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Empire of the Rats: Disney, Eisner, and the Rot in Hollywood
By Maxie Zeus
04-12-2005, 1:24 AM |
Michael Eisner is either the biggest liar in Hollywood, or he has been the object of more scurrilous lies than anyone else in Tinseltown.
 That’s the overriding impression left by James B. Stewart in DisneyWar, the eagerly awaited (or deeply dreaded, depending on your place of employment) book about Eisner’s tenure as chairman and CEO of the Walt Disney Company. Every few pages, it seems, someone, either on the record or anonymously, recounts a story of outrageous behavior by Eisner, followed by a parenthetical or footnoted denial by Eisner himself. Did Eisner tell his board of directors (with Iger present) that Disney president Robert Iger was incapable of running the company? Multiple witnesses say he did; Eisner says he was misunderstood. Did Eisner force the board to name former Senator George Mitchell to the chairman’s post by threatening to quit and trigger a massive cash settlement if it didn’t? Board members say he did; Eisner says he didn’t. Did Eisner call his theme park executives "monkeys" who "don’t have any brains"? That’s what Judson Green reports; Eisner denies it.
By this point in his career, Eisner has been so vilified that it’s hard not to believe the worst of the man. And it’s almost incredible to recall that major magazines once praised his business skills; that fans revered his willingness to revitalize the animation division and lavish money on the theme parks; and that some even said he could "out-Disney" Walt Disney himself in the charisma department. Clearly, his life has not been a Disney fairy tale. Instead, his career seems more like Greek tragedy: the story of a man whose vast talents and abilities took him to the pinnacle of the American entertainment industry but who was brought down by fatal character flaws.
I.
Michael Eisner’s career at Disney breaks neatly into two almost symmetrical halves. From 1984 through 1994 he led the Mouse House through one of the most successful business stories of this or any generation. Before he arrived, Walt Disney Productions had been a sleepy, genteel company living on the residuals of classic cartoons, popular characters, and the best theme parks in the world. But it was also shabby, slow moving, and contemptuous of change. Movie styles had changed since Walt’s death in 1966, becoming harder, sharper, and more vulgar. But Disney’s successors were uncomfortable with the razorblade aesthetics of Martin (Taxi Driver) Scorsese, Francis (The Godfather) Coppola, William (The Exorcist) Friedkin and Roman (Chinatown) Polanski. And so the company’s live-action films remained stuck with a late-60s "family film" sensibility and ignored an audience demand for family films that reflected the sensibilities of the new era. Where audiences once flocked to Snow White for fantasy, Treasure Island for adventure, and 20,000 Leagues Under the Sea for spectacle, they now went to Star Wars, Raiders of the Lost Ark, and Close Encounters of the Third Kind. These were family-friendly films with far more zest, excitement and wonder than the pale The Island at the Top of the World and The Black Hole, not to mention The Apple Dumpling Gang. Stuck in the past, Disney seemed a company with no future.
But outsiders recognized that there was value in its properties. The theme parks sat on valuable real estate; the development of the VCR suggested that Disney movies might tap into a new revenue stream; and such characters as Mickey Mouse and Donald Duck seemed like exploitable evergreens. But would the revolution be carried out from within by new management or imposed from without by the corporate buccaneers of Wall Street?
It came from both directions, kicked off by Roy E. Disney, Walt’s nephew, when he resigned from the company’s board of directors and began a fight to bring in a new team that could turn around the company before the raiders dismantled it. He found that team in a set of experienced Hollywood executives: Michael Eisner and Jeffrey Katzenberg of Paramount Pictures, and Frank Wells, a former president of Warner Bros. And as the new team settled in to the company, they were protected by the billionaire Bass brothers of Texas, who purchased large chunks of Disney stock and pledged to support the new managers.
Eisner admitted in his autobiography that, coming into his new job, he knew very little about the company. He had never seen Snow White or Sleeping Beauty, and he had never been to Disneyland. Nevertheless, he was a "creative" executive, brimming with "crazy" ideas of the sort Walt might have indulged in. Eisner enthusiastically backed Euro Disney; he pored over architectural plans; he suggested a hotel in the shape of Mickey Mouse, its legs straddling a park entrance like the Colossus of Rhodes. At Disney Studios, Katzenberg ramped up the production of live-action features that were strong on story and short on expensive movie stars. The animation division, which came within a Mouse’s whisker of being closed, was gradually revived with a new team of enthusiastic and creative artists. Overseeing the finances of the new company, Frank Wells strengthened its capital structure, negotiated contracts, and tempered, refined, and implemented Eisner’s dreams. Over the next ten years, Disney’s market value soared ten-fold. And this growth came entirely from within the company, not via expensive acquisitions. Eisner and his team were hailed as geniuses not seen in the movie business since … Well, possibly they were geniuses of a stature that had never been seen before.
And then, beginning in 1994, it all began to collapse.
Frank Wells died in a helicopter accident. Shortly afterward, Eisner underwent open-heart surgery. Katzenberg, miffed at not being made number two at the company, resigned and formed a new competitor, DreamWorks. Michael Ovitz briefly came in as president and collected a fortune after he was forced to resign. Disney bought ABC just as its ratings went south. Billions were blown on the purchase of the Fox Family Channel. Lawsuits that should have been settled quietly spread embarrassing Disney gossip in the Hollywood press. Euro Disney flirted with bankruptcy. The company’s signature animated films, after setting records with The Lion King, went into a decline that ended with the closure of the 2D feature animation division. And in 2004 Roy Disney resigned from the board of directors, calling for Eisner’s ouster as the company once again came under the shadow of a hostile takeover attempt.
How could things go so wrong after having gone so right?
II.
For DisneyWar Eisner gave Stewart extraordinary access, meeting with him, talking to him, letting the author follow him around as he managed the company. Stewart supplemented this access by interviewing scores of Disney executives and board members and reviewing the legal documents generated by the Katzenberg and Ovitz lawsuits. He even spent part of a morning as Goofy at Walt Disney World, getting a first-hand experience of what it is like to be one of Disney’s famous characters. He writes at length about both halves of Eisner’s tenure.
The result, one is disappointed to report, is a very bad book. Stewart has assembled and here presents mountains of data and pages and pages of gossip, but he has failed explain—or even to ask—what made Disney work and how it came to be broken. I can’t imagine that the talented storyteller in Eisner would be impressed, even if he hadn’t emerged from its pages as the chief villain. Like a bad Hollywood blockbuster, DisneyWar is all incident and no story.
Eisner is infamous for his micromanagement, and Stewart had a once-in-a-lifetime chance to study Eisner in action. And yet the reader comes away from DisneyWar with no sense at all of what Eisner even does in the course of a day or week. What do chief executive officers do, exactly, and how did Eisner go about impressing his vision and strategy upon the company? Stewart is silent. We get a few scenes of Eisner discussing possible animated projects. But how typical are such meetings? How often does the chairman meet with his division heads and what does he tell them? The impression is given of Eisner as a monomaniacal talker who likes to repeat stories about Laverne & Shirley to bored underlings who have heard them dozens of times before. But is this a fair description or is it the result of Stewart’s inability to paint a general picture? Katzenberg and Ovitz pass along tittles and tattles about their battles with Eisner. But those were extraordinary events. What can the day-to-day details reveal anything about Eisner, his ideas, his talents, his weaknesses or his management style? Stewart doesn’t say, and he doesn’t place the major crises in a larger framework that might reveal more about how he runs the company.
Instead, Stewart’s book focuses on the famous events. The quasi-coup that brought the Eisner/Wells/Katzenberg team to Disney; Katzenberg’s initial skepticism about animation; Eisner’s heart attack and his subsequent split with Katzenberg; Ovitz’s tenure; the purchase of ABC and Fox Family Channel; the public battle with Roy Disney and Stanley Gold—each of these gets a lengthy, detailed treatment. But collectively they add up to little and shed no light on how Disney functioned. One pivotal event occurred; and then another one occurred; and then another; but there is no attempt to understand or present the meaning or significance of these events, how they relate to each other, or what they show about the inner workings of the Walt Disney Company. This is not a history. It is, at best, a series of well-written dispatches from a foreign correspondent covering a civil war in the Magic Kingdom. Entertaining dispatches, certainly, but ultimately not illuminating.
Stewart also does a poor job of tracing the history and developments at key Disney units. He does a good job of showing the fear and trepidation that swept the feature animation division shortly after Eisner and Katzenberg arrived, for instance, and he paints an unflattering picture of Katzenberg alienating the animators at a "gong show" pitch session where he shouted down story ideas with the exclamation "Gong!" When entering the animation wing, Stewart recounts, Katzenberg would "hold out his hand and someone would slip a chilled Diet Coke into it. He never said ‘thank you.’" The animators got revenge with scatological cartoons. "In one widely circulated drawing," Stewart writes, "Katzenberg is [shown] urinating on one of the animators’ storyboards, one hand outstretched. The caption: ‘More Diet Coke!’" (In fact, Katzenberg’s boorishness is such that the index includes eight locators for the entry "Katzenberg, Jeffrey: bad manners, lack of education, and rudeness of.") Stewart also spares no detail describing the genesis and development of The Little Mermaid and Beauty and the Beast, paying special attention to lyricist Howard Ashman’s contributions. But after The Lion King opens, Stewart ceases to follow developments at the animation division. Was Katzenberg a force for good storytelling at the studio, such that his departure led to its weakening? Or were other factors involved? Stewart offers no answers; indeed, he seems unaware that the issue might even be raised.
There are two sides to the question "What went wrong at Disney?" To the business question—why did Disney stall in the mid-90s—there may be a simple answer. In 1984 the company began building and operating its own hotels at its resorts. It raised ticket prices at its theme parks. And it began issuing its classic animated features on VHS. Almost in passing, without developing the insight, Stewart notes a 1987 internal study showing that Disney’s improved results (operating income had almost tripled) almost entirely derived from those three moves. And from 1987 until 1994, it seems safe to say, the company could supplement these improvements with the strong performance of its live-action and animated movies. In other words, most of Eisner’s magic lay in making three "simple and obvious" (Stewart’s words) changes along with some luck at the box office. Once the library was exhausted, ticket prices stabilized, hotel construction ended, and the box-office run of Splash through The Lion King ended, the tremendous appreciation in Disney income and valuation ended too.
To the creative question—why did Disney cease to cause excitement or enchantment with its films and at its parks—Stewart pays no attention. This is a place where his inability (or unwillingness) to describe Eisner’s management style is most frustrating. There is a strange need among Disney fans to lay the blame for the company’s long-standing malaise at the feet of its chairman. Is this deserved? Eisner, as mentioned, has a reputation for micromanaging the business, but Disney is a big company, and Eisner couldn’t have had his fat, clumsy thumb in every cow pie.
Stewart’s portrait, over its length, creates the strong impression that Eisner is a lousy manager, a man who systematically (and perhaps helplessly) demoralizes, crushes, and destroys his subordinates. Katzenberg and Ovitz, Iger and Joe Roth, Steve Burke and Sandy Litvack: each of these men initially enjoyed Eisner’s favor. But the higher they rose in the company the more resentful, distrustful and cruel Eisner became toward them. Even Frank Wells, Stewart reports, hated working with Eisner. It’s not hard to guess that the division heads and those beneath them do not work in an atmosphere designed to encourage creativity, risk-taking or a "whistle while you work" cheerfulness.
There’s no point in trying to give a psychoanalytic explanation for Eisner’s Queeg-like behavior, but Stewart notes an intriguing parallel. In 1984, just before he jumped to Disney, Eisner had been the subject of a glowing New York profile in which he had failed to mention or give any credit to Martin Davis, the chairman of Paramount’s parent company. An incensed Davis, who apparently feared and resented any underling who showed dangerously high levels of competence, began pressing for Eisner’s ouster. Eisner appears to have turned into another Martin Davis. Or perhaps Hollywood just attracts such personality types.
How important is it to understand the workings of the Disney company and Eisner’s role there? Well, that depends on how seriously you take American pop culture and corporate influence upon it. Disney is one of six companies, along with Time Warner, Sony, News Corp, Viacom, and NBC-Universal, that dominate the entertainment industry. Behind the creative decisions are business decisions, and with millions—even billions—at stake, the executives at those companies have every incentive to closely monitor and control the artists that work for them. To understand movies, it may be necessary to understand the movie business.
III.
 To understand Eisner’s stewardship at Disney, you’re much better off reading Edward Jay Epstein’s new book, The Big Picture. For even though he includes only brief and allusive references to the Disney company and its products, Epstein’s portrait of contemporary Hollywood implies, with startling clarity, a surprising conclusion. Eisner’s tenure as CEO of the Mouse House has not been a betrayal of Walt Disney’s vision but a ruthless fulfillment of it.
The Big Picture is an economic history and analysis of the present-day Hollywood studio system, a description of its "market strategy." The book’s starting assumption is that a Hollywood studio is, first and foremost, a machine devoted to the creation of profit. Its executives must clearly understand where its money comes from, where it goes, and what financial and creative strategies will ensure that their studio captures more money than it expends. A studio chief must carry around in his head a picture, a blueprint of the industry and his company’s place in it, and create policies and strategies to implement that blueprint.
The Paramount of the 1930s, for instance, was primarily a real estate company with a factory attached; it was an enormous chain of gargantuan urban theaters that covered their operating costs by selling a diet of efficiently produced cinematic product to a steady and predictable stream of customers. That audience was enormous (in 1947, ninety million Americans went to the movies each week) and drew on every background and demographic. Thus, Paramount maximized its revenues by producing a slate of films in a wide variety of genres with the confidence that each film was likely to find a ready audience. Universal, which had no theater chain, used steady attendance figures to forecast with relative confidence how much its films were likely to earn; it then carved out a profit by ruthlessly keeping its overhead and production costs below that level. Moreover, each studio knew that the initial theatrical release would provide the bulk of a movie’s earnings, and so the studios had every incentive to maximize those revenues by investing in the quality of their offerings. By making movies that got good "word of mouth," they could extend their films’ exhibition runs and collect more money.
Although Walt Disney lived and worked in the same company town as the old movie moguls—and, with Snow White and other animated features, gave it many of its biggest and most durable hits—he flouted these rules. He had no chain of movie theaters, and his "factory" lurched from project to project and crisis to crisis. He produced only a few feature films on an irregular schedule. And although he spent heavily to ensure a quality product, he would milk his investment by regularly reissuing them and by licensing and collecting royalties on his stable of characters. (In 1935 Disney made more profits off royalties than off theatrical income.) Disney also targeted a very select audience: children.
Today, the Disney market strategy—produce films for a reliable demographic, exploit them through multiple releases, and collect royalties by licensing their elements—is applied by every studio in Hollywood. And Disney’s preferred audience—children and adolescents—is now Hollywood’s. If Michael Eisner’s Walt Disney is mostly indistinguishable from Ron Meyer’s Universal or Alan Horn’s Warner Bros., it’s not because Disney has lost its way. It’s because those studios have deliberately reinvented themselves as Disney clones. Hollywood has been Disneyfied.
Disney’s genius lay in identifying two mutually reinforcing phenomena. First, a studio can best maximize a film’s revenues not by concentrating on the film itself but by channeling and exploiting its content through multiple forms. So, instead of selling it once in a movie theater, Disney sold it multiple times via theatrical reissues and new distribution channels (he was one of the first moguls to move into television production). Moreover, the individual elements in a film (the characters or settings) can be exploited by licensing them for toys and games, books, musical records, and theme parks. Again, Disney himself pioneered this technique. Today, of course, the distribution and licensing opportunities have multiplied. Studios sell their movies via DVDs and through pay-TV, pay-per-view-TV, broadcast-TV, and cable-TV services; besides toys and games, they license their products for packaged food, clothing, personal accessories and even such ephemera as ring tones and screensavers. As Disney discovered, the revenues from these "ancillary" businesses might exceed those generated by the films themselves. And when the studios realized this, they stopped thinking of the ancillaries as advertisements for their films and began thinking of their films as advertisements for the ancillaries. Today’s studios create and license "copyrights"; movies and TV shows are basically venues (like the runways at haute couture fashion shows, says Epstein) that create demand for a constellation of spin-offs dependent upon those copyrights.
Second, Disney saw that children are better at driving sales than are their parents. Even when children do not spend, they are often the cause of spending by others. (In 2002 children influenced $650 billion in sales—a not-small chunk of the national economy.) Aside from that, non-adults (especially tweens and teenagers) have quite a bit of pocket change, most of it "free" money that can be blown on toys. Children, adolescents and young males are also prime targets for advertisers because their buying patterns are relatively unformed. They are technologically savvy, making them quick to experiment with and embrace new distribution platforms like the DVD, the videogame and the cellphone. And they have more free time than do adults to spend on entertainment. Put bluntly, if you want to shake an entertainment dollar out of someone, you’re much wiser to rattle a fifteen-year-old boy than a thirty-five-year-old mother. And if you’re determined to get the mother’s money, you’re much wiser to rattle her five-year-old kid.
And Disney saw that the two insights lock together: If you’re going to sell to kids, you’ve got to sell toys, and if you’re going to sell toys, you’re going to have to wrap them in a package that appeals to kids. The resulting strategy has the neatness of a geometric proof: (1) Sell junk to the kiddies. (2) Charge the kiddies (or their parents) a fee to get into the store where you sell the junk. (3) Charge the kiddies to watch the advertisements that lure them into the store where you charge them a fee for the chance to buy your junk. Thus are kids enticed by the DVD of the animated Sleeping Beauty into paying money to visit Disneyland (a gigantic store disguised as a theme park) so they can buy Disney-made products bearing Sleeping Beauty’s image. "Awake, she’s just another princess," exulted Prince Charming (a caricature of Walt himself) in Fractured Fairy Tales. "Asleep, she’s a gold mine!"
And that, as Epstein shows, is exactly what the rest of Hollywood has caught on to. In one remarkable chapter he shows that the ten "billion dollar" films of 1998-2003 were all variations on a common Disney pattern: A young character is transformed into a mature hero by fighting battles in a fantasy setting, all while eschewing the graphic violence or overt sexuality that could earn an R-rating. These films—Harry Potter and the Sorcerer’s Stone, Harry Potter and the Chamber of Secrets, Star Wars: The Phantom Menace, Star Wars: Attack of the Clones, Finding Nemo, The Fellowship of the Ring, The Two Towers, The Return of the King, Spider-Man and Pirates of the Caribbean—realized only a fraction of their total income off their theatrical ticket sales. Moreover, a huge chunk of their profits was not even recognized in the studio’s income statement but was captured by other units at the studios’ parent conglomerates: the theme parks, the retail stores, the broadcast and cable networks, and the television stations and cable companies that carry the networks. The importance of these films to the studios should not be underestimated. They provided the bulk of the studios’ profits in the years that they were winding through the distribution systems. And the importance of the young audience to Hollywood is such that the studios devoted 80% of their advertising dollars (which the studios use to maximize their high earners, not support their weak offerings) to buying time on television shows that appeal to an under-25 demographic.
IV.
Now, given that those ten films were all extraordinarily popular and earned reviews ranging from the merely positive to the positively ecstatic, this might seem like undiluted good news. Moreover, what has this to do with the recent fall-off in quality at Disney?
Epstein does not directly address such questions; his book is not about the Disney company, and he has little to say about overall quality of Hollywood’s offerings. Nevertheless, his analysis is so thorough and so powerful that it is not hard to draw many unstated corollaries.
First, Hollywood and Disney are extraordinarily dependent on kid- or teen-friendly blockbusters, thanks largely to the DVD market, which provides Hollywood with almost half of its revenues. And these audiences have little patience or interest in story, character development, good acting, intelligent direction, or dialogue. (In 1998, says Epstein, theater owners bombarded Disney executives with complaints that the company’s non-animated films were "overly verbose," "too slow in getting to the action," short of "blood and gore," and thus were unappealing to the all-important fifteen-to-nineteen male demographic.) Or, to put it more carefully, these audiences are not drawn to films that promise such elements. Through long experience, the studios have learned that those most likely to buy a theater ticket are pulled in by the promise of violence, excitement, and constant visual stimulation. Hence, studios spend a lot of time and money pumping up these "extras"—the things that will look good in a thirty-second advertisement or a three-minute trailer even if they make no sense in the film itself. Epstein recounts with mordant humor the progressive revisions to a low-budget script as it is blown up and distended to ridiculous proportions by studio executives who insist on inserting action "beats" that can be used to sell the film. It doesn’t matter that the beats seem to be totally illogical, unmotivated, unwanted and cliched, or that they plainly would have ruined the movie (had it been made). They will "sell" it, and that is all that the studio wants. Jon Peters’ infamous directive to Kevin Smith—"We need a fight with a polar bear"—is just business as usual.
Studios will spend money on absurd elements that will get kids and teenagers into the theater, but they have no reason to spend money on those elements—like story or character—that might give a film good word of mouth ("playability," they call it in Hollywood). You’ve probably walked out of any number of bad comic book movies muttering darkly, "That was awful, I hope the studio loses a bundle." If so, you’re talking like an idiot: You’ve already given the studio your money, and, if the studio has played its marketing plan correctly, you’ve probably just contributed to a $100 million opening. Why should the studio care what you think after you’ve forked over your money? Word of mouth? They don’t need it. Everyone you might complain to probably saw it the same day you did. That’s the beauty of a 3000-screen debut: It simultaneously opens gushers of money and minimizes the damage that a bad film can do to a studio’s bottom line. So long as the audience consists primarily of kids and teenagers who can be tricked by a "hot" trailer or title into rushing the theater, the studios have little reason to concentrate on making their movies good.
Furthermore, the numbers generated by that opening weekend don’t have much affect on the film’s ultimate success. Forget box-office; Box Office Mojo is peddling trivia, not data. In 2003, only 18% of Hollywood’s total revenues came from the US box office. The rest came from foreign sales, TV sales and DVDs. In all these cases, the revenues realized by the studios are influenced by the grosses generated on an opening weekend but hardly determined by them. HBO, NBC, and independent stations typically pay a flat fee for broadcast rights, and that fee does not rise or fall much based on how well the film did at the box-office. (In many cases the producing studio will own the network it sells the film to. Thus, the studio can record almost any price it wants while the network simply profits off a steady stream of advertising dollars. The amount of money "made" in the broadcast arena is likely an accountant’s artifact.) A movie’s success on DVD, meanwhile, seems to be more a function of brand-awareness than its success in theaters. A marketing campaign that can "open" a film in theaters can also "open" it on DVD. This is especially true of films aimed at young audiences, who buy most of the DVDs that Hollywood sells. Indeed, while reading The Big Picture’s chapter on DVDs I had the awful vision of a teenager in a black T-shirt chatting on his cellphone as he walks out of an auditorium: "Worst movie ever. I can’t wait until I can buy it on DVD."
In short, it is hard not to conclude that Hollywood has successfully created a business model in which economic success is more strongly correlated with hype than with quality. And that is because Hollywood today primarily caters to an audience (kids and teens) that is more likely to reward hype than quality filmmaking. No matter how much you bellyache about Batman and Robin, just remember that you likely saw it on opening day, and that you rushed to catch it because you just couldn’t wait.
Furthermore, even though the studios, like Disney, are dependent on kid-friendly blockbusters, that does not mean that a kid-friendly film is likely to become a blockbuster. And so the studios (including Disney) become creatively risk-averse, inclining toward formula (see the billion-dollar club above) and coarsening their films with elements that will "sell" but not improve them. Roy Disney has famously complained that his family’s company is not a "brand." Unfortunately, the market strategy that his uncle created has come to rest on so narrow a base—its popularity with kids—that the company runs the risk of crashing if it isn’t exploited it as a "brand." The stakes are so high and the risks so great that Disney executives cannot afford to gamble on something as mysterious and ineffable as "quality." Instead, it is more rational to try game the system.
Disney-lovers and Eisner-haters may wish to pretend that Walt Disney never consciously designed or intended this model, that for Disney it was always about "the dream," and that Eisner is merely an evil genius who has helped corrupt it. Well, maybe. But we still have to face the plain fact: It did not take much to "corrupt" the Disney company. Once you’re in the business of selling dreams, it becomes very easy to lose the dream and keep only the salesmanship.
Consider the Hollywood company that most closely resembles Walt Disney’s original enterprise: Lucasfilm Ltd. Like the Walt Disney Productions of old, Lucasfilm produces very few films and releases them only irregularly. The Star Wars movies are Disney-esque stories (tales of youngsters or adolescents fighting battles of good vs. evil in an expensive—and mostly animated—fantasy world) set in an enveloping notional universe whose fabric is mostly created and sustained by ancillary products—games, toys and books. Devotees of Star Wars mentally inhabit it as an almost parallel universe, such that its products are not merely toys but elements of a kind of personal identity. The films themselves are almost an afterthought and are mostly used to drive the sales of products other than movie tickets: Attack of the Clones returned $155 million in rentals (the box-office take not kept by the theaters) to Twentieth Century Fox; worldwide, from all sources, the film returned $1.087 billion to Fox and Lucasfilm. And those sales (along with the $1.185 billion returned by The Phantom Menace) rolled in despite strong fan dissatisfaction with the two prequels. This is the new Hollywood, where the producer and distributor can collect more than $2 billion in revenues off a product that is widely execrated. And there is scant evidence that the take would have been more lucrative if the movies had been better loved. The dream is profitable because it grips the mind of a large fan base. The movies do not entertain; they only stimulate a hunger for product; and that is sufficient to make George Lucas very, very rich.
V.
Must matters be this way?
You might think that there is one exception to the above analysis, a company the shows Hollywood the profit that derives from giving creators their freedom and lets them craft idiosyncratic, quality films. After all, at Pixar Steve Jobs and John Lasseter have apparently produced a run of phenomenally successful pictures by gambling on artistic quality. Why can’t Disney do the same?
Sorry, but as much as it would thrill me to believe this, it just isn’t so. Pixar functions as it does because it has a different business structure than Disney and hence pursues a different market strategy.
As an independent producer, Pixar must rely on the service organizations of a major studio (such as Disney) to distribute its product and collect revenues from vendors. These erstwhile partners, in fact, actually compete over the fortune they have made off Toy Story, Finding Nemo and The Incredibles. As a distributor, Disney maximizes its profits by diverting funds into its own pockets through arcane accounting tricks*; Pixar therefore can only maximize its profits by driving box-office and DVD revenues as high as possible, and quality control is a key strategy for maximizing a lengthy and lucrative theatrical release and extraordinary DVD sales.
[* Students of Hollywood will find The Big Picture most rewarding in its description of the "royalty" system the studios use to divide up non-theatrical income. Pixar may have a special deal with Disney. But if it doesn’t, then the company likely receives only a small fraction of the income that its films generate in the DVD market. If Disney treats Pixar as it does most of its producers, only 20% of Finding Nemo’s DVD revenues will go into a pot from which Pixar can draw compensation.]
Moreover, it’s not clear where or how Pixar can invest its film earnings, with the result that the company will, over the long term, be unable to sustain itself as it is currently constituted. The movie business is notoriously volatile, and the major studios use their non-film holdings as investment centers that can capture windfall profits and turn them into more-reliable profit generators that can then cover any future shortfalls. With the income off Harry Potter, for instance, Time Warner can upgrade its cable systems or launch new cable channels or magazines. Disney can put its Pirates money into theme parks. Sony can invest Spider-Man profits in research and development for new technologies. But Pixar must either lose control of its profits by paying dividends, park its profits in low-yield investments, turn itself into a full-fledged studio by capitalizing new distribution and sales subsidiaries, or renew its gamble on production by plowing the profits into new feature films. The first strategy would cripple the company if an expensive production flopped after it depleted its cash cushion. The second carries high opportunity costs because it does not put the company’s profits to maximal use. The third, by altering its business structure, would change the company’s market strategy and make it more like Disney and give it Disney’s incentive to play cautiously. The fourth would merely put off the day it had to choose one of the other three options.
Production companies that, like Pixar, lack distribution arms are rarely stable for long periods of time. They either evaporate when bankrupted by a string of flops (as Terminator-producer Carolco fell apart after a bad run at the box-office), are acquired by a major studio that wants to capture it as an exclusive supplier (as Miramax was bought by Disney), or are dissolved when their principals find themselves with an embarrassment of riches (as Selznick International dissolved after Gone With the Wind broke box-office records). There is no telling where Pixar will end up, but the company emphatically does not make movies in a way that Disney or the other studios can safely emulate. Economic structure isn’t destiny, but it’s an influence of such overbearing power that it can rarely be defied, and never for long. Pixar, in its current form, is likely not long for this world. The only question is whether it will evolve, die, or be absorbed by one of the majors.
VI.
Classical Hollywood has been sentimentalized as a "dream factory," a place where dreams were made with care and efficiency. However gauzy the image (shot, like a bad fantasy sequence, through camera filters and make-believe fog), there was an element of truth to it. Old Hollywood was a highly profitable business, but it was also a place that could tell stories that were surprising, evocative, unexpected, intelligent and challenging: Gone With the Wind, Casablanca, Frankenstein, Singing in the Rain, Citizen Kane, Harvey, Snow White, Duck Soup, Mr. Smith Goes to Washington, The Thin Man, Notorious, Cat People, The Adventures of Robin Hood, Tarzan, White Heat, Bringing Up Baby and hundreds more. "Dream" applies to these films in one very apt way. Just as you can never quite know what you’ll dream as you drift off to sleep, you could never be quite sure what you’d find when you went to the movies. And because everyone went to the movies, Hollywood could rationalize the production of a wide variety of genres with the relatively secure gamble that enough people would slip into the dream to make it profitable.
Contemporary Hollywood would also like to be known as a dream factory, but the phrase is far less appropriate. The studios are, in Epstein’s word, "clearinghouses" for copyrights and participation rights, not factories. They concentrate not on the efficient manufacture of a quality product but on clever marketing. Nor is there much surprise left in their product. The biggest films are based on pre-existing franchises (kids books, comic books, or sequels) that are already known to their intended audiences, so that the only surprise comes in seeing how the already familiar elements will be created on the screen.
"Once you’re inside Disneyland’s gates, the outside world disappears," Michael Eisner said in his 2000 letter to shareholders. The other studios don’t have theme parks to give their dream worlds physical reality, but with Star Wars, Star Trek, Harry Potter, X-Men and other films they are trying for the same effect: the creation of an all-enveloping world in which the consumer will be content, ambitious even, to purchase an extraordinary and highly profitable array of products. But it’s the essence of a dream that it be temporary. The studios today are creating something more like parallel realities. "Escapism" is good, but there’s a difference between the escape into a dream—which refreshes and fortifies—and the escape into another world. The former is a vacation; the latter is more like emigration or self-imposed exile.
It’s not clear (at least to me) that a dream (the temporary respite of a movie) is superior or inferior to, more dangerous or less dangerous than a parallel world (the encompassing verisimilitude of a franchise). But I wonder if much of the dissatisfaction people feel toward Disney and toward the mega-franchises of the other studios derives from a feeling that they are being cheated by the very familiarity, the imprisoning "seen-it-all"-ness of the products created by the Disney market strategy. Youth is supposedly adventurous. So does youth subconsciously resent the staleness of the safe franchises that it nonetheless rushes to embrace?
Michael Eisner, I suggested at the start of this too-long meditation, is a habitual liar. But maybe the biggest liars in the Disney empire—in all of Hollywood—are the fans, who are lying to themselves about what they want and what they think they need. And, I’m sorely tempted to suggest that, in scapegoating Eisner, they are merely scapegoating the man who has done the most to reward their self-deceiving behavior by giving them products they're eager to buy even though they don't really want them.
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