Disney's Tough Tactics : Entertainment: Critics view the company as the fiercest of Hollywood's bare-knuckle fighters. Disney maintains it is held to a higher standard than others.

TIMES STAFF WRITER

It has been 79 years since a gentle Scot named John M. Barrie wrote "Peter Pan," and 3 1/2 years since the expiration of copyrights on the children's tale of fairy dust and far away.

But Walt Disney Co. has considered the story its own since it created the first cartoon version, and Disney was not amused last year when it learned that CBS was planning a Peter Pan cartoon show. Disney Studios Chairman Jeffrey Katzenberg lost no time calling Kim LeMasters, then CBS' programming chief, and Howard Stringer, the network's broadcast-division boss, to tell them that Disney didn't want anyone doing such a show.

Katzenberg says he simply asked CBS to give up the series "if it isn't of the essence to you." Other knowledgeable sources say Katzenberg threatened "all-out corporate war."

Whatever was said, CBS quickly abandoned the show, agreed to pay the producers a compensating fee and gave them substitute production work, sources say. Mickey Mouse had bared his teeth and gotten his way.

In recent years, Walt Disney Co. has made a name as the world's most successful entertainment company, a hugely profitable and innovative corporate juggernaut. But to some, the master marketer of children's fantasies is also the toughest of Hollywood's bare-knuckle fighters, a company that uses its vast resources and unique franchise to continually press its advantage.

The critics see a pattern of bruising tactics in Disney's many battles. Disney has shown itself willing to take on other rival entertainment firms again and again, in court and in the market. They say the company has demonstrated that it is ever ready to sue those it believes have infringed its copyrights, even in cases in which outsiders find it difficult to understand why Disney can't find compromises.

In its efforts to hold down filmmaking costs, Disney has faced off against Hollywood agents and lawyers with a toughness that sets it apart from other studios, the critics say. And in central Florida, where Disney's economic power has made it a great benefactor, the company has also shown that it is willing to stymie the plans of government and its neighbors--from mass transit systems to low-income housing--if those plans interfere with its ambitions.

Disney executives deny that they're too tough and say some complaints arise because the world doesn't measure them as it would other businesses.

"We are held to a higher standard in every area," Katzenberg says in a prepared statement. "When we misstep--when we make an error--it can be blown out of proportion, since it is not acceptable for Disney to ever make a mistake. I think everyone expects us to be letter-perfect. And you know what? That's what we would like to be."

Perhaps most prominent among the company's critics are the heads of some rival entertainment companies, who have run afoul of Disney repeatedly in recent years and assert that the company has gone too far.

Barry Diller, chairman of Fox Inc., for example, says he believes that Disney's tactics are an "odd, self-destructive thing . . . that isn't needed from a company that's succeeded as brilliantly as this one has." Sidney J. Sheinberg, president of Universal Studios parent MCA Inc., says Disney "isn't just aggressive. They have crossed the line."

Disney's defenders--and they are numerous, too--say the company is no tougher than others in an industry that has been known for an eye-gouging, kidney-punching sort of competition since the days of L. B. Mayer and Harry Cohn. They say Disney is taking the heat because it has tried to roll back Hollywood pay, because it has outperformed rival show-business conglomerates and because the public expects not just fairness, but saintliness, from the creator of Mickey and Minnie.

"They're tough, but I've found them to be honorable," says Larry Cochran, chief executive of Six Flags Corp., the theme park concern that is 20% owned by the Time Warner media conglomerate.

'Special Complexities'

Disney executives don't try to present themselves as angels, but talk about the special complexities of their dealings with other businesses.

From where they sit, a company as successful as Disney must not only work hard to keep growing but must also constantly defend itself from the many who want a share of the wealth it is creating. In their view, this includes animators who produce new versions of Disney's classic animated movies, copyright pirates who want to make money from unlicensed Mickey Mouse souvenirs and personal-injury lawyers who hope to win big jury awards for large and small theme park accidents.

It includes, too, the rival entertainment firms that have crowded around Disney World and Disneyland to take a share of the tourist bonanza and the talent agents and lawyers who, in driving hard bargains, have driven Hollywood compensation ever higher. In Disney's view, some of the grumbling about the company's tactics comes from the agents who become angry when Disney walks away from film projects rather than pay high prices.

And Disney asserts that if it drives hard bargains, it rewards its partners well in success. The studio has a loyal core of top talent that has signed on for long-term deals. And Disney knows how to please the stars when it wants to: Disney has on several occasions distributed millions of dollars in advance-profit checks to actors and other creative talent just after the opening of hit films.

As the multitudes throng to Disney's theme parks and line up for its "Dick Tracy" movie this summer, it is obvious that the public's overall impression of Disney remains highly positive. Wall Street analysts, dazzled at the ninefold split-adjusted increase in Disney stock since 1984, are rhapsodic at the mention of Disney's name.

But there are signs that Disney's style may sometimes blemish the image that the company has so assiduously tended.

Disney's image took a beating last January, when a Disney-controlled development body in Florida won all of a $57-million allocation of tax-free state bonds, thus denying them to an agency that planned to develop low-income housing and all other government applicants in a six-county area. The state distributes the bonds on a first-come basis, and first in line this year was Disney's Reedy Creek Improvement District, which was created by the Florida legislature in 1967 to develop and govern the 28,000-acre Disney properties.

A firestorm of criticism ensued. In a state where Disney was once above reproach, a Republican gubernatorial candidate sued to block Disney from using the bonds. A state legislator introduced a bill to limit Disney's ability to reapply for the securities and, before the furor abated, there was new talk of stripping the company of its unique governmental powers.

Tough Negotiators

Disney's style, by all accounts, has been much more aggressive since the arrival in late 1984 of the new management, headed by Chairman and Chief Executive Michael D. Eisner, President Frank G. Wells and Disney Studios Chairman Katzenberg. Installed after a pitched four-month takeover battle, the new team wasted no time expanding Disney's theme park, movie making and merchandising operations and launching new ventures.

Under their leadership, the company's revenue vaulted to $4.59 billion last year from $1.46 billion in 1984, while profit jumped to $703.3 million from $97.8 million. That's a torrid profit growth rate of 48% a year.

Disney was known as a highly controlling, regimented company even under founder Walt Disney, who set strict codes of dress and behavior for employees, fought unions and held the reins tightly on the studio's creative talent.

But the old team's way of doing business was lackadaisical compared to the approach that was adopted when the new leadership moved into the low-slung complex of Disney offices near the intersection of Mickey Avenue and Dopey Drive in Burbank.

Under the old regime, visitors to Disney remarked that the many people lounging around the Disney grounds at all hours of the day made the complex look like a well-tended junior college campus. In the new era, the parking lots begin filling at 6 a.m. and stay occupied seven days a week. Loungers are rarely in evidence.

A key premise of the new regime was that by more fully exploiting Disney properties that are, in fact, American cultural icons, the company could increase annual profit growth to a clip of 20%--or more.

One way to do that was to raise prices, and the new management moved vigorously. The price of a one-day pass per person at its Florida theme park has been hiked about 70%, to $31 plus tax, since the new team took over. But reaching the profit goals required not only raising prices and opening new ventures, but also, some say, an unyielding attitude about all business dealings.

Disney's critics say doing business with the company means facing teams of lawyers who will stake out extreme positions on virtually every negotiating point and often return to try to reargue issues later if Disney isn't pleased with the way the deal has turned out. The company's harshest critics--including Fox's Diller, who is furious at Disney for backing out of a European television venture last year--maintain that it sometimes repudiates deals it doesn't like, or ignores points of agreements after they are made orally.

"Mickey Mouse may be the soul of this company, but you'll find the heart somewhere over in the legal department," says a former Disney TV executive who admires the company's efficiency but believes that Disney sometimes goes too far.

Asked about allegations concerning its negotiating tactics, Katzenberg said, "We aren't perfect. We make mistakes like everyone else. But I am certain there is no such pattern. The people on the line (representing Disney in negotiations) are genuinely honest people."

Disney can usually succeed with its negotiating tactics not only because of the skill of its lawyers, but also because its size and success mean that its negotiating partners usually need Disney more than Disney needs them. Outsiders--be they Hollywood directors, cable-TV operators or the thousands of Disney-licensed souvenir makers--sense that mere proximity to the Disney name hugely increases their odds of success. Fearing what they perceive as the far-reaching economic power of Disney, few of its critics were willing to speak publicly for this story.

Disney's negotiating style was evident in its discussions with Fox Television officials over Fox's plan to pick up the "Peter Pan" cartoon show that CBS abandoned.

Under copyright law, anyone can develop a show that relies on the Barrie work, provided that it doesn't infringe on the creative ideas contained in other animated versions, including Disney's. Australian and Japanese animation companies have already produced Peter Pan shows since the Barrie copyright lapsed.

When Disney learned that Fox was planning to present a half-hour series this fall, it sent a delegation that included Roy E. Disney, founder Walt's nephew and corporate vice chairman, to talk about what Disney would consider an infringement.

Disney's team argued that Tinkerbell should be presented as no more than a single point of light, contending that founder Walt's own animators had come up with the idea of drawing Peter Pan's fairy friend as a young woman.

But the Fox side, led by Fox Broadcasting President Jamie Kellner, quickly pointed out that Barrie's work described Tinkerbell as a slightly plump girl "gowned in a skeleton leaf, through which her figure could be seen to best advantage."

Disney negotiators have been unflagging in their effort to purchase the late Jim Henson's Muppet characters. The negotiations have dragged on for 10 months and in the process alienated some members of Henson's production company.

Disney and Henson announced what was expected to be a $150-million-plus deal last August. Amid fanfare, both sides declared that Disney would be the perfect place to produce new shows involving Kermit, Miss Piggy and others, and the ideal home for the Muppets' big film and television library.

Although Eisner and Henson had a handshake agreement on the major points of the deal, progress ground nearly to a halt over the Disney lawyers' insistence on battling over almost every point, says a person close to the Henson side. At some points, wrangling has threatened to derail the deal.

Henson, who died in May, was personally distressed that the Disney team exerted continuing pressure to buy rights to Big Bird and some other Muppet characters from Children's Television Workshop, the producer of "Sesame Street," said the source. Disney and Henson had earlier agreed that those rights wouldn't be part of the package.

The drawn-out negotiations also illuminated the differences between the Disney style, in which creative talent is tightly controlled, and the Henson style, which stresses creative freedom.

Joan Ganz Cooney, head of Children's Television Workshop, told the Washington Post in June that she was "shocked" by the extent of the Henson group's concern over Disney's reputation for maintaining tight control.

"The Henson people were never really happy with the Disney situation and are probably less so after working with them," Cooney was quoted as saying. "It's clear they've been having a severe culture clash." Cooney declined requests to elaborate.

In Disney's view, the delays were caused by the objections of lawyers on both sides, and simply by the complexity of the agreement. Henson, after all, had created a large cast of characters, and had granted rights to them in a series of contracts that had to be painstakingly revised. And if the Disney lawyers were trying their hardest to work out a deal that would impress their superiors, it was simply their job, to Disney's way of thinking.

Disney's negotiators found a clever means of getting their way in their 1987 negotiations to buy Wrather Corp., the real estate and hotel company built by Walt Disney's longtime pal Jack Wrather.

Wrather said it wanted about $28 a share for the company. But Disney's team said if Wrather didn't accept far less, it would sharply increase the modest fees Disney was charging Wrather's Disneyland Hotel in Anaheim for its use of the monorail to ferry visitors between the hotel and the park.

The Wrather team was shocked, but the tactic worked: Disney paid $21.50 a share--a razor-thin premium over the roughly $20 the company's stock was fetching on the open market. Disney maintains that it was only fair to ask that Wrather pay a higher price for a service that had been underpriced for years.

Hollywood Clashes

Disney's approach has also been apparent in Hollywood, where the new management team has fought hard since 1984 to limit the growth in stars' pay and other filmmaking costs. Those costs have been drifting up lately, but Disney is still turning out films for an average of around $15 million; by comparison, the average major studio film cost $23.5 million last year.

Many in Hollywood salute Disney for its cost consciousness, but some complain about the tactics the company uses to try to reach its goal.

In now-legendary battles with two of Hollywood's most effective entertainment lawyers, Barry Hirsch and Bertram Fields, for example, Disney took the extreme step of trying to break off all dealings with those lawyers and their firms, and suggesting to some clients that they find other representation.

Hirsch, who represents such clients as writer-director Barry Levinson ("Rain Man," "Tin Men"), stirred Disney's wrath in 1988 when he advised at least three clients to seek business with studios that offered better compensation, sources say. Regarding this as a provocation, Katzenberg told Hirsch that Disney would no longer respond to telephone calls, personal visits or mail from his firm, sources say.

Relations between Disney and Hirsch were strained earlier, in late 1985, at a time when California health officials were investigating cases of food poisoning that involved watermelons and Jalisco brand cheese. Amid a negotiation over director Francis Ford Coppola's role in "Captain Eo," Helene Hahn, who oversees the legal team that conducts Disney's talent negotiations, sent Hirsch a watermelon and a package of Jalisco cheese.

The delivery was evidently meant as a joke, but Hirsch was hurt and angry. "Barry didn't take it well at all," one friend said.

Disney tried to boycott Fields' firm about two years ago, about the time the two sides were embroiled in long and contentious negotiations over Warren Beatty's "Dick Tracy" project.

Although battles among studios, lawyers and agents are often bitter, some lawyers in Hollywood assert that other studios would not have gone so far as to try to break off relations with lawyers and their firms.

After some fence mending, Hirsch and Fields and Disney some time ago began working together again. Katzenberg says relations with the two "have never been better." Fields and Hirsch wouldn't discuss their relations with the studio for this article, even when Katzenberg called them to ask that they do so.

Katzenberg attributes the gripes of some agents and lawyers to Disney's habit of walking away when the price of deals rises too high.

"After many years I have learned there is nothing that we absolutely must have," he said in a statement. "No movie. No property. No project. No deal. What that means is that we go into virtually every negotiation prepared to lose it. If we cannot get something on terms that in our judgment are good for our ongoing business, then we are prepared to pass. We are always prepared to walk away. I realize how frustrating this must be for the . . . other side."

Disney angered many screenwriters in 1988 when it took the lead in opposing the demands that precipitated the 22-week-long strike by the Writers Guild of America. Among other things, the writers wanted increases in the so-called residual payments they receive from reruns of shows sold abroad or sold into syndication.

At one tense moment, Katzenberg convened Disney's screenwriters at the Disney lot to give his version of the negotiations, because he felt the writers hadn't gotten an accurate account from union officials.

Some writers saw this as interference. And though Universal and Fox backed Disney on the issues, Disney's "Who Framed Roger Rabbit?" was the only film to be singled out by Writers Guild members for picketing.

"Disney has maintained a continuous hard-line position," guild spokeswoman Cheryl Rhoden was quoted as saying in July, 1988, as she criticized Disney for impeding resolution of the strike. Guild officials won't discuss the matter today.

Copyright Suits

Disney has also waged an active campaign to protect the copyrights and trademarks that helped produce revenue of $411 million last year for its consumer products division.

Under the law, Disney must fight off infringements of its copyrights and trademarks if it wants to keep them in force. About one-quarter of the 800 lawsuits and regulatory cases Disney pursues each year are over copyright and trademark actions, Disney has estimated.

But although many copyright specialists praise Disney's program as the most thorough around, some say Disney doesn't pick its fights carefully enough, and hasn't always found the most diplomatic ways to resolve them.

Last year, Disney produced a public-relations windfall for archrival Universal Studios when it threatened legal suits against three day-care centers in Hallandale, Fla., that had adorned their outside walls with paintings of Disney characters.

Disney threatened to go to court if the day-care centers wouldn't remove the drawings and resisted efforts to find some middle ground. The company said it couldn't allow the drawings to remain because they falsely suggested Disney's affiliation with the day-care centers.

The standoff was resolved when Universal painted the Flintstones cartoon characters over the Disney illustrations and threw a party for the kids.

Gilbert Stein, the mayor of Hallandale, said he was "appalled at the harsh policies of a corporate giant that was built with the nickels and dimes of kids. I'd like to ban Mickey Mouse from the city limits."

A lawyer at another company with important cartoon copyrights noted that Disney might have provoked strong objections from the thousands of other Mickey Mouse licensees if it had offered an inexpensive license to the day-care centers. The centers were, after all, profit-making enterprises, he noted.

But he added, "Sometimes if you're smart, you just avoid getting into scrapes with organizations that have a high degree of public sympathy. You can be too aggressive."

Earlier this year, Disney went after an Orlando anti-pornography group that plucked a single quote from Walt Disney for a brochure: "Our greatest natural resource is the minds of our children." An attorney for the anti-porn group says Disney sent a letter that he interpreted as a threat to sue.

Disney didn't want to leave the impression that it was associated with any political cause, and argued the group couldn't use the quote without permission because it wasn't a newspaper. But some lawyers say the company would have had a very difficult time proving that use of a single quote by a not-for-profit group wasn't protected free speech.

Disney was widely viewed as a bully when it sued the Academy of Motion Pictures Arts and Sciences in March, 1989, over an actress' depiction of Snow White at the opening of last year's Oscar ceremony.

Disney believed that the simpering Snow White depicted in the 10-minute song-and-dance routine hurt the innocent image of the character it first depicted in a 1937 film. It believed a public misimpression needed to be publicly corrected, and insisted a suit was necessary because the academy had rebuffed its request for an apology. But if the suit sent shivers through some would-be copyright infringers, many in the public didn't understand why Disney had to use such force.

The New York Times, for example, editorialized that Disney should be given the "Can't Take a Joke" award. The episode prompted cartoonist Garry Trudeau to draw a cartoon in which a trembling Snow White complains to a journalist in a clandestine midnight interview about her treatment by Disney. The interview ends suddenly when a Disney lawyer appears to escort her away, whistling, "Hi ho, hi ho, it's off to court we go!"

Katzenberg asserts that protecting copyrights "is a very difficult and sensitive area. If you are not incredibly tenacious, you can get severely damaged."

But, he acknowledges, "there is no question that there have been instances where our aggressiveness may have crossed the line, and a bit more sensitivity would have held everybody in better stead."

Battling Studios

As it has watched smaller organizations for copyright infringements, Disney has regularly clashed with major entertainment companies on a variety of other matters.

Hollywood has always been a contentious place, of course, and particularly in recent years, as the studios have fought each other continually as they have expanded to meet rising worldwide demand for filmed entertainment.

And the heads of rival entertainment companies are no wallflowers. MCA's Sheinberg, to name one, will be long remembered for saying that he viewed corporate litigation as a "profit center."

Even so, since the beginning of 1989, Disney has been embroiled in a series of disputes, large and small, that suggest a company singularly willing to confront competitors:

* Locked in a competitive battle with Fox over children's television, Disney last February brought an antitrust suit charging that Fox threatened to drop some of its affiliate stations to get them to carry its own afternoon children's programming rather than Disney's.

* Disney attacked Fox's corporate character as it formally opposed the TV network's effort to win a waiver from government rules limiting its ownership of TV programs. Fox had "flagrantly" abused its power and was "unworthy" of such special treatment, Disney said.

* Disney entered a venture with Lorimar Telepictures to jointly own and operate the Metrocolor film processing lab, then last year abruptly tried to repudiate the deal. Disney was unhappy that Lorimar's acquisition by Warner Bros. hadn't brought Warner's business to the lab.

* Disney entered a joint venture with Fox parent News Corp. to develop Sky Television, a satellite-relayed European television service, but then sought to back out of the deal, saying Fox wasn't consulting Disney officials before making deals with suppliers. Sky brought a suit, which Disney settled by selling back its stake and agreeing to provide films for Sky for five years.

* Disney took on major studios that own movie theater chains as it began requiring movie theaters to bid competitively to book its films. The Cineplex Odeon chain, which is partly owned by MCA, boycotted Disney films last summer in response.

Alex Ben Block, editor in chief of an entertainment industry letter called Show Biz News, says he was thinking not long ago of putting out a special edition of his letter devoted to conflicts between studios. "I realized Disney was involved in almost every one of the fights," he says.

Some studio executives contend that Disney's failed joint ventures in Sky Television and the Metrocolor film lab show Disney to be a difficult partner, one that will quickly push to renegotiate or end deals if they don't work out to its satisfaction.

Fox Chairman Diller says he doesn't dispute that Disney might have had complaints about the Sky Television deal. But, he insists, "the way you resolve things is sitting down and trying to solve the problem, not unilaterally, suddenly, repudiating the deal."

Diller says Disney was playing unusual hardball in its antitrust suit against Fox. In Disney's view, an antitrust suit was appropriate because Fox was using its market power to keep customers from carrying a competitor's product.

To Diller it was overkill: "An antitrust suit forces you to use words like 'predatory' and 'unfit,' " says the executive, who denies Fox exerted any improper influence on the stations.

Instead of an antitrust suit, Disney might have tried to solve its problem by offering the stations added inducements--such as a share of profits or more barter ad time--to carry its shows, in Fox's view. Or, if it felt compelled to sue, Disney might have chosen a breach of contract lawsuit as a less extreme alternative to an antitrust action.

While Fox, Universal and Disney cooperate in several areas where their interests overlap, relations are also personally acrimonious between the studio chiefs.

Ill feelings continue to flare between Disney and MCA's Sheinberg, whose company recently opened its movie studio theme park near Orlando. At a speech to a public relations group in New York in May, Eisner jokingly referred to Sheinberg as the "Manuel Noriega of MCA."

"Now, does that sound like he's talking about a God-fearing, honest, law-abiding sort of man?" asks Sheinberg, who once referred to Mickey Mouse as a "ravenous rat."

MCA officials have charged that Disney stole from them the idea that became the Disney-MGM Studios Theme Park. They contend that Eisner first heard the idea from Universal officials during a presentation while he was at Paramount. Disney officials vigorously dispute the charge.

Spats With Neighbors

In Florida, meanwhile, Disney has recently been at odds with neighbors who say the company has been uncooperative and uncommunicative on problems of regional development.

On two occasions in recent years, Disney has effectively blocked plans for proposed rail transit systems that wanted to place stops near Disney's parks to ensure that they would have enough passenger traffic to be viable.

In the more recent case, the backers of a German-developed "magnetic levitation" train talked to Disney officials for two years about building a demonstration rail system that hoped to shuttle 8 million people yearly between Orlando's airport and Disney's Epcot Center.

But Disney's interest seemed to cool rapidly when a group of other tourist-related businesses, such as Sea World, the Wet & Wild amusement park and Universal Studios began to gain support for the idea of building an intervening stop between Disney and the airport.

The proposed stop at International Drive threatened to divert some tourists from Disney's attractions to other destinations and would have set back Disney's acknowledged efforts to claim a larger share of the Orlando tourist dollar.

Last September, Disney officials announced that they didn't have room at Epcot Center for the stop and proposed an alternative site, at a Disney-owned parcel several miles to the east of Epcot Center. Disney plans to soon begin developing the site, but the project won't have the needed volume of pedestrian traffic for many years, and many believe that the Disney move has dealt a serious blow to the train's prospects.

But the greatest outcry in Florida has been over Disney's success in edging out others for the tax-free bonds, and its refusal to give them up.

For the commissioners of Orange County, Fla., the issue renewed friction that had flared last year when the county, seeking to force Disney to pay more for road improvements, threatened to sue to have Disney's government powers revoked.

Relations with local governments were not helped in May when Eisner called the Orlando city government "incompetent" for failing to quickly apply for the bonds. Eisner, who apparently didn't understand that it was Orange County, rather than Orlando, that had sought the securities, quickly apologized.

In Disney's view, its development agency had as legitimate a claim to the bonds as any other government body. A state judge backed that view in May, when he threw out gubernatorial candidate Anthony R. Martin's suit to block the allocation.

Disney has declined to rule out reapplying for the bonds in future years, but the company has begun a new public relations strategy in central Florida to counteract the criticism.

It appointed a special liaison with local governments, began publicizing the many scholarships, gifts and other contributions it makes to the community and agreed to invest $1.8 million to help the housing authority make up to $80 million in housing loans to low- and middle-income residents.

Here as elsewhere, Katzenberg denies that the company has been too tough.

"In whose eyes?" he asks. "I am not sure our consumer is aware of this toughness, and I think our shareholders appreciate how concerned we are with the way we spend their money. Most importantly from either of these points of view, we've delivered good things."

DISNEY'S SOARING PERFORMANCE

While Disney's critics may denounce its tactics, few deny that it is the most successful entertainment company in the world. 1989 revenue of $4.59 billion was up 34% from 1988. Net income rose 35% to $703.3 million.

1989 Revenue by Segment Theme Parks and Resorts: $2.60 billionFilmed Entertainment: $1.59 billion Consumer Products $411.3 million

Total Revenue: $4.59 billion

Times staff writer Michael Cieply and researchers Sarah White in Paris and Lisa Phillips in New York contributed to this story.

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