Disney’s Troubled Kingdom

TERENCE SMITH:

After a tumultuous two-decade tenure at the helm of the Walt Disney Company, CEO Michael Eisner will be replaced a year ahead of schedule, ceding his title in October to his second-in-command, Robert Iger.

Iger will take the reins of the $54 billion entertainment giant, which is recovering from a decade of upheaval and diminished financial performance. Disney owns theme parks, movie and animation studios, and the ABC television network, including the sports cable network ESPN, a major moneymaker.

Eisner was a highly polarizing figure. His frequently abrasive management style has come under assault in recent years. Last March, a shareholder revolt led by two former directors of the company– Walt Disney's nephew, Roy, and Stanley Gold– orchestrated a highly unusual "no confidence" vote in Eisner at the company's annual meeting.

Eisner survived the vote, but an extraordinary 45 percent of shareholders withheld their support. Disney and Gold issued a statement yesterday critical of Iger's selection, saying it had come "by default" and that: "The need for the Walt Disney Company to have a clean break from the prior regime and to change the leadership culture has been glaringly obvious to everyone except this board."

The chairman of that board, former Maine Sen. George Mitchell, defended the choice in a statement saying: "We believe Bob Iger represents the right blend of continuity, of very successful performance, particularly over the last two years."

Iger had previously run the ABC network, long a drag on the bottom line at Disney due to its lackluster showing in the ratings. But this year it has rebounded and silenced many complaints about the network's performance.

High on Iger's agenda will be repairing a damaged relationship and inking a new deal with Pixar Animation. The studio has partnered with Disney on such blockbuster hits as "Finding Nemo" and this year's Oscar-winning "The Incredibles."

TERENCE SMITH:

For more on the challenges that Disney and its new chief will face, we're joined by Kim Masters, who covers the business of entertainment for National Public Radio. She is the author of "The Keys to the Kingdom: The Rise of Michael Eisner and the Fall of Everybody Else." Kim Masters, welcome.

KIM MASTERS:

Thank you.

TERENCE SMITH:

When you look at this, tell us a little about Robert Iger and the significance of his selection.

KIM MASTERS:

Well, Robert Iger's biggest challenge, I think at this point, will be emerging from the shadow cast by Michael Eisner. He was Michael Eisner's choice for the job. He has been Michael Eisner's number two since 2000.

And that is a job that requires one to be very politic, if one is to survive. You can't be too flashy, you can't be too good, and you can't be too incompetent. You just have to kind of be in this gray zone. So Iger, having been a longtime career guy at ABC, is now coming out of a point where I think he had been seen more as almost like a stage prop for Michael Eisner.

He looked and he sounded like a CEO, but I don't think up until this past year he was taken at all seriously as a candidate for that job. And to everyone's astonishment, in a way, he has actually managed to get the job.

TERENCE SMITH:

Does this suggest that Michael Eisner will continue to exert influence through Robert Iger on Disney and its fortunes?

KIM MASTERS:

Well, of course that is what the dissidents, Roy Disney and Stanley Gold, are alleging and worried about. We are in kind of a weird space right now. I mean, they have said that Iger will take the job starting in October, and meanwhile Michael Eisner will continue presumably in the job. And he will continue to be on the board until 2006 sometime.

So, you know, the question is, is there in fact regime change at Disney and obviously the critics feel that this is very unconvincing. The whole process has been under assault by these critics. They feel that the fact that it's very unclear whether outside candidates were interviewed, that Michael Eisner sat in on the one that we do know about with Meg Whitman from Ebay; that the whole process was tainted and that once again the Disney board has rubber-stamped something that Michael Eisner wanted.

TERENCE SMITH:

And does that suggest, Kim, that this dissident element that you're talking about, Roy Disney, Stanley Gold and the others, will continue to oppose this leadership?

KIM MASTERS:

I believe they will. I mean, they are probably lying in wait for any kind of mishap, whether it's Iger's fault or not Iger's fault to say, "You see, we told you so." And they've already said in a statement yesterday that they feel that shareholders should consider replacing the entire board because their allegation is that the board is deaf and insular.

TERENCE SMITH:

Why so much drama at Disney? What is it about Disney that makes it more than the ordinary boardroom struggle and fascinates people so?

KIM MASTERS:

Well there are a couple of things one of which is all Hollywood companies attract a disproportionate amount of attention, something that Coca-Cola learned when it bought Columbia Pictures and then got rid of it.

And Sony also learned when it bought Columbia Pictures, that if you've got a big soft drink company or a big electronics company, one bad movie can attract so much negative ink that it can be not worth it in terms of a big corporate company that's in a business other than the media business.

Now when it comes to Hollywood companies, I think Disney stands out because, first of all I think people have some sort of strange cultural relationship with that mouse and with all of that mythology that they grew up with.

And, in fact, because of the personality of Michael Eisner, Disney delivers better drama than any corporation I think, you know, certainly in Hollywood, certainly in the top ten probably nationwide. I mean, we have had unbelievable ruptures and breakups and lawsuits coming out of this company because Michael Eisner is such a dominant figure and such a difficult personality.

TERENCE SMITH:

Now, it's a fact, is it not, that Disney itself is on a bit of a rebound? The stock is up. Of course it went up further today with this announcement. Disney is doing better today than a year or two years ago.

KIM MASTERS:

Yes, Disney has been on an improved course, which has helped Iger enormously. One of the ironies is that Iger was also supposed to be responsible for turning around ABC, and it didn't happen. And he kept saying, "I take personal responsibility. I'll make it happen."

Now ABC has started to show evidence of an improvement, a big improvement with "Desperate Housewives" and "Lost." Those shows were brought to ABC by two executives, Susan Lyne and Lloyd Braun who were fired before they ever got a chance to put those shows on the air.

So having really failed to resuscitate ABC, having passed on a huge hit like "CSI" and having then fired the two executives who brought him the hit shows Iger has now ridden that wave of success to be a viable candidate for this job.

TERENCE SMITH:

I guess if your ratings are up you get the credit, is that right?

KIM MASTERS:

You know, I spoke to an executive today who said, "Look if he is going to get the blame for things because of his title, then he should get the credit for things even if his claim to those things is somewhat dubious."

TERENCE SMITH:

All right. Look ahead for us a little bit. What are the big challenges now facing Robert Iger as he takes over this almost $60 billion enterprise? What are the big issues for him?

KIM MASTERS:

Well, aside from growing an identity, which I think is the critical issue, people will want to see him step out. I think the key things that investors will want to see is a repair of that relationship with Pixar.

Steve Jobs, who runs Pixar has made it clear that he is not interested in negotiating with Disney as long as Michael Eisner is in the chair. Now, does he construe this that Michael Eisner is still in the chair or not? We still don't know.

But we do know that Disney's homegrown animation has been a real problem. They have lost the mantle of holding the monopoly on animation in this country. We see DreamWorks with "Shrek" and "Shrek 2" – we see Fox with "Robots" – we see Pixar possibly set up as a rival at another company.

The first thing I think investors on their wish list will be out there and bring back Pixar. He will be at a negotiating disadvantage in that because Disney needs Pixar much more than Pixar needs Disney. There's also a deal with the National Football League. I think people will want to see him sew that up.

And overall I think they're going to want to see this constant turmoil and these constant bad relationships just that they want to see a stop to that. I don't know whether Bob Iger will try or want to repair the relationship with Miramax and the Weinstein Brothers, but certainly if he can do that, that will be to his benefit.

TERENCE SMITH:

In the end, in your judgment, was it Michael Eisner's personality that caused this change, or the substance of his decisions as the head of the company?

KIM MASTERS:

Well, it's inextricable. His decisions were driven by his personality. If you analyze Michael Eisner's tenure at Disney, he had ten incredibly successful years. He kind of arrived at a company that had been very unexploited. There was all sorts of animation classics in the vaults that had not been exploited on home video.

It was a sleeping giant. They awoke the giant. They made a lot of money just by boosting ticket prices at the theme parks. But once his partner Frank Wells was killed in a helicopter crash in 1994, and Michael Eisner's sort of on his own, you start to see that personality come out.

In things like a futile lawsuit with the studio chief Jeffrey Katzenberg, who was fired, and very embarrassing, very pointless litigation; a case that everyone knew could have been settled for $90 million. It went on to cost more than $250 million to settle.

There was embarrassing testimony; Michael Eisner famously was quoted as saying, "I hate the little midget," which is not the sort of thing one looks for from the head of the Disney Company. The litigation over the hiring and firing of Michael Ovitz. All of these things. The rupture with Pixar. These are direct manifestation of Michael Eisner's personality.

TERENCE SMITH:

All right. We'll stay tuned to the Disney drama. Kim Masters, thank you very much.

KIM MASTERS:

Thank you.