Disney War

1. Disney War How One Man Toppled the Empire

2. The Success of Disney After Walt • The 1970’s and early 1980’s were marked by a difficult transition. • Walt dies in 1966 • Roy dies in 1971 • Animated Division stumbles • New picture every four years • Winnie the Pooh series • The Aristocats • Live Action Pictures mediocre; 3 per year; minimal marketing • Apple Dumpling Gang • Tron • Escape from Witch Mountain • Production Costs 4x other studios

3. Disney Management after Walt • Roy Disney – largest individual shareholder at 3% • Walt’s family combined had 11% • Ron Miller appointed to head Disney, Roy resigns • By 1984 shares had plunged from $123 to $50 • EPCOT costs soared to $1.2 billion • Miller starts Touchstone to break mold

4. Disney meets Eisner • Roy Disney meets Eisner through the Board of Cal Arts • Disney had resigned from the Disney in 1977 over concerns regarding company direction and mistakes (and rehashes) • Roy had always been pushed aside for Walt’s son-in-law, Ron Miller • Roy had a classic Disney temperament • Determination, persistence, and strong, stubborn will

5. Era of Hostile Takeovers • By 1984 after failing to hire Michael Eisner to head up Touchstone and be Disney COO, Saul Steinberg announced he owned 6% of Disney and planned to buy 25% • Board buys off Steinberg, shares plummet • Miller is out, Eisner and Wells are in

6. Coup in the Boardroom • When 1984 Roy Disney (Walt’s nephew) orchestrated a coup to bring on Michael Eisner and Frank Wells • Eisner was former president of Paramount • Wells a former president of Warner Brothers and an attorney • Eisner knew little of Walt or Disney, was a New Yorker, prep school backgrounds, affluent upbringing • Never seen Snow White

7. State of the Union • Employees never left (or were fired!) • Executives rarely worked past noon • Then played cards, had massages • All employees left early on Tuesday to play softball • All producers were in-house • Overhead was 2x other rival studios

8. Learning the Walt Approach • Walt was raised in the Midwest • He idealized rural life, middle America, church socials, sleigh rides • Repeating theme in films and parks • Represented resilience, showmanship and creative ideas

9. Eisner’s Resume • Majors in literature • Head of Programming at ABC • Responsible for Happy Days, Laverne and Shirley, Welcome Back Kotter • Barry Diller then hires him to be President of Paramount • Beverly Hills Cop • Meets Jeffrey Katzenberg who is Diller’s assistant • Katzenberg became a great asset to Eisner and Diller

10. Eisner’s Philosophy • Stingy with praise and compensation • Diller would lavish praise, propose bonuses (i.e., Robert Redford and Ordinary People) • If a film ran over, would not cough up additional funding i.e., Terms of Endearment

11. Eisner at Paramount • Turns down Private Benjamin • Obsessive at keeping costs modest • Generates ideas internally rather than through high priced brokers and agents • Signed Spielberg, Lucas and Ford for Indiana Jones • Philosophy, “we have no obligation to make art, no obligation to make history or to make a significant statement. Our obligation is to make money.”

12. Era of Wells and Eisner • Hires include Jeffrey Katzenberg • Katzenberg wants stock options, instead get 2% of any product put into production by him (including theme park rides, merchandise, live action and animation) and if retired or left would get a lump sum for future earnings • Roy given the animation division • Wells is approached by Stan Kinsey with a new computer technology developed at Industrial Light and Magic, Pixar Advanced Computer Graphics • Could cut animation costs by 30% and recreate same quality

13. Eisner and Wells • Within 30 days of tenure, stocks surge • Theme parks only area making money in 1984 • Began to envision hotels as entertainment as well as lodging • Business philosophy begins to overtake creativity • Raise ticket prices to raise revenues • Over 1,000 people lose their jobs • Release Down and Out in Beverly Hills

14. Animation Post Walt • Split into two segments • The older animators replacing Walt’s 9 old men • Newer hires from CalArts such as Tim Burton and John Lasseter • First post Eisner release was the Black Cauldron • Ten years in the making and a train wreck

15. Animation • Gong Shows • 5 new ideas are presented from each animator • One immediately gonged catches Roy’s interest ... The Little Mermaid • A hold over from Ron Miller … Who Censored Roger Rabbit? Also interesting

16. The First Signs of Trouble • Euro Disney • Frank Wells killed in a helicopter accident • Katzenberg vetoes purchasing Lucas’s stake in Pixar (originally available for $12 million) • Steve Jobs sees the potential and purchases the stake

17. EuroDisney – How does so much go so wrong? • Original budget $1.6 billion climbs to $4 billion • Used WDW attendance and profits to project • Miscalculated French – willingness to attend in cold weather, interest in “American” fairy tales, cooperation as employees • Misjudged European vacation patterns andexpenditures

18. EuroDisney • Attendance on opening day a mere 6,000 (projected at 10,000) • Occupancy at hotels – 60% far short of 85% projections (no one wanted to stay so far from Paris) • Opens April 22, 1992 with farmers blocking roads in to park and hurled onions and tomatoes at executives and guests. • French President declares it “not his cup of tea”

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

20. EuroDisney • Eisner was unwilling to listen to concerns and planned a second park on site (Disney MGM) • Europeans have far more vacation time than Americans and spend far less per day • Stay affordably, do not buy many souvenirs, used travel agents (costing millions in commissions) • Loses several hundred million/yearly initially • Initially forced to restructure debt

21. Management Strife • Eisner fails to name Katzenberg President (as promised) when Wells dies • Eisner names himself President and CEO • Eisner suffer heart attack and by pass • Drives Katzenberg from Disney and refuses to honor bonus of 2% of profits from all projects he develops • Beauty and the Beast, Aladdin, Little Mermaid, Lion King

22. Management Strife • Loses Katzenberg who heads to Dreamworks to start studio and head new animation division • Hires Michael Ovitz as President (Head of CAA – agent) (Aug 1995) • Immediately deep sixes all proposed projects • Pushes for acquisition of a network • Considers all three and settles on ABC • ABC stock at $105 (i.e., $20 billion) $65 cash; $55 stock • Implemented an executive “counterprogramming” • Named head of European stores/merchandise to head of television • Moved CFO to head of Disney Stores • Places Joe Roth in Katzenberg’s position

23. Mistakes Mount • Purchase of ABC nearly doubles size of Disney • Adds ABC, ESPN, E!, A&E and Lifetime • Robert Iger in charge of ABC at the time • Ovitz assigned to save primary animators from leaving to Dreamworks • Ovitz negotiates settlement with Katzenberg for $90M – Eisner refuses

24. When it Rains it Pours • Katzenberg files suit arguing he could be owed as much as $12B • Jamie Tarses hired to head ABC programming. PR disaster • Programming leaves ABC in third place • Eisner forces Ovitz out at tremendous cost to Disney

25. Good Results during Tough Times • Reworked Toy Story (by Katzenberg) opens strong and earns $200M (domestic) on $30M production cost • $358M worldwide • Disney extends deal with Pixar to 7 pictures: 50/50 split of revenues, Disney controls rights to sequels and merchandise