Of Mice And Men

What is the Walt Disney Co. but a dream machine, a teller and seller of fairy tales? And at the heart of every Disney saga are some of life's most basic themes: friendship, family and the struggle for independence. The Little Mermaid defies her father for love. Simba the lion cub flees home, finds friendly refuge amid the wilderness and overcomes an evil uncle to assume his rightful place as king. Always, the young hero breaks away, triumphs over great dangers and returns to the fold. All is forgiven, there's always a happy ending.

Would that it were so at the top of Disney's mighty business kingdom. For the longest time it seemed that the fairy tale would never end. The last decade has been golden for the company. The story of its rise is epic, almost Disneyesque. A threesome of brilliant and energetic young executives takes over at a time of deepest trouble. With pluck and luck and visionary savvy, they build Disney from an ailing $2 billion Hollywood also-ran into a $22 billion empire. They churn out slews of box-office-busting movies and animated hits, from "Three Men and a Baby" to "Beauty and the Beast" and "Aladdin." They build theme parks, hotels, sports teams -- enriching their shareholders (and themselves) and restoring Disney as an icon of American culture. Best of all, they do it with style, fun and enviable camaraderie. Even their employees call them by their first names: "Michael," "Jeffrey" and "Frank," the three amigos, as warm and seemingly inseparable as Mickey and Goofy and Donald coming to greet you at Disney World.

Alas, there is now a chill stealing over the Magic Kingdom. For two years the huge Euro Disney attraction outside Paris has been losing money. Attendance is down at theme parks in the United States, and Disney's America, the history theme park the company hopes to build in Virginia, has run into intense opposition. Last week a Disney shareholder filed a formal resolution asking that the company's decision to proceed with the controversial project be put to a vote at its annual meeting next February.

But these setbacks may pale next to Disney's people problem: the happy partnership that ruled Disney for so long has broken up. Tragedy claimed one of the three friends this spring, when Disney's president and chief operating officer, Frank Wells, died while heli-skiing in Nevada. Last week a long and bruising power struggle claimed another: Jeffrey Katzenberg, the creative and outgoing head of the Walt Disney Studios. Now only one of the three friends is left: Michael Eisner, Disney's chairman. Only six weeks ago Eisner himself was rushed to the hospital from a trip in Idaho for emergency quadruple bypass heart surgery. Alone and recovering, he faces critical decisions at a crossroads in the company's history.

Eisner's challenge: to keep the magic going after such a dazzling decade of success. With new competition and changing demographics looming over its theme parks, Disney must rethink them. The Information Superhighway is coming. Disney must decide how to ride. Its vaunted movie studio needs retooling, too. Yet in meeting these challenges, Disney still has tremendous strengths. It has yet another movie and merchandising monster hit with the "The Lion King," likely to rake in $1 billion, perhaps the biggest moneymaker of all time. A strong team of managers has kept Disney humming despite the turmoil at the top. Above all, this behemoth has the Disney name. The opportunities for making money from its stable of cartoons and enduring movie characters still seem almost endless.

It's against this backdrop that last week's events seemed so dramatic, so brutal and abrupt. Last Wednesday at 11 a.m., Eisner summoned Katzenberg to his sixth-floor office at the company's headquarters in Burbank. Katzenberg was Eisner's protege. For 19 years they had worked as a seamless team, making movies and TV shows together first at Paramount and then at Disney. For at least the last year, though, Katzenberg had been hankering for more power, politicking for a better job. When Wells's death left the presidency open, Katzenberg sought the post.

Katzenberg considered it his due. After all, he headed Disney's filmed entertainment group, generating 43 percent of the company's revenues. "Jeffrey wanted the recognition and the position within the company that he felt he had earned," says one close friend. It wasn't just the title he coveted. A restless, aggressively ambitious man, Katzenberg thirsted for a bigger brief. If he couldn't get it at Disney, he'd leave. Last year, he said, he exercised an early "out" from his contract and passed up some $100 million in stock options so he could do just that.

Eisner fended him off. He and the board openly questioned Katzenberg's qualifications for the job. Wells left a void "im-possible to fill," said Eisner. If Katzenberg was the eager young comer, Wells, 62, was the seasoned dealmaker and negotiator, a lawyer-cum-financial-officer who handled the company's nitty-gritty administrative work and freed Eisner to think creatively about the entertainment industry and Disney's place in it. He was Eisner's alter ego; the two men were so close, consulted each other so constantly that when Eisner was arranging Wells's memorial service, he reportedly caught himself picking up the phone to ask his friend's opinion. And, unlike Katzenberg, Wells stayed in the background, did his job -- and left the glory to Michael. Clearly, Eisner believed that Katzenberg was not enough like Wells. Katzenberg proved it, in fact, by pushing, relentlessly. Because his contract would expire in September, time forced a decision. "This isn't going to work," Eisner bluntly told him that Wednesday morning, according to Katzenberg. By then, Disney's potent PR machine was already in high gear. A press release announcing his "departure" was written even before he was told, Katzenberg was astounded to learn. Eisner was ready with a corporate restructuring. Two hours earlier he had telephoned Joe Roth, hired by Disney in 1992 from Twentieth Century Fox, and asked him to take over the movie studio. Other key executives (at least one was tracked down in a restaurant) heard from Eisner the night before. No one told Katzenberg until the next morning, when Eisner gave him the news. With a few sentences of studied corporate prose ("With heartfelt thanks and obvious regret"), Eisner went public, wished "Jeffrey" well in his "future endeavors" -- and showed him the door.

The timing raised eyebrows, to say the least. For starters, there are Eisner's health problems. His prognosis is good, but friends say he looks worn; doctors suggest he cut back his workweek, take life a bit easier. For Eisner, a classic type A mover-and-shaker, that would be tough under the best of circumstances. It will be even tougher now. With Wells and Katzenberg gone, Disney more than ever depends on Eisner's helmsmanship -- and the seas are getting rough.

Now there's the added burden of what some call the "Katzenberg gap." No one at Disney disputes the departing executive's energy and creative talent. His seven-day workweeks and 100-odd daily phone calls are the stuff of Disney legend. So is his uncanny ability to sniff out new stars and hot film properties. (Not for nothing was he nicknamed the "Golden Retriever.") Certainly Katzenberg has enjoyed huge success running the company's film and animation divisions. If Disney's live-action features have done less well in recent years (revenues from the "The Lion King" overshadow losses on a series of flops such as "I Love Trouble" and "Renaissance Man"), Katzenberg has at least taken the studio in promising new directions. Broadening Disney's artistic scope, he engineered last year's acquisition of Miramax, a maverick company offering films (such as "The Crying Game") profoundly different from Disney's traditional fare. He fashioned an equally offbeat partnership with Merchant-Ivory, the Academy Award-winning makers of "Remains of the Day" and "Howard's End." Katzenberg even persuaded Disney to ride onto the coming Information Superhighway, making a games deal with Sega and interactive TV linkups with three Baby Bells. At the time of his ouster, insiders report, Katzenberg was prodding Disney to buy a television network and push more aggressively into the music business. To sustain the momentum of the last decade, Katzenberg believed, Disney needs to branch into new markets, where the strength of its worldwide brand name can generate new revenue.

Eisner didn't disagree. But Katzenberg, by repute more zealously entrepreneurial than his boss, wanted to move faster. That posed a problem for Eisner. Even if he weren't temperamentally cautious, he had a board of directors to answer to -- and not all its members liked Katzenberg. A year ago, Katzenberg says, he spurned an offer to join the board, as well as a title of vice chairman, apparently because doing so would by law compel him to disclose his earnings -- well into the millions at a time when he was wringing every dime out of writers, actors and producers as part of a Disney austerity drive. More recently, by some reports, he alienated Roy Disney, vice chairman of the company and a nephew of the founder, who was instrumental in reviving Disney's animated-movie division -- and who allegedly chafed at Katzenberg's getting all the credit. With his departure, Roy Disney will now run the animation show -- along with Eisner, of course.

That said, one board member assures Newsweek, "personalities" didn't influence the decision to let Katzenberg go. "Jeffrey's talented and wonderful and devoted, but he wouldn't have fit into the slot he wanted," this source says. Another board member, Raymond Watson, vice chairman of the Irvine Co. in California, adds that the board had been debating "the Jeffrey situation" for nearly a year but could never find a solution that satisfied both men. In the end, Watson says, the decision was "100 percent Eisner's."

Maybe it was business, pure and sim-ple. But in Hollywood, where no one disdains a salacious rumor, less tempered explanations abound. Over the years, such speculation suggests, the partnership between Eisner and Katzenberg slowly but insidiously gave way to rivalry. There were overtones of subliminal conflict, ambivalent psychologies pitting fa-ther against son, family and friend against the quest for independence.

Katzenberg himself likens the breakup to a "complicated Shakespearean play. . . . It's about fathers and sons, parents and children," he told one friend in recent days. One Katzenberg loyalist thinks he has always looked to Eisner as a sort of father figure, seeking his approval. "The problem," she says, "is that the son seeks approval from a human being who is basically incapable of giving it." Others suggest that if Eisner didn't come to resent Katzenberg's growing power, he at least sought to keep him in his place. Tellingly, the Disney chairman was almost dismissive of his onetime protege in interviews with Hollywood's trade press. The day Roth joined Disney, he told The Hollywood Reporter: "I knew at [some] point he would be in charge." Katzenberg, by contrast, was left to lamely explain his need for "a new mountain to climb."

Still, Katzenberg professes his abiding friendship (and even love) for Eisner. The day after his departure, Katzenberg tells Newsweek, the pair met for a cordial hourlong chat. The mood was expansive, relaxed, a "kick back and chuck the bad vibes" kind of male thing. Ever the dutiful son, Katzenberg thanked Eisner for all the "opportunities" and "challenges" thrown his way. But once again, he explained his need for more. Eisner talked about the good old days, Katzenberg recalls: "how great it used to be, how wonderful it was." But then, briefly, came a moment of subtle tension, a summation of the whole relationship, the son breaking away, the talent-ed young exec eager to run his own show. "I know what you want," replied Katzenberg. "You want me to be your Golden Retriever again." No thanks. "I'm a builder. I need something to move on to. I can't just preside," he added, over things that are already going concerns. As Eisner later put it, "Jeffrey wanted to have, not mine particularly, but a job like mine. It's not available."

For both men, and for Disney, the question is: what now? During a discussion with Newsweek earlier this summer, Eisner suggested that his model for running the company would be Rupert Murdoch's News Corp. That is, a single strong executive, backed by able lieutenants running independent divisions. With Katzenberg gone, Disney looks more like Eisner's ideal. In Roth, 46, Disney has a tested studio chief, certainly one of the best in the business. Among his credits: "Home Alone," "Mrs. Doubtfire" and "Die Hard 2." Predicts one Disney board member: "Joe Roth may have more success than Jeffrey," especially in producing live-action movies. Richard Frank, 51, another Hollywood veteran, will head a newly created television and telecommunications division -- further divvying up Katzenberg's former realm. Eisner never wanted a "pyramid-type organization chart," Frank says. He wants to give his top aides free rein and "deal with everyone directly."

Eisner's new team is clearly able. But will it have the cohesion and vitality of the old? Eisner acknowledges that Disney will miss Katzenberg's "enthusiasm and drive and work ethic and success." Skeptics think the company will miss something more. "Who's the new Frank Wells?" they ask, someone of stature who can disagree with Eisner -- either to say "no" or, alternatively, to encourage the sometimes hesitant chairman to take bolder risks. Wells could do that in spades. So could Katzenberg, to a degree. But few others can, and Eisner may never let them.

That's probably the most important question: whether Eisner can go it alone, as he's obviously determined to do. Katzenberg thinks so, but many Disneyites are worried. The danger is that Eisner won't slow down, won't take it easy as his doctors order. Already he boasts of being back at work full time, even as he jokes of giving healthier recipes to Disney's chefs and "running" the halls rather than walking them, as he formerly did, because "that would be exercise." "I'm fine. I'm great. I feel better than I did before the operation," he told Newsweek.

At Disney, people only hope he's right. After his surgery, Eisner sobbed out his fears to a friend who visited him in the hospital. He worried about his family, worried that his illness meant the end of his life and career as he knew it. It was an omen, in its way, for Eisner's father underwent similar surgery at just about the same age. He lived to be 73. On the other hand, he was a career government employee and the pressures on him were probably less than on his son. Eisner has to guide Disney onto the new Information Superhighway, a minefield at best. He has to reinvigorate those troubled theme parks, decide whether to build new attractions in the Far East and elsewhere, as it plans, or opt for a new brand of "destination tourism" -- short on hotels and rides, long on special interests and activities, such as the Virginia history park and the new Disney Institute.

Eisner's labors will be herculean; it hurts just to think about them. As for Katzenberg, his future is in its own way just as secure as Eisner's, however painful the separation may have been. "He's the most valuable free agent" around, says director Steven Spielberg, an intimate friend. Hollywood has speculated breathlessly about what Katzenberg might do -- from striking a deal with billionaire music mogul David Geffen or starting his own animation studio to taking over MCA-Universal. His grab for the presidency clearly suggests that he seeks a top corporate job, with full executive authority and equity participation. But so far, says Katzenberg, he has no plans. Like a young Disney character, he has been banished into the wilderness. If life imitates art, he will find friends, grow big and strong and, one day, return. . . . if only to Disney World, as he plans to do next week on vacation.

More immediately, Katzenberg and Eisner still have to work out his exit deal. If the company has its way, there won't be a lot on the table. Katzenberg may not leave Disney with a big check, but he is leaving with something else. Only days before the announcement of his departure, he finished writing a memo. He intended it for Eisner as one last, vain attempt to win the job he so coveted. It was a long and detailed exegesis. He examined his own deficiencies. He identified what he thought was wrong at Disney -- and how to fix it. It sits, now, in a manila envelope in Katzenberg's briefcase. He hasn't taken it out, and he'll probably never disclose the details of its contents. But if Disney ever falters, it would make interesting reading.

Disney shareholders have had a wonderful ride--shares have risen a whopping 900 percent in value--but in the past two years, gravity has set in.

When Eisner took Disney over in September 1984, the stock had few fans on Wall Street

In 1984, the long-ailing Disney is the target of a takeover battle. Walt's nephew Roy keeps control, aided by the wealthy Bass brothers. New hires: Michael Eisner, Paramount's No. 2, aide-de-camp Jeffrey Katzenberg and Frank Wells from Warner Bros. First order of business: build on the classics, like "Dumbo" and "Snow White." Disney plans a movie-studio theme park for Orlando and jacks up fees by 45 percent. Instant gratification: profits up 61 percent in a year.

"Down and Out in Beverly Hills," Disney's first R-rated flick, is a 1986 hit. Katzenberg dances on a table, singing "Zippedy doo dah." Apocryphal? Hey, legends gotta start somewhere. Disney reinvents animation with "Roger Rabbit" and "Little Mermaid." In 1989, Eisner is revealed as the world's highest-paid CEO, taking home about $39 million.

In 1989, Disney opens MGM Movie Studios and several new hotels in Orlando, a year before rival Universal Studios. Cynics dub the planned Euro Disney a "cultural Chernobyl" and pelt Eisner with eggs at the Paris Bourse. But the stock is chic: up 18 percent in a month.

In the early 1990s, "Pretty Woman" has American men rethinking their pocket money. Everyone is singing "Be Our Guest," and "Beauty" gets an Oscar nod. "Home Improvement" nails Nielsen. But recession depresses park revenues. Profits for 1991 plunge 23 percent.

In 1992, the studio drops more bombs ("Newsies") and, at Euro Disney, the French ask, "Ou est le vin?" But Disney is on the march. Books, stores, music, even the NHL's first webfeet, The Mighty Ducks. "Aladdin" takes in $217 million.

In December 1993, Eisner gives Euro Disney a "D," but by spring, a Saudi prince has injected $500 million to help rub Aladdin's lamp. "Lion King" reigns at the box office. But real-life tragedy strikes. Eisner alter ego Frank Wells dies in a helicopter crash, and Eisner undergoes quadruple bypass. Katzenberg wants to take a load off his mind, but Eisner's not tempted. Roy takes over animation; Roth, features. Plot line for Disney: still in development.