The Keys to the Kingdom (47 page)

The
Times
reported a jumble of reasons for Katzenberg's ouster—complaints that Eisner had shared with unnamed friends. Eisner reportedly said he had been mulling over a decentralization of Disney's management for the past two years and that Katzenberg's days had been numbered ever since. And he said he had ousted Katzenberg because of the weak live-action slate. Another report had him saying that Katzenberg's lack of a college degree and his ownership of Dive! worked against him.

It was true that the restaurant and the whole ongoing drama was stuck in Eisner's craw. Eisner reportedly told a staff meeting, “I don't want to hear any more about who is happy and who is unhappy and who is staying and who is leaving.” As far as he was concerned, he added, Katzenberg could become head of a studio, a high-tech entertainment company, or “run his deli.” Either way, he said, he was tired of discussing Jeffrey Katzenberg.

When stories in
The New Yorker
and
Vanity Fair
hit the stands in late September and early October, respectively, they included Katzenberg's first public recounting of the 1993 walk in Aspen and of Eisner's supposed assurance that he would advance if Wells were not in position. In
Vanity Fair,
Eisner didn't quite seem to deny it. “He says I said to him, ‘If Frank wasn't there, it would be a different story.' In other words, that I gave him the body language to believe that,” Eisner said. “I can't say whether I did and it's unfortunate if this became a misunderstanding. I wish I had made my message clearer.”

(Perhaps neither of the two principals remembers exactly what was said in this pivotal conversation, but they do agree that Eisner had said that Wells “would feel hurt” if he was asked to step aside. But in a 1997 interview, Eisner seemed to contradict that assertion. Eisner told Charlie Rose that during Katzenberg's tenure as studio chief, he had considered bringing in Michael Ovitz as president and making Wells vice-chairman—exactly the arrangement that Katzenberg had proposed for himself. In the Rose interview, Eisner said Wells “had said he would step down and become vice-chairman,” but the plan was dropped out of concern that Ovitz “would have been in conflict with Jeff Katzenberg.” Katzenberg says if there were discussions about hiring Ovitz at any time during his tenure at the studio, he was unaware of them.)

When it came to retaliating against Katzenberg's press blitz, Eisner let Disney board members do the heavy swinging. Stanley Gold told
Vanity Fair,
“I thought Jeffrey was an extremely talented, hard-working, efficient
executive for most of the 10 years he was [at Disney]. But there came a point in time where Jeffrey's ego and his almost pathological need to be important overtook his good judgment.” Gold said some of Katzenberg's behavior had created considerable ill will on the part of the board. There was the Katzenberg memo, for example. Eisner had told Katzenberg to tear it up, Gold said, “but Katzenberg went to the Xerox machine and sent it out.”

Then Gold cited a speech Katzenberg had given in July in which he attacked rival MCA (parent of Universal) at a video-industry conference in Las Vegas. Katzenberg urged his audience to fight MCA's decision to sell cheap copies of such videos as
An American Tail: Fievel Goes West
through McDonald's. He charged that such sales were “a Faustian bargain that threatens the future of the video business.” Customers would be reluctant to pay regular prices for videos if they could “just walk across the street for a Big Mac with Fievel and fries.”

Not surprisingly, MCA chief Lew Wasserman was said to be livid over these comments. Eisner had infuriated MCA before—notably when he embarked on the Disney studio tour in Orlando—but Gold said Katzenberg had not been authorized to fire this particular volley. “That is a huge policy statement by the Disney company that Jeffrey never cleared with Michael,” Gold said. “And when questioned about it, Katzenberg says, ‘From now on, when I speak publicly, I have to speak on important matters.' That's what got him in trouble…. He had this need to be the more important guy in Hollywood. At the end of the day, he is the tragedy here.”

Katzenberg said he regretted offending MCA, but he argued that Eisner was in the hospital when this speech was drafted and was not available for consultation. (Considering that Eisner was already talking box office on Sunday after his surgery, this explanation may be less than persuasive. But Katzenberg said he was ordered to talk to Eisner only about light topics during this period.) His position, Katzenberg said, was meant to defend “the most vital, income-generating” part of the Disney studios. “I defy Stanley Gold or anyone else to tell me that what I did wasn't singularly in the interest of the Walt Disney Company,” he said. “I guess Stanley is right—and it is a tragedy—that I was not sensitive enough to the issue of style in this case. But I only wanted what was best for the company.”

But the Katzenberg camp was throwing its own hardballs. David Geffen, who many observers blamed for encouraging Katzenberg to fight too hard for advancement, went after Eisner with unrelenting energy. He came up
with several different ways to call Eisner disingenuous and ungenerous, knowing that the press couldn't resist the sound bites. “Michael is not a guy who likes to share,” he said in one typical interview. “He is not a generous person. Michael Eisner is a very tall little guy. And Jeffrey Katzenberg is a very short big guy.”

Eisner responded: “I think Geffen is one of the most talented record entrepreneurs that I know. And I don't understand why he is so involved in our business.”

Geffen wasn't the only one hurling bolts at Eisner. Veteran producer Ray Stark—who had long ago allied himself with Geffen and Katzenberg against Mike Ovitz—now rallied to Katzenberg's side. Katzenberg's success at Disney exceeded the visions of Walt himself, Stark said, adding archly, “I have a great deal of respect for Mike Eisner and I hope his next move is not to give the gate to Mickey Mouse.”

It was the
New Yorker
article, in particular, that infuriated both sides. Eisner later said that Katzenberg inadvertently faxed him a note thanking Bert Fields for his help with the story. Eisner thought Katzenberg had agreed to cool the press coverage, but here was evidence that he had fanned the flames. Katzenberg was also incensed. In the article, Eisner made it clear that as far as he was concerned, he didn't owe Katzenberg a dime. “His contract is over,” he said. “When people's contracts are over, they're over.”

 

IT WAS A
tough time for Eisner. On the heels of ejecting Katzenberg, he finally had to announce a decision to jettison the Disney's America park. It was a stinging defeat. Spokesman John Dreyer still says the park will be built someplace, someday, but the company decided “not to roil the community” any further.

Former Imagineer Pat Scanlon—who observed the project's failure after leaving the company—thinks Wells as a strong second-in-command might have salvaged the situation. “There wasn't anybody at a high enough level to keep Michael in his box,” he says. “Michael was making public remarks that weren't helpful. Michael sounded a bit like an abrasive Hollywood producer coming to town. Frank would have shaped public relations because he would have made Michael more aware. Frank was the consummate diplomat.”

Disney's America wasn't Eisner's only problem. Disneyland Paris con
tinued to sputter financially and plans to expand on the West Coast refused to gel. Eisner would have had his hands full even if he had not decided to reorganize the studio. No wonder he was sick of hearing about Katzenberg.

Roth had nothing to do but focus on live action. As rumors spun that he was replacing everyone in the studio, he immediately signaled the advent of a more openhanded era merely by taking out bigger ads for upcoming films. Always known for spending lavishly on marketing, Roth kept up that practice when he took over at Disney. Within relatively short order, he announced that he would trim the number of films that the studio released each year.

An exodus from the studio began that was inevitably compared with the departures from Paramount when Eisner had gone to Disney in 1984. Bob Levin read that he was out as marketing chief in the trades; eventually, he wound up at Sony Pictures. Many others followed, and in less than a year, several key executives who had followed Eisner to Disney from Paramount years earlier were gone. David Geffen described Michael Eisner as “the Marty Davis of his day”—an allusion to the too-tough boss who had dismissed Eisner years earlier at Paramount.

As soon as Katzenberg left, the newly promoted David Hoberman started to worry about his future. He went to see Eisner, who spent about forty-five minutes trying to explain the recent turn of events to him and to soothe his anxieties. But soon after that, Hoberman started to feel a chill from Eisner. He called and requested a meeting, but to his dismay, nearly a month passed before he got in the door. Finally the phone rang late on a Friday afternoon and Hoberman went dashing to Eisner's office. He told Eisner he was concerned that he was too strongly linked with Katzenberg in Eisner's mind to survive the change.

“I picked Joe Roth to run the studio,” Eisner said. “If Joe loves you, that's fine. If he doesn't support you, that's that.” It was clear to Hoberman that Eisner had nothing against him. He had simply turned the decision over to Roth and didn't care what happened. Hoberman could respect that. It wasn't personal; Eisner had simply moved on. Within a couple of months, so had Hoberman. Roth wasn't inclined to keep him. Like many Hollywood executives who are no longer wanted, Hoberman was given a production deal at Disney and an office near the one where Mestres had taken up residence. One executive on the lot called their home “the Dead Presidents building.”

Y
OU GET THAT
psycho to call me,” Jeffrey Katzenberg said to Joe Roth in an early-morning phone call in October 1994. The “psycho” was Michael Eisner, and Katzenberg wanted to be congratulated on the founding of his new company, which would later be named DreamWorks. “This is about making things better,” Katzenberg told Roth. “So when I stand in front of a hundred journalists, I can say, ‘The first call I got was from Michael Eisner.' Which is what I'll do. I'll completely exaggerate what he said.” (Katzenberg now says he can't remember whether Eisner made the call.)

When he left Disney at the end of September, Katzenberg moved into new offices on Maple Drive. But not even two weeks later, he was already packing. That day, Katzenberg was introducing a roomful of reporters to his new partners: David Geffen and Steven Spielberg. The three were announcing the founding of an unnamed entertainment company that lacked neither ambition nor hype. The goal was nothing less than establishing a new studio—something no one had achieved in more than sixty years. At the time there were only seven such companies: Warner, Sony Pictures, Fox, Universal, Paramount, MGM/United Artists, and of course, Disney. Each of them depended on a library of films and television shows to throw off cash. This new company would face a daunting challenge without that steady source of income.

The new company had its seeds in the call Katzenberg had received from Spielberg on the afternoon of Katzenberg's dismissal from Disney. A few days later, Katzenberg had visited Spielberg at home. Spielberg observed that he, too, had long been under the protection of older mentors—Steve Ross, the legendary chairman of Time Warner, and Sid Sheinberg, president of MCA. But now, at forty-six, he thought he might be ready to head his own business. Even so, the actual advent of the partnership came as a
surprise to him. “Over the years I've had almost a religious fervor in not investing my own money in show business,” he said. “Not in my wildest imagination would I have guessed that this trio would have come together.”

In fact, Spielberg had to work hard to convince his wife, Kate Capshaw, that the new company was a good idea. “I love Jeffrey. But I never want you to become Jeffrey,” she said wisely. “I don't want you to become involved in that lather of workaholism.” Spielberg promised he would not allow the new company to become all-consuming—and put Katzenberg on notice that those were the terms of any deal. Spielberg also made it clear that he would not be exclusive to the new company; he would be open to directing projects at other studios. Clearly, the pressure would be on Katzenberg to prevent him from doing that.

Spielberg also sought the approval of his old friend, Sheinberg, who had discovered Spielberg when he saw the then-twenty-year-old director's short film
Amblin
. He signed him to a contract and the two had been close ever since. Spielberg had handsomely repaid Sheinberg's faith with the seminal hit
Jaws,
as well as
E.T.—The Extra-Terrestrial, Schindler's List,
and
Jurassic Park.

“Why do you need this? How does this benefit you?” Sheinberg asked when Spielberg approached him about the new venture.

“It benefits me because the idea of building something from the ground up, where I could actually be a co-owner, where I don't rent, I don't lease, I don't option but actually own—that appeals to me,” Spielberg replied. Finally he added, “Sid, if you don't want me to do this, I won't. You don't even have to explain yourself. You can just say, ‘No.'” But Sheinberg gave his blessing. With that, Spielberg told Katzenberg the new company would have to have some relationship with Universal as long as Sheinberg was president of MCA.

That was beginning to seem like a situation that might not last forever. Sheinberg and MCA's chairman, Lew Wasserman, were chafing under the tight controls imposed by MCA's Japanese owners. In 1990, Wasserman and Sheinberg had sold the company to Matsushita for $6.1 billion (with Michael Ovitz acting as the marriage broker). At the time it was perceived as a means to cash out while keeping control of the company. Wasserman pocketed about $350 million of Matsushita preferred stock while Sheinberg made about $90 million in cash. (The same deal also vastly enriched David Geffen, who had sold his music company to MCA before the Matsushita transaction.)

Wasserman and Sheinberg had been hoping that Matsushita would provide the money to expand MCA, but it quickly became apparent that the Japanese wouldn't finance the acquisitions that the two men wanted to make. Instead, Matsushita imposed tight financial controls. The marriage had quickly soured and now it was widely known that the parties were almost desperately unhappy with each other. After more than twenty years at MCA, Sheinberg's future with the company was in doubt. That certainly had colored his thinking when Spielberg came to him for his blessing to start a new company. “I'm in no position to stop you,” Sheinberg said, “when I'm unsure what I want to do with my life.”

Meanwhile, Katzenberg was also laboring to bring Geffen into the new venture. At first, the music mogul was reluctant. He and Spielberg were not best friends; when the two had worked with Warner, they had competed for the affections of Ross. It was a relationship that Geffen later characterized as sibling rivalry. “I was jealous of him but I respected him and wanted his approval,” said Geffen. “And we were thrown together a lot.” In her caustic tell-all,
You'll Never Eat Lunch in This Town Again,
producer Julia Phillips had tattled that Geffen had once called Spielberg “selfish, self-centered, egomaniacal and worst of all—greedy.” Geffen denied ever having made such a statement and clearly Spielberg now elected to believe him. But the competition was still there. A knowledgeable source said that one argument Katzenberg used to provoke Spielberg into joining the new venture was, “If you're so successful, how come Geffen has more money than you?”

And Geffen certainly had a lot of money. At age fifty-one, did he need the problems of starting a new company? He was rich several times over. His contract as chairman of MCA's Geffen Records division was going to expire in about six months. “I hadn't been working to my capacity,” he said later. “I'm not sure I wanted to. I was comfortable.” He was collecting art, renovating the Jack Warner estate, hanging out with the president of the United States, enjoying his role as mogul-at-large. “Why do you need me?” he asked. In a meeting with Katzenberg and Spielberg—in which Katzenberg hoped to start forming a bond among the three—Geffen was told that his financial acumen, talent relations, and skills in music were essential to the new company.

At the end of September, hours after attending a White House dinner for Russian president Boris Yeltsin, Spielberg and Katzenberg sat in Spielberg's suite at the Hay-Adams Hotel in Washington hashing over final plans
for the studio. It was 1:30
A.M
. but they decided to phone Geffen, who was spending the night in the Lincoln Bedroom at the White House. “Come over here now,” Katzenberg said.

“How do I get there?” Geffen asked.

“Call a taxi!” Katzenberg urged.

“You can't call a taxi to the White House,” Geffen replied. He also felt that he couldn't stroll into the hall to ask a guard for directions (though the hotel was only a short distance away). But by 6:30
A.M
., he had made his way to Spielberg's rooms with a White House car. “We all looked at each other and said, ‘Let's do it,'” Spielberg said later.

Perhaps Geffen was finally convinced, at least in part, because of his painful awareness that many were blaming him for encouraging Katzenberg in his campaign for advancement at Disney. This would be a way of standing by his friend and getting back into the game in a more challenging way. As he later acknowledged, “The reason there's a [company] is because Michael Eisner wouldn't give Jeffrey the job. Jeffrey is the catalyst for all this. I mean…he said to me, ‘Do you want to do this?' and I said, ‘No. This is a lot of work and I am a very, very, very rich man…. But I got caught up in it, and I did not want to hand him a ‘no' as he had gotten from Michael Eisner. I did not want to be another person that didn't want to give it to Jeffrey.”

Katzenberg had achieved his immediate goal. “I felt like I'm driving the stagecoach and holding the reins of these two world-class stallions,” Katzenberg said. All he had to do was keep two of the world's largest egos at peace. Characteristically, Katzenberg cast himself as the subordinate. “There's a piece of paper that says we're partners, but honestly, in my heart, these two guys are my superstars and I'm here to take care of them,” he said at the time. “I feel like I work for them.”

 

THE NEW COMPANY
would have everything: film, television, music, and an interactive unit. And in a shot that undoubtedly was heard at Disney, there were plans for a major animation operation headed by Katzenberg. This would be Katzenberg's chance to show whether he had overplayed his role at Disney or if he really had the goods when it came to animated product. In any case, it meant there would soon be a bidding contest for talent between Disney and the new studio.

On October 12, Katzenberg arrived early at a press conference at the
Peninsula Hotel in Beverly Hills to announce his new plans to the media. Geffen was so nervous that he spent the early hours of the day throwing up. Though Katzenberg had done everything in his power to keep the new company a secret, it was reported in that day's
New York Times
and
Wall Street Journal
. Spielberg was furious with Michael Ovitz—convinced that his own agent, and one of the few people in on the plan, had leaked the story.

Ovitz was said to have been angry because he had not been allowed to play some role in setting up the new company. (In fact, there was a certain logic to Ovitz having leaked the story, because the Ovitz camp had blamed Geffen in 1990 when MCA's negotiations with Matsushita seeped out to the press.) Ovitz vigorously denied that he was the source of the stories, but the episode did nothing to smooth his already-tense relations with the DreamWorks founders. There were also reports that Ovitz was privately questioning the viability of the new enterprise, which only made matters worse.

The company's name was not announced that day, though Katzenberg hinted at it by saying, “This has got to be a dream team.” Indeed, the
New York Times
hailed the company as “the biggest merger of talent since Charlie Chaplin, Mary Pickford, Douglas Fairbanks and D. W. Griffith founded the United Artists movie empire in 1919.” DreamWorks announced itself with an éclat that could satisfy even the outsized appetites of Jeffrey Katzenberg.

Of the trio, Katzenberg was by far the poorest. Spielberg's wealth was estimated at more than $600 million and Geffen said he was now worth $2 billion. Katzenberg was still struggling to get the money that he felt Disney owed him. He even let it be known that, much to his wife's consternation, he had mortgaged himself heavily to buy into his new company—including his new beach house in Malibu as well as his house in Deer Valley, Utah. Though financial information was not disclosed to the public, the three men reportedly put up $33 million each to start the company. “I am in hock up to my eyeballs,” Katzenberg told the
New York Times Magazine
cheerfully.

The partners set out to raise more money and Katzenberg correctly predicted that this would not be a difficult feat. Microsoft cofounder Paul Allen quickly put up $500 million for slightly more than 18 percent of the company. Korean investor Mie Kyung “Miky” Lee pledged $300 million more. (In 1998, Lee's Cheil Jedang Corp. reduced its stake because of the Asian
economic crisis while Allen upped his share to more than 24 percent.) DreamWorks quickly assembled $2 billion worth of operating capital. Other equity investors included Capital Cities/ABC, Microsoft, the Ziff Brothers investment partnership, and Chase Securities. There was an additional billion dollars in bank financing underwritten by Chase Manhattan.

Katzenberg and Spielberg started shopping for real estate. Though Geffen didn't see why the studio couldn't be “virtual,” without going to the expense of creating a lot, Spielberg's vision was to “drive through his own studio gates,” according to a DreamWorks insider.

With the launch of his new company, Katzenberg realized that he would have to open his fist and finally lay to rest his image as a cheap and controlling executive. It wouldn't be easy. A spoof of his ill-fated 1991 memo made the rounds—this one so full of rage that it pretty much forgot to be funny.
“This time it's all about me,”
the memo said. “Working for our company is going to be like enlisting in the Marines, minus the health benefits, the low-interest loans, the job security, the travel discounts and the life expectancy.”

Katzenberg quickly set about making deals to show that the memo was out of date. Jeremy Zimmer, the agent who represented writer-producer Gary David Goldberg in one of the first television deals at DreamWorks, said the negotiation lasted a mere twenty minutes. “It wasn't like the old Jeffrey—‘I'm going to try and get it wholesale,'” Zimmer said at the time. “It was definitely a retail deal.” The DreamWorkers also announced that everyone who worked at the company would receive shares in it. And they shunned the notion of assigning titles to anyone, including themselves.

 

SOON AFTER KATZENBERG'S
departure, Disney announced results for fiscal 1994, which ended on September 30. It had been a banner year, with record revenues of $10.06 billion. Operating income was up 14 percent to $1.97 billion, also a record. Eisner, having missed out on a bonus in 1993 because of Euro Disney's problems (though he'd netted $203 million thanks to his stock options), was back in the game with a $7.4 million reward. And largely, he had Katzenberg to thank. His bonus was due in great part to profits reaped from
Aladdin
and
The Lion King
. (His total compensation for the year was $10.6 million.) With hits like
The Lion King,
the Tim Allen sleeper film
The Santa Clause,
and Miramax's
Pulp Fiction,
Disney in 1994
became the first studio in history to gross more than $1 billion at the box office.