Acquired
01:10:55 · Ben Gilbert, David Rosenthal
[01:10:55] S0: Right. Exactly. But in reality, there's not really a better shorthand for system of integrated components that creates positive feedback loops. So, we will continue, alas, to use the phrase flywheel. But, the important thing here is that Walt really did sort of either discover or invent this business model of the intellectual property flywheel that we see replicated all over the place today. [01:11:18] S1: I mean, I think it really revealed itself to him and Roy in these early years of Mickey. And it's probably worth taking a moment to talk about why this works so well. So the most important thing, and I and I don't think this was premeditated in any way by Walt, but it was just something he innately cared so deeply about, is to make the highest quality, genuinely most compelling new IP as possible that audiences can build a deeper relationship with. This is like what Walt was building to and up to through all of his early years in animation. All the technical innovations, every step was getting to a character that audiences can fall in love with. Yep. Now critically for Disney, and again, I think completely accidentally discovered by Walt, the IP that works best for Flywheel Dynamics almost has to be animated, I. E, not live action. Because with live action characters, the characters are too bound up in the actors that play them, and that creates all sorts of problems. Like, one, especially today, it makes your economics as a studio just, like, way worse because you gotta pay the stars so much. Right. There's wholesale transfer pricing.
01:11:18 · David Rosenthal, Ben Gilbert
[01:11:18] S1: I mean, I think it really revealed itself to him and Roy in these early years of Mickey. And it's probably worth taking a moment to talk about why this works so well. So the most important thing, and I and I don't think this was premeditated in any way by Walt, but it was just something he innately cared so deeply about, is to make the highest quality, genuinely most compelling new IP as possible that audiences can build a deeper relationship with. This is like what Walt was building to and up to through all of his early years in animation. All the technical innovations, every step was getting to a character that audiences can fall in love with. Yep. Now critically for Disney, and again, I think completely accidentally discovered by Walt, the IP that works best for Flywheel Dynamics almost has to be animated, I. E, not live action. Because with live action characters, the characters are too bound up in the actors that play them, and that creates all sorts of problems. Like, one, especially today, it makes your economics as a studio just, like, way worse because you gotta pay the stars so much. Right. There's wholesale transfer pricing. [01:12:40] S0: A huge amount of the margin you could get ends up getting paid out to effectively your partner in creating the character, the actual actor. [01:12:47] S1: Whereas Mickey works for free. Now, like, you you gotta, like, pay the animators, and they get paid very well to animate them, etcetera.
01:12:47 · David Rosenthal, Ben Gilbert
[01:12:47] S1: Whereas Mickey works for free. Now, like, you you gotta, like, pay the animators, and they get paid very well to animate them, etcetera. [01:12:54] S0: That's on the value capture side. But on the value creation side, which I think is the more important thing, Mickey is always available to work. Yes. Yes. And Mickey doesn't age. [01:13:03] S1: Yes. Exactly. You can create a eternal character through animation in a way that you just can't when you're using real people. I mean, Star Wars, as great as Star Wars is, and we'll talk about it later in the episode, is gonna have a problem when Mark Hamill and Harrison Ford die. I mean, I guess unless AI gets really good. [01:13:23] S0: And live action is sort of dated to a time and place in a way that cartoons can sort of transcend. [01:13:31] S1: Yes. [01:13:31] S0: Like, Mickey can always exist in the present in a way that we're gonna talk about Davy Crockett later. But at some point, it became completely uninteresting to watch Davy Crockett even though he was, like, a complete heartthrob obsession. That was great IP for the moment. It just wasn't as durable. [01:13:49] S1: Yep. Live action IP, with very few exceptions, tends not to have the staying power over decades and generations that animation does. [01:13:58] S0: Yep. Few exceptions being like James Bond, but god, have they tried to do all sorts of crazy stuff in order to let that IP keep living. I mean, like, there's been six, seven James Bonds. You know? And they have to keep rebooting the story over
01:13:58 · Ben Gilbert, David Rosenthal
[01:13:58] S0: Yep. Few exceptions being like James Bond, but god, have they tried to do all sorts of crazy stuff in order to let that IP keep living. I mean, like, there's been six, seven James Bonds. You know? And they have to keep rebooting the story over [01:14:10] S1: and over. Exactly. Okay. So that's step one. Genuinely great IP that audiences fall in love with has to be at the core. Step two, you need to maximize the distribution for that IP as wide and as far as possible. [01:14:27] S0: In its primary delivery vehicle. Yes. So, like, Mickey in those films get those films into as many theaters as possible to just completely saturate the world. It's sort of a scale economies thing. If you're gonna invest a whole bunch in making it the very best you can, then you need to distribute it everywhere in order to maximize the impact from that huge upfront investment. [01:14:49] S1: Which, of course, applies to any film and any IP. But for Disney and the flywheel business model, they're willing to make every sacrifice possible to maximize distribution because they know that they're gonna monetize through the flywheel in a way that nobody else can. [01:15:06] S0: If they saturate all of America or all of the English speaking world with a character, then that character, that movie can become a shared cultural memory.
01:15:06 · Ben Gilbert, David Rosenthal
[01:15:06] S0: If they saturate all of America or all of the English speaking world with a character, then that character, that movie can become a shared cultural memory. [01:15:16] S1: So then that leads right into the third thing, which is the ancillary nodes of the flywheel itself. Once you've got the great IP, once you've distributed it as widely as possible, then you wanna get that IP into as many other arenas as possible, and this is exactly what Disney was doing. [01:15:36] S0: Right. Other mediums. [01:15:37] S1: Merch, clubs, comics, books, magazines. The beauty here and the discovery that Disney makes is that when you put the IP into these other ancillary nodes, it doesn't cannibalize the core IP. Like, you're not gonna oversaturate Mickey by having a Mickey comic strip and daily exposure in the way that if you released a new Mickey film every single day, people would get tired of Mickeys. If you structure the nodes of the flywheel right, the additional exposure reinforces the core IP. [01:16:14] S0: That's really interesting. So you do need some scarcity of the character in its main medium where you need, like, a really high quality bar and not oversaturate there. Exactly. Your secondary mediums, then you can cover the earth and be, like, everywhere all the time.
01:16:14 · Ben Gilbert, David Rosenthal
[01:16:14] S0: That's really interesting. So you do need some scarcity of the character in its main medium where you need, like, a really high quality bar and not oversaturate there. Exactly. Your secondary mediums, then you can cover the earth and be, like, everywhere all the time. [01:16:31] S1: Exactly. And so then if you flash forward to today and, like, the problems that Hollywood and most other studios have, and Disney too, especially with Marvel, if you come out with sequels all the time at this, like, ever increasing cadence of the core IP and the core delivery vehicle, people get tired of it. That's super interesting. But the flywheel lets you get that constant exposure without oversaturating the core IP. It's, like, absolutely brilliant. [01:17:00] S0: Not to mention, releasing films is actually not and never has been a great business model. Yes. It's just not that high margin. It's not that repeatable or predictable in its success. So you kind [01:17:12] S1: of You have to invest years ahead in production before you get any payout. [01:17:16] S0: Right. Right. The and any studio that is purely a studio is in for a rough go. But if you're you're trying to basically create this, like, durable platform of profit with all of these ancillary businesses, then you can focus on scarcity, quality, innovation in the kinda primary medium. [01:17:36] S1: Yep. Because you know you're gonna drive revenue basically in perpetuity out of it through the flywheel.