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annals of communications
The New Yorker - September 9, 1994

the human factor

Michael Eisner and Jeffrey Katzenberg were one of the steadiest and most successful teams in Hollywood. So why did they force a split that neither man wanted?

by ken auletta

My car phone rang. It was August 30th, and I was on my way to Kennedy Airport to fly to Los Angeles for a dinner with Jeffrey Katzenberg, the chairman of Walt Disney Studios. He had told me earlier by phone that he would give me the real story of why, just six days before, he and Michael Eisner, the chairman of the Walt Disney Company, had announced their divorce. In the phone call I got when I was halfway to Kennedy, Katzenberg cancelled dinner. He explained that Eisner, for whom he had worked a total of eighteen years, both at Disney and, before that, at Paramount Pictures, was furious over comments that Katzenberg's friends had made to the press.

In particular, Eisner was furious over what the director Steven Spielberg had said to the Los Angeles Times: "Jeffrey Katzenberg's exit will be Michael Eisner's Machiavellian loss--and Corporation X's El Dorado."

"I've got to let the situation calm down," Katzenberg said over the car phone. Eisner, he said, had asked him to quiet friends like Spielberg and David Geffen, the billionaire entertainment impresario. The publicity was hurting the company, Eisner had told him. And, Katzenberg felt, it was hurting his own reputation with prospective employers and possibly weakening the leverage he could exert in extracting a generous contract settlement from Eisner. Katzenberg said that if Eisner found out that he and I had met he would rightly feel betrayed. A man who delivered so dependably that he had been nicknamed the Golden Retriever was now mistrusted. "Sorry," Katzenberg said. "The rules have changed. I have given Michael Eisner my word that I'm not going to do any more interviews unless he specifically directs me to."

I phoned Eisner when I returned home. "I'm not ready to discuss it," he said, explaining that after at first talking to reporters he had decided that the company should shut up. Having undergone quadruple heart-bypass surgery just four weeks earlier, he said, he needed rest, and he added, "My wife is ready to kill me." (In the end, Disney officials chose to speak, fearful that Katzenberg and his allies were talking to the press.) The one comment Eisner did make about the breakup was that he had to deal with what he referred to as "this thing."

The "thing" he meant had come about on the morning of Wednesday, August 24th--a year after he and Katzenberg went for a walk during a stay in Aspen, Colorado, and first discussed Katzenberg's desire to broaden his role at Disney. Ten years before, when they left Paramount together to take over the moribund Disney, its revenues were a billion four hundred million dollars. In 1993, its revenues were more than eight and a half billion dollars. The pretax profits of the film studio, which Katzenberg ran, jumped from two million dollars in 1984 to about eight hundred million in 1994. Throughout the past decade, no film studio has reported greater profits.

All this helps account for why the announcement on August 24th of Katzenberg's departure from Disney has shocked the entertainment industry. "Stability" is a word that is much invoked but little honored in Hollywood. The best-run studios clearly are those with stable leadership, such as that of Eisner and Katzenberg at Disney, and Robert Daly and Terry Semel, the chairman and the president, respectively, of Warner Bros. Enduring marriages are so rare in Hollywood that when one dissolves the town leaps to attention. Haiti and health care took a back seat to Eisner and Katzenberg, with residents of Hollywood asking, "How could such a successful team fail?"

The failure is in part a tale about relationships, a reminder that the path to the so-called information superhighway is pocked with potholes, many of them man-made. Two gifted entertainment executives ended up in positions and reached conclusions that neither wanted. Both were swayed by pride and a stew of other emotions. As was true when Viacom terminated Richard Snyder as chairman of Simon & Schuster, last June, this breakup was dictated by personalities, not performance--by human more than business factors.

IN 1976, when Katzenberg and Eisner first met, Katzenberg, at twenty-five, was a low-level assistant to Barry Diller, who was then running Paramount Pictures, with Eisner, at thirty-four, as his second-in-command. By most accounts, during the eight years they spent together at Paramount, Eisner saw Katzenberg as a gofer--a short, brusque assistant who wore dark suits, white shirts, and large square glasses and did what he was told. Eisner admired Katzenberg's machinelike efficiency. In 1984, Diller clashed with Paramount's C.E.O., Martin Davis, and left the company. Davis, who barely knew Eisner, chose Frank Mancuso to run the studio. Eisner accepted an offer to become the chairman of Disney, with Frank Wells, who had been vice-chairman at Warner Bros., joining him as president and chief operating officer. Katzenberg was invited to join them as a junior partner. "I told him that Eisner doesn't want a partner," said a former Paramount executive who was close to Eisner and whom Katzenberg consulted. "Michael will never accept you as a partner."

"If I'm good enough, he will," Katzenberg told the executive.

For the next decade, Katzenberg tried to prove his worth. While esteem for him grew in the Hollywood colony, which saw that he had learned to be an able and creative executive, he never felt fully accepted by Eisner. They had a standing business dinner every Monday when both were in town, and yet, Katzenberg told friends, in fifteen years the only social dinner they had together with their wives was during the week after it was decided that he would leave Disney. David Geffen said that Katzenberg, having had an at times distant relationship with his father, "didn't want to be treated as a golden retriever," and added, "He wanted Michael's approval." But Eisner, Geffen went on, having had an aloof father, and having worked for a scold like Diller, apparently found it difficult to give praise. He never complimented Katzenberg for lashing "The Lion King" into shape, Geffen said, even though it is sure to earn Disney a billion dollars. "As tall as he is, he's a little guy," Geffen said of the six-foot-three-inch Eisner.

Katzenberg wanted to be a sounding board, a partner, the way Frank Wells was. He was enthralled with his job, loved coming to the office in jeans and a Mickey Mouse T-shirt, loved taking his wife and twins to Disney World, as he did each September after joining Disney. But, good as he was at his work, he never succeeded in convincing Eisner that he was a wise, well-rounded executive. "A golden retriever fetches," a Disney executive who knows both men said recently. "He does not think for himself. He goes in the direction his master wants."

In August of 1993, Eisner, Wells, and Katzenberg went together to Aspen for an industry conference. Within Disney, Wells was known as the diplomat, the man people went to see if they wanted to persuade Eisner to change a decision or if they simply wanted to complain. He also did the unglamorous work--rescheduling corporate debt, negotiating labor contracts, and finding investors to reduce Disney's exposure. Frank Wells was a generous contributor to Democratic candidates, and flirted with the idea of one day running for office--maybe for the Senate. He had already scaled six of the seven highest mountain summits in the world, taking two sabbaticals to do so. His climbing feats implicitly announced to everyone in the company, "My life is not just about work. I compete with myself, not with anyone else." In Aspen, Wells and Eisner agreed on the broad outlines of a new seven-year contract.

Eisner then turned his attention to Katzenberg, telling him he hoped that he, too, would agree to a generous, multiyear contract. The two men talked about how Katzenberg had a month to decide whether to exercise the option in his contract, which would allow him to leave the company in September of 1994. If Katzenberg did not exercise that option, his employment would continue through September of 1996, and he would receive a significant but as yet undefined bonus and stock payment. Katzenberg had been thinking more and more about declining to renew, for he was troubled by what he felt was a growing estrangement from Eisner. Disney was now a behemoth, with interests in film, video, television production, music, books, theme parks, interactive games, consumer products, hotels, real estate. The relationship between Katzenberg and Eisner had become more formal. Although Eisner approved the studio's major productions and often read the scripts, more and more of his time and energy were consumed by a controversial theme park near the site of a Civil War battlefield in Virginia and, especially, by Euro Disney, in France. Building Euro Disney had required an investment of four billion dollars, much of it from outside sources. In the company's 1993 annual report, Eisner candidly described Euro Disney as "our first real financial disappointment," so "dreadful" that he would grade the effort as "barely a D." Personal strains added to the business strains. Eisner sometimes felt pushed by Katzenberg, while Katzenberg felt that Eisner resented the fact that the son was straying from the nest. And Katzenberg was now a more visible presence around Hollywood, in contrast to the impeccably anonymous Frank Wells.

Eisner invited Katzenberg to take a walk with him through downtown Aspen. Katzenberg later told an unassailable source about their conversation.

"What do you want?" Eisner asked.

Katzenberg told Eisner that he saw himself as a builder, and he wanted "new mountains to climb." He wanted to be treated as a partner.

Eisner asked if he wanted to be vice-chairman and sit on the Disney board.

Katzenberg said, "Does it make sense for Frank to be vice-chairman and me to be president?"

"No. That would be perceived as a demotion for Frank," Eisner said.

According to the version Katzenberg has related to colleagues, Eisner then said what Katzenberg longed to hear: "If for any reason Frank Wells is not here--if he decides to run for political office, if he goes off to climb the summit--you are the No. 2 person, and I would want you to have his job."

Subsequent events pivot on whether this conversation occurred in fact or only in Katzenberg's imagination. Eisner has denied it. Close Katzenberg associates--among them Geffen, who served as Katzenberg's chief strategist over the following year--insist that Eisner made the promise. Katzenberg can recite for friends the exact site at which Eisner reportedly did so--in front of Boogies, a diner in downtown Aspen. Although Eisner, like any good executive, sometimes says things to stroke his employees' egos, Katzenberg loyalists view him as a liar. "Michael is well known in Hollywood for being careless with the truth," Geffen, who is one of the few Hollywood executives unafraid to speak their minds, said. There is anecdotal evidence for such an interpretation. A former deputy who remains friendly with Eisner remembered that he would make commitments to go ahead with a movie, and then, as soon as the producer left, would tell the deputy, "Get me out of it."

"But he'll say you lied," the deputy would tell him.

Eisner is reported to have replied, "That's not lying. It's business."

This anecdote had a certain resonance, for I remember interviewing Eisner last year, and at the end of our meeting he mentioned a director whose work and politics he abhorred. "He'll never make a picture for Disney," he confided. Coincidentally, that night at an industry dinner I was standing near this director when Eisner approached and said to him, "I love your work. When are you going to make a movie for Disney?" Still, as Eisner might say, that's business. Or, at any rate, that's Hollywood.

A second interpretation is that Katzenberg is not telling the truth. Eisner would never make that pledge to Katzenberg--so say five men who have talked to the Disney chairman about it. They say that Eisner never wavered in his conviction that Katzenberg lacked the scope to be C.O.O.--lacked the kind of broad business experience that Wells had as a business lawyer and as the vice-chairman of Warner Bros. A key Disney board member says, "It's not consistent with the way Michael would have behaved. You don't make decisions in the abstract that far in advance. I don't believe Michael made a blank commitment of that kind. He never told the board, and I believe he would have. The board has given him total support, not just because we respect his abilities but because we're never surprised. If Jeffrey believes he heard it, I think he misinterpreted it."

What is clear is that, at age forty-three, Katzenberg was determined to enlarge his portfolio of responsibility. As was true of Eisner a decade earlier, when they both worked at Paramount, he wanted a bigger job. Katzenberg, who had had only a year of college, worked to expand his range of knowledge. He read, including books on management. Known as a ruthless cost-cutter and a micromanager of movie production, he struggled to be more sensitive. He talked freely to reporters, and was widely admired for his candor. He socialized with his peers, taking rafting and other outdoor trips with fellow-executives. He thought of himself as becoming more relaxed, more social, though that is not always what associates thought. "Jeffrey's never had a social dinner with anyone," says a longtime Disney executive who is aware that Katzenberg sometimes had three different guests at a meal but asked each to wait while he completed his allotted half hour or so with each of the others. "Even when Jeffrey goes rafting, it's business. It's bonding--so that when they get back to town they can do business. This town is not particularly good at real friendships."

By 1993, Katzenberg had become more visible--as an executive with a wide circle of friends, as a fund-raiser for AIDS causes and Democratic politicians, as a political presence in Washington, as a Hollywood potentate. But he craved new challenges. And he craved Michael Eisner's approval. So, to test the relationship, when lawyers notified Katzenberg that if he did not exercise his option and stayed in his contract through 1996 he would receive a hundred million dollars in bonuses and stock options, Katzenberg stunned Eisner by declining.

KATZENBERG had decided to call Eisner's hand. If he did not have a new mountain to climb in the remaining year of his contract, he would leave, he said. This refusal, associates said, proved Katzenberg's sincerity and his lack of greed. The Disney director Stanley P. Gold, who had helped recruit Eisner and Wells for Disney, said, however, that the refusal is proof that Eisner could not have told Katzenberg in Aspen that he would one day get Wells's job. "I believe that Jeffrey's giving notice shortly after this alleged conversation is proof that it never occurred," he told me. "If it had occurred, I can't imagine that Jeffrey would, within thirty days thereafter, give Michael and the company notice that he was leaving." Indeed, the chronology of the Aspen walk and Katzenberg's giving notice, a month later, is the most compelling argument that Eisner did not lie.

Katzenberg's retort is that he was hoping not to leave. Between September of 1993 and April of this year, he became ever more publicly visible. "When Jeffrey could not get recognition inside, he went outside," a Katzenberg aide said. Eisner, unsurprisingly, did not much like feeling pressured. Nevertheless, during this period the two men spoke of their joint search for new challenges. Eisner asked Katzenberg to spearhead Disney's attempts to become a major Broadway producer by taking over a theatre and launching the effort with a stage adaptation of "Beauty and the Beast." They talked about Disney's buying a television network--a proposal that Katzenberg fervently supported. Both men were hopeful about their chances of reaching an accommodation. In fact, a member of the board's compensation committee recalls that by late winter he was confident that Katzenberg would sign a new contract. "It was my impression from discussions with Frank Wells that we had just about closed up with Jeffrey on a new contract," the Disney board member said.

Fate intervened on Easter Sunday, when Frank Wells died, in a helicopter accident in Nevada. The next day, Eisner abruptly announced at a staff luncheon in the company's Burbank headquarters that he would assume the duties and title of president. It was a way of reassuring nervous investors that, as a one-page press release issued on April 4th said, "we have in place a strong management structure that will carry Disney forward."

Katzenberg had admired Wells, as had almost everyone in the room, but, still, he was focussed on himself. He seethed. "I don't think I blinked for the entire lunch," he told an associate. He had been in his office down the hall since six-thirty that morning, yet Eisner had told him nothing. He thought he was Eisner's partner, he told friends, yet, despite eighteen years of working together, despite their conversation in Aspen, he had been treated as an appendage. During the meeting, he fought to keep his composure. "If he had assured me, privately, that it didn't mean anything, fine," Katzenberg told an unassailable source. "But by his actions Michael assured me that he meant everything. It told me that he wouldn't share with me."

That night, the two men had their regularly scheduled Monday business dinner at Locanda Veneta, on Third Street in Beverly Hills. They talked about Wells, and then about some business matters. Both men were shaken by Wells's death. The subject of Katzenberg's role never surfaced. He told one source that it was Eisner's place to raise it. Perhaps, a close Katzenberg friend suggested, he was afraid to confront his figurative father. Although Katzenberg normally sleeps well, that night he restlessly prowled through his house. An image was building in his mind that Eisner was condescending to him, he told friends.

The next morning, for the first time in ten years at Disney, a visibly angry Katzenberg told Eisner's secretary it was important that he and Eisner lunch that day. Eisner got the message, and they met in a private corporate dining room. Katzenberg wasted no time, as he later told friends, recounting the conversation in detail. "You had promised it to me," he said to Eisner. "I don't understand what you're doing. I don't understand your putting out that press release without talking to me. I don't understand why you said nothing at dinner. I don't understand why, after eighteen years, you wouldn't first talk to me. If you don't want to do what was promised, I'm leaving."

Eisner was furious, and is said to have retorted, "You're putting a gun to my head."

"No, I'm just holding you to your promise."

"Are you telling me that if I don't do this you'll leave?" Eisner is said to have asked, incredulous at what he saw as immature, insensitive behavior.

"I want you to do what you said you wanted to do," Katzenberg responded. Later, Katzenberg informed his friend David Geffen that at the end of lunch he said to Eisner, "I'm going to leave."

The luncheon meeting left both men enraged. Katzenberg thought that Eisner had reneged on a promise made in Aspen. He felt deeply wounded, and couldn't fathom why Eisner would ignore him. Eisner thought that Katzenberg was audaciously disloyal to Wells, not unlike Shakespeare's Richard III murdering Prince Edward and immediately wooing Edward's wife. Even Katzenberg's most ardent supporters, though they believed he had reason to be upset, thought that he had pushed too hard too soon--had given ammunition to his detractors that he was not fit to succeed Wells. Thus a business virtue--that he pushed hard--became a personal liability.

At a meeting in April, Eisner apprised his board of the conversation. Most of the directors were livid. "I didn't think it was appropriate," one of the more temperate directors said. "We had to digest an enormous loss. Frank's body wasn't off the mountain yet. It exhibited bad taste and judgment." Harsher words were spoken by Roy Disney, the board's vice-chairman and the one director who really knew Katzenberg, from their work together on animated films, and who could not abide him, and said so. Obviously, Katzenberg protested to associates, Eisner had never told the board that he'd been promised the job. And, because he wasn't on the board and had failed to court its members as allies, his side went unheard.

The board members began to think that they might not be able to satisfy Katzenberg's desire for a bigger job. Meanwhile, Katzenberg was becoming more and more pessimistic. "He said from the beginning that Michael would be unwilling to share, to make him his junior partner," Geffen recalled. "I said, 'No way. He won't risk losing you.' "

Katzenberg, goaded by Geffen--whom many in Hollywood came to blame for reinforcing Katzenberg's combative tendencies--hardened his position: he wanted Frank Wells's title. Eisner, goaded by his board, was determined not to give it to him. Eisner kept Wells's office, which adjoined his own, empty for months. For Eisner, Wells was irreplaceable. While the clock on Katzenberg's contract was running down, the two longtime associates were drifting apart. Katzenberg cared about the title, and wanted confirmation of his own stature. Eisner didn't want to give the title, because he told his board that he didn't see Katzenberg as the kind of astute partner that Wells had been. A key Disney director said of Katzenberg's being named C.O.O., "It would be a waste for him to do that job. In a large sense, Jeffrey's job as chairman of the studio was a more important job than Frank's job.

It would be silly to dilute his effectiveness as chairman of the studio. Frank's job involved so much detail--hard, technical kinds of things."

The real plotline here is about two people who are "married," a friend of both Eisner and Katzenberg observed. "And suddenly one party says to the other, 'You're used to my staying home all these years. Now I want to go out.' " On top of this, the friend added, Eisner was like a jealous spouse, "threatened" by Katzenberg's declaration of independence and his enhanced public profile.

Nevertheless, with Wells gone, Eisner did confer more power on Katzenberg--"more trinkets" is how Katzenberg described it to friends. He gave Katzenberg responsibility for Hollywood Records, and for Disney's efforts to promote interactivity with electronic games and its prospective linkups with the Baby Bell telephone companies. More responsibility was accompanied by more anxiety, and produced ambivalence in both men. However embittered their relationship was becoming, at moments both Eisner and Katzenberg still thought that something could be worked out. They agreed to resolve this matter in August of 1994, when both could get away from the office.

Then, once again, fate intervened, when, on July 15th, specialists told Eisner that his heart was weak, and that he must immediately undergo a heart-bypass operation. The next day, doctors performed a quadruple bypass on Eisner. Katzenberg, according to an aide, learned of the operation when he phoned Eisner at home to give him the weekend movie grosses, and Eisner's wife, Jane, said, "Oh, Jeffrey, I meant to call you." By contrast, Roy Disney had been notified the day before, and had rushed to the hospital from a castle he owns in Ireland. A press release announced that Roy Disney, not Katzenberg, would be Eisner's stand-in. Soon stories appeared in the press that Katzenberg might leave if he didn't get Frank Wells's job--stories that Eisner's champions attributed to Katzenberg. A friend who visited Eisner at the hospital said, "He was lying in a hospital bed, tubes coming out of every part of his body, drifting in and out of consciousness, and when he's awake he sees that he's being pushed and pushed in the press."

Eisner appeared to push back. On August 1st, Newsweek published an interview that Eisner had given a month before his bypass operation, in which he said that the company would now be "modelled after Rupert Murdoch's News Corp. In other words: a powerful C.E.O. without a strong second-in-command." Eisner added that the plan was the "suggestion" of Roy Disney. Time reported in its August 1st issue that Eisner and the board "may solicit a list of outside candidates as early as this week" to fill Wells's post.

Not surprisingly, Katzenberg was despondent. He took the first week of August off and holed up at his house in Malibu. "By this point, Jeffrey was retreating from his role as the perfect corporate citizen," according to his close friend Jim Wiatt, the president of International Creative Management, who visited Katzenberg during this period. "He was starting to say, 'I'm getting tired of not being dealt with.' He felt he had to force a confrontation."

And so he did. The timing was atrocious, so soon after Eisner's operation that he had not returned to the office. Eisner felt pressure to settle up with Katzenberg, and invited him to his home, in Bel Air, one evening during the second week of August. Eisner told Katzenberg that he was agitated by press stories that Katzenberg was pushing for a bigger job and a better title. Katzenberg is said to have told friends that he had cut Eisner off and said, "I never told Frank Wells how much I liked working with him and how much I loved him. I realize I've never told you how much you've meant to me." So he told Eisner how much he admired him and how thankful he was for all he had learned. But Eisner was given reason to question whether the "love" was real when Katzenberg concluded, "Having told you all that, it's also time for me to move on."

"Have you taken a job?" Eisner asked.

"No."

"Is it something we can discuss?" Eisner asked.

"We can talk about it, Michael, but I suspect that the decision is carved in stone by other people." He knew that he was isolated from the board, and instead of blaming himself he blamed Eisner for keeping him on a leash. He continued, "Roy Disney is hostile to me. You think I want to go into a board meeting and know that I don't have the complete support of Roy Disney or Stanley Gold, or know that the only reason I'm there is that you shoved this down their throat?"

Eisner knew he had received an ultimatum. He tried to buy some time. He asked Katzenberg to put down on paper what he saw as his role, how he would define the partnership he sought, how he would reorganize the company, what executives he would replace, what corporate acquisitions and strategy he would recommend. In brief, Eisner wanted Katzenberg to crystallize something that they had often discussed: how to reinvent Disney.

Over the next ten days, Katzenberg drafted a four-page memorandum, but even as he did so he was dubious whether a partnership could work. He was torn. Intellectually, he didn't believe that Eisner would share power, yet he knew that Eisner did not want to lose someone whose movie and television divisions generated half of Disney's pretax profits. Emotionally, he wanted to escape from Eisner's shadow, yet he believed in the Disney family. He had a love-hate relationship with Eisner and a love-hate relationship with his current job. He was on a ledge, wanting--and not wanting--to jump.

On August 24th, Eisner pushed Katzenberg off the ledge. In a calculated show of strength that allowed him to take control of the situation, Eisner summoned Katzenberg to his office and, in what both men have described as a relatively amicable conversation, said that there was no way to reconcile their positions. Katzenberg had brought along his four-page memo but never got to present it. Instead, Eisner handed Katzenberg a draft of a press release, and asked him to review it. The release, to go out that day, would announce not only Katzenberg's departure but also a new, decentralized reorganization, which would split Katzenberg's job responsibilities into three parts--live-action motion pictures, the animation division, and television and telecommunication services.

"I saw the seeds of division between Jeffrey and Michael," I was told by William M. Mechanic, who left Paramount with both men and worked at Disney until a year ago, when he was named president of Twentieth Century Fox. "But, because of business interests, I didn't think it would come to this." Business logic dictated that they remain a team; human logic dictated something else. Michael Eisner felt a need to terminate what had become a draining relationship. At first, both men felt a measure of relief that their ordeal was over. But the emotion was short-lived. The initial reaction among Katzenberg's many loyalists was that Eisner had been ruthless. "It was about as cold as could be," one Disney staff member said of their parting, not knowing that Katzenberg had been equally cold in pressing Eisner for Wells's job. What is missing in the horror that has been expressed over Katzenberg's termination is a sense of irony. Katzenberg was not shy when it came to terminating employees and slashing costs. "No one could do cold and callous better than Jeffrey," a longtime Disney executive who respected him recalled. "He was as tough and as mean as anyone in business."

At Disney, the initial anger over the rupture was mixed with tears--genuine tears, for Katzenberg was also admired as a leader who was generous with praise and bonuses, who remembered names and birthdays. "In a world where no one has a heart, he is wonderfully protective and humorous, despite his reputation," said Harvey Weinstein, the co-chairman of Miramax, whose successful film company Katzenberg had persuaded Eisner to acquire last year. When Katzenberg took his family to Disney World during Labor Day week, the entire animation department surprised him with a keg of his favorite drink (Diet Coke) and presented him with a huge drawing showing Katzenberg surrounded by the animated Disney characters that they had created together over the past decade. Then two hundred and fifty members of the department formed a line so that he could sign their "Lion King" books or drawings. Katzenberg's wife, Marilyn, stood to one side and cried.

During the tearful interlude, however, the spin patrols were at work. Eisner talked to reporters. "This is not a Shakespearean tragedy," he told the Los Angeles Times. "This is people moving on with their lives, and doing new and interesting things." The press release had said, "With heartfelt thanks and obvious regret, I wish him well in his future endeavors," and Eisner played the breakup as the growing pains of a child who was intent on finding his own apartment. Katzenberg wanted his job, Eisner coolly suggested, and it wasn't available. As chief executive, he had made the necessary tough-minded decision. Eisner, having lost a president and undergone a heart-bypass operation, wanted to convey the notion that this was an inevitable split and that Disney remained strong. Ironically, after a burst of orchestrated outrage from friends, Katzenberg, for different reasons, shared that aim. The audience he had his eye on, he told friends, was the communications executives who attended conferences such as the one that the investment banker Herbert Allen, Jr., held annually, and to which he has regularly been invited. Katzenberg did not want to look to this audience like a non-team player, a whiner. He needed to take the high road. "The way I handle this speaks to what my character is," he told friends. A second business reason that Katzenberg sought to mute criticism of Eisner or Disney was that he hoped to get what he told friends was "a king's ransom" from Disney as a contract settlement. Although his contract was to expire at the end of September, Disney, as he interpreted it, owed him a generous exit payment, because he enjoyed profit participation. A number of his projects, including "The Lion King," swelled his line of credit.

The contract-settlement discussions got ugly. Eisner did not think he owed Katzenberg any money, he told me in a telephone conversation when I was in California in early September. He did not budge from his insistence that he would not treat this parting as a "gossipy, tabloid event," and said, "I'm not going to give you the opposite view from David Geffen's. What does he know about this?" But one view he would share was that Disney owed no payment to Katzenberg. "His contract is over," he said. "When people's contracts are over, they're over."

Did he owe Katzenberg money?

"Not in my mind," he replied.

Because Katzenberg felt otherwise, he quietly retained a noted Hollywood lawyer, Bert Fields. Katzenberg set a September 9th deadline for reaching an accord, and then amended it. While Katzenberg was at Disney World, a Disney lawyer asked Katzenberg's staff how fast he could vacate his offices--an inquiry that was blown up into "They asked him to leave!" So exclaimed a Katzenberg friend on September 8th. Geffen warned that if Eisner didn't work out a settlement "he's going to have to tell the truth under oath about everything." He added, "Eisner's lack of kindness, lack of generosity, and inability to give credit were simply shameful." Katzenberg, although he did not believe that Eisner had known of the lawyer's call about vacating his office, felt "debilitated," an associate said.

On Saturday, September 10th, Eisner softened the hurt by visiting Katzenberg at home. Katzenberg told an unassailable source that he was determined to stop playing the role of supplicant; he told Eisner that the ball was in his court and that he would wait for a settlement proposal, to which he would then give one of two responses--either "Yes" or "Talk to my lawyer."

WHAT should have remained a private business difficulty instead escalated into a messy public divorce. The Disney split has unsettled Hollywood. "This is the biggest Hollywood story I've seen since I took over Premiere," said Susan Lyne, who has been the editor of the magazine ever since she launched it, in 1987. "It is the end of the most successful twenty-year partnership in Hollywood. And it sent out ripples throughout the industry. Wherever Jeffrey goes, he will replace someone." And his departure will remind all those in the entertainment colony of their fickle life.

"There wasn't a person in this town who didn't look in the mirror and say, 'If it can happen to Katzenberg, it can happen to me,' " a Hollywood agent said.

There are also possible consequences for Disney. "It's a major loss," said Stanley Gold, who has been harshly critical of Katzenberg. "He's a talented fellow who helped drive that department"--the Disney studio--"to new heights. He will be replaced, as all managers are replaced. But to suggest there is no loss? You won't get that from me."

While Joe Roth, Katzenberg's successor as studio chief, is respected in Hollywood, a longtime Disney producer who admires both Katzenberg and Eisner said, the loss of Katzenberg will be felt by producers and directors and writers, for they will now be confused about what projects to take to Disney. "Jeffrey imparted a world view," he said. "It's what made the place work. If you couldn't put into a fifteen-second tease why people should see this, we shouldn't make it. It's another way of saying 'high concept.' "

The departure of Katzenberg could also have an impact on Disney's strategy. Eisner has been criticized for being too cautious about acquisitions, and certainly Katzenberg tried to get him to open Disney's wallet and buy a network to guarantee the distribution of Disney's television products. But Eisner has argued publicly that, as long as access to the so-called information superhighway is available to all, Disney needn't invest in a delivery system. Whether the delivery system of the future is a phone wire or a cable wire, over the air or over direct-broadcast satellites, a computer screen or a wireless system, he says, none will dare shut out Disney as long as it stays a software factory.

Perhaps as a way of demonstrating Disney's stature--of telling the world that his heart is strong and that Katzenberg's departure has been taken in stride--Eisner has made a major move in the last two weeks: according to three executives who say they know, Disney has entered negotiations with General Electric to acquire NBC. In urging me to wait with this story, Eisner suggested that if I did I would glimpse Disney's true strategy, because there were deals pending. "There are a lot of things changing in our company that will be helpful to you," he declared. But Rupert Murdoch, the Fox chairman, told me, "The problem for Michael is this: he has to keep making the same contribution to the company he personally made over the last ten years. And not try to do Frank Wells's job. Not that he'd be bad at it. But he can get people to do that."

It is also possible that Jeffrey Katzenberg will return as a competitor. But what studio job is open to him? Right now, there doesn't seem to be a studio vacancy. Besides, Katzenberg insists that he wants to run more than just a studio--an ambition that could limit his options. Murdoch, on being asked if he would hire Katzenberg for Fox, said, "He wouldn't come here except for my job!" But he added, "Anyone would love to have Jeffrey working for him."

Nevertheless, as the recent aspirations of other entertainment executives have demonstrated, one needs deep pockets to be a mogul. If Barry Diller were a billionaire rather than a millionaire, he would probably own CBS or another network. Since Katzenberg is without really deep pockets, a friend of his said, "the problem is that he has to wait for the job that he wants, and then has to wait to be asked."

This Hollywood tale is another reminder that intangibles often matter more than tangibles like profit and loss or business strategy or so-called synergies. Jeffrey Katzenberg left a big job for reasons having to do more with psychology and personal chemistry than with performance. He wanted a bigger job and a better title, and those desires might have been finessed by Eisner. The head of a major studio remarked, "I would have said, 'Jeffrey, you can have the title. You are my designated No. 2. But don't stop making movies.' " But then Katzenberg would have had to finesse his rage. Another Hollywood figure said, "If I had been asked for advice, I would have told Jeffrey not to play hardball when Michael was vulnerable"--after Wells's death and Eisner's heart operation. "Jeffrey should have said, 'I'm here for you.' I would have told him that patience pays off." In any case, the die had been cast by midsummer. Katzenberg and Eisner had taken positions they couldn't back away from, and maybe didn't want to back away from. As a result, Katzenberg left a job that he loved and Disney lost a talented executive that it didn't want to lose. Primal forces were at work, which could not be controlled by the mind. "Ambition is a force of nature," an admirer of both men commented. "It goes back to Richard III." (c)

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