Jobs even went so far as to decree that there be only two huge bathrooms in the building, one for each gender, connected to the atrium. “He felt that very, very strongly,” recalled Pam Kerwin, Pixar’s general manager. “Some of us felt that was going too far. One pregnant woman said she shouldn’t be forced to walk for ten minutes just to go to the bathroom, and that led to a big fight.” It was one of the few times that Lasseter disagreed with Jobs. They reached a compromise: there would be two sets of bathrooms on either side of the atrium on both of the two floors.
Because the building’s steel beams were going to be visible, Jobs pored over samples from manufacturers across the country to see which had the best color and texture. He chose a mill in Arkansas, told it to blast the steel to a pure color, and made sure the truckers used caution not to nick any of it. He also insisted that all the beams be bolted together, not welded. “We sandblasted the steel and clear-coated it, so you can actually see what it’s like,” he recalled. “When the steelworkers were putting up the beams, they would bring their families on the weekend to show them.”
The wackiest piece of serendipity was “The Love Lounge.” One of the animators found a small door on the back wall when he moved into his office. It opened to a low corridor that you could crawl through to a room clad in sheet metal that provided access to the air-conditioning valves. He and his colleagues commandeered the secret room, festooned it with Christmas lights and lava lamps, and furnished it with benches upholstered in animal prints, tasseled pillows, a fold-up cocktail table, liquor bottles, bar equipment, and napkins that read “The Love Lounge.” A video camera installed in the corridor allowed occupants to monitor who might be approaching.
Lasseter and Jobs brought important visitors there and had them sign the wall. The signatures include Michael Eisner, Roy Disney, Tim Allen, and Randy Newman. Jobs loved it, but since he wasn’t a drinker he sometimes referred to it as the Meditation Room. It reminded him, he said, of the one that he and Daniel Kottke had at Reed, but without the acid.
The Divorce
In testimony before a Senate committee in February 2002, Michael Eisner blasted the ads that Jobs had created for Apple’s iTunes. “There are computer companies that have full-page ads and billboards that say: Rip, mix, burn,” he declared. “In other words, they can create a theft and distribute it to all their friends if they buy this particular computer.”
This was not a smart comment. It misunderstood the meaning of “rip” and assumed it involved ripping someone off, rather than importing files from a CD to a computer. More significantly, it truly pissed off Jobs, as Eisner should have known. That too was not smart. Pixar had recently released the fourth movie in its Disney deal, Monsters, Inc., which turned out to be the most successful of them all, with $525 million in worldwide gross. Disney’s Pixar deal was again coming up for renewal, and Eisner had not made it easier by publicly poking a stick at his partner’s eye. Jobs was so incredulous he called a Disney executive to vent: “Do you know what Michael just did to me?”
Eisner and Jobs came from different backgrounds and opposite coasts, but they were similar in being strong-willed and without much inclination to find compromises. They both had a passion for making good products, which often meant micromanaging details and not sugarcoating their criticisms. Watching Eisner take repeated rides on the Wildlife Express train through Disney World’s Animal Kingdom and coming up with smart ways to improve the customer experience was like watching Jobs play with the interface of an iPod and find ways it could be simplified. Watching them manage people was a less edifying experience.
Both were better at pushing people than being pushed, which led to an unpleasant atmosphere when they started trying to do it to each other. In a disagreement, they tended to assert that the other party was lying. In addition, neither Eisner nor Jobs seemed to believe that he could learn anything from the other; nor would it have occurred to either even to fake a bit of deference by pretending to have anything to learn. Jobs put the onus on Eisner:
The worst thing, to my mind, was that Pixar had successfully reinvented Disney’s business, turning out great films one after the other while Disney turned out flop after flop. You would think the CEO of Disney would be curious how Pixar was doing that. But during the twenty-year relationship, he visited Pixar for a total of about two and a half hours, only to give little congratulatory speeches. He was never curious. I was amazed. Curiosity is very important.
That was overly harsh. Eisner had been up to Pixar a bit more than that, including visits when Jobs wasn’t with him. But it was true that he showed little curiosity about the artistry or technology at the studio. Jobs likewise didn’t spend much time trying to learn from Disney’s management.
The open sniping between Jobs and Eisner began in the summer of 2002. Jobs had always admired the creative spirit of the great Walt Disney, especially because he had nurtured a company to last for generations. He viewed Walt’s nephew Roy as an embodiment of this historic legacy and spirit. Roy was still on the Disney board, despite his own growing estrangement from Eisner, and Jobs let him know that he would not renew the Pixar-Disney deal as long as Eisner was still the CEO.
Roy Disney and Stanley Gold, his close associate on the Disney board, began warning other directors about the Pixar problem. That prompted Eisner to send the board an intemperate email in late August 2002. He was confident that Pixar would eventually renew its deal, he said, partly because Disney had rights to the Pixar movies and characters that had been made thus far. Plus, he said, Disney would be in a better negotiating position in a year, after Pixar finished Finding Nemo. “Yesterday we saw for the second time the new Pixar movie, Finding Nemo, that comes out next May,” he wrote. “This will be a reality check for those guys. It’s okay, but nowhere near as good as their previous films. Of course they think it is great.” There were two major problems with this email: It leaked to the Los Angeles Times, provoking Jobs to go ballistic, and Eisner’s assessment of the movie was wrong, very wrong.
Finding Nemo became Pixar’s (and Disney’s) biggest hit thus far. It easily beat out The Lion King to become, for the time being, the most successful animated movie in history. It grossed $340 million domestically and $868 million worldwide. Until 2010 it was also the most popular DVD of all time, with forty million copies sold, and spawned some of the most popular rides at Disney theme parks. In addition, it was a richly textured, subtle, and deeply beautiful artistic achievement that won the Oscar for best animated feature. “I liked the film because it was about taking risks and learning to let those you love take risks,” Jobs said. Its success added $183 million to Pixar’s cash reserves, giving it a hefty war chest of $521 million for the final showdown with Disney.
Shortly after Finding Nemo was finished, Jobs made Eisner an offer that was so one-sided it was clearly meant to be rejected. Instead of a fifty-fifty split on revenues, as in the existing deal, Jobs proposed a new arrangement in which Pixar would own outright the films it made and the characters in them, and it would merely pay Disney a 7.5% fee to distribute the movies. Plus, the last two films under the existing deal—The Incredibles and Cars were the ones in the works—would shift to the new distribution deal.
Eisner, however, held one powerful trump card. Even if Pixar didn’t renew, Disney had the right to make sequels of Toy Story and the other movies that Pixar had made, and it owned all the characters, from Woody to Nemo, just as it owned Mickey Mouse and Donald Duck. Eisner was already planning—or threatening—to have Disney’s own animation studio do a Toy Story 3, which Pixar had declined to do. “When you see what that company did putting out Cinderella II, you shudder at what would have happened,” Jobs said.
Eisner was able to force Roy Disney off the board in November 2003, but that didn’t end the turmoil. Disney released a scathing open letter. “The company has lost its focus, its creative energy, and its heritage,” he wrote. His litany of Eisner’s alleged failings included not building a constructive relationshi
p with Pixar. By this point Jobs had decided that he no longer wanted to work with Eisner. So in January 2004 he publicly announced that he was cutting off negotiations with Disney.
Jobs was usually disciplined in not making public the strong opinions that he shared with friends around his Palo Alto kitchen table. But this time he did not hold back. In a conference call with reporters, he said that while Pixar was producing hits, Disney animation was making “embarrassing duds.” He scoffed at Eisner’s notion that Disney made any creative contribution to the Pixar films: “The truth is there has been little creative collaboration with Disney for years. You can compare the creative quality of our films with the creative quality of Disney’s last three films and judge each company’s creative ability yourselves.” In addition to building a better creative team, Jobs had pulled off the remarkable feat of building a brand that was now as big a draw for moviegoers as Disney’s. “We think the Pixar brand is now the most powerful and trusted brand in animation.” When Jobs called to give him a heads-up, Roy Disney replied, “When the wicked witch is dead, we’ll be together again.”
John Lasseter was aghast at the prospect of breaking up with Disney. “I was worried about my children, what they would do with the characters we’d created,” he recalled. “It was like a dagger to my heart.” When he told his top staff in the Pixar conference room, he started crying, and he did so again when he addressed the eight hundred or so Pixar employees gathered in the studio’s atrium. “It’s like you have these dear children and you have to give them up to be adopted by convicted child molesters.” Jobs came to the atrium stage next and tried to calm things down. He explained why it might be necessary to break with Disney, and he assured them that Pixar as an institution had to keep looking forward to be successful. “He has the absolute ability to make you believe,” said Oren Jacob, a longtime technologist at the studio. “Suddenly, we all had the confidence that, whatever happened, Pixar would flourish.”
Bob Iger, Disney’s chief operating officer, had to step in and do damage control. He was as sensible and solid as those around him were volatile. His background was in television; he had been president of the ABC Network, which was acquired in 1996 by Disney. His reputation was as a corporate suit, and he excelled at deft management, but he also had a sharp eye for talent, a good-humored ability to understand people, and a quiet flair that he was secure enough to keep muted. Unlike Eisner and Jobs, he had a disciplined calm, which helped him deal with large egos. “Steve did some grandstanding by announcing that he was ending talks with us,” Iger later recalled. “We went into crisis mode, and I developed some talking points to settle things down.”
Eisner had presided over ten great years at Disney, when Frank Wells served as his president. Wells freed Eisner from many management duties so he could make his suggestions, usually valuable and often brilliant, on ways to improve each movie project, theme park ride, television pilot, and countless other products. But after Wells was killed in a helicopter crash in 1994, Eisner never found the right manager. Katzenberg had demanded Wells’s job, which is why Eisner ousted him. Michael Ovitz became president in 1995; it was not a pretty sight, and he was gone in less than two years. Jobs later offered his assessment:
For his first ten years as CEO, Eisner did a really good job. For the last ten years, he really did a bad job. And the change came when Frank Wells died. Eisner is a really good creative guy. He gives really good notes. So when Frank was running operations, Eisner could be like a bumblebee going from project to project trying to make them better. But when Eisner had to run things, he was a terrible manager. Nobody liked working for him. They felt they had no authority. He had this strategic planning group that was like the Gestapo, in that you couldn’t spend any money, not even a dime, without them approving it. Even though I broke with him, I had to respect his achievements in the first ten years. And there was a part of him I actually liked. He’s a fun guy to be around at times—smart, witty. But he had a dark side to him. His ego got the better of him. Eisner was reasonable and fair to me at first, but eventually, over the course of dealing with him for a decade, I came to see a dark side to him.
Eisner’s biggest problem in 2004 was that he did not fully fathom how messed up his animation division was. Its two most recent movies, Treasure Planet and Brother Bear, did no honor to the Disney legacy, or to its balance sheets. Hit animation movies were the lifeblood of the company; they spawned theme park rides, toys, and television shows. Toy Story had led to a movie sequel, a Disney on Ice show, a Toy Story Musical performed on Disney cruise ships, a direct-to-video film featuring Buzz Lightyear, a computer storybook, two video games, a dozen action toys that sold twenty-five million units, a clothing line, and nine different attractions at Disney theme parks. This was not the case for Treasure Planet.
“Michael didn’t understand that Disney’s problems in animation were as acute as they were,” Iger later explained. “That manifested itself in the way he dealt with Pixar. He never felt he needed Pixar as much as he really did.” In addition, Eisner loved to negotiate and hated to compromise, which was not always the best combination when dealing with Jobs, who was the same way. “Every negotiation needs to be resolved by compromises,” Iger said. “Neither one of them is a master of compromise.”
The impasse was ended on a Saturday night in March 2005, when Iger got a phone call from former senator George Mitchell and other Disney board members. They told him that, starting in a few months, he would replace Eisner as Disney’s CEO. When Iger got up the next morning, he called his daughters and then Steve Jobs and John Lasseter. He said, very simply and clearly, that he valued Pixar and wanted to make a deal. Jobs was thrilled. He liked Iger and even marveled at a small connection they had: his former girlfriend Jennifer Egan and Iger’s wife, Willow Bay, had been roommates at Penn.
That summer, before Iger officially took over, he and Jobs got to have a trial run at making a deal. Apple was coming out with an iPod that would play video as well as music. It needed television shows to sell, and Jobs did not want to be too public in negotiating for them because, as usual, he wanted the product to be secret until he unveiled it onstage. Iger, who had multiple iPods and used them throughout the day, from his 5 a.m. workouts to late at night, had already been envisioning what it could do for television shows. So he immediately offered ABC’s most popular shows, Desperate Housewives and Lost. “We negotiated that deal in a week, and it was complicated,” Iger said. “It was important because Steve got to see how I worked, and because it showed everyone that Disney could in fact work with Steve.”
For the announcement of the video iPod, Jobs rented a theater in San Jose, and he invited Iger to be his surprise guest onstage. “I had never been to one of his announcements, so I had no idea what a big deal it was,” Iger recalled. “It was a real breakthrough for our relationship. He saw I was pro-technology and willing to take risks.” Jobs did his usual virtuoso performance, running through all the features of the new iPod, how it was “one of the best things we’ve ever done,” and how the iTunes Store would now be selling music videos and short films. Then, as was his habit, he ended with “And yes, there is one more thing:” The iPod would be selling TV shows. There was huge applause. He mentioned that the two most popular shows were on ABC. “And who owns ABC? Disney! I know these guys,” he exulted.
When Iger then came onstage, he looked as relaxed and as comfortable as Jobs. “One of the things that Steve and I are incredibly excited about is the intersection between great content and great technology,” he said. “It’s great to be here to announce an extension of our relation with Apple,” he added. Then, after the proper pause, he said, “Not with Pixar, but with Apple.”
But it was clear from their warm embrace that a new Pixar-Disney deal was once again possible. “It signaled my way of operating, which was ‘Make love not war,’” Iger recalled. “We had been at war with Roy Disney, Comcast, Apple, and Pixar. I wanted to fix all that, Pixar most of all.”
&nbs
p; Iger had just come back from opening the new Disneyland in Hong Kong, with Eisner at his side in his last big act as CEO. The ceremonies included the usual Disney parade down Main Street. Iger realized that the only characters in the parade that had been created in the past decade were Pixar’s. “A lightbulb went off,” he recalled. “I’m standing next to Michael, but I kept it completely to myself, because it was such an indictment of his stewardship of animation during that period. After ten years of The Lion King, Beauty and the Beast, and Aladdin, there were then ten years of nothing.”
Iger went back to Burbank and had some financial analysis done. He discovered that they had actually lost money on animation in the past decade and had produced little that helped ancillary products. At his first meeting as the new CEO, he presented the analysis to the board, whose members expressed some anger that they had never been told this. “As animation goes, so goes our company,” he told the board. “A hit animated film is a big wave, and the ripples go down to every part of our business—from characters in a parade, to music, to parks, to video games, TV, Internet, consumer products. If I don’t have wave makers, the company is not going to succeed.” He presented them with some choices. They could stick with the current animation management, which he didn’t think would work. They could get rid of management and find someone else, but he said he didn’t know who that would be. Or they could buy Pixar. “The problem is, I don’t know if it’s for sale, and if it is, it’s going to be a huge amount of money,” he said. The board authorized him to explore a deal.