Acquired
03:20:34 · David Rosenthal, Ben Gilbert
[03:20:34] S1: My favorite little bit of trivia about Disneyland was learning about the original business model. So you used to have to pay to get on the rides. You would pay, I think it was a dollar for admission to the park, and then you could buy booklets of tickets that would get you admission to the various rides and attractions. And different rides and attractions would have different ticket grades and would be priced differently. It was this whole complicated business model that they obviously have drastically simplified since and raised prices astronomically. [03:21:08] S0: Yes. Absolutely. And, I mean, the the biggest sort of success of the whole thing is it just couldn't be farther from a carnival or a fairground, and that turned out to be a great, great business. Yes. Harrison Price, who led the research at SRI for Disneyland, said Disney's rethinking of the American amusement park had striking and immediate business consequences. Because his park was such a pleasant place, people stayed there longer, and because they stayed longer, they spent more time. Basically, Price said, he tripled per capita expenditures because he tripled time. [03:21:43] S1: And then, of course, you know, fast forward to today at Disneyland or Disney World. [03:21:47] S0: You go for, like, fourteen hours. [03:21:48] S1: Yeah. Right. Per day. I mean, you you you're not going there for just today. You're going there for multiple days. Right. You're making a whole trip out of it. [03:21:54] S0: And if you're going to Disney World, then they're there a whole week. [03:21:57] S1: Yep.
03:21:57 · David Rosenthal, Ben Gilbert
[03:21:57] S1: Yep. [03:21:57] S0: So I I promise we won't do too much part two foreshadowing on this episode, but this is just one point I gotta drive home. Disney Parks and Cruises today does $36,000,000,000 in revenue and $10,000,000,000 in profit per year. That is twice the amount of profit that their entertainment division produces. [03:22:18] S1: Yeah. Also just wild to think about physical amusement parks having essentially a 30% net income margin. Right. What what other physical park operator is gonna operate with those kind of margins? [03:22:32] S0: And the fact that it's a bigger business for Disney than their movies. Yes. Like, twice as big of a business. And this is you know, there's a 160 acres in California. There's a a big swath of land in Florida. There's five or six of them around the world. There's some cruise ships, and that spits off more profit. Twice as much profit than all of the other Disney things you can experience anywhere, anytime. [03:22:55] S1: Well, we're gonna get into this in a minute here. Really, the impressive thing is that Disney films are now great again, and still the parks do more revenue. We're about to hit a period where the parks do a lot more net income than the films because the films suck.
03:22:55 · David Rosenthal, Ben Gilbert
[03:22:55] S1: Well, we're gonna get into this in a minute here. Really, the impressive thing is that Disney films are now great again, and still the parks do more revenue. We're about to hit a period where the parks do a lot more net income than the films because the films suck. [03:23:10] S0: Now reflecting on all of this, Disneyland actually was not a bet the company move for Walt Disney Productions financially. It was cleverly structured by Roy to not be. But reputationally, it absolutely was. I mean, people were willing to take these giant leaps on Walt because of who he was and what he had accomplished the same way that they do with Elon or Steve Jobs or Warren Buffett getting deals that no one else could get. So Roy was, like, great at making sure it wouldn't financially bankrupt the company, but Walt was sort of betting that reputation Yeah. Extremely publicly to half the households in The US. So not only was he betting the company, he was betting his own personal fortune too. Remember that $250,000 that he put in? Yep. He sold his vacation house in Palm Springs. Yep. He borrowed a $100,000 against his life insurance, and he took on a personal loan to fund that obligation. [03:24:05] S1: Yep. All true. And all necessary because of how they had always operated the company. He wasn't taking lots of cash out of the company.
03:24:05 · David Rosenthal, Ben Gilbert
[03:24:05] S1: Yep. All true. And all necessary because of how they had always operated the company. He wasn't taking lots of cash out of the company. [03:24:13] S0: Until the sort of renegotiation of his employment contract. Yep. So there is a fascinating coda to all this crazy corporate stuff on how the park was formed. You might be wondering, well, wait. Doesn't the Walt Disney Company own the park outright now? I mean, when you visit Disneyland, don't you assume, hey, wait, this is just part of Disney. What about that weird joint venture thing and ABC and Walt personally? So here's how it all goes down. The headline is the Walt Disney company would not actually own the park and everything within its borders for a full twenty seven years after opening in 1982. So here's the the full story of who sold what and when. Pretty quickly, Walt Disney Productions exercised their right to buy out Western Publishing and Walt personally. So by 1958, three years after opening, they owned 66%. But the buyout right to ABC's stake, that wasn't prenegotiated. So in 1960, when the company actually had enough cash to do it, that's when Roy negotiated, hey. We'll pay you 7 and a half million dollars to buy out your your stake. So by 1960, the publicly traded company Walt Disney Productions did own all of Disneyland Inc. But that leaves WED Enterprises, which had been hired as a contractor to build all the stuff. [03:25:33] S1: Yes. And WED Enterprises is Imagineering today, Disney Imagineering.
03:25:33 · David Rosenthal, Ben Gilbert
[03:25:33] S1: Yes. And WED Enterprises is Imagineering today, Disney Imagineering. [03:25:37] S0: Yes. But WED Enterprises, the entity, at this point in time, also owned rights to some elements in the park. [03:25:46] S1: Right. And it wasn't consolidated into Disney the company yet. Right? It was still this separate thing owned by Walt. [03:25:54] S0: Right. So WED, which Walt is the 100% shareholder of, actually owned the railroad outright. It had been negotiated [03:26:04] S1: Of course, he did. [03:26:05] S0: As a part of the personal services contract. Because it was like, hey. I was already doing this side project, and now I'm just putting it on Disneyland. All comes [03:26:14] S1: back to trains. [03:26:15] S0: So he got ticket revenue from it as an annuity, basically. [03:26:20] S1: Right. Because all the rides cost money. So the the railroad at Disneyland [03:26:24] S0: Yes. [03:26:25] S1: Was Walt's.
03:26:25 · David Rosenthal, Ben Gilbert
[03:26:25] S1: Was Walt's. [03:26:26] S0: Same thing with the monorail. These were not owned by Disneyland Inc. They were owned by WED. Amazing. We also mentioned since WED was Walt's personal company, it owned Walt's name and likeness, which led to that 10% royalty on merchandise. In 1963, eight years after the park opened, Roy was getting very nervous that the public shareholders would sue over this admittedly very tenuous structure. So they reached a deal. Wed would get sliced into two pieces, Imagineering, the architectural engineering department, and everything else. Disney productions would buy the half of Wed that was Imagineering. So they finally in house Imagineering in 1965. The rest of the holdings would be renamed Retlaw, which is Walter backwards. [03:27:11] S1: Right. Right. [03:27:12] S0: And inside of Retlaw, Walt would get to keep the trains, the monorail, and his 10% royalty. This is in 1965. That would actually last all the way until 1982, nearly three decades after the opening, where the company says enough is enough, goes to Walt's family, because this is after he passed away. And they bought out the name rights, the monorail, and the railroad in exchange for $43,000,000 of Disney stock. Insanely, WED Enterprises, which would later be Rhett Law, got a total of $75,000,000 in checks from Walt Disney Productions for the Disneyland Railroad and for the monorail between 1953 and 1981, and another 46,000,000 for name royalties. Wow. [03:28:00] S1: So I guess the question as a Disney shareholder would have been, was it worth it? Right. And the obvious answer