Ben Gilbert
0:00 Have I ever shown you my Mickey Mouse impression?
David Rosenthal
0:05 You've done your Mario impression for me in the past.
Ben Gilbert
0:08 Yeah they're a little similar.
David Rosenthal
0:11 All right, all right. Give me Mickey, give me Mickey.
Ben Gilbert
0:13 Oh boy, will you look at that?
David Rosenthal
0:17 That is really good. 0:18 You sound like Walt himself doing Mickey.
Ben Gilbert
0:20 Right? Didn't he do Mickey for like 20 years?
David Rosenthal
0:23 Yep. Yep. Yep. 0:24 He didn't at the very first and then one of the animators convinced him to do it and then yeah, he did it for 20 years.
Ben Gilbert
0:30 Have I ever given you my Donald Duck impression?
David Rosenthal
0:33 Oh wow. Okay. Well now I'm gonna do... I need to sit down for this one?
Ben Gilbert
0:35 You might need to. All right, here we go.
David Rosenthal
0:43 Oh, that's about right. That's about right. I have a great Donald Duck tribute for you coming up. Save it. All right, save it. Save it. You're gonna be blown away. 0:50 I'm pretty sure you didn't find it.
Ben Gilbert
0:51 Great, all right, onto the episode. Let's do it. 1:11 Welcome to the Spring 2026 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.
David Rosenthal
1:19 I'm David Rosenthal.
Ben Gilbert
1:20 And we are your hosts. 1:22 Today, listeners, We finally tell the story of The Walt Disney Company. 1:27 Unbelievably, in 11 years of doing Acquired, we have never told Walt's story. 1:34 And it's been a glaring omission. 1:36 It is the entertainment company different than all the rest. 1:39 It's over 100 years old. 1:41 And it has played a prominent role in almost all of your childhoods. 1:46 And if you're a parent, likely your parenting journey, too.
David Rosenthal
1:49 Oh yes.
Ben Gilbert
1:50 I'm looking at you, David Rosenthal.
David Rosenthal
1:52 Oh yes. And it has played a prominent role in Acquired history, too. 1:55 Our very first episode, Pixar. 1:58 Done Lucasfilm. 1:59 We've done Marvel. 2:00 Done ESPN.
Ben Gilbert
2:02 Although those are a whole different version of Acquired. 2:05 We may need to decanonize those and redo them the proper way as part of this. 2:10 Listeners, since there are tons of biographies and documentaries and places analyzing Walt's psyche, we're going to focus today on Acquired's sweet spot, which is the business. 2:20 What is it that Walt's merry band did from the 1920s onward that made them succeed uniquely well in Hollywood? 2:29 And when you look at Disney's profits today, it is in a whole different league than Paramount or Universal or Warner Bros. or any of the other sort of classic Hollywood studios. 2:38 The business of feature film production is a mediocre one, especially by the standards of what we study on this show here with Acquired, except for Disney.
David Rosenthal
2:48 Yes, exactly.
Ben Gilbert
2:49 And I will say, I am a huge Disney fan. 2:52 I grew up on Aladdin and The Lion King. 2:54 My first movie in theaters was Beauty and the Beast. 2:57 I'm a huge Star Wars nerd, and my wall was plastered with Toy Story posters growing up. 3:02 But somehow, I knew nothing about the company's early history before starting this research.
David Rosenthal
3:09 Nor did I.
Ben Gilbert
3:09 For example, it started in Kansas City. 3:12 There was a character that was supposed to be Mickey Mouse before Mickey Mouse, but was lost in a contract dispute. 3:19 Or that many of the movies I watched in my childhood are actually from 50 years before I was even born. 3:26 Snow White was produced before World War II, Pinocchio, Bambi. 3:32 These films are from the 30s and 40s. 3:35 They even predate the existence of televisions in people's homes.
David Rosenthal
3:40 Yep
Ben Gilbert
3:40 And importantly for Acquired roots, this really is a technology story. 3:44 Giant innovations that often bet the whole company on things like synchronized sound or the crazy idea of a feature-length animated movie at all. 3:53 Or the multi-plane camera to photograph the whole thing and turn it into a movie. 3:58 And of course, building a giant theme park in Anaheim when nothing else like it existed and they really did invent the entire concept of the flywheel business model that so many entrepreneurs are trying to copy. Oh yes. 4:12 So today listeners is The Walt Disney Company part 1. 4:17 Walt's era. Woo! 4:19 Well, big news from here at Acquired HQ. 4:21 This episode has a companion PDF, with visuals, charts, tables, and illustrations of key concepts. 4:28 Including Acquired's version of the Disney flywheel. 4:32 We did a pilot of the idea after our Vanguard episode, and we got such overwhelming positive response that we are doing it again. 4:38 So you can get access and follow along by clicking the link in the show notes.
David Rosenthal
4:42 You might say we're building out our own flywheel here. 4:45 We are eating our own episode.
Ben Gilbert
4:46 Cooking and we're taking this timeless IP that we are developing and figuring out even more things to do with it. That's right. 4:54 All right, so you can join the Acquired email list at acquired.fm slash email. 4:57 fm slash email. 4:58 That's where we'll send our big takeaways from each episode past episode corrections exclusive behind the scenes photos that we found at our research and it's where you can vote on future episode topics. 5:09 Plus we will give away a little hint. 5:11 Each time about the next episode topic that's acquired fm slash email, come talk about this episode with us in the slack that's acquired fm slash slack. 5:19 And before we dive in, we want to thank our presenting partner, J.P. Morgan.
David Rosenthal
5:24 Yes, just like how we say every company has a story, every company's story is powered by payments, and J.P. Morgan is a part of so many of their journeys from seed to IPO and beyond.
Ben Gilbert
5:33 So with that, the show is not investment advice. 5:35 David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only. 5:42 David take us in.
David Rosenthal
5:44 Well, first a thank you to my main source for facts and Walt quotes on this episode. 5:49 Neal Gabler's biography, Walt Disney: The Triumph of the American Imagination. Gabler. 5:56 I think was the only author who had full access to the Disney archives and all the research he did for that book is just incredible. Yes. 6:03 Well, with that, we start in Chicago. 6:07 In December 1901 where Walter Elias Disney is born and the family lore is that the Disneys are descended from the French Disneys of Normandy. 6:19 How do you spell that? D apostrophe? 6:22 D'Isigny of Normandy who came over to England with William the Conqueror. 6:28 In 1066. 6:30 That's family lore unverifiable.
Ben Gilbert
6:33 Yes, at this point lost to history. Yes.
David Rosenthal
6:36 So walt's father elias was sort of a frustrated entrepreneur. 6:42 He was variously a carpenter landlord farmer newspaper route owner and eventually a failed jelly factory investor. 6:53 But Elias's younger brother, Robert Waltz, Uncle Robert. 6:57 Was the successful one in the family. 6:59 He was a real estate speculator among other things, and that is what brought the family to chicago at the turn of the century. 7:07 He had invested in a bunch of real estate in chicago and the midwest, and so elias came also to seek his fortune there. 7:14 Now, when walt is 4. 7:17 Elias moves the family out of chicago to an idyllic farm town. 7:22 Also in the Midwest where Robert had just purchased another tract of real estate, Marceline, Missouri. And Lillian Disney, Walt's future wife, would say about Marceline. 7:33 It was the most important part of walt's life. 7:35 He didn't live there very long. 7:37 He lived in Chicago and Kansas City much longer, but there was something about the farm that was very. 7:43 Important to him.
Ben Gilbert
7:44 and elias moved the family because it was kind of like, let's get out of the dangerous city of chicago and raise the kids, right? 7:51 So sort of somewhere small town. 7:53 I think Marceline was actually created because they needed somewhere for the Santa Fe Railroad's division point. Yes, yes. 8:02 Like when it was going to maybe Chicago and Kansas City and they were like, 'And this place on the map looks good,' and they started the town of Marceline. Exactly, exactly.
David Rosenthal
8:10 And robert the uncle had bought real estate there kind of speculating again that this is marceline's going to grow. 8:16 So marceline was like basically a disney movie. 8:20 There's orchards and ponds and animals and farmhouses. 8:25 There's also this charming little town that the railroad had created with a main street, a main street usa, you might say, but that's getting out of ourselves. 8:34 So while the family's living there, uncle robert's wife walt's aunt maggie every time that they would come visit marceline to check up on their real estate investments, she would bring walt gifts. 8:46 And one year when Walt is probably six or seven years old, Aunt Maggie brings him a big Chief drawing tablet and pencil set and Walt is enraptured. 8:58 He starts sketching. 8:59 All the time drawing, sketching everything you can see. 9:02 And as the legend goes, one day, walt's retired neighbor asked the young boy to draw him a picture of his favorite horse. 9:11 And the neighbor loves what walt draws so much that he pays him a nickel for it, and he hangs it in a frame in his house. 9:20 And walt, his mind is blown, young walt, he's like. 9:23 My my hobby, my my art, it can make me money. 9:30 Now, whatever the exact truth of that story is, there is no doubt that somewhere in marceline, in prepubescent walt's mind, a connection is forged. 9:41 Between these two great forces, art and commerce, and that would go on to drive not only the rest of his life, but. 9:50 The company, the studio, the movies made change america.Absolutely.
Ben Gilbert
9:55 The thing about Marceline though, you said it's idyllic and like it's out of a Disney movie, the reality of living in Marceline and life on the farm is that it was very hard. 10:05 All the kids are involved. 10:07 There's not, you know, magical economic prosperity everywhere. 10:10 It's sort of a tough life, even though he can sort of remember it. 10:15 As an idyllic childhood, which I also think is quite the foreshadowing of kind of the Disney-ification of things in the future. 10:22 It is both remembered as idyllic, but also was hard as the real world is.
David Rosenthal
10:28 Yes, and I think it's because of the age Walt was when he was there. 10:32 So they lived in Marceline only from when he was like four to eight or nine years old before he gets really put to work. 10:40 So he gets to just enjoy all this bliss around him. 10:43 Yeah, the reality is it's. 10:44 Pretty tough for the family to make a living and in fact they can't. 10:50 So Elias adds farming to his list of entrepreneurial failures. 10:56 And when Walt is nine years old, they have to move the family again out of Marceline to Kansas City where Elias decides he's going to purchase a paper delivery route for the Kansas City Star newspaper. 11:11 And he's gonna put the family to work delivering papers.
Ben Gilbert
11:15 There are so many protagonists that we study on Acquired who started their career as newspaper boys.
David Rosenthal
11:20 I was gonna say just like Jack Bogle from Vanguard delivering papers in his youth and having to get up at 4 in the morning and falling asleep at school because he has to work so hard. 11:29 Like this is quite the reversal here for Walt from Marceline but. 11:34 He never stops drawing. 11:36 And he never stops making money from it. 11:38 In Kansas City, he would draw frames for the local barber shop, who would pay him either a nickel or a free haircut for each, and that would, you know, be Walt spending money growing up that he would earn from his art. Yep. 11:51 So later, when Walt enters high school, Elias moves the family back to Chicago again. 11:57 This time for the jelly factory, which ends up failing, where Walt becomes the cartoonist for his high school newspaper. 12:03 But he's not there long before he leaves high school to go join the Red Cross and get shipped off to France as an ambulance driver during World War One. 12:12 Where unfortunately, he would acquire a chain-smoking habit that he would keep up for the rest of his life and eventually would kill him way too young. Yep. 12:22 But while it's not in France for long before the war ends and in the fall of 1919, he lands back in Kansas City where Roy Disney. 12:31 His older brother who is I think eight years, his senior nine years, maybe eight nine years older. 12:36 Yeah, much older. 12:37 Yep, is living and Walt has a plan that he's going to seek his fortune finally as a true professional cartoonist. 12:45 So through Roy, he gets introduced to an advertising art shop that's looking for apprentices to help draw like flyers for the upcoming holiday rush and Walt works there. 12:56 For six weeks, through Christmas time, and then gets unceremoniously laid off. 13:02 But he gets two things out of this brief experience as an employee. 13:06 One, he gets a credential. 13:07 He can now say that he is a professional artist.
Ben Gilbert
13:10 All you have to do is get paid to do something, and then you become a professional.
David Rosenthal
13:13 Exactly, exactly, and. 13:15 He gets something else. 13:17 A co-founder. 13:19 Another young apprentice from the art shop named Ub Iwerks.
Ben Gilbert
13:25 I sort of think of Ub as the Steve Wozniak of Disney. Yes.
David Rosenthal
13:29 Absolutely. Walt's like the original Steve Jobs, and. 13:34 I think you can definitely make the case that Ub is the Steve Wozniak.
Ben Gilbert
13:37 Although I think Walt was more hands on. 13:41 Yes, Walt was also an animator, Ub was just a better animator, and Walt was a camera operator, and Walt was building stuff, doing things with his hand, and he was in the primary technology and artistic trade that his business was in.
David Rosenthal
13:57 So, after the two of them get laid off, Walt suggests that rather than go look for jobs again. 14:02 They should just start their own studio together. 14:04 I mean, hey, they're professional artists, why not? 14:07 So they create Iwerks-Disney Commercial Artists Incorporated. 14:13 Supposedly in that naming order so that it didn't sound like an optometrist shop like Disney-Iwerks.
Ben Gilbert
14:18 How amazing is this? In the first Iwerks and Disney partnership and Walt Disney's first business. 14:24 He was not the main name on the door. 14:26 At least he was not the first one.
David Rosenthal
14:28 Yes, not the main name on the door, but he is the driving force behind the business. 14:34 So he goes out to pitch prospective clients around Kansas City for the services of this new Iwerks-Disney Commercial Artist firm. 14:43 And one of the clients that he goes to pitch is an up-and-coming company called the Kansas City Slide Company, which happens to have become. 14:53 The country's largest producer of advertising slides and short commercials that would get shown in movie theaters before feature films, and the Slide Co has so much work at this point in time, as films and movie theaters are taking off around the country. 15:12 That they say, hey, you guys seem talented. 15:15 We don't want to just contract with you. 15:17 Why don't you come work here full-time? 15:19 So, Walt's first entrepreneurial venture quickly comes to an end and they go join the Slide Company. 15:26 Now, the reason that they specifically wanted Walt and Ub is that they have a relatively new business line at the Slide Co, which is producing animated commercials. 15:39 To run in movie theaters before films, and this is what Walt and Ub end up getting put to work doing, and they both just fall in love with this new art form of animation. 15:52 It's like everything that Walt ends up loving about drawing, but it's more than just art, it's technology. 16:00 You know, you need cameras, you need film, you need all these new inventions to make animation happen. Yeah. And.
Ben Gilbert
16:07 At this point, animation was really primarily used in advertising, right? 16:11 There wasn't really a successful thriving industry yet as entertainment of its own based on animation.
David Rosenthal
16:19 It was like very, very early. 16:22 And to the extent that it did exist as entertainment and shorts, short films, cartoons on its own, it was all based in New York, like not in Kansas City, right? 16:32 But the whole industry is only like barely 20 years old at this point in time because you couldn't produce animation on any sort of scale until you had widespread commercially available film cameras and film projectors. 16:46 Like this whole art form is brand new. 16:48 It couldn't exist before the technological innovation of film.
Ben Gilbert
16:52 Yep, exactly. Right.
David Rosenthal
16:54 So part of the reason that cartoons are working well in advertising right now for the slide code, is that it's this novelty, you know, almost gimmick. 17:04 It captures people's attention. 17:06 Yep, even though they have no color, no sound, no story, it's just a series of like visual novelties.
Ben Gilbert
17:12 It's something they never seen before. 17:14 Of course, it's interesting. Yep.
David Rosenthal
17:16 And in Walt's mind, who really is always thinking about how can I make a business out of a career out of this? 17:22 This is also what makes it super attractive to him. 17:25 Because the whole industry is so new of animation, he figures that he can quickly become as good or better than anyone else in the world at it. 17:33 Unlike if he's gonna try and be the best commercial artist in the world, you know, good luck young Walt Disney in Kansas City.
Ben Gilbert
17:39 Missouri oil painting is thousands of years old. Right? Right, right.
David Rosenthal
17:42 But becoming the best cartoon animator small pool. 17:45 Yeah, he and up might have a shot here. Yep. 17:48 So, Walt nub start experimenting on nights and weekends with their own work, just trying out, creating their own animations using the slideco equipment and cameras, and Walt puts together a few short cartoons that he creates all himself. 18:05 He brands them as quote, Laugh-o-grams, and he ends up selling them on the side. 18:11 To a local movie theater chain to run before features. 18:16 And the Laugh-o-grams become a hit in Kansas City audiences love them.
Ben Gilbert
18:19 I love that the thing that led to the Walt Disney Company is called Laugh-o-Grams. 18:24 Oh, Graham like life dash. Oh, dash Graham. 18:26 It reminds me of what was the Rolex watch the Turner graph.
David Rosenthal
18:29 Oh yeah, yeah, it's such a like hokey name for, you know, what ends up becoming. 18:34 Well, this doesn't become Disney, but the spirit of which becomes Disney.
Ben Gilbert
18:38 Here and the thing that they're doing, they're so primitive. 18:40 There's no sound, there's no voices. 18:43 There's no color, there's barely backgrounds.
David Rosenthal
18:46 Yeah, it's so different from what you're used to today because of those limitations. 18:51 You can't create a story or a real sense of character for any of the characters that are in there. 18:56 Like you can't build a relationship with the cartoons that are being made at this time, like you can with Mickey Mouse or Donald or Goofy or Minnie.
Ben Gilbert
19:04 The only emotion you can invoke is humor, and the only real way to do humor is slapstick. 19:11 So it's just these like super exaggerated. 19:14 They called him gags like things that a character does that isn't necessarily consistent with anything else that they've done within a few minutes of starting gag happening and ending or or sometimes even a few seconds. Yep.
David Rosenthal
19:26 And honestly, that's actually not that different than film itself overall at this point in time. 19:33 Like Charlie Chaplin is the big star in America and around the world, the big movie star right now in the silent era. 19:40 And most of his movies are exactly what you described, Ben.
Ben Gilbert
19:44 Honestly, it's all physical comedy, sort of slapstick. 19:47 It's the stuff that my toddler laughs at. 19:49 You could re-summarize every scene of every comic and most movies by going, oh, he fell down. Exactly.
David Rosenthal
19:58 So in May of 1922 at 20 years old, Walt decides that these Laugh-o-grams that he's making are having enough success that he's ready to leave the Slide Company, go out on his own. 20:10 Again, and he founds Laugh-O-Gram Films Inc. 20:15 And once again, he convinces Ub Iwerks to quit and come along too along with a few other animators from the Slide Company. 20:24 And it's another failure because despite the Laugh-o-gram's local popularity there in Kansas City, by the time we get into '22, 1923, animation and cartoons in general around the country are starting to lose their appeal. 20:41 The novelty is wearing off. 20:43 The fad is dying down. 20:45 There's actually a survey of theater managers right around this time and like 1922 or 1923 where one of the questions is what filler options do your audiences like to see around the feature film that you're showing because it also would be. 21:00 Newsreels or live comedies or short serials. 21:03 Remember, there's no television. 21:04 It's not even really radio at this point in time. 21:06 If you want to get news or any kind of entertainment, you go to the movie theater.
Ben Gilbert
21:09 All right, I got a stat on this: in the 1920s, the average American went over 40 times per year to the theater. 21:17 Wow, this is what you did every week for entertainment. Wow.
David Rosenthal
21:21 Yeah, compare that to today where like... 21:24 Maybe you go once a year.
Ben Gilbert
21:26 It's two, the two American, the average American goes to a movie theater twice a year now.
David Rosenthal
21:31 Yeah, I mean back then it was like you could go to the movie theater or you could go see a live show, ballet or opera or like a sporting event, like a baseball game. Where you go to the movie theater, that's it.
Ben Gilbert
21:40 And when you go to the theater, it was a bundle. 21:43 I mean, yeah, you were there for a production, but I think the point you're trying to make is there were also these cartoons with gags. 21:49 There were newsreels. 21:50 There was the feature you're there to see, but it's sort of this like bundle of. 21:54 All right, let's see what the theater has in store for me today. Yeah, exactly.
David Rosenthal
21:56 So this survey of theater managers only 23% of respondents say that they show cartoons as part of the bundle and that their audiences like it, which is by far the lowest of any of the other filler options. 22:09 So Laugh-o-Gram can't really find a market outside of their local popularity in Kansas City. 22:15 And in 1923, the company goes bankrupt and shuts down and walt is now this sort of a disgraced entrepreneur here in Kansas City.
Ben Gilbert
22:27 Kansas City back right in his dad's footsteps. 22:29 Yeah, yeah, exactly. 22:30 And he raised money from people in Kansas City for his family. 22:33 He went and lost people's loan capital that they gave him. Yep.
David Rosenthal
22:38 So walt goes to rich uncle robert for advice on what to do given his failure. 22:44 And robert says, you know, kid best thing to do if i were you, i would just skip town get out of it, which actually is really sound advice for back then, you know, people's reputations did not travel with them. Nope.
Ben Gilbert
22:58 Your credit was the credit locally that you had with the people in your town and. 23:04 No other way to find you otherwise.
David Rosenthal
23:05 Now, it just so happens that both robert and walt's older brother roy have just also skipped town from kansas city and moved out west to los angeles. 23:19 So while packs is belongings, which is basically nothing at this point in time hops aboard, the santa fe train bound for la and. 23:27 joins them in hollywood. 23:30 And when he arrives there in the summer of 1923, he's 21 years old. 23:34 He stays with uncle Robert. 23:36 And initially, you really can't make this up. 23:40 I couldn't believe this when I read it. 23:42 Walt at first thinks that he's come to Hollywood. 23:47 He's going to get a directing job in Hollywood at one of the studios there.
Ben Gilbert
23:52 Well, yeah, he has abandoned the idea of animation. 23:54 He basically thinks he's too late. 23:56 He's seen some of the stuff that comes out of the. 23:58 New york cartooning scene and he's like, well, i'll never be as good as them. 24:02 So i need to go start over something completely new. right?
David Rosenthal
24:06 Which is sort of, you know, silly and wrong in and of its own, but also like the hubris that he thinks that he could just show up in hollywood with no directorial experience and become the next dw griffith. 24:16 That is walt for you.
Ben Gilbert
24:18 You know, this story of the universal lot. No, no, no. 24:21 So he rolls up to the universal lot after getting there having no job, no money borrowing a bed. 24:26 And he goes and has fake business cards made that says he is with universal. 24:33 He's just the kansas city representative, so no one at universal would really know who he is. 24:38 And he gives it to the receptionist on the universal lot, and he walks in. 24:44 And so he spends at least a day, from what i could tell, roaming around and learning as much as he could about film production. 24:51 And like internalizes a lot of those lessons and he tries to come back in future days and say like oh yeah i'm sort of like with universal and now i have experience and can you give me a job and he ends up running out of money.
David Rosenthal
25:02 and doesn't get a job. Amazing. 25:04 I didn't know that story. 25:07 So once he inevitably gets rejected at all the major hollywood studios, he says later when things began to look hopeless. 25:16 I got my cartoon things out again and he sets up shop animating again. 25:22 He's like, well, as you said, ben, this is the one thing i know how to do. I should try that. 25:26 And at this point, pretty much the only popular cartoon left in the industry is felix the cat. 25:36 Yep, which is created by Pat Sullivan out of New York and distributed by the pioneering Margaret Winkler. 25:43 Also in new york. 25:45 So well, has one thing, one asset left over from his failed Laugh-o-gram days, which is a reel of a hybrid live-action cartoon short. 26:02 That he had created with Ub Iwerks right before he left Kansas City called Alice's Wonderland about a real life little girl who interacts on screen with cartoons that they've drawn over the film.
Ben Gilbert
26:15 which is like completely pioneering technology. 26:17 The other people who were doing animation this time were just doing cartoons. These Alice Comedies as they came to be called. 26:25 Were a new process by which you could go and film a real life actor, and then have them interact on screen with cartoon characters, and put them in the cartoon. Yes. Very cool.
David Rosenthal
26:36 And also had the unique property of being cheaper to produce than full animation, because you only had to animate the characters, not all the backgrounds and everything. Right? Right.
Ben Gilbert
26:45 Yeah, there is this funny counterintuitive thing that live production is much faster and cheaper than animation. 26:52 You just have a film camera, and you point it at something in the world that exists, and you kind of get everything that you're pointing it at for free. 26:58 Like the actor is interacting with a bunch of stuff and when you're making an animated film, you need to draw literally everything from scratch. 27:06 It's much harder to do it frame by frame, by frame, by frame, rather than the world just sort of happening around you and you taking these exposures in a video camera. Yep.
David Rosenthal
27:16 So walt sends alice's wonderland off to winkler and she likes it. 27:21 So she commissions Walt to create 12 more Alice Comedies for like $15 to $1,800 dollars each.
Ben Gilbert
27:29 She does, and David did you know we have seen this contract.
David Rosenthal
27:35 Was this in the documents that we saw in the Disney archives?Yes.
Ben Gilbert
27:38 So listeners for this episode, David and I went and spent a few days down in Burbank looking through the corporate archives. 27:44 And one of the things that the archivist pulled for us was this contract and I have a photo of it.I'm looking at it right now. 27:50 Agreement entered into this 16th day of October 1923 between Walt Disney of 446 Kingswell Avenue, Hollywood California, blah blah blah blah. 27:58 And yeah, you're exactly right for 12 negatives of subject series and then it all caps Alice Comedies and amazing this. 28:06 We I also have a picture of this on the last page of this contract because this is effectively the contract that puts Disney in business. 28:13 I mean, this becomes the walt disney company.
David Rosenthal
28:15 Yeah, this is the moment. 28:17 This is the beginning of disney.
Ben Gilbert
28:18 You can see his signature, which is much less flowery than the version that you see in the disney logo. 28:24 He would sort of evolve it over time, but yet.
David Rosenthal
28:27 This is the moment. 28:29 Disney walt is in business. 28:32 It's his first actual commercial big time deal.Yes.
Ben Gilbert
28:36 And I think when Walt sort of gets word from Margaret, he runs into his brother's room. 28:41 His brother Roy actually has tuberculosis at this time. 28:43 It is in like a hospital ward and he sort of runs in shows in the contract and says we got it, we got it, we got it, we're in business, we're doing it and you know, $1,800. 28:52 A film is a lot of money at this time. 28:53 And Roy talks through with him and says, okay, let's get right to work and he literally stands up and leaves the hospital ward. 28:59 It's like, all right, my tuberculosis is behind me.
David Rosenthal
29:02 and the two of them found the Disney Brothers Cartoon Studio right there in October 1923. 29:11 As a true partnership between the brothers, Roy manages the business and the finance Walt manages the creative. 29:19 And they get to work. Yep. 29:21 So Walt, of course, writes to Ub Iwerks back in Kansas City and several of the other talented animators that they knew there and says, all right guys, I got it this time. 29:34 Come on out to California. 29:36 We finally got a deal. 29:37 We're gonna build a real company and a real animation studio.
Ben Gilbert
29:41 and they do the big thing. 29:43 Do we know crazy as Disney today is. 29:46 The Disney Brothers Cartoon Studio and a whole bunch of Kansas City guys that moved out to join Walt to start cranking away. Yep.
David Rosenthal
29:54 And the Alice Comedies become a moderate success in the marketplace. 30:00 Again, I think the novelty of cartoons plus live animation audiences are entertained for a few years. 30:07 Ultimately, the Disney Brothers Studio produces 57. 30:11 Of the Alice Comedies from 1923 to 1927. 30:16 And then in 1927 Winkler's relatively new husband, Charles Mintz, who actually got to start working for her in the business. 30:26 By this point in time, he has taken over as sort of head of the business. 30:30 He is no longer getting along with Pat Sullivan, the creator of Felix the Cat. 30:37 Big opportunity, big opportunity, and and he has brokered a little arrangement with Universal Pictures, the big New York film distributor, to on the sly create a new character. 30:51 To rival Felix. 30:54 Now mind you, he and Winkler are still the distributor for Felix for Sullivan and they're creating a new character to compete with him on the side.
Ben Gilbert
31:02 Sort of like they're building their own ships while still buying in video. Yeah.
David Rosenthal
31:07 And so he turns around and taps Disney says, hey Walt, can you make us a new series and a new character? 31:15 You know, like Felix, but but not Felix, like like maybe not a cat.
Ben Gilbert
31:20 Right, we needed to be plausibly different, while still having everything that made Felix successful.
David Rosenthal
31:26 Yes, so well, and a cast about. 31:28 What can we come up with? 31:30 It's like a cat, but maybe shares a lot of the same recognizable attributes, like, you know, a lot of white fur, a tail, some big ears, easy to draw in black and white. 31:40 And they come up not with Mickey Mouse, but with Oswald, the lucky rabbit. 31:48 And Oswald is a big hit. 31:50 It's got the backing of Universal distribution behind it. 31:54 That's big hit for Universal, big hit for Winkler and Mintz and a big hit for the Disney Brothers Cartoon Studio.
Ben Gilbert
32:02 And it's not surprising because if you give the creative brief to walt and ub iwerks take something that's kind of working. 32:09 But apply your style, their style was great. 32:13 I mean, they were emotional animators. 32:15 There's a great quote in the book walt disney: an american original by bob thomas that says before disney cartoons were slapdash two-dimensional characters in bizarre movement before elemental backgrounds. 32:27 Disney insisted on rounded humanized figures. 32:30 He wanted the humor to come out of the character, not the outrageous action. 32:35 So it's sort of like hey here's the template but disneyfy it or ub iwerks-ify it in a way that really can speak to people.
David Rosenthal
32:43 Well, i think it really was the partnership of the two of them. 32:46 I think ub iwerks had like immense artistic talent as an animator and was able to do that and walt had taste like he recognized it and he. 32:59 Knew when and where to apply it. Yep. 33:02 So on the back of the oswald success, the disney brothers cartoon studio grows pretty quickly from this ragtag group from kansas city to like a real operation, like a real, you know, at this point, bordering on major animation studio. 33:18 They hire about 25 employees and start churning out oswald cartoons. Yep. 33:23 They move into a real studio building on hyperion avenue in the silver lake neighborhood of los angeles. 33:30 And when they move there, Walt and Roy decide at ub iwerks' instigation that they need to rename the company and the studio from the Disney Brothers Cartoon Studio to the Walt Disney Studio. 33:48 So there's two stories about this. 33:50 I was going to say I've seen both. 33:51 One is that it was actually Roy's idea. Yes. 33:54 Because he's like, hey, you know, we need to start building a brand. 33:57 Like people need to know who is making these Oswalds and it should be the Walt Disney Studio.
Ben Gilbert
34:02 And you're very clearly the front man, you know, you're selling, you're the visionary, you're the sort of creative talent, and this is a creative company, of course it should be you.
David Rosenthal
34:10 Yep, the other story is that walt's always had a dream since he got to hollywood of having his name up on a neon sign. 34:18 Now that they have their own real studio, he wants a neon sign constructed that says the walt disney studio. 34:25 Which i think does happen.
Ben Gilbert
34:27 Yes, we'll put the photo in the email. 34:28 The hyperion avenue studio has this really cool sign. 34:32 Or did for a long time before it got knocked down, and i think it's a script mall or something today.
David Rosenthal
34:36 And in that vein, now that the studio has become a real operation, walt moves from actually doing a lot of the animation and camera work, mostly to overseeing the studio, which you have to with an operation of 25 artists and creative people and camera folks. 34:55 You need someone who has an overall vision and taste to drive everything. Yep. 35:02 Now as walt is transitioning from you know, sort of doer to really studio.
Ben Gilbert
35:10 head and worth knowing the ownership of Walt Disney Studios that would become Walt Disney Productions that would become The Walt Disney Company was at this point, 60% owned by Walt and his wife and 40% owned by Roy and his wife.Yep.
David Rosenthal
35:25 So Mintz. 35:27 The husband of Winkler back in New York, who is sort of already proved his stripes by his dealings with Felix the Cat and Pat Sullivan. 35:35 He senses another opportunity. 35:39 He thinks that Walt has become superfluous and that it's actually just the animators who really matter and. 35:51 Because the Walt Disney Studio doesn't actually own the IP of Oswald. 35:56 The lucky rabbit Universal does.
Ben Gilbert
35:59 although the Walt Disney studio was was acting like this was sort of their creation that they owned.
David Rosenthal
36:04 Yeah, I don't think Walt or Roy really read the fine print on the contracts here. 36:10 So in early 1928, Walt and his wife Lillian who Lillian also was an early studio employee in the ink and paint department in compete department.That's right.We'll get to that. 36:21 They make a fateful trip. 36:23 As a couple to New York, where one of the items on the agenda is for Walt to go meet with Mintz and ask for a raise in the amount that the studio is getting paid. 36:35 Per Oswald short. 36:36 So Walt sits down with Mintz and Mintz is like, well, I don't know about paying you more. 36:42 I don't think I like that idea. 36:43 In fact, I'm not even really sure Walt what you are doing around here any longer, but I tell you what, I'm a nice guy. 36:51 I'm willing to let you and your little studio stay involved here and keep making the Oswalds, but we're gonna have to pay you less, not more like 500 dollars per cartoon.
Ben Gilbert
37:04 Less, which my understanding is that basically wiped out the margin and they were saying we'll pay you cost to make these Oswald cartoons.
David Rosenthal
37:13 Yeah, I think Mintz had basically calculated. 37:15 Okay, if Walt takes this, then I'm willing to let his studio keep making it and if he doesn't take it, then it's all equal to me. 37:21 I'm just gonna steal his animators and go make it myself.
Ben Gilbert
37:25 And crucially before this meeting even happens, he's already stolen the animators. 37:31 Mintz has an ace in the hole. 37:32 He has, I think signed contracts with nearly all the animators except Ub Iwerks. 37:39 He has sort of through an active subterfuge gotten in touch with each of them individually and brought them over.
David Rosenthal
37:45 Yeah, only up and and I think maybe two or three other animators refused to sign these secret deals with Mintz and stayed loyal to. 37:54 To Walt. To Roy once while realizes this, there's nothing he can do. 38:00 Like it's a free country. 38:02 He can't force his animators to stay. 38:04 He doesn't have employment contracts with them and he also doesn't have any control or rights to the actual Oswald IP. 38:13 So he has no leverage.He's got nothing.
Ben Gilbert
38:16 He's got no customer contract. 38:17 He's got no employees. 38:18 He's got no intellectual properties suddenly. 38:21 The enterprise value, so that the the entire value of Walt Disney Studios is effectively zero.
David Rosenthal
38:27 Yep, it is a extremely bitter lesson. 38:31 For Walt and for Roy, and it is one that you can bet they never forget for the rest of their lives, and really like. 38:40 Everything in Disney's history and all of the enterprise value that Disney has built that we will see all across the rest of this episode traces back to this moment.
Ben Gilbert
38:49 It's a hard reaction to this lesson.
David Rosenthal
38:52 Totally, I have a fun bit of trivia for you, Ben. 38:55 So as I think, you know, Disney eventually does get the rights to Oswald back.
Ben Gilbert
39:02 This is gonna be my trivia for you. Oh. 39:05 I actually asked your question. 39:06 We might have different takes on it.
David Rosenthal
39:07 Disney eventually does get the rights to Oswald back in 2006.
Ben Gilbert
39:15 Bob Iger, one of his first acts as CEO to the deal. Yes.
David Rosenthal
39:19 Do you know how Bob got Oswald back for Disney?
Ben Gilbert
39:23 So let's see by this point, Disney had acquired ABC. Yep.
David Rosenthal
39:27 And had acquired ESPN.
Ben Gilbert
39:29 And who owned Oswald at this point, it was Universal, which was owned by NBC, which is now owned by Comcast, correct? 39:37 So there's a ABC asset that Bob effectively trades an exchange for Oswald. 39:44 And I think that ABC ESPN Monday Night Football asset is Al Michaels.
David Rosenthal
39:50 Al Michaels the Monday Night Football commentator like a sports team trade to NBC in exchange for the IP rights to Oswald the rabbit.
Ben Gilbert
40:01 And Oswald is repatriated and NBC gets Al Michaels and all is right in the world. Amazing.
David Rosenthal
40:07 So back to 1928, Walt and Roy basically back at square one here. 40:13 They have. 40:15 Not really just nothing, they actually have less than nothing, because Mintz ever the uh well, really just kind of weasel, is the right word? Yeah. 40:26 He makes Walt and Walt Disney Studios finish out the current Oswald contract, which still had a few cartoons left to animate on it. 40:38 And pay all of the animators who had all betrayed him. 40:42 And we're all about to defect Mintz like no, no, you've got a contract, you're gonna keep paying these folks while they finish up the last couple shorts on this contract, just brutal, absolutely humiliating for Walt. 40:57 And so then. 40:59 As legend has it, on the long, long train ride back home from New York. 41:07 Walt is struck. 41:10 By a bolt of inspiration, and he scribbles a sketch for a new cartoon character right there on his drawing pad on the train trip, a character that wouldn't just reverse all the woes of the Oswalds and turn around the company's fortune. 41:26 But would maybe become. 41:29 One of, if not the most recognized figure in all of human history, but before we tell the story of Mickey Mouse, now is a great time to thank our friends at J.P. Morgan.
Ben Gilbert
41:39 Yes, our presenting partner. 41:41 So today we are sharing a story from one of J.P. Morgan's partners and a company that you may know Bill, which is formally Bill.com, right?
David Rosenthal
41:50 Bill is the financial operations platform for half a million small and mid-sized businesses. 41:55 What they call the Fortune 5 million. 41:58 They help manage and maximize cash flow for SMB companies and Bill's Divi card product is what employees at those businesses used to fund their operations day-to-day.
Ben Gilbert
42:06 So here's a scenario that many listeners may have experienced: someone on your team maxes out the credit line on their corporate card with an unexpected purchase. 42:15 You send a wire to pay off the card so you can continue using it, but it takes two to three days to clear. 42:20 Meanwhile, your team can't transact.
David Rosenthal
42:23 Yeah, Bill solved that for its half a million customers using an embedded payment solution from J.P. Morgan with API-based sub-ledgering. 42:30 They can manage millions of payments in real time on any platform. 42:34 All with one bank account; every Bill customer gets a unique virtual account number. 42:38 So the moment a payment is received, the credit line is restored. 42:41 The result is a way simpler way to receive and route payments at scale.
Ben Gilbert
42:45 And the actual numbers are awesome. 42:47 Payment posting went from two to three days to seconds. 42:51 Inquiries dropped 83%. Even Bill's own treasury team reclaimed 20 hours a week from manual reconciliation for decades. 43:00 These were Fortune 500 only capabilities, but Bill and J.P. Morgan figured out how to deliver that same infrastructure to the Fortune 5 million. 43:08 While also improving Bill's internal operations, you can read the full case study as always at J.P. Morgan. 43:14 com/acquired.
David Rosenthal
43:16 And something else: if you want to join us and J.P. Morgan in person, we will be on stage at the WeAreDevelopers World Congress in San Jose. 43:24 This September, click the link in the show notes to learn more.
Ben Gilbert
43:27 Okay, so David, how does this Oswald catastrophe lead to Mickey Mouse?
David Rosenthal
43:32 All right, so here's the story of Mickey Mouse as Walt would tell it. 43:36 It's March 1928. 43:38 He and Lillian are on the long train ride. 43:41 Back home to LA from New York. 43:43 He struck by the bolt of inspiration for a new cartoon scenario about a plucky mouse named Mortimer who is attempting to fly an airplane just like his hero, Charles Lindbergh. 43:54 And this would go on to become the Mickey cartoon Plane Crazy. 43:58 So Walt shows his sketches that he's making to Lillian and Lillian says, I like it, but... 44:06 Mortimer, that's too sissy a name. 44:08 How about Mickey? 44:10 And thus Mickey Mouse is born. 44:13 Now, the real story is more likely that Walt and Lillian get back to LA and Walt is like sweating. 44:22 So he and Roy and up and the couple other animators who stayed loyal to them whole up and they start brainstorming ideas for. 44:30 Some kind of new idea or new character that they can create to replace Oswald and turn around the studio's fortunes.
Ben Gilbert
44:37 And also, when you see Mickey and you see Oswald, it's not hard to imagine where Mickey Mouse came from. 44:43 It's like kind of like, sure in the ears, make them circles, you know, they both kind of have this white face and the black outline.
David Rosenthal
44:49 I mean, it's really just the same brief that created Oswald. 44:52 It was like, hey, take Felix and... 44:54 Do something like Felix except this time it's take Oswald and do something like Oswald.
Ben Gilbert
44:59 And make damn sure we own it.
David Rosenthal
45:01 Yes, exactly. 45:02 So they land on the idea of.
Ben Gilbert
45:03 a mouse and didn't walt claim that he sort of like always had a fondness for mice because there were mice that would like jump in his trash can and kansas city while he was animating and whatever.
David Rosenthal
45:15 You know, it's all it's all just part of the walt myth. Yes. 45:18 And at least according to the neal gabler book, most likely of is the one who first draws mickey, not walt on the train, but either way of definitely was the primary animator of the first mickey's for the whole first series of mickey's including steamboat willie. 45:40 So by the summer of 1928, we finished out the oswald contract and walt and up and the small little mary crew. 45:50 Have gotten two mickey shorts ready for production playing crazy and the galloping gauchou and walt takes them around to distributors. 46:00 You know, the walt disney studio is well known at this point. 46:02 This seems like it would be promising new ip. 46:05 And none of the major distributors are interested. 46:09 They're like, yeah, i don't know. 46:12 Mickey, it's like oswald.
Ben Gilbert
46:14 but without all the, you know, thousands or hundreds of thousands of raving fans for it.
David Rosenthal
46:19 So exactly exactly. 46:21 And then, comes the eureka breakthrough idea. 46:26 One of the gang recalls that the jazz singer, the famous first popular talkie, you know, movie with dialogue and sound. 46:36 That had just come out the previous fall. 46:39 When they went to see it, that there was a cartoon screened alongside it. 46:44 And walt, when he hears this, puts the two ideas together in his mind of a cartoon and sound, and supposedly he says, that's it, that's it, that's what we've got to do, stop all these silent pictures. Now at this point. 46:59 People had made cartoons with sound, but nobody had ever made a cartoon with sound like the jazz singer had sound. Synchronized sound. 47:09 Synchronized, yes, exactly. 47:11 Where what was happening in real time in the cartoon was then played in sound, exactly synchronized in the movie theater.
Ben Gilbert
47:21 Yeah, the concept before was there's music that plays, but it's only loosely attached, and this is to the frame and to the beat of the music. 47:30 Like if you see mickey on screen bop into something, then you might hear a xylophone on the exact same downbeat. Play a note.
David Rosenthal
47:38 Yeah, it's not just that like there's some music accompanying this cartoon that you're watching. 47:42 It's that what is happening in the cartoon feels like it is producing the sound.
Ben Gilbert
47:47 Yes, there's a great business model lesson in this which is with the first two mickey's flopping. 47:53 If you just do the same thing as an existing competitor who already has distribution brand customers, it's not enough. 48:03 You need to go do something leveraging a new piece of technology or a new platform. 48:08 You gotta come at it from an orthogonal way in order to leapfrog and make people pay attention to you. 48:13 Otherwise, you're just a like smaller worse also ran.
David Rosenthal
48:16 Totally, and and that could be anything. 48:17 I mean the only reason that the oswalds worked, even though they were a rip off of felix, it was because they came built in with the universal distribution. 48:26 But yeah, Walt taking out the Mickeys before bringing sound, like he's got nothing to bring to the table here. Yep. 48:33 So Walt lines up access to the Cinephone sound recording system from a character named Pat Powers who had actually helped create Universal, you know, some number of decades earlier and then had gone on to become a sound accolade and entrepreneur developing a sound system for this new movie technology. 48:55 And so Walt and Ub and crew. 48:57 Animate a test sequence of a Mickey with sound, and they screen it for all their wives and girlfriends, and Ub writes later of what happened next, when they screen the synchronized sound Mickey for the first time. 49:11 I never saw such a reaction in an audience in my life. 49:15 The scheme worked perfectly. 49:17 The sound itself gave the illusion of something emanating directly from the screen. 49:22 Walt kept crying, this is it, this is it, we've got it. 49:27 It turned out that sound was the critical enabling technology. 49:32 For animation to go beyond a novelty, and allow the characters that are on screen to actually have personality that audiences connects with.
Ben Gilbert
49:40 So interesting, and it's not obvious. 49:44 At first, until you do. 49:45 It's obvious in retrospect, but you can totally see how, when Walt had this insight, and then they made the investment, cause doing a test animation and synchronizing the sound, like, even to show a little screener must have been really hard at the time. 49:57 Cause none of the tools existed, they sort of had to invent the way to synchronize the drawings with the music, and the systems. 50:04 It's sort of a big bet, even to try and see if that creates personality. Right, right.
David Rosenthal
50:09 And sound did the same thing. 50:11 For a live action movies, but it's not that big a leap to have humans talking, like humans talk, you know, sound just made it way better. 50:22 Sound for cartoons was this giant leap, these characters, this art can now be actual characters with personalities, yep, in a way that they couldn't before.
Ben Gilbert
50:32 Not obvious at the time.
David Rosenthal
50:33 Completely obvious in retrospect. Yep. So they make. 50:37 Steamboat Willie, as the third Mickey, but the first with synchronized sound.
Ben Gilbert
50:43 which we're gonna skip over the whole headache nightmare of creating this thing, but it was like Walt constantly going back and forth to New York. 50:51 Betting every last dollar that he had, inventing all these new processes, trying different ways to get an orchestra synced to the sound.
David Rosenthal
50:59 Oh yeah, they like animated a little ball on the screen that would sync to the orchestra as they were playing.
Ben Gilbert
51:05 Yes, and he couldn't get the original conductor of the orchestra to actually use his method. 51:09 The orchestra guy was like, yeah, trust me. 51:11 And then it was all out of sync with the screen. 51:13 The net of it is, it's a giant painful operational struggle to get this thing out, but my god does it hit.
David Rosenthal
51:23 Yes, well, ha ha. 51:25 You know, this is the nature of the New York distributors. They get it made. 51:29 Walt takes it and shops it around all the big folks in New York. 51:34 and they're so conservative, they're like, well, this is cool, but i don't know how audiences are going to react to this. 51:42 we kind of want to see a test first. 51:44 i don't want to be first in line. yeah, exactly. 51:46 exactly like vcs. 51:47 like, so walt decides that he's going to take matters into his own hands. 51:53 and he goes directly to the manager of the colony theater. 51:57 in new york city and cuts a deal for 1,000 to run steamboat willie before the features that they're showing in the colony theater. 52:07 so going around distributors just to get this in one theater as a test. yep. 52:12 and so steamboat willie premieres in new york city. 52:17 on november 18th 1928 before the film gang war. 52:21 nobody really remembers gang war because steamboat willie is a revolution critics love it.
Ben Gilbert
52:28 audiences love it. 52:29 yeah, isn't there some famous story of people sort of standing up and screaming? 52:34 we want steamboat willie again and of playing the main feature.
David Rosenthal
52:38 yeah, yeah, exactly. exactly. 52:39 but still, you know, disney now needs to find a distributor. 52:44 and now he's got the proof point. 52:47 these new york distributors, they're still so conservative. 52:50 they're like, well, you had one hit. 52:52 i don't know that like we can really trust that this isn't just a fad that the future sound mics are also going to be a hit and that you can repeat the magic and famously one distributor while walt is meeting with him here and he's trying to explain to walt why he's going to pass again on the mickey deal. 53:11 picks up a package of lifesavers candy and he says to all the public knows the lifesavers brand. 53:19 they know what these are. 53:21 they don't know walt disney and they don't know your mouse. 53:26 i can only imagine walt sitting here just seething. 53:29 yeah, but this makes a huge impression on him. 53:32 i think this is important thing about walt. 53:34 he definitely has a huge ego, right? 53:36 but he is very willing to learn even from pretty obnoxious people. 53:41 he's like, you know what. you're right.
Ben Gilbert
53:44 oh, i think he's motivated by learning, he's motivated. 53:46 i think he's an engineer. 53:47 i think he's, he loves picking things apart and learning the way they work. 53:50 i think he's motivated to make the best art. 53:53 he can in addition to making the best business, he can. 53:55 so if someone's gonna offer him a lesson, a way to learn something. yeah.
David Rosenthal
53:58 yeah, he'll take it, he'll take it even if he might be mad at the person. 54:02 so he writes about this moment later from now on the audience was going to know if they like the picture, they were going to know walt disney's name. 54:13 ultimately, what walt does is he turns to pat powers his partner in the sound technology who had been one of the, you know, original universal executives and they cut a deal where powers will be disney's direct distribution agent. 54:29 in return for just 10% of the gross revenue on the mickeys, which seems like a pretty good deal. yeah. 54:37 and indeed, it was kind of a too good to be true deal because powers like all these new york guys. 54:46 was basically plotting to do the exact same thing as mints to disney. 54:53 he wanted to start working with walt, give him a sweetheart deal. 54:56 And then lure away the animation talent because Powers remembers he has the sound technology that he's given to Walt. 55:04 So he's thinking, if I get the animators, right? 55:07 What do we need Walt for?
Ben Gilbert
55:08 So this explains the sweetheart deal on distribution because that was the real prize he was after.
David Rosenthal
55:13 And, just a year later. 55:16 In 1930. 55:18 Powers does the unthinkable. 55:22 He convinces Ub Iwerks to quit and leave Disney. 55:27 He says, oh, we're going to get you set up with your own studio. 55:31 You're going to work with me where to create new characters. 55:33 It's the exact same thing that Mintz 55:37 Did to Disney last time. Absolutely brutal. 55:41 Except it plays out the exact opposite way because Walt's learned his lesson. 55:45 Walt has learned his lesson by the time this happens over a dozen Mickey shorts with sound have come out every single one of them branded prominently up front and at the end a Walt Disney comic and they had become huge hits. 56:01 So, even though Power steals I Works away, nobody cares. 56:06 Everybody still wants the Mickey's. 56:07 Everybody still wants Walt Disney comics. 56:10 Disney has made himself the lifesaver of animation. 56:15 Disney first switches to Columbia for distribution and then to United Artists and audiences just keep loving Mickey. 56:24 In fact, they love him so much. 56:27 That it leads to the discovery of a whole new business model for Disney and the company, the intellectual property flywheel and it starts with the Mickey Mouse Club. This is wild. 56:40 I had no idea about the origins of the Mickey Mouse Club.
Ben Gilbert
56:44 Basically discovered by Disney by accident.
David Rosenthal
56:47 Totally by accident. 56:49 So in the summer of 1929, Just a few months after Steamboat Willie and the first sort of nationally distributed Mickey's, the manager of the Fox Dome theater in Ocean Park, California contacts Walt with an idea. 57:06 Why don't we partner to start a Mickey Mouse Club? 57:11 For kids, I've got like a thousand kids who keep showing up here at the theater every weekend, and all they want to do is watch the Mickey's again and again and again. 57:23 I think we should capitalize on this. 57:25 We can create a club, like a kids club, and we can charge parents a membership fee. 57:32 The kids will love it. 57:33 The parents will get them out of the house every weekend. 57:37 It'll be great, and we can pilot it here at the Foxdome theater. 57:42 And then if it works, I think we can franchise this nationally. 57:46 And so, this is exactly what Walt and this theater manager do. 57:52 The way it works when they take it national, is that theaters would buy a quote, Mickey Mouse Club charter. 57:59 From the company from the Walt Disney studio. 58:01 It's like a franchise. 58:02 Yeah, like a franchise, right? 58:04 For 25 dollars. 58:05 And then as part of the club, the kids and their parents would gain the right to buy exclusive Mickey merchandise.
Ben Gilbert
58:15 I mean, it's kind of amazing, right? 58:17 Pay to become a member of a club to dedicate yourself to fandom. 58:21 So you have the right to buy more things.
David Rosenthal
58:23 The right to buy more things. Yes. 58:25 So like hats buttons banners. Etc. 58:29 And all of this revenue is getting split back with Disney, the 25 dollar club charter and then all the merchandise revenue pretty quickly. 58:39 There are 800 Mickey Mouse clubs across the country with more than 1 million total members. 58:49 That is more members. 58:51 Than the Boy and Girl Scouts of America combined at this point in time.
Ben Gilbert
58:56 That's insane scale and insane speed of adoption pre-internet, right? Right. 59:02 Internet, pre-cable, pre-broadcast TV, the ability to get a million Americans doing something within a few years is like, how did that even work? 59:12 I mean, trying to think how word could even spread that quickly, I guess through through the Disney's distributors. Yeah.
David Rosenthal
59:18 To the theaters. 59:19 Well, this is like a no-brainer proposition. 59:22 For a movie theater operator, you're going to take your Saturday or Sunday afternoons, which are probably reserved mostly for kids. 59:31 Anyway, all your matinee showings, right? 59:33 You're gonna convert it into a Mickey Mouse Club. 59:36 Kids are gonna love it. 59:37 They're gonna buy a bunch of stuff that you otherwise wouldn't have the opportunity to sell to them. 59:44 Parents are gonna love it because they get rid of the kids and then. 59:47 For Disney, they're just getting this turbocharged distribution and brand recognition of Disney, the company and Mickey Mouse the character. Yeah, it's amazing.
Ben Gilbert
59:57 Okay, so they take the learnings from the Mickey Mouse Club, right? 1:00:00 And they kind of lean into Mickey in a big way at the corporate level. Totally.
David Rosenthal
1:00:03 So just a few months after the Mickey Mouse Club kicks off in January 1930, they launch a daily Mickey comic strip. 1:00:13 With King Features Syndicate in newspapers around the country, it gets published daily in 60 US newspapers and then also internationally in 20 more countries around the world. 1:00:28 So Disney is getting paid to produce a Mickey comic strip, which only costs them the salary of the one animator that they have. 1:00:38 Making it every day, a 24 year old named Floyd Gottfredson who would do it every day for 45 years. 1:00:47 Wow, wild. 1:00:48 So not only are they getting revenue for this, they're getting free daily advertising and IP exposure to probably 100 million plus people through this newspaper comic distribution every single day.
Ben Gilbert
1:01:06 And even if they weren't getting paid for it, the marketing on that. 1:01:09 So that people go see Mickey films. Exactly.
David Rosenthal
1:01:11 Yeah, never becomes a huge revenue or profit driver for them. 1:01:14 But like that free daily marketing and most major newspapers around the country is incredible.
Ben Gilbert
1:01:20 Yep, interesting to know. 1:01:22 Oswald actually was on a candy bar back in the day, but when Walt, who at the time thought he owned Oswald, had the opportunity to monetize it. 1:01:30 He was like, I didn't even consider it, right? 1:01:33 It doesn't need to be an additional revenue stream. 1:01:34 It's just really good for me if Oswald is on the candy bar, right? 1:01:38 So that's sort of. 1:01:40 They're getting the seeds of like, okay, we're making some money on the comics but it really is like a massive marketing engine.
David Rosenthal
1:01:47 Well, you're teeing up the big one here, which is March and consumer products. Yep. 1:01:53 So pretty quickly after Steamboat Willie, Walt is walking the street in New York and a man comes up to him like comes up to Walt Disney on the street and offers Walt 300 dollars. 1:02:07 To license the Mickey character to put it on a series of children's writing workbooks that he's producing there in New York, and this is like really early days. 1:02:19 Mickey's just starting to work, the studio still needs money, so Walt's like, 'Ah, sure, yeah, I'll take three hundred bucks. Why not?
Ben Gilbert
1:02:26 ' And three hundred bucks in nineteen twenty-nine, it's a lot of money. 1:02:28 I mean, this is the beginning of.
David Rosenthal
1:02:30 the Great Depression. 1:02:31 Yes, yes, Mickey takes off during the depression. 1:02:34 In fact, he sort of becomes like a national champion. 1:02:36 It's part of his success that people view. 1:02:39 Plucky Mickey's success as a mouse, as the underdog, as like something that Americans can identify with through the depression.
Ben Gilbert
1:02:47 And life is hard, I mean having a sort of way to disassociate a little bit, and then just enjoy a like fun loving problem free cartoon. 1:02:55 I don't think people know this, Mickey's role in these early comics is exactly what you're saying, the underdog. 1:02:59 He's getting himself into these tricky situations by someone that seems bigger and stronger, and he's able to figure it out and emerge. 1:03:06 It's the American spirit. Yep. Yep, yep.
David Rosenthal
1:03:08 So back to the writing tablets. 1:03:11 They take off and do huge, huge sales. 1:03:13 Disney doesn't even know how much sales because all they have is 300, 300, and a handshake from this guy. 1:03:20 So Walt and Roy figure. 1:03:21 All right, we need to get smarter about merch. 1:03:24 So they contact an agent in Kansas City that Walt admired named K. Kamen who had owned an advertising firm. 1:03:34 And they agree to do a deal where K becomes the exclusive commercial products agent for all Disney merchandise licensing beginning in 1933. 1:03:47 And the deal they do is that Disney would get 60% of the first 100,000 dollars in royalties that K is able to generate from licensing Disney brands and mascots. 1:04:00 And then after the first 100k, they would split every dollar of licensing revenue 50/50 and there would be a lot of dollars after the first 100k. 1:04:12 This is a huge moment. 1:04:14 I mean, there is a real case to be made that besides Walt and Roy and and Ub Iwerks too, but at least on the business side, besides Walt and Roy K. Kamen was the third most important person. 1:04:28 In the first, you know, half century of Disney.
Ben Gilbert
1:04:31 All right, so make your case. 1:04:32 What goes on to happen here?
David Rosenthal
1:04:34 So within six months K takes Disney merchandising from this hodgepodge of random licenses of guys that won't met on the street.
Ben Gilbert
1:04:45 and many of which were a lot more than.
David Rosenthal
1:04:46 300 dollars. 1:04:47 Yes, yes to a real professional operation. 1:04:51 Doing six million dollars of gross merchandise sales within six months that then grows over the next two years to 70 million dollars annually of gross merchandise sales all around the globe from over 40 separate super high quality consumer product partners. So. 1:05:17 The most successful and famous example of this is the deal that Kay Kamen does in 1933, right after he takes over with the Ingersoll Watch Company.
Ben Gilbert
1:05:29 This is crazy that within just a few years, they can be at a 70 million dollar level in 1935 of merch. 1:05:39 I mean, there's so much pent-up demand to buy Mickey Mouse stuff. 1:05:43 That you can sort of explode out of the gate. 1:05:46 I don't even really understand how Kay Kamen lined up 40 merchants and got all this stuff manufactured and distributed in such a short period of time.
David Rosenthal
1:05:54 Well, I think part of it though is that he's like a real professional and well respected in the industry with contacts. 1:06:00 But yeah, to your point, Ben, there's just so much demand for Disney merch. 1:06:06 So the 70 million dollars is a like gross sales to the. 1:06:11 And consumer number. 1:06:13 So most deals that Kay Kamen would do would be for 5% royalties on the wholesale price of the goods and the 70 million dollars was retail. 1:06:25 So if you assume 100% retail markup, that's 35 million dollars in wholesale revenue. 1:06:31 Yep, Disney and Kay Kamen are splitting. 1:06:35 5% of that number between them, but even that is 1.75 million dollars split 50/50 between Disney and Kay Kamen. 1:06:46 This is like an astronomical number and it is a way way bigger and better business than the cartoons themselves at this point in time. It's funny.
Ben Gilbert
1:06:57 I found the comment on the Disney Family Museum site that by the late 1930s royalty income from merchandise had exceeded revenue from film rentals.
David Rosenthal
1:07:07 But it wasn't even by the late 1930s. 1:07:09 It was 1934.
Ben Gilbert
1:07:11 It was quick and it was by a lot. Yes, yes.
David Rosenthal
1:07:14 So just to illustrate the difference, the distribution deal that Disney does with United Artists for the Mickey films and for the Silly Symphonies, which is the second cartoon series that Disney starts in the 30s, Disney gets an advance of 15,000 dollars per film. 1:07:29 But Walt is always investing ever more and more in the production of the cartoons themselves. 1:07:38 By this point in time in the mid-30s, he's investing like 30,000 dollars plus per cartoon. 1:07:45 He's only getting a 15,000 dollar advance. 1:07:48 So it's not even guaranteed that each individual cartoon would be profitable. 1:07:52 Usually they were. 1:07:54 But they would have to earn out on the back end. 1:07:57 Compare that to, you know, half of basically two million dollars in pure margin, almost pure margin revenue coming in from Kay Kamen every year. 1:08:07 It doesn't even matter that Walt is investing everything back into the cartoons. 1:08:11 He's got this money spigot coming in. Right?
Ben Gilbert
1:08:13 So summarizing that films are tens or low hundreds of thousands of dollars of profit coming in and the merch is on the order of a million dollars. Yep.
David Rosenthal
1:08:22 And film profitability is highly dependent on a film by film basis. 1:08:28 It's got to play out in theaters, etc, etc.
Ben Gilbert
1:08:30 All right, so I cut you off on the Ingersoll Watch Company.
David Rosenthal
1:08:33 Yeah, just as one example of like the deals that Kay Kamen is doing in 1933 right after he takes over, he does a deal with the Ingersoll Watch Company to manufacture the famous Mickey Mouse watch. 1:08:48 That watch. 1:08:50 Would sell two and a half million units over the next two years. 1:08:55 The Ingersoll Watch Company was about to go bankrupt during the depression. 1:08:59 It saves the company. Hmm.
Ben Gilbert
1:09:01 And wasn't it the most popular watch in America? I think that's right.
David Rosenthal
1:09:05 At least for some point in time during the 30s. It's fascinating.
Ben Gilbert
1:09:07 And of course, the modern Apple Watch Mickey Mouse watch face is a reference to this because he's using his arms to point to the times on the original Ingersoll watch. 1:09:18 This is a whole different shape of a business than has ever existed before. I mean, it's funny. 1:09:23 We started the episode comparing Disney to other Hollywood studios, but this is not a Hollywood studio. 1:09:29 They're not shooting live action films. 1:09:32 They're making these cartoons. 1:09:34 The rest of the industry is kind of doing slapdash ones. 1:09:37 They're doing like really high production value, sound synchronized cartoons and. 1:09:42 They're actually making more of their money from merchandise. 1:09:46 They've got these Mickey Mouse clubs. 1:09:48 Like this is a new thing that no one else is doing. Yep.
David Rosenthal
1:09:52 This is the birth of the Disney flywheel and nobody else has it.
Ben Gilbert
1:09:57 So is this a point where David, I could make my pedantic aside that.
David Rosenthal
1:10:00 I, you go for it. 1:10:03 We had a great email from a listener a couple months ago. 1:10:07 About how flywheel, this term that everybody uses in business, is actually completely the wrong term for what you want to describe.
Ben Gilbert
1:10:15 So Disney is famous for this concept, as is Amazon, and it inspired a zillion other founders to try and articulate their own flywheel and draw it out. 1:10:26 But hilariously, David, as you say, it is a misnomer, it describes the wrong physics phenomenon. 1:10:31 People are trying to describe a system that has a positive feedback loop, where inputs into one element of the system are amplified and add energy to other parts of the system. 1:10:41 But that is not actually what a flywheel is. 1:10:44 A flywheel is a primitive battery. 1:10:47 It is a way to store energy to be deployed later.
David Rosenthal
1:10:50 Yeah, it's like a version of the same mechanism that a spring serves in a mechanical watch.
Ben Gilbert
1:10:55 Right, exactly. 1:10:56 But in reality, there's not really a better shorthand for system of integrated components that creates positive feedback loops. 1:11:04 So, we will continue alas to use the phrase flywheel. 1:11:09 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.
David Rosenthal
1:11:18 I mean, I think it really. 1:11:20 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. 1:11:29 So, the most important thing, and I don't think this was premeditated in any way by Walt. 1:11:33 But it was just something he innately cared so deeply about, is to make the highest quality, genuinely most compelling. 1:11:44 New IP as possible that audiences can build a deeper relationship with. 1:11:50 This is like what Walt was building to and up to through all of his early years in animation. 1:11:56 All the technical innovations, every step was getting to a character that audiences can fall in love with. 1:12:02 Yeah, now, critically for disney, and again, i think completely accidentally discovered by walt. 1:12:09 The ip that works best. 1:12:13 For flywheel dynamics, almost has to be animated. 1:12:18 I 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. 1:12:29 Like one especially today, it makes your economics as a studio just like way worse. 1:12:35 because you got to pay the stars so much.right?
Ben Gilbert
1:12:38 there's wholesale transfer pricing, a huge amount of the margin you could get ends up getting paid out to effectively your partner in creating the character.
David Rosenthal
1:12:46 the actual actor, whereas mickey works for free now. 1:12:50 like you got to like pay the animators and they get paid very well to animate them.
Ben Gilbert
1:12:54 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. 1:13:01 yes, and mickey doesn't age.
David Rosenthal
1:13:03 yes, exactly. 1:13:05 you can create a eternal character. 1:13:08 Through animation in a way that you just can't when you're using real people. 1:13:12 I mean, star wars is great as star wars is and we'll talk about it later in the episode. 1:13:17 Is gonna have a problem when mark hamill and harrison ford die. 1:13:21 I mean, i guess unless ai gets really good.
Ben Gilbert
1:13:23 and live action is sort of dated to a time in place in a way that cartoons can sort of transcend. 1:13:31 Yes, like mickey can always exist in the present. 1:13:35 In a way that we're going to 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. 1:13:46 That was great IP for the moment, it just wasn't as durable.
David Rosenthal
1:13:49 Yep, live action IP with very few exceptions tends not to have the staying power over decades and generations that animation does.
Ben Gilbert
1:13:58 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. 1:14:05 I mean, like there's been. 1:14:06 Six seven james bonds, you know, and i have to keep rebooting the story over and over.Exactly.
David Rosenthal
1:14:11 Okay, so that's step one. 1:14:12 Genuinely great ip that audiences fall in love with has to be at the core. 1:14:18 Then step two, you need to maximize the distribution for that ip as wide and as far as.
Ben Gilbert
1:14:27 possible in its primary delivery vehicle. 1:14:30 So like mickey in those films, get those films into as many theaters as possible to just completely saturate. 1:14:38 The world, it's sort of a scale economies thing. 1:14:40 If you're going to 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.
David Rosenthal
1:14:49 which of course applies to any film and any ip. 1:14:52 But for disney in the flywheel business model, they're willing to make every sacrifice possible to maximize distribution because they know that they're going to monetize. 1:15:03 Through the flywheel in a way that nobody else can.
Ben Gilbert
1:15:06 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.
David Rosenthal
1:15:16 So then that leads right into the third thing. 1:15:18 Which is the ancillary nodes of the flywheel itself. 1:15:23 Once you've got the great ip, once you've distributed it as widely as possible. 1:15:28 Then you want to get that ip into as many other arenas as possible. 1:15:35 And this is exactly what disney was doing, right? 1:15:37 Other mediums merch clubs, comics books magazines. 1:15:42 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. 1:15:54 Like you're not going to 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 mickey's. 1:16:06 If you structure the nodes of the flywheel, right? 1:16:09 The additional exposure reinforces the core ip.
Ben Gilbert
1:16:14 That's really interesting. 1:16:15 So you do need some scarcity of the character in its main medium. 1:16:21 Where you need like a really high quality bar, and not over saturate there. 1:16:25 But in your secondary mediums, then you can cover the earth, and be like everywhere all the time.
David Rosenthal
1:16:31 Exactly, and so then if you flash forward to today, and like the problems that hollywood and most other studios have, and and disney too, especially with marvel. 1:16:41 If you come out with sequels all the time at this like ever increasing cadence of the core ip and the core delivery vehicle.
Ben Gilbert
1:16:49 people get tired of it. 1:16:51 Mmm, that's super interesting.
David Rosenthal
1:16:53 But the flywheel lets you get that constant exposure without over saturating the core ip. 1:16:58 It's like absolutely brilliant.
Ben Gilbert
1:17:00 Not to mention, releasing films is actually not and never has been a great. 1:17:06 Business yes it's not that high margin it's not that repeatable or predictable in its success so you kind.
David Rosenthal
1:17:12 of you have to invest years ahead in production before you get any payout.
Ben Gilbert
1:17:16 right right in 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 kind of primary medium.
David Rosenthal
1:17:36 yep because you know you're going to drive revenue. 1:17:39 Basically in perpetuity out of it through the flywheel.
Ben Gilbert
1:17:42 Do you think i'm thinking about this as it pertains to acquired? 1:17:46 We're so obsessed with quality and just being in one medium. 1:17:50 Do you think that it is okay to lower the quality bar outside the primary medium? 1:17:58 Like can disney throw mickey mouse on all sorts of crap? 1:18:02 Without diminishing the. 1:18:04 Brand of mickey mouse as long as the primary medium of film stays really high quality.
David Rosenthal
1:18:09 Basically, i think the answer to that is yes, huh? 1:18:12 At least for disney, i don't know about acquired.
Ben Gilbert
1:18:15 Yeah, i don't know if it applies to premium brands or luxury brands.
David Rosenthal
1:18:18 but you got to be really careful about what the mediums are. 1:18:22 This is why comics is so perfect for the flywheel because people are used to. 1:18:28 Consuming a daily bit of content in a comic strip and they don't have expectations that it's going to be, you know, a great masterpiece like Snow White or Steamboat Willie each time, right?
Ben Gilbert
1:18:41 And when you read the non-canon Star Wars books.
David Rosenthal
1:18:44 Yes, it doesn't detract from the canon. That's exactly right.
Ben Gilbert
1:18:49 It does deepen your fandom. 1:18:50 Yes, exactly. Exactly. Huh.
David Rosenthal
1:18:52 So all of this, as Walt starts to understand the business model power of what they've created, leads him right to the natural conclusion. 1:19:04 That Disney should basically always invest as much time and money as possible in the creation of new core IP. 1:19:15 And Walt is starting to get a crazy idea of how he might be able to do that. 1:19:20 which is to create Hollywood's first full-length animated feature film. 1:19:30 Snow White.
Ben Gilbert
1:19:32 Yeah, and David you put it in such a capitalist way there that it's it's to maximize the amount of dollars that you sink into making the quality so that it feeds onto this flywheel. 1:19:45 I'm sure there was an element of that. 1:19:47 There also is an artist with Walt where he's been creating these cartoons. 1:19:52 He's starting to really identify with the artistic community with the fine artists of the time, build a lot of those relationships. 1:20:01 And he wants to create something that is sort of seen as not only a technology breakthrough, but like an art breakthrough. 1:20:10 Can he create a masterpiece in this new medium? 1:20:15 And can he play with your emotions? 1:20:17 I mean, we know that cartoon characters in a slapstick way can make you laugh, but there is this like total open question in the world of, can you create animation so realistic and characters so compelling that you can make audiences cry? 1:20:32 Yeah, that's the other side of the ludicrously capitalist big investment in Snow White. You're totally right.
David Rosenthal
1:20:38 I'm looking at it through like a business model capitalist lens and I don't think Walt was thinking about it that way specifically.
Ben Gilbert
1:20:47 He did want to build the most successful company that he possibly could that could take bigger and bigger swings. Yes. 1:20:53 So listeners before we tell you the story of Snow White and how it came to be now is a great time to tell you about one of our favorite companies Vercel. 1:21:04 So building software in the agentic AI era demands a completely different kind of infrastructure. 1:21:10 So that's exactly what Vercel has been building. 1:21:12 Their tools in their agent stack have been huge for companies like Notion, Brex and Neon for shipping agents to production. 1:21:20 And they just made some really big announcements on stage at their annual conference called Ship, which David and I actually spoke at last year. Yes. 1:21:28 One of the biggest announcements is Eevee, Vercel's open source agent framework.
David Rosenthal
1:21:34 Yep, Eevee is the glue that ties their agent stack together. 1:21:38 Building an enterprise grade agent used to take weeks, with Eevee, it now just takes minutes. 1:21:43 Think of it as like the Next.js for agents, opinionated, open source, and it runs everywhere.
Ben Gilbert
1:21:50 And Vercel uses it for their whole business. 1:21:52 Their data agent gives the whole company on demand analytics scoped to each person's permissions. 1:21:58 Their sales agent nearly doubled pipeline coverage, and their autonomous AI sales rep platforms are in the top 10% of their human reps, you know, for only a few thousand dollars a year. 1:22:03 Is in the top 10% of their human reps, you know, for only a few thousand dollars a year.
David Rosenthal
1:22:08 They also rolled out new support for enterprise apps and agents because here's what every executive is realizing. 1:22:14 Once everyone can build an agent, the hard part is knowing who can access what and what every agent is actually doing. 1:22:20 Wouldn't it be nice to run your agents and apps inside your own cloud so that everything you build stays within your own security boundary. 1:22:27 Vercel does exactly that.
Ben Gilbert
1:22:29 Vercel, your one-stop shop for the agentic era tools frameworks infrastructure, all engineered to work together and built for enterprises. 1:22:36 And one last cool thing, their ship conference is hitting more cities worldwide. 1:22:40 com/acquired 1:22:42 com slash acquired. 1:22:43 That's vercel. 1:22:45 com/acquired and just tell them that Ben and David sent you. 1:22:49 All right, so david, before we tell the story of how snow white came to be, we gotta tell the nickname of snow white, the project that was going around hollywood.
David Rosenthal
1:23:01 Do you know what that was? Disney's folly.
Ben Gilbert
1:23:03 Yes, yes, i think it was maybe walt's folly, but either way, it's the exact same thing that people said about trip hawkins when he was working on madden. 1:23:11 About jack bogle, with bogle's folly, with creating the vanguard index funds. 1:23:14 We gotta like start a a folly tracker here. 1:23:16 Yeah, folly tracker.
David Rosenthal
1:23:18 But yeah, i mean, even for walt disney as successful as he in the studio become the idea of a feature length animated film was crazy in 1930s hollywood.
Ben Gilbert
1:23:30 and it had never been tried before.
David Rosenthal
1:23:32 I mean, roy tried to persuade him not to do it. 1:23:34 He argues that it's going to bank up the studio.
Ben Gilbert
1:23:37 Yeah, this is a multi-million dollar undertaking when david as you were talking about before the shorts were like, 15,000 dollar, 30,000 dollar undertakings.
David Rosenthal
1:23:45 Yep, walt would say later about snow white. 1:23:48 We had decided there was only one way we could successfully do snow white and that was to go for broke.Shoot the works. 1:23:55 There would be no compromise on money talent or time. 1:23:59 We did not know whether the public would go for a cartoon feature, but we were darn sure that audiences would not buy a bad cartoon feature.So good. 1:24:09 It had to be a masterpiece or the whole thing was going to fall apart.
Ben Gilbert
1:24:12 Okay, so why was this so expensive? 1:24:15 Why was such a giant undertaking to create a animated feature full-length film? 1:24:21 Listeners, i thought it'd be fun on this episode to dive into the process and give everyone a little primer on what are the steps to create an animated film.
David Rosenthal
1:24:30 Yes, it's a true technical wonder. 1:24:33 And you and i got to actually do it, when we went to visit the disney studio.
Ben Gilbert
1:24:37 It was so fun. 1:24:39 Well, one part of one frame of it, yes.
David Rosenthal
1:24:41 One tiny part of inking and painting.
Ben Gilbert
1:24:44 Listeners will include some behind the scenes ink and paint photos of david and i in the email. 1:24:50 So, let's start with the goal. 1:24:53 The goal is to create the illusion of motion with a series of still frames. 1:25:00 Like a ton of still frames, 24 still frames per second. 1:25:07 So, that requires a lot of clever tricks. 1:25:11 To make it economically possible, to make it consistent, and to make it enjoyable, and if you really do your job. 1:25:19 To make it emotional for the viewer.
David Rosenthal
1:25:21 And to be clear, live action film is the same thing, it's an illusion. 1:25:26 But as we talked about earlier, it doesn't cost anything to animate the humans.
Ben Gilbert
1:25:31 and you get physics for free, so believability comes for free. 1:25:35 You don't have to do clever things like figure out how do things stretch and squish when someone bounces on the ground, it all just sort of happens, cause you're shooting it in the real world. 1:25:46 So where does it all start? 1:25:48 It starts with a good story. 1:25:49 So there's something called the story department that kicks off the process with little sketches that are sort of pinned to cork boards. 1:25:57 And so these story meetings are great. 1:25:58 You have people acting out alongside the drawings to illustrate their idea, how the characters move and interact and talk. 1:26:06 And Walt was famously amazing to watch when he did this acting. 1:26:12 So this then gets put into a story reel of static sketches. 1:26:16 Just kind of illustrating the main flow of the story at this point. 1:26:19 It is super easy to edit reorder change dialogue anything.
David Rosenthal
1:26:25 I see where you're going with this at this point at this point.
Ben Gilbert
1:26:29 So then the sound department gets involved and that's both music and voice. 1:26:35 So first you'll have oftentimes a temp voiceover. 1:26:37 So the animators have something to animate to if you don't have the real actors laying down the vocal track yet. 1:26:44 You also have the music scored and recorded at this phase, and the way that animation and sound are synced at this point is through something called bar sheets or exposure sheets, where the entire film, this is going to sound insane, is broken down by frame, by syllable of dialogue, and by beat of the music, and these are mapped together. 1:27:07 So this way, the animator can do their drawings exactly to the music and dialogue. 1:27:12 Now you can kind of understand the insanity of what Steamboat Willie was trying to do and why that was so difficult. 1:27:19 Disney studio kind of had to invent this process.
David Rosenthal
1:27:22 Yeah, and that was what seven eight minutes long.
Ben Gilbert
1:27:25 Yes, meanwhile, you have the layout department who is doing the staging, the camera framing, the composition of these shots, the lighting for every scene. 1:27:37 Now, when i say things like staging, there's there's no stage camera framing, there is a camera, but that's not even the camera. 1:27:43 This is referring to this is where the synthetic camera is aiming in the synthetic action. 1:27:48 Composition lighting, this isn't like lighting the way you think of lighting. 1:27:52 This is this very abstract art of imagining what it would look like if these characters were real and there were real lights and figuring out how to draw that scene. 1:28:05 Then this gets forked into two parallel processes where background painters are doing their work on these gorgeous watercolors on paper and oil paintings on these super wide panes of glass to allow for. 1:28:18 The panning across the scene, whenever you go into the Disney archives, you can see these, I don't know, 4 foot wide by something like 8 inch tall backgrounds, because the camera has to pan around as the characters move around against the background. 1:28:33 And then the other side of the fork is the animators, who are doing their work on the characters themselves. Yep.
David Rosenthal
1:28:39 Yeah, the backgrounds are just beautiful when you see them in person. 1:28:42 That was my favorite part. 1:28:44 About the archive, to get to see. 1:28:46 The backgrounds of Snow White or Cinderella or the other great Disney classics. 1:28:51 You just look at them and think, oh my god, these are right up there with Rembrandt or Picasso's or they got, they should be in a.
Ben Gilbert
1:28:59 Museum and they are basically in a museum. 1:29:02 Disney has 11 rooms in the animation research library, which are temperature controlled and humidity controlled. 1:29:10 And they've got all these UV filters all over everything and there's these drawers and drawers and drawers inside. 1:29:16 It almost looks like data centers where they have all of these old background paintings and all the drawings we're about to talk about. 1:29:24 So the animation department then develops what's called a character model sheet that shows the character from several different angles in positions that are likely to be in throughout the film. 1:29:33 This is distributed to each animator who works on that character because often and by necessity there are multiple since that character is going to exist on film for. 1:29:44 You know, 80, 90, 100 minutes. 1:29:46 It's a lot of drawing to do. 1:29:47 Then there's the model department who makes something called a maquette, the animators who are drawing a character hundreds and hundreds or thousands of times or tens of thousands of times need a consistent physical reference that they can hold and rotate and examined under a lamp. 1:30:04 So these are, you know, eight inch tall versions of the characters that.
David Rosenthal
1:30:07 Are little statues.
Ben Gilbert
1:30:09 Right, they're perfect so that you can kind of say how would they look from that angle? 1:30:13 How would they look if I stood 8 feet away? Yep. 1:30:15 Then you have animation itself. 1:30:17 So, it starts with sketching on paper with a pencil or with charcoal. 1:30:23 And they're literally sketching one frame at a time, and they are flipping pages on their pad of paper back and forth, back and forth, over and over again, to get a feel for how the emotion of the drawing is coming through frame to frame. 1:30:37 Does this character move like I think they should move? 1:30:41 Are they consistent in their motion? 1:30:43 Is their clothing sort of twirling the right way when they turn left? 1:30:48 It's an insane art.
David Rosenthal
1:30:49 Are their mouths speaking correctly? Yeah.
Ben Gilbert
1:30:51 Right, as the character drifts closer to the synthetic camera, are they getting big in a way that feels consistent with the laws of physics? 1:30:59 My mind is so blown by the skill and talent of these people. 1:31:02 So 24 frames per second means 12 to 14 drawings per second. 1:31:07 So think a thousand ish per minute, that's around 80,000 in a feature length film of this era. 1:31:13 And of course, that's if there's only one character doing one thing on one layer.
David Rosenthal
1:31:18 Yes, there's usually about double that.
Ben Gilbert
1:31:22 Triple, quadruple, yeah, yeah. 1:31:24 So there's two ways that this can happen. 1:31:26 One is the most clean and obvious one, straight ahead, which is where an animator draws every frame in order. 1:31:33 Or there's something called inbetweens, where lead animators draw the key frames with the essential poses or major character movements, and then the assistants or the inbetweens go to the drawings. 1:31:46 And they sort of bridge between those frames, and the goal of doing this is to make the most efficient use of the skilled artist's time on the film. 1:31:55 Now, over a time, a division of labor started to emerge, where, which kind of makes sense. 1:32:01 A super skilled animator would do work kind of fast and loose, with sketches that had little extra lines hanging off everywhere. 1:32:06 There'd be like revisions on top of their original drawing without actually cleaning up the mistakes underneath. 1:32:12 And then it was handed over to a cleanup artist, yes, to trace their drawings with a single line versus the hairy mess to kind of get it ready for the next stage, but again preserving the same correct emotion flow, bounciness, shape form of the lines. 1:32:31 Both the in betweeners and the cleanup artists were kind of a result of the industrialization of the animation process versus the early days, in the early mickey ones of a kind of a single artist animating the entire thing.
David Rosenthal
1:32:43 Yup, by this point, as they're heading into snow white, this had become a real scale production process. 1:32:50 I mean, it wasn't quite like an assembly line, this is still art here.But. 1:32:55 It's a lot closer to henry ford than it is to picasso in his studio.right?
Ben Gilbert
1:33:00 At least you do need to sort of synchronize and coordinate teams and make the highest use of the most valuable scarce resources, stuff like that.Yep. 1:33:10 So then there's ink and paint. 1:33:11 So let's talk about anchors back in 1914 earl heard had invented a concept known as cell animation cel.Yep. 1:33:19 Where you would draw with ink on the front of a piece of transparent plastic or cell in the business short for celluloid. 1:33:26 And that way, you could keep redrawing just the character in each frame and the background could stay static. 1:33:33 That essentially made animation possible at all in 1914. 1:33:37 You could imagine if you had to just redraw every line on every frame every time, one, it would look crappy because things would sort of wiggle all over the place when the film was actually playing. 1:33:48 But two, it just was economically infeasible to draw every line every time.
David Rosenthal
1:33:53 Yeah, it was not scalable.
Ben Gilbert
1:33:54 So it had evolved since then where there were now armies of people who were almost exclusively women at this point in history. 1:34:00 Who would literally duplicate every line that the animators drew on paper with pencil, and they would trace over their entire drawing with ink on cell. 1:34:11 Every single frame, yes. 1:34:13 So what you would see on screen in in a film is actually not the direct work of an animator, but it's the painstaking work of an inker who traces over the animator's line on the transparent celluloid instead of on paper.Yep.
David Rosenthal
1:34:25 And then. 1:34:26 The anchors would flip the cells over and pass them off to the painters.Yes.
Ben Gilbert
1:34:34 So this is how they get color in. 1:34:35 You want your outlines on the front. 1:34:38 So it masks any colors that sort of overflow out of, you know, the dwarf's shirt or mickey's shoe. 1:34:46 And then on the back, that's where you do your painting. 1:34:48 You put all the colors on and david, what you were referring to is, is you and i did some painting on a pre-inked mickey mouse.
David Rosenthal
1:34:57 Hey, we did a little bit of inking on the front side.Yeah. 1:35:00 ink is harder than painting.
Ben Gilbert
1:35:02 Painting is forgiving.Yeah. 1:35:04 But disney has this room with thousands and thousands of colors of handmade on-site paint. 1:35:11 That is a production facility for paint color and applying that color to animation cells.
David Rosenthal
1:35:16 It used to be called the rainbow room. 1:35:19 Those colors that paint went into Snow White, Cinderella, Peter Pan, Alice in Wonderland.
Ben Gilbert
1:35:26 thousands of people each making thousands of drawings. 1:35:28 It multiplies fast. 1:35:30 So then you've got your special effects layer. 1:35:32 So like tinkerbell's wings use effectively spray paint like a little paint gun so it can be partially translucent or the dwarfs glasses or sparkles or in another thing in special effects is like water effects. 1:35:46 What if you want to make it look like there's a little bit of ripple in the water or some depth of field on some leaves that are closer to the camera? 1:35:55 So, before any of this inking and painting, which was super expensive and time consuming, they would do something called a pencil test, where they would take the pencil sketch drawings on paper, and put them all through the camera. 1:36:07 So, the animators and walt could look at the rough action, and see if it felt right. 1:36:11 See if it had the right physics, correctly represented each character's tone and emotions. 1:36:15 It it's almost like a higher fidelity prototype than the one that we first talked about that came out of the story meetings. 1:36:23 It is a way to catch things that weren't working before you got all the way to full fidelity then camera. 1:36:29 This is like the coolest part.
David Rosenthal
1:36:31 of the whole multi-plane. 1:36:33 This is incredible.
Ben Gilbert
1:36:34 So Disney and Bill Garity took the idea of a multi-plane camera that had existed before Disney. Ub Iwerks actually built one of the first advanced multi-plane cameras back in '33. 1:36:46 Well, he was away from the company doing his own thing. 1:36:49 Using parts from an old chevy.Yes, yes.
David Rosenthal
1:36:53 And then walt rehired iworks later to come back and lead within disney.
Ben Gilbert
1:36:59 Yep, like process improvement for how we do animation. 1:37:03 So disney created the first one to be used in a feature film. 1:37:05 It is unbelievably cool. 1:37:07 It has an entire massive room to itself. 1:37:11 There's a team of operators to make it work. 1:37:13 You had to climb a ladder to get all the way to the top. 1:37:16 So here's how it works. 1:37:17 There's a still frame photo camera mounted on the top of this thing pointed straight down.
David Rosenthal
1:37:23 Yeah, it's like what probably 1.
Ben Gilbert
1:37:24 5 feet tall that feels high 10 12. 1:37:27 Yeah, but something like that. 1:37:28 There were up to seven planes that you could use. 1:37:31 So you've got these horizontal planes between the floor and where the camera is mounted, you know, up 12 feet in the air, typically with the character on the celluloid, almost all the way close to the top of the camera unless you had like special effects or some foreground obscuring the character or something like that. 1:37:46 And then all the elements of the background at various sort of different depths away from the character are painted on panes of glass and paper below that. 1:37:56 And you'd want the background broken out on a multiple panes, so you could do things like a parallax effect, if they were sort of panning by. 1:38:03 Or if you wanted to do like an establishing shot, to zoom in on a subject from far away, you could progressively in every single photo that the camera took, every frame. 1:38:13 Bring the panes of glass closer to the camera at different calculated rates. 1:38:18 So the distance between the planes could be adjusted to really sell the animation david you and i saw one of these in the corporate archives in burbank. 1:38:26 You've actually seen two of the three that exist.right?Yes, yes.
David Rosenthal
1:38:30 One of the other ones is at the Walt Disney Family Museum in the Presidio in San Francisco, which is an incredible museum and resource that. 1:38:38 Informed a lot of this episode.
Ben Gilbert
1:38:39 Worth calling out, this is a photo camera, not a movie camera. 1:38:43 So it would just photograph one frame at a time, and then all the technicians would adjust all the knobs and layer placements for the next frame. 1:38:50 So when you look at the level of invention required to create a multiplane camera and operate it, you kind of start to understand how these guys in the animation department could evolve into imagineers.Yes. 1:39:01 Like this, there's a lot of physicality involved in animation that i don't think i really understood until.
David Rosenthal
1:39:08 Diving into this process.You know what? 1:39:11 What's happening at Disney isn't just the intersection of art and commerce. 1:39:15 It's the three-way intersection of art and commerce and engineering and always has been.
Ben Gilbert
1:39:21 Yep, i think that's right. 1:39:22 All right, so that's the animation process. 1:39:25 That is why this is such a giant difficult undertaking to create something like Snow White.
David Rosenthal
1:39:29 Absolutely enormous undertaking. 1:39:31 So when all is said and done, It takes one and a half million dollars of investment over three years of studio work to create Snow White. 1:39:44 Remember, this is at the same time as Disney is making short cartoons for like, i don't know, 20 30,000 dollars and even that is way above what anybody else in the industry.
Ben Gilbert
1:39:57 Is spending this is 35 million dollars inflation adjusted and yeah, movies are like 300 million dollar budgets today, but imagine nobody's doing that and you have the first idea to create an animated movie and you're like, I'd like 35 million dollars of budget.
David Rosenthal
1:40:12 to make that right. 1:40:13 When Roy said that he was worried, it was going to bankrupt the studio like Roy was being the rational one. 1:40:18 Yes, they have to take out a whole series of loans from Bank of America. 1:40:25 In order to finance production, even with all the money they have coming in from the flywheel and consumer products and the Mickey Mouse Club, etc. 1:40:32 Been as you were saying, all the art and the work that goes into it, 2 million sketches and 250,000 finished drawings and cells go into Snow White. 1:40:47 This is at a scale. 1:40:48 So beyond what anybody else in the entire entertainment industry is doing. 1:40:53 Gabler in his book uses the analogy of it was like a gothic cathedral in animation. 1:40:57 That is like the only kind of analogy that makes sense here.
Ben Gilbert
1:41:01 They staffed up to 750 studio artists and did three years of nonstop work on production. 1:41:08 Yep, incredible. 1:41:09 They actually went so far as to hire actors to play each of the roles. Yes. 1:41:14 And put them in full costumes so they could film them for inspiration, just so the animators could watch and see the natural motion so it would look as lifelike as possible to sell the illusion. 1:41:25 This is so much different than animating a cartoon mouse. 1:41:29 The massive investment in all the little details just to make the viewer buy in emotionally to these characters. 1:41:35 My favorite one of these little tidbits is that the actress who played Snow White even wore a hair helmet, since the drawn character's proportions were actually pretty different than a real life woman, so that they could kind of get a sense from watching. 1:41:49 The test footage, how the character moved around in the world.
David Rosenthal
1:41:53 Yeah, I mean you made the point a few minutes ago, Ben, that Walt Disney wasn't doing this because he was some capitalist. 1:41:59 I think he really did recognize the incredible flywheel business model that he had sort of accidentally created and leaned into it, but like. 1:42:09 That's not going to motivate him to film a whole live action version in costume just so that they can make sure they get the spirit right now. 1:42:17 Like this is art that they're creating and obsession with quality. Absolutely. 1:42:21 So the movie finally premieres in Hollywood on December 21st 1937. 1:42:27 And I mean it's one of the greatest films ever made the Academy Awards. 1:42:33 Create a special Oscar for Snow White Special.
Ben Gilbert
1:42:38 Yeah, because they didn't think it could be eligible for best picture, right? Movie. I don't want to bury the lead. 1:42:42 It was the highest grossing film, not only of the year, but ever ever did 8 million dollars of rental revenue on a 1.5 million dollar production cost. 1:42:53 And like the category was so new and different that they were like, ah, instead of being eligible to be nominated for best picture, let's just create a special new category. Yes.
David Rosenthal
1:43:02 So the Oscar statue that they give Walt Disney for Snow White is the only one that's ever been made. 1:43:09 It is a large Oscar, it is Snow White and then seven little Oscars below it.
Ben Gilbert
1:43:15 Walt personally would go on to win more Academy Awards than anyone in history. 1:43:20 Yes, Walt has 26 Academy Awards. 1:43:23 The next highest is 13.
David Rosenthal
1:43:25 Yes, I mean the audience reception was incredible. 1:43:28 Like you said, Ben, it was the highest grossing film ever made of any kind animated or otherwise in history to that point. 1:43:35 The critics reception is equally glowing. Time Magazine writes prophetically. 1:43:40 That Snow White is an authentic masterpiece to be shown in theaters and beloved by new generations long after the current crop of Hollywood stars, writers and directors are sleeping where no prince's kiss can wake them. 1:43:56 Of course, foreshadowing the Disney vault. 1:44:00 Snow White is alive and well today, as my two young daughters will attest.
Ben Gilbert
1:44:06 Yeah, an interesting thing about this story, I'm curious since you have daughters who watch it, David, is it's kind of dark, and Walt did meaningfully change the Brothers Grimm story, yes, that he sort of adapted it from. 1:44:20 It's very interesting that all of these early Disney cartoon movies, animations are adapted fairy tales or adapted existing lore that Disney sort of. 1:44:30 Changes. The film was not really made as a children's movie. 1:44:34 No, yes, it was animated.
David Rosenthal
1:44:36 But it's dark. 1:44:37 No, and in fact, a lot of those decisions, like giving each of the seven dwarves personalities. 1:44:44 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. 1:44:56 Some of the decisions were actually made with the flywheel in mind and the dwarves personalities is one of these. 1:45:04 They wanted to sell a lot of Seven Dwarfs merchandise and what better way to do that than to give them all distinct personalities. It's true.
Ben Gilbert
1:45:15 When you go to Disneyland, there's a lot of people walking around with like Dopey and Grumpy. Exactly. Exactly.
David Rosenthal
1:45:20 So as we said, the movie itself extremely profitable. 1:45:24 It does 8 million dollars in film rental revenue against the one and a half million dollar production cost just in its first theatrical run.
Ben Gilbert
1:45:34 Which dramatically changes the studio's financial position. Yes, yes.
David Rosenthal
1:45:39 Now it is a bit of a misconception that the profits from Snow White the film itself. 1:45:46 Would end up paying for the new Burbank studio that Walt's about to construct. 1:45:52 That's not entirely true. 1:45:54 I think most of the film profits from Snow White went to repay all the loans to Bank of America. Yes.
Ben Gilbert
1:46:01 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 a distributing movies work. 1:46:09 There's the studio like Disney who makes the actual movie. 1:46:13 There's a distributor like United Artists or RKO who does a lot of stuff. 1:46:18 They take the finished film, they create all the prints that'll go to theaters. 1:46:21 They have the sales force that sells the film to theaters. 1:46:24 They plan the film's marketing. 1:46:25 They also ship the films and handle all of the billing and payments. 1:46:29 And then, of course, there's the theater or the exhibitor as they're called. 1:46:33 And so Disney has this 1944 annual report for employees. 1:46:37 That David actually found when we were in the archives, we were flipping through annual reports and you were like, what is this? 1:46:43 There's two reports for 1944, what's going on here? 1:46:45 And they actually did a different one for employees than for shareholders. 1:46:49 The annual report for employees has this great graphic that says, where does the money come from? 1:46:55 And it has a breakdown of if for a dollar getting spent at the box office, what are the splits? 1:47:00 And so, 65% actually gets retained at the exhibitor or the theater, 13% goes to the distributor and 22% goes to the studio. 1:47:13 And so when we've been saying rentals, here's the interesting thing about that. 1:47:18 The distributor and the studio come together. 1:47:22 And they actually rent their collectively owned film. 1:47:26 Yes, to the exhibitor. 1:47:28 So this 8 million dollars is actually even higher than you think it is. 1:47:32 The gross box office would be significantly higher than 8 million dollars, like two and a half times or something. 1:47:38 And that 8 million is the 13% plus the 22%, right?
David Rosenthal
1:47:44 It's the share of Disney, the studio plus their distributor.
Ben Gilbert
1:47:48 That's exactly right. 1:47:49 And so then I know I'm doing some financial gymnastics here.
David Rosenthal
1:47:53 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.
Ben Gilbert
1:48:05 If you go look at what is really the source of truth here, the 1940 IPO prospectus, which we are going to get to, you can very clearly see that over a one year and nine month period, they make 4.5 million dollars in film rental income, the producers' share. 1:48:26 So this is just Disney's from Snow White and the Seven Dwarfs. 1:48:30 So that's our real source of truth that we know. 1:48:33 4.5 million dollars now. 1:48:36 They had about 2.3 million dollars of debt from the 1.5 million dollars of production costs, plus the interest that they owed Bank of America. Yep.
David Rosenthal
1:48:46 So a huge portion of the net that they're taking home. 1:48:52 Just from the box office of Snow White is going to repay the debt, let alone operating expenses for the studio, etc., etc. 1:49:00 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, right?
Ben Gilbert
1:49:10 So they effectively have 2.2 million dollars left over after paying the theater, paying the distributor, paying back the principal on the loan and paying the interest. 1:49:20 Okay, 2.2 million dollars in 1937, still a lot of money, but they want to go build a gigantic campus.
David Rosenthal
1:49:29 Yes, but then, of course, Disney isn't just making 2.2 million dollars in profits from Snow White. 1:49:38 There's all that good, good flywheel revenue to come along with it. 1:49:43 So, you know, if Walt thought that the flywheel worked well for Mickey Mouse, Snow White is like a whole another level. 1:49:53 So, before the film is even widely released, around the country, they have their next major flywheel node, their next business model innovation. 1:50:07 Already in market. 1:50:10 The movie soundtrack. 1:50:13 I couldn't believe this when I learned it. 1:50:15 Snow White was the very first movie soundtrack ever created and sold to the public. 1:50:24 It all started with Snow White. 1:50:25 There were no sound movie soundtrack albums before then and it is a huge hit both because you know it's a great soundtrack but like. 1:50:35 Before this album, there was never anything that audiences could take home actually of the picture that they saw in theaters. 1:50:46 There's no home video, right? 1:50:47 There's no streaming, there's no television, right? 1:50:50 You go to see something in the movie theater. 1:50:52 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. 1:50:57 But you couldn't take home Movie. 1:51:00 Except in the form of the soundtrack.
Ben Gilbert
1:51:02 and the songs are quite catchy.
David Rosenthal
1:51:07 So the soundtrack is huge beyond that. 1:51:09 They're supposedly I read are 2,183 separate SKUs of Snow White merchandise. 1:51:20 They get pumped in the global markets by Kay Kamen's consumer products organization. Unreal. 1:51:28 The New York Times. 1:51:31 Actually writes this that quote sales of Snow White products might be America's path out of the depression. 1:51:40 That's how successful it was. 1:51:42 I mean, this movie was such a grand success artistically for Walt Disney films wise for the studio for the whole medium of animation and legitimizing it right alongside live action. 1:51:57 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 animators' paradise, Ben, as you alluded to the new Disney Burbank animation studio, still the corporate headquarters of the company to this very day.
Ben Gilbert
1:52:21 Right, he basically sees the success of Snow White, and thinks. 1:52:24 Oh yeah, we're gonna do a lot, lot more. 1:52:28 Let's let's build all the infrastructure to like really do that, right? Yes.
David Rosenthal
1:52:32 So Walt's goal with the new Burbank studio was to be able to have 1200 plus animators and staff up from call it 300 before Snow White and then been what did you say? 1:52:46 750 that the ranks had swelled to during Snow White. Yep. And. 1:52:50 He thinks that with this new campus, everything that they're gonna install there, and all the additional staff, that Disney will now be able to produce two new feature animated releases every single year, plus shorts. 1:53:06 So like it took 3 years to make Snow White, with all the learning from that. 1:53:11 All the innovations of the new campus, all the new staff, he thinks they're now gonna be able to pump out. 1:53:16 Great new feature films every six months.
Ben Gilbert
1:53:19 which was a complete pipe dream and they never able.
David Rosenthal
1:53:21 to do Walt. 1:53:23 Also in his mind, think comes to see this Burbank campus as really a utopian like place kind of almost like a college campus. 1:53:34 I mean, Walt didn't even graduate high school, let alone go to college, but he intentionally places it in Burbank, which back then was like the sticks outside of LA. 1:53:42 Yeah, he wanted. 1:53:44 The Disney lot, the Disney studio to be this special place, kind of away from all these other studios controlled by their distributor bosses back in New York. 1:53:54 And he kind of, I think, really wanted to create this band of merry men and women type feeling where they could achieve the impossible, like producing two feature animated films a year.
Ben Gilbert
1:54:05 Well, the thing he sort of didn't factor in is that you might be able to make Snow White faster in the future, but every idea that you have is going to be a different new idea that's going to be more ambitious and have more cost and require more people. 1:54:17 And so this Burbank studio was necessary even to keep the same producing films every three years. Yes. 1:54:26 But the lot itself is unbelievable. 1:54:28 It's 51 acres. 1:54:29 There are sports fields, a cafeteria, there's art classes, there's massages available, there's sunbathing in the penthouse club. 1:54:37 In many ways, this is like the Googleplex before the Google Play.
David Rosenthal
1:54:40 This is 1940 when they open this. And you're right.
Ben Gilbert
1:54:44 It's it's kind of designed to keep you there. 1:54:45 Why would you need to go anywhere else? 1:54:47 And really, there's nowhere else to go around. Right? 1:54:49 Burbank, it reminds me a little bit of Epic Systems too.
David Rosenthal
1:54:51 Yeah, yeah, yeah, yeah, very similar, very similar.
Ben Gilbert
1:54:54 So here's an example of the lengths that they went to on this campus. 1:54:58 So I was looking at Google Maps planning our visit David and it looks weird. 1:55:03 It's it's offset from the Burbank street grid at an angle. 1:55:08 And we asked the person who were showing David and I around listeners, why this is, and he said that it was Walt's priority when they were building it to offer the exact perfect conditions for lighting to animators. 1:55:22 Which of course, David, you know the the spoiler here.
David Rosenthal
1:55:25 Yes, to have offices that face north, because northern light is true light.
Ben Gilbert
1:55:29 Do you know why northern light is preferable?
David Rosenthal
1:55:31 No, I just know that that's what our very kind tour guide told us.
Ben Gilbert
1:55:35 So if you are in the northern hemisphere, the sun moves across the south sky. 1:55:41 So if you're north facing windows, your window offers the most consistent and non-direct light. 1:55:49 And so every animator got a window and they built the building shape. 1:55:53 So that there's a whole ton of north facing sides like the whole thing almost looks like a. 1:55:59 CPU heat sink. 1:56:00 It's like got fins so that it's got all these north-facing windows. 1:56:03 It's for the time. 1:56:04 It's an architectural marvel. 1:56:06 It's one of the first buildings with air conditioning in Southern California. 1:56:09 The windows had custom built sort of slats that were adjustable. 1:56:13 So the animator could let in the exact right amount of sunlight, indirect sunlight that they wanted into that room. 1:56:19 And once they sort of got this building architecturally laid out on the campus, they're like, Yeah, let's build the entire campus around this. 1:56:27 And to me, it really symbolizes that animators are the crown of Disney in this era in the way that at Google, it's engineers and at Apple, it's designers and at Microsoft, it's PMs. The animators, to the extent that anyone but Walt has the power. 1:56:45 The animators are sort of the most valuable resource. Yes.
David Rosenthal
1:56:48 Yes, it's an animation-driven company.
Ben Gilbert
1:56:51 Yes, so it's got this like utopian vibe, but there were trade-offs. 1:56:56 I mean, this was huge compared to the old Hyperion site. 1:56:59 People are more sectioned off to do their specific work. 1:57:02 You had less access to Walt to know exactly what was going on upstairs, if you were the rank and file. 1:57:07 But to achieve all this, Walt. 1:57:10 Does need capital. Yes. Oh, yes, he does. 1:57:12 He doesn't want to give up any control, but eventually he and Roy decide, we've only ever taken on bank loans. 1:57:19 Maybe we need another source of capital.
David Rosenthal
1:57:21 Yep, I've got the numbers on all of this. 1:57:23 So the Burbank campus construction costs alone were $3 million. 1:57:28 So that's more than the money they had left over from Snow White proceeds after they repaid the Bank of America debt. 1:57:36 But obviously they had all the, you know, the revenue from the soundtrack and the consumer products and all the flywheel.
Ben Gilbert
1:57:41 Revenue company still, they're they're planning to do Pinocchio, they're planning to do Fantasia, right?
David Rosenthal
1:57:47 So the three million is just to build the facility, then they got a staff it with 1200 animators. 1:57:56 So that's an extra 450 new animation staff. 1:58:01 They need to hire. 1:58:03 And to feed Walt's vision of having multiple films in production at the same time, he greenlights production on Pinocchio, Bambi, and Fantasia, all at the same time.
Ben Gilbert
1:58:16 And all of these were completely different animation styles. Yes. 1:58:20 And completely different from Snow White. 1:58:22 If you look at these films, we sort of have this notion today of like, oh, it's the Disney style. That is. 1:58:28 Not really reflective in the darkness of Snow White, in Fantasia's really experimental artistic vignette. 1:58:38 Style, set to classical music, and Bambi is again another completely different take of a very naturalist film. 1:58:47 These are wildly different skill sets, and bigger and bigger investments using completely new techniques. 1:58:55 So you're not really just like making more Snow Whites, you're doing like discontinuous unknown high-risk bets.
David Rosenthal
1:59:03 Well, it can't help himself. Yes. 1:59:05 So in total between the three million dollars for the campus and then these three movies that they all have in production, which collectively cost about 5 million dollars in so-called negative costs before they get released. 1:59:17 So before they earn a dollar of revenue, by early 1940 Disney's. 1:59:23 Yeah, in this new campus and set up for this next phase of the company, but they're 8 million dollars in the hole. 1:59:30 So Bank of America had loaned them another four and a half million dollars.
Ben Gilbert
1:59:35 They just keep going to Bank of America over and over again, just remortgaging the company.
David Rosenthal
1:59:40 And then the hope was that Pinocchio, the first of the new films to come out, would be a hit and earn profits. 1:59:48 Quickly, unfortunately, World War II had started in Europe by early 1940 when Pinocchio gets released. 1:59:54 So international box office is basically zero, and Pinocchio ends up losing money, like a lot of money, over a million dollars in losses on Pinocchio alone.
Ben Gilbert
2:00:04 Yeah, in a scale economies business, if you lose out on potential eyeballs and potential revenue, but your fixed costs stay the same, that's super, super bad news. 2:00:15 I mean, there's no ability to retroactively scale back how ambitious you're being with investing in a film, 2:00:21 you know, you've already spent all the money to create it and now you find out that you can't distribute it.
David Rosenthal
2:00:27 to have half of your screen audience. 2:00:29 Yeah, yeah, not good. 2:00:30 Yeah, not to mention the impact on all the rest of the flywheel businesses, like not a lot of Pinocchio merch getting sold in Europe in summer of 1940, you know. 2:00:41 So after Pinocchio is a flop, Walt and Roy decided they basically only have one recourse at this point because Bank of America is not going to loan them any more money. 2:00:47 They need to sell equity in the company for the first time. 2:00:52 So in April 1940, Disney retains investment bankers and sells 3.875 million of convertible preferred stock with a 6% dividend. 2:00:57 Which technically is Disney's IPO. Is it technically? 2:01:12 It doesn't go on a stock exchange, it's just over the counter.
Ben Gilbert
2:01:16 It's a public offering I guess but it's a pretty small group of the public. Exactly. Exactly. 2:01:19 It is a non-exchange traded public offering.
David Rosenthal
2:01:24 and it's got this 6% cumulative dividend attached to it.
Ben Gilbert
2:01:28 So the expectation when you're investing is this company is going to pay me 6% of my investment back every year. Yep. 2:01:32 So it's actually a pretty sweet deal for the investors, they sell 30% of the company to do this to raise that. 2:01:38 It's funny, you said 3.875, a little bit of that went to the bankers. 2:01:41 There's some transaction fees. 2:01:47 so they only raise about three and a half million dollars directly to their balance sheet, but they give up 30% of the company to do that, and it comes with that 6% cumulative dividend to those shareholders.
David Rosenthal
2:01:51 Wow, so this means they're flying even closer to the sun than I realize because they've got the 8 million dollars in sort of investments that they need to fund.
Ben Gilbert
2:01:52 And they have four and a half million from Bank of America.
David Rosenthal
2:02:04 And then if they're only getting three and a half million in proceeds from the IPO, that's exactly 8 million dollars. 2:02:12 They are shaving off every piece of their current self and future cash flows to rebet the farm. 2:02:16 That is the way to think about this.
Ben Gilbert
2:02:23 So that summer in 1940 Walt has a rather ominous get together with Henry Ford of the Ford Motor Company, just sort of as like a friendly meeting of these two American business titans. 2:02:31 And while they're together, Walt mentions to Henry about the IPO that they just did and reportedly Ford tells him, Walt,
David Rosenthal
2:02:33 If you sold any of it, you should have sold all of it. 2:02:40 Ominous. Ominous. A real board of directors gets established for the first time as part of this and the preferred. 2:02:47 And while they're together, walt mentions to henry about the ipo that they just did and reportedly ford tells him walt. 2:02:58 If you sold any of it, you should have sold all of it. 2:03:02 Ominous ominous, a real board of directors gets established for the first time as part of this and the preferred. 2:03:09 Get a director on the board. 2:03:10 So an outside voice in the company who certainly is not going to share Walt's vision here. 2:03:16 So by the end of the year in 1940, despite the capital raise from the stock offering Disney's in a cash crunch. Walt before the IPO had even set up a kind of like proto employee ownership system where they set aside 20% of the company's equity. 2:03:33 And used that stake's profit distribution to fund an annual employee bonus pool. 2:03:39 They have to eliminate that like months basically after Walt institutes it, and what they end up doing as a result is they raise salaries of the few top animators in the firm, and then they keep the same or they lower salaries. 2:03:56 For everybody else. 2:03:58 In the Burbank club and this causes huge resentment and unrest in the animation workforce.
Ben Gilbert
2:04:05 Yeah, I mean, I bet that's gonna make no one happy, but this is the like literal trade-off. 2:04:09 This is we spent a bunch of money on Pinocchio. 2:04:12 Yep, we didn't have Europe. 2:04:14 So we lost a bunch of money on that. 2:04:16 We still have big ambitions. 2:04:19 And like this is Walt's. 2:04:22 Implicit choice here with going out and raising all this debt, raising all this equity.
David Rosenthal
2:04:27 Betting the farm again. 2:04:28 Yep, this is the downside of Walt's always go for broke and shoot the works. 2:04:33 Philosophy, yep, and it leads probably to the darkest moment of Walt's life.
Ben Gilbert
2:04:39 That would change his relationship with the company forever.
David Rosenthal
2:04:42 Forever, and irreparably his relationship with Disney Animation. The strike. 2:04:49 So on May 29th 1941, the Screen Cartoonists Guild, which is a union that had unionized every other major animation studio in Hollywood and New York over the couple years leading up to this.
Ben Gilbert
2:05:04 Which there were several of at this point in time. 2:05:06 Yep, we've been sort of very Disney centric, but there is an industry around this. Yep.
David Rosenthal
2:05:10 Decides finally to target. 2:05:13 Disney employees. 2:05:14 Now, there's a reason why the Screen Cartoonists Guild had stayed away from Disney, despite it obviously being the leader in animation. 2:05:23 Up until this point, which is, I think Walt's utopian dream more or less was true, or at least true enough. 2:05:33 Like he established the bonus pool for animation, he constructed this campus, everything you were talking about. 2:05:39 Earlier been, but here with the cash crunch that all.
Ben Gilbert
2:05:42 Comes crashing down. 2:05:44 Yeah, there's a great excerpt from the book The Animated Man by Michael Barrier in the spring of 1941. 2:05:50 Under pressure from the Bank of America and holders of preferred stock, Walt Disney Productions agreed to scale back its production costs to about fifteen thousand dollars a week. 2:05:58 According to Walt Disney himself, that meant he had to hold the negative cost of new features to about seven hundred thousand dollars, or one third the cost of Pinocchio or Fantasia, which was also in development at the time. 2:06:10 Since labor costs made up 85 to 90% of Disney's total costs implementing such severe economies would mean laying off more than half the staff. 2:06:19 So you've got cost reduction in some of the people sticking around and you've got big layoffs because Pinocchio didn't pay back. Yep.
David Rosenthal
2:06:26 Well, layoffs coming, they haven't happened yet, and this is part of why the organization and the strike happens. 2:06:32 So hundreds of employees. 2:06:36 End up striking. 2:06:37 They picket the Burbank campus, they march all day, they carry signs with slogans like Snow White and the Seven Dwarfs or what is a drawing of Pinocchio with the caption? 2:06:50 "No strings on me." 2:06:52 The strike lasts for three and a half months. 2:06:57 And it's a completely shattering event for Walt personally and for the company. As the union is organizing the employee base in the days and weeks leading up to the strike, Walt decides that he's going to make a speech and address the entire company, which he thinks will explain his position and the challenging state that the company's in, and it will resolve everything, and employees will rally around him in the company. 2:07:24 Around him in the company. 2:07:26 Unfortunately, it has the opposite effect. 2:07:28 It is a complete disaster. 2:07:30 He lectures the entire company for nearly three hours. 2:07:33 Some of his lines from the speech, which he had written out ahead of time, so it's preserved. 2:07:38 "Are: my first recommendation to the lot of you is this." 2:07:42 "Put your own house in order." 2:07:43 "You can't accomplish a damn thing by sitting around and waiting to be told everything." 2:07:48 "If you're not progressing as you should, instead of grumbling and growling, do something about it." 2:07:52 And then, don't forget this, it's the law of the universe that the strong shall survive, and the weak must fall by the way. 2:07:59 And I don't give a damn what idealistic plan is cooked up, nothing can change that. 2:08:05 Probably not what you wanna tell your employee base after you just slash their salaries. 2:08:11 Yeah, yeah, a labor magazine would write afterwards. 2:08:16 Walt Disney's speech recruited more members for the Screen Cartoonists Guild than a year of campaigning.
Ben Gilbert
2:08:25 Yeah, about the worst reaction that you could possibly have, and Walt... 2:08:30 I don't know if you found this in your research, but it seems like he's kind of diluted here into thinking. 2:08:37 Well, it's not actually my employees that are doing this. 2:08:41 It's these communist, very few communist agitators who have undercover become my employees and they're riling up the rest of them. 2:08:52 And while it's like, kind of removed himself and he's in denial that... 2:08:58 This is actually what his workforce wants. 2:09:00 The family atmosphere that we had at Hyperion is now a like real corporate, you know, have and have-nots here and Burbank campus. Yeah.
David Rosenthal
2:09:11 Yeah, it's a mess and then it gets worse. 2:09:15 So in the middle of the strike, which again lasts for three and a half months, that hundreds of employees are gone from their jobs, that are not working and marching and protesting outside the...
Ben Gilbert
2:09:24 ...company while they're trying to make Bambi, which is equally ambitious, right?
David Rosenthal
2:09:29 Walt is just so depressed and in denial and upset about the whole thing. 2:09:35 That in August of 1941, he agrees to go on a goodwill trip to Latin America with Nelson Rockefeller's Office of the Coordinator of Inter-American Affairs. 2:09:48 This is the trip that ultimately results in the Disney films Saludos Amigos and The Three Caballeros. 2:09:54 If you've seen those or been to the Three Caballeros ride in Disney World in Epcot, it's actually great.
Ben Gilbert
2:10:00 It also results in Roy having to resolve the strike, because Walt is uninterested in dealing with it.
David Rosenthal
2:10:05 Yeah, the real reason Walt goes on this trip, and he would write about it, he would call it a quote, Godsend, and say that it gives him a chance to get away from this god awful nightmare in Burbank. 2:10:17 Yeah, he basically just leaves the country and walks out on the whole thing and tells Roy to settle it.
Ben Gilbert
2:10:23 I'm leaving for 10 weeks. Do your best. Yep.
David Rosenthal
2:10:26 So while Walt is gone in Latin America, Roy does settle the strike after federal mediation. 2:10:33 Disney ends up recognizing the Screen Cartoonists Guild union. 2:10:37 They raise salaries for the remaining employees. 2:10:43 And they agree to a negotiated layoff of over 500 employees. 2:10:49 So taking total headcount before the strike down from 1200 to under 700. 2:10:56 These are the layoffs Ben that you referred to; the studio would never fully recover from this. 2:11:05 Certainly not under Walt and not for many. 2:11:09 Many years afterwards, really not at all in the period of classical animation before computer animation comes along.
Ben Gilbert
2:11:16 And sort of equally as importantly Walt would never recover from this, as it pertains to his relationship with the company Walt Disney Productions. 2:11:26 Yes, it no longer feels like his family. 2:11:29 It feels like a creation he's made that has sort of run away from his control. Yep.
David Rosenthal
2:11:34 He ultimately does. 2:11:36 Decide that the company Disney and he Walt Disney have a creative and business future, but yeah, he never has the same relationship to the studio or animation after this. Yep.
Ben Gilbert
2:11:49 He apparently, according to Don Lusk, who was an animator there, made a list of everyone who went out on strike, and said that everyone on this list isn't true to Disney. 2:12:00 And one day will not be here. Yeah.
David Rosenthal
2:12:03 So then you mentioned Walt's sort of anti-communist streak that comes out of this. 2:12:08 Yeah, for the rest of his life, he would blame all of this on communist influences in Hollywood. 2:12:15 He would actually testify after World War Two in front of the House Un-American Activities Committee, you know, Hugh Act as a friendly witness corroborating. 2:12:25 Communist infiltration in Hollywood.
Ben Gilbert
2:12:28 He named names of people who he said were communists. 2:12:31 Yeah, based on things he had heard about them, like no even proof, and you've got like a major figurehead of a big US corporation testifying, there's all this video of it, of him saying I believe so and so is a communist.
David Rosenthal
2:12:43 Yeah, and of course this would lead to the famous Hollywood blacklist, and you know all the terrible stuff that comes out of that. One thing. 2:12:50 Later sort of by association with this people would accuse Walt of being anti-Semitic since much of the communist movement in the US and especially in Hollywood was in the Jewish community. 2:13:02 Gabler investigates this pretty thoroughly and his book and concludes that there's not any evidence that Walt ever really was anti-Semitic.
Ben Gilbert
2:13:10 I turned over every stone i possibly could on this company and we spent, i don't know the better part of the year so far researching this and i found zero evidence of that.
David Rosenthal
2:13:19 Yeah, say definitely anti-communist for sure.Yep. 2:13:23 But anyway, so speaking of the war.
Ben Gilbert
2:13:28 by the way, this is like four giant blows to the company in a row. 2:13:31 You've got europe dropping even before the us enters the war. 2:13:35 You've got the european distribution falling off. 2:13:37 There's a thing we didn't talk about which was. 2:13:39 Fantasia tried to make this giant bet in a new type of sound for movies called multi-channel sound. 2:13:46 This alone almost killed the company. 2:13:48 The budget for fantasia was 50% bigger than snow white. 2:13:53 And in the first run at the box office, they tried to use multi-channel sound. 2:13:58 This new sound technology, they had invented and distributors didn't pick it up to do like a real first run. 2:14:05 And so out of the 2.3 million dollar budget in that first year, it came out in 1941, they recouped 325,000. 2:14:13 Wow, that is a giant loss on fantasia. 2:14:16 I think disney was also funding the development and distribution of fantasia. 2:14:22 So you've got those two then the strike. 2:14:25 Now the us enters the war.
David Rosenthal
2:14:27 Yeah, one more note on fantasia though, before we talk about the impact of the us entering the war, Do you know what ultimately ended up happening with fantasia?
Ben Gilbert
2:14:37 They made fantasia 2000 60 years later.
David Rosenthal
2:14:41 Yes, that is true. 2:14:43 But that is not what i was getting at. 2:14:45 So yeah, the initial release of fantasia as he said was a total flop. 2:14:50 They couldn't exhibit it anywhere lost tons and tons of money. 2:14:54 Later, it has this huge resurgence. 2:14:57 I mean, i remember when i was growing up as a kid, my parents loved fantasia.
Ben Gilbert
2:15:01 I actually thought fantasia was a modern movie. 2:15:03 It's crazy to me that it was disney's second.right?Right.
David Rosenthal
2:15:05 I think it was like the 60s and the hippies that thought like, oh, this is like the coolest thing. 2:15:10 So Fantasia, if you look today at the list of inflation-adjusted top films in history by box office gross inflation adjusted, Fantasia is the 24th highest-grossing film in Hollywood history.
Ben Gilbert
2:15:30 So it has a whole second place and kind of timeless totally.
David Rosenthal
2:15:34 It's an amazing amazing production. 2:15:37 I mean, the music, the symphonies, the sound. 2:15:39 It's a go watch fantasia. 2:15:41 If you've never seen it, it is well worth your time.
Ben Gilbert
2:15:43 And now a hard cut over to world war two.
David Rosenthal
2:15:46 Yeah, okay, so back to 1941. 2:15:51 No sooner does roy settle the strike, then pearl harbor happens and the us now enters world war two. 2:15:59 And unlike many the other great american companies of that era that we've covered on this show before, where world war two was great for their business, like coca-cola or mars or lockheed. 2:16:14 World war two is a disaster for disney. 2:16:18 Nothing of value gets built for disney during the war. 2:16:23 It basically breaks every single node in the flywheel. 2:16:27 And on top of the strike, it just completely grinds to a halt all new core ip production for the studio.Yeah.
Ben Gilbert
2:16:36 So the first thing that happens is within hours and then days of pearl harbor getting bombed. 2:16:42 The us military moves into the studio. 2:16:45 Yes, yes, look at Burbank and they think this is a great asset. 2:16:48 And so, you know, why hundreds of troops? 2:16:51 There are two reasons that set up shop using the sound stages to work on all the optical systems for anti-aircraft. 2:16:57 Sound systems are awesome. 2:16:59 There's no windows. 2:17:00 It's a giant room. 2:17:02 I mean, like it's it's the the thing you would want for stuff like this. 2:17:06 The second reason that I suspect you're hinting at, David, is. 2:17:09 It is real close to Lockheed.
David Rosenthal
2:17:12 Yes, real close specifically to Lockheed Skunk Works department, which is in Burbank, the secret Lockheed Skunk Works. 2:17:21 Airplane hangars and department was in Burbank because Burbank was the sticks back then and Disney is right next door. 2:17:31 So that's probably the bigger reason why the military requisitions the Disney lot is to protect Skunk Works. Fascinating. Yeah.
Ben Gilbert
2:17:40 So you've got that happening. 2:17:41 You've got a whole bunch of the animators getting drafted. Yep. 2:17:45 I mean so you're you're you're down manpower. 2:17:47 You're just coming out of the strike. 2:17:49 You have these huge failures in Pinocchio, Fantasia, and also Bambi again, you've lost European distribution. Yep. 2:17:55 And so the appetite for making more things like those three movies drops to like zero. 2:18:03 I mean, at this point, there's a financial reality that Disney owes a dividend to these shareholders, which interestingly enough, it actually suspended in 1942. 2:18:11 They actually didn't pay out the dividend, but they do have to pay Bank of America. 2:18:15 The films aren't going to be the thing doing it and conveniently, they've got the US government saying. 2:18:20 Can you help us with some propaganda films? 2:18:23 Can you help us encourage people to pay their taxes and buy war bonds and support the troops? 2:18:29 And so Disney kind of looks at everything how it's all playing out and says, yeah, that's what we're going to be doing for the war.
David Rosenthal
2:18:35 So all of the studio production work during the US's time as an active participant in World War Two. 2:18:42 Yeah, basically just gets repurposed to propaganda and training materials for.
Ben Gilbert
2:18:48 The government and insanely, they do use Disney IP. 2:18:52 Like you see all these crazy old posters with like, you know, Donald Duck holding a gun and I mean the stuff you sort of would never see with these characters today. 2:19:03 But not only did Disney say we're work for hire, they said we can use the Disney IP. 2:19:08 But interestingly, David, do you know about Mickey Mouse's role? Oh, no. 2:19:13 They really did not employ Mickey Mouse. 2:19:17 They protected Mickey Mouse from the war image and Donald Duck sort of led the charge interesting on all the war films.
David Rosenthal
2:19:26 Well, part of this is because canonically Donald Duck is a sailor, right? Oh, okay. That makes sense. 2:19:31 Yeah, yeah, but then it makes sense to protect Mickey too.
Ben Gilbert
2:19:34 And Donald's also the more like. 2:19:36 Fighter of a character. 2:19:37 Yeah, Mickey started off as this troublemaker, but then kind of became the like nice protagonist.
David Rosenthal
2:19:42 Yeah, the goodie-tushies, and then Donald was the foil. Yeah. 2:19:46 Yeah, so all of this though, to our point earlier, does nothing either for the flywheel model or for generating new IP to feed it.
Ben Gilbert
2:19:55 Or pushing the envelope of technology, or pushing the bounds of creativity, like all the things that contribute to Disney's core. 2:20:01 Yeah, that they are financially floated though, by the war. 2:20:05 I mean the way that they make it through this period is that they actually are generating net income reliably, not a lot.
David Rosenthal
2:20:12 But, from the government work, exactly. 2:20:14 And there's one other big innovation, an actual bright spot. 2:20:19 That comes out of this back against the wall moment during the war that the company's in financially. Do you know what that is? Oh. 2:20:29 The Disney Vault, the vaults. Yes. 2:20:32 So in 1944, the company is so cash-strapped that they come up with the again at the time, crazy seeming idea to re-release Snow White in theaters because hey, we can't make new stuff but people sure like that old movie. 2:20:50 Let's just put it in theaters and see what happens.
Ben Gilbert
2:20:53 And the thing you got to remember is with no home video and no TV, no one had seen Snow White in seven years. 2:20:59 Exactly, it truly vanished off the face of the earth, except for the copies of the film that were held in the Disney Vault.
David Rosenthal
2:21:05 In the Disney Vault. 2:21:06 Yes, so in 1944, they re-release Snow White in theaters. 2:21:13 And it brings in 3 million dollars in revenue to Disney on just a like a few hundred thousand in cost. 2:21:23 They basically just got to print a few new copies of the film and then distributed it out to theaters, right?
Ben Gilbert
2:21:28 The theaters get their normal cut, the distributor gets their normal cut, but Disney's cost to develop.
David Rosenthal
2:21:32 The film is like zero, zero. 2:21:33 Yeah, they've already developed it. It's already done. 2:21:36 This is an enormous boost for the company and. 2:21:40 And to your point about the seven year gap since the initial release, it turns out conveniently that seven years is just about the right amount of time. 2:21:51 For a new generation of children to come along and reach an age where they would be interested in consuming Snow White that haven't seen it before, and they discover it. 2:22:02 For the first time, and yet it's infrequent enough that it doesn't. 2:22:07 Dilute the IP.
Ben Gilbert
2:22:08 So Walt's got an amazing quote on this actually from the second re-release in 1951 of Snow White: 'In the eight years since then, our first re-release, our potential audience has been increased by 25 million children who either were not born or were too young to attend a motion picture theater in 1944.' 2:22:26 You're an adult much longer than you're a kid.
David Rosenthal
2:22:29 It's so amazing and they totally stumble into the seven-year thing. 2:22:32 Like it's not like they intended when they made Snow White to say, okay, we're going to put it in the vault and then seven years from now we're going to take it out. 2:22:39 It just happened that seven years later, they had a big cash crunch, they needed some easy profits, and they put Snow White back in theaters and seven years, you know, give or take a couple years, basically becomes the core Disney IP cadence to this very day.
Ben Gilbert
2:22:55 And Disney could uniquely do it versus other studios because their IP was more timeless. 2:22:59 It's animated and it's based on these. 2:23:03 Timeless sort of lessons and these fairy tales of old like there are there are these simple but resonant stories.
David Rosenthal
2:23:11 resonant stories and it carries through right to today. 2:23:15 What is the cadence between Disney's Frozen movies today? 2:23:18 Frozen one comes out 2013. 2:23:21 Frozen 2 comes out 2019, Frozen 3, slated for release next year, 2027, six to eight years. Like clockwork. It's interesting.
Ben Gilbert
2:23:32 They've applied it to sequels now too. Yep. All right. 2:23:35 So now we've got four components to the flywheel business. 2:23:37 Your original three: genuinely compelling new intellectual property with characters that you resonate with, to maximize distribution of each element in the primary delivery vehicle. 2:23:49 You've got three: feed that IP into as many ancillary profitable flywheel nodes as possible. 2:23:55 And now we've got four. 2:23:56 Yep, the vault, the re-releases.
David Rosenthal
2:23:58 strategically re-release it every seven or so years frequently enough to capture each new generation of children, but not too frequently lest you dilute its impact with effectively evergreen content. Yep.
Ben Gilbert
2:24:09 its impact with effectively evergreen content. Yep.
David Rosenthal
2:24:14 Roy has a great quote. 2:24:16 That he would tell the Wall Street Journal many years later. 2:24:20 Our product is practically eternal. 2:24:25 And it's so true. Yep. 2:24:27 So despite this genuine innovation of adding the vault concept to the flywheel by the time the war ends in 1945, Disney is not in a good place. 2:24:39 The flywheel is basically completely broken. 2:24:43 There hasn't been any compelling IP generated for the past several years, and worst of all, Walt himself is disengaged and disillusioned. Yeah.
Ben Gilbert
2:24:56 but clearly something happened, because the Disney we know today is quite successful.
David Rosenthal
2:25:01 Yes, but before we continue the story.
Ben Gilbert
2:25:03 Yes, listeners, this is a great time to thank our friends at ServiceNow, long time friends of the show. 2:25:10 So, if you are managing a large enterprise today, you've got AI everywhere, you've got copilots and models and agents all running across every team.
David Rosenthal
2:25:17 And the promise was simple, add AI, and the results will follow. 2:25:21 But enterprises are now realizing that the hard part was never adding AI, it's making it work.
Ben Gilbert
2:25:27 Right, it's got to have the right context and connect to the workflows that matter. 2:25:31 Plus, it's got to be secure, state governable, and still be able to take real actions. 2:25:36 You get all that working together, and that's when magic happens.
David Rosenthal
2:25:39 Yes, and for those like two of you out there who've never been to Disneyland, the magic isn't just from one great ride, it's from the whole experience being seamless, the daily parades, the sight lines, the characters appearing exactly at the right moment. 2:25:53 It looks effortless, but behind the scenes. 2:25:56 Thousands of moving parts are being coordinated in real time from a control center that nobody ever sees.
Ben Gilbert
2:26:01 And that's what ServiceNow has been building for over 20 years. 2:26:05 The foundation AI needs to succeed and they've done it at scale over 100 billion workflows trillions of transactions and the operational knowledge of how work actually gets done. 2:26:15 That's why more than 85% of the Fortune 500 work with ServiceNow.
David Rosenthal
2:26:19 and as the AI control tower, they're giving companies a single place to manage all of it, not just agents, but every AI system across your business.
Ben Gilbert
2:26:27 So listeners, if you are wrangling AI across your company, go check out ServiceNow. 2:26:31 acquired.com and just tell them that Ben and David sent you. 2:26:36 All right, so we're coming out of the war. 2:26:38 There's sort of a few moving parts here at Disney right now. 2:26:43 So the revenue from the government has dried up. 2:26:46 So the thing that was putting them on sound financial footing is not there for the sort of quick revenue hits. The long-term stuff, other than the re-releases, they haven't stoked the fire in a while. 2:26:56 So the strategy over these next few years is to sort of kickstart, to try to do stuff that doesn't cost a lot of money, but might have a lot of return.
David Rosenthal
2:27:04 And so they try a bunch of stuff. 2:27:06 On the animation side, they do packages, where they take a bunch of shorts, and they package them together as feature films. 2:27:14 These are movies that you almost assuredly have never seen, called like Make Mine Music or Fun and Fancy Free, not big successes. 2:27:23 The other thing they try in animation is to go back to the original Alice's Wonderland idea of combining animation and live action. The result of that is the movie Song of the South. 2:27:36 Yeah, which historians look back on as racist and deeply problematic, and Disney has never released on home video or streaming. 2:27:47 So, not a big success for the flywheel there either. 2:27:51 And for the first time in animation, there's now actually real competition in the marketplace. 2:27:57 So, before the war, Warner Brothers had started Looney Tunes, you know, with like Daffy Duck and Porky Pig. 2:28:04 And then Elmer Fudd and of course Bugs Bunny. 2:28:07 Ironically, it's a former Disney story department employee, Charles Thorson, that does the initial designs for Bugs Bunny. 2:28:16 And then in 1940, you know, same year, it all started to fall apart for Disney. 2:28:21 Joseph Barbera and William Hanna start working together. 2:28:24 They produce Tom and Jerry for MGM. 2:28:26 So the other major studios and The Flintstones. 2:28:29 Yeah, The Flintstones, of course. 2:28:30 Yeah, the other major studios are starting to creep in on the animation game. 2:28:35 And so by this post-war period, these other studios had grown in popularity, and were really starting to rival Disney. 2:28:43 Meanwhile, Disney, they go the other way, and they get into live action.
Ben Gilbert
2:28:47 Yeah, they somehow had a bunch of cash tied up in Europe that they couldn't repatriate. 2:28:53 So they needed to spend it in London, so they went and shot a live action film, Treasure Island, in London, which did well for them. 2:29:00 Live action is far less expensive to create, you can do it fast, and they needed to do something with this cash. 2:29:06 But, you know, you're not buying a lot of Treasure Island merch today, it's not durable like the animated stuff.
David Rosenthal
2:29:11 As we talked about earlier, a live action. 2:29:13 Doesn't feed the flywheel at least for Disney in quite the same way.
Ben Gilbert
2:29:17 Yep, they started doing nature documentaries. 2:29:20 They did one called Seal Island shot in Alaska. 2:29:23 They also started studying the emerging TV medium to see if they should do something here. 2:29:29 But at this point in time decide, yeah, basically not, but we'll watch it and see we're very interested. 2:29:35 But Walt's heart really was in animation. 2:29:38 He wanted to get back to making animated feature films that push the envelope. 2:29:43 Roy meanwhile hates this idea, since the studio is not on good financial footing, it has lots of debt. 2:29:49 Walt ultimately has to give an ultimatum, that if we don't get back to this, then we should just sell the company. 2:29:54 Like, what are we even doing here? 2:29:56 In 1950, Roy capitulates and the company went and raised another 2 million dollars to finance their next film, which was Cinderella. Mmm.
David Rosenthal
2:30:06 The first bright spot in a long time.
Ben Gilbert
2:30:09 And their first full-length feature film in eight years since Bambi in 1942.
David Rosenthal
2:30:14 42 and the way they made Cinderella was quite different, right? Yeah. So.
Ben Gilbert
2:30:20 Well, pounds the table to make this thing and then he kind of realizes the way they are going to make it feels compromised to him because the budget just can't be what they were blowing before in those early 40s to try to really push the envelope.
David Rosenthal
2:30:34 Yeah, there's a great quote from the animator Frank Thomas who worked on Cinderella. 2:30:38 We planned Cinderella more carefully and shot it all in live action first so we could judge it. 2:30:43 This was without costumes or a set, just go on a sound stage and see whether that scene's going to work. 2:30:49 Walt said, we can't afford to animate it and then change it. 2:30:52 The animation has to be right the first time. 2:30:55 Yeah, not the mindset that they took into Snow White.
Ben Gilbert
2:30:58 And this basically flips the like live action animation thing from a source of inspiration and study to a crutch. 2:31:05 So, they were filming every scene, and then rotoscoping, effectively like tracing. 2:31:10 The live action footage out of the camera to make it animated, which can lead to this much more rigid feeling animation. 2:31:18 Also, once you film it, you are completely locked into that view. 2:31:21 It's not like you can move the theoretical camera. 2:31:24 Because you haven't really built the muscle to animate in that style for the film. 2:31:29 Yeah, so you're you're kind of stuck with this, like how it looked in the camera, is how we trace it. 2:31:34 On paper, it just had less of the like lavish detail that they put into Pinocchio and Bambi. 2:31:40 All this ultimately leads to like Walt's heart is just not in it. 2:31:44 He kind of helps kickstart the whole thing but then is not engaged during the production of this film. 2:31:50 It does end up being a critical and commercial huge success though. Yes.
David Rosenthal
2:31:55 I believe it makes basically the same amount of money as Snow White. 2:32:00 I think it does 8 million dollars in film rentals in the first year.
Ben Gilbert
2:32:03 Yep, on a cost of 2.2 million. Yep. 2:32:06 So really this is the first big financial success for the company since before the war. 2:32:10 It's the biggest success since Snow White. 2:32:13 It got the company back on sound footing after a pretty gnarly.
David Rosenthal
2:32:17 Time early decade there. 2:32:19 But yeah, so Cinderella is is a huge bright spot. 2:32:22 It was a one-time financial boost to the studio. 2:32:26 That didn't solve all the company's problems, but it did get animation back on the right foot creatively, even though Walt was no longer, you know, as deeply involved as he was in the Snow White era. 2:32:39 It did turn things around enough that, like, at least they were making quality work again. 2:32:44 And like, obviously, those films still hold up today.
Ben Gilbert
2:32:47 Over the next few years, they then released Alice in Wonderland, which surprise ballooned over budget and did not pay back. 2:32:54 That is in part because. 2:32:56 A lot of historians say it's a film that walt felt like he should do because of his reverence for the source material. Yep. 2:33:03 But never quite had a clear idea on exactly what to do with it. 2:33:07 So it's hard to put together these sort of disjoint vignettes into one cohesive film but artistically beautiful. 2:33:14 So put a pin in that we'll come back to it. 2:33:17 But interesting comment on alice from the 1951 annual report from roy. 2:33:24 Alice has not performed as well at the box office as cinderella. 2:33:27 Because of these circumstances, which were generally poor attendance at theaters, he actually blames the macro, which is interesting. 2:33:34 And because alice in wonderland is our highest cost feature, it is not expected to produce a profit from its first release. 2:33:41 However, it is a classic property, which should be a valuable asset to the company indefinitely.
David Rosenthal
2:33:46 And hey, he was right. Yup. 2:33:48 All right, so we've talked about walt being disengaged here. 2:33:52 What is he doing?
Ben Gilbert
2:33:56 So Walt. 2:33:58 Is playing with trains.
David Rosenthal
2:34:03 I mean, yes, he is.
Ben Gilbert
2:34:05 That's about the best way that I can frame. 2:34:07 This is he's getting really into trains and really into miniatures.
David Rosenthal
2:34:11 Yes, trains specifically model trains and miniatures like miniature furniture and like rooms in homes in miniatures.
Ben Gilbert
2:34:23 Yeah, I mean. 2:34:24 Gosh, I said we weren't going to dive into walt's psyche on this episode, but I kind of think about this. 2:34:28 This is me editorializing as this like soul searching half decade where he's just looking for what is he gonna get passionate about next? 2:34:40 Because he's sort of bored like animation isn't doing it for him the way that it used to and he's like reaching back into his childhood for inspiration.
David Rosenthal
2:34:50 And the way walt would frame this is that he was developing these hobbies to keep his mind off of the problems at the studio. 2:34:57 That's what he would always say, right?
Ben Gilbert
2:34:58 That these were nice things to do after a hard day at work. Yep. 2:35:02 But they became obsessions. Yes. 2:35:04 When I said reaching back to his childhood, there was a train that ran through Marceline, which is why Marceline existed. 2:35:11 And there's this like deep seated psyche around trains and small town America. 2:35:16 He and some of the other senior animators develop this interest in. 2:35:19 Large scale model trains, which are 1/8 the scale of an actual railroad train. 2:35:26 So like big like ones you could ride around sitting on top of there's amazing old footage of walt like riding around on these these one a scale trains. Yep. 2:35:36 So walt took this extremely seriously. 2:35:38 He ends up traveling to the 1948 and 1949 chicago train fair and he kind of dove into this community of fellow train enthusiasts. 2:35:48 I was thinking this was strange, like i kept reading about this and i was like, this is wild. 2:35:53 There were six million train enthusiasts, like model train enthusiasts at the time. 2:35:58 This was actually like a pretty big thing.
David Rosenthal
2:36:00 Yeah, this isn't like billionaire hobbies today. 2:36:02 This is like Walt is hanging out with other enthusiasts kind of man of the people style. Yes.
Ben Gilbert
2:36:09 And it was something that was really tangible for him to do with his hands. 2:36:12 I mean, he was building. 2:36:14 Some of the train cars himself, he actually had a workspace in the machine shop in burbank where he was building with the machine shop staff. 2:36:22 There was a guy roger broggy who sort of led the machine shop team who would go on to build a serious serious model train for walt. 2:36:31 Roger would also become just a foreshadow here. 2:36:33 The first imagineer.
David Rosenthal
2:36:35 Yes, yes, yes. 2:36:36 Well, just to foreshadow even more, all of this would lead to imagining.
Ben Gilbert
2:36:42 Yes, so this team in the machine shop, and walt end up building this train, and and david, you were saying like man of the people style. 2:36:52 In a very not man of the people style thing, he ends up sinking 50,000 dollars, which is like a giant amount of money at the time, and a huge amount of his personal liquidity in 1950 into building a train in his backyard. 2:37:06 There was a half mile of track that went through a tunnel, that tunnel that which he dug under his wife's garden on its own was 90 feet long.
David Rosenthal
2:37:17 Yes, when Walt gets obsessed with something, he goes to unreasonable extremes.
Ben Gilbert
2:37:24 When he and his wife were looking at houses to figure out where, what property they were going to buy and then build a house on, a major consideration was, is there room for a giant train to be laid out? 2:37:35 He ends up, it's on Carolwood Avenue, I believe, Carolwood Street, and he ends up naming it the Carolwood Pacific. 2:37:41 The steam engine is named the Lily Bell after his wife.It's a whole thing.Yep.
David Rosenthal
2:37:47 And if you go to Disneyland or Disney World today, Most of the steam engines of the railroads are named in callbacks to this period and this inspiration in walt's life. 2:37:59 So there's the lily bell engine at walt disney world. 2:38:02 There's the ward kimball, who is the original animator that gets him into this hobby. 2:38:07 There's the roger broggy as you're saying and then there's also the roy disney.
Ben Gilbert
2:38:11 Oh, nice. 2:38:12 I did not know that. 2:38:14 So this is great quote in a pbs american experience documentary by historian nancy cohn where she's reflecting on walt in this moment and her quote is i can't control my employees turns out i can't control the larger stage right now. 2:38:29 I can't even completely control my company. 2:38:31 So here's a world i can recreate down to the smallest detail that is mine and perfect.
David Rosenthal
2:38:38 and it would become something much bigger that would also be his and also be perfect.yes.
Ben Gilbert
2:38:45 so, out of this stew comes disneyland.yes.
David Rosenthal
2:38:49 which is so funny because walt would insist in interviews until his dying day that, quote, the idea for disneyland came about when my daughters were very young, and as i'd sit there while they rode the merry-go-round, i felt that there should be something built where parents and children could have fun together. 2:39:08 So that's how disneyland started. 2:39:10 It all started from a daddy with two daughters wondering where he could take them, where he could have a little fun with them too.
Ben Gilbert
2:39:18 It's also that.
David Rosenthal
2:39:19 you know, i'm sure that's part of it. Yeah. 2:39:21 Some of both, but really the trains.
Ben Gilbert
2:39:24 Okay, so how did disneyland happen? 2:39:27 Well, the initial thing was actually pretty small. Yep.
David Rosenthal
2:39:29 The initial idea.
Ben Gilbert
2:39:30 Yes, there was a name floated, mickey mouse village, that sort of quickly changed to disneyland since it was much more about his new passions, trains, americana, and miniatures than it was about mickey mouse. 2:39:44 And he started working with artists to sketch out what it would be and the constraint that he had was we've got this 16 acre plot of land that's adjacent to the burbank studio lot between that and the river. 2:39:58 So that's sort of what we're working with.
David Rosenthal
2:40:00 here and that's the natural place you would put this.
Ben Gilbert
2:40:03 of course, of course. 2:40:05 So in march of 1952, walt announces it disneyland to be constructed on that little strip of land for a cost of 1.5 million dollars, a snow white, a snow white. 2:40:19 Yeah, we should speak in units of snow white. 2:40:21 It's actually cheaper than a snow white given the inflation. Yeah, right. Right.
David Rosenthal
2:40:24 Much cheaper than a snow white.
Ben Gilbert
2:40:26 It's now been 15 years. 2:40:28 So he decides i'd actually like to spend some money on a larger study for this because. 2:40:33 I've got a couple of like artists renderings here that include cool little river and a train that runs on this and we're going to figure out, you know, attractions that that go in this thing. 2:40:43 But i we really got a jam a lot in here. 2:40:46 So i'd like more.
David Rosenthal
2:40:47 money roy in the board are none too enthused about this.
Ben Gilbert
2:40:51 Yeah, think about everything that we have said over the last, i don't know, our about the state of the company. 2:40:58 And walt is saying, hey, i found a thing i'm interested in. 2:41:01 Can i have some money to explore building this kind of like inarticulable idea? 2:41:07 Yeah, right next to the studio lot.
David Rosenthal
2:41:09 Yeah, kind of goes over like a lead balloon. Yes.
Ben Gilbert
2:41:13 So the walt disney company at this time called walt disney productions does not free up the purse strings for this. 2:41:19 So what does walt do? 2:41:20 He kind of talks to roy about it and they figure out a path forward. 2:41:24 He's going to start his own company. 2:41:26 That would get formalized later in the year in 1952 that ends up being called wed enterprises. 2:41:31 W e d walter elias disney is personal company that he can do weird personal stuff with. Yes. 2:41:42 So over the course of 1952, Walt starts poaching people from disney to work on this thing. 2:41:50 And at first, it's just like a half dozen people and they're set up in a building on the back lot at burbank. 2:41:56 These would become the first imagineers. Yes. 2:42:00 And the interesting thing is the people he's poaching. 2:42:03 These are artists. 2:42:05 And their animators that are being hired to build a theme park and like big physical trains. 2:42:13 This gives you a sense of Walt's leadership style. 2:42:15 He would take a talented creative person and he'd be perfectly willing to assign them to things that they've never done before and say, yeah. you'll figure it out.
David Rosenthal
2:42:22 We also just got a pause here for a minute and really underline what's happening here. 2:42:27 This is Walt Disney.
Ben Gilbert
2:42:30 Yes, by this point in history.
David Rosenthal
2:42:31 he is the Walt Disney. 2:42:32 He is the Walt Disney, who has come up with a crazy new idea based on his obsessive hobby with model trains. 2:42:42 That the board of Disney Studios has basically rejected, and so he has gone full crackpot, like Colonel Kurtz style, and started his own separate company on. 2:42:54 The Disney campus where he is poaching and recruiting some of the best Disney animators and artists to come over and stop doing animation, and start working with him building a theme park. 2:43:10 That is what is happening here.
Ben Gilbert
2:43:11 I was about to make the comment, oh, this sounds a lot like Elon Musk, but none of Elon's companies have a board that would vote against him. 2:43:18 And so, that's really the only difference here. 2:43:21 Is kind of the like Elon before Elon. Yes. 2:43:24 So there ends up being two problems with this plan. 2:43:27 One is Walt and the architecture company that he hired kind of come to the conclusion that this plot of land, it's just too small. 2:43:34 Even with all the clever ideas to be space efficient, there's just too much that he wants to do with this Disneyland concept. 2:43:40 It keeps growing in scope to accomplish all of it in that little strip of land. 2:43:44 The second problem is after provisional approval, the Burbank city council starts to learn more and they decline the proposal since they do not want a quote carnival-like atmosphere right there on the side of the river.
David Rosenthal
2:43:58 You could describe Disneyland as lots of things but carnival-like atmosphere. 2:44:03 Clearly they did not get the vision. right?
Ben Gilbert
2:44:05 The magic is that it isn't exactly easily could have been so. 2:44:10 They need to find a bigger plot of land, and they need to work with a team that is really good at odd research-based tasks, and you're never gonna guess listeners where he goes for this. 2:44:26 It is like a a crazy nugget of history. 2:44:29 He goes to SRI the Stanford Research Institute. 2:44:35 If you've heard SRI before is one letter off from Siri, which was a spin-out of SRI. 2:44:42 Yes, that SRI that it was.
David Rosenthal
2:44:45 I was just gonna say that you just triggered like, you know, probably 2 million phones.
Ben Gilbert
2:44:51 some of which are running the beta. 2:44:53 So they'll have the new series. Yeah, yeah.
David Rosenthal
2:44:56 Uh, yes. 2:44:57 Yeah, SRI is the research firm that Walt hires to go identify. 2:45:06 What ultimately becomes.
Ben Gilbert
2:45:08 and I'm the perfect spot. 2:45:10 They absolutely knock it out of the park, but when you describe it, The site sounds completely nuts. 2:45:16 10 times bigger than the original site, a full 160 acres. 2:45:20 Yep, 25 miles away from Los Angeles. 2:45:24 It is currently just some orange groves Anaheim itself was a small farming town. 2:45:30 There wasn't even a highway connecting it to Los Angeles.
David Rosenthal
2:45:34 There was a planned highway. Yes.
Ben Gilbert
2:45:38 So there's a quote from The Animated Man by Michael Barrier. 2:45:41 The SRI analysis from August 1953 took into account a large number of factors, including likely population growth, freeway construction, and the effect of terrain on television transmission. 2:45:53 Since the idea was that TV will play an important part in the promotion and development of Disneyland, the study pointed toward a location southeast of Los Angeles in Anaheim, in Orange County, just off the Santa Ana Freeway. 2:46:06 That freeway was then under construction, but most of it between downtown Los Angeles and Orange County was scheduled for completion. 2:46:13 The foresight of all the factors that they considered there just incredible. 2:46:17 So there is one problem though, which is great. We found the perfect site. 2:46:21 It's 160 acres and we're going to do this much bigger and better than we were before. We're going to need some money.
David Rosenthal
2:46:27 We're going to need a lot of money. 2:46:29 So Walt goes back to the company. Yes.
Ben Gilbert
2:46:34 And remember, they had no interest in pursuing this, which is why he had to set up way in the first place. 2:46:39 It's becoming clear that this is happening. 2:46:41 I mean, Walt Disney is a force of nature and Roy becomes supportive or at least as supportive.
David Rosenthal
2:46:47 as strong-armed into supporting this, right?
Ben Gilbert
2:46:49 Well, still trying to protect the company. 2:46:51 And so in April 1953, Walt Disney Productions board of directors. 2:46:56 This is a public company agreed to a personal services contract with Walt and contracts with Wed to design and build the Disneyland park attractions. 2:47:05 This is done as a cost-plus contract. 2:47:08 So Wed and Walt personally don't have to take any risk at least in this part of it. 2:47:15 It is just like we will pay you. 2:47:17 Whatever it is, plus your profit margin to go build stuff and you know, it's kind of a blank check. 2:47:24 There are some pretty wild other terms in this personal services contract. 2:47:29 According to a 1990 article decades later in the LA Times, Walt is allowed to pursue outside projects, which effectively gives him all the benefits of being a free agent while still drawing his $153,000 salary from Walt Disney Productions. 2:47:44 Okay, another point. 2:47:46 Walt argues that he should be compensated for the use of his name. 2:47:51 He ends up getting it again worked into this deal and the contract awards him 10% of all merchandise sold.
David Rosenthal
2:47:58 Wow, I actually didn't find this. This is wild.
Ben Gilbert
2:48:01 So here's the next bullet point. 2:48:03 He will now get the right to invest alongside Walt Disney Productions in each live-action film project, which he would later do on Mary Poppins and other films.
David Rosenthal
2:48:12 So why did he negotiate for this? 2:48:14 I mean, my feeling about Walt after doing all this research is that he didn't actually really care that much personally about money. 2:48:23 Was he trying to accumulate cash so that he could fund Disneyland? Exactly. Exactly.
Ben Gilbert
2:48:30 There's also some like personal stuff tied up in here, his relationship with the company where he's like, it's not really mine anymore. 2:48:36 So I kind of want. 2:48:37 More out of it, that's sort of the less generous take on it. 2:48:41 But he and Roy definitely kind of came to this understanding of, well, if Walt is gonna have to fund a lot of this, then we need to figure out a way for Walt to get more cash so that he can. Yeah, I see.
David Rosenthal
2:48:52 This is happening no matter what, so we can do it the easy way, or we can do it the hard way.
Ben Gilbert
2:48:57 It is interesting on his relationship with money. 2:48:59 He was interested in money, but for the sake of deploying it, I mean hoarding money was never his thing. 2:49:06 Like he did live extravagantly compared to most people here that train and, you know, a vacation house in Palm Springs and all that. 2:49:13 But it's not what the other big Hollywood moguls were doing. 2:49:17 Lillian Disney has a comment in 1956. 2:49:19 She said, I've always been worried. 2:49:21 I have never felt secure, never. 2:49:24 He's always telling us how wealthy we are, how much we've got, and we haven't got anything. 2:49:29 And she's kind of right because he's always putting it back in. 2:49:32 Yes, and it's all tied up in the enterprise value of Disney, which he keeps sort of remortgaging and rebetting the farm. 2:49:37 Yes, so there's that angle. 2:49:39 He also always believed in the park, just like he always believed that animation feature animation had a long runway ahead of it. 2:49:47 And I was trying to think of the best way to contextualize this. 2:49:50 So to validate him there, this is a crazy stat. 2:49:53 I'm just how right he was about all of this Walt built this company over his entire lifetime from age 21 until he died in 1966. 2:50:03 And if you look at the company's market cap today, compared to where it was in 1966, 99.95% of the value. 2:50:12 Was created after Walt Disney died. 2:50:15 Yep, there was just so much more running room with his concept than he had time on this earth to execute. Yep. 2:50:22 Do you know how I know the 1966 market cap? 2:50:26 Is this ringing any bells for you?
David Rosenthal
2:50:27 David know.
Ben Gilbert
2:50:29 So during the Buffett partnerships, Warren Buffett saw that Disney was an underpriced asset in 1966 right before Walt died. 2:50:42 So Buffett bought a bunch of the stock in '66 since it had a market cap under 90 million dollars at the 90 million dollars. 2:50:51 The company was doing 21 million in pretax earnings and at this point because this is after Disneyland, this after a bunch of stuff, it had more cash than debt.
David Rosenthal
2:51:00 Wow, this is like Ben Graham bargain investing and even more.
Ben Gilbert
2:51:04 So like Charlie Munger investing because it was a great business at a great price. Yeah. 2:51:09 Wow, a 90 million dollar company doing 21 million in pretax that has Disney's flywheel is the buying opportunity of a lifetime when Buffett bought it.
David Rosenthal
2:51:18 That's why he's the goat. He did, of course, sell it. So right. 2:51:23 Well, that was the right move after Walt's death is we will see it a few minutes.
Ben Gilbert
2:51:27 Anyway, that's sort of how I would characterize Walt's relationship with wealth and sort of what his goal was in this personal services contract. 2:51:35 This whole thing ultimately becomes so contentious that three board directors actually resign from the public company. 2:51:42 There's also a shareholder lawsuit that gets brought. 2:51:44 And for sort of strange reasons, it doesn't end up going through, but the remaining board members end up approving it. 2:51:52 Essentially, it was Roy's way of saying, ok, the company doesn't want to be too tied up in this project if it fails, but we will provide you a way to get more cash flows. 2:51:59 From the company, so you can figure out how to do more of the funding of this thing yourself.
David Rosenthal
2:52:05 Wow, fascinating.
Ben Gilbert
2:52:07 So like, just to reflect to this point in history, this is something I really never realized. 2:52:11 The origin of Disneyland is at least so far in the story, not about the company intentionally looking for more places to put its intellectual property.
David Rosenthal
2:52:20 No, it's very intentionally not the flywheel in the beginning. Right.
Ben Gilbert
2:52:24 There are essentially zero synergies as conceptualized so far for Disneyland. Yep.
David Rosenthal
2:52:30 But all of that's about to change because Disneyland. 2:52:35 Even post all of the budget expansion after SRI and moving to Orange County and 160 acres. 2:52:42 Is getting so out of hand in its budget. 2:52:46 That it needs to actually come back to the company.
Ben Gilbert
2:52:50 Sort of sort of. 2:52:52 So here's the corporate structure. 2:52:54 Originally, they thought they would need about 5 million dollars for the Anaheim Disneyland. 2:52:59 Spoiler, they would go way, way over that. 2:53:01 But because they thought it was going to be this expensive, Walt went back to the company again and said, look, I know we did this personal services contract thing, but like, I think it's better if this is actually a Disney thing and let's figure out a way to really tie it all together here. 2:53:15 At a $5 million price tag, the company cannot afford to fund this. 2:53:19 If you look at 1952 when planning began, Walt Disney Productions made less than half a million dollars in net income. 2:53:27 So 10 times that for the park's budget is not going to fly. 2:53:30 There's not cash for it. 2:53:32 But at this point, the company is kind of like, all right, the proverbial train is moving forward here. 2:53:37 There is actually a good plan to integrate a whole bunch of Disney stuff into the park. 2:53:41 This can be a Walt Disney Productions thing in one way or another. 2:53:46 We're good for 500,000 dollars, but we need to go find the bulk of the five million dollars somewhere else. Yep. 2:53:53 What can we do?
David Rosenthal
2:53:54 So in order to go get the bulk of the financing for the park, Walt comes back fully into the fold at the Disney studio and does something that no other movie executive. 2:54:09 Is willing to do. 2:54:11 At this point in time, he embraces television, he goes to the TV networks for money. Yeah.
Ben Gilbert
2:54:19 And the fascinating thing is it's in part because they don't really want a pure financial partner. 2:54:27 For the park, like they don't want to just go raise a bunch of debt that they'll then have to pay back. 2:54:31 This is hamstrung them so many times. 2:54:33 They're trying to think creatively of. 2:54:35 How can we do like a one plus one equals five thing here, where we have this Disneyland Inc joint venture, and someone else's, you know, building this thing and funding it?
David Rosenthal
2:54:47 So yeah, at at the time, the prevailing sentiment in Hollywood was that TV was a threat. 2:54:52 That if hollywood movie studios started putting their content on tv, it would steal audiences away from the theaters. 2:55:00 It's just like in our nfl episode where baseball was deathly afraid of television. 2:55:05 I think the quote was radio whets the appetite for attending baseball games live and tv sates it. Yes. 2:55:12 But while realizes just like the nfl did the tv actually was a huge new opportunity. 2:55:20 Walt says, when television first hit, i went back to new york, and i spent a week in new york just to study television. 2:55:27 I had the feeling then that it was important, and that we ought to get in it. 2:55:31 The feeling of the motion picture business was that television was something we should fight, or we should ignore it, and maybe it would go away or some darn thing. 2:55:38 I said, television is gonna be my way of going direct to the public. 2:55:42 Bypassing the middleman. 2:55:44 I said, Roy, this television thing can be the greatest thing because we will be going direct to the public. 2:55:52 And he also thinks it might be his ticket to financing the park.
Ben Gilbert
2:55:56 So abc had been wanting to do something with walt, i mean lobbying over and over and over again. 2:56:02 Because walt did this one special a few years before, i think it was on nbc, not abc, and it it was great, like there is something very compelling about walt disney and disney stuff in a television special.
David Rosenthal
2:56:18 Yes, yes. 2:56:19 Avuncular Walt Disney beaming into living rooms around America.
Ben Gilbert
2:56:25 but. 2:56:26 Abc is the third place network. 2:56:29 Yeah, they don't have as many affiliates. 2:56:31 They don't have as much reach. 2:56:32 If you're going to get a partner for something that you really want to take advantage of the full reach of a television network, it's not abc.
David Rosenthal
2:56:40 You really want cbs or nbc? Yes.
Ben Gilbert
2:56:43 And so walt actually goes to cbs and nbc with this pitch. 2:56:47 I think it might be roy actually flying to new york and doing this, but. 2:56:51 They're not interested at least for the whole package that walt is proposing.
David Rosenthal
2:56:55 Yes, they both say, hey, well, we would gladly do a regular television series with you, but i don't know about this park thing.
Ben Gilbert
2:57:04 You're asking for the better part of 5 million dollars so that we can build a theme park with you. 2:57:09 And that's a bundle deal with a doing a tv show. This is really weird. Yep.
David Rosenthal
2:57:15 Abc though been as you were saying, they're the newest of the networks and they're struggling to catch on. 2:57:22 They need something like disney and disneyland to break out. 2:57:27 So they say yes, walt's line on this was that abc needed the show so badly that they bought the amusement park with it.
Ben Gilbert
2:57:37 Do you know the structural thing with the television industry that was going on in 1952? No. 2:57:44 So back in 1948 and i promise this is related back in 1948, the fcc paused, the ability to get a new broadcast license while the fcc was sorting out some technical and policy problems. 2:57:56 It was supposed to last like six to 12 months, but it ended up lasting four years. 2:58:01 Until 1952, a freeze on the ability to get a new broadcast license. 2:58:06 So the existing big four networks, which are about to be three nbc cbs and abc became pretty entrenched. 2:58:13 Meanwhile, the number of households with TVs was absolutely exploding. 2:58:17 It went from 9% of households in 1950 to 65% just five years later in 1955.
David Rosenthal
2:58:25 Yeah, so all these networks now have a basically government-protected oligopoly accidentally in this massive new market. Yes.
Ben Gilbert
2:58:34 So if. 2:58:36 ABC could put on a hit show, like there's not that many choices of stuff to watch at any given time because of this supply-demand mismatch on content. 2:58:45 Suddenly, a giant swath of Americans could pay attention instantly. 2:58:48 So they're like really hungry for super compelling content. 2:58:53 So, Walt goes to ABC kind of knowing this, and knowing they're in third place, and says, OK, I will make this show for you. 2:59:01 But A, you're doing the park with me, and B, I have complete say on what happens during the program, and I can change my mind anytime, and there's no part of the contract about what I'm making for you. 2:59:14 And ABC says, yes, absolutely. 2:59:16 That sounds fine, Mr. Disney. Yes.
David Rosenthal
2:59:19 So ABC ends up investing $500,000 in equity in Disneyland Inc. 2:59:25 Same terms and amount as Disney Productions. 2:59:28 In addition though, they also guarantee $4.5 million in bank loans. 2:59:35 So, boom, there's the rest of the financing. 2:59:38 That they think they need to get Disneyland off the ground in debt guaranteed by ABC.
Ben Gilbert
2:59:45 And they would televise the TV show, but Walt Disney Productions would have to produce it, but they're actually buying a pretty expensive TV show also. 2:59:52 So in addition to this $500,000 and the $4.5 million, ABC is also going to pay $5 million per year to Walt Disney Productions to make the show that they're going to put on the air, and it was ABC to air for seven years, which made it the largest TV programming contract in history.
David Rosenthal
3:00:10 Yes, this is an absolutely over-the-top deal.
Ben Gilbert
3:00:13 There is one other deal point, which is ABC negotiated to have the right to all the profits from Disneyland's food and beverage for the first decade.
David Rosenthal
3:00:23 Like, hey, we need something else out of this.
Ben Gilbert
3:00:24 Yes, yes. 3:00:26 But a part of this contract that is completely set in stone is the opening date. 3:00:31 July 17th, 1955.
David Rosenthal
3:00:34 Interesting, I didn't realize that the opening date was set in this contract with ABC. 3:00:39 Either way, they do get the television show, and it works out to be a great deal. 3:00:45 For everybody involved, because, bend to your point about supply and demand, it becomes a huge hit, like instantaneously, when it launches in the fall of 1954.
Ben Gilbert
3:00:56 The content is basically a behind-the-scenes look at all the different lands and content for each, so Tomorrowland, Frontierland, Adventureland, et cetera.
David Rosenthal
3:01:05 Yep, so pretty quickly Disneyland, because of course they name the TV show the same as the park. Sure.
Ben Gilbert
3:01:11 I mean, if Walt gets to control the programming, like why not just make it the most perfectly aligned advertisement every week for a whole year to get ready? Yes.
David Rosenthal
3:01:20 So it quickly becomes the second most popular show on television after I Love Lucy, and it's the first ABC program to crack the top 25 shows. 3:01:33 Ever like, it was all NBC and CBS until Disney.
Ben Gilbert
3:01:37 Land unbelievable. 3:01:38 Also abc lets disney run trailers inside each episode for their current theatrical release.Yes. 3:01:45 So it both promotes disneyland and the current movie slate.
David Rosenthal
3:01:48 It becomes a whole nother no to the flywheel.Yes.
Ben Gilbert
3:01:52 And for the first time they get repeat exposure. 3:01:54 I mean disney only gets a touch point once every few years with a consumer with a movie and maybe you watch their shorts. 3:02:00 But with tv, it's this way to build a repeated relationship.
David Rosenthal
3:02:05 They had this in a certain way with the comic strip before, but this is like that on steroids.Yes. 3:02:11 So in that same fall and winter of 1954 into 1955. 3:02:18 The show has its first big like viral moment even before the park opens. 3:02:27 So in december of 1954, disney begins a three-part live-action miniseries on the show. 3:02:37 About the story of davy crockett, davy crockett. 3:02:40 Oh, that's right. 3:02:41 And america goes nuts for davy crockett for listeners. 3:02:47 Who don't know davy crockett is like a historical american figure that. 3:02:52 Fought and died in the battle of the alamo in texas over a century before.
Ben Gilbert
3:02:57 this which disney highly fictionalizes the character.Yes, totally.
David Rosenthal
3:03:01 But this mini series becomes a massive flywheel moment for disney. 3:03:08 Totally unintentionally davy crockett coonskin caps become the must-have kids product of 1955. 3:03:17 They sell 10 million caps in 1955, even better. 3:03:24 The theme song, the ballad of Davy Crockett, you know, King of the Wild Frontier reaches number one on the Billboard charts in America and sells 7 million records in total. 3:03:36 Disney would go on to do around 300 million dollars of gross sales of Davy Crockett merchandise, which at this point they fully in-house commercial products. 3:03:47 Kay Kamen had tragically passed away in a airplane crash in 1949. 3:03:52 After which they in-house all of this within disney. 3:03:55 So if all that happened with the same splits, we mentioned before at 5% royalties on that 300 million dollars, assuming again, 100% retail markup from wholesale, that's seven and a half million dollars to disney, which, you know, i think is more in actual revenue to disney than they had earned from any.Film. 3:04:20 At that point in history and david.
Ben Gilbert
3:04:24 this is really going to play your mind. 3:04:26 That is actually more than the amount of income. 3:04:30 They had received ever cumulatively from first run animated features. 3:04:36 If you add up all the pluses and all the minuses by 1957,The money they had made ever in profit dollars from their first release films was a hair over 7 million dollars and they made by your estimates seven and a half million.
David Rosenthal
3:04:53 They made more from coonskin caps and record sales than incredible and what timing right before disneyland.
Ben Gilbert
3:05:01 opens insane. 3:05:02 Amazing disney absolutely crushed the timing. 3:05:06 On switching their horse to tv or sort of embracing tv and embracing it in this huge way and not just with programming, but directing all this attention at disneyland, we gave that stat earlier all the way in the 20s that the average american went to theaters over 40 times by 1947. 3:05:23 That number was down to about 32 times and by 1956 the year after disneyland opened, it was down to 14 times per year. 3:05:32 Thanks to our friend, Arvin at Worldly Partners for gathering all this data.
David Rosenthal
3:05:35 So movie executives really had good cause to be concerned about tv.
Ben Gilbert
3:05:40 Absolutely, attention was shifting to television, and right as it was shifting in droves, boom, that is right where disney showed up. 3:05:48 In this like multiplicative way, you know?
David Rosenthal
3:05:52 Yeah, man, incredible timing.
Ben Gilbert
3:05:55 And walt as ever had a quote on this. 3:05:56 This is from the special that he did back in 1950 as an experiment. 3:06:00 He said, i regard television as one of our most important channels for the development of a new motion picture audience. 3:06:06 Millions of televiewers never go to a picture theater and countless others infrequently in these highly competitive days. 3:06:13 We must use the television screen along with every other promotional medium to increase our potential audience. Man, was he right? Man, was he right?
David Rosenthal
3:06:23 And it's just so incredible that because he started playing with trains, disney became a major force in television. 3:06:32 And of course, open the park.Yes.Okay.
Ben Gilbert
3:06:34 So how does this all come together? 3:06:36 We've got this like joint venture called disneyland inc. 3:06:39 It's got 500,000 dollars from walt disney productions. 3:06:42 It's got 500,000 dollars from abc. 3:06:45 It's got 200,000 dollars from Western Publishing who distributed their books and then Walt himself put in 250,000 dollars. That's right. I did see that. Yes.
David Rosenthal
3:06:55 And then they've got the four and a half million of debt. 3:06:59 Guaranteed by abc.Exactly.
Ben Gilbert
3:07:01 So there's a total of six ish million dollars that they have to spend to build the thing. 3:07:06 Plus there was actually another 2 million of 10-year bonds that abc was committed to if they really, really needed an extra 2 million dollars to flex from a budget of six to a budget of eight.
David Rosenthal
3:07:16 So then i've read a bunch of places. 3:07:18 This ended up costing 17 million dollars.
Ben Gilbert
3:07:22 Yes, that is correct. 3:07:23 So the cap table is Walt Disney Productions and ABC each own 34%, Western Publishing owns 14% and Walt himself personally owns 17% and there is a contract between Disneyland Inc and Wed Enterprises which Walt owns 100% of to actually build it all. 3:07:42 So all of this leads up to july 17th, 1955, the opening of disneyland that would change the company forever. 3:07:53 That would change american vacations forever. 3:07:55 That would lay out a giant part of disney's business model going forward, the opening of disneyland.Yes.
David Rosenthal
3:08:03 But before we do that, now is a great time to thank our friends at statsig.
Ben Gilbert
3:08:08 Yes, so walt disney had this idea that he would often talk about plussing. 3:08:14 Most amusement parks would be effectively complete at opening and then they'd call it finished, but not disneyland. 3:08:20 Walt treated the park as something that you have to keep improving forever and he constantly looked at how guests moved through it.Yep.
David Rosenthal
3:08:27 This idea though only works if you can see what's happening. 3:08:31 You can't improve an experience on a hunch. 3:08:33 What mattered was how guests really behaved, not what anyone assumed in a meeting, which is largely the same problem that product teams have today, just at speed and scale. 3:08:42 You can ship faster than ever now, but the hard part becomes knowing which changes actually improve the product.
Ben Gilbert
3:08:47 And now coding with AI only raises those stakes, because LLMs are non-deterministic, meaning that the same input doesn't always produce the same output. 3:08:56 So a small change to a prompt or model can have surprisingly large downstream effects. 3:09:01 Offline evals will really only get you so far, and you need to be getting signals from real users and making decisions on that.
David Rosenthal
3:09:08 And that's where Statsig comes in. 3:09:10 They offer product teams experimentation, feature flags, and product analytics all in one place. 3:09:15 You can ship quickly, roll out changes safely, and measure how those changes impact users, making your product actually better. Instead of just guessing.
Ben Gilbert
3:09:22 Yes, so just like Walt continuously was plus-ing Disneyland still today, Statsig is how you improve your product after you've shipped it. 3:09:31 You can learn more at statsig.com/acquired. 3:09:34 And just tell them that Ben and David sent you. 3:09:37 All right, so the development of the park, the team at WED had been getting inspiration and sort of concepting and iterating while all the ABC stuff is happening. 3:09:48 While the hype building around America is happening and of course, well, the financial negotiations are happening. 3:09:54 So in September of 1953, as legend goes, Roy is about to walk into meetings with television executives and Walt famously locks himself in a room with Herb Ryman for an entire weekend and says Herb, can you draw the first full drawing of Disneyland and Herb looks at him and he's like Disney. 3:10:01 What is the first time hearing of this? 3:10:15 And he's like the theme park, you're gonna come work on that with me and he's like, I don't even work here. 3:10:17 I used to work at Disney, but I don't work here now. 3:10:22 And Walt was like, yeah, but you're the guy to do this. 3:10:25 And so Herb kind of looks at him. 3:10:28 He says, can you tell me a little bit more about this theme park? What? 3:10:30 This is metaphorical kind of locks the door. Yeah. He's like great. 3:10:34 I will stay here all weekend with you and tell you about the theme park.
David Rosenthal
3:10:38 And out of the weekend emerges, this beautiful drawing that we will send out in the email acquired.fm/email that they can use as a sales tool for the first meeting with ABC.
Ben Gilbert
3:10:42 You've got a castle, you've got mountains, you've got the railroad, you've got the river, the bones are all there. 3:10:55 The core vision of what Disneyland is.
David Rosenthal
3:11:01 Yes, yes.
Ben Gilbert
3:11:03 Other WED employees. 3:11:05 Meanwhile, start traveling all over the US. 3:11:06 Looking at the best existing theme parks. Walt and others travel overseas to places like Tivoli Gardens and Copenhagen to get sort of a completely different take on how they could do a park with green space much more pleasant, less carnival-like, safer, kind of a less C&D experience. 3:11:09 Than you were getting in theme parks in the US. That is the goal. 3:11:26 Than you were getting in theme parks in the us.That is the goal. 3:11:30 So this year leading up to the park, what we were about to describe is completely insane. 3:11:34 Remember, I said that the date was fixed in the television deal in part because the TV show was going to culminate in a live broadcast of the actual park opening. 3:11:45 And there was all sorts of like brand new technology and logistics and operations that ABC was going to bring to bear for that. 3:11:52 So they were, they were planning around that. 3:11:55 And there are some sources that say that it was 366 days to build the park. 3:12:00 If you actually look at physical construction, it was less than that, 11 months. Wow. 3:12:07 So they end up building Disneyland in one third the time that it took to make Snow White. Incredible. 3:12:14 This whole thing sounds like a fever dream when you describe it: a Main Street reflecting how Walt pictured the ideal small town from his childhood, multiple rivers with different types of boats. 3:12:24 There's going to be multiple rivers, robotic animals coming out of the water on the Jungle Cruise, a castle, American Indians performing live shows of dances, cars that kids, like three-year-old kids, can drive around and crash into stuff.
David Rosenthal
3:12:41 Still my favorite part of Disneyland? Yes. Autopia.
Ben Gilbert
3:12:44 An intense amount of greenery and trees that all had to be brought in. 3:12:48 I mean, they're doing pine trees and they're doing palm trees. 3:12:51 Absolutely exquisite landscaping to reinforce how pleasant and safe of a place that it was. 3:12:56 A passenger train built from scratch on real railroad ties that had to be laid down. 3:13:01 This thing is like Walt's fever dream reflection of America, all in the most idealized, safe, clean, cheery way. 3:13:09 Possible, they've got the past, they've got the future, with Tomorrowland and Frontierland and Adventureland, but no sign of the present. 3:13:17 So you can be completely immersed and disconnected from your day-to-day troubles.
David Rosenthal
3:13:21 You know what I actually never realized that. 3:13:23 That Disneyland is one hundred percent about the past and the future, and zero percent about the present.
Ben Gilbert
3:13:29 And about the fantasy, you can go to Fantasy Land. 3:13:32 That's your other option if you don't want the past to the future. 3:13:34 So the first part of construction is the 20-foot-high berm insulating all of Disneyland from the outside world with the Disneyland Railroad sitting right atop it. 3:13:46 To this day, I think the most impressive thing about Disneyland is the sight lines despite several very, very different environments on a relatively small plot of land. 3:13:55 I mean, from Star Wars today to Frontierland, Adventureland, Tomorrowland, Main Street, you really only ever see what the Imagineers want you to. 3:14:06 And it creates that unique experience where Main Street can feel nostalgic and wholly different than the jungle over at Adventureland and very, very different than the strip mall mania happening just a few acres away on any side of you. 3:14:19 Yep, I'll just keep going on the insanity of building this thing. 3:14:23 There wasn't yet any on-site buildings to fabricate the rides, so they did construction.
David Rosenthal
3:14:29 At Burbank, that's right, and they trucked it all down.
Ben Gilbert
3:14:32 It's a 50-minute drive if you don't hit traffic, and the highway was still being built, so it's all on surface streets. It's crazy. 3:14:38 Think of the scale of the stuff that they were building. 3:14:41 Yep, halfway through construction, they discover that Rivers of America almost doesn't work at all. 3:14:46 When they filled it with water, the water just drained into the dirt underneath. 3:14:50 And David, as you mentioned, cost ballooned from the original $5 million to a total of $17 million, but that's actually pretty cheap. Totally. 3:14:59 I did the inflation math. 3:15:00 That's $210 million today. 3:15:03 You absolutely could not build anything remotely close to Disneyland today for 200 million dollars or in a single year.
David Rosenthal
3:15:08 It is astounding how it all got built. 3:15:11 Also very, very convenient for Disney that they sold a lot of coonskin caps as the budget was ballooning.
Ben Gilbert
3:15:17 Yes, and found sponsors to sponsor lands and rides and through on every ounce of debt they could.
David Rosenthal
3:15:24 Yes, this is the other just like absolute galaxy brain Walt addition to the flywheel that he brings in with the parks. 3:15:31 Corporate sponsorships. 3:15:33 Yes, there were 65 corporate sponsors in Disneyland within the first few years of it opening.
Ben Gilbert
3:15:40 So at opening, there was Richfield Auto for Autopia, Bank of America. 3:15:45 Of course, they had to be there sponsor of Fantasyland, Coca-Cola as well. You won't believe this. 3:15:50 In addition to Coca-Cola, Pepsi, they had a sponsorship in Frontier Land. Coke actually didn't become the exclusive supplier sponsor until 1990. Yeah, that's right. 3:16:00 American Motors, Santa Fe Railway, TWA for the Rocket to the Moon. 3:16:05 Monsanto was actually a sponsor. That's right. 3:16:07 Carnation, Kodak, the list goes on, but I do have one favorite, David. 3:16:13 The National Rifle Association.
David Rosenthal
3:16:15 Oh wow, Frontier Land.
Ben Gilbert
3:16:19 Yes, inside the Davy Crockett museum. 3:16:21 There was a shooting gallery. There you go. 3:16:23 It's unclear from the historical records. 3:16:25 If it is technically a sponsorship, but the rifles were provided by the NRA like real rifles.
David Rosenthal
3:16:30 So you go flywheel in action. Yes.
Ben Gilbert
3:16:34 So, I was trying to do some comparison on this 17 million inflation adjusted to 210 million, the Rise of the Resistance Star Wars ride that they built in 2019, which is excellent. 3:16:47 If you've never been on, it was rumored to cost anywhere from 200 million to 450 million for just one ride, right?
David Rosenthal
3:16:55 And they built the whole park for less than that. 3:16:58 Yes, man, the things you could do back then. Yes, right.
Ben Gilbert
3:17:02 I mean, permitting was pretty light back then. 3:17:04 So we get to opening day. How's it go? 3:17:08 Well, less than half of the planned rides were open and just to give you a sense of how down to the wire it came, Walt personally put on a mask and was helping to paint the 20,000 Leagues Under the Sea exhibit. 3:17:21 The day before it opened. 3:17:23 Opening day comes, it's nearly 100 degrees in the middle of July in Southern California that created issues with the newly poured asphalt. 3:17:32 And there are legends of women's high heels sinking into the asphalt because of that, there are water fountains. 3:17:40 But they don't yet have the plumbing finished to turn on. 3:17:44 So if you want something to drink in this 100 degree heat, you can go buy a Pepsi exactly. 3:17:48 The restaurants ran out of food, rides were breaking down, Mr. 3:17:52 Toad's Wild Ride went down because it was too much for the power grid, and the Mark Twain Riverboat began to sink since the operator let 500 people onto it, which was double the 250 that he was supposed to. 3:18:06 But despite all of this, it is a giant, giant hit. 3:18:12 That first day, that was technically a preview day for press and invited guests, 15,000 people were invited, but it is believed that 30,000 attended.
David Rosenthal
3:18:21 And then that was in person. 3:18:23 Yes, then there's the TV show.
Ben Gilbert
3:18:25 So ABC rolls in with 22 live TV cameras and a giant crew to operate at all with 1955 technology. 3:18:34 The viewership numbers are astonishing. 3:18:36 It was the world's largest live telecast ever, 83 million people tuned in to watch from home. 3:18:45 Which means that nearly half of America watched this broadcast.
David Rosenthal
3:18:50 Watch this 90-minute commercial, right?
Ben Gilbert
3:18:54 And it's crazy, right? 3:18:55 It's live coverage of this like wackadoo amusement park opening on the one hand. 3:19:00 Why would you want to watch that? 3:19:01 On the other hand, you've been conditioned over the last year by one of the most popular television programs in America that this is going to be a giant deal. 3:19:09 So you better be watching when it happens. Do you know? I'm sure you do.
David Rosenthal
3:19:12 But do you know who the three anchors were that ABC hired to do?
Ben Gilbert
3:19:18 The opening one was Ronald Reagan.
David Rosenthal
3:19:20 Yeah, Ronald Reagan is the big one, Art Linkletter, Bob Cummings and future president of the United States of America.
Ben Gilbert
3:19:28 Ronald Reagan, it's crazy. 3:19:29 The TV strategy just absolutely knocked it out of the park. 3:19:32 What does half of America tune into anymore? 3:19:35 I mean ever.
David Rosenthal
3:19:36 Yeah, I mean even the Super Bowl today, which is the biggest television event in America, only gets about 40% of. 3:19:44 US households tuning in.
Ben Gilbert
3:19:46 And this was just to watch guys talk about what's going on behind them at an amusement park.
David Rosenthal
3:19:52 No, I think it was that America had been primed via the TV show for the whole past year that this was going to be the event of 1955. Yeah. So cool.
Ben Gilbert
3:20:03 By the end of the first week, there was 160,000 visitors, two months after opening the millionth. 3:20:09 Visitor walked in, and in the first year there had been 3.6 million visitors. Yep.
David Rosenthal
3:20:15 In the second year of the park's operation, it does over 4 million visitors, which makes it more popular than both the Grand Canyon and Yellowstone National Park. 3:20:25 It's like the most popular park in America is now Disneyland.
Ben Gilbert
3:20:29 And today, the park has over 900 million visitors since opening day.
David Rosenthal
3:20:34 My favorite little bit of trivia about Disneyland was learning about the original. 3:20:38 Business model, so you used to have to pay to get on the rides. 3:20:43 You would pay, I think it was a dollar for admission to the park, and then you could buy booklets of tickets that would get you admission to the various rides and attractions, and different rides and attractions would have different ticket grades. 3:20:58 And would be priced differently. 3:21:00 It was this whole complicated business model that they obviously have drastically simplified since and. 3:21:05 Raised prices astronomically.
Ben Gilbert
3:21:08 Yes, absolutely. 3:21:10 And I mean, the biggest sort of success of the whole thing is it just couldn't be farther from a carnival or fairground and that turned out to be a great great business. 3:21:21 Yes, Harrison Price, who led the research at Stanford Research Institute for Disneyland said, Disney's rethinking of the American amusement park had striking and immediate business consequences. 3:21:31 Because his park was such a pleasant place, people stayed there longer, and because they stayed longer, they spent more time. 3:21:37 Basically, Price said he tripled per capita expenditures because he tripled time.
David Rosenthal
3:21:43 And then, of course, you know, fast forward to today at Disneyland or Disney World.
Ben Gilbert
3:21:47 You go for like 14 hours. Yeah, right.
David Rosenthal
3:21:49 Well, per day, I mean, you're not going there for just a day. 3:21:52 You're going there for multiple days, right? 3:21:53 You're making a whole trip out of it.
Ben Gilbert
3:21:54 And if you're going to Disney World, then they're there a whole week. Yep. 3:21:57 So I promise we won't do too much part two foreshadowing on this episode, but this is just one point I got to drive home. 3:22:04 Disney Parks and Cruises today does 36 billion dollars in revenue and 10 billion dollars in profit per year. 3:22:13 That is twice the amount of profit that their entertainment division produces.
David Rosenthal
3:22:18 Yeah, also just wild to think about physical amusement parks having essentially a 30% net income margin, right? 3:22:28 What other physical park operator is going to operate with those kind of margins?
Ben Gilbert
3:22:32 And the fact that it's a bigger business for Disney than their movies like twice as big of a business. 3:22:37 And this is, you know, there's 160 acres in California. 3:22:41 There's a big swatch of land in Florida. 3:22:43 There's five or six of them around the world. 3:22:44 There's some cruise ships and that spits off more profit twice as much profit than all of the other Disney things you can experience anywhere anytime. Well.
David Rosenthal
3:22:56 We're going to get into this in a minute here. 3:22:58 Really, the impressive thing is that Disney films are now great again and still the parks do more revenue. 3:23:04 We're about to hit a period where the parks do a lot more net income than the films because the film suck.
Ben Gilbert
3:23:10 Now reflecting on all this Disneyland actually was not a bet the company move for Walt Disney Productions financially. 3:23:19 It was cleverly structured by Roy to not be but reputationally. 3:23:24 It absolutely was. 3:23:26 I mean, people were willing to take these giant leaps on Walt because of who he was and what he had accomplished the same way that they do with Elon or Steve Jobs or Warren Buffett getting deals that no one else could get. 3:23:38 So Roy was like great at making sure it wouldn't financially bankrupt the company but Walt was sort of betting that reputation extremely publicly to half the households in the US. 3:23:49 So not only was betting the company, he was betting his own personal fortune too. 3:23:53 Remember that 250,000 dollars that he put in. Yep. 3:23:55 He sold his vacation house in Palm Springs. Yeah. 3:23:58 He borrowed 100,000 dollars against his life insurance and he took on a personal loan to fund that obligation.Yep.
David Rosenthal
3:24:05 All true and all necessary because of how they had always operated the company. 3:24:09 He wasn't taking lots of cash out of the company.
Ben Gilbert
3:24:13 until the sort of renegotiation of his employment contract.Yep. 3:24:18 So there is a fascinating coda to all this crazy corporate stuff on how the park was formed. 3:24:24 You might be wondering, well, wait, doesn't The Walt Disney Company own the park outright now? 3:24:30 I mean, when you visit disneyland, don't you assume? 3:24:33 Hey, wait, this is just part of disney.What about that? 3:24:36 We were a joint venture thing with ABC and Walt personally. 3:24:38 So here's how it all goes down. 3:24:40 The headline is The Walt Disney Company would not actually own 3:24:44 The park and everything within its borders for a full 27 years after opening in 1982. 3:24:52 So here's the full story of who sold what and when. Pretty quickly, Walt Disney Productions exercised their right to buy out Western Publishing and Walt personally. 3:25:01 So by 1958 three years after opening, they owned 66%. 3:25:06 But the buyout right to abc stake that wasn't pre-negotiated. 3:25:10 So in 1960, when the company actually had enough cash to do it, that's when roy negotiated. 3:25:17 Hey, we'll pay you seven and a half million dollars to buy out your your stake. 3:25:21 So by 1960, the publicly traded company Walt Disney Productions did own all of Disneyland Inc., but that leaves WED Enterprises, which had been hired as a contractor to build all the stuff.
David Rosenthal
3:25:33 Yes, and WED Enterprises is Imagineering today, Disney Imagineering.
Ben Gilbert
3:25:37 Yes, but WED Enterprises, the entity at this point in time, also owned rights to some elements in the park, right?
David Rosenthal
3:25:47 And it wasn't consolidated into. 3:25:51 Disney the company yet, right? 3:25:52 It was still this separate thing owned by Walt, right?
Ben Gilbert
3:25:55 So WED, which Walt is the 100% shareholder of, actually owned the railroad outright. 3:26:03 It had been negotiated. 3:26:04 Of course, he did as a part of the personal services contract because it was like, hey, i was already doing this side project and now i'm just putting it on disneyland.
David Rosenthal
3:26:14 It all comes back to trains.
Ben Gilbert
3:26:15 So he got ticket revenue from it. 3:26:18 As an annuity basically.right?
David Rosenthal
3:26:20 Because all the rides cost money. 3:26:22 So the railroad at Disneyland... yes, was Walt's.
Ben Gilbert
3:26:26 Same thing with the monorail. 3:26:28 These were not owned by disneyland inc. 3:26:30 They were owned by WED. Amazing. 3:26:32 We also mentioned since WED was Walt's personal company, it owned Walt's name and likeness, which led to that 10% royalty on merchandise in 1963, eight years after the park opened. 3:26:42 Roy was getting very nervous that the public shareholders would sue over this, admittedly, very tenuous structure. 3:26:49 So they reached a deal wed would get sliced into two pieces. 3:26:53 Imagineering the architectural engineering department and everything else disney productions would buy. 3:27:00 The half of wed that was imagineering. 3:27:03 So they finally in-house'd Imagineering in 1965, the rest of the holdings. 3:27:08 Would be renamed retlaw, which is walter backwards, right?Right. 3:27:12 And inside of Retlaw, Walt would get to keep the trains, the monorail and his 10% royalty. 3:27:19 This is in 1965 that would actually last all the way until 1982, nearly three decades after the opening where the company says, enough is enough, goes to Walt's family because this is after he passed away and they bought out the name, rights, the monorail and the railroad. 3:27:36 In exchange for 43 million dollars of Disney stock. Insanely, Wed Enterprises, which would later be Retlaw, got a total of 75 million dollars in checks from Walt Disney Productions for the Disneyland Railroad and for the monorail between 1953 and 1981, and another 46 million for name royalties. Wow.
David Rosenthal
3:28:00 So I guess the question is, as a Disney shareholder, would have been, was it worth it, right? 3:28:06 And the obvious answer is yes.
Ben Gilbert
3:28:07 I mean, there's all these conflicts of interest everywhere and this would never fly today with sort of modern shareholder and SEC and securities laws. 3:28:09 But in practice, if you were a Disneyland shareholder then and you held through all of this, that will work out great for you. 3:28:18 Well, speaking of how great it would have worked out for you.
David Rosenthal
3:28:25 After the launch of the TV show, the park, the company is just firing on all cylinders again. 3:28:30 And Disneyland, the combination of the television show and the park have really added a fifth element to the flywheel business model. That's right. 3:28:37 You've got one, compelling great IP; two, maximize distribution in the core vehicle; three, feed the IP into as many ancillary vehicles as possible; four, you've got the re-releases in the vault.
Ben Gilbert
3:28:47 And now five, parks and television. 3:29:01 This is a television to amplify interest in all of the characters. 3:29:04 You've got parks to do almost like the extreme bottom of funnel, the way to experience the most Disney thing you possibly could experience every once in a while. 3:29:10 But a huge monetization event, and of course you do that. 3:29:18 I, I mean, I just got back from Disneyland. Guess what we're watching? A lot of Toy Story this week at my house. Right. 3:29:21 It's a refresher on your fandom. 3:29:24 Thinking about it more now, television was adding another node to the flywheel for sure. 3:29:26 The parks are almost this like hybrid flywheel plus IP because all the core Disney IP, of course, goes into the parks.
David Rosenthal
3:29:28 I mean, you've got the Peter Pan ride, you've got the Star Wars rides today, but the parks are also not just a destination. Right? 3:29:36 They're a source of IP development, not just a sink of IP development. 3:29:47 And I mean, this would literally become true with Pirates of the Caribbean much later.
Ben Gilbert
3:29:54 I mean, that's got to have gross billions after all these sequels.
David Rosenthal
3:29:58 You actually have new IP generation coming out of Imagineering and the parks. Right? 3:30:01 A lot of stuff hasn't done as well.
Ben Gilbert
3:30:03 Like Haunted Mansion has never really worked as a movie, Jungle Cruise.
David Rosenthal
3:30:06 But yeah, that is a great point that the parks serve as a way to feed the rest of the flywheel, not just be a sink of it.
Ben Gilbert
3:30:11 So this year, 1955, with the park with TV revenue from Davy Crockett, Mickey Mouse Club. 3:30:13 Like haunted mansion has never really worked as a really work jungle cruise. 3:30:18 But yeah, that is a great point that the parks. 3:30:21 Serve as a way to feed the rest of the flywheel, not just be a sink of it. 3:30:26 So this year 1955 with the park with tv revenue from davy crockett mickey mouse club. 3:30:30 This is basically the inflection point for the company. Revenue doubled from '54 to '55, and it would just keep on climbing for decades from this point forward. 3:30:40 Disney effectively stops being a movie studio and it becomes this new form of diversified, stable entertainment company. Yes.
David Rosenthal
3:30:50 In November of 1957, Disney finally lists its stock on the New York Stock Exchange. 3:30:57 It obviously had been held by the public ever since the 1940 stock offering, but it wasn't listed and traded on the New York Stock Exchange until 1957.
Ben Gilbert
3:31:06 Interestingly, post-IPO, Walt and Roy still effectively control the company. 3:31:11 47% of the voting power of the company is held by the Disney Voting Trust. 3:31:17 And so you just don't need that many other shareholders for your votes to carry the day. Yeah. 3:31:21 So even as a public company, it was still there, sort of a family company. 3:31:24 Yeah, for a little bit. That would sort of wane over the decades from here. Yep.
David Rosenthal
3:31:28 Once the company's listed publicly and people start to realize the incredible power of the business behind Disney, in early 1958, The Wall Street Journal runs a front-page story. 3:31:42 About Disney's unique business model, and this was one of the most fun things to discover in our research.
Ben Gilbert
3:31:52 So the article's title is "Disney's Land Waltz: Profit Formula, Dream Diversify, and Never Miss."
David Rosenthal
3:32:00 An angle, and this article in The Wall Street Journal. 3:32:04 Is where the famous Disney flywheel illustration comes from. 3:32:11 The one you are holding up live that you have framed in your studio.
Ben Gilbert
3:32:15 This has been on the wall of my office for years.
David Rosenthal
3:32:18 So, the legend that's out there that everybody believes is that this was a napkin sketch that Walt himself drew. 3:32:25 No, it was actually created by a Disney studio artist as an illustration for. 3:32:32 This Wall Street Journal piece. Disney confirmed this for us when we were visiting them in the archives. 3:32:38 And then we asked The Wall Street Journal to pull the original piece out of their archives. 3:32:44 We'll link to it in the show notes. 3:32:46 So cool that this is the origin of where it all came from.
Ben Gilbert
3:32:48 Yeah, it serves as an illustration for something that at the time was actually a pretty difficult-to-articulate concept of a business flywheel. 3:32:55 I will say the word flywheel never appears in The Wall Street Journal article.
David Rosenthal
3:32:59 No, that nomenclature would get added later.
Ben Gilbert
3:33:01 But it was like the journal saying, hey, Disney, help us with some kind of illustration that makes this point: that you have a wholly unique new business model in the media landscape.
David Rosenthal
3:33:12 And it's a beautiful, beautiful diagram. 3:33:14 The whole article is great. 3:33:17 Roy has these amazing quotes within it. 3:33:20 He says, "Our diversified activities are related and tend to complement each other, helping us to do relatively fine business in the face of otherwise difficult times for the motion picture industry." 3:33:33 "Integration is the key word around here." 3:33:36 "We don't do anything in one line without giving a thought to its likely profitability in our other lines." So spot on. 3:33:44 And then they walk through the steps of the company's flywheel with their plans for their upcoming feature film release of Sleeping Beauty, which was still a year away from release at the time of the article.
Ben Gilbert
3:33:57 In 1958, how crazy is this? 3:33:59 At Disneyland, which opens in 1955, there is the centerpiece of the whole thing is Sleeping Beauty Castle. 3:34:06 That movie wouldn't come out for another four years, right? 3:34:09 Building hype for a movie that was basically in pre-production at this point. 3:34:14 In fact, it was based on concept art that was effectively a German castle because it was so far from the film.
David Rosenthal
3:34:19 Yes, incredible. 3:34:21 So the article walks through: at Disneyland, they've installed animated dioramas as an attraction that they're charging 35 cent admission fee for. These are animated dioramas of. 3:34:33 Sleeping beauty, the upcoming movie. 3:34:34 Next, disney is producing and selling princess aurora dolls and costumes. 3:34:40 They are working on producing and publishing books of the Disney version of the fable that will be told in the movie. Of course they are. 3:34:49 And of course, there are segments in the disneyland tv show about sleeping beauty. 3:34:54 They're already preparing the soundtrack album. 3:34:58 To go on sale before the movie's released, and then finally, comics of aurora and the sleeping beauty story are already starting to come out. 3:35:10 As part of the disney treasury of classic tales syndicated comic strip, fascinating, just amazing.
Ben Gilbert
3:35:17 The other thing this article reveals is that disney was intentionally making its tv shows in color, even when tvs were still black and white. 3:35:25 Because they thought it was likely tvs would go color soon and they knew that the ip they were making would stay valuable for decades. 3:35:31 I mean, the foresight they have is so bought in on. We're just dumping valuable IP onto the pile and we.
David Rosenthal
3:35:38 David Rosenthal want it to live forever. Yep. 3:35:40 Now there is one other thing we haven't talked about which is that disney in-house their own film distribution right before the launch of disneyland.Yes.
Ben Gilbert
3:35:50 Yeah, and this actually comes up in that journal article, too.Yep. 3:35:53 They create something called Buena Vista Distribution, and they left RKO Radio Pictures, who had been their distributor since, I think, 1936. 3:36:03 Howard Hughes ended up owning it, and it had been kind of a train wreck as he spiraled out of control toward the end of his life. 3:36:11 Disney didn't really want to be a part of that chaos, and at the same time, Walt had really started thinking about Disney as vertically integrated entertainment, not just a film studio who would rely on others for distribution. 3:36:23 So in '53, two years before Disneyland opened, they incorporated Buena Vista. 3:36:29 The living desert was their first films. 3:36:31 One of these nature documentaries, then quickly thereafter, they did Lady and the Tramp and 20,000 Leagues Under the Seas distribution through Buena Vista instead of through an outside distributor. 3:36:45 It was kind of like a test, like, can we? 3:36:47 Yeah, pull this off. 3:36:49 They got pretty good at it pretty fast, with the exception of international, where they then had to rely on sub-distributors for a long time. 3:36:57 But Disney had become such a household name, especially because of that weekly ABC show, and because of Disneyland. 3:37:03 Where they were pretty uniquely well suited to actually self-distribute without a middleman. 3:37:09 I mean, this is like. 3:37:10 Walt's dream from the early cartooning days.
David Rosenthal
3:37:14 It's kind of surprising that they didn't start doing it after Snow White. 3:37:18 I mean, who's going to turn down a Disney picture?
Ben Gilbert
3:37:21 All right, you team me right up because I was wondering the same thing. Cash flow.
David Rosenthal
3:37:26 Mmm. Yeah.
Ben Gilbert
3:37:27 You can't be a distributor unless you're on great financial footing because the cash flow cycle means that you are fronting money to print films, distribute them before you actually get paid by the theaters when tickets, of course. 3:37:42 So Disney didn't have the working capital to pull this off until their real strength in the mid-50s. That's such a good point.
David Rosenthal
3:37:50 I always had wondered why more studios didn't vertically integrate and own their own distribution and that makes sense. 3:37:58 You need a lot of working capital to do.
Ben Gilbert
3:38:00 So it's exactly right in the long run. 3:38:03 It's a pretty amazing strategy since they'd been paying. 3:38:07 I don't know what is it about a third of the total rentals to another distributor. 3:38:11 And especially with these re-releases, yeah, it's an absolute no-brainer with the re-releases. 3:38:16 At this point, Disneyland plus the merchant licensing provides this really stable foundation. 3:38:21 They almost like re-platformed the business, is what one way you could put it. 3:38:26 Where it's the same like spiritual entity, but instead of the business being in the films, they now have the business in this stable foundation. 3:38:36 And they do the films to like add new stuff to the pile, but the platform itself is Disneyland TV and merchant and licensing. 3:38:44 So then a few years later in 1961, Walt Disney Productions after 22 years of being in debt to Bank of America, finally paid off their last loan.
David Rosenthal
3:38:53 Hmm, Roy must have been so happy on that day and Walt was already scheming how to. 3:39:01 Blow some more money. Yes.
Ben Gilbert
3:39:05 So one thing we foreshadowed is Sleeping Beauty. 3:39:07 We talked about Sleeping Beauty castle. 3:39:09 You might be wondering what ended up happening with the film. 3:39:12 This like many of the other films we talked about did not recoup costs. 3:39:17 I mean, since then it's done phenomenally well and made probably hundreds of millions of dollars in cumulative profit for Disney, but. 3:39:24 Did not pay back at the box office.
David Rosenthal
3:39:27 Part of that was it had a really high production cost, right? 3:39:31 After all the success of Disneyland and all the ballyhooing about the flywheel and everything in the Wall Street Journal article.
Ben Gilbert
3:39:37 I mean, they really were building around it. 3:39:39 Whole hog on this one. 3:39:40 Yeah, they spent 6 million dollars making it. 3:39:43 It was the most expensive to produce to date. Yup. 3:39:46 But yeah, I mean Walt was pretty distracted with Disneyland, so he wasn't that kind of authoritative voice to help the team find the great story in there. 3:39:53 But yeah, if it wasn't such an extravagantly detailed animation piece, then it probably would have been profitable.
David Rosenthal
3:39:59 And hey, given the company's business model, they're happy to play the long game. Right.
Ben Gilbert
3:40:03 So the weird thing is the financial blip that happens in this year 1959. 3:40:07 Everything is true about this really stable platform. 3:40:10 But if you look at that year, the financial year 1960, the company actually shows a loss like they flip briefly from looking increasingly profitable to suddenly net income negative because Sleeping Beauty had that hole, ABC canceled Zorro and Mickey Mouse Club which were both TV shows that Disney was making. 3:40:32 Which was related to Walt Disney Productions blowing up the Disneyland deal and saying, you guys are kind of difficult to work with. 3:40:39 Now, we want to buy you out of Disneyland and ABC is like, all right, then we're going to stop paying you huge sums for your TV shows and giving you all this free marketing. 3:40:47 So that relationship ended there at least for the moment.
David Rosenthal
3:40:52 ABC would come back.
Ben Gilbert
3:40:53 Yes, but the takeaway is the company is actually financially stable. 3:40:57 Now that this is okay.
David Rosenthal
3:40:59 Yeah, the last time that the company bet big on investing in production ahead of revenues was 1940 with the move to Burbank and having Pinocchio and Fantasia and Bambi and production all at once.
Ben Gilbert
3:41:11 Any one of those almost killed the company on their own. Yeah.
David Rosenthal
3:41:14 Now though post-Dland, they've got this stable base that they can take these big swings.
Ben Gilbert
3:41:19 Yeah, merchandising licensing taught him to crawl and then they walked and ran with Disneyland in terms of that that stable platform just to illustrate this bounce back point. 3:41:28 Here's the trend 1957. 3:41:29 They do 3.6 million dollars in net income. 3:41:32 Then the next year, 3.9, then the next year, 3.4, then ah, 1960 happens that perfect storm of badness 1.3 million dollar loss. 3:41:43 Then they bop right back 1961 4.5 then 5.2 then 6.5 then seven then 11 then 12. 3:41:50 I mean they just. Stability. Mm-hmm. Mm-hmm.
David Rosenthal
3:41:54 And then Walt decided that it was too stable. 3:42:01 And he needed to blow it all up again.
Ben Gilbert
3:42:04 Or at least he wanted to.
David Rosenthal
3:42:06 So he starts wondering, how can I bet it all again?
Ben Gilbert
3:42:10 And in a bigger way, right? 3:42:11 Is Disneyland, like, is a theme park going to really be my legacy? 3:42:15 Are these animated films really going to be my legacy? 3:42:17 I shouldn't I do something actually meaningful to the world? Yes.
David Rosenthal
3:42:21 I mean, this, this idea of a physical Disney location. 3:42:25 Worked really well. 3:42:27 But what if we don't stop at an amusement park? 3:42:31 What if the next time we build an entire city? 3:42:37 Maybe like an experimental prototype community of tomorrow. You know. EPCOT.
Ben Gilbert
3:42:48 And if you think, you know, we're talking about because you've been to EPCOT.
David Rosenthal
3:42:52 That's not what we're talking about.
Ben Gilbert
3:42:54 That's a theme park named EPCOT. 3:42:57 But Walt had this insane insane vision that never got built but got pretty far along in the process. For. 3:43:07 Again, a fever dream, not just of a place that you go for a day, but a place where you live, and you work, and you are transported and futuristic transport mechanisms, and all the most innovative companies locate their innovation centers all in in one place together. 3:43:28 And there's this beautiful tower in the center of it. 3:43:32 I mean this is. 3:43:33 The ideal future.
David Rosenthal
3:43:36 So this was walt's final project, the florida project. 3:43:42 That never got built as you say and i think it all kind of stems back to burbank.Hmm. 3:43:51 And that brief moment before the strike when the studio at burbank, Really was this utopian physical place that was the perfect marriage of art and commerce. 3:44:05 I really think that that's what walt always wanted to realize in the world, and now after the success of disneyland. 3:44:15 His ambition is restoked. 3:44:17 And he wants to build it in this city to my mind.
Ben Gilbert
3:44:20 The most interesting part about this is how far it got.
David Rosenthal
3:44:23 Yes, yes, yes. 3:44:24 So the way that walt starts working towards realizing this vision is the 1964 world's fair in new york. 3:44:33 So Walt gets this great idea leading up to the fair that Disney, 3:44:39 On the success that they have at disneyland, can partner with other big american companies and institutions to create disney sponsored pavilions and exhibitions at the fair, that they can then transfer into disneyland. 3:44:59 But even more than that, the new york world's fair can serve as this sort of undercover test bed for this big idea of an east coast city. 3:45:09 That will be a partnership between american industry disney and the public. 3:45:16 So the four exhibitions that they create for the 1964 world's fair, many of which should probably sound familiar to you. 3:45:24 It's a small world sponsored by pepsi and unicef.
Ben Gilbert
3:45:29 which is actually designed by mary blair, who's this famous designer? 3:45:33 She brought modernism to disney. 3:45:35 She's the one that basically did all the concept art for alice in wonderland, which is right. 3:45:40 Why it looks the way that it does. 3:45:43 She's kind of responsible for that aesthetic and she was one of the original team members of imagineers that came over from wed and i believe the first female imagineer.That's right, that's right.
David Rosenthal
3:45:54 And then she's the one who does small world. 3:45:56 Yep, by far the most successful pavilion at the fair that makes its way to disneyland. 3:46:01 So that's one two, the carousel of progress sponsored by general electric. 3:46:06 Three, the magic skyway sponsored by ford and then four great moments with mr. 3:46:12 Lincoln sponsored by the state of illinois and that last of which that. 3:46:18 Is how disney imagineering develops audio animatronics for abraham lincoln.
Ben Gilbert
3:46:24 Yes, this whole thing is this amazing test bed for audio animatronics, which Disney kind of invents and then popularizes in Disneyland and then in Disney World. Yeah.
David Rosenthal
3:46:34 And because it's disney and part of disneyland, we think, oh yeah, audio animatronics like disneyland. 3:46:38 Like these are robots, right? 3:46:41 That disney imagineering is inventing. 3:46:43 In the late 50s early 60s.
Ben Gilbert
3:46:46 Well, David, you and I have had the privilege of being at some pretty cool robotics conferences, and you meet these like PhD researchers who are sort of in and out of Disney. 3:46:55 Like that is still where a lot of cutting-edge robotics happens. Yes.
David Rosenthal
3:46:59 So all four of those rides after the fair get ported right over to Disneyland because, of course.
Ben Gilbert
3:47:04 Three of the four. 3:47:05 Oh, Ford One does not. 3:47:07 The part of the deal is that Walt says you have to pay a million dollars to use my name as a part of your attraction. 3:47:15 Of course, in addition to footing the bill for building it, but I'll forgive that million dollars if you let us put it in Disneyland afterwards. 3:47:24 Hmm, because we want to get some value of it out after the fair, and Ford says, 'We'll just pay the million.'
David Rosenthal
3:47:28 Ha ha ha. 3:47:31 Poor decision on Ford's part. I know. 3:47:33 Okay, so three of the four get ported over to Disneyland, but all of it leads right into planning for the Florida project.
Ben Gilbert
3:47:42 And I think, well, the Florida project initially is not a theme park, and Walt very much is uninterested in building an East Coast Disneyland. 3:47:51 He says it explicitly over and over again. 3:47:54 He does have a nagging concern that an East Coast audience is more sophisticated than a West Coast audience, and there isn't demand for a theme park like Disneyland in Florida. 3:48:08 And I always think he uses that as kind of his like emotional defense mechanism air cover for why he's like, 'Oh, I don't want to just do the same thing again.' 3:48:16 I think it's like, 'I'm afraid it'll fail.' 3:48:18 And one of the big takeaways from the World's Fair is no, people would absolutely love. 3:48:24 A Disneyland-type thing, especially with Audio-Animatronics and all this cool new technology you're developing for the World's Fair.
David Rosenthal
3:48:31 Well, obviously, if Disney is gonna do anything on the East Coast, it should be in Florida. 3:48:39 I mean, it has the warmest year-round weather, and even more important.
Ben Gilbert
3:48:43 Abundant sheep.
David Rosenthal
3:48:44 Abundant cheap land all throughout the state. Yeah. So. 3:48:48 Walt though, like you said, had no interest in just building another Disneyland. 3:48:52 So, what is this Florida project? 3:48:54 I had heard about this lore and legend over the years before doing the research, but diving in, it blew my mind, and it will blow yours too, hearing about what Walt's vision for it was. The ambition. So, one. 3:49:06 It starts with a brand-new airport of the future, paired together with a vast entrance complex and park. 3:49:18 Two, there will of course be a theme park, a new Disney World Magic Kingdom theme park, that was initially intended to be five times the size of Disneyland. 3:49:32 Just for... just for the theme park. 3:49:34 Three, a 1,000-acre industrial park intended to house satellite R&D offices for America's greatest companies. 3:49:45 Think everybody that Walt is partnering with at the World's Fair: Ford, GE, Pepsi, all the companies that are corporate sponsors back at Disneyland. 3:49:54 He wants them to know. 3:49:56 Yeah, Monsanto, move their most advanced R&D teams. 3:50:01 To this new city in Florida. And then four, most important, the heart of the whole project is EPCOT. 3:50:09 But again, not the EPCOT you know today. 3:50:11 So walt epcot was going to be in his own words, a living blueprint of the future where people actually live a life. 3:50:20 They can't find anywhere else in the world, a showcase to the world. 3:50:25 For the intimacy and imagination of american free enterprise. 3:50:29 And basically, it is a sci-fi city.
Ben Gilbert
3:50:34 Meanwhile, i got to say, they couldn't open most of tomorrowland for 1955 when they opened disneyland and they're having a really hard time keeping up with the pace of technology. 3:50:45 I walk through tomorrowland even today and i'm like this all feels really dated and nothing like tomorrow. 3:50:50 I think walt himself has a famous quip on this which is. 3:50:53 Tomorrow comes a lot faster into today than we can kind of keep up with. 3:50:56 So you could imagine if they actually built this thing, it very quickly would would not feel like the future. 3:51:01 I mean, you plow a bunch of capex into concrete and futuristic concepts, new stuff gets invented real fast and then it's ugly and old.That's a good point.
David Rosenthal
3:51:11 But perhaps you haven't heard the vision for what this city is.
Ben Gilbert
3:51:15 Please, please lay it on me.Okay.
David Rosenthal
3:51:17 It will have a radical radial design plan, so the city itself is gonna fan out like spokes on a wheel. 3:51:27 From a domed central downtown hub. 3:51:31 Yes, you did hear that right? 3:51:34 A 50 acre enclosed climate controlled. 3:51:40 Fully domed central downtown city, ha ha, that will have no surface streets, fully pedestrian walkways, monorails, well, yeah, yes, the the only motorized forms of transportation will be monorails. 3:51:57 And this new concept of people movers, and then below ground, there will be a vast network of tunnels, a multi-layered tunnels underneath the ground. 3:52:09 For cars and industrial vehicles to circulate throughout the city. 3:52:14 On the edge of this downtown dome, there'll be high density apartment buildings. 3:52:20 Surrounding that, there is a vast green belt of parks and recreation facilities, and then finally, the outer ring of the city is low density. 3:52:31 Single family home neighborhoods. 3:52:33 And the plan is that 20,000 people will live here in this city with full self-governing infrastructure. 3:52:41 So schools public services everything. 3:52:44 And it is all going to be founded as a new city in the state of florida. 3:52:50 This is unreal self-governing.
Ben Gilbert
3:52:54 But in a special district carved out and controlled lawfully by the walt disney company.
David Rosenthal
3:53:00 I mean, it sort of sounds like a i don't know if it's a utopian or a dystopian film or both. 3:53:09 Yeah, it's definitely ambitious. 3:53:12 So on november 15th, 1965 walt along with roy. 3:53:18 And the then governor of florida, hayden burns, hold a press conference where they announce that disney has been buying land in central florida.
Ben Gilbert
3:53:30 Under various subsidiaries and obscured names, so no one would catch on to what they're doing.Yep.
David Rosenthal
3:53:35 And that a very large new disney project will be coming to the state, and that planning has already begun, and they will be seeking. 3:53:45 Public approvals.
Ben Gilbert
3:53:47 They bought 27,000 acres. 3:53:51 That is the size of san francisco.
David Rosenthal
3:53:53 Yes, yes, twice the size of manhattan. 3:53:56 It's almost 40 square miles that they have purchased in the middle of Florida and it's all swamp land right now. 3:54:06 It's uninhabitable. 3:54:07 And so in May of 1966, so a few months later, They get government approval. 3:54:14 To drain the swamp and prepare to build Walt's vision. Let's go. 3:54:23 Ah, if only so in late October of 1966 Walt records, a film of a pitch, the full reveal for the EPCOT vision, linked in the show notes. 3:54:40 You should absolutely go watch this movie. 3:54:43 It is the second to last recorded appearance. 3:54:47 That Walt makes in his life, and he has no idea. 3:54:52 The last one I think is a day or two later, and he ends the video with speaking for myself and for the entire Disney organization. 3:55:01 We're ready to go right now. 3:55:04 Unfortunately. 3:55:06 he dies. 3:55:08 About two months later, his death is both incredibly fast, incredibly unexpected, and of course kind of a slow motion disaster that's been brewing his whole life, ever since he started chain smoking in France when he was seventeen years old.
Ben Gilbert
3:55:27 I mean, he was notorious for his hacking cough. 3:55:29 That is how people knew that he was approaching. 3:55:32 If you were in a building on the Burbank campus.
David Rosenthal
3:55:34 Yeah, you'd hear him hacking. 3:55:36 So that's summer in 1966. 3:55:38 Walt had started experiencing pains in his body. 3:55:42 He assumes that it's all the stress from, you know, these new projects that he's working on or maybe it's old polo injuries that he has or maybe it's this. 3:55:51 Nagging cough, but obviously it's cancer eating away at him. 3:55:57 Finally in November of 1966. 3:55:59 So right after recording the EPCOT pitch video, he checks himself into the hospital where doctors find a pretty massive tumor in his lungs. 3:56:10 They do emergency surgery to remove it. 3:56:12 He comes back to the studio afterwards and the company announces publicly that Walt is back. 3:56:18 They say he's going to recover. 3:56:20 But the cancer is metastasized and the doctors tell him, hey, you probably only have a couple weeks or months to live. 3:56:28 His health goes downhill quickly and on December 15th, 1966, just 10 days after his 65th birthday. 3:56:35 Walt Disney passes away right in the middle of this Epcot thing. 3:56:41 I mean, the thing is, what a sliding door moment.
Ben Gilbert
3:56:44 He was always escalating bigger and bigger and bigger. 3:56:48 It would have always been right in the middle of the biggest thing he's ever done.
David Rosenthal
3:56:53 That's such a good point.
Ben Gilbert
3:56:55 Mickey with synchronized sound, Snow White with the first animated feature film, the Burbank campus plowing cash into all the expensive failures after Snow White, Disneyland. 3:57:04 Every point in his life, he was betting the farm over and over and over again, and he always pushed all his chips in. 3:57:09 It would have always felt like this.
David Rosenthal
3:57:10 That's such a good point.
Ben Gilbert
3:57:11 If they had pulled off the Florida project. What would you have done next? Right?
David Rosenthal
3:57:14 Like a colony on the moon. Like.
Ben Gilbert
3:57:16 yeah, I got to be honest though. 3:57:18 I will say, I don't have the faith after watching a lot of videos and documentaries and reading about the Florida project. 3:57:26 It just doesn't make sense to me and it may have protected his legacy. 3:57:32 That he didn't live another ten or twenty years to see this through.
David Rosenthal
3:57:37 Yeah, I mean, even just building a domed city like... How would you actually do that?
Ben Gilbert
3:57:43 And look, I could be completely wrong. 3:57:45 They invented, you know, amazing thing after amazing thing, but this one felt nuts.
David Rosenthal
3:57:54 I mean, it was... I think it's a totally fair point. 3:57:56 So immediately after Walt's death, Roy renames the whole Florida project Walt Disney World in his honor. 3:58:05 And Roy postpones his own retirement to dedicate himself to finishing this project. 3:58:12 And in fact, just a couple months later in May of 1967, Roy gets full approval from the Florida state legislature to build EPCOT to build Walt Disney World.
Ben Gilbert
3:58:26 And importantly, to carve out. 3:58:29 The Reedy Creek Development District, which gave the company a lot more autonomy over the area containing the land that they purchased than they ever had in Anaheim, and famously Walt was very regretful that they didn't buy up all the land around Disneyland too. 3:58:46 Yeah, cause he just hated all of the, you know, hotels and restaurants and crummy stuff around there. 3:58:53 And they run the show there in Florida.
David Rosenthal
3:58:55 That they do. 3:58:57 But Roy is not Walt, and he's not willing to bet the company like Walt was. 3:59:05 So, he does see Walt Disney World through, but he dramatically scales it back, mostly because he doesn't want to take on any additional debt. 3:59:17 For the company, so he sets a goal that he's gonna get this thing constructed without raising. 3:59:24 Debt for the company.
Ben Gilbert
3:59:25 Which is unbelievable. 3:59:26 They built the Magic Kingdom, the Walt Disney World, the theme park of Disneyland in Florida for 400 million dollars with two hotels and no debt. Yes.
David Rosenthal
3:59:38 That is an incredible achievement. Yes. 3:59:40 And it is absolutely not what would have done. No. 3:59:43 So it's just the Magic Kingdom. There's no city. 3:59:45 There's no EPCOT. There's no airport. 3:59:48 There's no industrial park.
Ben Gilbert
3:59:49 It's more or less like, hey, we've got all this land and we're extremely confident that Disneyland is going to work here.
David Rosenthal
3:59:55 So we'll build it and it was extremely successful. Yep. 4:00:00 But it's not betting the company. 4:00:03 And it's not blazing a new trail. 4:00:06 I mean, look, like, how could you say Disney World isn't a success? 4:00:09 Like, it's an incredible success.
Ben Gilbert
4:00:10 And there's like so much cool innovation there, the underground tunnels, they took everything about Disneyland and made it better. Yes. Okay. 4:00:17 Now we don't have to have people wandering around carrying trash bags. 4:00:20 Okay, we don't have to have characters appearing in the wrong land because the only way for them to, you know, come quote unquote on stage is through a door that's inconveniently placed. 4:00:28 We've got this network of underground tunnels where we can all do it exactly the way that we would have wanted to. 4:00:34 I'm pretty sure the underground tunnels are actually street level and all of Disney World is up one story. Yeah, that's right. 4:00:41 Whole insane concept of what if we could do Disneyland over again, but. 4:00:45 Not as cowboys, as real planners and builders and engineers and a much bigger budget.
David Rosenthal
4:00:51 Which may actually be to your point. 4:00:53 It's probably just as likely, if not more likely that Walt Disney's death when it came preserved his reputation. 4:01:02 And that this might have actually been the better path for the Florida project. May have been. 4:01:09 Regardless though, what it is not is shooting for the stars. 4:01:14 And after Walt's death, the company basically stops doing that and every dimension Roy himself tragically dies two and a half months after opening Disney World at the end of 1971. It's kind of poetic.
Ben Gilbert
4:01:31 It seems like he said he was gonna see this thing through and.
David Rosenthal
4:01:34 He did and he did for his brother. Yeah. 4:01:37 And then what follows is basically kind of 13 years of Disney becoming a parks company.
Ben Gilbert
4:01:46 Yeah, I mean, if you look over at the film side of things, the last film that Walt worked on was Jungle Book, which ended up coming out after his death in 1967. 4:01:55 He was deeply involved in this one. 4:01:57 It was a smash hit. 4:01:58 Yep, grossing 23 million dollars. 4:02:01 23 million in its first box office run, which implies a cut of about 11 million dollars for Disney and Buena Vista on a budget of just 4 million dollars. 4:02:11 This though would be Disney's most successful film for the next two decades.
David Rosenthal
4:02:16 Yeah, yeah, that's bigger than Cinderella. 4:02:20 Certainly bigger than Sleeping Beauty, 101 Dalmatians, any of the other movies around that era. 4:02:26 Yep, so the financials of the company keep growing. 4:02:29 But really, it's all because of the parks and you can see it when you look at the numbers. 4:02:34 So in 1972, the first year of Disney World, films do 78 million in revenue and 44 million in profit. Parks do a whopping 223 million in revenue. 4:02:49 And 38 million. 4:02:51 In profit and then all the rest of the flywheel consumer merchandising etc. 4:02:56 Does 27 million in revenue and 13 million in profit.
Ben Gilbert
4:02:59 This is before the corporate expenses.
David Rosenthal
4:03:01 Yes, before the corporate expenses.
Ben Gilbert
4:03:03 Okay, so what are the three profit numbers for each of those again?
David Rosenthal
4:03:05 So you've got in 1972. 4:03:08 44 million in profit from films. Yep. 4:03:11 Biggest profit engine. It's actually a lot. 4:03:13 The IP of the company is still in good shape here in 1972. 4:03:17 Parks do 38 million in profit and other flywheel businesses do 13 million in profit.
Ben Gilbert
4:03:24 Okay, so parks and movies are pretty comparable then. Yes.
David Rosenthal
4:03:29 Pretty comparable right after Disney World opens. Yep. 4:03:32 But then 12 years later by the end of this period in 1984. 4:03:38 Parks and consumer products generate 250 million dollars of operating income on over a billion dollars in revenue while film and TV barely breaks even with only 2.2 million dollars in operating. Wow. 4:03:56 So yeah, by the end of this period here, basically IP-wise, the company is creatively bankrupt and they're running up parks and merch business. No way.
Ben Gilbert
4:04:08 Okay, give me the profit numbers from 1984 again.
David Rosenthal
4:04:11 So together parks and consumer products generate 250 million in operating income. 4:04:17 So quarter billion dollars from the parks and consumer products and film and TV is 2.2 million. Unbelievable. 4:04:27 It really illustrates what happens to the company during this period.
Ben Gilbert
4:04:30 It's funny because I only have the top line numbers from all the annual reports that we took photographs of when we were in the archives. Revenue goes from 100 million in 1965 to 1.4 billion in 1984. 4:04:47 And then over on the net income, after all the corporate expenses, in 1965 it goes from 11 million all the way up to 97 million in 1984. 4:04:57 So if you just look at the whole business.
David Rosenthal
4:04:59 Yeah, the consolidated financials looks great.
Ben Gilbert
4:05:02 But what you're sort of illustrating is the core is rotting. 4:05:06 Yes, they are not contributing new IP onto the pile that consumers love. 4:05:11 Otherwise we'd be seeing that in the films.
David Rosenthal
4:05:15 Name a Disney film from the 70s that you can even think of today.
Ben Gilbert
4:05:21 They're just harvesting over in the parks. Yes.
David Rosenthal
4:05:25 So really the biggest problem what this comes down to is that. 4:05:30 American mythmaking moved on, it moved elsewhere. 4:05:35 So this is the era when George Lucas makes Star Wars and Steven Spielberg makes Indiana Jones and E.T., and these guys become the new American storytellers, not Disney and not Disney Animation. Disney Animation during this decade. 4:05:55 Goes from a staff of roughly 500 at the time of Walt's death all the way down to just 125 by the early 80s. 4:06:05 There's all sorts of problems, the films they do make are disasters. 4:06:10 The worst example of this is The Black Cauldron. 4:06:13 Did you read about this?
Ben Gilbert
4:06:14 Yeah, wasn't it like 10 years in development?
David Rosenthal
4:06:16 10 years in development and production ties up the studio forever. 4:06:21 And then when they eventually do release it in 1985, it's a total.
Ben Gilbert
4:06:24 Flop and it's super dark, right? 4:06:26 It's like a scary kids movie.
David Rosenthal
4:06:28 Yeah, it's a PG-rated Disney.
Ben Gilbert
4:06:30 It was the first one ever rated PG.
David Rosenthal
4:06:32 Yeah, yeah, yeah.
Ben Gilbert
4:06:33 They do have some success with live action since 1964 with the massive success of Mary Poppins, which won five Oscars. 4:06:41 They kind of leaned into that side of the house.
David Rosenthal
4:06:43 Yep, they start Touchstone Pictures and that has a couple. 4:06:47 You know, big hits like Splash is a big hit for them. 4:06:49 But animation, the core of the company, is dying. 4:06:53 And of course, Mary Poppins was made during Walt's life. 4:06:55 With Walt's involvement before his death.
Ben Gilbert
4:06:57 But to your point, all episode, you know, great. 4:07:00 They started Touchstone Pictures. Great. 4:07:02 They made 20,000 Leagues Under the Sea and Old Yeller and The Absent-Minded Professor.
David Rosenthal
4:07:07 And they made a bunch of Herbie the Love Bug live-action movies in the 60s and 70s. 4:07:13 And that's not to hate on any of these things on their own.
Ben Gilbert
4:07:14 Like, my parents loved Herbie. 4:07:17 I remember them talking about it. 4:07:18 They showed it to me when I was a kid. 4:07:19 Is that durable IP that feeds the flywheel of Disney? 4:07:21 No, no, no.
David Rosenthal
4:07:25 So then in 1984, basically, the inevitable happens. 4:07:28 Wall Street corporate raiders come gunning for Disney. 4:07:34 I mean, it's an easy target, right? 4:07:38 The financials look great. 4:07:40 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. 4:07:42 This is like easy pickings to come in. 4:07:50 Take over the super undervalued. Right?
Ben Gilbert
4:07:53 take over the super undervalued.right?
David Rosenthal
4:07:55 Yeah, I mean the market cap of this company is only like two billion dollars despite one and a half billion in top line revenue and call it 100 million in net income. 4:08:07 But this would be super easy to break up Disney, sell off the theme park, sell off the IP to other movie studios. 4:08:14 You could come in and make a killing doing this.
Ben Gilbert
4:08:16 And that's what Saul Steinberg tries to do. 4:08:18 Come in, raid the company, break it up for parts. 4:08:21 But David, I think you're getting ahead of yourself. 4:08:26 I'm pretty sure this should be how we start part two.
David Rosenthal
4:08:30 Yes, this is the story for next time, but just know for now, it's a little teaser. 4:08:37 That this period of the company ends improbably not with Disney being broken up, but with three complete outsiders. 4:08:48 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. 4:09:05 Doing merch, nope, nothing, none of that. 4:09:08 And those three men. 4:09:11 Michael Eisner, Frank Wells and Jeffrey Katzenberg. 4:09:15 Would pull off. 4:09:17 Probably the greatest media company comeback in history.
Ben Gilbert
4:09:24 So that's what two Paramount executives and a lawyer turned Warner Brothers exec. Yep. That's right. 4:09:30 Like the other Hollywood studios executives are going to team up and come in and save Disney.
David Rosenthal
4:09:37 Doesn't sound like it's gonna work, but we'll have to tell that story on part two because boy did it ever. All right. 4:09:46 Well, should we do some analysis?
Ben Gilbert
4:09:47 Yes, absolutely. 4:09:49 Do you still like the thing that we did on Vanguard, which is have one big question that we try to answer.
David Rosenthal
4:09:54 And I think the question should be, why has nobody else built an IP flywheel like Disney?
Ben Gilbert
4:10:00 Hmm, is it as simple as Disney was the first IP flywheel company? 4:10:06 And so they've been the biggest. 4:10:08 I mean that no, that's not it. But it is interesting. 4:10:10 They are the first and they're like the biggest best IP flywheel company at that point in history 1984. Yeah.
David Rosenthal
4:10:17 And I mean really like even to today, I don't think any of the other. 4:10:24 Movie studios out there. 4:10:25 Any of the other major studios are anywhere near as good a business.
Ben Gilbert
4:10:30 No, they're all terrible businesses.
David Rosenthal
4:10:31 Yeah, despite having at this point going on 100 years of watching Disney operate and seeing exactly how the flywheel business model works. 4:10:41 I mean, the Wall Street Journal wrote that article in 1958. 4:10:44 Why has nobody else?
Ben Gilbert
4:10:46 Copy them successfully? Be fair. 4:10:47 Okay, the terrible business thing is not fair. 4:10:50 The business of movie production on its own is a terrible business, but the other studios like you got to give Universal a ton of.
David Rosenthal
4:10:58 Credit and I guess that's my point. 4:10:59 Universal is probably the closest but even then it's not Disney.
Ben Gilbert
4:11:04 I mean isn't Universal running effectively the same playbook but with. 4:11:11 Less valuable IP or IP that they don't own. 4:11:14 So they have to sort of share it. 4:11:15 Think like Harry Potter. Yep. 4:11:17 Or just at smaller scale.
David Rosenthal
4:11:19 Yeah, still nobody else is disney 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. 4:11:33 I mean, Bob Iger when he took over the company in 2005, had that famous quote of 'as animation goes, so goes the company.' 4:11:40 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 et cetera with stars. 4:11:55 And then i think really just like the ability of people to form deep lasting relationships with the characters versus live action. 4:12:04 And because disney's always had animation and its core, that's what creates all this special ip.
Ben Gilbert
4:12:11 And it's all created in house, you know, it's funny. 4:12:14 I throw out 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. 4:12:24 Now they own pixar or aladdin or mickey mouse. 4:12:27 Like this is true vertical integration.Yes, yes. 4:12:31 There's also disney for all its ups and downs made the decision to never sell its catalog. 4:12:38 So they could compound longer than everyone else. 4:12:41 A lot of these other studios have sold their back catalogs and some of them are worthless since it's live action films and black and white that no one's ever going to watch. 4:12:50 But Disney hasn't. They own everything they've ever made and that ties to Walt's Oswald experience. 4:12:55 Oswald experience.Yep.
David Rosenthal
4:12:57 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. 4:13:07 And it's the vault and the reissue strategy. 4:13:10 Yeah, disney. 4:13:12 Let's put marvel aside for a minute with the exception of marvel.
Ben Gilbert
4:13:17 You got to put star wars in that pile too. 4:13:19 Because i know where you're going with this. 4:13:20 The way you feel about marvel, i feel about the over exploitation of star wars.
David Rosenthal
4:13:24 Yeah, okay, okay, all right, let's let's put star wars aside in the pile too. 4:13:29 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. 4:13:43 Dilute it and marvel. 4:13:45 Ironically, i think really is the counter example here.
Ben Gilbert
4:13:48 Yeah, it was on a great great run, but honestly, it feels like the disney plusification of marvel. 4:13:53 We'll get to this in the next episode, but that my gripe would be that the developing a lot of content to always have something fresh there. 4:14:01 Maybe what the issue that we're both describing is actually a blurring of flywheel point to and flywheel point three. 4:14:09 Point two was maximize distribution of each core ips. 4:14:14 Primary initial delivery vehicle and your point three was feed ip into as many ancillary profitable flywheel nodes as possible. 4:14:21 Kind of feels like with direct consumer disney plus those two things got confused blurred.Yeah. 4:14:29 And like, yeah, what's the difference between ancillary content and primary content? 4:14:33 It all ends up in the same place and that's kind of how i feel when i watch some of the overexploited ip now. 4:14:40 It goes back all the way back to the point you made. 4:14:42 I don't know, six hours ago or whatever. 4:14:44 That 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. Yep. Yep, yep.
David Rosenthal
4:14:57 But i think for every other studio out there, their incentives have always been, and are always going to be release as much content as quickly as possible. 4:15:08 Yeah, especially once they have a franchise that's working, get the sequels out as fast as possible and get the sure profits from them.
Ben Gilbert
4:15:16 And disney is playing a many decade compounding game which can take three decades to really kick in and all these other studios have changed ownership every decade. 4:15:25 And so there's really not the right like ownership incentive structure. 4:15:31 To play a three-decade game.Yup.
David Rosenthal
4:15:34 And i think this impacts the creative decisions too because when you don't need to release content, you can keep working on the content and make sure that you only release it once it's truly great.
Ben Gilbert
4:15:48 Yeah, there's one other point on this though that we haven't really touched on which is universe cohesion. 4:15:54 Here's my favorite way to make the point. 4:15:57 What's your favorite paramount song?Right.Yeah.No idea. 4:16:01 The top gun theme song. 4:16:03 What's your favorite universal song?Right.Yeah. 4:16:06 But like everyone's got a litany of answers to what's your favorite disney song? 4:16:11 Yes, they actually managed to associate all of this love and heritage and fandom and universe interaction with the studio itself.
David Rosenthal
4:16:20 It's back to becoming the lifesavers of animation.Yep. 4:16:23 So okay, as i was thinking about this, i was trying to ask myself, are there any other companies in the broader nintendo entertainment landscape? 4:16:32 Ah, you got it.They do this. 4:16:34 I thought i was gonna get you, which is so great because nintendo and disney. 4:16:40 Nintendo started on the back of disney, right? 4:16:42 As we talked about on our nintendo episodes, right? 4:16:45 It was the disney license for the playing cards in japan that kicked off modern nintendo. 4:16:49 Yep, yes, but yes, they have this exact same ethos and flywheel.
Ben Gilbert
4:16:55 But interestingly, they sort of don't play together now. 4:16:57 I mean, that's the thing about vertically integrated companies is they don't really work together.
David Rosenthal
4:17:02 Right, and nintendo is partnered with universal now for their parks. 4:17:05 I kind of suspect the way that a relationship between disney and nintendo. 4:17:10 The only way it could work would be if one of them buys the other.right?Yep, yep.Great.Seven powers.Great.
Ben Gilbert
4:17:17 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. 4:17:30 And those seven are scale economies, network economies, counter positioning, switching costs, branding, cornered resource, and process power. 4:17:40 And I think we're just analyzing this for pre-1984 Disney.
David Rosenthal
4:17:44 Yep, well, easy one to start with, counter positioning for days, being willing to invest in a feature length animated picture. 4:17:53 I mean that was the peak. 4:17:54 Of this, relative to anybody else doing animation, leading up to snow white.
Ben Gilbert
4:17:59 Right, cause 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. 4:18:07 And who had all the cash from mickey and the mickey merch, which would have been almost no one. 4:18:12 I don't know, actually, that's almost like capital as a moat to go pursue snow white because they weren't there. 4:18:18 Was no one else who really could have done it.you know what?
David Rosenthal
4:18:23 You're right versus the other animation studios, but Disney was counterpositioned, I think versus the big live action studios because they never would have made a three-year one and a half million dollar investment in a film when I was.
Ben Gilbert
4:18:38 So where do they have the capability though?Yeah. 4:18:40 So let's see early on. 4:18:43 I mean branding pretty quickly played a role as soon as mickey mouse was established.
David Rosenthal
4:18:47 while disney production.Absolutely.
Ben Gilbert
4:18:49 Yeah, you'd pay more for a walt disney production than.
David Rosenthal
4:18:52 it was brand for disney itself.
Ben Gilbert
4:18:54 I wonder if there was process power reading in some of the old recollections of animators. 4:18:58 It seems like there were people that kind of traded between studios and left and started rival studios and they were able to produce great work. 4:19:05 So maybe there's not process power. 4:19:06 Hmm, i mean the the big two once it started to really kick in our scale economies and network economies, the flywheel sort of all about that. 4:19:16 These films are all scale economies. 4:19:18 It's can i go plop down 6 million dollars 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. 4:19:31 And then of course, the network economies of, if you have a big enough release, it is a cultural moment. 4:19:37 Yeah, it matters to the world.
David Rosenthal
4:19:40 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. 4:19:48 Yeah, the flywheel is built on network economies. 4:19:51 It's like a combination of scale economies and network economy, scale economies to enable the investment in the ip. 4:19:56 And then network economies across all of the nodes.
Ben Gilbert
4:19:59 But the whole thing, if you were to go ask that question of why isn't another. 4:20:04 Company able to replicate the success of disney to any of the very smart executives and their great teams that work at competitive companies. 4:20:14 They would say, oh, because disney has the cornered resource of all that ip. 4:20:17 And like, what do you want me to do? 4:20:18 I can't devise a strategy that's going to work in the next five to 10 years to suddenly beat Disney when they have 100 years of heritage and the world caring about their IP. 4:20:29 The entire thing is predicated on that.
David Rosenthal
4:20:30 Yep, yep, which really comes down to Walt always playing the long game. 4:20:35 And always being willing.
Ben Gilbert
4:20:36 to bet the whole farm. Yep. 4:20:38 And being right enough times and managed to survive through the times where he was wrong that it worked. Yep. All right. Quintessence. Yes. 4:20:48 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, their universally applicable. 4:21:03 That work together as one, and that is something that can stay relevant, and of course monetize for a very long time across generations. 4:21:12 They can't fully avoid being a hit-or-miss business, they are a movie studio. 4:21:17 But they've gotten about as far away from it as they possibly can. Mm hmm.
David Rosenthal
4:21:22 It's funny listening to you say that. 4:21:24 I think that entire passage could equally apply to Nintendo. 4:21:29 Yeah, which really just shows how the companies they are. 4:21:32 The two flywheel companies, they are the two intellectual property flywheel companies out there. Yeah. 4:21:37 Okay, so my quintessence goes all the way back to the beginning of the episode and Marceline, of course, does art and commerce. 4:21:44 Those two things got married in Walt's head. 4:21:47 When he was a little kid, and that is Disney. 4:21:51 It really is art. 4:21:53 When Disney is at its best, what they make is not just a commercial product, it exists at a higher level than that. 4:22:01 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.
Ben Gilbert
4:22:13 In, it sounds exactly right. 4:22:15 The sight lines, man, the the I I like going to Disneyland just to walk around. 4:22:22 It's the craziest thing. 4:22:23 The rides are free and I have just as much fun not going on them even though I've already paid for them.
David Rosenthal
4:22:28 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. 4:22:38 All right, before we do carve outs, I've got one fun little thing that didn't make the narrative. 4:22:43 So when Disney launched Donald Duck in 1934, they hired radio actor Clarence Nash to do his voice. 4:22:54 Do you know how Clarence Nash got his start doing animal voices on the radio? 4:23:01 You won't guess it, but it's an awesome Acquired crossover. 4:23:06 He was the radio spokesperson for Ador Dairy Farms in Southern California. Trader Joe's. That's awesome. 4:23:18 Crossover Trader Joe's Donald Duck. There you go.
Ben Gilbert
4:23:20 Trader Joe's original milk supplier before they got bought by Trader Joe's competitor 7-Eleven.
David Rosenthal
4:23:25 Yep, that's right. 4:23:27 And of course, Trader Joe's itself was in part inspired by the Enchanted Tiki Room at Disneyland.
Ben Gilbert
4:23:33 That's right, which we didn't talk about, but Walt also owned that personally. 4:23:37 It opened in '63. 4:23:39 He put up the capital for it. 4:23:40 I think Wed Enterprises owned it and it was ticketed separately. 4:23:43 I think it was like an extra 75 cents or something to go to Walt Disney's personal Tiki Room, which is why it's named that. That's right. All right. 4:23:51 Carve outs, what to get. 4:23:52 All right, follow up to yours from the Vanguard episode. 4:23:55 The shoes, Brooks Vanguards, are indeed great. 4:23:59 I ordered a pair, they're excellent. 4:24:01 I'm not wearing them today because they're not squishy enough to stand for whatever we're at nine hours.
David Rosenthal
4:24:07 Yes, but they are great shoes. I got two pairs.
Ben Gilbert
4:24:10 I wear them around the neighborhood. They're awesome. 4:24:12 I have two YouTube channels. Oh, nice. 4:24:15 One is Defunctland. 4:24:17 I used to watch this channel all the time. 4:24:19 I forgot about it for a while and then I rediscovered it while we were doing research. 4:24:23 It is the stories of either defunct or never built theme parks and it walks you through the insanity of Action Park in. 4:24:32 Where is that? New Jersey? Yeah, I think that's right. 4:24:34 Tons of great Disney ones, Disney parks that were never built. 4:24:37 There's a great one on the Florida Project. 4:24:39 So I highly recommend Defunctland. 4:24:41 My second one is Animagraffs. 4:24:44 There's not a lot of videos on this channel but they're all so cool. It is. 4:24:49 3D models explained by a narrator of how really interesting pieces of machinery work. 4:24:57 I've used it for at least two episodes that I can think of off the top of my head. 4:25:00 One, how a mechanical watch works and two, how a Formula One car works. 4:25:06 I highly recommend the channel Animagraffs. It is awesome.
David Rosenthal
4:25:09 I also have two carve outs. 4:25:11 My first one is we got a new car. 4:25:15 Hey, Volvo EX30, the little guy, the little guy, it is awesome. 4:25:22 It's like the perfect car for San Francisco. 4:25:24 It fits in tight parking spaces, but it can hold my whole family. 4:25:28 Hold a bunch of gear. 4:25:30 Oh my god, Chinese EVs are incredible. 4:25:33 So Volvo is owned by Geely, which is a Chinese company and the EX30 is a Geely platform EV with Volvo branding unlike the other Volvo cars. I mean this thing is crazy, it only costs like 35,000 dollars and it's awesome. Unfortunately that leads to C-EV, which is Volvo just canceled it in the US, right? After no way, yeah, I think because of tariffs. Yeah, oh it is an amazing car, you can no longer buy it in the US but you can internationally, it was a short window and like man, I get Chinese EVs now, this is a really really good car for not a lot of money. 4:25:41 Okay, my second carve out is the San Francisco Symphony. Jenny and I went the other night. 4:26:12 They have a new music director coming in, Elham Shahidi, and this was her first performance since being named music director. She's awesome. 4:26:19 She's 39 years old. 4:26:28 She's so much fun and so much energy and going to the symphony, which I hadn't been in forever. 4:26:29 Made me realize that actually, through... 4:26:36 Classical animation. 4:26:38 I got a ton of exposure to classical music growing up. 4:26:41 I think more than anything else, like through Disney films and Looney Tunes and Warner Brothers. 4:26:44 I was just sitting there like man, I feel like I should be watching some animation right now. Awesome. 4:26:48 I was just sitting there like man, i feel like i should be watching some animation right now.Awesome.
Ben Gilbert
4:26:56 All right, well, we have got some thank yous to people who helped us with our research. 4:27:00 But first to our partners this season, J.P. Morgan trusted reliable payments infrastructure for your business, no matter the scale. J.P. Morgan. 4:27:07 com/acquired to Vercel the developer tools and cloud infrastructure to build and scale fast secure applications on the web Vercel. 4:27:15 com/acquired to ServiceNow the platform that puts AI to work for people ServiceNow. 4:27:21 com/acquired and Statsig bringing experimentation feature flags and product analytics into one unified system for product teams Statsig. 4:27:29 com/acquired. 4:27:30 Thanks all for these companies for being awesome partners with us this season as we wrap here with this finale and leave you with a cliffhanger here over the summer when we'll be back for our fall season in August.
David Rosenthal
4:27:42 Disney part two. Yes.
Ben Gilbert
4:27:44 the Renaissance Ben and David will return. 4:27:47 Yes, as always, thank you to all of our sources, the books that we read for this episode, they're all linked in the show notes. 4:27:54 And a special thank you to Arvin Navaratnam at Worldly Partners for his great write-up on Disney linked in the show notes. 4:28:02 Arvin, for folks that don't know, is at Worldly Partners, which is a long-term investment firm focused on multi-decade compounding businesses. 4:28:10 Very simpatico here with Acquired. 4:28:12 Learn more at worldlypartners.com. 4:28:15 He provided us with the data on the rise of televisions, actually some annual reports that we were missing, even from our time in the Disney archives, for the original offering document for Disney selling shares to the public. 4:28:26 All sorts of awesome stuff. 4:28:28 Personally, thank you to Jeffrey Katzenberg. 4:28:30 We had a great breakfast when I was down in Burbank, and helped us out a lot with research. 4:28:35 And you'll hear a lot more about him on part two. 4:28:38 To Josh D'Aarima, the new CEO of The Walt Disney Company, for his time chatting through some stuff that we were wrestling with, and helping us with research. 4:28:47 Also to Nancy Lee, and all the Disney folks in the archives, Animation Research Library, and all the other great folks in Burbank we met with on our research trip.
David Rosenthal
4:28:57 That really was incredible. Thank you to all of you.
Ben Gilbert
4:28:59 To Mike Miller, former Wall Street Journal editor, and now frequently helping us with Acquired episodes. 4:29:05 Mike, you are awesome. 4:29:06 To Great and Horror who emailed us last year with the observation that the entire business community misuses the phrase flywheel. 4:29:15 Yes, appreciate your help creating.
David Rosenthal
4:29:17 Glad we finally found the perfect episode. To bring this. Yes. 4:29:20 Well, speaking of the Wall Street Journal, thank you to Ben Cohen and Emily Nelson over there, who helped us track down the original flywheel article. 4:29:29 We will link to that. 4:29:30 In the show notes, can't wait to share it with all of you to Mitch Lasky. 4:29:35 Our friend Mitch Lasky former partner at Benchmark who helped me think through a whole bunch of the flywheel dynamics to Ryan Shear, who is Walt's great-grandson and is on the board of the Walt Disney Family Museum here in San Francisco, which really is an excellent museum and it's done by the family. 4:29:53 It's about Walt the person. 4:29:55 Highly recommend going to see it next time you are in San Francisco.
Ben Gilbert
4:30:00 If you like this episode, go check out our recent episodes on Vanguard Ferrari and Coca-Cola and back in the archives are two-part series on Nintendo. 4:30:08 I think a lot of that is going to rhyme with Disney. 4:30:11 Indeed, you can click the show notes to get access to the PDF companion with visuals charts tables and illustrations of key concepts. 4:30:19 You can also get it by joining our email list acquired.fm/slash/email. 4:30:23 To where we send out our takeaways from each episode, past episode corrections, behind the scenes photos, and it's where you can vote on future episode topics. 4:30:31 Plus, we give away a little hint each time, acquire.fm/slash/email. 4:30:36 And we are writing in the Wall Street Journal. 4:30:39 You can get access to read the columns at acquire.fm/slash/wsj, and if you sign up there, we will email you every time the column comes out, and we will make sure that. 4:30:50 You get an unpaywalled link. 4:30:52 So whether or not you were a journal subscriber, if you were on that list, acquired.fm/slash/wsj, you can always be able to read our article.
David Rosenthal
4:31:00 Every time we make an episode.
Ben Gilbert
4:31:01 we write an article now. 4:31:02 And with that listeners, we'll see you next time.
David Rosenthal
4:31:05 We'll see you back here this fall for Disney part 2. Yes. 4:31:09 Who got the truth? Is it you? Is it you? 4:31:13 Is it you who got the truth now?
