Acquired
04:01:46 · Ben Gilbert, David Rosenthal
[04:01:46] S0: Yeah. I mean, if you look over at the film side of things, the last film that Walt worked on was Jungle Book, which ended up coming out after his death in 1967. He was deeply involved in this one. It was a smash hit Yep. Grossing $23,000,000. 23,000,000 in its first box office run, which implies a cut of about $11,000,000 for Disney in Buena Vista on a budget of just $4,000,000. This, though, would be Disney's most successful film for the next two decades. [04:02:16] S1: Yeah. Yeah. That's bigger than Cinderella, certainly bigger than Sleeping Beauty, 101 Dalmatians, any of the other movies around that era. Yep. So the financials of the company keep growing, but really it's all because of the parks, and you can see it when you look at the numbers. So in 1972, the first year of Disney World, films do 78,000,000 in revenue and 44,000,000 in profit. Parks do a whopping 223,000,000 in revenue and 38,000,000 in profit. And then all the rest of the flywheel, consumer, merchandising, etcetera does 27,000,000 in revenue and 13,000,000 in profit. [04:02:59] S0: This is before the corporate expenses? [04:03:01] S1: Yes. Before the corporate expenses. [04:03:02] S0: Okay. So what are the three profit numbers for each of those again? [04:03:05] S1: So you've got, in 1972, 44,000,000 in profit from films. Yep. Biggest profit engine. It's actually a lot. The IP of the company is still in good shape here in 1972. Parks do 38,000,000 in profit, and other flywheel businesses do 13,000,000 in profit. [04:03:24] S0: Okay. So parks and movies are pretty comparable then. Yes.
04:03:24 · Ben Gilbert, David Rosenthal
[04:03:24] S0: Okay. So parks and movies are pretty comparable then. Yes. [04:03:28] S1: Pretty comparable right after Disney World opens. Yep. But then twelve years later, by the end of this period in 1984, parks and consumer products generate $250,000,000 of operating income on over $1,000,000,000 in revenue, while film and TV barely breaks even with only $2,200,000 in operating. Woah. Yeah, by the end of this period here, basically, the company is creatively bankrupt, and they're running a parks and merch business. [04:04:07] S0: No way. Okay. Give me the profit numbers from 1984 again. [04:04:11] S1: So together, parks and consumer products Uh-huh. Generate 250,000,000 in operating income. So quarter billion dollars from the parks and consumer products, and film and TV is 2,200,000. Unbelievable. It really illustrates what happens to the company during this period. [04:04:29] S0: It's funny because I only have the top line numbers from all the annual reports that we took photographs of when we were in the archives. Revenue goes from 100,000,000 in 1965 to 1,400,000,000 in 1984. And then over on the net income, after all the corporate expenses, in 1965 goes from 11,000,000 all the way up to 97,000,000 in 1984. So if you just look at the whole business Yeah. The consolidated financials great. But what you're sort of illustrating is the core is rotting. Yes. That they are not contributing new IP onto the pile that consumers love. Otherwise, we'd be seeing that in the the films division. [04:05:15] S1: Name a Disney film from the seventies that you can even think of today.
04:05:15 · David Rosenthal, Ben Gilbert
[04:05:15] S1: Name a Disney film from the seventies that you can even think of today. [04:05:21] S0: They're just harvesting over in the parks. [04:05:24] S1: Yes. So, really, the the biggest problem, what this comes down to, is that American myth making moved on. It moved elsewhere. So this is the era when George Lucas makes Star Wars, and Steven Spielberg makes Indiana Jones and ET. And these guys become the new American storytellers, not Disney and not Disney animation. Disney animation during this decade goes from a staff of roughly 500 at the time of Walt's death all the way down to just a 125 by the early eighties. There's all sorts of problems. The films they do make are disasters. The worst example of this is The Black Cauldron. Did you read about this? [04:06:14] S0: Wasn't it, like, ten years in development? [04:06:16] S1: Ten years in development and production ties up the studio forever. And then when they eventually do release it in 1985, it's a total flop. [04:06:25] S0: And it's super dark. Right? It's like a scary kids movie. [04:06:28] S1: Yeah. It's a PG rated Disney [04:06:30] S0: animated movie. Was the first one ever rated PG. [04:06:32] S1: Yeah. Yeah. Yeah. [04:06:33] S0: They do have some success with live action since 1964 with the massive success of Mary Poppins, which won five Oscars. They kinda leaned into that side of the house.
04:06:33 · Ben Gilbert, David Rosenthal
[04:06:33] S0: They do have some success with live action since 1964 with the massive success of Mary Poppins, which won five Oscars. They kinda leaned into that side of the house. [04:06:43] S1: Yep. They start Touchstone Pictures, and that has a couple, you know, big hits. Like, Splash is a big hit for them. Yep. But animation, the core of the company, is dying. And, of course, Mary Poppins was made During Walt's life. With Walt's involvement before his death. [04:06:57] S0: But to your point all episode, you know, great. They started touch tone pictures. Great. They made 20,000 leagues under the sea and old yeller and the absent minded professor. [04:07:07] S1: And They made a bunch of Herbie the love bug live action movies in Right. The sixties and seventies. [04:07:14] S0: That's not to hate on any of these things on their own. Like, my parents loved Herbie. I I remember them talking about it. They showed it to me when I was a kid. Is that durable IP that feeds future of Disney? No.
04:07:14 · Ben Gilbert, David Rosenthal
[04:07:14] S0: That's not to hate on any of these things on their own. Like, my parents loved Herbie. I I remember them talking about it. They showed it to me when I was a kid. Is that durable IP that feeds future of Disney? No. [04:07:26] S1: No. No. So then in 1984, basically, the inevitable happens. Wall Street corporate raiders come gunning for Disney. I mean, it's an easy target. Right? The financials look great. There's a lot of net income here, and there's also a lot of hard assets between the parks, the real estate, the old films in the vault. This is, like, easy pickings to come in, take over the company. Undervalued. Right? Yep. Yeah. I mean, the market cap of this company is only, like, $2,000,000,000 despite 1 and a half billion in top line revenue and call it a 100,000,000 in net income. But this would be super easy to break up Disney, sell off the theme parks, sell off the IP to other movie studios. You could come in and make a killing doing this. [04:08:16] S0: And that's what Saul Steinberg tries to do. Come in, raid the company, break it up for parts. But, David, I I think you're getting ahead of yourself. I'm pretty sure this should be how we start part two.
04:08:16 · Ben Gilbert, David Rosenthal
[04:08:16] S0: And that's what Saul Steinberg tries to do. Come in, raid the company, break it up for parts. But, David, I I think you're getting ahead of yourself. I'm pretty sure this should be how we start part two. [04:08:30] S1: Yes. This is the story for next time. But just know for now, it's a little teaser, that this period of the company ends improbably not with Disney being broken up, but with three complete outsiders coming in to run the company, none of whom have any history in animation, any familiarity with the flywheel business model, or any experience or demonstrated ability to operate anything outside film and television. So, like, running parks? Nope. Doing merch? Nope. Nothing. None of that. And those three men, Michael Eisner, Frank Wells, and Jeffrey Katzenberg, would pull off probably the greatest media company comeback in history. [04:09:24] S0: So that's what? Two Paramount executives and a lawyer turned Warner Brothers exec? [04:09:29] S1: Yep. That's right. [04:09:30] S0: It's like the other Hollywood Studios executives are gonna team up and come in and save Disney. [04:09:37] S1: Doesn't sound like it's gonna work, but we'll have [04:09:39] S0: to tell that story on [04:09:40] S1: part two. Because boy did it ever. Alright. Well, should we do some analysis? [04:09:47] S0: Yes. Absolutely. Do you still like the thing that we did on Vanguard, which is have one big question that we we try to answer? [04:09:54] S1: And I think the question should be why has nobody else built an IP flywheel like Disney?