Creator Killer: The Magnificent Ambersons, far more than Kane ruined Welles' Hollywood career. While Kane had been controversial, it was at least well-liked and admired as a brilliant first film, and it did have a smooth production. Ambersons however had a bad production and led to a lot of Poor Communication Kills. While Welles would periodically make some genre pictures to get a foot back in Hollywood, he never regained Auteur License and eventually went to Europe to work as an independent film-maker on smaller budgets and unstable conditions.
Executive Meddling: One of the most notorious cases in film history. It's pretty much a tragedy all around.
Welles was initially contracted to do a two-picture deal for RKO Pictures with full Auteur License and Protection from Editors. After the controversy and failure of Citizen Kane, Welles chose Ambersons (which he had already adapted for Radio) as his next project. As a token of good faith, Welles surrendered final cut on the film, believing that the film was far less topical then Kane and unlikely to cause controversy. Production ran into problems since Gregg Toland, Welles' collaborator on Kane had to do another film forcing him to work with Stanley Cortez (a great DP in his own right but at the time a little slower and less experimental than Toland). The collaboration did not work out and the film became delayed in production. Then Welles was contracted to shoot a documentary in Brazil.
Welles' initial cut was submitted to a preview at Pomona (thanks to the trouble the studio went through with his other film). The audience was shown the film at the bottom half of a family musical, and they ended up laughing at it. Editor (and later director) Robert Wise stated that it was the worst preview he ever saw and called it a "disaster" (however cards from the previews showed that at least 10% of the audiences liked the filmnote Previews likewise were not seen as an universal barometer at the time, famously, Darryl F. Zanuck after a bad preview of The Grapes of Wrath insisted that the film be released anyway and it became a hit.). Historian Robert Carringer argued that Welles shares partial blame for this preview's failure, since before the preview he himself had ordered a "big cut" that removed a big section of the film, namely when George bars Eugene from seeing his mother. Being the dramatic and emotional center, the film's rhythm was upset by its absence, at least according to Carringer's study of the shooting script.
There was a second preview at Pasadena which was based on reactions to earlier previews. Wise even restored scenes which Welles cut for the first preview. This played much better. However, RKO didn't want to take a chance and so they cut nearly a hour's footage (131 minutes to 88 minutes), reshot several scenes and added a new ending. Robert Wise spent years insisting that his cut was superior, but Welles regarded it as a travesty and Bernard Herrmann was likewise appalled at his musical score being cut and asked for his name to be taken off from the credits. In the end RKO burned the footage to save vault space, despite producer David O. Selznick's suggestion to send it to the Museum of Modern Art, since he felt it was a masterpiece.
Overall the production suffered from Poor Communication Kills. Carringer points out that Welles was very well shepherded and protected during the making of Citizen Kane by producers like John Houseman (with whom Welles had a falling out with), and also George Schaffer (the embattled studio chief of RKO who gave Welles his contract). When he made Ambersons, in the wake of the controversy of Kane, Welles had to finally confront normal studio politics which he didn't deal with on Kane, and his youth and lack of experience in the same, played a part in the film getting out of his hand, while George Schaffer in turn was facing an internal coup over his support for Welles.
Reality Subtext: Robert Carringer in his "The Magnificent Ambersons: A Reconstruction" argues that this was a very personal film for Welles.
Welles' own father was an automobile investor, and they had a troubled marriage, with young Welles torn between his mother who was cultured and fascinated by art and literature and inculcated the same values to her son. He argues that Welles saw George Minafer as a darker version of the young Welles, a Spoiled Brat too tied to his parents to cut loose, and the kind of person he could have been had Welles not been shephered by Richard Hill, his mentor and became a prodigious artist.
Welles was aware of the personal connection to the story so much so that he would boast that Booth Tarkington, who he had met as a young man, based Minafer on him, which Carringer considers classic projection. He also notes that Welles felt guilty about the personal nature which is why he cast Tim Holt to play George Minafer rather than cast himself in the role. Carringer also argues, controversially, that it is out of guilt for this personal nature, that Welles asked Robert Wise to cut the dramatic centerpoint of the film, George preventing Eugene from meeting Isabelle, for the Pomona preview which Carringer argued upset the film's rhythm greatly.