Ovitz’s strange route to Tommorrowland

I HAD A CUP OF COFFEE with Michael Ovitz shortly after he took over his Disney post and asked him how he felt about his new job. Flashing a wistful smile, he replied, “It’s going to require some adjustments. Disney isn’t a company as much as it is a nation-state with its own ideas and attitudes, and you have to adjust to them.”

In light of Ovitz’s resignation last week, it’s reasonable to conclude that both Ovitz and Disney had problems making these adjustments. Nonetheless, Ovitz’s overall point merits some thought: The hard fact is that today’s multinational entertainment companies have become nation-states, exercising vast influence over their diverse global constituencies. And one lesson to be gleaned from l’affaire Ovitz is that the task of communicating with these constituencies has become increasingly troublesome.

Two facets of the Ovitz affair serve to illustrate.

THE PRESS. Both Ovitz and corporate apparatchiks at Disney concede that the firestorm of stories in the press disrupted corporate activities and served to destabilize the company. A similar scenario had played out at Sony two years earlier.

Yet press policies at both Disney and Sony could be summed up in one word: Stonewall.

It seems reasonable to surmise that at this point in time, stonewalling does not represent effective policy toward the press. It works to encourage stories, not inhibit them.

Given the extraordinary volatility of corporate management and the almost numbing onrush of news, the press needs access and candor from top management. It needs information, not manipulation.

Yet all signs suggest we’re moving in the opposite direction. Several senior Sony executives, for example, believe that their new regime has started carefully monitoring phone calls, checking phone logs and initiating other tactics that are paranoia-inducing.

“This may be the Japanese way, but it won’t work here,” says one Sony hand, who notes the irony that these constraints would be imposed just as a mini-furor erupted over Crown Princess Masako’s news conference in Tokyo. When the princess tried to tell reporters that “it’s hard” to balance her own personality with the traditional role she must play, these simple remarks were clumsily censored from the official transcript. In the bureaucrat’s mind, by simply erasing a sentence you will make it disappear. Instead, it made page one of the New York Times.

Censorship won’t fly in the U.S. either. Given the present state of the entertainment industry, the only effective way to discourage “leaks” is with candor and responsible dialogue.

THE WORLD OUT THERE. Since Michael Ovitz found himself virtually shut out of a major operational role in the U.S., he focused his energies on expanding Disney’s overseas business, which accounts for a mere 18% of corporate revenues. In doing so, he came to realize that Disney, like the other nation-states of the global entertainment business, effectively had no foreign policy. Companies are making big deals around the world without understanding the implications of these deals. As evidence, consider the chill caused by China’s warnings to Disney about Martin Scorsese’s “Kundun,” a movie about the Dalai Lama.

Again, it can be argued that the nation-states are not communicating effectively with their key constituencies – in this case its constituencies in foreign countries that are heavily influenced both culturally and economically by Hollywood product.

To be sure, the Motion Picture Assn. under Jack Valenti has worked tirelessly to fight quotas inhibiting the flow of American movies and TV shows. Valenti has spearheaded the introduction of internships, scholarships and other training programs around the world to demonstrate Hollywood’s “good neighbor” policy.

The trouble, however, is that the basic agendas of the global nation-states are increasingly divergent. Some are emerging as producers and exporters of product, others primarily as proprietors of global distribution platforms. Some believe in exporting as much product as they can get away with; others believe that the future lies in becoming part of local infrastructures around the world, of building partnerships, not simply peddling product.

Adding a note of urgency to all this is the ever-growing imbalance of trade in the audiovisual industry. Newly released data indicates that there’s been almost a billion-dollar bump in U.S. showbiz exports to Europe alone – U.S. exports total $7 billion, with a mere $506 million coming the other way. And this is before calculation of the Kirch Group’s megabuck digital deals.

What all this means is that the threat of quotas will never go away until the nation-states adopt a coherent foreign policy. There are signs that this is starting to take place. “The emphasis at our company is shifting from ‘how do you make money?’ to ‘how do you build a long-term asset base?’ ” says a senior executive at one entertainment megacompany.

Issues relating to foreign partnerships and quotas are only part of the problem, of course. The Economist last week chastised the Clinton administration for not developing a coherent policy toward Beijing. Again, the nation-states of the showbiz world are equally culpable. Can a company sell movies and build theme parks in a country that censors its movies?

OVITZ’S NASCENT POLICY toward China was apparently to play it tough. When China’s bureaucrats protested the Scorsese movie, Disney said it would go ahead with it anyway, though the tone of its support was deemed half-hearted by some filmmakers who sent a petition to China’s U.S. ambassador protesting Beijing’s attempt at censorship. A day later, a spokesman for China’s foreign ministry “reconstructed events,” suggesting that China had never imposed such pressure to begin with.

The bottom line: Life is getting infinitely more complicated out there. The Ovitz affair reminded us all of this and also of the tensions boiling within the executive suites.

It also raised the following question:

If Michael Ovitz had problems adjusting to the nuances of the new nation-states, how will the rest of the world fare?

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