Company Town: Ovitz Joins Disney : NEWS ANALYSIS : Ovitz Ideal Pick for Global Giant

By naming Michael Ovitz as president, Walt Disney Co. has reached out for the kind of powerful, globally connected executive needed to run the biggest of the new breed of giant entertainment and media complexes.

As head of Creative Artists Agency, representing 1,000 leading stars and directors, Ovitz became known for his worldwide contacts and for brokering deals that brought Japan’s Sony Corp. and Matsushita Electric Industrial Co. into the American film business. He’s launched a telecommunications joint venture, developed a global advertising campaign for Coca-Cola Co. and built a reputation as the most powerful man in Hollywood. Thus, he was hailed Monday as the ideal executive to take on the challenge of distributing entertainment in forms ranging from film to video to computer on-line services throughout the world. “There is nothing provincial about his thinking and his knowledge of new technologies,” said Stephen A. Unger, director of the entertainment and communications practice at Spencer Stuart, an executive search firm.

Powerful people have critics, many of whom noted Monday that the Japanese companies Ovitz brought to Hollywood have lost billions of dollars there and that the pioneering Coca-Cola ad campaign has not inspired imitators.

Also, while Ovitz’s skills as a deal maker are unquestioned, analysts point out that his ability to manage thousands of people and billions of dollars’ worth of business remain unproven.

But no one doubts that Ovitz’s selection underscores the increasing scale of business in Hollywood today. Disney’s competitors are almost all large and global, from Rupert Murdoch’s News Corp.--which owns Twentieth Century Fox studios, the Fox Television network and media companies worldwide--to Time Warner, Viacom International, MCA Inc. and what may become a Microsoft-backed union of Turner Entertainment and CBS.

Disney itself, with its purchase of Capital Cities/ABC, will become a behemoth with $17 billion in annual revenue from movies, television, theme parks, cable, videocassettes, newspapers, magazines and retail stores.

“There’s so much to do in managing and, more important, growing these companies,” said Peter Dekom, an entertainment lawyer. “There’s more than enough to keep these two visionaries busy for decades.”

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Indeed, Disney was commended for resolving the issue of management succession that has haunted the company since the accidental death last year of President Frank G. Wells and Chairman Michael Eisner’s sobering encounter with heart disease.

“Any criticism of Disney’s management being less than 100% complete is now erased,” said Unger.

Ovitz, the 48-year-old chairman of CAA, will step into weighty responsibilities on Oct. 1. He will manage Cap Cities/ABC, including the ABC television network, as well as Disney’s famed movies studio, theme parks and retail operations.

That line-up makes him the heir-apparent to Eisner, 53, but both men played down such speculation Monday. They declined to disclose Ovitz’ compensation package and said they would run the company together.

Some management experts wondered how long the honeymoon between the longtime friends will last. “Two big egos can work together, but not forever,” said Archie Kleingartner, a UCLA professor who until recently headed the university’s arts and entertainment management program. “I doubt that both [he and Eisner] will be in their same jobs in five years.”

Still, most industry analysts praised Ovitz’s selection. “It’s a coup for Disney’s management,” said Arthur Rockwell, research director at Yaeger Capital Markets, a Los Angeles institutional brokerage firm.

Michael Wolf, head of the media and entertainment practice at Booz Allen & Hamilton, a management consulting firm, referred directly to industry precedent. “Lots of people have left the talent side to go into management, starting with Lew Wasserman [outgoing chairman of MCA]. Having those relationships is a lot of what drives this business.”

Indeed, Ovitz was seen as carrying on the tradition of the agent as an economic power in Hollywood that Wasserman initiated nearly five decades ago. The ability of Ovitz and CAA to package and promote stars, directors and scripts has been a defining force in the business for years.

But Ovitz’s decision to accept the corporate post at Disney signals a further shift in Hollywood’s dynamics, analysts said. “To be a player these days, you need assets and cash flow,” said a film producer. “The amount of money going into a talent agency, even one as successful as CAA, is only about 10% of the cash flowing into a studio.”

Companies need size and resources to take advantage of markets opening up in China, India and other populous countries around the world. In Disney’s case, the late Wells, a lawyer-executive who worked collegially with Eisner, was respected as an outstanding executive.

Other Disney managers didn’t measure up, analysts have been saying for the last year. Nor did management experts believe that Cap Cities possessed executives of the stature wanted.

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Chronology

Some important developments over the past year that led to the appointment of Hollywood’s top talent agent, Michael Ovitz, as president of Walt Disney Co.:

April 3, 1994: No. 2 Disney executive Frank G. Wells dies in a helicopter crash, raising the question of who will be chosen by Chairman Michael Eisner to succeed him.

July 16, 1994: Eisner undergoes quadruple bypass surgery. Despite the operation’s success and Eisner’s good prognosis, health questions now lurk in the background.

Aug. 24, 1994: Disney studio chief Jeffrey Katzenberg quits, unhappy that Eisner wouldn’t promote him.

Oct. 12, 1994: Katzenberg teams with director-producer Steven Spielberg and music mogul David Geffen to create the DreamWorks SKG studio, regarded as a powerful newcomer to the entertainment industry.

April 9, 1995: Seagram Co. buys 80% of MCA Inc. from Japan’s Matsushita Electric Industrial Co. for $5.7 billion.

April 12: Rumors begin to surface that Seagram President Edgar Bronfman Jr. is negotiating with Michael Ovitz, founder and head of Creative Artists Agency and one of Hollywood’s most influential deal makers, to make Ovitz head of MCA.

March 7: High-ranking Disney executive Michael Frank quits, resurrecting the succession question for Eisner.

June 1: Ovitz and Bronfman are reported to have reached a preliminary agreement.

June 5: As Seagram finalizes its MCA purchase, talks with Ovitz collapse. Bronfman reportedly disliked Ovitz’s demands for compensation and unfettered independence. Ovitz tells his own staff he’s staying with CAA.

June 13: MCA signs a 10-year distribution deal with DreamWorks, moving the Spielberg-Katzenberg-Geffen team into a close relationship with MCA’s Universal Studios.

July 10: Seagram hires Ovitz lieutenant and CAA co-founder Ron Meyer to head MCA.

July 31: Disney says it will buy Capital Cities/ABC Inc. for $19 billion. The deal would make Disney the world’s biggest entertainment concern and Eisner, indirectly, a boss of Katzenberg again, since DreamWorks is fractionally owned by Cap Cities/ABC and plans to produce shows for ABC.

Aug. 3: Katzenberg and Eisner make up in an unusually public reconciliation.

Aug. 14: Eisner hires Ovitz to run Disney.