Sacking of Diller, Eisner and Katzenberg was Davis' folly

Robert Iger has been busily reconstructing his management team at Disney, with Oren Aviv the latest casualty. It’s no secret that Time Warner’s Jeffrey Bewkes is pondering a new power pyramid at Warner Bros. for the post-Barry Meyer/Alan Horn era. There are also rumors of management changes at other companies.

Corporate convulsions are nothing new, to be sure. In fact, this marks the 25th anniversary of what was arguably the biggest and dumbest management shift in the history of the entertainment business. That was when Paramount Pictures effectively fired the team of Barry Diller, Michael Eisner and Jeffrey Katzenberg in one monumentally brain-dead corporate sweep.

The then-youthful management team was creating a hot studio not only in features but in television. Paramount had five of the top 10 TV shows and was laying the groundwork for such films as “Terms of Endearment,” “Reds,” “Top Gun” and “Beverly Hills Cop.”

But there was a problem at the top. A shadowy figure named Martin Davis had ascended to become CEO of the parent company, Gulf & Western, and he had his problems with his “Hollywood team,” which had been put in place by Davis’ predecessor, Charles Bluhdorn. In Davis’ mind, the Paramount execs wanted too much money (Diller and Eisner were demanding a bonus pool as a reward for their accomplishments). They also seemed to be clubby in Davis’ view (Eisner had been hired two years earlier by Diller and he barely knew Davis).

What Davis didn’t seem to know was that virtually every rival company was reaching out to one or all of the three to leave Paramount and embark on new ventures. Leonard Goldenson of ABC and Marvin Davis of Twentieth Century Fox, among others, were courting Diller. Meanwhile, Eisner and Katzenberg were talking about starting a new movie company with Cap Cities and, of course, a team of bankers who were restructuring Disney was also seeking them out.

So a unique situation was shaping up: Everybody wanted the smart young guys at Paramount except the CEO of Paramount.

The results were cosmic: Diller left for Fox. Eisner and Katzenberg catapulted to Disney. Within an 18-month period, some 75 people joined the Paramount exodus.

Two years later, Michael Eisner and Martin Davis ran into each other at an industry conference. “I know I made a giant fucking mistake,” Davis told his ex-production chief. That indeed was one of the industry’s understatements.

Paramount continued to be a profitable company for some years, thanks to the initiatives of its departed creative team and the shrewd management of Frank Mancuso, but arguably the company never regained its creative pizzazz.

The Paramount cataclysm is worth citing for several reasons. For one thing, it illustrates how easy it is for a CEO to become so isolated that he doesn’t realize the talent he has under his wing.

It’s easy to trigger changes. But will they necessarily be changes for the better?

The Paramount changes were a lot better — but only for Fox and Disney.

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