Acquired
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.
04:12:29 · David Rosenthal, Ben Gilbert
[04:12:29] S1: Yes. Yes. [04:12:30] S0: There's also Disney, for all its ups and downs, made the decision to never sell its catalog so they could compound longer than everyone else. A lot of these other studios have sold their back catalogs, and some of them are are worthless since it's live action films in black and white that no one's ever gonna watch. But Disney hasn't. They own everything they've ever made, and that ties to Walt's Oswald experience. [04:12:56] S1: Yep. And I think there's something else too that only comes when you really fully embrace the flywheel business model and the trade offs that it involves, and it's the vault and the reissue strategy. Yeah. Disney let's put Marvel aside for a minute. With the exception of Marvel [04:13:17] S0: You gotta put Star Wars in that pile too. Because I know where you're going with this. And I the way you feel about Marvel, I feel about the, overexploitation of Star Wars. [04:13:24] S1: Yeah. Yeah. Okay. Good. Good. Good. Alright. Let's let's put Star Wars aside in the pile too. Core Disney and Disney Animation and Pixar have been so disciplined over the years about metering out their content and the core delivery of that content on an infrequent enough basis that it doesn't dilute it. And Marvel, ironically, I think, really is the counterexample here.
04:13:24 · David Rosenthal, Ben Gilbert
[04:13:24] S1: Yeah. Yeah. Okay. Good. Good. Good. Alright. Let's let's put Star Wars aside in the pile too. Core Disney and Disney Animation and Pixar have been so disciplined over the years about metering out their content and the core delivery of that content on an infrequent enough basis that it doesn't dilute it. And Marvel, ironically, I think, really is the counterexample here. [04:13:48] S0: Yeah. It was on a great, great run, but honestly, it feels like the Disney plusification of Marvel. We'll get to this in the next episode. But that that my gripe would be that the developing a lot of content to always have something fresh there. Maybe what the issue that we're both describing is actually a blurring of flywheel point two and flywheel point three. Point two was maximize distribution of each core IP's primary initial delivery vehicle. And your point three was feed IP into as many ancillary profitable flywheel nodes as possible. Kinda feels like with direct to consumer Disney plus, those two things got confused. [04:14:28] S1: That blurred. Yep. [04:14:29] S0: And like, yeah. What's the difference between ancillary content and primary content? It all ends up in the same place. And that's kinda how I feel when I watch some of the overexploited IP now. Mhmm. Mhmm. It goes back all the way back to the point you made, I don't know, six hours ago or whatever, that you you have to be really clear about giving a nice lane around your primary medium and delivery vehicle so that stuff still feels scarce, special, and canonical.