As Michael Eisner and Jeffrey Katzenberg duke it out in court, the Magic Kingdom faces competition on all fronts

By Dave Karger
Updated May 21, 1999 at 04:00 AM EDT

They’re the words that will live in Disney company infamy: ”I think I hate the little midget.”

The quote came from Disney CEO Michael Eisner, and he wasn’t talking about Dopey. Instead, he was referring to his 5’4” former friend and studio chief, Jeffrey Katzenberg, currently the K in DreamWorks SKG. That Eisner, the family-friendly head Mouseketeer himself, made the bitterly disparaging remark (to Tony Schwartz, coauthor of his autobiography) is just one of the startling revelations to come out of the most dramatic Hollywood court case in recent history.

For those just tuning in: Katzenberg is suing Disney for 2 percent of profits from films and TV shows made during his decade-long stint as chairman of the studio, claiming he is owed about $250 million. That includes all the profits still being made from sequels and tie-ins to such blockbusters as The Lion King and Aladdin. Two years ago Disney conceded Katzenberg was owed money, and it reportedly paid him $117 million. The current phase of the trial is to determine the size of the settlement.

The case has not only brought to light more evidence of Hollywood’s remarkably subjective bookkeeping — Disney’s lawyers have claimed Katzenberg’s projects have been $200 million in the red; Katzenberg’s team argues that they were $400 million in the black — but also transfixed a town astounded by the spectacle of two of its heavyweights pulling out all the stops. During his tense May 4 testimony, a testy Eisner quarreled sharply with Katzenberg attorney Bert Fields. Fields accused Eisner of harboring ”personal animus” toward Katzenberg. Eisner countered, calling Katzenberg’s 2 percent provision ”greedy.” He also said that Katzenberg, widely credited with revitalizing Disney’s animation unit, originally wanted ”to move the animators off the lot. He wanted to get rid of [them].”

Predictably, Disney has gone into siege mode. One high-ranking insider notes the mood has been grim, and specifically, ”Eisner’s not a happy guy.” (Says Disney corporate communications senior VP John Dreyer, ”I will not comment for any story that has to do with the trial.”) Remarkably, the trial is quite possibly the least of Disney’s troubles. Although its second-quarter report showed net profits of $226 million, that’s down a whopping 41 percent from the same period last year.

”Disney used to have it pretty easy because they had weak competition in everything that they did — animated films, TV channels, merchandising,” says entertainment analyst Harold Vogel. ”Now they’re being attacked on all fronts.” Indeed, Disney’s theme-park division is facing new competition from Universal’s new Islands of Adventure in Orlando, Fla., and though Disney’s summer cartoons are usually surefire toy-store tie-in blockbusters, Tarzan, so far, is no Darth Maul. Here’s how the battle lines are being drawn at Disney’s three biggest divisions:

For years, Disney’s feature-film unit was the most prolific in Hollywood. In 1995 it released more than 30 films — and that’s not including output from its wholly owned subsidiary Miramax. This year the studio will open only 18 movies. The reduced slate will save the company some $500 million, but while a trimmed-down lineup can work (Disney still managed to have three of last year’s top 10 domestic grossers), fewer films also mean fewer chances for hits — and so far, it’s been a hitless 1999. Still, Tarzan and Toy Story 2 look to be presold successes, and expectations are high for Bicentennial Man, Robin Williams’ holiday comedy. As Fox Domestic Film Group chief Tom Sherak notes: ”All it takes is for Tarzan to be a hit. If it brings in $200 million to $300 million, all of this will be a moot point.”