The Keys to the Kingdom (24 page)

The meeting ended inconclusively, but Roy's team was losing the battle. They floated the notion of putting Eisner, Wells, and Stanfill into an “office
of the president.” It was a short-lived idea. With about a week left before the board was to vote, Gold decided that Eisner and Wells needed to go on the attack. They had to campaign with board members and convince them that they were the best choice for the company. First, Gold had to get Eisner—who was by now out of the Paramount job and being courted heavily elsewhere—to throw himself into the effort after he had already been left dangling once.

On a Sunday night, Gold invited Wells and Eisner to his house. It was getting to be zero hour—exactly what were Eisner and Wells going after? The issue of titles had to be resolved. Eisner insisted on being chairman and chief executive. Wells—with his hope of claiming the chief-executive title fading—suggested that he and Eisner share the top job. Eisner declined. “I don't think you can have coheads,” he said. “The buck has to stop somewhere. You have to have one person who is the head and I really don't want to go into this, Frank, unless I'm the head.”

Finally, and with more than a passing pang, Wells gave in. “Okay, you're right,” he said. “I'll go in as number two.” He would be president. But he would report to the board, not to Eisner. It may have been that Wells suffered a failure of nerve—or perhaps he simply knew his own limitations. As much as he might want the top spot at Disney, he had tried it at Warner and the results weren't good. If there was one thing he didn't want, it was to fail publicly at Disney. He needed Eisner and was willing to let him have the top title if that's what it took to get him.

But this concession still was not enough for Eisner. Now he wanted to talk money. He had brought his lawyer, Irwin Russell, to negotiate for him. Gold interrupted: “Do you want to be chairman and CEO of Walt Disney Productions? It's the best job in the world. Give me a break.”

Eisner agreed to campaign, for a time. “I'll give you one week,” he said.

The two began an extraordinary effort to persuade board members to back them. They enlisted Steven Spielberg and George Lucas to help. These influential filmmakers were impressive, but Eisner knew he had to convince the board that he wasn't a lightweight. “What was most important was they saw that I did not come in a tutu, and that I was a serious person, and I understood a [profit-and-loss statement], and I knew the investment analysts, and I read
Fortune,
” Eisner said obligingly—in an interview given to
Fortune
magazine after the dust had settled.

One key was for Eisner to win the support of Sid Bass, the influential shareholder. So far, Bass was in favor of Wells but doubted Eisner had the
chops to run the whole company. His lieutenant, Richard Rainwater, apparently had been so impressed with Wells that he advised Bass to stick with him. In Rainwater's view, Eisner didn't have the depth to run the company.

When Eisner heard from Wells and Gold that Bass was against him, he phoned Bass—with Wells, Gold, and Jane Eisner present—to try selling himself one last time. “Would you like to know why I should be the chairman?” Eisner asked.

“Yeah, I'd love to know,” Bass replied.

Eisner began to speak and didn't stop for several minutes. “I could not tell you what I said, but I said something like, ‘The company should be run from a creative point of view rather than a financial point of view,'” Eisner said later. “I have no idea where I got the speech. Maybe I'd seen a bunch of movies like
Mr. Smith Goes to Washington,
but I made one of those speeches. And I stopped and I said, ‘So that's why I think I should be chairman,' and there was silence for about three seconds and Sid said, ‘Sounds good to me. Okay.'”

At first, Bass thought Eisner seemed “a little high-handed.” But it was a rare day when Eisner couldn't make some inroads when he tried to persuade and charm. Wells took the phone to express his approval of the arrangement and Bass gave in.

Eisner subsequently cited another factor in Bass's decision. Bass had read Schwartz's
New York
magazine piece and saw a picture of Eisner with his wife and sons. Later, Eisner recalled, Bass told him he had seen that photo and said to himself, “Well, he looks like a family guy…. Maybe he can run a family company.”

Now Gold could tell board members that the Eisner-Wells team had Bass's backing. In fact, Bass warned, if Eisner and Wells didn't win the board's approval, the Bass brothers would start a proxy fight and fire the board. By now, Bass and his allies, including corporate raider Irwin Jacobs, controlled about 40 percent of Disney's stock and the Basses were continuing to increase their stake.

With the board divided even in the face of Bass's threat, Gold concluded that Card Walker—the former Disney chairman whom Gold had thrown off Disney's executive committee—was the swing vote. Gold was persona non grata with him, so Wells would have to lobby him. Wells could promise a concession: Gold would resign from the board in favor of a Walt person—Ron Miller or one of Walt's daughters, Diane or Sharon. As it was, the
Walt side was unrepresented. What Gold proposed would bring the family together in backing the company.

Walker was fishing in Arizona when Wells flew on Roy's jet to meet him. It was a Friday afternoon; the board was to meet the next day. That evening, Wells called Gold to say he had won Walker over. The idea of placing a Walt person on the board had appealed strongly to Walker. He also foresaw continued warfare if the Wells-Eisner team lost. Eisner, who had been dispatched to two other board members, had been less successful. But the Roy team now had the votes it needed. Eisner was so relieved when the offer came through that he nearly wept. The next morning, he appeared at Gold's house at six o'clock to hammer out a contract so that Gold could take a proposal to the board.

On September 22, the board unanimously approved Eisner as chairman and chief executive and Wells as president and chief operating officer. Watson resigned, making room for Wells. And Gold resigned so that Walt's daughter, Sharon Disney Lund, could take a seat on the board. The arrangement now had the Walt seal of approval.

Eisner was given a six-year contract, and though the terms were not immediately disclosed, it was known that his deal was heavy on stock options. Once details became public, Eisner allowed, it would be perceived as “outrageous.” One reason was that Eisner was getting a 50 percent raise over the $500,000 salary that had been paid to his predecessor, Ron Miller (and Miller had only been making that since May 1984, when the board gave him a 33 percent raise). And at the time that Eisner came aboard, the company was asking Disneyland workers to be good corporate “citizens” and help Disney survive by accepting slashed benefits and a 17 percent wage cut over the next three years.

Eisner would make $750,000 a year and receive a $750,000 signing bonus. He was promised an annual bonus tied to improving the company's net income. He would get 2 percent of any growth in net above 9 percent—roughly the company's average return in the previous five years. He also got options on more than two million shares of Disney stock at $14.359 each. The board amended company bylaws to permit Eisner to borrow money to exercise his options. Wells would receive $400,000 a year, a $250,000 signing bonus, an annual bonus equal to 50 percent of Eisner's, and options on 460,000 shares. Both men bet heavily on the Disney stock.

Two days after Eisner and Wells got their jobs, they visited Sid Bass at his black-tower headquarters in Fort Worth. The future of the Disney com
pany still hung in the balance. Irwin Jacobs, the raider who had gobbled up a block of Disney shares, was also present and still thought he might ultimately take control of Disney and sell it off in pieces. Bass was uncommitted for the long term and warned Eisner and Wells that the company's ownership could change. “We intend to make it a great company no matter who owns it,” Wells said. Eisner talked about the potential for growth through syndicated television, video, and cable. It was a vintage Eisner presentation—casual, with nothing but handwritten notes and a green felt-tipped marker.

Bass had some other items on the agenda, focusing on areas that were not Eisner and Wells's strong suit. He believed that the price for admission at the theme parks was a joke. And Disney's hotel business was a mess. Bass's chief financial officer, Al Checchi, had paid a visit to Orlando and concluded that Disney was sitting on its hands while the community around it was booming. Disney hadn't built a new hotel in more than ten years while others were growing them like weeds outside the Disney gates. And the prices for rooms in Disney's existing hotels were too low. Eisner and Wells agreed that future visitors would have to shell out more money to enjoy the Disney experience.

When the meeting broke for lunch, Sid Bass told a surprised Jacobs that he might not sell after all. Then he huddled briefly with his own men, including Rainwater and Checchi. When the group reconvened, Bass gave the word. “We're not selling,” he said. “We're with you for the next five years.” Bass quickly cut out Jacobs and continued to acquire Disney stock. In short order, the Bass stake was up past 24 percent.

Bass was a born-again owner. And with nearly a quarter of the company in his pocket, he could give Eisner and Wells all the power they needed as they attempted to breathe life into the comatose giant. In return, they would make the Disney purchase the single most lucrative deal of his life.

A
SECRETARY WHO
started working at Disney in the mid-eighties remembers attending an orientation class for new employees. Seated nearby was a craggy gentleman who introduced himself simply as “Frank.” “Poor old guy,” she thought. Starting a new job at his age seemed rough. Later, she found out that the poor old guy was the new president and chief operating officer of the company.

In many ways, the Disney headquarters in Burbank could have been a rather dull attraction at one of its theme parks: the land that time forgot. The company's forty-four-acre plot had at its center a cluster of low, unpretentious buildings surrounded by gardens and hedges. Mickey Mouse peered from mailboxes and signs on buildings. Tom Hanks, who had eaten at the commissary while making
Splash,
said the place was like “a Greyhound bus station in the fifties.” There was also a moldering backlot with ersatz shopfronts and city streets. The set used for the
Zorro
television series still stood even though the show had been out of production for nearly thirty years.

The animation building looked like a hospital. According to legend, that had been deliberate. At the time of its construction, Walt was working on
Fantasia
. Concerned that the studio might go bust, the banks demanded that the buildings be designed so that they could be put to another use if the need arose. So Walt put in wide, linoleum-floored corridors and offices arranged on wardlike wings.

Disney didn't go bust, of course, but by 1984 the studio was all but off the map. Its distribution system was so creaky that the company had trouble getting
Splash
booked into decent theaters. Disney was no longer even counted among the majors. Ron Miller had tried to resuscitate animation with the expensive
Black Cauldron,
but the film was a failure. And the theme parks, which generated 70 percent of the company's profit, were
faltering. The costly Epcot center in Florida wasn't drawing as well as Disney had hoped. Attendance at Disneyland in California had fallen from a peak of 11.5 million in 1980 to less than 9.5 million in 1984. Some blamed the Olympics, which had been held in Los Angeles that year. But Eisner acknowledged that his own kids favored Knotts Berry Farm—an attraction close by Disneyland that offered more exciting rides. Disney was losing its allure. All the arteries were clogged and the company was saddled with nearly a billion dollars of debt.

The old regime had spent heavily on the Disney Channel but the fledgling operation was not yet in the black. There was a network television department but it was producing no network programming. Disney had stopped making its regular Sunday-night
Wonderful World of Disney
—an hour that promoted the brand name and theme parks—a couple of years earlier to avoid competing with its new cable service. This was the kind of self-defeating blunder that Eisner would never have made. To him, any positive exposure of the Disney brand was a plus.

As soon as they arrived, Eisner and Wells addressed the troops from a gazebo built for the expensive 1983 flop
Something Wicked This Way Comes
. “There was a great sense of apprehension,” says Dick Cook, who started as a theme-park-ride operator but had risen to vice-president of distribution. “Everyone was freaked out.” But Eisner and Wells spoke in a seemingly extemporaneous manner. “They were a little awkward, so it wasn't too polished,” Cook says. That soothed their audience—as did their obvious joy at finally having arrived. Their listeners walked away with a sense of relief. That wouldn't last long.

It was clear that the intersection of Mickey Avenue and Dopey Drive would never be the same. The
Zorro
set was to be replaced by temporary offices for new executives. Dozens would soon arrive, many from Paramount. Among the first was Jeffrey Katzenberg, who had rejected Martin Davis's blandishments to remain at Paramount and was now installed as chairman of the Disney studio. Despite his earlier frustrations with Eisner, Katzenberg remained bonded to his boss.

Soon to follow from Paramount were Rich Frank, the television chief; Bill Mechanic, head of pay television; Bob Jacquemin, head of syndicated television; Helene Hahn, a studio lawyer; and production executive Ricardo Mestres. Leaving Paramount was such a routine phenomenon that executives at Disney called it “going through the fence.”

Eisner and Wells let it be known at once that they didn't want to lose
any time dealing with disgruntled Disneyland workers who were striking to protest a pay freeze and a cut in benefits imposed by the old management. Unfazed by picketers outside the Anaheim park, management ordered the hiring of new workers. By October 15, the strike was over.

Within a year, more than a thousand employees were gone from Disney. Eisner hired Jeff Rochlis, the former head of Gulf © Western's Sega game unit, as an executive in the film division. He became a hatchet man for the whole company, known on the lot as the Terminator. Rochlis had plenty of firing to do. He was stunned to find an employee on the payroll as Walt's personal photographer even though Walt had been dead for almost twenty years.

New management also winnowed out projects it didn't want and Disney took a $166 million write-down. (That figure also included the costs incurred during the takeover fight as well as settlements for Ron Miller and Ray Watson.) Eisner didn't want to look bad because of the last regime's loser pictures.

But he needed new product to fill Disney's rusty pipelines, and not just movie ideas. Eisner wanted Saturday-morning programming with new characters—new ideas for toys and theme-park rides. “The days when Hanna-Barbera had 90 percent of Saturday-morning television will soon be over,” Eisner declared, referring to the studio that was home to the Flintstones, Yogi Bear, and the Jetsons. And he wanted television animation to be done a lot more cheaply than traditional Disney animation.

About a month after he started, Eisner arranged for George Lucas to tour the company's “Imagineering” facility at Glendale, where theme-park rides were developed and designed. Eisner encouraged Lucas to create some new rides. The ill-fated Ron Miller had approached Lucas a couple of years earlier hoping to get him to work on a flight-simulator ride, but Lucas had passed. Lucas was more responsive to his old friend Eisner, who had stepped up on the
Raiders
deal. Now he immediately glommed onto the flight-simulator idea and began to work on the Star Tours ride.

Soon after Lucas made the rounds, Katzenberg took Michael Jackson around the facility and started discussing an attraction with the pop star, who was hot off the newly released
Thriller
album. Jackson went to work on
Captain EO,
a seventeen-minute film packed with effects. George Lucas would act as executive producer and he persuaded Disney to let Francis Coppola direct. (In the wake of
One from the Heart,
an expensive fiasco, the
Godfather
director had suffered a serious blow to his reputation.)

And Eisner and Wells soon heard presentations about another idea that had been brewing for years: building a theme park in Europe. The year before they arrived at Disney, construction had been completed on Tokyo Disney and now the company had begun to search for a site in Europe. Eisner and Wells decided to go forward with the Europe project, but they were determined that this time—unlike the situation in Tokyo—Disney would be the primary owner.

There were more efforts to invigorate the existing parks. The old regime had refused even to advertise. When the outgoing management was still on its last legs, theme-park chief Dick Nunis had tested the effect of advertising and found that the impact on admissions was demonstrable. Nunis and marketing executive Jack Lindquist wanted to do a television campaign promoting Disney World and proposed a promotional car giveaway. New management quickly embraced these ideas and amazed Nunis by offering to do more.

But there was one simple and key component to the Eisner-Wells strategy. The old guard had stubbornly resisted raising the cost of admission to the parks, concerned that higher prices would alienate the public. But even in the first meeting with Eisner and Wells, Bass had offered his opinion that ticket prices were “absurd.” Just raising the fee by a dollar would bring about $30 million more into the company's coffers each year. Eisner and Wells concurred that prices should go up but worried about moving too fast. After some study, Wells proposed a dollar increase. Al Checchi, the Bass chief financial officer who had been dispatched to consult with (and keep an eye on) the new regime, lobbied vigorously for a stiffer $5 hike. Concerned about a backlash, Eisner decided against such an abrupt increase. The price would go up by $5, but in increments. The full increase would be in place within fifteen months at Orlando and two years at Disneyland—and the impact on Disney's bottom line would be dramatic.

 

WHEN EISNER AND
Wells arrived at Disney, perhaps the biggest financial morass at the company was Walt Disney Imagineering, the shop where the theme-park attractions were developed. The unit was always over budget, remembers Pete Clark, an executive in charge of Disney's corporate partnerships who worked at the company from 1957 to 1995. “Walt spoiled 'em badly,” Clark says. “He was their hero. They would always overspend
on things that only they would appreciate, like copper downspouts in Epcot.”

“We were always the misunderstood child of the organization because [Imagineering] was pampered and protected and there were a lot of people who weren't part of it and didn't like the idea,” says Pat Scanlon, who spent eighteen years in the unit and rose to senior vice-president.

According to former Imagineering executives, the upside was that the Disney parks were built to exacting standards. The downside was the cost. But several Imagineers argue that the unit was always in an awkward position because it never got credit for revenues generated by the rides it created. “The parks make money and hate Imagineering because it's expensive, when they should be paying Imagineering,” one such executive says. Scanlon says facetiously, “We were a cost center. The guys who ran the cash registers at the parks—they were the income generators.”

“It's been a battle since the beginning of time,” says Dave Fink, a longtime Imagineer who was head of the research-and-development division.

At first, Eisner and Wells did not fully tackle Imagineering. It was unfamiliar turf—eccentric and insular. “The part of the organization in the best shape was the theme-park side,” says Scanlon. “It was profitable. The movie business was in a shambles and the television business was nonexistent.” Though most managers from other parts of the company were replaced within a year after Eisner and Wells took over, Imagineering remained virtually intact.

But Eisner was clearly eager to make his mark on the parks. “Michael was like a kid in a candy store,” says Scanlon. “You could see he was itching to do one of his own projects.” Soon he “was ordering new projects like they were new movies,” says another executive who worked in the unit. There was a studio-based attraction that would become the Disney-MGM tour, Pleasure Island, and Splash Mountain. Eisner also moved forward with Typhoon Lagoon and the big one, Euro Disney. All of these projects would be profoundly troubled. “It was too much to do at once,” says another former Imagineering executive. “That was Michael—push, push, push.”

Scanlon says several Imagineers were happy that the unit would be reinvigorated after a frustrating lull under the old management. (In the wake of major cost overruns at Epcot, the unit shrank from more than 2,500 to about 500.) But he says the company got into trouble by attempting to build attractions using a voguish concept called “design-build.” The idea—which
predated Eisner and Wells—was to save time and money by bringing contractors into the design process. Disney would have to produce fewer drawings and employ fewer people. Scanlon says such an approach works when projects are built according to a standard pattern—like warehouses—but it creates problems when each design is unique, as was the case with Disney.

“The construction world bought it hook, line, and sinker,” Scanlon says. “They saw it all as warehouses with a facade and then you'd dump in the ride or show and you're done. These people underestimated the complexity…in their excitement to do a Disney project.” And Disney, in its eagerness to save money, failed to realize that the results would not be up to its standards and would require expensive second and third efforts. “You ended up giving up a level of control that you weren't prepared to give up,” Scanlon says. “You can't do unique, one-of-a-kind projects on a fast-track design-build basis. Too bad it took so much hemorrhaging to realize it.”

In 1985, Disney spent almost twice as much improving its theme parks (more than $280 million) as it had the year before. And even though the price of admission had been raised, crowds were swelling. In 1986, even before Star Tours opened, theme-park profits were $548 million—nearly triple the take in 1983.

But with new management lacking experience in this type of business, Eisner and Wells would soon learn painfully that Imagineering could be a black cauldron into which untold sums could vanish.

 

AS WOULD HAPPEN
so often when the new administration tackled new theme-park attractions, Star Tours and
Captain EO
went substantially over budget. Set to open in November 1986, Star Tours was beset with problems and soon exceeded its projected $30 million cost. Disney had to undertake unanticipated structural renovations to accommodate the ride, which started out at a nausea-inducing twenty minutes and was reduced to three minutes and then taken back up to four minutes so it wouldn't seem too short. It didn't open until January 1987, having missed the profitable holiday season. The budget for
Captain EO
, initially set at $11 million, rose to $17 million.