Acquired
04:17:02 · David Rosenthal, Ben Gilbert
[04:17:02] S1: Right. And Nintendo is partnered with Universal now for their perks. I kinda suspect the way that a relationship between Disney and Nintendo the only way it could work would be if one of them buys the other. Right. [04:17:14] S0: Yep. Yep. Great. Seven powers? Great. So listeners, this is the part of the show where we walk through Hamilton Helmer's seven powers framework that effectively helps analyze why does a business get to be more profitable than its nearest competitor and do so sustainably. And those seven are scale economies, network economies, counter positioning, switching costs, branding, cornered resource, and process power. And I think we're just analyzing this for pre 1984 Disney. [04:17:44] S1: Yep. Well, easy one to start with, counter positioning for days, being willing to invest in a feature length animated picture. I mean, that was the peak of this relative to anybody else doing animation leading up to Snow White. [04:17:59] S0: Right. Because their competitive set would have needed to be people who have the talent of their animation staff, which is not zero people, but few people, and who had all the cash from Mickey and the Mickey merch, which would have been almost no one. I don't know, actually. That's almost like capital as a moat to go pursue Snow White. Because they weren't there was no one else who really could have done it.
04:17:59 · Ben Gilbert, David Rosenthal
[04:17:59] S0: Right. Because their competitive set would have needed to be people who have the talent of their animation staff, which is not zero people, but few people, and who had all the cash from Mickey and the Mickey merch, which would have been almost no one. I don't know, actually. That's almost like capital as a moat to go pursue Snow White. Because they weren't there was no one else who really could have done it. [04:18:20] S1: Mhmm. You know what? You're right versus the other animation studios, but Disney was counter positioned, I think, versus the big live action studios. Yeah. Because they never would have made a three year one and a half million dollar investment [04:18:36] S0: in a film when it was so easy. Have the capability, though. Yep. So let's see. Early on I mean, branding pretty quickly played a role. As soon as Mickey Mouse was established [04:18:47] S1: Walt Disney production. Absolutely. [04:18:49] S0: Yeah. Yeah. You'd pay more for a Walt Disney production than than otherwise. It was [04:18:52] S1: brand for Disney itself.
04:18:52 · David Rosenthal, Ben Gilbert
[04:18:52] S1: brand for Disney itself. [04:18:54] S0: I wonder if there was process power. Reading in some of the old recollections of animators, it seems like there were people that kinda traded between studios and left and started rival studios, and they were able to produce great work. So maybe there's not process power. I mean, the the big two, once it started to really kick in, are scale economies and network economies. Yeah. The flywheel is sort of all about that. These films are all scale economies. So it's can I go plop down $6,000,000 and then get the entire world to care about my movie for a year and make as much as possible on that, and then expand it out into the flywheel and take advantage of all those ancillary streams? And then, of course, the network economies of if you have a big enough release, it is a cultural moment. Yep. It matters to the world. [04:19:39] S1: Right. Gosh. I see it with my girls now today buying, you know, the Aurora costume that their friends also have so that they can dress up and play together. Yeah. The flywheel is built on network economies. It's like a combination of scale economies and network economies. Scale economies to enable the investment in the IP, and then network economies across all of the nodes.
04:19:39 · David Rosenthal, Ben Gilbert
[04:19:39] S1: Right. Gosh. I see it with my girls now today buying, you know, the Aurora costume that their friends also have so that they can dress up and play together. Yeah. The flywheel is built on network economies. It's like a combination of scale economies and network economies. Scale economies to enable the investment in the IP, and then network economies across all of the nodes. [04:19:59] S0: But the whole thing, if you were to go ask that question of why isn't another company able to replicate the success of Disney to any of the very smart executives and their great teams that work at competitive companies, they would say, oh, because Disney has the cornered resource of all that IP. Right. And, like, what do you want me to do? I can't devise a strategy that's gonna work in the next five to ten years to suddenly beat Disney when they have a hundred years of heritage and the world caring about their IP. The entire thing is predicated on that. [04:20:30] S1: Yep. Yep. Which really comes down to Walt always playing the long game and always being willing. [04:20:36] S0: To bet the whole farm. Yep. And being right enough times and managing to survive through the times where he was wrong that it worked. [04:20:44] S1: Yep. Alright. Quintessence?
04:20:44 · David Rosenthal, Ben Gilbert
[04:20:44] S1: Yep. Alright. Quintessence? [04:20:47] S0: Yes. So mine is Disney managed to take not only a set of IP and build their flywheel, but a cohesive set of IP, an opinionated universe of timeless stories about durable emotional story arcs that are universally applicable that work together as one. And that is something that can stay relevant and, of course, monetize for a very long time across generations. They can't fully avoid being a hits based business. They are a movie studio, but they've got about as far away from it as they possibly can. Mhmm. [04:21:22] S1: It's funny listening to you say that. I think that entire passage could equally apply to Nintendo. Yeah. Which really just shows how the companies they are the two flywheel companies. They are the two intellectual property flywheel companies out there. Yeah. Okay. So my quintessence goes all the way back to the beginning of the episode, and Marceline [04:21:42] S0: Of course, does. [04:21:43] S1: Art and commerce. Those two things got married in Walt's head when he was a little kid, and that is Disney. It really is art. When Disney is at its best, what they make is not just a commercial product. It exists at a higher level than that. And it is married to this incredible commerce engine that is in of itself beautiful. And, like, Disneyland and Disney World and all the parks are the most perfect expression of that.
04:21:43 · David Rosenthal, Ben Gilbert
[04:21:43] S1: Art and commerce. Those two things got married in Walt's head when he was a little kid, and that is Disney. It really is art. When Disney is at its best, what they make is not just a commercial product. It exists at a higher level than that. And it is married to this incredible commerce engine that is in of itself beautiful. And, like, Disneyland and Disney World and all the parks are the most perfect expression of that. [04:22:13] S0: In. That sounds exactly right. The sight lines, man. The the I I like going to Disneyland just to walk around. It's the craziest thing. I the rides are free, and I have just as much fun not going on them even though I've already paid for them. [04:22:28] S1: Any parent who's been to Disney with their kids knows exactly what I'm talking about, and it is, like, irreplicable at any other company or place in the world. Alright. Before we do carve outs, I've got one fun little thing that didn't make the narrative. So when Disney launched Donald Duck in 1934, they hired radio actor Clarence Nash to do his voice. Do you know how Clarence Nash got his start doing animal voices on the radio? You won't guess it, but it's an awesome acquired crossover. He was the radio spokesperson for Adore Dairy Farms Woah. In Southern California. [04:23:14] S0: Trader Joe's. [04:23:15] S1: Trader Joe's. [04:23:17] S0: That's awesome. [04:23:18] S1: Crossover. Trader Joe's Donald Duck. There you go. [04:23:20] S0: Trader Joe's original milk supplier before they got bought by Trader Joe's competitor seven Eleven.