Eisner Sets Exit, but What’s the Strategy?

Now that Walt Disney Co. Chief Executive Michael Eisner has declared his intention to resign in two years, it begs asking: What kind of CEO will he be with the clock running out?

Widely known for his micromanaging -- right down to picking the drapes for Disney resort hotel rooms -- Eisner has maintained tight control over the Burbank entertainment giant for 20 years.

With Friday’s news that Eisner will leave the company after his contract expires in September 2006, many are wondering whether he can begin to let go. Will Eisner allow his underlings to step up and make more decisions on their own -- especially given that they are the ones who will have to live with many of those decisions after he has gone?

“You’re asking the $64,000 question,” said one top Disney executive.

Much is at stake.

For starters, if Disney’s next CEO is to come from within the company’s own ranks -- President Robert Iger is considered a serious contender -- it may behoove Eisner to start fading more into the shadows. Eisner has been sharply criticized through the years for not grooming a successor from within, though Iger has taken on increasing responsibility and a higher profile in the last year.

“If it’s anybody internally, it makes sense for Eisner to start giving that person more power,” said Tom Wolzien, a media analyst at Sanford C. Bernstein & Co.

Wolzien suggested that unlike at other big media companies -- including Viacom Inc., Time Warner Inc. and General Electric Co.’s NBC Universal, all of which have deep management benches -- “there’s no farm team here.” Given that, he said, “it’s up to Eisner to help the new guy,” whether that person comes from inside or outside Disney.

Beyond that, many believe that Eisner would be wise to further empower his division heads, a move that could boost morale at a company that has seen an exodus of top executives through the years. The parade includes Stephen Bollenbach, who went on to become CEO of Hilton Hotels Corp.; Stephen B. Burke, chief operating officer of Comcast Corp.; Gap Inc. CEO Paul Pressler; Richard Nanula, chief financial officer of Amgen Inc.; and DreamWorks co-founder Jeffrey Katzenberg.

“Over the last decade, there’s been a revolving door of executive and creative talent,” said Jessica Reif Cohen, an analyst with Merrill Lynch & Co. One of the things that Eisner can do to leave on a positive note, she added, would be to “let some of the executives run their divisions,” most notably the ABC television network, which has seen its ratings plummet and losses mount in recent years.

Yet whether Eisner will be willing to do any of that remains to be seen. In fact, some assume that he may exert a tighter grip than ever.

“Personality doesn’t change,” said one former top Disney executive who knows Eisner well. “He’ll be a lame duck only by definition.... He will be focused on rewriting his legacy and will be watching over everything to make sure that his stamp is on it.”

For his part, Eisner has given no hint that he intends to let up. “I plan to be completely engaged,” he said Friday.

Still, some think that even Eisner may see the wisdom in using his move toward the exits to Disney’s tactical advantage. If he is willing to play a more limited role in selected areas -- including interactions with Pixar Animation Studios and Disney’s own Miramax Films -- the company could benefit.

“Some of the issues facing the company have become very personal, in particular Pixar and Miramax,” Reif Cohen said. “We believe that Michael Eisner recognizes that the situation is self-defeating, and it’s in the company’s best interest for him to remove himself ... and let others deal with it.”

Disney’s relationship with Pixar, creator of animated blockbusters such as “Finding Nemo” and “Monsters, Inc.,” is especially important. The movies that Pixar has made and Disney has distributed in the last 13 years have at times accounted for more than half of Disney’s film profit.

In January, after 10 months of talks aimed at striking a new partnership deal with Disney, Pixar CEO Steve Jobs stunned Hollywood and Wall Street by walking away from the table. The two sides were far apart, and many analysts believed that the terms Jobs was pushing would have been rotten for Disney.

Yet the tension between the two companies went beyond finances. In many ways, it boiled down to a clash of egos: Eisner versus Jobs.

With Eisner since having announced his eventual departure, some are convinced that Disney might try to extend an olive branch to Jobs. The person to do that could very well be Disney Studios Chairman Dick Cook, whom Jobs likes and trusts.

Although Jobs has talked to any number of other potential distributors -- Time Warner’s Warner Bros., News Corp.’s 20th Century Fox and Sony Corp.’s Sony Pictures, among them -- he has not entered into any substantive negotiations, leaving open the possibility for renewed discussions with Disney.

Jobs has told associates that if Eisner were to leave Disney, he might revisit the idea of continuing the collaboration.

“If Steve knows that Michael is gone, he might be willing to make a more palatable deal,” one Disney executive said.

Jobs, recovering from pancreatic cancer surgery, declined to be interviewed Friday.

Wolzien and others on Wall Street stressed that it is dollars and cents -- not personalities -- that will determine whether the two sides get back together.

Yet two sources close to Pixar acknowledged Friday that although major economic and philosophical issues (particularly over sequels) remain, Eisner’s announcement could at least nudge the two parties back to the bargaining table. “This opens the door again,” said one.

A Pixar investor explained Friday that he views the news about Eisner as “a victory for Pixar -- so much so that we bought more stock today.”

“Eisner stepping down removes a personal overhang,” he said.

Smoothing the waters with Miramax co-founders Bob and Harvey Weinstein also will be tricky.

Eisner and the Weinsteins have tussled for more than a year over how much money Disney will allot to Miramax to produce and market its movies, and how much the Weinsteins should be compensated. More recently, the parties have been discussing how to fashion their relationship after the brothers’ contracts expire next fall.

Under one of the scenarios that has been explored, Harvey Weinstein (another sharp-edged personality) would break away from Disney and finance his own production company, and Bob would remain at Disney under his successful Miramax movie unit, Dimension Films.

But in recent weeks, it has become clearer that Disney is probably unwilling to give the Weinsteins the kind of deal that would make that possible. Sources said the brothers were rethinking the idea of staying together at Miramax and finding a financial formula with which Disney is comfortable.

Miramax spokesman Matthew Hiltzik said the Weinsteins “look forward to achieving a resolution that will perpetuate the Miramax-Disney relationship, thus enhancing Michael Eisner’s legacy -- and their own.”