Thu, February 12, 2004

A number of weeks back, I began writing a column about the resignation of Roy Disney from the Walt Disney Company and what it means for that corporation's slack-witted dunderpate CEO Michael Eisner. Clearly, he's a fairly bright guy if he's been able to head a couple of media companies in his illustrious career, but watching him speak at USC's commencement a few years ago and looking at the way he's managed the Disney empire over the last decade, it's hard not to notice that the man is a slobbering boob. When Walt's nephew Roy left the company, he attempted to torpedo Eisner as CEO, a move that by all accounts has not gone very well. But now there's a chance that all that will turn around.

The reasons Eisner is a goon are many. It's well known that he's a meticulous micromanager and that his interference led to the departure of animation whiz-kid Jeffrey Katzenberg who went on to found DreamWorks with David Geffen and personal hero Steven Spielberg, a studio which has put out a fair share of quality animated features including the humongous success Shrek. (Personally I was less than impressed with Shrek and downright homicidal when it beat Monsters, Inc. for history's first Best Animated Feature Oscar, but I have to admit that it made a lot of money, and I'm giving credit to Katzenberg.) Among Roy Disney's complaints regarding Eisner's monopolistic hoarding of power is that he's never created a clear line of succession, because he wants to make himself difficult to remove from the head of the company. (Hence the hiring – and subsequent golden-parachuting – of Eisner pal Mike Ovitz as the company's number two man.)

In my previous column, which you collectively previewed and voted against last month, I began by criticizing Eisner for crafting Disney into a behemoth conglomerate superpower. From a business standpoint, this is not a bad thing at all. In a creative industry, however, it's important to maintain an image of quality and creativity that can successfully overshadow the corporate side. There was a time when people immediately associated Disney with cartoons, or with theme parks or family. These days, it's more likely that people will think of the company's massive empire of broadcast networks, movie studios, retail stores, and the like. Disney has begun to feel like Microsoft, which is profitable in dollars but not in "mindshare." I watched Path to War on HBO, which starred Alec Baldwin as Robert McNamara, the secretary of defense under President Johnson during the war in Vietnam. One criticism of McNamara's policies that was brought up by the film (and by Baldwin when I saw him on the Letterman show, which is why I even remember it) was that Defense Secretary McNamara came from the corporate world (sound familiar?), particularly IBM, where everything is about numbers. He didn't really have an instinct for military procedure, and so he thought that if America kept pouring more troops into the area, they'd outnumber the Viet Cong and thereby guarantee victory. Whereas, in truth, a lot more came into play than how many bodies were available for either side to shoot at. I'm not saying that Eisner has turned the Walt Disney Company into Vietnam (although back at the dismal opening of EuroDisney, I'm sure I wouldn't have been alone in making such a claim), but I think it's a reason why black ink in the corporate ledger shouldn't be the only measure of a leader's success.

But, as I said back then, this is really the weakest criticism. Far stronger is the fact that Eisner has taken a company that was virtually synonymous with family-friendly animated entertainment, and basically closed it out of that business. Just last month, Disney announced the shuttering of its large and beautiful animation building in Orlando, with hundreds of animators set to be laid off. And this points to my largest criticism, his adversarial relationship with Pixar CEO and personal hero Steve Jobs. Pixar and Disney entered into an agreement back when they made Toy Story, which provided security for Pixar, a small company first venturing into feature-length filmmaking. The deal made a huge amount of money for Disney while only requiring distribution and marketing costs plus a 50/50 split of the production costs. Pixar was amenable to such a lopsided deal because they were cash-poor and they needed the powerful Disney brand to help audiences accept Pixar, a new studio they probably had never heard of. After A Bug's Life, once audiences were embracing Pixar and the movies were wildly successful, the deal was renegotiated so that Pixar's name would get equal placement with Disney's and Pixar would get a cut of the lucrative merchandising market. Now, a few years later, Pixar's performance has continued to soar, and Disney's 2D animation division is foundering. Disney now needs Pixar a lot more than Pixar needs Disney. Pixar's five films have averaged $239.4 million at the U.S. box office and are among the most-adored films of the last 20 years. Finding Nemo unseated The Lion King as the most successful animated feature of all time, and quickly became the fastest selling DVD. Meanwhile, Disney's last six non-Pixar animated efforts have averaged a measly $77.5 million apiece, with only one of them breaking the $100 million mark (2002's heartwarming Lilo & Stitch which, in a departure from Disney's recent animated fare, was spectacularly produced). Every one of Pixar's films has turned a profit, while Disney's cel-animated list features stinkers like Treasure Planet which earned $38 million at the box office despite costing $140 million to produce. So, like I said, Disney needs Pixar.

And Pixar knows it, and therefore Steve Jobs was interested in negotiating a new contract with Eisner since the original one expires after November's upcoming The Incredibles and next year's Cars. No longer was Pixar's future performance in doubt – the company has established a rock-solid reputation for relentless pursuit of quality as well as colossal box office receipts. Eisner, as a businessman, should have been in the mood to negotiate. Pixar wanted a deal like the one George Lucas has with 20th Century Fox. They would pay all the production costs and reap all the profits from the movies and the merchandising, while paying Disney a percentage to distribute the films. This would work out well for Pixar, because they'd maintain their relationship with the Disney brand while leveraging Disney's abilities in marketing and distribution – Pixar has no need to invest in the infrastructure to strike prints and ship them to theatres, and no strategic partnership with McDonald's for Happy Meal toys. Plus, by negotiating a new contract with Disney, Pixar had the ability to request modifications to the old contract, the same way they did after Bug's Life. Pixar wanted to ask for Disney to release the ownership of Pixar's original characters, so that Pixar alone would control the decisions to make sequels of its stories. This is increasingly important as Disney's 2D animation empire self-destructs, because Disney has lately been setting its sights on raiding the archives and turning out shoddy, hastily produced direct-to-video sequels of its classic favorites – a highly profitable enterprise which does incalculable damage to the Disney brand as well as the integrity of those classic films. (I mean, it's going to take a hell of a writer to make Bambi 2 live up to the original.) Disney is leveraging the familiarity of its well-known characters and pimping them in the video market where the buy-in cost is five times a movie ticket price and they can get placement on the impulse rack at Wal-Mart. So, of course Pixar is going to be willing to negotiate away some of the George Lucas concept in order to secure creative control of their past work. (While Jobs is reportedly as egotistical as Lucas, he's clearly much more intelligent in the creative realm.) And, it's not like it was such a terrible offer for Disney either – even a small percentage of Pixar's huge profits is better than the pittance that duds like Brother Bear yield.

But, Eisner is an oaf, and he allows his personal clashes with Steve Jobs to cloud his business decisions (he's reportedly referred to Jobs as "a Shiite Muslim," heaven knows why), and so talks broke down between Pixar and Disney and (because he's a prick) Eisner's first announcement after the contract negotiations ended was that Disney was mounting Toy Story 3. While I can't imagine that anything worthwhile will come out of this – where is Disney recruiting its 3D animators, the staff of Rolie Polie Olie? – it's a move to confuse the Pixar brand in the mind of audiences who, understandably, haven't been paying attention to the corporate shuffle. These people probably never realized that Pixar was anything more than just a subsidiary of Disney, so they won't understand that a disappointing flop featuring the Toy Story characters isn't indicative of the state of affairs at Pixar. It will just hurt both companies, and possibly the still-fledgling computer-animated medium. Bad play, dolt.

Up until today, my strongest hope for Pixar to vanquish such insidious plots was loopholes. According to press reports, the contract is structured such that Disney can make sequels of any of the Pixar films it owns, if Pixar refuses its first option. The magazine stories don't mention whether Pixar has a limited time to pick up this sequel option or whether there's a deadline to produce the movie, or even whether it has to open in theatres. My suggestion to Jobs would be to pick up every sequel option Disney tries to start, then roll them all together into a Pixar Family Smile-Time Variety Hour production and release it straight to DVD, effectively securing all of Pixar's characters from tampering by the House of Eisner with a minimal outlay. Plus, it would probably be a pretty fun DVD.

But today, a break in the clouds! (I mean, such loopholes probably don't exist in the contract anyway, right?) Today, Comcast, America's largest and most-hated cable company, has made a bid to buy Disney. This would mean that Eisner would be let go. This would mean that Disney's new owners could re-open talks with Pixar, leading to profitability for all, and protection for the likes of Buzz Lightyear and Nemo. In this scenario, Roy Disney's efforts to tarnish Eisner's image in the eyes of the board of directors may not seem so unsuccessful. After all, it's the board that has to consider the takeover attempt, and not only has Eisner screwed up the Pixar talks and closed the Orlando animation factory in the months since Roy quit the company, but Comcast is also willing to assume $11 billion or so in the Disney company's debt as part of its offer. To an eagle-eyed board member, this might look like a fine option to get rid of Eisner, reverse some of his most egregious recent business mistakes, and make a little money.

All I can say is that, emotionally, I'm hugely invested in getting control of the Walt Disney Company out of Eisner's hands, and this might just be the way to do it. Plus, getting Pixar back to the table means big things for fans of computer-animated movies. As a stockholder of Pixar (and a devoted admirer of their work), I want the best deal for them. They can surely reach a very profitable agreement with any other motion picture distributor in Hollywood, but a new deal with an Eisner-free Disney would be the best deal for Pixar's considerable creative assets, and that would be a win for everyone.

As opposed to Vietnam, which I think we can agree was a no-win situation.

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