Acquired
02:01:28 · Ben Gilbert, David Rosenthal
[02:01:28] S0: And it's got this 6% cumulative dividend Yes. Attached to it. So the expectation when you're investing is this company is gonna pay me 6% of my investment back every year. Yep. So it's it's actually a pretty sweet deal for the investors. They sell 30% of the company to do this, to raise that. It's funny. You said 3.875. A little bit of that went to the bankers. There's some transaction fees. So they only raise about 3 and a half million dollars directly to their balance sheet, but they give up 30% of the company to do that, and it comes with that 6% cumulative dividend to those shareholders. [02:02:04] S1: Wow. So this means they're flying even closer to the sun than I realized because they've got the $8,000,000 in investments that they need to fund, and they have 4 and a half million from Bank of America. And then if they're only getting 3 and a half million in proceeds from the IPO, that's exactly $8,000,000. [02:02:23] S0: They are shaving off every piece of their current self and future cash flows to rebet the farm. Yep. That is the the way to think about this.
02:02:23 · Ben Gilbert, David Rosenthal
[02:02:23] S0: They are shaving off every piece of their current self and future cash flows to rebet the farm. Yep. That is the the way to think about this. [02:02:33] S1: So that summer in 1940, Walt has a rather ominous get together with Henry Ford of the Ford Motor Company. Just sort of as, like, a friendly meeting of these two American business titans. And while they're together, Walt mentions to Henry about, the IPO that they just did. And reportedly, Ford tells him, Walt, if you sold any of it, you should have sold all of it. Ominous. Ominous. A real board of directors gets established for the first time as part of this, and the preferred get a director on the board. So an outside voice in the company who certainly is not gonna share Walt's vision here. So by the end of the year in 1940, despite the capital raise from the stock offering, Disney's in a cash crunch. Walt, before the IPO, had even set up a kind of, like, proto employee ownership system where they set aside 20% of the company's equity and used that stake's profit distribution to fund an annual employee bonus pool. They have to eliminate that, like, months basically after Walt institutes it. And what they end up doing as a result is they raise salaries of the few top animators in the firm, and then they keep the same or they lower salaries for everybody else in the Burbank lot. And this causes huge resentment and unrest in the animation workforce.
02:04:05 · Ben Gilbert, David Rosenthal
[02:04:05] S0: Yeah. I I mean, I bet that's gonna make no one happy, but this is the, like, literal trade off. This is we spent a bunch of money on Pinocchio. Yep. We didn't have Europe, so we lost a bunch of money on that. We still have big ambitions. And, like, this is Walt's implicit choice here with going out and raising all this debt, raising all this equity, betting the farm again. Yep. [02:04:28] S1: This is the downside of Walt's, always go for broke and shoot the works philosophy. Yep. And it leads probably to the darkest moment of Walt's life. [02:04:39] S0: That would change his relationship with the company forever. [02:04:42] S1: Forever. And irreparably, his relationship with Disney Animation, the strike. So on 05/29/1941, the Screen Cartoonist Guild, which is a union that had unionized every other major animation studio in Hollywood and New York over the couple years leading up to this. [02:05:03] S0: Which there were several of Yep. At this point in time. Yep. We've been sort of very Disney centric, but there is an industry around this. [02:05:09] S1: Yep. Decides finally to target Disney employees. Now there's a reason why the Screen Cartoonist Guild had stayed away from Disney despite it obviously being the leader in animation up until this point, which is, I think, Walt's utopian dream more or less was true or at least true enough. Like, he established the bonus pool for animation. He constructed this campus, everything you were talking about earlier, Ben. But here with the cash crunch, that all comes crashing down.
02:05:09 · David Rosenthal, Ben Gilbert
[02:05:09] S1: Yep. Decides finally to target Disney employees. Now there's a reason why the Screen Cartoonist Guild had stayed away from Disney despite it obviously being the leader in animation up until this point, which is, I think, Walt's utopian dream more or less was true or at least true enough. Like, he established the bonus pool for animation. He constructed this campus, everything you were talking about earlier, Ben. But here with the cash crunch, that all comes crashing down. [02:05:44] S0: Yeah. There's a great excerpt from the book, the animated man by Michael Barrier. In the spring of nineteen forty one, under pressure from the Bank of America and holders of preferred stock, Walt Disney Productions agreed to scale back its production cost to about $15,000 a week. According to Walt Disney himself, that meant he had to hold the negative cost of new features to about $700,000 or one third the cost of Pinocchio or Fantasia, which was also in development at the time. Since labor costs made up 85 to 90% of Disney's total costs, implementing such severe economies would mean laying off more than half the staff. Oof. So you've got cost reduction in some of the people sticking around, and you've got big layoffs because Pinocchio didn't pay back.
02:06:26 · David Rosenthal
[02:06:26] S1: Yep. Well, layoffs coming. They haven't happened yet. And this is part of why the organization and the strike happens. So hundreds of employees end up striking. They picket the Burbank campus. They march all day. They carry signs with slogans like Snow White and the 700 dwarves, or, one is a drawing of Pinocchio with the caption, no strings on me. The strike lasts for three and a half months, and it's a completely shattering event for Walt personally and for the company. As the union is organizing the employee base in the days and weeks leading up to the strike, Walt decides that he's gonna make a speech and address the entire company, which he thinks well, he will explain his position and the challenging state that the company's in, and it will resolve everything, and the employees will rally around him and the company. Unfortunately, it has the opposite effect. It is a complete disaster. He lectures the entire company for nearly three hours. Some of his lines from the speech, which he had written out ahead of time, so it's preserved, are my first recommendation to the lot of you is this, put your own house in order. You can't accomplish a damn thing by sitting around and waiting to be told everything. If you're not progressing as you should, instead of grumbling and growling, do something about it. And then don't forget this, It's the law of the universe that the strong shall survive and the weak must fall by the way. And I don't give a damn what idealistic plan is cooked up. Nothing can change that. Probably not what you wanna tell your employee base after you just slash their salaries.
02:08:11 · Ben Gilbert, David Rosenthal
[02:08:11] S0: Yeah. Yeah. [02:08:12] S1: A labor magazine would write afterwards, Walt Disney's speech recruited more members for the Screen Cartoonist Guild than a year of campaigning. [02:08:25] S0: Yeah. About the worst reaction that you could possibly have. And Walt, I don't know if you found this in your research, but it seems like he's kinda deluded here into thinking, well, it's not actually my employees that are doing this. It's these communist very few communist agitators Yeah. Who have undercover become my employees, and they're riling up the rest of them. And Walt's, like, kinda removed himself, and he's in denial that this is actually what his workforce wants. The the the family atmosphere that we had at Hyperion is now a, like, real corporate, you know, have and have nots here on the big Burbank campus. Yeah. Yep. [02:09:11] S1: Yeah. It's a mess, and then it gets worse. So in the middle of the strike, which again lasts for three and a half months that hundreds of employees are gone from their jobs that are not working and marching and protesting outside the company. [02:09:25] S0: While they're trying to make Bambi, which is equally ambitious. Right.