Acquired
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?
04:09:54 · David Rosenthal, Ben Gilbert
[04:09:54] S1: And I think the question should be why has nobody else built an IP flywheel like Disney? [04:10:00] S0: Is it as simple as Disney was the first IP flywheel company? And so they've been the biggest I mean, no. That's not it. But it is interesting they are the first, and they're like the biggest best IP flywheel company at that point in history, 1984. [04:10:17] S1: Yeah. And, mean, really, like, even to today, I don't think any of the other movie studios out there, any of the other major studios are anywhere near as good a business. [04:10:30] S0: No. They're all terrible businesses. [04:10:31] S1: Yeah. Despite having, at this point, going on a hundred years of watching Disney operate and seeing exactly how the flywheel business model works. I mean, Wall Street Journal wrote that article in 1958. Why has nobody else copied them successfully? [04:10:47] S0: Fair. Okay. The terrible business thing is not fair. The business of movie production on its own is a terrible business, but the other studios like, you gotta give Universal a ton of credit. [04:10:58] S1: And I guess that's my point. Universal is probably the closest, but even then, it's not Disney. [04:11:04] S0: I mean, isn't Universal running effectively the the same playbook but with less valuable IP or IP that they don't own, so they have to sort of share it, think like Harry Potter Yep. Or just at smaller scale.
04:11:04 · Ben Gilbert, David Rosenthal
[04:11:04] S0: I mean, isn't Universal running effectively the the same playbook but with less valuable IP or IP that they don't own, so they have to sort of share it, think like Harry Potter Yep. Or just at smaller scale. [04:11:19] S1: Yeah. Still nobody else is Disney. And and to me, I think it all comes back to when we first talked about the flywheel all the way in the beginning of the episode. I think animation is super, super key. I mean, Bob Iger, when he took over the company in 2005, had that famous quote of, as animation goes, so goes the company. Yep. There really is something unique about animated IP in its timelessness, in the ever availability of its stars, in the better economics of not having to share too much on the back end or in merchandising fees, etcetera, with stars. And then I think really just, like, the ability of people to form deep lasting relationships with the characters versus Yeah. Live action. And because Disney's always had animation in its core, that's what creates all this special IP. And it's all created in house. You know, it's funny. [04:12:14] S0: I throw a Harry Potter. Universal doesn't own all of the rights to everything Harry Potter, but Disney for sure does own all the rights to everything Buzz Lightyear, now that they own Pixar or Aladdin or Mickey Mouse. Like, this is true vertical integration. [04:12:29] S1: Yes. Yes.