The Mouse Takes Manhattan

How Disney cut a deal that revived 42nd St. and helped remake Times Square

Before Hollywood, there was New York's 42nd Street, birthplace of American mass-market entertainment. Beginning in 1899, a burst of construction on a single mid-Manhattan block created the greatest concentration of playhouses America has ever seen or likely will see again. No place has ever evoked the glamour of big-city nightlife as vividly as did "naughty, bawdy, gaudy" 42nd Street, stomping ground of legendary impresarios Oscar Hammerstein I and Florenz Ziegfeld Jr.

Starting in the 1930s, 42nd Street's fame gradually soured into infamy as the glitzy musicals of its golden age were supplanted by burlesque revues and B movies. XXX fare descended on 42nd Street with a vengeance in the late 1960s when a vending-machine salesman named Martin J. Hodas adapted the peep show machine to pornographic use. A conspicuous property-value sinkhole amid the world's costliest stand of skyscrapers, 42nd Street affronted the custodians of New York's economy no less than its guardians of public morality.

Many schemes to restore 42nd Street to "respectability" were floated over the next few decades, but redevelopment did not gain traction till the mid-1990s, when government officials struck a catalytic deal with the Walt Disney Co. (DIS ) to restore the New Amsterdam Theatre.

The willingness of Disney CEO Michael D. Eisner, a native New Yorker, to take a flyer on the New Amsterdam was rooted in his own nostalgic memories of 42nd Street. Here is an account of how the Disney deal was done, excerpted from

Ghosts of 42nd Street: A History of America's Most Infamous Block by BusinessWeek Senior Writer Anthony Bianco.

Fond Memories

Like many a baby boomer reared in New York, Michael Eisner first visited Times Square at a tender age, attending Broadway shows with his parents. As a teenager in the late 1950s, Michael ventured forth on his own from the family's posh Park Avenue digs to take in double features at the grand but grungy New Amsterdam theater. "Afterwards, my friends and I would walk over and play arcade games at Fascination on Broadway and 47th Street," Eisner recalled. "It was a more innocent time, when Times Square was still safe and fun."

The theater-smitten Eisner wrote plays in college -- bad ones, by all accounts -- but went on to make his mark in Hollywood as a talented television and movie producer. Eisner was 42 years old when he was named CEO of Disney in 1984. Over time, he would prove a flawed, imperious sort of executive, but in the 1980s, Eisner delivered big time for Disney shareholders as his energy and creativity powered one of the great corporate turnarounds in the history of American business.

After refurbishing the coastal gold mines known as Disneyland and Disney World, Eisner yearned to build a new theme park of his own but was leery of taking business away from the company's established attractions. Was America big enough to support a third Disney theme park? Eisner's answer, at first, was no, and so he looked overseas. In 1987, Disney signed a partnership agreement with the government of France to build a huge theme park on the outskirts of Paris. At home, Disney had long been a lightning rod for cultural controversy. But it was not until 1992, the year that Euro Disney opened (it soon was renamed Disneyland Paris), that an epithet fashioned from the company name entered the dictionary -- "Disneyfication: The process by which historical places are transformed into trivial entertainment for tourists."

Walt Disney's troubles in launching new theme parks in Paris and in suburban Washington, D.C., gave added urgency to its search for smaller-scale growth opportunities. Long before Eisner's hiring, the company had begun pondering a move into legitimate theater. And why not? Disney already was a prolific producer of live shows at its theme parks. But much as Eisner loved the theater, he was leery of the business of theater. "If you produce a movie, it can open in as many as three or four thousand theaters across the country. Even if it performs poorly, it has other lives on video, cable, network television, and overseas," the CEO reasoned. "By contrast, if you produce a full-scale Broadway musical -- at a cost not all that much less than a midrange movie -- it can close in a single night."

In the late 1980s, Carl Weisbrod, then head of the 42nd Street Development Proj-ect (42DP), tried to interest Disney in restoring a theater on the street, but got nowhere. "They were totally unresponsive," Weisbrod recalled.

Eisner's resistance began to soften with the release of Beauty and the Beast in late 1991. The film went on to become the highest-grossing animated movie of all time. Yes, stage musicals were riskier than films, but now every kid in America was enthralled with the beauteous Belle and her sensitive monster. Did someone say "brand extension"? By the end of 1992, Eisner had blessed the formation of Walt Disney Theatrical Productions within Walt Disney Studios. The plan was to open the stage version of Beauty and the Beast in Houston and then bring it to Broadway, because, as Eisner conceded, "to be a really legitimate theater producer, you have to be in New York."

One afternoon in March, 1993, Eisner met the architect Robert A.M. Stern to go over the drawings for a project in Florida. Soon they began talking instead about Disney's plans to bring Beauty and the Beast to Broadway and the difficulty of finding a theater suitable for big-budget musicals that wasn't already tied up by Andrew Lloyd Webber. Stern, who had been hired as a designer by 42DP, turned the conversation to 42nd Street. When Eisner expressed interest, Stern's assistants promptly assembled a model of the theater block. Intrigued, the CEO toured the New Amsterdam Theatre the next morning with his wife and two sons. "We could see water leaking from the roof, birds nesting in the ceiling, puddles mingled with rubble on the floor. The interior was badly gutted," Eisner recalled. "Still, the theater's remarkable detailing remained in ghostlike form -- its Art Nouveau décor, Wagnerian friezes, and allegorical murals. The once-lavish grandeur of this building was easy to visualize, even in its dilapidated state. By the time we left, I felt excited."

A Cleanup for Disney, Too

The negotiations between Disney and representatives of 42DP commenced at once but would drag on tortuously for nearly two years -- continuing long after Beauty had triumphantly opened in the spring of 1994 at the Palace Theater on Broadway and 47th Street. The basic problem was that Disney was far more valuable to 42DP than the New Amsterdam was to Disney, and everyone knew it. Eisner certainly understood that he held the negotiating advantage and pressed it past the point of absurdity. In essence, the company wanted the New Amsterdam not only free of charge but free of risk. The more 42DP offered, the more Disney demanded. Rebecca Robertson, Weisbrod's successor, committed to subsidizing the restoration of the New Amsterdam to Broadway standards. But then Disney wanted 42DP to underwrite a host of premium finishing touches, including a magnificent stage curtain decorated with mouse ears.

Before Disney came along, 42DP had attracted nibbles from other entertainment companies, but none matched Disney's financial muscle or its commercial credibility. When word of Disney's interest in 42nd Street leaked in mid-1993, Disney's European setback was forgotten, in the U.S. at least, as its tarnished image was cleansed by media hype. The irony of pairing pop culture's mouse-eared icon of clean family fun with America's most infamously debauched block was irresistible to stand-up comics and op-ed pundits alike. But for all the jokes at Disney's expense, the consensus was that if any company could make 42DP work, it was the Mouse House. The headlines practically wrote themselves: "A Prince Charming? Disney and the City Find Each Other,""Disney's Magic Wand," "Disney Leads Cinderella Transformation of 42nd Street."

The aggressiveness Disney displayed in negotiating its entry onto 42nd Street was rooted not only in the institutional arrogance of a company accustomed to imposing its will on governments but in uncertainty and self-doubt. A number of Disney execs thought the company had no business setting foot on the theater block no matter how sweet a deal it could cut for itself. The city -- especially the big city -- was foreign territory to Walt Disney Co. Its forte was the creation of insular utopias of leisure and fantasy -- think Disney World -- that occupied the urban periphery and offered escape from the city's messy realities.

When first presented with the New Amsterdam opportunity, Disney's reflex was to attempt to gain dominion over the entire theater block of 42nd Street and gate it -- forgetting that 180,000 commuters were passing through the adjacent Port Authority Bus Terminal every weekday. "We do have some genetic instincts," conceded Peter Rummell, chairman of the Disney unit responsible for real estate development, including theme parks. "The question in these urban environments really becomes: 'Is there a way you can have enough control?' Because we are control freaks."

The prospect of restoring the wreck of the New Amsterdam was daunting enough for Disney, which was not well-versed in historic renovation and feared a headlong tumble down the "black hole" of cost overruns. But it was the dire condition of the rest of the block that really scared the California company. Not long after Eisner's guided tour, he sent an underling back alone with a video camera to document the street's malevolence. But after much internal debate, the Disney brain trust realized that attempting to reinvent a chunk of Midtown Manhattan in Uncle Walt's image was a fool's errand. "You don't do that on 42nd Street," said David Malmuth, the Disney executive directly responsible for the New Amsterdam venture. "It's a public place."

On Dec. 30, 1993, the last day of the David Dinkins administration, Deputy Mayor Barry Sullivan signed a sketchy "memorandum of understanding" moments before he left City Hall for the last time. Much haggling remained, but by the end of the next year a deal finally was struck. The transaction was tightly wrapped in financial and legal complications, but its essence was this: The state would make a $26 million capital investment in the New Amsterdam in the form of a subsidized loan to Disney, which would invest $8 million in equity. Taking into account a federal tax credit, the company's net investment would amount to less than $3 million. Still, Eisner and crew did not get everything they wanted; most important, Disney was unable to purchase the New Amsterdam outright, settling instead for a 49-year lease.

The agreement also left Eisner an out. The company had the option of withdrawing unless two more "nationally recognized and reputable" entertainment companies had committed to joining Disney on 42nd Street by July 15, 1995. News of Disney's interest in 42nd Street combined with the subsidies dangled by the city and state to pique the interest of many other contenders. The most notable were wax-museum proprietor Tussaud's Group Ltd. and movie-theater chain American Multi-Cinema Entertainment. Tussaud's and AMC both signed on with up-and-coming developer Forest City Ratner Cos., which fashioned a new $200 million retail and entertainment complex from parts of three theaters adjoining the New Amsterdam: the Harris, the Liberty, and the Empire.

On July 20, city and state officials crowded onto a makeshift stage that was set up in front of the New Amsterdam. Eisner could not attend the ceremony but phoned in from his corporate jet. "This is really going to happen," he marveled. "Even I'm surprised." Governor George E. Pataki and newly installed Mayor Rudolph W. Giuliani both delivered speeches, but it was a jubilant Rebecca Robertson who best summed up the moment. "The future of 42nd Street has arrived," she proclaimed.

Bring On the Bulldozers

To pave the way for Disney, Tussaud's, AMC, and the scores of other brand-name companies that piled in behind them, the state laid out $400 million to condemn a wide swath of property and obliterate the last remnants of the old, raffishly decrepit 42nd Street. The final roster of evictees compiled by 42DP officials included 15 sex-video stores, six peep shows, five porn theaters, eight sex-paraphernalia shops, four action-film houses, two hairdressers, 25 lawyers, 12 fast-food restaurants, 10 artists, two sporting-goods stores, two newspapers, one hatter, one television studio, one joke store, one boxing gym, one pimp, and one "sadomasochist therapist."

From 1995 to 2001, about $4 billion in private funds was invested in two square blocks that had not seen any significant capital investment since the 1920s. The lion's share of the money was plowed into the construction of four huge office towers and a 45-story luxury hotel. But the rehabbed theater block also is home to five functioning playhouses and two movie multiplexes boasting 38 screens among them. Late on Friday and Saturday nights, 42nd Street is so thronged its sidewalks are near impassible.

No longer is 42nd Street midtown's economic Dead Zone; it has been integrated into the city's economy, radiating financial benefits to businesses and property owners throughout the area. Still, there remains a patchwork quality to 42nd Street's revival. Many smaller retailers have struggled. And in transplanting a glitzy theme-park culture into the heart of the big city, 42nd Street's redevelopers have enhanced its tourist appeal at the cost of alienating many New Yorkers.

But for the Walt Disney Co., 42nd Street has proven an unqualified triumph. Eliminating every trace of the damage done to the New Amsterdam by its previous owners' neglect, Disney restored the theater to a condition approximating its original splendor. In late 1997, the company reopened the New Amsterdam with a live adaptation of its hit film The Lion King. An arresting fusion of middlebrow storytelling and avant-garde costuming and design, the drama won uniformly laudatory reviews. And, ranking high on the list of the longest-running hits in Broadway history, The Lion King continues to play to full houses on the new 42nd Street.

From the bookGhosts of 42nd Street by Anthony Bianco. Published in April by William Morrow, an imprint of Harper-Collins Publishers Inc. Copyright 2004 by Anthony Bianco.

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