The Loneliest Man in the Kingdom...

Kathryn Harris, a staff writer for The Times, covers Hollywood for the business section

On an afternoon in January, Walt Disney Chairman Michael D. Eisner sat midway down the aisle in a darkened theater on the Burbank studio lot, watching a five-hour spectacle unfold. This was no "Pocahontas" screening, although the animated feature is being readied for summer. Nor was Eisner previewing the live-action thriller "Crimson Tide," due from the Don Simpson-Jerry Bruckheimer team that delivered the bulk of Paramount Pictures' blockbusters in the 1980s.

Instead, a live performance was under way, with top Disney executives addressing 130 analysts who had traveled from brokerage firms and banks to gauge the strength of Disney management after a disaster-filled year. Disney's respected president, Frank Wells, had been killed in an April helicopter crash, and the studio's hardworking chief, Jeffrey Katzenberg, had departed in September after lobbying unsuccessfully to be named Wells' successor. It had been an ugly, public spat. Then, in July, the 52-year-old Eisner had undergone emergency heart bypass surgery.

For many analysts, the meeting provided their first opportunity since Eisner's hospitalization and Katzenberg's exit to see the Disney chairman in person. Indeed, analysts had not been invited en masse to the Disney studio in a quarter of a century, and four years had passed since Disney hosted a large meeting of any kind for the investment community. But Disney's stock price had slipped from a February high of $48 to an October low of $37.875, reflecting Wall Street's uncertainties. With this meeting, Eisner hoped to quell any doubts about his health or that of the company.

He sat quietly as top managers delivered glowing reports about Disney's vast operations, ranging from theme parks to stores, movies and videos, publishing and television. In the dark, the visitors struggled to take notes as nuggets of financial information were parceled out by the speakers or flashed on the theater's 35-millimeter screen. A guard stood watchfully in theaisle near the Disney chairman. Eisner saved his remarks for last, keeping questions to a minimum. Deftly, he fielded queries about re-engineering the thrill quotient of the "Tower of Terror" and "Alien Encounter" attractions at Walt Disney World. He answered the knottier question of what he could have done differently at the money-losing theme park in France ("In hindsight, we would have spent a little less and priced it a little lower.") Only once did he falter, when analyst Lee Isgur of Jefferies & Co. asked: "Looking out over the next decade, what is the company going to look like?" "I don't know," Eisner answered, in an admission unthinkable for a chief executive like the late Steven J. Ross, who, as Time Warner chairman, spun visions of global alliances and a high-tech future. Instead, Eisner spoke of the potential of the recorded music business, which Disney has been trying to crack for almost six years. "It's just a matter of finding the groups," Eisner said. Mindful of rival studios that have big music divisions, he added pugnaciously: "They're coming after us in animation? We're going to go after them in music."

As evening fell, most analysts concluded that at least for now, Disney's prospects are still rosy. The next day, Disney's stock jumped 6%, and Eisner telephoned a reporter, elated. If all meetings were so successful, he joked, he would host one a week. Then, with the kind of jab that he finds irresistible, the Disney chairman noted that Time Warner's stock fell after its analyst meeting last fall.

It was quintessential Eisner: competitive to the core. Winning is everything, and he barely masks his glee when rivals stumble. His compulsive need to belittle rivals would be more off-putting if he were not endowed with impeccable manners, still-boyish charm and self-deprecating wit. Though friends say they enjoy his quick and unpredictable mind, which makes him a good companion at dinner or the hockey rink, he is relentless and, therefore, a compelling boss and devilish foe.

Those traits have served him well for the past decade. Disney profits have increased eleven-fold, and on the New York Stock Exchange, Disney's total market value now exceeds $27 billion--up from $1.8 billion in 1984. An operations man at heart, Eisner is at his best in meetings with the creative teams clustered throughout the Disney empire, where he functions as Disney's ultimate arbiter of taste. It is Eisner who has personally recruited world-famous architects for Disney buildings; in recent months, he has selected the carpet for new hotels and passed judgment on new Epcot television commercials. No detail is too small to escape his attention, and in this way, he weaves his own enthusiasms through the fabric of the company.

Eisner contends that his managers can continue to deliver 20% compound annual earnings growth by mining Disney's existing businesses, and cautiously building new ventures from scratch. He's a daredevil only when it comes to taking chances with a new theme-park ride or down-on-his-luck actor.

With the financial muscle that comes from a balance sheet boasting nearly $14 million in assets and less than $4 million in borrowings, he could lead the company in any number of new directions--but he has been reluctant to pay much for a television network or recorded music company or other large acquisition. This unwillingness to bet big on new ventures, critics say, may slow Disney's momentum. It's the caution of a man who, throughout his career, has admonished colleagues to "Beware the big mistake," a man who's never been a gambler in his personal life. His fiscal conservatism sets him apart from risk takers like Rupert Murdoch, Ted Turner and Viacom Chairman Sumner Redstone, who have built their empires through daring acquisitions.

Now death and departures have left Eisner virtually alone at Disney's helm. The Disney board, respectful of the unique relationship Eisner and Wells forged over 10 years, has told Eisner not to worry about naming a new president. Yet he has been slow to fill other vacancies in his executive suite, and this month he lost the highest-profile executive left on the Disney lot, with the departure of Richard H. Frank, chairman of Disney's television and telecommunications unit. Without Wells or Katzenberg as a buffer, Frank reportedly chafed under Eisner's imperial style.

"It didn't read well," says one analyst. "It's the whole personnel thing. He won't share; he won't work with senior people."

At the same time, Eisner hasn't let go his rivalry with his former lieutenant, Katzenberg. Indeed, Eisner and Katzenberg are so competitive that Hollywood wags say neither will be happy unless the other fails. Katzenberg's new company--DreamWorks SKG --with director Steven Spielberg and music mogul David Geffen, will put the two head to head in music, live action films and animated features.

Eisner sloughs off any suggestions that Disney will be harmed by the loss of Katzenberg and Frank. Indeed, he replaced Frank with an executive who has no television experience. The changes in management, Eisner hints, are all part of a grander plan, which is to keep Disney's managers inspired and its product fresh. Eisner is even writing a book on the subject, with the help of Tony Schwartz, who co-authored "The Art of the Deal" with Donald J. Trump."To me, the accomplishment is managing success," the Disney chairman says. "Anybody can get lucky and do it once, but to do it over and over again is what I consider an accomplishment." To that end, he has been shuffling executives to rejuvenate divisions and allow some up-and-coming managers to gain broader operating experience. From this pool of talent, he suggests, a worthy successor could be found if some accident befalls him.

"The analyst meeting is my proof," he says, recalling the managers who took the stage. "I sat there and I finally relaxed. I think I've got it. I need a CFO (chief financial officer) still, and a treasurer, and there's some stuff that still has to be done, but I think I've got it set up (so) the next decade is taken care of."

*

Back in 1984, Disney was struggling to modernize itself but moving too slowly for stock speculators, who circled like sharks. Profits had been depressed by the $1.2-billion cost of Epcot Center, and attendance was flagging in the park's second year. Only one Disney movie had earned more than $20 million in film rentals since 1970, compared to 20 such films for Paramount Pictures. Change was under way with the new pay-cable Disney Channel and Disney's first Touchstone-banner film ("Splash," the romantic comedy featuring a mermaid), but Disney assets still looked under-utilized, making the company vulnerable to takeover.

Roy E. Disney, Walt's nephew and son of company co-founder Roy O. Disney, had chafed for years over the company's stagnation. That March, he resigned from the board, buying more stock as he considered his options. While ducking most calls, he returned one from Eisner, who was then president of Paramount Pictures. Months later, when Roy Disney had the opportunity to help install new managers, he liked the idea of teaming Eisner with Frank Wells, a seasoned entertainment lawyer and Roy Disney confidante. But Eisner held out for the chief executive's job--and only Wells' accommodation on that point made their partnership viable.

Eisner and Wells won the blessing of the wealthy Bass family of Fort Worth, which increased its holdings to 25% to protect the company from any further raids. Privately, Sid R. Bass told Eisner and Wells that they could work without interference for five years.

It didn't take that long to produce extraordinary results. At Roy Disney's urging, new investment was made in feature-film animation, and under Jeffrey Katzenberg, the live-action movies took off. Disney reaped an average $70.3 million on its first 45 films, holding down the average cost to $14.1 million. Wells concentrated on legal and business matters, allowing Eisner more time to exercise his commercial instincts. Together, they decided to raise admission prices at the parks, and Disney began selling its classic feature films on videocassettes. Within two years, Disney profits doubled.

Early on, Eisner made a calculated decision to become a visual part of the Disney image, much as company founder Walt Disney personalized the anthology series he produced for network television from 1954 until his death in 1966. After Eisner arrived at Disney, the series, which continued without a host until it left the air in 1983, was revived for ABC. And Eisner decided to play host--much to the consternation of family and colleagues.

"Everybody was against it, because they thought he could only fail," recalls Michael Kaye, the media consultant Eisner recruited to write and direct the segments. A former Los Angeles advertising executive, Kaye had worked on the campaigns of Eisner's friend, Sen. Bill Bradley (D-N.J.), but he was surprised by the invitation.

"Why me?" he recalls asking. Eisner's response: " 'Because you don't hang out at Mortons, and you won't be sitting around telling people how bad I am.' "

Bad, indeed. Kaye arrived for the first session to find a large motor home set up on Disney's largest soundstage, with most of the key executives assembled to watch, along with Eisner's wife, Jane, and their three sons. Working with a wooden Eisner and unfamiliar Disney crew and equipment, Kaye struggled through 52 takes--only to discover later that Eisner's eyes had squinted nearly shut.

Today, his opening words, "Hello, I'm Michael Eisner, head of the Walt Disney Company," have become familiar ones in many of the nation's 95 million television households. Nowadays, Eisner seldom requires a third take, and he has settled into a routine of devoting eight or nine Saturdays each year to filming introductions for the myriad shows Disney produces for syndication, cable and broadcast television.

For these sessions, a makeup artist applies Eisner's makeup and a hair piece to cover balding spots. "Originally, he didn't want it. He got talked into it," says Kaye. "His wife has never wanted it, and little by little, it's being scaled back to nothing. It'll be gone. . . . All entertainers do that; it's accepted. If people know about it, they don't mention it." Eisner has earned the crew's affection by being prompt and well-mannered on the set. "In nine years, he has never once lost his cool," Kaye says.

Indeed, his visual identity with the company has made Eisner a celebrity. He is stopped in hotel lobbies for his autograph. In a Pasadena restaurant--where a special, fat-free meal has been prearranged by the Disney chef--the owner hovers, solicitous about his health. From the restaurant's corner, a group of diners make soft "quack, quack" calls, like Donald Duck, to acknowledge the Disney chairman. Through it all, Eisner is polite.

The high profile has a flip side, however, which makes him fret about security. He doesn't like to talk about it. In fact, he professed to be unaware of the security guards stationed inside and outside Disney's theater during the January meeting of security analysts. But some visitors were stunned by guards' demands that they leave their briefcases, computers, calculators and tape recorders outside.

"It was the most ridiculous thing in the world," recalls Isgur, managing director of Jefferies & Co., who traveled from San Francisco for the meeting. In 30-plus years as an analyst, Isgur says, "I have never seen any company do this."

Company Vice Chairman Roy E. Disney noticed the guards but didn't think much of it at the time. "Michael is a believer in a lot of security," explains Disney. "He's got a tiny streak of paranoia about various things. I remember when we were in Paris to sign the documents for EuroDisney with (then French Premier Jacques) Chirac, and we were riding around Paris in these incredible bulletproof limousines."

It may simply be the caution of an extremely wealthy man. According to compensation expert Graef Crystal, Eisner has earned a total of $472 million since 1984. That sum includes $107 million in paper profit for options not exercised by the end of 1994, Crystal says, but "He's not going anywhere. Who the hell would hire him? No one else can afford him."

Those closest to Eisner, including his wife, Jane, say they cannot imagine him now at any other company.

*

Eisner's greatest ambition may be "to fuse with the Walt Disney Co.," says Barry Diller, who was Eisner's Paramount boss for eight years. "And I think he's done a pretty good job. I think, actually, from a standing start, he's done an extraordinary job."

Adds another longtime friend, who does not want to be identified: "I think Michael really and truly is still in love with Disney." It is this friend's impression that Eisner would happily eclipse founder Walt Disney's aura, "if he can."

Eisner doesn't draw sketches or paint the cels, but in any creative meeting, he draws upon his own liberal-arts education and decades of experience as a programming executive to make his points. Subordinates usually respect his instincts--which are just as solid in finance or legal meetings. "Viscerally, he senses the core of the problem," says one lawyer who has worked extensively with him.

Since Katzenberg's departure, Eisner has begun meeting with key Disney animators about once a week. Roy Disney, who oversees the operation, says the animators consider Eisner as tough as Katzenberg but "more fun to be around." One January morning, Eisner joins Disney and some of his staff in a small screening room to view several segments under consideration for the new "Fantasia" project. With several segments already chosen, including Beethoven's Symphony No. 5 and Respighi's "Pines of Rome," one goal of this meeting is to develop a segment for a classic Disney character, in the way that "The Sorcerer's Apprentice" featured Mickey Mouse in the original "Fantasia."

Two story sketches are based on the Biblical story of Noah's Ark, a third on the mythological tale of Icarus, who flew too close to the sun.

After seeing the partially finished segments, Eisner says, "I have a point of view. Do you want to hear it?" The animators, who speak freely with Eisner, listen and take notes. "Do Icarus in (the year) 2007,' Eisner says, suggesting that the segment be postponed. Then, turning to a discussion of "Noah's Duck," he focuses on the challenge posed by an irritable Donald, working to load animals two-by-two onto the Ark. Eisner says: "I think what's missing is emotion." The Ark has landed and the segment nears its end before Donald meets Daisy. "Maybe," he suggests, "Daisy is on the boat; maybe it's the beginning of a relationship."

Later, the animators decide not to put Daisy on the boat, but they heighten the emotional component by making Donald acutely aware of his solitary status on the Ark's voyage.

"He's very well versed in the theater and literature," says Thomas Schumacher, senior vice president of feature animation. "I don't know how many other programming executives can talk comfortably about the Odyssey and compare it to the Iliad."

From story lines to blueprints, Eisner is shaping the modern Disney. He has commissioned huge, often-whimisical hotels and office buildings in California, Florida and France, with another project proposed for Manhattan. He changed the face of the 44-acre Burbank lot with a Michael Graves-designed headquarters, featuring 19-foot dwarfs on the facade.

And on a Saturday in November, Eisner strides happily through the newly completed Animation Building next to the Ventura Freeway, touring the facility with its New York architect, Robert A.M. Stern, a member of the Disney board.

Standing in the sun-filled atrium of the new Animation Building, Eisner enthusiastically talks about another Stern project: Disney's fanciful "Casting Building" in Florida--built next to a busy highway for a reason. "The key to Disney is how you hire, not how you train," he says. Over time, the number of applicants at Walt Disney World had declined because "Our personnel offices were in trailers, way off on our 30,000 acres. So we built . . . Bob's building . . . on the freeway like this, very Disney icon-ish, and called it Casting. We went from three people (interviewed) per person hired back up to 10 people per person hired, just by the architecture attracting people that were driving by on the freeway saying, 'Oh, maybe I'll work for Disney.' "

In Burbank, a shortage of land dictated the site for the new Animation building, looming like a ship alongside the freeway. Eisner says that, in this instance, he would have preferred less prominence. "Now we'll have Warner build a 40-story building with a Bugs Bunny hanging out," he says, joking yet worrying about his competitor up the road.

Disney would like to be invincible in feature animation, but it is forced to look over its shoulder as Warner Bros., Fox and now DreamWorks gear up for production.

But for now, Disney's formidible marketing and reputation for high quality would appear to give it a comfortable margin.

"I would not like to go up against Disney in the summer or Christmas, if I were a competitor," says David Londoner, an analyst at Wertheim Schroder & Co., noting that "Swan Princess," a non-Disney animated film, "got buried" last summer despite good reviews. Still, Londoner calls DreamWorks' Spielberg and Katzenberg a formidable combination that may be willing to go head to head when their first animated film reaches theaters in three to five years.

Disney, meanwhile, enjoys the momentum created by its string of successful new animated films. Based on the success of "The Lion King," the most profitable film in Disney's 72-year history, the company will probably build a Safari-themed attraction at Walt Disney World, as the fourth "gate" on the vast Florida acreage.

With this and other hits ("Aladdin," "Beauty and the Beast," "Little Mermaid"), Disney has been able to recharge its theme parks, consumer products, television and video divisions with fresh characters. Such successes have given Disney even more leverage with suppliers: As the company told analysts, it will extract higher royalty fees from manufacturers for "Pocahontas" merchandise.

Even the oldest Disney characters are not allowed to retire or rest on their laurels. In the past two years, revenue surged 60% from consumer product sales of Mickey Mouse and other classic character merchandise, shrewdly designed and marketed to different age groups. (Adults like the Mickey Mouse ice-cube tray, boxer shorts and the Goofy watch that tells time backward.)

"They are very good at what they do. This is a great company, in an operating sense. They manage their businesses extraordinarily well. They've gotten everything out of the mouse but the squeak," says Emanuel Gerard, a partner in the New York investment firm of Gerard Klauer Mattison & Co. Still, Gerard is among the more outspoken analysts who ask how long Disney can fuel its growth from its existing businesses. "My problem with the company has always been in the area of strategy, and being overly risk-adverse and too conservative. . . . There are a lot of opportunities they could have grabbed and didn't." "This company," he adds, "could have bought Mattel for about a fifth of what it's trading for today, and over a matter of trivial amounts of money, (it) didn't buy Jim Henson Productions. If these people don't understand the value of copyrighted characters long-term, who should?"

But as Eisner made clear to Gerard and other analysts in January, he is loath to pay huge sums for acquisitions, no matter how enticing the opportunity. The company's style is well established: Big acquisitions are studied to death. Even insiders voice their regrets: Richard Nanula, the former chief financial officer who has been reassigned to run Disney's 324-plus stores, wishes the company had bought Viacom when it had the opportunity to preempt Sumner Redstone in the 1980s; former television and telecommunications chief Richard Frank wished Disney had purchased WWOR-TV in New York.

With Disney's stock price climbing to $56 the first week of March, speculation mounted that Disney might yet use stock to make a bid for CBS--to snatch the prize, perhaps, from Barry Diller if he proceeded with a bid. Such action would be a stunning break with Disney tradition, however.

"He should buy a network, and he knows he should, but Michael has to buy cheap," says Londoner of Wertheim Schroder. "They always look at things in terms of a 'make or buy' decision, and they usually come out with 'make.' "

Disney on occasion will buy a small company, such as Miramax Films, that fits with its existing business. But in recorded music and publishing, Disney has elected to start operations from scratch. Five years after those startups, the results are lackluster at best, and the Disney Interactive unit caught bad publicity for shipping flawed CD-ROM games of "The Lion King" in the Christmas rush. Disney claims it will build its computer software enterprise to a $1-billion business in the next five years. In the meantime, while Hyperion publishing delivers an occasional bestseller, competitors scoff at Hollywood Records.

Privately, some question whether Eisner's nerve has been shaken by the myriad mistakes Disney made in France with Euro Disney. The company misread the French culture and was far too clever with the park's financing. When the European economy soured, the park could not handle its debt load. Although Disney had initially invested just $150 million for a 49% stake, it wound up contributing an additional $800 million in last year's bailout.

Yet Eisner insists that the project was not his "big mistake" because the company could have walked away from EuroDisney (or Disneyland Paris, as it is now called). Sitting in his Burbank office, he has new explanations for the early woes. "We keep forgetting that they didn't even know what a park was in Europe. They didn't know how to act in a park. The Italians still don't know about queuing," he declares.

It is that kind of quip that lands Eisner in hot water. Intemperate remarks helped fuel opposition to Disney's America, a theme park that Disney intended to build near Civil War battlefields in Virginia. When prominent historians protested the park, Eisner told the Washington Post: "I sat through many history classes where I read some of their stuff, and I didn't learn anything. It was pretty boring."

In September, Eisner retreated from the Virginia site. Disney also scaled back expansion plans for Disneyland in Anaheim. The maturing theme-park industry is one more reason some analysts urge Disney to move more aggressively into new businesses, even if it costs big bucks to make an acquisition. One analyst complains that Eisner is a brilliant tactician but not a long-term strategist.

Disney, for example, has made no commitment in the looming battle over a new digital videodisc standard, despite most of Hollywood's endorsement of a technical standard proposed by Time Warner and the Toshiba Corp. Some Hollywood executives claim that Disney's caginess has fueled the hopes for Sony Corp. and Philips Electronics, developers of a rival standard. With the weight of Disney's animated film library, Eisner could cast the deciding vote. He admits that he has been trying to figure out "what to extract" in the way of money, distribution, packaging or "relationships in other areas." But he denies that Disney's coyness might result in a costly two-way race akin to the Betamax and VHS videotape battle.

When his strategy is questioned, Eisner has defenders. Says Barry Diller: "He has an absolute vision for the company, which is to increase its software-making capabilities and to increase its brands and to build businesses from within. That is an absolute vision. He doesn't buy companies. Whether Wall Street likes it or not, because there are no transactions involved, is irrelevant."

"He's full of energy and emotion," Bass says. "He loves something, he hates something, he's frustrated about something--he's absolutely human. And you feel this energy that comes with this passion for things, and it wakes everybody up. Everyone starts thinking about what they're doing; addressing the problems; exploiting opportunities; finding opportunities; striving for perfection."

*

Eisner was born to rub shoulders with America's business elite.

His great-grandfather, Sigmund Eisner, emigrated from Bohemia and became a successful manufacturer of uniforms in Red Bank, N.J., supplying garments for the newly founded Boy Scouts of America and then for the military during World Wars I and II. Michael's father, Lester, studied law at Harvard but spent most of his career as an entrepreneur, sportsman and public servant, holding state and federal housing posts before he died in 1987.

Lester Eisner was "a great bon vivant; he was very attractive, but a real disciplinarian," recalls John Angelo, a money manager who is Eisner's closest friend from childhood. Michael owes his creativity to Lester, but he most resembles his mother, Margaret Dammann Eisner, according to Angelo. The daughter of a co-founder of the American Safety Razor Co., Maggie Eisner is "the most competitive woman I ever met in my life," says Angelo, who remains close to the family. "Everybody always used to say Maggie could run General Motors." As a child, Eisner lived in a Park Avenue apartment and spent weekends and summers on the Bedford Hills, N.Y., estate of his maternal grandparents. His older sister Margot was a competitive figure skater, and Eisner himself excelled at tennis, horseback riding and team sports, playing quarterback for the Manhattan private school Allen-Stephenson.

After eighth grade, he became a boarding student at the prestigious Lawrenceville School in New Jersey. "We were children of privilege. That's the way we were brought up," Angelo says. They attended dancing school but also played ball in the street, and Angelo is still grateful to Eisner for half-carrying him home one day when he was struck by a car.

At Denison University in Ohio, Eisner majored in English and theater, and he was a fraternity president his senior year. He graduated in 1964, then traveled to Paris with the idea of becoming a playwright--a dream that lasted all of 10 days. He returned to New York and landed a clerk's job at NBC, then moved to CBS where he placed commercials in children's programming. In 1966, he moved to ABC, where he rose quickly through a series of jobs in the programming department.

In 1967, Eisner married Jane Breckenridge, a computer programmer who had attended Saint Lawrence University with Angelo. Twenty-eight years later, she remains the person he relies on most.

Eisner always had a "casual, patrician manner," says one former colleague, which set him apart when his ABC job moved the family to Los Angeles in 1972. He never felt compelled to ingratiate himself with movie stars or local society, says another former colleague, because he was confident of his breeding and his calling. Eisner was "the epitome of a professional executive who didn't want to be anything other than an executive. He didn't care who he fought with," the man says.

No one understands the depth of Eisner's competitiveness and ambition more than Barry Diller, who has been a boss, rival and friend during the past 29 years. Although Diller is a scant 4 1/2 weeks older than Eisner, he was years ahead in his career when the two met at ABC in 1966. Diller, who had worked for a talent agency instead of finishing college, was already an assistant to Leonard Goldberg, the vice president in charge of programming, when Eisner began as a $12,000-a-year manager.

"Michael was a perfect development person . . . ideas bursting out of him. Seven out of 10 you didn't even think about doing," recalls Martin Starger, who joined ABC the same year. Gangly, with his 6'3" frame, Eisner "had a boyish charm, and at that time it was even more attractive than it is today, because he was a boy. Totally likable; very disarming; always a smile."

Diller was procuring movies for the network while Eisner moved up from children's programming to daytime television and finally prime-time programming. "They were always a little competitive, Barry and Michael, as you can imagine," says Starger, who was Eisner's boss until 1975.

Diller, who became chairman of Paramount Pictures in 1974, hired Eisner as studio president in 1976. Together, they were a formidable management team, bringing the discipline and energy of their network experience to the morass that was filmmaking in the 1970s.

Says Richard Zimbert, the senior Paramount executive who oversaw business affairs at the time: "The natural balance is to keep everything screwed up. No one is responsible; just bumble along. Michael is one of the few executives who would ask you to do something . . . (and then) follow up." Zimbert credits Eisner for a shrewd move to minimize infighting at the studio; he required memo writers to send copies to employees whose names were mentioned. The tactic curbed backstabbing, and Eisner encouraged his executives to be forthright with each other.

But there was plenty of tension in the Diller-Eisner relationship. In all his years at Paramount, Eisner "never really got to say yes" to movie projects, contends one close friend. And once Eisner moved on to Disney, he "never let Jeffrey (Katzenberg) say yes," the friend insists. It is rare for a chief executive to make his No. 2 executive a true partner, and Eisner was no exception to that rule.

Looking back, Diller says he underestimated Eisner's capabilities. "We played roles," Diller says. The "ability to be a very sophisticated manager and an extremely responsible corporate citizen is something I did not know he had in him."

Diller confesses surprise that Disney executives consider him to be one of Eisner's close friends. They don't talk that often, but both men say they can call upon each other in tight situations. Cynics say each man needs an ally: Eisner in his skirmishes with Katzenberg and biggest corporate rival, Time Warner, and Diller in his quest for a new enterprise, now that his QVC home-shopping network has been sold.

Eisner's close friendships are few, and they're often competitive or volatile. Producer Lawrence Gordon is one of his closest pals, but in 1983, Eisner evicted him from Paramount, and the two men didn't speak for months. Eisner commissioned a thinly disguised screenplay about the rift, but it was never produced. In 1990, when Diller was chairman of Fox Inc. and pushing into children's programming, Disney filed an antitrust lawsuit and asked the Federal Communications Commission to block Fox. Diller was so angry that he didn't speak to Eisner for at least a year.

"I would say that Michael has a problem trusting people," says another friend, who didn't want to be identified. "He's the most competitive man I know. He's got to win."

*

Less than a month after surgery, Eisner returned to work. Friends like Angelo and Creative Artists Agency Chairman Michael Ovitz expressed concern, but Eisner vowed to pay scrupulous attention to his diet and exercise. He began shuffling executives, implementing a plan to revitalize the company that he and Frank Wells had discussed prior to Wells' death.

Paul Pressler, who ran the Disney Stores, was dispatched to run Disneyland and replaced by Richard Nanula, the former chief financial officer. John F. Cooke, who has run the Disney Channel for 10 years, will be the company's liaison to Washington and to three Bell operating companies, which have a joint venture with Disney to develop video programming. None of these executives asked for the change. "They were all shocked beyond belief. Nanula did not want an operating job. Nanula would have been happy being CFO until he was 65," Eisner says, and Pressler "looked at me like I was insane."

Eisner admits now that there was no new job in his reorganization chart for Jeffrey Katzenberg, who ran the motion picture and television operation for 10 years. The 44-year-old studio chairman had been pressing for more responsibilities, and after Wells' death, he was disappointed and angered when he was not promoted to the No. 2 job, which he thought Eisner had promised him. Katzenberg then waged a tense campaign for the job which spilled into newspapers, infuriating Eisner and the Disney board.

It is a topic that Eisner wants to avoid, but it invariably surfaces in a series of interviews over three months, and he still equivocates. Katzenberg "knew very early. The fact that he didn't accept it . . is understandable," Eisner says in December, adding: "We had always decided that we would make the decision in August (1994). . . . It may have worked out otherwise, not the way it unfolded, but you know what? I think it's better for him, and I think it's better for us. He should be (a chief executive officer). He's capable of it. He wants it desperately. He's got the stamina; he's got the desire, and he shouldn't sit there in envy, which is unhealthy. He should go do his own thing, and he is. I really am fine with that."

But Eisner is as "fine with that as the bubonic plague," scoffs one Wall Street analyst. And a Hollywood producer adds: "Jeffrey is at war with Michael, and Michael is not a person who turns the other cheek."

Katzenberg reportedly is vexed by Disney's refusal thus far to assure him that he will receive a hefty payment in October that he maintains is due under his old contract. The sum could exceed $50 million, according to one source.

Katzenberg himself has not been talking publicly, apparently out of concern that the matter will move toward litigation. His partner David Geffen says, "They're kind of holding him up. To not pay him . . . is shameful."

Is Katzenberg owed an additional payment? "Not that I see," Eisner says. "But you know something? From the day he left, I turned it over to (general counsel) Sandy Litvack, the compensation committee, and I haven't looked at it (or) thought about it. I hope if he deserves something, he gets it."

Still, Eisner is accused of other petty behavior. Alone among the major Hollywood moguls, he declined to chair a January fund-raiser for the Simon Wiesenthal Center and Museum of Tolerance. Katzenberg and his DreamWorks partners were among the big participants. "This was Jeffrey and Spielberg? I just thought I would stay away from that group," Eisner says. "I'm sure I gave money."

He stiffens when reminded that, fairly or not, he is labeled the least philanthropic mogul in town. Eisner says that he donates to family foundations, which have supported geriatic care, among other causes. And he retorts: "When I moved from New York, I couldn't believe that the two questions everybody asked were 'How much do you make?' and 'What did your house cost?' Now the new question is, 'How much money do you give away?' These things are antithetical to the way I was taught. . . . We don't talk about these things."

No, indeed. Eisner prefers chatting about the theater, architecture or filmed entertainment. He likes to share anecdotes about raising three sons (a staple in his annual letter to shareholders). And he excels at putting down competitors and talking up Disney's future.

"Nothing that DreamWorks can do can hurt us," he insists, before adding--with acknowledgments to RCA pioneer David Sarnoff, who he thinks said it first--" 'Competition brings out the worst in people and the best in products.' It's no big deal."

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