Acquired
01:44:06 · Ben Gilbert, David Rosenthal
[01:44:06] S0: Yeah. The an interesting thing about this story, I'm curious since you have daughters who watch it, David, is it's kinda dark, And Walt did meaningfully change the Brothers Grimm story Yes. That he sort of adapted it from. It's very interesting that all of these early Disney's cartoon movies, animations are adapted fairy tales or adapted existing lore that Disney sort of changes, the film was not really made as a children's movie. No. Yes. It was animated, but it's dark. [01:44:37] S1: No. And in fact, a lot of those decisions, like giving each of the seven dwarves personalities, in part were motivated to soften the darkness of the fairy tale. And Walt would always say that he didn't make movies for children, but, of course, he wanted children to be able to watch them too. But some of the decisions were actually made with the flywheel in mind, and the dwarves' personalities is one of these. They wanted to sell a lot of seven dwarves merchandise. And what better way to do that than to give them all distinct personalities? [01:45:15] S0: That is true. When you go to Disneyland, there's a lot of people walking around with, like, dopey and crumsy. [01:45:18] S1: Exactly. Exactly. So as we said, the movie itself, extremely profitable. It does $8,000,000 in film rental revenue against the 1 and a half million dollar production cost just in its first theatrical run. [01:45:34] S0: Which dramatically changes the studio's financial position.
01:45:34 · Ben Gilbert, David Rosenthal
[01:45:34] S0: Which dramatically changes the studio's financial position. [01:45:38] S1: Yes. Yes. Now it is a bit of a misconception that the profits from Snow White, the film itself, would end up paying for the new Burbank studio that Walt's about to construct. That's not entirely true. I think most of the film profits from Snow White went to repay all the loans to Bank of America.
01:46:00 · Ben Gilbert
[01:46:00] S0: Yes. So listeners, it's worth diving into a little bit of the complexity of how each of the parties in the value chain of making and distributing movies work. There's the studio, like Disney, who makes the actual movie. There's a distributor, like United Artists or RKO, who does a lot of stuff. They take the finished film. They create all the prints that'll go to theaters. They have the Salesforce that sells the film to theaters. They plan the film's marketing. They also ship the films and handle all of the billing and payments. And then, of course, there's the theater or the exhibitor as they're called. And so Disney has this 1944 annual report for employees that David actually found when we were in the archives. We were flipping through annual reports, and you were like, what is this? There there's two reports for 1944. What's going on here? And they actually had a different one for employees than for shareholders. The annual report for employees has this great graphic that says, where does the money come from? And it has a breakdown of if for a dollar getting spent at the box office, what are the splits? And so 65% actually gets retained at the exhibitor or the theater. 13% goes to the distributor, and 22% goes to the studio. And so when we've been saying rentals, here's the interesting thing about that. The distributor and the studio come together, and they actually rent their collectively owned film Yes. To the exhibitor. So this $8,000,000 is actually even higher than you think it is. The gross box office would be significantly higher than $8,000,000, like two and a half x or something. And that 8,000,000 is the 13% plus the 22%.
01:47:44 · David Rosenthal, Ben Gilbert
[01:47:44] S1: Right. It's the share of Disney, the studio, plus their distributor. [01:47:48] S0: That's exactly right. And so then I know I'm doing some financial gymnastics here. [01:47:53] S1: Well, hey. All of this Hollywood accounting, even through to this very day, is so obscure and arcane, I think on purpose so that neophytes to the business don't really understand the deals that they're making. [01:48:05] S0: If you go look at what is really the source of truth here, the 1940 IPO prospectus, which we are gonna get to, you can very clearly see that over a one year and nine month period, they make $4,500,000 in film rental income, the producer's share. So this is just Disney's from Snow White and the Seven Dwarves. So that's our real source of truth that we know. $4,500,000. Now they had about $2,300,000 of debt Yeah. From the $1,500,000 of production costs plus the interests that they owed Bank of America. [01:48:45] S1: Yep. So a huge portion of the net that they're taking home just from the box office of Snow White is going to repay the debt, let alone operating expenses for the studio, etcetera, etcetera. So, yes, it's, like, great for the company, but it's not quite as transformative from the box office alone as people would think. [01:49:10] S0: Right. So they they effectively have $2,200,000 left over after paying the theater, paying the distributor, paying back the principal on the loan, and paying the interest. Okay. $2,200,000 in 1937. Still a lot of money, but, they wanna go build a gigantic campus.
01:49:10 · Ben Gilbert, David Rosenthal
[01:49:10] S0: Right. So they they effectively have $2,200,000 left over after paying the theater, paying the distributor, paying back the principal on the loan, and paying the interest. Okay. $2,200,000 in 1937. Still a lot of money, but, they wanna go build a gigantic campus. [01:49:29] S1: Yes. But, Ben, of course, Disney isn't just making $2,200,000 in profits from Snow White. There's all that good, good flywheel revenue to come along with it. So, you know, if Walt thought that the flywheel worked well for Mickey Mouse, Snow White is, like, a whole another level. So before the film is even widely released around the country. They have their next major flywheel node, their next business model innovation already in market, The movie soundtrack. I couldn't believe this when I learned it. Snow White was the very first movie soundtrack ever created and sold to the public. It all started with Snow White. There were no sound movie soundtrack at homes before then. And it is a huge hit, both because, you know, it's a great soundtrack. But, like, before this album, there was never anything that audiences could take home actually of the picture that they saw in theaters. There's no home video. Right? There's no streaming. There's no television. Right. You go to see something in the movie theater. Sure. You could buy a piece of merch like a doll or a costume, and there were a lot of those out there for Snow White. But you couldn't take home the movie except in the form of the soundtrack. [01:51:02] S0: And the songs are are quite catchy. [01:51:04] S1: It's a lot of work.
01:51:04 · David Rosenthal, Ben Gilbert
[01:51:04] S1: It's a lot of work. [01:51:05] S0: And off the work. [01:51:06] S1: Yeah. So the soundtrack is huge. Beyond that, there supposedly, I read, are 2,183 separate SKUs of Snow White merchandise that get pumped into the global markets by Kay Kayman's consumer products organization. [01:51:28] S0: Unreal. [01:51:28] S1: The New York Times actually writes this, that, quote, sales of Snow White products might be America's path out of the depression. Wow. That's how successful it was. I mean, this movie was such a grand success artistically for Walt, for the studio, for the whole medium of animation and legitimizing it right alongside live action, and for the flywheel business model of Disney. So all of this enables Walt to pursue his next dream, which is that he wants to build a brand new state of the art animator's paradise. Ben, as you alluded to, the new Disney Burbank animation studio, still the, corporate headquarters of the company to this very day. [01:52:21] S0: Right. He basically sees the success of Snow White and thinks, oh, yeah. We're we're gonna do a lot lot more. More [01:52:27] S1: of these. [01:52:28] S0: Let's let's build all the infrastructure to, like, really do that right.