Disney Settles Up With Its Former Studio Boss

Walt Disney Co. said Wednesday that it has settled a bitter breach-of-contract lawsuit brought by former studio chief Jeffrey Katzenberg, ending what had deteriorated into an ugly legal brawl that provided a rare glimpse into the kind of personal animosity Hollywood usually keeps under wraps.

The amount of money Katzenberg is to receive will remain a closely guarded secret under a confidentiality agreement that carries a $1-million penalty for either side violating it.

Analysts speculated that Katzenberg’s final take from the suit is between $250 million and $275 million, including $117.5 million he received in late 1997 when the case was partially settled.

Katzenberg had contended that he was owed as much as $581 million stemming from a unique contractual bonus he was due two years after he left Disney in 1994 amid a bitter falling-out with Chairman Michael Eisner.

At times, the case consumed Eisner and Katzenberg, two of Hollywood’s most powerful executives.

Hearings brought to the surface years of animosity on both sides, culminating in embarrassing testimony by a visibly shaken Eisner in which he was confronted with disparaging statements about Katzenberg he made to the coauthor of his autobiography. The statements included, “I hate the little midget.”

Eisner has been under pressure from stockholders, investors and Disney directors to settle the case as the company’s stock has languished amid business problems that include a softening in such once-lucrative businesses as home video and consumer products.

Eisner had been scheduled to take the witness stand again as early as Monday as part of testimony relating to projections about what kind of profits films and TV shows launched under Katzenberg would make in the future.

In recent weeks, Disney had been in the unusual position of talking down some of its business prospects, such as the potential sale of videocassettes of animation hits in a glutted market and whether an uncertain market such as China could become a major outlet for Disney products.

Sources said two Disney board members in particular, former Capital Cities/ABC Chairman Thomas Murphy and billionaire investor Warren Buffett, had pushed for a resolution of the case.

The settlement came unexpectedly, and only after several failed previous attempts.

Entertainment mogul David Geffen, Katzenberg’s partner in the DreamWorks SKG studio, forged a settlement over the Fourth of July weekend with Stanley Gold, a longtime Disney director and Eisner confidant. The two men had each been acting as emissaries over the last several weeks with the blessing of Eisner and Katzenberg.

Meeting at Geffen’s Malibu estate, the two finally succeeded in coming up with a number both sides could live with.

“Both of these guys are deal makers, and for them this was a lot like making another deal,” said one person close to the situation.

The proposed agreement was turned over to attorneys for each side Tuesday, with final details worked out late Tuesday night in the Century City office of Katzenberg attorney Bertram Fields.

“My definition of a good settlement is when both sides are unhappy about it. Jeffrey got less than he wanted, and Michael had to pay more than he expected. Both were unhappy,” said Geffen, who refused to reveal the amount being paid.

The dispute began in 1994 after Katzenberg lobbied Eisner to become Disney’s president, the second-highest job at the company, after then-President Frank Wells was killed in a helicopter crash. Katzenberg left Disney when Eisner wouldn’t give him the job.

Katzenberg argued that his bonus was to be a lump sum equal to 2% of the projected future profits of films and TV shows created during the 10 years he oversaw Disney’s movie and TV operations. That would include such hit films as “The Lion King,” “Aladdin” and “Sister Act” and such successful TV shows as “Home Improvement.”

Disney at one point argued that Katzenberg forfeited the bonus by leaving early. Later, the company argued that he was owed about $140 million, far less than he sought.

If the settlement is indeed about $250 million--the amount Katzenberg initially sued for--it raises the question of why Disney didn’t settle the lawsuit earlier.

Indeed, sources have said that former Disney President Michael Ovitz and Geffen had once discussed settling the dispute for about $90 million even before Katzenberg filed his suit.

People close to both sides said ego and emotion had a lot to do with it. Katzenberg’s attorneys and advisors maintained that Eisner harbored “personal animus” toward Katzenberg that prevented a settlement from being reached.

Disney had long maintained that the estimates from Katzenberg’s experts on how much he was owed were unrealistic and a continual moving target, making it difficult to reach common ground.

Katzenberg scored what was viewed as a victory in May when the retired judge hearing the case, Paul Breckenridge Jr., ruled that Disney had breached Katzenberg’s contract and should pay interest to him on the bonus withheld--and that profits from Disney-generated merchandise should be included in computing the final figure.

Eisner, 57, and Katzenberg, 48, both said they were satisfied with the conclusion. In a statement released by Disney, Eisner said, “The time has come to put this matter behind us and to focus on our new business initiatives.”

In an interview, Katzenberg said: “Obviously, I’m relieved to have this behind me. It closes what was 99% of the time one of the most exciting, thrilling and tremendous opportunities of my lifetime--those 10 years at Disney.”

That, he said, included “working for someone who is very smart, talented, gifted and an excellent teacher for me in Michael.”

Asked if he and Eisner could possibly be friendly again, Katzenberg said: “As time goes by, all things have a different perspective and a different meaning.

“People put these kinds of things behind them. It’s hard to know today, but you would have to say we had so many more great experiences together. The sum of the 20 years Michael and I knew each other and worked together is not this single, solitary event or its outcome.”

Despite the cloud of the lawsuit hanging over the company, Disney’s stock hardly reacted, rising 13 cents to close at $28.06 on the New York Stock Exchange.

Analysts said that because Disney had been making provisions for a settlement--sources said the company over time had earmarked about $250 million--the outcome is not likely to have any material impact on Disney’s future financial results.

Analysts added that it is highly unlikely the company will ever have to reveal publicly the amount it is paying or make any kind of special notation in its earnings statements.

Still, analyst Christopher Dixon of PaineWebber called the settlement “a huge psychological relief to Mr. Eisner and the Disney team. It provides them the opportunity to refocus on new business initiatives, like the Internet.”

For Katzenberg, the trial was consuming enormous amounts of time and energy that could have been spent running DreamWorks, the fledgling studio he founded with Geffen and director Steven Spielberg.

DreamWorks is trying to develop into a major entertainment company in an environment in which studios are being forced to tighten their belts to improve razor-thin profit margins.

Analyst Jeffrey Logsdon of Seidler Cos. added that the embarrassments took their toll.

“This is a rich guy fighting a wealthy guy, playing out all of their personal lives. These are people who are very private for the most part,” Logsdon said.