Disney, Pixar, Apple: Who's to Blame?

TMF: The breakdown of Disney's (NYSE: DIS  ) relationship with Pixar (Nasdaq: PIXR  ) has been much documented recently, and the breakdown of Eisner's relationship with Pixar CEO and Apple (Nasdaq: AAPL  ) CEO Steve Jobs in particular. Is Jobs the bad guy and Eisner the bad guy?

James Stewart: Well, everybody is a complicated character. I am sure Steve Jobs has his good and bad qualities, as does Eisner. But nevertheless, in this story, Steve Jobs definitely has reason to be angry with Eisner. By the way, I think until I really did this reporting, I did not understand the breakdown of that relationship because Pixar and Disney are made to be partners. One of the ironies of this story is that Disney could have bought Pixar at an early stage for practically nothing, but that is water under the bridge. They should be partners now.

This is all about the breakdown of the personal relationship between Eisner and Steve Jobs. What I discovered is that the single incident that pushed Steve Jobs over the edge was when he believed, and I think he is right, that Eisner lied to him about blasting Apple Computer in congressional testimony. It is a pretty remarkable story, really, because Eisner went before Congress to talk about digital piracy, and in his unscripted comments, he ended up denouncing the big company that was responsible for the rip, mix, and burn advertising campaign. Of course this was Apple Computer, whose chairman happens to be Steve Jobs, also the chairman of Pixar.

Jobs was infuriated by this. ... When he called another Disney executive and, enraged, said, "I cannot believe what Michael just did to me in Congress," this executive said, "Oh, there must be some misunderstanding. Let me check with Michael." He called Eisner. Eisner said, "Well, I didn't say anything about Apple. I didn't criticize Apple." This executive repeated this to Jobs. Ten minutes later, Jobs is back on the phone, ranting, because he got the transcript. He said, "Let me read you the transcript," which, by the way, I also quote in the book. It is true that Eisner did not use the word "Apple," but nevertheless, there was only one company who was mounting an advertising campaign urging people to rip, mix, and burn.

Later, as Steve Jobs put it, that was really the straw that broke the camel's back, and he said, "How can I be a partner with someone like this?"

TMF: I am a shareholder actually in both Pixar and Disney, so I guess I am somewhat conflicted here, but did you have an opportunity to do some extensive talking with Steve Jobs as part of your book?

James Stewart: Well, I don't really want to get into, beyond the major characters like Eisner, (Robert) Eiger, Roy Disney, and Stanley Gold. I don't really want to get into if I did or didn't talk because many people did speak to me on a not-for-attribution basis, and I want to be sure to honor those agreements.

TMF: The March 2004 board meeting for Disney, Eisner was stripped of his chairmanship. It was sort of a zoo. I had a few friends who were in attendance there, and I remember hearing about the juxtaposition of inflated balloons of Disney characters dangling up over the seats and all of a sudden the Disney chairman being voted out. Were you there, and what are your reflections on that event?

James Stewart: Yes, I was there. It was a little surreal because they were piping in this music, Whistle While You Work, and there were characters dressed up as the animated characters, kind of greeting the shareholders who, by the way, were really angry. Sitting in that packed ballroom with Eisner on the stage and Roy up there denouncing him and Eisner sort of glowering, I could just feel the hostility in this crowd towards Eisner and towards the incumbent management and it reminded me -- not that I of course was there -- but having read the histories of like the gathering of the bourgeois on the eve of the French Revolution and the hostility they felt toward the monarchy, I felt I was kind of sitting in on the same kind of revolutionary moment. In this case, the shareholders sort of seizing their rights and insisting that the board and management be responsive to their concerns.

TMF: Eisner's contract expires in September 2006. I remember hearing or reading, in past months, that there is a succession plan being contemplated. He intends to step down. What is next for Michael Eisner?

James Stewart: Well, Disney is at a critical juncture in its history at this moment because the board is now leading a search to find a new chief executive to replace Eisner. Now he indicated that he would resign when his contract expires in September in 2006, but unless the new CEO is his rather belatedly hand-picked successor, Disney President Bob Eiger, no one believes that a new CEO either would want or should have Eisner hanging around. So I think it is quite possible that if the board reaches outside the company for a new CEO, Eisner will be asked to leave early.

Now Eisner said to me, reported in the book, that he would also like to remain as chairman, to have his title restored. That would be the ultimate vindication for him and perhaps also serve as what he called "chief creative director" of Disney. In other words, from Eisner's point of view, he is still clinging to power there and would like to stay on indefinitely. Now I do not think that is in the cards. I cannot predict the future, but I cannot believe that this board, after that shareholder vote, would in fact want Eisner to remain there. He has had a remarkable career. He deserves the respect for all that he has achieved for the company, but it really is, as Diane Disney herself said, "It is time for Michael Eisner to move on."

TMF: James Stewart is the author of Disney Wars. James, thanks for joining us on The Motley Fool Radio Show.

James Stewart: Thanks for having me.

Want to read this interview in its entirety? Check out:

David Gardner is co-founder of The Motley Fool and is the advisor of Motley Fool Rule Breakers.The Motley Fool isinvestors writing for investors.


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