The Keys to the Kingdom (26 page)

“Make it again.”

Sheinberg tried again but Disney refused to meet. Wells told Sheinberg he didn't want to have any discussions because the talks might cover certain ideas that Disney wanted to pursue on its own.

Then came word that Disney was planning its own studio tour in Florida. Now it was clear which ideas Disney had been reluctant to discuss. To this day, Sheinberg insists he knows where Disney got those ideas in the first place. “Michael Eisner had been exposed to a lot of very confidential information and knew a lot about what our plans were,” he says. “And Frank Wells was a friend of ours. What happens in life so often is you end up feeling foolish. And when they spit on you, you feel angry at them. Maybe we should be angry at ourselves.”

Sheinberg called Eisner and Wells to protest. There were some discussions about Disney paying MCA a royalty to use the Universal name and film properties on its tour. After all, Disney didn't have a library full of films that would appeal to adults, and MCA could provide them. But the parties couldn't come to terms. “How we would be compensated was nearly impossible to define,” Sheinberg says. “More importantly, their perception was that they were going to run it…. We didn't want to be a little adjunct off to the side getting what amounted to a royalty of some sort.”

Sheinberg considered suing but concluded that it would be hard to win. Still, he remains convinced that Disney's attraction was “a rip-off of a concept that we worked hard to develop.” Disney may have been in Orlando
first, he concedes, but “they sure as hell weren't in the studio-based theme-park business.”

Eisner argued that it was MCA who invaded Disney's “home turf” in Orlando. And he denied attending meetings in which MCA's plans were discussed while he was at Paramount. Sheinberg scoffs at that. “Basically, he's a liar,” Sheinberg says.

In some ways, MCA had only itself to blame. The company was slow to launch its own project. And even if Eisner had made secret microfilms of MCA's plans while he was still at Paramount, any competitor could have cribbed the idea of a studio tour from the existing attraction at Universal City. But another MCA theme-park executive says Disney's plans were so close to MCA's that MCA had to redesign its own attraction. Sheinberg sees this episode, and some that followed, as evidence that Hollywood had changed. In the old days, people respected relationships. In the old days, people who were tempted to screw their competitors worried about facing them across the table when the moguls gathered for meetings of the Motion Picture Association of America.

“We were the last knights,” he says wistfully. “We were trying to behave by a code of chivalry that I guess may have been out of date.”

MCA retaliated in 1987 when Disney made a deal to build an attraction on a forty-acre site in Burbank. MCA filed suits against the city and sent out anonymous anti-Disney pamphlets to local residents. Eventually, Disney decided the project would cost too much and dropped it.

Meanwhile, Disney had found another supplier to provide a library of films to launch its Florida attraction. MGM, which owned such classics as
Gone With the Wind
and
Singin' in the Rain,
had fallen on hard times. For a ridiculously low price, Disney made a deal to use the studio's famous name as well as its library (for example, parts of
The Wizard of Oz
and
Singin' in the Rain
were used in the Great Movie Ride). That wasn't all. Disney got the right to use MGM's renowned Leo the Lion logo. MGM owner Kirk Kerkorian was furious when he found out that the studio had signed away the use of one of the world's most recognized trademarks. And when he heard the price, he was apoplectic.

When MGM executives tried to back out of the deal, Wells told them to forget it. Finally MGM sued, arguing that Disney had not disclosed exactly how it intended to use the logo. MGM lost the case in 1992.

Eisner also got permission from other studios to use images from their films. In this effort, he drove his employees to distraction by constantly
changing his mind about what he wanted to use. As soon as one deal was done, says a former Disney attorney, Eisner began pursuing something else instead. “And he never wanted to pay for [the rights],” this staffer continues. “You would be amazed at the prices we got. Michael was very good at it. He'd send his minions out there and we'd beg. We'd buy people off with silver passes at the park. We got images of John Wayne and we never paid any money to the Wayne family. We'd give 'em silver passes and fly 'em to the opening.”

Eisner did his best to open the Disney-MGM Tour before MCA got its show off the ground. He pulled off a dazzling, heavily promoted kickoff on May 1, 1989. MCA didn't open its gates until June 1990. While the MCA tour would ultimately prove successful, the first day was filled with glitches. And Disney did what it could to distract from MCA's attraction by hosting a world premiere of Warren Beatty's
Dick Tracy,
costarring Madonna, on its own Pleasure Island attraction just two days after MCA's opening. MCA made its own silent comment: A boat ride that featured an attack from the famous
Jaws
shark left the water bloodied, littered with severed limbs—and a set of mouse ears.

 

IN
1987,
MCA
became the subject of intense takeover speculation. A few weeks after watching Disney announce its Florida studio tour in May, Lew Wasserman, then seventy-four, underwent surgery on his colon. For three weeks, he lingered in the hospital. Rumors that he had died ripped regularly through the industry. The morbid joke in the industry held that when Wasserman's fever rose, the stock went up, too. The company he had helped build since 1936 was underperforming and undervalued. The stock jumped due to speculation that the company would be sold once Wasserman died. There were any number of rumored buyers—including Disney. But Disney emphatically denied that it would acquire MCA.

Even as Disney was publicly denying its interest, Eisner was scribbling a handwritten note suggesting that he and Sheinberg meet at the beach to discuss a merger. It could have made sense. MCA had some things that Disney lacked: a library of live-action films, a successful television operation, a record company. The theme-park businesses could have been complementary. “Other than personalities, [a merger] would have been a damn good idea,” Sheinberg says.

When the two met, Eisner proposed that he would remain chairman of
any combined company while Sheinberg could be chief operating officer. That raised the question of what role Frank Wells would play. Eisner brushed the question aside; Wells wouldn't be a problem, he said. But Wasserman wasn't ready to sell.

Sheinberg was shocked by Eisner's apparent disloyalty to Wells—although it can never be known whether Eisner would have followed through and kept Sheinberg as the number-two man. Sheinberg says he had already concluded that Eisner was not to be trusted. “I've never been surprised that Michael Eisner's been successful,” Sheinberg says. “I've never questioned that he would be successful and do a good job in leading the company. But at what price?”

A
S IMAGINEERING TOILED
over its various theme-park projects, overages piled up virtually unchecked. The new management started to get nervous. “There were lethal letters written by [chief financial officer] Gary Wilson to Frank Wells about Imagineering and how stupid it was,” says Dave Fink. “‘Imagineering will be the downfall of the Walt Disney Company.'” In 1987, Disney dispatched Jeff Rochlis, then a trusted studio executive (and a known quantity to Eisner and Katzenberg), to take control of the unit. Rochlis, who was already known as the Terminator because he had fired so many employees elsewhere in the company, began to wield his scythe again. It seemed clear almost immediately that the Imagineering managers had told staff to conceal the real cost estimates for ongoing projects from outsiders—including Eisner and Wells.

Other Imagineers said there was no policy of keeping information secret. “There would be an overall attitude—‘Let's get this [attraction] open' and probably some culture to spend money and get the thing open and deal with money problems later,” Fink says. “That may have seemed to Jeff Rochlis like conspiracy. It wouldn't take much of a push to get someone to spend more than they had to get a project open.”

But the Imagineers believed that Rochlis's attempt to make the design process more predictable simply imposed a crushing bureaucracy with scores of forms to fill out. He formulated his approach in a tome called “Achieving the Triangle of Success.” It was a bomb with the rank and file, who saw the program as unworkable in a creative setting. “He had no appreciation for or understanding of the human component,” says Pat Scanlon. “You can use an autocratic approach to exact immediate results but you never build any esprit de corps. You never build any confidence in people whose throats you're cutting…. Under the Rochlis era, if you were
going to acknowledge mistakes for the sake of creating a better tomorrow, you might be signing your own death warrant.”

But the new guard at Disney perceived Imagineering as a problem that had to be solved. One former Disney executive said Imagineering was regarded at top levels of the company as “the sinkhole of the Western world.” A project like Pleasure Island in Florida, a nighttime entertainment complex meant to lure young adults with discos and a roller rink, became a typical exercise. It was built and rebuilt three times before it finally worked properly, according to an Imagineering insider. It's original $30 million budget rose to about $90 million.

Pleasure Island was one of several projects—the others were the Norway Pavilion at Epcot, featuring a large wooden church and castle; Splash Mountain, a flume water ride at Disneyland; and Typhoon Lagoon, a fifty-six-acre water park at Walt Disney World in Florida—which even in-house were known as “disasters.” Splash Mountain didn't function properly when first built and missed a scheduled opening that was to be tied in with a McDonald's promotional effort. Two top Imagineering executives, Rochlis and his deputy, Mickey Steinberg, had to call Wells and break the news. “It was a horrible afternoon,” says a former employee. “They had to tell Frank that not only didn't the ride work, but they didn't have a clue as to when it would be open.”

Rochlis's tenure in Imagineering was short and he was replaced by Mickey Steinberg, who promptly dropped most of the “Triangle of Success” approach. Meanwhile, Frank Wells commissioned a series of “black books”—analyses of each of the “disasters”—which pinned some blame for the problems on Disney's own staff. The company's lawyers were undoubtedly appalled that Wells had created written documentation of Disney's woes. Disclosure of such materials could prove extremely damaging in the event of litigation with various companies that contracted to provide services. In any event, the black books were systematically collected from the executives who had them.

The lawyers' concerns were hardly unfounded, because there were constant disputes with outside contractors. “The problem was, we would say, ‘Do it this way,'” says an Imagineering veteran. “They'd say, ‘Okay.' And then you'd say, ‘It doesn't work.' And they'd say, ‘It's your fault.'” In many cases, Disney changed design specifications and then got into disputes about paying the resulting costs. “They would start building and then make changes,” this source says.

To some degree, the Imagineers' excesses were understandable and even justified. By definition, they were breaking ground all the time. And in the culture of Disney, the Imagineers had no bottom-line responsibility. Wells tried to make each business have profit-and-loss responsibility, but Imagineering got no credit for profit from the theme parks, so the model didn't work.

Under pressure to save money, Imagineering sometimes tried to control costs by ignoring pragmatic considerations that the operations side would face once the attractions were up and running. It was cheaper, for example, to build Pleasure Island with separate air-conditioning units instead of central air—even though the Imagineers knew it would have been less expensive over the lifetime of the project to go the other way. When Imagineering went over budget on the Mickey's Toontown attraction at Disneyland, the designers eliminated catwalks that would have aided park operators with routine maintenance.

But even with these attempts at control, the Imagineers simply had the ability to spend and not much could be done to rein them in. The operations executives felt that the design group in Imagineering were “artistic brats,” says a former Imagineering executive, and in some ways it was true. “I've never seen an organization spend so much money doing ridiculous things in the name of art,” he says. “You talk about no controls. I could go anyplace I wanted to go. You just sort of went.”

Eisner was part of the problem, too, according to several Imagineering executives. “Every time he went somewhere, we got a whole new list of changes and ideas,” one remembers. “The worst thing you could hear was that Michael was going to tour Pleasure Island or Splash Mountain.” Eisner was aware of his own inexperience when it came to the theme parks; this observer concludes that he “had pretty weak instincts and was always second-guessing himself.”

Scanlon remembers that early on, when Eisner was overseeing the creation of the Swan and Dolphin hotels in Florida, he resisted a Disney tradition of ensuring that any visitor inside the theme park should have a 360-degree view. Nothing was supposed to disrupt the fantasy world of the park. (When undertaking new construction, Disney traditionally conducted tests, floating a balloon to the height of a proposed project and then checking from the parks, whether in Anaheim or Orlando, to be sure that the balloon wasn't visible.)

The giant animal shapes on the new Disney hotels in Orlando were
visible from Walt Disney World. “You'd look behind the France Pavilion and see this monstrous hotel behind it and it destroyed the whole illusion that you could imagine yourself actually being in Paris,” Scanlon says. The Imagineers pointed that out when the project was still in model form. “Michael said, ‘I know we're taking a risk but let's do it,'” Scanlon remembers. “When Michael saw the result full-scale, he came back and said, ‘What can you do to hide this? Can you build a berm?' You couldn't build a berm high enough.”

This was the same Eisner who had come up with dozens of crazy ideas at ABC. Only now he was in charge. To his credit, he learned a lesson. “After that, he was really conscientious,” Fink says. When it became clear that the Tower of Terror attraction would be visible from the Florida studio tour, Fink says, the project was expensively reconfigured.

 

THANKS IN LARGE
part to frequent ticket-price hikes, cash continued to pour in from the theme parks. But when it came to film, Eisner and Katzenberg had to start from scratch to put their own slate together. That required a good infusion of working capital. The old Disney board had been against using tax shelters to finance movies, but that conservatism was over. If there was anything Eisner was willing to share, it was risk. Paramount had hedged its bets on many pictures by teaming with outside investors; Eisner would do the same. With interest rates in the stratosphere, bank loans were expensive. Besides, the new Disney had no track record and no credit rating. Finding financing to build a vibrant full-fledged studio would have been difficult. So Wells flew to New York to meet with Roland Betts of Silver Screen Partners.

Betts knew Wells from the Warner days (Betts had financed the film
Gandhi,
which Warner considered buying). Now he got in touch with Wells to suggest a new approach to financing. The idea was to get ordinary investors to buy shares in a package of movies. Betts had tried such a venture and raised $83 million to fund an unsuccessful HBO venture into filmmaking. Now he was hunting for a new partner at Disney. For the investors, it was not an especially savvy deal. In effect, they provided Disney with five-year interest-free loans in exchange for a share in the profits—but only after everyone else was paid. If there was no profit after five years, Disney would have to refund the investors' money. As it happened, Disney films performed well and investors made a steady profit. But even Eisner had to acknowledge
that the investors would have made more money if they had bought Disney stock. Critics saw the Silver Screen partnerships as one of several examples of Disney using its good name and clean image to pass off lousy deals to investors.

The shares were to be sold through E. F. Hutton brokers. But Betts and his partner, Tom Bernstein, found that it wasn't easy to get the sellers worked up about offering shares in the Silver Screen partnership. “Hutton thought it was nuts,” Betts says. “They said, ‘Disney's not a film company.'” But Betts and Bernstein pitched Eisner and Wells as the two genuises behind whatever successes Paramount or Warner ever enjoyed. They arranged to present Eisner and Wells at a brokers' meeting at the Sheraton Yankee Clipper hotel in Fort Lauderdale. Betts instructed Eisner, Wells, and Katzenberg to speak for no more than fifteen minutes each. “Michael Eisner spoke, Frank Wells spoke,” Betts remembers. “Jeffrey delivered a monologue describing each film he was even thinking about making. The brokers were like, ‘I don't know about that little fucking guy. The two dull guys are okay.'”

That night there was a party, with Disney characters jollying up the crowd. Eisner and Wells worked the room, and by the time it was over, the two “dull” guys had gotten the Hutton brokers pretty excited. On May 1, 1985, the very first day that the shares went on sale, Hutton mopped up $14 million. But the next day brought bad news. Hutton had pleaded guilty to a massive check-kiting scheme and agreed to pay a $10 million fine. It was the last thing Eisner and Wells wanted to hear. Here they had splashed Mickey Mouse's precious face all over materials associated with this offering, which now associated him with admitted lawbreakers. But Disney was in too deep to back out. With sales at a virtual standstill, Eisner and Wells rallied the Hutton troops. Before the offering closed in September, Betts and Bernstein decided that the initial goal of raising $150 million was too modest. They went for $200 million and managed to raise $193 million.

The Silver Screen partnerships kept raising money: $300 million in 1987, and $400 million in 1988 (Disney got $600 million that year because some profits from that partnership were reinvested). At successive meetings of Hutton brokers, Bernstein says, “Michael would get up and say, ‘I don't think you ought to invest in Silver Screen. I know last year we did great. We don't have any more good ideas. I don't know if we can do it again.' And they loved it.” Wells charmed the crowd with slides from the seven
summits expedition. “Both came across as larger-than-life and very accessible,” says Bernstein. “They were a big hit in brokerland.”

 

IF ANYONE DOUBTED
that the old stodgy Disney mold was smashed, Katzenberg had reiterated that message soon after he arrived at the studio by announcing what would be the company's first R-rated film—a comedy with Bette Midler and Nick Nolte called
Down and Out in Beverly Hills
. The film, based on the 1932 French farce
Boudu Saved from Drowning,
told the story of a bum who moves in with a wealthy couple. The project had been dropped by Universal. Every other studio wanted it, says director Paul Mazursky, but his agents, Sam Cohn and Jeff Berg, pushed him toward Disney. “Why there?” Mazursky asked. They explained that the film would get extra-loving care because it would be one of the first released by the new regime.

Down and Out
was not really the first film green-lighted by the new regime although Katzenberg wanted it to be remembered that way. The real first picture, according to several executives who worked at the studio, was a film called
OffBeat,
produced by Harry Ufland and a young man named Joe Roth.
OffBeat
was going to star Robin Williams as a man who masquerades as a cop to impress a woman. But Williams opted to make the ill-fated
Club Paradise
instead, so Eisner and Katzenberg pushed for Judge Reinhold, whom they knew from Paramount's
Beverly Hills Cop
. They expected Reinhold to become a major star. But the picture wasn't destined for greatness and Disney discreetly opened it a couple of months after
Down and Out in Beverly Hills
made its debut in January 1986.

“[Jeffrey] didn't want to claim [
OffBeat
],” says Jane Rosenthal, part of the executive team in those days. “So when do we say it's the beginning of the new regime? The first successful movie.” Hollywood business wasn't covered as avidly in those days and the news media were less inclined to cover moviemaking as a series of horse races. So
Down and Out in Beverly Hills
was the first picture of the Eisner era—which was just as well for new management.