Walt Disney Co. shocked Hollywood and Wall Street on Wednesday by announcing that veteran studio chief Jeffrey Katzenberg will leave the company next month after losing a highly publicized campaign to be named second in command to Chairman Michael D. Eisner.

Katzenberg--who helped engineer the company’s staggering success with animated movies such as “The Lion King” and new ventures such as the Broadway adaptation of “Beauty and the Beast"--was rebuffed by both Eisner and Disney’s board of directors on grounds that he was not right for the No. 2 job.

Eisner delivered the news late Wednesday morning. “The job that (Katzenberg) would have wanted does not exist in this company,” Eisner said. “We’re going to strengthen the company through the divisions.”

Katzenberg’s departure leaves Burbank-based Disney without one of its chief creative forces. In 10 years he helped build the studio into a perennial box office leader, and encouraged its growth into the lucrative TV production market and other areas. Operating income for filmed entertainment rose steadily under Katzenberg’s regime, from $2.2 million in 1984 to $622.2 million in 1993.


Disney on Wednesday moved quickly to fill the void by announcing that Katzenberg’s duties will be taken over by two executives. Joe Roth, who set up his production company at Disney two years ago, was named chairman of Walt Disney Motion Pictures, and studio President Richard Frank was named chairman of the newly created Walt Disney Television and Telecommunications.

Eisner also announced that Sanford M. Litvack, Disney’s executive vice president for law and human resources, will take on more day-to-day supervision of internal administration as well as dealings with governments, communities and other corporations. All these moves, Eisner said, will strengthen the divisions and enable him to operate without a president.

Sources say Katzenberg, 43, a compulsively driven executive, pushed Eisner too hard for the No. 2 job after Disney President Frank G. Wells was killed in a helicopter crash in April. “He backed Michael into a corner,” said one critic. “He campaigned for the job in the news media. That’s hardly the way to get along with your boss.”

Others said the two executives were too similar in their hands-on, creative approach. “You can’t have two chefs in the kitchen,” said longtime Disney board member Raymond L. Watson, vice chairman of the Irvine Co. Although Eisner underwent emergency quadruple bypass surgery last month, Watson said the board is confident that succession is not an issue for the 52-year-old chairman.


Katzenberg’s most serious board opposition came from Vice Chairman Roy E. Disney, according to sources. The Disney scion, who oversees animation, is said to have felt that Katzenberg took undue credit for the revival and success of animated features.

“He was trying to take all the bows for it, and forgetting what his real job was, and that was live action,” one source said, adding: “The truth is, no board member thought he was equipped to be president.”

Roy Disney stopped short of threatening to resign if Katzenberg was promoted, sources said, but his displeasure carried great weight. Ten years ago, he resigned from the board and mounted a campaign that ultimately dislodged management. Roy Disney then helped install the Eisner-Wells team with backing from the wealthy Bass clan of Fort Worth. On Wednesday, one source said, clan member Sid R. Bass concurred with the board’s view of Katzenberg.

Katzenberg’s office was quiet Wednesday as he made a series of calls to key executives. He appeared composed, even smiling as he discussed his fate.


“Now it’s time to move on,” he said. “I wanted a challenge beyond the job I’ve done for 10 years and Michael could not create that opportunity for me here at Disney.”

Rumors immediately surfaced that Katzenberg would be bound for Sony Pictures Entertainment or MCA Inc., the parent company of Universal Pictures. Katzenberg denied that he has had any job discussions, and Sony went to the unusual length of publicly denying that it had offered him the chairman’s post.

His immediate plan, Katzenberg said, is to “go with my family to Walt Disney World.”

By all accounts, conversations about Katzenberg’s future began nearly a year ago with Eisner and Wells, months before the latter’s death. But more recent talks never advanced to “the question of title and job description,” Katzenberg said. “It was more about the kind of opportunities I was looking for and hoping for and the kind of growth and challenge I want.”


Indeed, music mogul David Geffen, a close friend, said Katzenberg was ambivalent about staying at Disney. He said Katzenberg turned down a two-year contract extension offer last year that would have guaranteed him $100 million in stock options and grants.

“It really speaks to what an incredible guy Jeffrey is and what he thinks of himself that he was willing to get out of that contract,” Geffen said. “He wants to run his own company, and he certainly will.”

One mark against Katzenberg was Disney’s slip in recent years in live action features. Even as the company boosted production to more than 40 movies a year, films such as “Blank Check” and “Father Hood” faded quickly at the box office.

Disney announced Katzenberg’s departure after the close of stock market trading Wednesday. Several securities analysts said they expect Wall Street to absorb the news calmly.


“I think it’s a loss of a very talented film executive, but Disney is not going to curl up and die,” said one large institutional investor, who spoke on the condition of anonymity.

“I don’t think Jeffrey was perceived as being the sole genius at the company,” added David Londoner, an analyst at Wertheim Schroder & Co. in New York. “Live action films haven’t worked well for the last three or four years, although the first five years were terrific.”

Although Katzenberg and Eisner worked together for nearly 20 years, beginning at Paramount, their relationship was distant. Many compared it to a troubled father-son relationship from which Katzenberg could never escape. Still, executives on Disney’s Burbank lot expected them to work out a solution. News of Katzenberg’s departure left his loyalists heartsick.

“This is all Michael. He never tried to make it work,” said one stunned studio executive, who said morale has sunk with the news. In light of Katzenberg’s loyalty and hard work, employees were asking each other, “If this is how Jeffrey is treated, what are they going to do to me?” the executive said.


Miramax Pictures Co-Chairman Harvey Weinstein, who sold his successful independent company to Disney, expressed dismay. “I’m shocked, I’m stunned, I’m not feeling too good,” he said. “Jeffrey was always there for me. If you fail, he’s your best cheerleader. If you win, he kicks you in the butt and says you can do a little better.”

But Eisner downplayed any serious repercussions, saying: “This is not a Shakespearean tragedy. This is people moving on with their lives, and doing new and interesting things.”

Recalling his own stints at ABC and Paramount Pictures, Eisner said, “After seven or 10 years, you’ve really got to reinvent things.” Katzenberg “is looking for a store of his own,” Eisner said. “He doesn’t want my job, per se, but he wants a job like my job.”

Times staff writer Alan Citron contributed to this story.


* WHAT NEXT? A look at Katzenberg’s prospects and profiles of his successors. D1, D3