The Keys to the Kingdom (37 page)

He acknowledged that the company's performance hadn't been perfect. Eisner kept up a jolly tone. “Let's face it, we got lucky!” he wrote. “We didn't do too many stupid things in the '80s. We didn't overpay for anything. We
didn't buy movie theaters, media conglomerates or Brooklyn bridges. We didn't leverage our company up to Goofy's neck…. We stayed scared. We stayed lean. We stayed financially conservative.”

Eisner fudged on the studio's performance, which he described as “stellar.” To support that, he cited the success of
Pretty Woman,
the release of the “widely acclaimed”
Dick Tracy
(no mention of profits here), and the record-setting performance of
The Little Mermaid
. And Eisner noted that 1990 was the launch of what would be “the Disney decade,” which was to see the launch of new theme parks in Florida, Southern California, Japan—and Europe.

 

WITH DISNEY IN
a slump, Katzenberg, now forty years old, found himself restless and dissatisfied. What had happened to the good old days, when movies were cheap and tarnished stars were grateful to work? Just a couple of years earlier, Disney had been riding very high when Katzenberg had tried a bit of Eisnerian pessimism on a reporter. “We are going to run into a bad streak,” he had told the
New York Times Magazine
in 1987 as the studio was poised to release
Three Men and a Baby
. “We are going to fail big. Just so the scales get properly balanced, we are going to have one of the all-time big flops.” At the time it hardly seemed likely that Katzenberg had believed what he was saying. Now those words seemed almost prophetic with the wan grosses of
Three Men and a Little Lady, The Rescuers Down Under,
and
Green Card
. Disney hadn't had a megabomb, but the studio was hardly firing on all its pistons.

Katzenberg's old adversaries at CAA were flourishing. Mike Ovitz had triumphed—he had positioned himself as a key player in the recent sale of MCA, the entertainment company where Lew Wasserman and Sid Sheinberg had worked for decades, to Japanese electronics giant Matsushita. A year earlier, Ovitz had played a part in brokering Sony's purchase of Columbia Pictures. He had transcended the traditional role of the agent, but at the same time he had successfully steered CAA into a position of daunting power. Katzenberg's way of doing business was that much harder to sustain. “He was finding it harder and harder to make economic deals,” remembers a former top executive at the studio. The average price of Disney movies ticked upward. Meanwhile, the executive says, Eisner undoubtedly kept pressuring Katzenberg to prevent CAA from running the studio over altogether. It was an increasingly wearying battle.

Colleagues noticed that Katzenberg was flagging and his friend, music mogul David Geffen, thought he might try psychiatry. (He didn't.) In this gloomy mood, Katzenberg took off for his usual Christmas holiday in Hawaii. That year, rain poured nonstop for days while the hyperactive Katzenberg sat inside at the Kahala Hilton, reading biographies of William S. Paley and Samuel Goldwyn, as well as a lengthy
New Yorker
article about the MCA sale.

Katzenberg had considered taking a leave of some kind. Instead, as he sat in Hawaii, he started writing a memo—a declaration of purpose that would get Disney back on track. It would be twenty-eight pages long, consisting of about eleven thousand words that Katzenberg would hone with a rewrite man upon his return to Los Angeles. It would be a manifesto.

His thinking wasn't startlingly original. Movies cost too much. Disney had swerved from the path of making cheap pictures with “talent we believed in.” There were more big stars, higher costs, greater risk, and less profitability.

Katzenberg recognized that a recession was under way, but that wasn't the only cause of the industry's woes. The problem was the blockbuster mentality that was gripping the industry. Every studio wanted the biggest opening weekend, the fastest $100 million gross. Thanks to this hunger for the blockbuster, movies had a shelf life “somewhat shorter than a supermarket tomato.” Hadn't Hollywood been down this road before? Remember the colossal 1963 flop,
Cleopatra
?

Dick Tracy,
Katzenberg continued, “made demands on our time, talent and treasury that, upon reflection, may not have been worth it…. The number of hours it required, the amount of anxiety it generated and the amount of dollars that needed to be expended were disproportionate to the amount of success achieved.” And, he wrote, if Warren Beatty showed up with another big period action film with expensive talent and a $40 million budget, Disney should “soberly conclude that it's not a project we should choose to get involved in.” That one cost him, in a sense. Warren Beatty wouldn't speak to him for years. On the other hand, Beatty did have just such a project—
Bugsy
—which he made for Tri-Star. The picture would lose more than $30 million when it was released in 1991. Production designer Dick Sylbert recalls that after he was nominated for an Oscar for
Dick Tracy,
Katzenberg called. “Hope you're not upset about the memo,” he said.

As soon as Sylbert hung up, he phoned Beatty. “Guess who just called,” he said.

“Jeffrey Katzenberg,” Beatty replied.

“Guess why,” Sylbert said.

“He wants you to thank him if you win.”

Sylbert did win—and he didn't mention Katzenberg when he picked up his statuette.

Katzenberg went on in his memo to concede that Disney was spending big on projects in the pipeline, including
What About Bob?
and
Billy Bathgate
(exactly the type of expensive period-piece movie that he was now warning against). And he acknowledged that these movies probably cost more time and money than they were worth. Once they were finished, Katzenberg said, “We'll have to do a better job of controlling our appetite.”

Katzenberg wasn't done. He spoke nostalgically of
Pretty Woman,
“the kind of modest, story-driven movie we tended to make in our salad days.” So there was the key—a good story, well executed. Those who thought they could guarantee a certain return by throwing together a big-star cast, big effects, and a lot of hype were deluding themselves. There was only one answer: passion.

Warren Beatty wasn't the only one who didn't like the Katzenberg memo. The response was hardly what Katzenberg might have anticipated. The memo was widely leaked—and most observers, including Eisner—concluded that he leaked it himself in an effort “to position himself as an industry statesman,” as
Variety
put it. (Katzenberg denied leaking the memo and said he was “embarrassed” by all the attention.) At first, various executives—questioned by the media—said the memo made some worthwhile points. But then the press reported that others found it self-serving and hypocritical. (After all, Disney had just signed a deal with Don Simpson and Jerry Bruckheimer, who had departed from Paramount after breaking the bank on
Days of Thunder
.) Perhaps worse than the charge of hypocrisy, many concluded that the Katzenberg memo was pretty obvious stuff.

A lacerating spoof also made the rounds. It claimed that Eisner, having earned a mere $11.2 million in 1990, down from $50 million the year before (thanks to his stock options), was asking employees to take 78 percent pay cuts in sympathy.

But when Eisner read the real memo, he was far from amused. He scrawled some complimentary comments on a copy that he returned to Katzenberg, but warned that it should be kept under wraps. In fact, Eisner was livid. He thought much of the content had been cribbed from the memo he had written several years earlier at Paramount. Katzenberg had traded some of Eisner's basketball metaphors for baseball terminology—
talking about going for “singles and doubles”—but many of the fundamental concepts were the same. Eisner had even questioned Paramount's judgment in making
Reds
while Katzenberg, years later, focused on another Beatty effort,
Dick Tracy
. Katzenberg acknowledges that he was influenced by Eisner's work; he also says that many ideas in the memo were “stone-cold, dumb-butt obvious.” His intention was simply to revisit the fundamentals of the business. “When you restate it, it gives you a clarity of thinking, which is why I did it,” he says.

Eisner had also cautioned Katzenberg to keep the memo quiet and that hadn't happened. Eisner's outrage was not unreasonable. The industry did not hail Katzenberg as a statesman; instead, the entertainment community turned on him—and Disney—with fangs bared. It was, as journalist Peter Boyer observed in the November 1991 issue of
Vanity Fair,
as though the memo had “burst the dam on a reservoir of pent-up ill will too vast to be explained by mere success envy.”

Just months after the memo leaked, Boyer could already see that Katzenberg—bored, depressed, and hotel-bound in a sodden Waikiki hotel over the previous Christmas holiday—had made “the biggest mistake of his career.” And there was something else he noted as he wended his way through Hollywood, reporting his story about Katzenberg's “seven-year itch.” As he talked to various industry executives and agents, he says, it became clear that there was “a Michael camp and a Jeffrey camp.” It was a situation that paralleled the rift detected by Tony Schwartz's 1984
New York
magazine article, when he reported on Eisner and Diller at Paramount. Yet this time, Boyer discerned a truth that had eluded Schwartz years before: this was a corporate situation that was fraught with peril.

I
N MAY
1991, Bill Murray put in an appearance on
Larry King Live
to promote the newly released
What About Bob?

“What's it like working with the Disney people?” King asked.

“Well, you know, they have this terrible reputation,” Murray replied.

“What?”

“Well, they have a reputation of being very difficult to work with and very tough with a buck and stuff like that.”

“And?”

“It's all true.”

Katzenberg and Disney's hard image had begun to take a toll in the entertainment community and even with the public at large. In another widely quoted bon mot, Alec Baldwin condemned the studio by maintaining that Katzenberg was the “eighth dwarf—Greedy.” Of course, Warren Beatty wasn't speaking to Katzenberg at all after his state-of-the-industry memo. The anti-Disney faction was reaching critical mass. And even some on the lot began calling Disney by a new name: Mouschwitz.

The media was prompt in picking up on the problem. From spring until fall of 1991, there were why-everyone-hates-Disney stories in
New York
magazine,
Vanity Fair,
and the
Washington Post. Forbes
speculated that the company could not keep up its dazzling success and suggested that Disney was “overweight, arrogant and paranoid.”

“They hate us, I guess,” Eisner told
Vanity Fair
a couple of months after Murray's interview. “I don't know whether it's me, maybe Jeffrey, maybe the combination. It may just be a lot of history.”

Of course, Eisner's bafflement seems disingenuous. The tone at Disney had been set from the top, though certainly there was never a more willing lieutenant than Katzenberg. But if Eisner tried to distance himself from decision making with a childlike charm, his dominance was still apparent
to the more astute filmmakers who worked with him. “I admire Michael and his ability to be childlike and also very, very shrewd,” says director Randal Kleiser, who directed
White Fang
and
Honey, I Blew Up the Kids
at Disney. “I've never met anyone who can flip back and forth like that, almost like a schizophrenic. I knew he was tough and I would see him suddenly ask a question like a four-year-old. I think he cultivates that because he knows it works.”

Looking back, former studio executive Marty Katz believes that the studio reaped what it had sown. “The more success we had, the more we felt invited to give direction, unsolicited advice, to give voluminous, voluminous script notes,” says Katz. “I feel the reason there was such a backlash was twofold. We weren't willing to pay the money that other studios were willing to pay. We held the line to the point of walking away from deals. That bugged agents, that bugged filmmakers. And for those who did [take] the deals, they felt they were besieged by creative direction. The endings were subject to countless debates.”

Worst of all, it wasn't working anymore. It seemed as if Hoberman and Mestres were having a contest to see which of them could release more bombs. From January to the end of April, Hollywood Pictures and Touchstone took turns putting out flops. Hollywood Pictures, February:
Run,
a chase movie starring Patrick Dempsey as a student who inadvertently kills a mobster's son, grossed a pathetic $4 million. Touchstone, same month:
Scenes from a Mall
—a Paul Mazursky–directed film with Woody Allen and Bette Midler. (Allen was making a rare appearance in a film he didn't direct.) This was the shriveled fruit of Katzenberg's assiduous courtship of Allen, part of his quest to bring some prestige to the studio. Katzenberg's colleagues and Eisner tried to discourage Katzenberg from making the film, but he didn't listen. He was so devoted to Allen that he accommodated Allen's wish to remain in his beloved Manhattan. The film became the first major studio release in which a Los Angeles location was shot in New York; the Beverly Center mall was re-created for Allen's convenience.

In April, Hollywood Pictures released
The Marrying Man
and saw it bomb. That same month, Touchstone had
Oscar,
Sylvester Stallone's doomed attempt to partake of the comedy bonanza that Arnold Schwarzenegger was reaping at Universal with
Twins
and
Kindergarten Cop
. Hollywood Pictures in May had
One Good Cop,
a lackluster drama with Michael Keaton. The film sold only $10 million worth of tickets and cost $18 million to make. Touchstone, that month, got some rather limited relief. Despite
Murray's bitching,
What About Bob?
opened to a healthy $9.2 million and ultimately grossed $64 million.

But June brought a particularly painful blow: Touchstone released
The Rocketeer,
an expensive picture about a Nazi-fighting hero who flies with the help of a jet pack. Disney was hoping for a breakaway hit. The film cost nearly $46 million, having gone $10 million over its original budget, and it fizzled at the box office. Part of the problem, says Katz, was that director Joe Johnston, who had been so successful with
Honey, I Shrunk the Kids
in the summer of 1989, underestimated the amount of time and money he needed to get the movie done. As production progressed, the studio realized that it couldn't get the title character to fly convincingly just by suspending an actor with cable, as in the old
Superman
programs. The effects had to be enhanced by Industrial Light and Magic, which was expensive. Meanwhile, Katz says, Johnston wasn't especially cooperative about finding ways to save money.

But Johnston publicly blamed the studio and its penchant for pabulum for the film's problems. “You could screen five movies and pick out the Disney movie because it just had a feel to it,” he said. “It wasn't going to make you cry too much or feel too strongly. You'd walk out and say, ‘That was a nice movie,' and forget about it…. They don't like to take chances at all. That's really the heart of the problem…. It's the lack of textures, it's pulling back to make something more palatable to a larger number of people.”

These losses were the worst that the Disney studio had ever incurred. Previously, the studio's biggest flop was 1989's
Blaze,
a disappointing film that cast Paul Newman as Louisiana governor Earl Long and Lolita Davidovitch as stripper Blaze Starr. But now the bombs were getting bigger.
Scenes from a Mall
and
Marrying Man
each lost about $18 million. Disney wasn't suffering the way other studios had the previous Christmas—
Havana
lost about $50 million and
Bonfire of the Vanities
tanked to the tune of about $40 million—but it needed some hits.

The combination of bad films, bad press, souring relationships, and the hostility engendered by the Katzenberg memo finally hit home. It was time for a new strategy. The Disney studio had to be mellower—a change that Katzenberg promptly signaled in off-the-record chats with reporters—and by switching his uniform from dark suits to a more casual look. In the ensuing months, Hoberman says, Katzenberg's clothing shifted with his moods. “He used to confuse the shit out of me,” Hoberman says. “We
started off wearing suits without ties. Then he started wearing blue jeans. Then khakis and tennis shirts. So we all started to wear khakis. I used to go home every weekend and put a hat on so I knew it was the weekend.”

Of course, some must have found these changes unconvincing, particularly when Mestres had petite twenty-four-year-old executive Elizabeth Guber thrown off the lot that spring (escorted by no fewer than three security guards) for refusing to sign a five-year contract. Other studios routinely asked for two-or three-year commitments, but the ostensibly gentler Disney asked for more—and reacted badly when its wishes weren't granted. The friendlier Disney seemed to be “a public relations move but not an internal reality,” says Adam Leipzig, a film executive who worked at the studio during this period.

That impression was underscored at a retreat on the lot. Touchstone executive Donald De Line stood up to express concern about Disney's aggressive business practices and about how the company was perceived in the community. One executive who attended recalls: “Michael stopped Donald in his tracks and said, ‘If I can make an extra million dollars by fucking Donald De Line, then fuck Donald De Line.'” The comment made such an impression on that observer that he wrote it down and pasted it into a drawer in his desk—“to remind myself,” he says, “of where I worked.”

 

IN APRIL, THE
litigation with the Muppets exploded when the Henson heirs sued Disney over its use of the characters at Disney World in Florida. They accused Disney of “greed,” “sheer corporate arrogance,” and “outright theft of Jim Henson's legacy.” Disney, which was so aggressive in protecting its own characters that it initiated some two hundred legal actions in that cause, had started selling Muppets merchandise (with a Disney logo) and advertised the characters as Disney property, all before there was a contract signed.

“I am emotionally outraged and slightly disgusted,” said Henson's son Brian. “My father didn't make a mistake when he shook hands with Michael Eisner, but then he was misled and mistreated and disillusioned. Now…with the way we've been treated, I can say there is no space remaining for any relationship with Disney.”

Disney tried to characterize the family as greedy. The company argued that it had put some $90 million into developing the film and stage show
and had an implied right to use the characters. Disney also said it had increased the original price for the company to help the heirs deal with their tax issues, but the Henson children disputed that.

Within two weeks, the suit was settled. Disney had sought a twelve-year license for the Muppet characters in the stage show and 3-D movie and exclusive use of the Muppets in all its theme parks; instead, the company got an exclusive eighteen-month license for the Florida parks with an option to renew. (The deal excluded the
Sesame Street
characters, which remained in the control of the Children's Television Workshop.)

The Henson family also demanded that Disney issue a humiliating public apology for its bad behavior. In a joint statement, the parties said Disney had “requested” a license to use the Muppets at the Florida park with “deep regret for…a serious misunderstanding, and apologies to the Henson family and their company for any harm that may have been caused.”

A source on the Henson side summed up the settlement succinctly: “Disney was being a bully, and they got it shoved up their nose.”

The following month brought more bad press when a jury voted in favor of seventy-year-old, wheelchair-bound singer Peggy Lee, who had sued over Disney's refusal to give her a share of $32 million in profit from the video version of
Lady and the Tramp
. Lee had written six songs and recorded the voices of four characters. Even though taking the case to court meant that Disney would be the Goliath fighting Peggy Lee in her wheelchair, Eisner was adamant. If Disney settled, he said, it would set a precedent that would entitle other artists to sue. But the jury sided with Lee, who ended up with $2.3 million.

Katzenberg claims that in many cases—involving Peggy Lee, the day-care centers, the Muppets—he tried to convince Eisner that the company's image was being hurt. But Eisner always reverted to a “self-righteous” position—a sense that Disney was being wronged, that the law was on the company's side, and that the company's welfare was genuinely at stake. “He'd say, ‘If we do this, it's the end of the world as we know it,'” Katzenberg says. “Michael never understood colossal collateral damage.”

Journalist Peter Boyer, who interviewed Eisner for a November 1991
Vanity Fair
article, got a glimpse of the intractable person who remained hidden from public view. Usually, Boyer noted, Eisner seemed to be the least imperious person in Hollywood moguldom. “There is something otherworldly, in a benign way, about Eisner's looks, his huge forehead, his tiny, close-set eyes, his Jagger lips, that suggests he is the creation of some ani
mator's pen, just as surely as Mickey and Goofy, with whom he is forever posing,” Boyer wrote. No one would say of Lew Wasserman or Mike Ovitz what producer Don Simpson had said of Eisner: “He's like a big Gummi Bear.”

But when Boyer asked about the famously demanding workload placed on young executives, Eisner departed from his “real, but…very carefully cultivated” image. “I haven't not worked on a Saturday and Sunday since I left college,” he began. “Now that doesn't mean I come in and work all day long. I'm pretty good with my children, I have a great relationship with my wife—look, there are ways to work and not to work…. I mean, you know what? I guess, you know what? I think we pay too much money. If we paid less, and if it was a little tougher to make money out here, maybe they'd work…. I feel as if I'm getting aggravated.”

And so he was, as he flushed and his voice became hoarse. “You know,” he went on, “they don't have to work! They can work for someone else! They should quit! You know how many people around America…I get thousands, thousands of letters a day: ‘Can I be an intern?'”

These words did not go unnoticed within the company and Boyer drew his own conclusions. At that revealing moment in the interview, Eisner was “Gummi Bear no longer. More like the Big Bad Wolf.”

 

DESPITE KATZENBERG'S ASSERTION
that he had written his memo to provide clarity, Disney's filmmaking strategy in the new era wasn't well defined. Was Disney doing cheap movies the old-fashioned way or opening its wallet to attract big stars? Was the studio putting controls on directors or giving them freedom? Looking back, Hoberman says, “It was a very schizophrenic time.”