from the Disney in Disney had resigned from the Disney in 1977 over concerns regarding company 1977 over concerns regarding company direction and mistakes (and rehashes)direction and mistakes (and rehashes)

Roy had always been pushed aside for Roy had always been pushed aside for Walt’s son-in-law, Ron MillerWalt’s son-in-law, Ron Miller

Roy had a classic Disney temperamentRoy had a classic Disney temperament– Determination, persistence, and strong, Determination, persistence, and strong,

stubborn willstubborn will

Era of Hostile TakeoversEra of Hostile Takeovers

By 1984 after failing to hire Michael By 1984 after failing to hire Michael Eisner to head up Touchstone and be Eisner to head up Touchstone and be Disney COO, Saul Steinberg Disney COO, Saul Steinberg announced he owned 6% of Disney announced he owned 6% of Disney and planned to buy 25%and planned to buy 25%

Board buys off Steinberg, shares Board buys off Steinberg, shares plummetplummet

Miller is out, Eisner and Wells are in Miller is out, Eisner and Wells are in

Coup in the BoardroomCoup in the Boardroom

When 1984 Roy Disney (Walt’s When 1984 Roy Disney (Walt’s nephew) orchestrated a coup to bring nephew) orchestrated a coup to bring on Michael Eisner and Frank Wellson Michael Eisner and Frank Wells– Eisner was former president of ParamountEisner was former president of Paramount– Wells a former president of Warner Wells a former president of Warner

Brothers and an attorneyBrothers and an attorney Eisner knew little of Walt or Disney, Eisner knew little of Walt or Disney,

was a New Yorker, prep school was a New Yorker, prep school backgrounds, affluent upbringingbackgrounds, affluent upbringing– Never seen Snow WhiteNever seen Snow White

State of the UnionState of the Union

Employees never left (or were fired!)Employees never left (or were fired!) Executives rarely worked past noonExecutives rarely worked past noon

– Then played cards, had massagesThen played cards, had massages All employees left early on Tuesday All employees left early on Tuesday

to play softballto play softball All producers were in-houseAll producers were in-house Overhead was 2x other rival studiosOverhead was 2x other rival studios

Learning the Walt ApproachLearning the Walt Approach

Walt was raised in the MidwestWalt was raised in the Midwest He idealized rural life, middle He idealized rural life, middle

America, church socials, sleigh America, church socials, sleigh ridesrides– Repeating theme in films and parksRepeating theme in films and parks

Represented resilience, Represented resilience, showmanship and creative ideasshowmanship and creative ideas

Eisner’s ResumeEisner’s Resume Majors in literatureMajors in literature Head of Programming at ABCHead of Programming at ABC

– Responsible for Happy Days, Laverne and Responsible for Happy Days, Laverne and Shirley, Welcome Back KotterShirley, Welcome Back Kotter

Barry Diller then hires him to be Barry Diller then hires him to be President of ParamountPresident of Paramount– Beverly Hills CopBeverly Hills Cop

Meets Jeffrey Katzenberg who is Meets Jeffrey Katzenberg who is Diller’s assistantDiller’s assistant

Katzenberg became a great asset to Katzenberg became a great asset to Eisner and DillerEisner and Diller

Eisner’s PhilosophyEisner’s Philosophy

Stingy with praise and Stingy with praise and compensationcompensation

Diller would lavish praise, Diller would lavish praise, propose bonuses (i.e., Robert propose bonuses (i.e., Robert Redford and Ordinary People)Redford and Ordinary People)

If a film ran over, would not If a film ran over, would not cough up additional funding i.e., cough up additional funding i.e., Terms of EndearmentTerms of Endearment

Eisner at ParamountEisner at Paramount Turns down Private BenjaminTurns down Private Benjamin Obsessive at keeping costs modestObsessive at keeping costs modest Generates ideas internally rather Generates ideas internally rather

than through high priced brokers and than through high priced brokers and agentsagents

Signed Spielberg, Lucas and Ford for Signed Spielberg, Lucas and Ford for Indiana JonesIndiana Jones

Philosophy, “we have no obligation to Philosophy, “we have no obligation to make art, no obligation to make make art, no obligation to make history or to make a significant history or to make a significant statement. Our obligation is to make statement. Our obligation is to make money.”money.”

Era of Wells and EisnerEra of Wells and Eisner Hires include Jeffrey KatzenbergHires include Jeffrey Katzenberg

– Katzenberg wants stock options, instead get 2% Katzenberg wants stock options, instead get 2% of any product put into production by him of any product put into production by him (including theme park rides, merchandise, live (including theme park rides, merchandise, live action and animation) and if retired or left would action and animation) and if retired or left would get a lump sum for future earningsget a lump sum for future earnings

Roy given the animation divisionRoy given the animation division Wells is approached by Stan Kinsey with a Wells is approached by Stan Kinsey with a

new computer technology developed at new computer technology developed at Industrial Light and Magic, Pixar Advanced Industrial Light and Magic, Pixar Advanced Computer GraphicsComputer Graphics– Could cut animation costs by 30% and recreate Could cut animation costs by 30% and recreate

same qualitysame quality

Eisner and WellsEisner and Wells Within 30 days of tenure, stocks Within 30 days of tenure, stocks

surgesurge Theme parks only area making money Theme parks only area making money

in 1984in 1984 Began to envision hotels as Began to envision hotels as

entertainment as well as lodgingentertainment as well as lodging Business philosophy begins to Business philosophy begins to

overtake creativityovertake creativity– Raise ticket prices to raise revenuesRaise ticket prices to raise revenues

Over 1,000 people lose their jobsOver 1,000 people lose their jobs Release Down and Out in Beverly HillsRelease Down and Out in Beverly Hills

Animation Post WaltAnimation Post Walt

Split into two segmentsSplit into two segments– The older animators replacing The older animators replacing

Walt’s 9 old menWalt’s 9 old men– Newer hires from CalArts such as Newer hires from CalArts such as

Tim Burton and John LasseterTim Burton and John Lasseter First post Eisner release was the First post Eisner release was the

Black CauldronBlack Cauldron– Ten years in the making and a train Ten years in the making and a train

wreckwreck

AnimationAnimation

Gong ShowsGong Shows– 5 new ideas are presented from 5 new ideas are presented from

each animatoreach animator– One immediately gonged catches One immediately gonged catches

Roy’s interest ... The Little MermaidRoy’s interest ... The Little Mermaid– A hold over from Ron Miller … Who A hold over from Ron Miller … Who

Censored Roger Rabbit? Also Censored Roger Rabbit? Also interestinginteresting

The First Signs of TroubleThe First Signs of Trouble

Euro DisneyEuro Disney Frank Wells killed in a helicopter Frank Wells killed in a helicopter

accidentaccident Katzenberg vetoes purchasing Katzenberg vetoes purchasing

Lucas’s stake in Pixar (originally Lucas’s stake in Pixar (originally available for $12 million)available for $12 million)– Steve Jobs sees the potential and Steve Jobs sees the potential and

purchases the stakepurchases the stake

EuroDisney – How does so much EuroDisney – How does so much go so wrong?go so wrong?

Original budget $1.6 billion climbs to Original budget $1.6 billion climbs to $4 billion$4 billion

Used WDW attendance and profits to Used WDW attendance and profits to project project

Miscalculated French – willingness to Miscalculated French – willingness to attend in cold weather, interest in attend in cold weather, interest in “American” fairy tales, cooperation “American” fairy tales, cooperation as employeesas employees

Misjudged European vacation Misjudged European vacation patterns andpatterns and expendituresexpenditures

EuroDisneyEuroDisney Attendance on opening day a mere Attendance on opening day a mere

6,000 (projected at 10,000)6,000 (projected at 10,000) Occupancy at hotels – 60% far short Occupancy at hotels – 60% far short

of 85% projections (no one wanted to of 85% projections (no one wanted to stay so far from Paris)stay so far from Paris)

Opens April 22, 1992 with farmers Opens April 22, 1992 with farmers blocking roads in to park and hurled blocking roads in to park and hurled onions and tomatoes at executives onions and tomatoes at executives and guests.and guests.

French President declares it “not his French President declares it “not his cup of tea” cup of tea”

Critical ResponseCritical Response

““The Old World s presented with The Old World s presented with all the confident big ticket all the confident big ticket flimflam of painstaking fakery flimflam of painstaking fakery that this bizarre campaign of that this bizarre campaign of reverse-engineered cultural reverse-engineered cultural imperialism represents. I like to imperialism represents. I like to think that by the turn of the think that by the turn of the century, Euro Disney will have century, Euro Disney will have become a deserted city, similar become a deserted city, similar to Angkor Wat …”to Angkor Wat …”

EuroDisneyEuroDisney Eisner was unwilling to listen to Eisner was unwilling to listen to

concerns and planned a second park concerns and planned a second park on site (Disney MGM)on site (Disney MGM)

Europeans have far more vacation Europeans have far more vacation time than Americans and spend far time than Americans and spend far less per dayless per day– Stay affordably, do not buy many Stay affordably, do not buy many

souvenirs, used travel agents (costing souvenirs, used travel agents (costing millions in commissions)millions in commissions)

Loses several hundred million/yearly Loses several hundred million/yearly initiallyinitially

Initially forced to restructure debt Initially forced to restructure debt

Management StrifeManagement Strife Eisner fails to name Katzenberg Eisner fails to name Katzenberg

President (as promised) when Wells President (as promised) when Wells diesdies

Eisner names himself President and Eisner names himself President and CEOCEO

Eisner suffer heart attack and by passEisner suffer heart attack and by pass Drives Katzenberg from Disney and Drives Katzenberg from Disney and

refuses to honor bonus of 2% of refuses to honor bonus of 2% of profits from all projects he develops profits from all projects he develops – Beauty and the Beast, Aladdin, Little Beauty and the Beast, Aladdin, Little

Mermaid, Lion KingMermaid, Lion King

Management StrifeManagement Strife Loses Katzenberg who heads to Dreamworks to Loses Katzenberg who heads to Dreamworks to

start studio and head new animation divisionstart studio and head new animation division Hires Michael Ovitz as President (Head of CAA – Hires Michael Ovitz as President (Head of CAA –

agent) (Aug 1995)agent) (Aug 1995)– Immediately deep sixes all proposed projectsImmediately deep sixes all proposed projects

Pushes for acquisition of a networkPushes for acquisition of a network– Considers all three and settles on ABCConsiders all three and settles on ABC– ABC stock at $105 (i.e., $20 billion) $65 cash; ABC stock at $105 (i.e., $20 billion) $65 cash;

$55 stock$55 stock Implemented an executive Implemented an executive

“counterprogramming”“counterprogramming”– Named head of European stores/merchandise Named head of European stores/merchandise

to head of televisionto head of television– Moved CFO to head of Disney StoresMoved CFO to head of Disney Stores– Places Joe Roth in Katzenberg’s positionPlaces Joe Roth in Katzenberg’s position

Mistakes MountMistakes Mount

Purchase of ABC nearly doubles size Purchase of ABC nearly doubles size of Disneyof Disney– Adds ABC, ESPN, E!, A&E and LifetimeAdds ABC, ESPN, E!, A&E and Lifetime

Robert Iger in charge of ABC at the Robert Iger in charge of ABC at the timetime

Ovitz assigned to save primary Ovitz assigned to save primary animators from leaving to animators from leaving to DreamworksDreamworks

Ovitz negotiates settlement with Ovitz negotiates settlement with Katzenberg for $90M – Eisner refusesKatzenberg for $90M – Eisner refuses

When it Rains it PoursWhen it Rains it Pours

Katzenberg files suit arguing he could be Katzenberg files suit arguing he could be owed as much as $12B owed as much as $12B

Jamie Tarses hired to head ABC Jamie Tarses hired to head ABC programming. PR disasterprogramming. PR disaster

Programming leaves ABC in third placeProgramming leaves ABC in third place Eisner forces Ovitz out at tremendous cost Eisner forces Ovitz out at tremendous cost

to Disney to Disney

Good Results during Tough Good Results during Tough TimesTimes

Reworked Toy Story (by Reworked Toy Story (by Katzenberg) opens strong and Katzenberg) opens strong and earns $200M (domestic) on $30M earns $200M (domestic) on $30M production costproduction cost– $358M worldwide$358M worldwide

Disney extends deal with Pixar Disney extends deal with Pixar to 7 pictures: 50/50 split of to 7 pictures: 50/50 split of revenues, Disney controls rights revenues, Disney controls rights to sequels and merchandiseto sequels and merchandise