The Epic Disney Blow-Up of 1994: Eisner, Katzenberg and Ovitz 20 Years Later

10:00 AM PST 04/09/2014 by Kim Masters
Helicopter Illustrated by: Skip Sterling

Twenty years ago, Frank Wells, Disney's No. 2, died in a helicopter crash, and war broke out in the industry. It was Eisner vs. Katzenberg, the dominoes started to fall, and Kim Masters was in the middle of it.

This story first appeared in the April 18 issue of The Hollywood Reporter magazine.

On Easter Sunday 1994, Frank Wells, the patrician No. 2 man at the Walt Disney Co., and his close friend Clint Eastwood flew by helicopter with a small group to the remote slopes of Nevada's Thorpe Creek Canyon. They wanted to spend the day skiing on untouched powder. When the party was ready to return to the lodge, Eastwood went ahead in one helicopter while Wells and two friends decided to ski more and take a second chopper. It was a short trip in the air, less than five minutes, but the second helicopter, carrying Wells and four others, did not make it. The engine failed, and the chopper crashed into a hillside. There was one gravely injured survivor. Wells and everybody else were dead.

Wells' death stunned the industry and instantly created a vacuum in the Hollywood hierarchy. Ambitions were inflamed and dominoes began to fall. By August, just weeks after The Lion King had opened as the latest and greatest in a string of hits from a revitalized animation unit, Disney's chairman and chief executive, Michael Eisner, then 52, would fire his studio chief, Jeffrey Katzenberg, then 43. At Disney, of course, animation was the mighty engine that drove merchandise and theme park attendance. Katzenberg had been recently described by an analyst as "probably 80 percent responsible" for the run-up in Disney's stock.

Katzenberg would ally with David Geffen and Steven Spielberg to create DreamWorks -- a bold but ultimately frustrating attempt to launch Hollywood's first new studio in decades and a saga that still is playing out 20 years later. Under pressure to name a second-in-command, Eisner would turn to chilly uber-agent Michael Ovitz, then the so-called most powerful man in Hollywood. Thus began an unhappy 14-month partnership that ended with Ovitz's epic fall from power. And Katzenberg's lawsuit to enforce his rich contract -- devised years earlier by Wells -- gave the industry a riveting trial that revealed mortifying comments that Eisner had made privately about his erstwhile studio chief, including the infamous line, "I think I hate the little midget."

Katzenberg's lawsuit, which could have been settled for $90 million, wound up costing Disney nearly $270 million -- not counting tens of millions in legal fees. And Eisner became increasingly imperious and isolated, sowing the seeds for his own ouster following a dramatic shareholder revolt a few years later.

Many of the industry's elder statesmen believe to this day that the rupture between Eisner and Katzenberg might have been avoided if Wells had remained as a steadying influence, but his absence opened the door to recriminations and embarrassing litigation that reshaped the industry's power structure. These are the episodes that fascinate me most as a journalist: when executives who are supposed to be all about managerial discipline and the bottom line engage in self-destructive, emotion-driven public battles. The spectacle that unfolded following Wells' death 20 years ago laid bare the reality that may not be taught in business school -- how irrational personality conflicts and jealousies can transform an entire industry.

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A craggy 62-year-old who stood 6-foot-4, Wells could trace his ancestors back to the Mayflower. A Rhodes scholar, he had built a career as a lawyer before taking executive jobs at Warners. Despite a lack of natural mountain-climbing ability, he had taken time off from Hollywood in a bid to become the first man to scale the Seven Summits -- the tallest mountains on each continent. He missed only Everest. In 1984, before Eisner was in the mix, he joined Roy Disney and Stanley Gold, the team that stormed the drifting Disney. When they added Eisner, Wells agreed to become president while Eisner insisted on taking the titles of chairman and chief executive for himself. But Wells was a power in his own right: He reported to the board, not to Eisner.

With Katzenberg overseeing the studio, the new management presided over one of the most dramatic turnarounds in corporate history. Disney smashed its own earnings records, quarter after quarter. Eisner got much of the credit, but it was clear this was a team effort, with Wells as a key player. He had won Eisner's trust, no simple feat. Eisner was generally unimpressed by people, but Wells overcame that. He had it all: pedigree, professional achievement and education. (Neither Eisner's former boss, Barry Diller, nor his star employee, Katzenberg, had been to college, and while Eisner had graduated from Denison University in Ohio, his academic career wasn't dazzling.) Wells, who attended Stanford Law School, "was the highest of the high goyim," the late producer Don Simpson (Top Gun, Beverly Hills Cop) told me. "He represented everything Michael wanted to be."

I met Wells only once, briefly, when Katzenberg invited me to an early test screening of the 1991 hit Beauty and the Beast for a story I was writing for Premiere magazine. Wells seated himself beside me and said, "Why, hello. Who are you?" (Wells very much enjoyed the company of women.) When I told him I was a reporter, his friendly demeanor turned to abject horror. Leaping up, he tried to have me ejected from the theater until Katzenberg assured him that my presence was approved.

By the time of the helicopter crash, I was covering Hollywood for Vanity Fair but also was a staff writer for the Washington Post -- living in the nation's capital and covering political issues while flying to Los Angeles for Vanity Fair when events warranted. (Yes, in retrospect, that was a weird arrangement.) I was on good terms with both Eisner and Katzenberg, but perhaps because of the distance, I had no inkling of the tension that had long been simmering between them.

For some time -- encouraged by his friend and mentor, Geffen -- Katzenberg had been pushing hard for a promotion. He was after a bigger title and wanted Disney to buy a television network. At the time, Eisner didn't like the prices. (He would make a deal to buy Capital Cities/ABC in 1995, the year after he'd dismissed Katzenberg.) A momentous conversation took place in October 1993, when the two were strolling the streets of Aspen, Colo. Katzenberg pressed Eisner to make him president of the company, with Wells becoming vice chairman. Eisner replied that Wells would feel "hurt" in that scenario and then, according to Katzenberg, assured him, "If for any reason Frank is not here … you are the number-two person and I want you to have the job." (Eisner later called that conversation a "misunderstanding.")

Six months later, the day following Wells' death, Katzenberg went to his office at 6 a.m. to await Eisner's call. It never came. Instead, at midday, Eisner passed out a news release to staff announcing that he would assume Wells' responsibilities and no successor would be named. The next day Katzenberg vented his fury at lunch with Eisner, who accused Katzenberg of handing him an ultimatum while the trauma was still fresh. By the end of the day, they agreed to put matters on hold.

It wasn't until June, at a premiere of Lion King in Washington, that I got the first hint of trouble. The afterparty was at the National Zoo, and I found Eisner and Katzenberg huddled at a table. "You come all this way and talk to each other?" I asked.

"It's to prove they still speak," interjected Terry Press, then head of marketing at Disney.

The following month, Eisner suffered chest pains while attending the Allen & Co. annual corporate gathering in Sun Valley, Idaho, and was immediately hospitalized for heart surgery. Katzenberg despaired when he learned that he had not been included in the inner circle notified of the emergency -- a list that included Ovitz at CAA. A few days later, both The New York Times and Wall Street Journal reported that Katzenberg might leave the company. Certain that an unattributed quote in the Times came from Geffen, Eisner angrily concluded that Katzenberg and his friend were using the media to pressure him.

Katzenberg's ouster came a month later, in August. I happened to be on vacation at a country place in West Virginia, where there were no phones in the rooms and all calls came through the front desk. Suddenly there was a volley of messages from Los Angeles as a furious game of spin and counter­spin began. The nice clerk at the hotel's front desk asked, "Ma'am? Was that the David Geffen?" (A call from the Michael Eisner soon followed.)

I flew to Los Angeles and found myself at a dinner for two on Press' back patio at her house near Melrose Avenue. Press was nowhere in sight: It was Katzenberg, me and a caterer, who served an astonishing multicourse meal over several hours. I wish I had written down the menu -- now all I remember is the lobster. Katzenberg told me his story in great detail: the walk in Aspen, the words that he had taken as a promise, the silence following the death of Wells and again after the heart surgery. He had been invested in Disney with every fiber in his system, and the feeling in my mind as I sat with him was that of visiting a fresh-burn ward.

A few days later, I was summoned to what I called my dream date with Eisner: a test screening of The Santa Clause at a theater in the suburb of Glendale (the popcorn came fast and hot when you were sitting next to Eisner), followed by dinner. At the time, Eisner's public-relations man, John Dreyer, was a person whom some of us in the media didn't trust -- as I had told Eisner more than once. (I may even have called him "Dreyer the Liar" -- in jest, of course.) Katzenberg's team, following every beat of the enemy's movements, was wondering whether Eisner would come alone or risk awkwardness by bringing Dreyer. I didn't expect awkwardness; Eisner and I were on relatively easy, jokey terms -- he has a sharp sense of humor -- so I figured he would want to keep things that way. I drove with Eisner from the theater to dinner, where we were met only by his wife, Jane. "Are you appearing tonight in the role of John Dreyer?" I asked.

Jane is as loyal and poised a spouse as Hollywood has ever seen, and for much of the meal, she kept the discussion all about me. Everything about me was fascinating! We were well into the main course, and I realized I hadn't managed to ask Eisner a single question. Finally I said I needed to begin. The conversation that followed continued well past dessert and for a long time in the restaurant's parking lot while Jane, concerned about her husband's well-being only weeks after his heart surgery, impatiently tried to get him into the car. After that, Eisner liked to say that I had tried to kill him in a parking lot in Glendale.

Katzenberg had been winning the spin war ever since Eisner's surgery. Newsweek had described him as a candidate for promotion, saying he was "widely considered to be Disney's most valuable human resource." But Disney had not named any No. 2 person who could possibly succeed Eisner, whose health had come dramatically into question. Katzenberg had his failings -- the studio's live-action film slate had been sputtering -- but the studio also had been enjoying a huge revival in animation starting with The Little Mermaid in 1989. Lion King became the second-highest-grossing film ever at that time, and Beauty and the Beast was a smash on Broadway. (The stage version would gross more than $1.4 billion worldwide.)

After Katzenberg's dismissal, Spielberg publicly denounced Eisner as "Machiavellian," while Disney board member Stanley Gold -- who would later turn on Eisner and lead a shareholder revolt with Roy Disney -- said Katzenberg had been brought low by "his ego and almost pathological need to be important." Eisner told the Los Angeles Times, "This is not a Shakespearean tragedy," but it did have its Shakespearean qualities. I had quoted a source in my Vanity Fair story describing Geffen as "the Iago" of the Disney drama -- a reference to the whispering villain in Othello. The idea was that Geffen had been behind the scenes, pushing Katzenberg to push Eisner, and the strategy had backfired spectacularly. The insult drove Geffen wild, and he set out to discover who had said it. (Among his guesses: Eisner and Diller.) He failed.

I'll tell you who said it now, but only because he's dead and left no wife or children. It was Don Simpson, who knew the players well and had watched the whole spectacle with fascination -- and who was really the only one with the erudition to make the analogy in the first place. At one point he told me in a panic that Geffen had demanded to know if he'd been the source of that quote. "What did you say?" I asked, to which he replied, "I lied!" Years later, well after Simpson's death in 1996, I told Geffen the truth, expecting him to laugh. He was livid, presumably because Don was dead and he couldn't kill him again.

Katzenberg, Spielberg and Geffen announced DreamWorks with a bang in October 1994. Katzenberg, ever mindful of his former boss, phoned his successor at the Disney studio, Joe Roth, and said, "You get that psycho to call me … so when I stand in front of a hundred journalists, I can say, 'The first call I got was from Michael Eisner.' " It's not clear that Eisner ever made that call.

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The new company was to have everything: film, TV, music and an interactive unit. Spielberg envisioned a lot with arching gates; Geffen didn't. But the team quickly assembled $2 billion worth of operating capital. Meanwhile, Eisner scored a huge coup with the $19 billion acquisition of Capital Cities/ABC -- the second-largest acquisition in U.S. history at the time. (A couple of years earlier he had balked at buying it for $11 billion.) "This rejuvenates him just when he needs it most," Viacom chairman Sumner Redstone said then.

But the need to name a second-in-command remained, and Eisner turned to Ovitz, whose restlessness at CAA had become quite evident when he almost took a top job at MCA/Universal. That studio was in the midst of its own drama: Its owner, Japanese giant Matsushita, sold to Seagram in 1995, and longtime chiefs Lew Wasserman and Sid Sheinberg were forced out. Ovitz did negotiate for a position there but overplayed his hand and found himself more than halfway out the door at CAA with no place to go.

The news that Ovitz was going to find a home at Disney was shocking. I was on the East Coast when I got the call. I was still on fine terms with Eisner but not so much with Ovitz, who was distrustful of the media in general. Suddenly I had both Michaels on the phone at the same time. Ovitz was clearly uncomfortable, and Eisner was just as clearly enjoying his discomfort, reminiscing gleefully about the time I'd tried to kill him in a parking lot in Glendale. The inside joke did nothing to calm Ovitz, who kept asking impatiently if we were going to stop the chitchat and do an interview. Finally I settled down and began: "Michael …"

"Which one?" they both asked.

"Well, I've always thought of Michael Eisner as Michael and Michael Ovitz more as Mike," I said. "So let's do it that way."

To my surprise, Ovitz immediately said, "I want to be Michael." But Eisner objected. He would be Michael, he said, and perhaps Ovitz could one day graduate from Mike to Michael. With that, Ovitz uttered a few words of reproach and hung up.

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It was an inauspicious beginning. And it continued to be inauspicious through all the miserable months of Ovitz's tenure. After rumors mounted that things weren't going well, I started to report a story on his role at Disney with another Vanity Fair writer, Bryan Burrough. We asked for a meeting with the former Disney CFO, Steve Bollenbach, who was then chief executive at Hilton. To our utter shock, he invited us to his office and told us a tale of how Eisner had essentially thrown Ovitz under the bus before he'd even started the job, when Bollenbach and other top lieutenants flatly refused to report to the new president. To our even greater shock, Bollenbach told the story without going off the record. When our article ran, it was clear to the industry that Ovitz could not last. After 14 dismal months, he was dismissed with a severance package worth a breathtaking $140 million.

Shareholders sued but lost. Ovitz started a management company without success, and he was effectively shut out of the industry in which he had once played so formidable a role. Even Eisner's days as an industry player were numbered. As for DreamWorks, after launching with so much hope, it became clear that not even the mighty combination of Spielberg, Geffen and Katzenberg could overcome the hurdle of launching a studio without an income-generating library of films to get the company through the lean times.

In 2004, Geffen acknowledged the truth to The New York Times. "Our eyes were bigger than our stomachs," he said. "We did what we could do. … The world has changed a great deal in 10 years." DreamWorks spun off its most profitable enterprise, Katzenberg's DreamWorks Animation, and eventually the remaining live-action operation wound up in its current distribution deal with Disney -- the one place where Katzenberg could not follow. That arrangement now is in its waning days, and the future of the live-action company is a question mark. (DWA has faced its own vagaries, but with Katzenberg distributing his animated films through Fox, there is the possibility of a reunion of sorts at that studio.)

Geffen was right, of course: The world changed. At this point, it's a cliche to say that the studios have become cogs in enormous corporate machines. The digital revolution happened, movies lost some of their magic, stars faded. No one has managed to match the power wielded by Ovitz in his day. No one inspires the same visceral fear, and it's impossible to imagine that anyone ever will. It turned out Geffen, Eisner and Ovitz were the last of their breed. Anyone old enough to remember has to miss the days, not so long ago, when rampaging beasts roamed Hollywood and the action behind the scenes was as dramatic and improbable as anything on the big screen.

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