Billions of dollars discussed in valuation section of trial
The Walt Disney Co., never renowned for self-deprecation, put itself in the unusual position Tuesday of playing the shrinking violet.
The occasion was the latest chapter of the Jeffrey Katzenberg vs. Disney trial, which continued to unfold along surreal lines this week.
The prominent management consulting firm of Booz Allen Hamilton, according to material released at the trial, had valued the Disney assets in question at $18 billion. The firm was working for Disney at the time. Yet Nathan Myhrvold, Microsoft’s chief technology guru, testifying as an expert witness for Katzenberg, suggested in a letter that its real value was closer to $30 billion.
Similarly, where Kaztenberg’s attorneys projected $4 billion in a business emanating from China and India, Disney’s attorneys painted a discouraging picture of piracy-ravaged territories that would bring in less than $1 million in revenue last year.
Surprising, too, was the identity of the man arguing Disney’s case. It was none other than Sanford Litvack, the company’s senior executive vice president and chief operating officer, who would normally be ensconced in meetings at the studio.
Testifying in the ongoing second phase of the Disney-Katzenberg trial, Microsoft’s Myhrvold spoke of everything from homes that will be able to receive movies on demand — especially older titles in libraries — and over the Internet, via satellite or cable boxes, to “smart toys” that will dance along with children’s television shows.
These and other advancements could occur in five to 10 years on a widespread basis, reaching roughly 30% of U.S. homes, Myhrvold said.
“I am certain that digital video will be the way video is deployed and enjoyed in the future,” Myhrvold said. “We can see the seeds of that planted now.”
Disney attorney George Caplan, in a brief opening statement, said Katzenberg’s estimate of future video sales didn’t take into account the widespread piracy in China and India that affects even first-run movies. “Because of piracy, it’s virtually all on the streets of China today — and India,” Caplan said.
Speculation holds key
According to Team Katzenberg, the Chinese, for instance, bought more than 50 million video copies of “Titanic,” but most of the videos were pirate copies. However, with protective measures in place, Myhrvold estimated Hollywood studios could collect $8.1 billion from properties in China.
Disney’s Litvack sought to temper Myhrvold’s testimony by showing the witness’s opinions were shaded at least in part by his close ties to Katzenberg.
Litvack pointed to a plan — discussed in a “confidential” letter from Myhrvold to Katzenberg (see related story, this page) — for the DreamWorks exec to buy all of the Disney assets in question.
Myhrvold testified he composed the letter after conversing with management consultant Michael Wolf during a flight from New York to London in 1996. The two were on their way to the World Economic Forum in Davos, Switzerland.
“His (Wolf’s) analysis did not capture the value of controlling a critical mass of properties and what effects that could have on new synergistic business,” Myhrvold wrote.
“Disney would come up with many arguments,” the letter continued, “as to why the assets couldn’t possibly be worth that much — ranging from pessimistic market forecasts to looking at the percentage of the companies’ total cap value.
“As part of this case, you should make a formal offer to buy the eligible assets for a price that captures the full value.”
Later in the letter, Myhrvold suggested an offer of $30 billion, but admitted that it was “a very dumb idea,” and that he didn’t even think Eisner would sell them for $60 billion. Katzenberg considered the idea, but decided not to pursue it, Myhrvold said.
Katzenberg called Myhrvold as his first witness in the valuation part of the second phase of the Katzenberg-Disney trial. Myhrvold is a friend who was instrumental in making Microsoft a financial partner in DreamWorks, where Katzenberg is a partner and head of the animation division.
The trial, which has allowed the high-profile row between Katzenberg and former boss Disney chairman Michael Eisner to become public, is now focused on the question of how much money Disney can be expected to make for the rest of time off some of its best-known products, including “The Lion King” and “Aladdin.”
Katzenberg says his contract guaranteed him a lump-sum incentive bonus worth 2% of those future profits, payable two years after he left Disney in 1994. After Disney didn’t pay the bonus, Katzenberg filed his $250 million suit.
In the first phase of the trial, both sides reached a partial settlement, where Katzenberg was paid more than $100 million. The litigants also agreed to a second phase to decide which products would fall under the bonus and how much that bonus should be. The product issue was decided earlier, along with a finding that Katzenberg should get interest payments on his bonus.
The trial doesn’t resume again until Tuesday. Myhrvold was allowed to testify early due to problems of availability.