The Walt Disney Company

0:00 Have I ever shown you my Mickey Mouse impression. You've done your uh Mario impression for me in the past, but I've never been a little similar. Give me give me Mickey. Give me Mickey. Oh boy! Well yeah, look at that!

0:15 That is really good. You sound like Walt himself doing Mickey. Right? Didn't he do Mickey for like twenty years? Yep. Yep, yep. 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 twenty years.

0:30 Have I ever given you my Donald Duck impression? Oh wow, okay, well uh now I I m do I need to sit down for this one? You m you might need to. All right, here we go. Oh that's about right. That's about right. I have a great

0:45 Donald Deck Turby for you coming up and save it. All right, save it. Save it. You're gonna be blown away. I'm pretty sure you didn't find it. Great. Alright, on to the episode. Let's do it. Who got the truth? Is it you, is it you, is it you Who got No. Is it you, is it you, is it you

1:05 Down! Straight! Another story on the way Welcome to the spring 2026 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal.

1:20 And we are your hosts. Today, listeners, we finally tell the story of the Walt Disney company. Unbelievably. In eleven years of doing acquired.

1:31 We have never told Walt's story. And uh it's been a glaring omission. It is the entertainment company, different than all the rest. It's over a hundred years old, and it has played a prominent role in almost all of your childhoods. And if you're a parent, likely your parenting journey too. Oh yes. I'm looking at you, David Rosenthal. Oh yes. And it has played a prominent role in acquired history, too. Our very first episode, Pixar. Done Lucasfilm, we've done Marvel.

2:00 D S P N Although those are a whole different version of acquired, we may need to decanonize those and and redo them uh the the proper way. As part of this. Listeners, since there are tons of biographies and documentaries and places analyzing Walt's psyche, we're gonna focus today on Acquired Sweet Spot. Which is the business. 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 isn't a whole different league than Paramount or Universal or Warner Brothers or any of the other sort of classic Hollywood studios. The business of feature film production Is a mediocre one. Especially by the standards of uh what we study on this show here with Acquired, except for Disney. Yes, exactly. And I will say I am a huge Disney fan. I grew up on Aladdin and The Lion King. My first movie in theaters was Beauty and the Beast. I'm a huge Star Wars nerd and my wall was plastered with Toy Story poster growing up, but somehow I knew nothing about the company's early history before starting.

3:07 this research. Nor did I. For example, it started in Kansas City. There was a character that was supposed to be Mickey Mouse. Before Mickey Mouse. But was lost in a contract dispute, 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 Two. Pinocchio, Bambi, these films are from the thirties and forties. They even predate the existence of televisions in people's homes. Yep. And importantly for Acquired's roots, this really is a technology story. 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. Or the multiplane camera to photograph the whole thing and turn it into a movie. And of course Building a giant theme park in Anaheim when nothing else like it existed.

4:03 And They really did invent the entire concept of the flywheel that so many entrepreneurs are trying to copy. Oh, yes. So today, listeners. is the Walt Disney Company. Part one. Waltz era.

4:19 Whoa Well, big news from here at Acquired HQ. This episode has a companion PDF with visuals, charts, tables, and illustrations of key concepts, including acquired version of the Disney flywheel. We did a pilot of the idea after our Vanguard episode, and we got such overwhelming positive response that we are doing it again. So you can get access and follow along by clicking the link in the show notes. You might say we're uh building out our own flywheel here. We are eating our own episode cooking. And we're 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 acquire.fm slash email. That's where we'll send our big takeaways from each episode, past episode corrections, exclusive behind the scenes photos that we found in our research, and it's where you can vote on future episode topics. Plus we will give away a little hint 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. And before we dive in, we want to thank our presenting partner, JP Morgan. Yes. Just like how we say every company has a story. Every company's story is powered by payments. And JP Morgan is a part of so many of their journeys from seed to IPO and beyond.

5:33 So with that, the show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only. David Take us in. Well, first a thank you to my main source for facts and waltz quotes on this episode, Neil Gabler's biography, Walt Disney. The triumph.

5:54 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. Well with that, we start. In Chicago.

6:07 In december nineteen oh one. Where Walter Elias Disney is born. And the family lore is that the Disney's are descended from the French Disney's of Normandy. How do you spell that? D apostrophe I S I G N Y S who came over to England with William the Conqueror.

6:28 In ten sixty six. That's family lore. Uh un unverifiable. Yes, at this point lost to history. Yes. So Walt's father, Elias, What sort of a Fried entrepreneur.

6:42 He was variously a carpenter, landlord, farmer, newspaper route owner, and And Eventually a failed jelly factory. Investor. But Elias' younger brother Robert, Walt's uncle Robert was the successful one in the family. He was a real estate speculator, among other things. And that is what brought

7:05 The family to Chicago at the turn of the century he had invested in. a bunch of real estate in Chicago in the Midwest. And so Elias came also to seek his fortune there. Now When Walt is four Elias moves the family out of Chicago.

7:20 to an idyllic farm town 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, it was the most important part of Walt's life. He didn't live there very long. He lived in Chicago and Kansas City much longer. But there was something about the farm that was very Important to him.

7:44 And Elias moved the family because It was kinda like let's get out of the dangerous city of Chicago and raise the kids right. So sort of somewhere small town. I think Marceline was actually created because they needed somewhere for The Santa Fe Railroads division point. Yes, yes. Like when it was going to maybe Chicago in Kansas City, and they were like, and this place on the map looks good and they started the town of Marceline.

8:09 Exactly, exactly. And Robert, the uncle had bought real estate there, kinda speculating again that this Marceline's gonna grow. So Marceline was Like basically a Disney movie. There's

8:21 Orchards and ponds and animals and farmhouses. 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 ahead of ourselves. So while the family's living there, Uncle Robert's wife While it's Aunt Maggie

8:39 Every time. that they would come visit Marceline to check up on their real estate investments, she would bring Walt Gifts. And one year Walt is probably six or seven years old.

8:50 Aunt Maggie brings him a big chief drawing tablet. And pencil set. And Walt Is enraptured. You start sketching.

8:59 All the time, drawing, sketching everything you can see. And As the legend goes. One day. Walt's retired neighbor.

9:07 asked the young boy to draw him a picture of his favorite horse. 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. And Walt His mind is blown, young Walt he's like

9:23 My my hobby, my my art. It can make me money. Mm. Now, whatever the exact truth of that story is.

9:33 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 Maiden. Change America. Absolutely. The thing about Marceline though, you said it's idyllic and like it's out of a Disney movie.

10:00 The reality of Living in Marceline and life on the farm. is that it was very hard. All the kids are involved, there's not you know, magical economic prosperity everywhere. It's sort of a tough life, even though he can sort of remember it as an idyllic childhood, which I also think is quite the foreshadow of kind of the Disney versification of things in the future. It is both remembered as idyllic, but also was hard as the real world is.

10:28 Yes. And I think it's because of the age Walt was when he was there. 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. So he gets to just enjoy the all this bliss around him. Yeah, the reality is it's

10:44 Pretty tough. For the family to make a living. And in fact. They can't. So

10:51 Elias adds sparming to his list of entrepreneurial failures. And when Walt is nine years old They have to move the family again. out of Marceline.

11:03 to Kansas City, where Elias decides he's gonna purchase a paper delivery route for the Kansas City Star newspaper. And he's gonna put the family To work. Delivering papers. There are so many protagonists that we study on acquired who started their career as newspaper boys. I was gonna say, just like Jack Bogle from Vanguard delivering papers in his youth and having to get up at four in the morning and falling asleep at school because he has to work so hard, like This is quite the reversal here for Walt from Marceline. But

11:34 He never stops drawing. And he never stops making money from it. 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's spending money growing up that he would earn from his art.

11:50 Yep. So Later, when Walt enters high school, Elias moves the family back to Chicago again. 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. Where unfortunately

12:14 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. Yeah. But For long.

12:25 Before the war ends. And in the fall of nineteen nineteen, he lands back in Kansas City, where Roy Disney His older brother, who is I think eight years his senior. Nine years maybe. Eight, nine years older. Yeah, much older. Yep. Is living. And Walt has a plan that he's gonna 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. For six weeks. Through Christmas time. And then gets unceremoniously laid off. But he gets two things out of this brief

13:04 experience as an employee. One, he gets a credential. He can now say that he is a professional artist. All you have to do is get paid to do something and then you become a professional. Exactly. Exactly. And You get something else. A co founder. Another Young apprentice.

13:21 From The art shop. Named Ub. I works. I sort of think of Ub as the Steve Wozniak of Disney.

13:29 Yes. Absolutely. Waltz. Is like the original Steve Jobs and I think you can definitely make the case that Ub is the Steve Wozniak. Although I think while

13:39 was more hands on. Yes, Walt was also an animator. Ubb 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. So After the two of them get laid off.

13:59 Walt suggests that rather than go look for jobs again, they should just start their own studio together. I mean, hey, they're professional artists, like why not? So they create IWorks Disney Commercial Artists Incorporated. Supposedly in that naming order, so that it didn't sound like a optometrist shop like Disney iWorks. How amazing is this in the first iWorks and Disney partnership, in Walt Disney's first business. He was not the main name on the door, or at least he was not the first one. Yes. Not the main name on the door, but he is

14:31 The driving force. Yeah, behind the business. So he goes out. to pitch prospective clients around Kansas City for the uh services of this new iWorks Disney commercial artists firm. And one of the clients that he goes to pitch is a

14:47 Up and coming company called the Kansas City Slide Company, which happens to have become The country's largest producer Of advertising slides and short commercials. That would get shown in Movie theaters before.

15:03 Feature films. And The slideco has so much work at this point in time is films and movie theaters are are taking off around the country that they say, Hey

15:14 You guys seem talented. We don't want to just contract with you. Why don't you come work here full time? So Walt Nubb's first entrepreneurial venture. Quickly and they go.

15:24 Join. the slide company. The reason that they specifically wanted Walt And uh, yeah. Is that

15:32 They have a relatively new Business line at the Slideco. Which is producing Animated. Commercials.

15:39 to run in movie theaters before films. And this is what Walt and Ubb end up getting Put to work. Doing. And they both just Fall in love.

15:49 With. This new art form. of animation. It's like everything that Walt and Up to loves about drawing. But

15:58 It's more than just art. It's Technology, you know, you need cameras, you need film, you need all these new inventions to make animation happen. Yeah. And

16:07 At this point, animation was really primarily used in advertising, right? There wasn't really a successful thriving industry yet as Entertainment. of its own based on animation. It was like very, very early 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 twenty 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. Like this whole art form is brand new. It it couldn't exist before the technological

16:51 Innovation of Film. Yep. Exactly right. So part of the reason that cartoons are working well in advertising right now for the Slideco.

17:01 Is that it's This novelty. Gimmick. It captures. People's attention. Yep. Even though they have no color, no sound, no story. It's just a series of like visual novelties. It's something they've never seen before. Of course it's interesting.

17:15 Yep. And in Walt's mind, who really is always thinking about how can I you know make a business out of a career out of this. This is also what makes it super attractive to him. Because the whole industry is so new of animation.

17:28 He figures that he can quickly become As good or better than Anyone else in the world at it. Unlike if he's tr gonna try and be the best commercial artist in the world. Good luck, young Walt Disney in Kansas City, Missouri. Right, right, right. But becoming the best cartoon animator. Small pool. Yeah, he and Ub might have a shot here. Yeah. So

17:49 Well 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 Well puts together that he creates all himself.

18:05 He brands them as quote laphograms. And he ends up selling them on the side. to a local movie theater chain to run before features. And The laphagrams become a hit in Kansas City. Audiences love'em. I love that the thing that

18:21 led to the Walt Disney company is called Laugh Ohram. Like Laugh Dash O Dash Graham. It reminds me of uh what was the Rolex watch? The turnograph? Oh yeah, yeah. Yeah. It's such a like hokey name for you know what ends up becoming Well this doesn't become Disney, but the spirit of which becomes Disney here. And the thing that they're doing, they're so primitive. There's no sound, there's no voices, there's no color. There's barely backgrounds. Yeah. It's so different. from what you're used to today. Because of those limitations. You can't create a story or a real sense of character for any of the characters that are in there. Like you can't build a relationship with

18:59 The cartoons that are being made at this time, like you can with Mickey Mouse or Donald or Goofy or Minnie. The only emotion you can invoke Is Humour. And the only real way to do humor is slapstick. So it's just these like super exaggerated they call them 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 or sometimes even a few seconds.

19:25 Yep. And Honestly, that's actually not that different than film itself overall at this point in time. Charlie Chaplin is the big star in America and around the world, the big movie star right now in the silent era. And

19:41 Most of his movies are exactly what you described, Ben. Honestly, it's all physical comedy, sort of slapstick. It's the stuff that my toddler laughs at. You could re-summarize every scene of every comic in most movies by going, Oh, he fell down Exactly. Uh. So In May of nineteen twenty two.

20:01 At twenty years old. Walt decides that these laphograms that he's making are having enough success. That he's ready to leave the slide company, go out on his own. Again. And he founds Lapagram Films Inc.

20:15 And once again he convinces uh Biworks to quit and come along too. Along with a few other Animators from the slide company. And it's another failure. Because

20:27 Despite the laphagram's local popularity, the there in Kansas City. By the time We get into twenty two, nineteen twenty three, Animation and cartoons in general around the country are starting to lose their appeal. The novelty is wearing off, the fat is dying down.

20:45 There's actually a survey. of theater managers right around this time in like nineteen twenty two or nineteen twenty three, where one of the questions is what filler options Do your audiences like to see around the feature film that you're showing'cause it also would be newsreels or live comedies or short serials. Remember, there's no television. There's not even really radio at this point in time. If you want to get news or any kind of entertainment, you go to the movie theater. Alright, I got a stat on this.

21:11 In the nineteen twenties, the average American went over forty times per year to the theater. Wow. This is what you did every week for entertainment. Wow, yeah. Compare that to today where like M maybe you go once a year. It's two. The average American goes to a movie theater twice a year now. Yeah, I mean back then it was like you could go to the movie theater.

21:34 Or you could go see a live show. ballet or opera or or like a sporting event, like a baseball game. Or you go to the movie theater. That's it. And when you go to the theater, it was a bundle. 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, there were news reels, there was the the feature you're there to see, but it's sort of this like bundle of all right, let's see what the theater has in store for me today. Yeah, exactly. So this survey of theater managers, only twenty three percent of respondents say that they

22:02 show cartoons as part of the bundle and that their audiences like it, which is by far the lowest of any of the other Fill our options. So Laphagram. Camp. really find a market outside of their local popularity in Kansas City.

22:15 And in nineteen twenty three The company goes bankrupt. And Shuts down. Walt.

22:21 There's now this sort of one point five times disgraced entrepreneur here in Kansas City. Yeah, yeah, yeah, exactly. And he raised money from people in Kansas City, friends, family. He he went and lost people's loan capital that they gave him. Yep. So Walt goes to Rich Uncle Robert for advice on what to do given his failure. And Robert says You know, kid

22:47 Best thing to do if I were you, I would just skip town. Get out of there Which actually is really sound advice for back then, you know? People's reputations did not travel with them. Nope. Your credit was the credit locally that you had with The people in your town and No other way to find you otherwise. Now it just so happens That both Robert

23:08 And Walt's older brother Roy. Have just also Skip town from Kansas City. And moved out west.

23:17 To Los Angeles. So Wall packs his belongings, which is Basically nothing at this point in time. Hops aboard the Santa Fe train bound for LA and Joins them in Hollywood.

23:30 And when he arrives there in the summer of nineteen twenty three, he's twenty one years old. He stays with Uncle Robert. And Initially. You really can't make this up. I I couldn't believe this when I read it.

23:42 Well At first thinks that He's come to Hollywood. He's gonna get a A directing job.

23:50 In Hollywood at one of the studios there. Well, yeah, he has abandoned the idea of animation. He basically thinks he's too late. He's seen some of the stuff that comes out of the New York m cartooning scene and he's like, Well, I'll never be as good as them, so I need to go start over something completely new. Right, 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. That is Walt for you. Do you know the story of the universe a lot?

24:20 No, no. So he rolls up to the universe a lot after getting there, having no job, no money, borrowing a bed. And He goes and has fake business cards made that says he is with Universal. He's just the Kansas City representative, so no one at Universal would really know who he is. And he gives it to the receptionist.

24:41 on the Universal lot and he walks in. And so he spends uh at at least a day from what I could tell roaming around and learning as much as he could about film production. And like internalizes a lot of those lessons and then 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 and doesn't get a job. I didn't know that story. Ha ha ha So once he

25:08 Inevitably gets rejected at all the Major. When things began to look hopeless. I got

25:17 My cartoon things out again. And he sets up shop. animating again. He's like well as you said, Ben, this is the one thing I know how to do. I should try that. And at this point. Pretty much the only

25:30 popular cartoon left in the industry. Is Felix the Cat. Yep. Which is created by Pat Sullivan out of New York.

25:40 And distributed by the pioneering Margaret Winkler. Also in New York. So well. Has one

25:48 Thing one. Acid. left over from his failed Laphagram days. Which is

25:55 A real Of A hybrid live action Cartoon short. that he had created with Ub.

26:04 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. Which is like completely pioneering technology. The the other people who were doing animation this time were just doing cartoons. These Alice comedies, as they came to be called, Wrong. 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.

26:34 Yes. Very cool. And also had the unique property of being Cheaper to produced and full animation'cause you only had to animate the characters, not all the backgrounds and everything. Right. Yeah, there is this funny counterintuitive thing that

26:47 live production is much faster and cheaper than animation. You just have a film camera and you point it at something in the world that exists and you kinda get everything that you're pointing it at for free. 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. It's it's much harder and you need 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. Yeah.

27:16 So Walt sends Alice's Wonderland off to Winklar. And she likes it. So she commissions Walt to create twelve more Alice comedies for like fifteen to eighteen hundred dollars each. She does, and David, did you know we have seen this contract?

27:34 Was this in the documents that we saw in the Disney archives? Yes. So listeners, for this episode, David and I went and spent a few days down in Burbank looking through the corporate archives, and one of the things that the archivists pulled for us was this contract. And I have a photo of it. I'm looking at it right now. Agreement entered into this sixteenth day of of October nineteen twenty three between Walt Disney of 4406 Kingswell Avenue, Hollywood, California, blah blah blah blah blah. And yeah, you're exactly right, for twelve negatives of subjects series, and then in all caps Alice Comedies. And this we I also have a picture of this. on the last page of this contract,'cause this is effectively the contract that puts Disney in business. I mean this becomes the Walt Disney company. Yeah. This is the moment. This is the beginning of

28:18 Disney. you can see his signature, which is much less flowery than the version that you see in the the Disney logo. He would sort of evolve it over time. But yeah. This is The moment.

28:29 Disney. Walt is in business. It's his first Actual. commercial big time. Deal. Yes. And I think when Walt sort of gets word from Margaret, he runs into his brother's room. His brother Roy actually has tuberculosis at this time and is in like a hospital ward.

28:45 And he sort of runs in, shows him the contract, and says, We got it, we got it, we got it, we're in business, we're doing it. And you know, fifteen to eighteen hundred dollars a film is a lot of money at this time. 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. It's like all right, my tuberculosis is behind me. And the two of them Found. The Disney Brothers cartoon studio. Right there. In October.

29:09 Nineteen twenty three. I'm True partnership between the brothers. Roy Manages the business and the finance. Walt manages the creative.

29:19 And they get to work. Yep. Of course. Right. Uh by works.

29:25 Back in. Kansas City and several of the other talented animators that they knew there and says, All right, guys, I I got it this time. Come on out to California. We finally got a deal. We're gonna build a real company and a real

29:40 Animation studio. And they do. The behemoth we know as Disney today is The Disney Brothers cartoon studio and a whole bunch of Kansas City guys that moved out to join Walt to start cranking away. Yep. And

29:55 The Alice comedies become a moderate success in the marketplace. Again, I think the novelty of cartoons plus live animation audiences that are Entertained for a few years. Ultimately the Disney Brothers studio produces fifty seven of the Alice comedies from nineteen twenty three.

30:14 To nineteen twenty seven. And then in nineteen twenty seven Winkler's relatively new husband, Charles Mintz, who actually got to start w working for her. 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. Big opportunity.

30:38 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.

30:53 Felix. N 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. Sort of like they're building their own chips while still buying NVIDIA. Yeah. Uh and so He turns around and taps.

31:10 Disney. Says hey Walt. Can you make us a new series and a new character? You know like Felix. But

31:17 But not Felix. Like like maybe not a cat. Right. We need it to be plausibly different while still having everything that made Felix successful. Yes. So well and uh cast about. What can we come up with? It's like a cat, but maybe shares a lot of the same recognizable attributes like 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 Picky Mouse. but with Oswald the lucky rabbit. And

31:49 Oswald is a big hit. It's got the backing of universal distribution behind it. That's a big hit for Universal, big hit for Winkler and Mints. And a big hit. Four. The Disney Brothers cartoon studio.

32:02 And it's not surprising because if you give the creative brief to Walt and Ub, take something that's kind of working. but apply your style. Their style was great. I mean, they were emotional animators. 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. Disney insisted on rounded, humanized figures. He wanted the humor to come out of the character, not the outrageous action. So it's sort of like Hey, here's the template, but Disneyfy it or IWorksify it in a way that really can speak to people. Well I think it really was the partnership of the two of them. I think

32:46 I work. had like immense artistic talent as an animator and was able to do that. And Walt had taste. Like he recognized it.

32:57 And he knew when and where to apply it. Yep. So On the back of the Oswald success, the Disney Brothers cartoon studio

33:06 Grows. Pretty quickly from this ragtag group from Kansas City to like A real operation like a real you'd have at this point bordering on major animation studio. They hire

33:19 About twenty five employees. and start churning out Oswald cartoons. Yep. They move into a real studio building on Hyperion Avenue in the Silver Lake neighborhood of Los Angeles and When they move there. Walt and Roy. decide at uh uh unclear which brother's instigation that they need to rename

33:40 The company and the studio. From the Disney Brothers cartoon studio. To the Walt. Disney studio. So there's two stories about this. I was gonna say I've seen both. One is that it was actually Roy's idea. Yes. Because he's like, hey, you know, we need to start building a brand and like people need to know

33:58 Who is making these Oswalds and it should be the Walt Disney studio. 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. Yep. The other story is that Waltz always had a dream since he got to Hollywood of having his name up on a neon sign. Now that they have their own real studio, he wants a neon sign constructed that says the Walt Disney studio. Which I think does happen. Yes, we'll put the photo in the email. The Hyperion Avenue studio has this really cool sign or did for a long time before it got knocked down and I think it's a script mall or something today. And in that vein.

34:38 Now that the studio has become a real operation. Well moves from actually doing a lot of the animation and camera work. Mostly to oversee the studio.

34:50 Which you have to with an operation of twenty five artists and creative people and camera folks. You need someone who has an overall vision and Taste to Drive everything. Yeah.

35:02 Now As Walt is transitioning from You know, sort of doer to Really studio 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 sixty percent owned by Walt and his wife and forty percent owned by Roy and his wife.

35:24 Yeah. So mint. who has you know sort of already proved his stripes by his dealings with Felix the Cat and Pat Sullivan.

35:35 He senses. Another opportunity. He thinks That Walt Has become

35:43 Superfluous. And then it's actually Just the animators. Who really matter. And

35:50 Because the Walt Disney studio doesn't actually own The IP of Oswald the Lucky Rabbit. Universal does. Although the Walt Disney studio was was acting like this was sort of their creation that they owned. Yeah. I don't think Walt uh uh or Roy really read the fine print on the contracts here.

36:10 So In early nineteen twenty eight. Walt and his wife Lillian, who Lillian also was an early studio employee. In the ink and paint department. Ink and paint department that's right. We'll get to that. They make a fateful trip. As a couple to New York, where one of the items on the agenda is for Walt

36:27 To go meet With mints. And ask. for a raise in the amount that the studio is getting paid. Her Oswald short.

36:36 So Walt sits down with Mince and Mince is like, well I don't know about paying you more. I don't think I like that idea. In fact, I'm not even really sure, Walt, what you or doing around here any longer, but I tell. 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 five hundred dollars per cartoon. Less. Which my understanding is that basically wiped out the margin and they were saying, we'll we'll pay you cost. to make these Oswald cartoons. Yeah. I think Mint had basically calculated, 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. I'm just gonna steal his animators and go make it myself. And

37:26 crucially before this meeting even happens. He's already stolen the animators. With nearly all the animators except Ub Iworks. He has sort of through an act of subterfuge gotten in touch with each of them individually. And brought them over.

37:45 Yeah, only Ub and and I think maybe two or three other animators refused to sign these secret deals with Mintz and stayed. Loyal to to Walt and to Roy. Once Walt realizes this There's nothing. He can do. Like it's a

38:01 free country, he can't force his animators to stay. He doesn't have employment contracts with them. And he also Doesn't have any control or rights to the actual Oswald I P

38:13 So he has no leverage. He's got nothing. He's got no customer contract, he's got no employees, he's got no intellectual properties. Suddenly the the enterprise value, so that the the entire value of Walt Disney Studios is effectively zero. 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. Yeah. And really like 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. It's a hard reaction to this lesson. Totally.

38:52 I have a fun bit of trivia for you, Ben. Ooh so as I think you know. Disney eventually does get the right To Oswald back. This is gonna be my trivia for you. All right, actually ask your question. We might have different takes on it.

39:07 Disney eventually does get the right To Oswald back. In two thousand six. Bob Iger, one of his first acts as CEO, did the deal. Yes. Do you know how?

39:20 Bob got Oswald back for Disney. So let's see. By this point, Disney had acquired ABC. Yep. And had acquired ESPN. And who owned Oswald at this point? It was Universal, which was owned by NBC, which is now owned by Comcast. Correct. So

39:37 There's a A V C asset that Bob effectively trades In exchange for Oswald. And I think that ABC E S P N Monday night football asset is

39:50 Al Michaels. Al Michaels, the Monday Night Football. Commentator. Like a sports team trade. In exchange for the IP rights.

40:00 To Oswald the Rabbit. And Oswald is repatriated and NBC gets Al Michaels and all is right in the world. Amazing. So Back to nineteen twenty eight. Walton Royer Basically back at square one.

40:13 Yeah. They have Not really just nothing. They actually have less than nothing because Mints ever the uh Well, really just kinda weasel.

40:24 Is the right word. Yeah. He makes Walt And Walt Disney Studios Finish out. The current

40:32 Oswald contract, which still had a few cartoons left to animate on it. And pay all of the animators who had all betrayed him and were all about to defect Mince is 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 brutal contract. Just brutal. Absolutely. Humiliating.

40:56 For Walt. And so then. As legend has it. On the long, long train ride. Back home.

41:05 From New York. What? Is struck. By a bolt of inspiration. And he scribbles a sketch for a new cartoon character right there on his drawing pad.

41:17 on the train trip. A character. That wouldn't just reverse all the woes of the Oswalds. Turn around the company's fortune. 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 JP Morgan. Yes, our presenting partner. So today we are sharing a story from one of JP Morgan's partners in a company that you may know. Bill. Which is formally Bill dot com.

41:49 Right. Bill is the financial operations platform for half a million small and mid sized businesses, what they call the Fortune five million. They help manage and maximize cash flow for SMB companies, and Bill's Divvy Card product is what employees at those businesses use to fund their operations day to day. So uh 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. 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. Yeah. Bill solved that for its half a million customers using an embedded payment solution from JP Morgan. With API based sub ledgering, they can manage millions of payments in real time on any platform, all with one bank account. Every bill customer gets a unique virtual account number. So the moment a payment is received, the credit line is restored. The result is a way simpler way to receive and route payments at scale. And the actual numbers are awesome.

42:47 Payment posting went from two to three days to seconds. Inquiries dropped 83%. Even Bill's own treasury team reclaimed 20 hours a week from manual reconciliation. For decades, these were Fortune five hundred only capabilities, but Bill and JP Morgan figured out how to deliver that same infrastructure to the Fortune five million while also improving Bill's internal operations. You can read the full case study, as always, at jpmorgan.com slash acquired. And something else. If you want to join us and JP Morgan in person, we'll be on stage at the We Are Developers World Congress in San Jose this September. Click the link in the show notes to learn more. Okay, so David, how does this Oswald catastrophe lead to Mickey Mouse?

43:32 Alright, so here's the story of Mickey Mouse as Walt would tell it. It's March nineteen twenty eight. He and Lillian are on the long train ride Back home to LA from New York. He's struck by the bolt of inspiration for a new Cartoon scenario.

43:47 About a plucky mouse named Mortimer. Who is attempting to fly an airplane just like his hero Charles Lindbergh. And uh this would go on to become the Mickey cartoon Plane Crazy. So Walt Shows his sketches that he's making to Lillian and And Lillian says

44:04 I like it, but Mortimer? That's too sissy a name. How about Mickey? And thus

44:11 Mickey Mouse. It's Borton. Now. The real story is more likely that Walt and Lillian get back to LA and And Walt is like

44:21 Sweating. So he and Roy and Ub and the couple other animators who stayed loyal to them. hole up and they start brainstorming ideas for Some kind of new idea or new character. That they can create to replace Oswald and turn around the studio's fortunes. And also when you see Mickey and you see Oswald. It's not hard to imagine where Mickey Mouse came from. It's like kinda like shorten the ears, make'em circles, you know, they both kinda have this white face and the black outline. I mean, it's really just the same brief that created Oswald. It was like, hey, take Felix and do something like Felix, except this time it's

44:56 Take Oswald in. Do something like Oswald. And make damn sure we own it. Yes, exactly. So they land on the idea of a mouse. And didn't Walt claim that he sort of like always had a fondness for mice'cause there were mice that would like jump in his trash can in Kansas City while he was animating and Sir Whatever. You know, it's all it's all just part of the Walt myth. Yes. And At least according to the Neil Gabler book. Most likely.

45:24 Ub is the one who first draws Mickey, not Walt on the train. But either way. Uh. definitely was the primary animator of the first Mickey's for the whole first series of Mickeys, including Steamboat Willie. So

45:41 Bye. The summer of nineteen twenty eight. We've finished out the Oswald contract and Walt and Ubb and the small little Mary Crew have gotten two Mickey short ready for production. Plain crazy. And the Gallopin Gaucho.

45:56 And Walt takes them around to distributors, you know, the Walt Disney studio is well known at this point. This seems like it would be promising new IP. And none of the major distributors. They're like.

46:10 I don't know. Mickey. It's like Oswald, but Without all the you know. thousands or hundreds of thousands of raving fans for it. So exactly. Exactly. And then

46:23 Comes. The Eureka breakthrough idea. One of the gang. recalls that The jazz singer.

46:30 the famous first popular talkie, you know, movie with dialogue and sound that had just come out. Yeah. When they went to see it. That there was a cartoon. Screened.

46:43 Alongside it. And we'll Well, here's this. Puts the two ideas together in his mind of a cartoon And sound. And supposedly he says, That's it.

46:52 That's it. That's what we've got to do. Stop all these silent Pictures.

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. Synchronized. Yes, exactly. Where what was happening In real time in the cartoon.

47:15 was then played in sound Exactly synchronized in The movie theater. 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. Like if you see

47:31 Mickey on screen bop into something, then you might hear a xylophone on the exact same downbeat. Play a note. Yeah. It's not just that like there's some music accompanying this cartoon that you're watching. It's that what is happening in the cartoon feels like it is producing the sound. Yes. There's a great business model lesson in this, which is

47:51 with the first two Mickeys flopping, if you just do the same thing as an existing competitor who already has distribution, brand, customers, It's not enough. you need to go do something leveraging a new piece of technology or a new platform. You gotta come at it from an orthogonal way in order to leapfrog and make people pay attention to you. Otherwise you're just a like smaller, worse also ran. Totally. And and that could be anything. I mean, the only reason that the Oswalds worked, even though they were a rip off of

48:22 Felix. It was because they came built in with the universal distribution. But yeah, Walt taking out the Mickeys before bringing sound, like he's got nothing to Bring to the table here. Yeah. So

48:33 Walt Lines up access. to the Cinephone sound recording system. From a character named Pat Powers. who had actually helped create

48:43 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. And so Walt and Ubb 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. The scheme worked perfectly. The sound itself gave the illusion of something emanating directly from the screen. Walt kept crying, This is it, this is it, we've got it. It turned out that Sounds like was the critical enabling technology for animation to go beyond a novelty and allow the characters that are on screen

49:37 to actually have personality that audiences connect with. So interesting. And it's not obvious. At first. Until you're 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 because none of the tools existed. They sort of had to invent the way to synchronize the drawings with the music and the systems. It's sort of a big bet even to try and see if that creates personality. Right. Right. And sound did the same thing.

50:11 For live action. Movies. But It's not That big a leap.

50:17 To have humans Talking like humans talk. You know, sound just made it way better. Sound for cartoons was this Giant leap. This art

50:27 can now be actual characters with personalities. Yeah. In a way that they couldn't before. Non obvious at the time, completely obvious in retrospect. Yeah.

50:35 So they make Steamboat. Willie. As the third Mickey, but the first. With synchronized.

50:42 Sound. 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, betting every last dollar that he had, inventing all these new processes, trying different ways to get an orchestra synced to the sound. Oh, yeah, they like animated a little ball on the screen that would sync to the orchestra as they were playing. Yes, and he couldn't get the original conductor of the orchestra to actually use his method. The orchestra guy was like, Ah, trust me, and then it was all out of sync with the screen. The the net of it is It's a giant

51:16 Painful. operational struggle to get this thing out. But my God, does it hit. Yes. Well You know, this is the nature of the New York distributors. They get it made. Well

51:30 Takes it and shops it around all the big folks in New York. And they're so conservative, they're like Well Well this is cool, but um I don't know how audiences are gonna react to this. We kinda wanna see a test first.

51:44 I don't want to be first in line. Yeah, exactly. Exactly like VCs like Uh So Walt decides that he's gonna take matters into his own hands. And he goes directly to the manager of the colony theater. In New York City. And cuts a deal. For a thousand dollars. to run Steamboat Willie before the features that they're showing.

52:06 In The Colony Theatre. So going around distributors Just to get this in one theater as a test. Yep. And so Steamboat Willy Premieres.

52:15 In New York City. On November eighteenth, nineteen twenty eight. before the film Gang War. Nobody really remembers Gang War because Steamboat Willie is

52:26 A revolution. Critics love it. Audiences love it. Yeah, isn't there some famous story of people sort of standing up and screaming, We want Steamboat Willie again instead of playing the the main feature. Yeah, yeah, exactly, exactly. But still, you know, Disney now needs to find a distributor. And now he's got the proof point. These New York distributors, they're still so conservative, 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 Mickey's are also gonna be a hit and that you can repeat the magic. And famously One distributor.

53:04 While Walt is meeting with him here. And he's trying to explain to Wall why he's gonna pass again on the Mickey deal. Pix up A package of life savers candy. And he says to Wall.

53:16 The public knows the LifeSaver's brand. They know what these are. They don't know Walt Disney and they don't know your mouse. I can only imagine Walt sitting here just seething. Yeah. But this makes a huge impression on him. I think this is an important thing about Walt. He definitely has a huge ego, right? But he is very willing to learn. Even from

53:40 Pretty obnoxious people. He's like, You know what? You're right. Oh, I think he's motivated by learning. He's motivated. I think he's an engineer. I think he's uh he loves to picking things apart and learning the way they work. I think he's motivated to make the best art he can, in addition to making the best business he can. So if someone's gonna offer him A lesson. A way to learn something. Yeah. Yeah. He'll take it. He'll take it. Even if he might be mad at the person. So he writes about this moment. Later. From now on.

54:07 The audience was gonna know. If they like the picture. They were gonna know Walt Disney's name. Ultimately what Walt does is he turns to Pat Powers and His partner in the sound technology, who had been one of the original universal executives, and they cut a deal where Powers

54:26 will be Disney's direct distribution agent in return for just ten percent. Of the gross. revenue on the Mickeys, which seems like a pretty good deal. Yeah. And indeed.

54:38 It was kind of a too good to be true deal because powers Like all these New York guys. was basically plotting To do the exact same thing as mints. to Disney. He wanted to start working with Walt

54:55 Give him a sweetheart deal. And then lure away. The animation talent because Powers, remember, has the sound technology that he's given to Walt. So he's thinking, hmm. If I get the animators, what do we need Walt for? So this explains the sweetheart deal on distribution,'cause that wasn't the real prize he was after.

55:13 And Just a year later. In nineteen thirty, Powers does The unthinkable.

55:22 He convinces Ub I works. To quit. And leave Disney. He says Uh we're gonna get you set up with your own studio.

55:31 You're gonna work with me where to create new characters. It's the exact same thing. That mints. Did you know that's the same. To Disney last time. Absolutely brutal. Except.

55:41 It plays out. The exact opposite way. 'Cause Walt's learned his lesson. Walt has learned his lesson. By the time this happens, over a dozen Mickey's with sound. have come out. Every single one of them branded prominently up front and at the end.

55:56 A Walt Disney comic And they had become Huge hits. So even though power steals I works away. Nobody cares.

56:05 Everybody still wants the Mickey's. Everybody still wants Walt Disney Comics. Disney has made himself The lifesavers of animation. Mm.

56:15 Disney first switches to Columbia for distribution and then to United Artists and Audiences just Keep Loving Mickey. 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.

56:36 And it starts With the Mickey Mouse Club. This is wild. I had no idea about the origins. of the Mickey Mouse Club. Basically discovered by Disney by accident, right? Totally by accident. So

56:49 In the summer of nineteen twenty nine. Just A few months after Steamboat Willie and the first sort of nationally distributed Mickey's. The manager of the Fox Dome Theater.

57:01 In Ocean Park, California. Contacts Walt With an idea. Why don't we partner? To start.

57:08 A Mickey Mouse Club 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 Mickeys.

57:20 Again and again and again. I think we should capitalize on this. We can create a club, like a kids club. And we can charge parents A membership fee The kids will love it.

57:33 The parents will get them out of the house. Every weekend. It'll be great. And we can pilot it here. Uh

57:40 The Fox Dome Theater. And then if it works, I think we can franchise this. nationally. And so this is exactly What

57:49 Walt. And this theater manager do. The way it works when they take it national. Is that theaters would buy a quote Mickey Mouse Club charter. From the company. From the Walt Disney studio. It's like a franchise. Yeah, like a franchise right.

58:04 For twenty five dollars. And then as part of the club The kids and their parents Would gain the right To buy exclusive Mickey merchandise. I mean, it's kind of amazing, right?

58:17 pay to become a member of a club to dedicate yourself to fandom so you have the right to buy more things. The right to buy more things. Yes. So like hats, buttons, banners Et cetera. And all of this revenue Is getting split. Back with Disney, the twenty five dollar club charter.

58:35 And then all of the merchandise revenue. Pretty quickly. Eat. Hundred Mickey Mouse Clubs.

58:43 across the country with more than one million total members. That is more members than the boy and girl scouts of America combined. At this point in time. That's insane scale and insane speed of adoption.

59:00 Pre-internet. Right? Right. Pre-internet, pre-cable, pre-broadcast TV. the ability to get a million Americans doing something within a few years is uh Like how how did that even work? I mean, try to think how how Word could even spread that quickly, I guess through the Disney's distributors to the theaters. Well, this is like a no brainer proposition. for a movie theater operator. You're gonna take your Saturday or Sunday afternoons Which are

59:29 probably reserved mostly for kids anyway, all your matinee showings. Right. You're gonna convert it into a Mickey Mouse Club. Kids are gonna love it. They're gonna buy a bunch of stuff that you otherwise wouldn't have the opportunity to sell to them. Parents are gonna love it'cause they get rid of the kids. And then For Disney.

59:49 They're just getting this turbocharge distribution and brand recognition of Disney the company and Mickey Mouse. The character. Yeah, it's amazing. Okay, so they take the learnings from the Mickey Mouse Club, right? And they kinda lean into Mickey in a in a big way at the corporate level. Totally. So just a few months after the Mickey Mouse Club kicks off. In January nineteen thirty They launch a daily

1:00:11 Mickey comic strip. With King features syndicate. in newspapers around the country. It gets published daily. In sixty US NewsPejers.

1:00:23 And then also internationally in twenty more countries. around the world. So Disney is getting paid to produce A Mickey comic strip. Which only cost them the salary of the one

1:00:36 animator that they have making it every day. A twenty four year old named Floyd Gotfrson, who would do it every day for forty five years. Wow. Wild. So not only are they getting Revenue. For this. They're getting free. Daily

1:00:54 advertising and IP exposure. to probably a hundred million plus people. Through this. Newspaper comic. Distribution every

1:01:05 Single day. And even if they weren't getting paid for it, the marketing on that so that people go see Mickey films. Exactly. Yeah, it never becomes a huge revenue or profit driver for them. But like That free daily marketing and most major newspapers around the country is incredible. Yep. Interesting to know.

1:01:22 Oswald actually was on a candy bar back in the day, but when Waltz, who at the time thought he owned Oswald, had the opportunity to monetize it, he was like, I I didn't even consider it. It it right. It doesn't need to be an additional revenue stream. It's just really good for me if Oswald is on the candy bar. Right. So that that's sort of uh uh they're getting the seeds of like, Okay, we're making some money on the comics, but It it it really is like a massive marketing engine. Well, uh You're teeing up the big one here, which is

1:01:51 March. And consumer products. Yeah. So Pretty quickly after Steamboat Willie.

1:01:56 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 Three hundred dollars. To license

1:02:08 The Mickey character. to put it on a series of children's writing workbooks. But he's producing there in New York. And this is like really early days. Mickey's just starting to work. The studio still needs money. So while it's like a Sure.

1:02:23 Yeah, I'll take three hundred bucks. Why not? And three hundred bucks in nineteen twenty nine, it's a lot of money. I mean this is the beginning of the Great Depression. Yes, yes. M Mickey takes off during the depression. In fact, he sort of becomes like a national Champion. It's part of his success that people view Plucky Mickey's success as a mouse as the underdog as like something that Americans can identify with through the depression. And life is hard. I mean having uh a sort of way to disassociate a little bit and then just enjoy a like fun loving problem free cartoon. I don't think people know this.

1:02:56 Mickey's role in these early comics is exactly what you're saying, the underdog. He's getting himself into these tricky situations by someone that seems bigger and stronger, and then he's able to figure it out and emerge. It's the American spirit. Yeah. Yep, yeah. So back to the writing tablets. They take off and do huge, huge sales. Th Disney doesn't even know how much sales because all they have is

1:03:16 Three hundred bucks in a handshake from this guy. So Walt and Roy figure, all right, we need to get smarter about merch. So they Contact. An ad man in Kansas City that Walt admired. Named Kamen.

1:03:32 who had owned an advertising firm. And they agree to do a deal. Where K becomes the exclusive Commercial products agent. For all Disney merchandise licensing.

1:03:45 Beginning in nineteen thirty three. And the deal they do. Is that Disney? We get sixty percent Of the first

1:03:52 hundred thousand dollars in royalties that K is able to generate from licensing. Disney brands and mascots. And then after the first hundred K They would split Every dollar of licensing revenue fifty fifty.

1:04:06 And there would be a lot. Of dollars. After the first Hundred K. This is a huge moment. I mean there there is a real case to be made.

1:04:17 That besides Walt And Roy. And and and Ub, I works too, but at least on the business side, besides Walton Roy, Kamen was the third most important person. in the first, you know, half century of Disney. All right, so make your case. Wha w what what goes on to happen here?

1:04:34 So within six months K takes Disney merchandising. From this hodgepodge of Random licenses of Guys that Walt met on the street.

1:04:45 And many of which were a lot more than three hundred dollars. Yes, yes. To A real professional operation. Doing six million dollars. Of gross merchandise sales. Within six months.

1:04:58 That then grows Over the next two years. to seventy milyen dollars Annually. Of gross merchandise sales all around the globe.

1:05:10 From over forty Separate super high quality Consumer product. Partners. So The most

1:05:18 successful and famous example. Is the deal. That K does. In nineteen thirty three, right after he takes over,

1:05:27 With the Ingersoll watch company. This is crazy that Within just a few years they can be at a seventy million dollar level in 1935. of merch i me's so much pent up demand to buy micky mouse stuff

1:05:43 that you can sort of explode out of the gate. I don't even really understand how K lined up forty merchants and got all this stuff manufactured and distributed in such a short period of time. Well, I think part of it though is that he's like a real professional and well respected in the industry with contacts. But Yeah, to your point, Ben. There's just

1:06:03 So much demand. for Disney merch. So the seventy million dollars is a like gross Sales to the And consumer. Number of the yeah.

1:06:13 So most deals that K would do. would be for five percent Royalties. on the wholesale price of the goods and the seventy million dollars was retail. So if you assume a hundred percent retail markup.

1:06:27 That's thirty five million dollars in wholesale. revenue. Yep. Disney and Cayman are splitting Five percent of that number. Between them. But even that.

1:06:38 is one point seven five million dollars. Split. Fifty fifty. Between Disney. And K.

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, I I found the comment on the Disney Family Museum site that by the late nineteen thirties royalty income from merchandise had exceeded revenue from film rentals. But it wasn't even by the late nineteen thirties. It was nineteen thirty four. It was quick and it was by a lot. Yes, yes.

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 thirties, Disney gets an advance of fifteen thousand dollars per film. But wall Is always investing Ever more and more in the production of Yeah.

1:07:38 By this point in time in the mid thirties. He's investing like thirty thousand dollars plus per cartoon, he's only getting a fifteen thousand dollar advance. So it's not even guaranteed that each individual cartoon would be profitable. Usually they were, 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 K. Every year. It doesn't even matter that Wall.

1:08:09 is investing everything back into the cartoons. He's got this money spigot coming in. Right. So summarising 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, and film profitability.

1:08:24 is highly dependent on a film by film. Yeah. It's gotta play out in theaters, et cetera, et cetera. Alright, so I cut you off on the Ingersoll watch company. Yeah, just as one example of like the deals that K is doing.

1:08:38 In nineteen thirty three, right after he takes over, He does a deal with the Ingersoll Wat Company. To manufacture The famous Mickey Mouse watch.

1:08:48 That watch Would sell two and a half million units. over the next two years. The Ingersoll watch company was about to go bankrupt. During the depression. It saves the company.

1:09:01 Hmm. And wasn't it the most popular watch in America? I think that's right, at least for some point in time during the thirties. Fascinating. And of course the the modern Apple Watch uh Mickey watch face is a reference to this because he's using his arms to point to the the times on that original Ingersoll watch. This is a whole different shape of a business. than has ever existed before. I mean it's funny, we started the episode comparing Disney to other Hollywood studios. But this is not a Hollywood studio. They're not shooting live action films. They're making

1:09:33 these cartoons, the rest of the industry is is kind of doing slapdash ones. They're doing like really high production value sound synchronized cartoons. And They're actually making more of their money from merchandise, they've got these Mickey Mouse clubs. The cops like this is a new thing that no one else is doing. Yep. This

1:09:53 Is the birth. Of the Disney flywheel. And nobody else has it. So is this a point where David I could make my pedantic aside that I've been telling you again. Yes, yes, go for it. We had a great email from a listener a couple months ago. About how

1:10:08 Flywheel, this term that everybody uses in business. Is actually completely the wrong term for what you're yeah wanna describe. 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. But hilariously, David, as you say, it is a misnomer. It describes the wrong physics phenomenon. 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. But that is not actually what a flywheel is. A flywheel

1:10:45 is a primitive battery. It it is a way to store energy to be deployed later. Yeah. It's like a version of the same mechanism that a spring serves in a mechanical watch. Right, exactly. But in reality. there's not really a better shorthand for system of integrated components that creates positive feedback loops. So uh we will continue, alas, to use the phrase flywheel. But uh 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. 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. So the most important thing, and I and I don't think this was premeditated in any way by Walt But it was just something he innately cared.

1:11:36 So deeply about. Is to make the highest Quality. genuinely most compelling. New IP

1:11:46 as possible. That audiences can build a deep relationship with. This is like what Walt was building to and up to through all of his early years in animation. All the technical innovations every step was getting to A character that audiences can fall in love with. Yeah.

1:12:03 Critically for Disney. And again, I think completely accidentally discovered by Walt The IP That works best.

1:12:13 For flywheel dynamics. almost has to be animated. I e not Live action. Because with live action characters the characters are

1:12:23 too bound up in the actors. That play them. Yeah. problems like one, especially today. It makes your economics as a studio just like way worse.'Cause you gotta pay

1:12:36 The stars. So much. Right. 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, the actual actor. Whereas Mickey works for free. No like you you gotta like pay the animators and they get paid very well to animate them, it's uh that's on the value capture side, but on the value creation side, which I think is the more important thing, Mickey is always available to work. Yes. Yes. And Mickey doesn't age. Yes, exactly. 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. I mean Star Wars as great as Star Wars is, and we'll talk about it later in the episode. Harrison Ford die. I mean I guess unless AI gets really good. And live action is

1:13:25 Sort of Dated to a time and place. In a way that cartoons can sort of transcend like Mickey can always exist in the present. in a way that we're gonna talk about Davy Crockett later, but at some point it became completely uninteresting to watch Davy Crockett, even though he was like a complete heart throb obsession that was great IP for the moment, it just wasn't.

1:13:48 as durable. Yeah. Live action IP. With very few exceptions, tends not to have the staying power over decades and generations that animation does. Yeah. few exceptions being like James Bond, but God have they tried to do all sorts of crazy stuff in order to let that IP keep living. I mean like there's been

1:14:06 six, seven James Bonds, you know? And they have to keep rebooting the story over and over. Exactly. Okay, so that's step one. genuinely great IP that audiences fall in love with has to be at the core. Then step two

1:14:20 You need to maximize the distribution for that IP as wide and as far as possible. In its primary delivery vehicle. So like Mickey In those films. get those films into as many theaters as possible to just completely saturate the world. It's sort of a scale economies thing. If you're gonna invest a whole bunch in making it the very best you can, then you need to distribute it everywhere in order to maximize the impact from that huge upfront investment.

1:14:49 Which of course applies to any film and any IP, 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 gonna monetize. through the flywheel.

1:15:05 In a way that nobody else can. 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. So then that leads right into the third thing. Which is the ancillary Nodes of the flywheel.

1:15:22 Yeah. Once you've got the great IP Once you've distributed it as widely as possible. Then you want to get that IP into as many

1:15:33 Arenas as possible. And this is exactly what Disney was doing. Right, other mediums. Merch, clubs, comics, books, magazines. The beauty here The discovery that Disney makes is Is that When you put the IP into these other ancillary nodes

1:15:51 It doesn't cannibalize the core IP. Like you're not gonna oversaturate Mickey. by having a Mickey comic strip and daily exposure in the way that if you released a new Mickey film every single day, people would get tired of Mickey's. If you structure the nodes of the flywheel right. The additional exposure reinforces

1:16:12 the core. I P That's really interesting. So you do need some scarcity of the character in its main medium. where you need like a really high quality bar and not oversaturate there. Ex

1:16:26 secondary mediums, then you can cover the earth and be like everywhere all the time. Exactly. And so then if you flash forward to today And like the problems that Hollywood and most other studios have, a and Disney too, especially with Marvel. If you come out with sequels all the time at this like ever increasing cadence of the core IP and the core delivery vehicle,

1:16:49 People get tired of it. Um That's super interesting. But the flywheel lets you get that constant exposure. without over saturating the core IP. It's like absolutely brilliant. Not to mention releasing films is actually not and never has been a

1:17:04 Great. Business. It's just not that high margin. It's not that repeatable or predictable in its success. So you kind of You have to invest years ahead in production before you get any payout. 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 these ancillary businesses, then you can focus on scarcity.

1:17:32 Quality. i innovation in the kind of primary medium. Yep. Because you know you're gonna drive revenue. Basically in perpetuity. out of it through the flywheel.

1:17:42 Do you think I'm thinking about this as it pertains to acquired. We're so obsessed with quality and just being in one medium. Do you think that It is Okay.

1:17:53 To lower the quality bar outside the primary medium. Like can Disney throw Mickey Mouse on all sorts of crap. Without diminishing the

1:18:04 brand of Mickey Mouse as long as the primary medium of film stays really high quality. Basically I think the answer to that is yes. Hm. At least for Disney. I don't know about acquired. Yeah. I don't I don't know if it applies to premium brands or luxury brands, but you gotta be really careful about what the mediums are. 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 gonna be, you know, a great masterpiece like Snow White or Steamboat Willie. Each time. Right. And when you read the non canon Star Wars books. Yes. It doesn't detract from

1:18:47 The canon. That's exactly right. But it does deepen your fandom. Yes. Exactly. Exactly. Uh huh. So all of this as Wall Starts to understand The business model power of what

1:18:59 They've created. Leads him. Right to the natural conclusion. But Disney should Basically always invest.

1:19:08 As much Time and money. As possible. in the creation of new core IP. And Wall it's starting to get a crazy idea.

1:19:17 Of how he might be able to do that. Which is to create Hollywood's first Full length. Animated Feature

1:19:28 Film. Snow White. Yeah. And David, you put it in such a capitalist way there that it's it's to maximize the amount of of dollars that you sink into making the quality so that it federates onto this flywheel.

1:19:45 I'm sure there was an element of that. There also is an artist w with Walt where he's been Creating these cartoons. He's starting to like really identify with the artistic community, with the fine artists of the time, build a lot of those relationships. And he wants to create something that is sort of seen as

1:20:07 Not only a technology breakthrough, but like an art breakthrough. Can can he create a masterpiece in this new medium? And can he play with your emotions? I mean we 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. Yeah.

1:20:32 That's the other side of the ludicrously capitalist big investment in the still white. You're totally right. Uh I'm looking at it through like a business model capitalist lens and uh I I don't think Walt was thinking about it that way specifically. He did want to build the most successful company that he possibly could that could take bigger and bigger swings. Yes. 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 Versel.

1:21:04 So building software in the agentic AI era demands a completely different kind of infrastructure. So that's exactly what Verse has been building. Their tools in their agent stack have been huge for companies like Notion, Brex, and Neon for shipping agents to production. And they just made some really big announcements on stage at their annual conference called Ship. Which uh David and I actually spoke at last year. Yes. One of the biggest announcements is Eve, Verse's open source agent framework.

1:21:34 Yep, Eve is the glue that ties their agent stack together. Building an enterprise great agent used to take weeks. With Eve, it now just takes minutes. Think of it as like the next JS for agents. Opinionated, Open source and it runs everywhere. And Vercell uses it for their whole business. Their data agent gives the whole company on demand analytics scoped to each person's permissions. Their sales agent nearly doubled pipeline coverage, and their autonomous AI sales rep platforms. is in the top ten percent of their human reps, uh, you know, for only a few thousand dollars a year. They also rolled out new support for enterprise apps and agents because here's what every executive is realizing. Once everyone can build an agent, the hard part is knowing who can access what and what every agent is actually doing. 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 Brussel does exactly that. Vercell's your one stop shop for the agentic era, tools, frameworks, infrastructure, all engineered to work together and built for enterprises. And one last cool thing, their ship conference is hitting more cities. So you can find out more at Vercell.com slash acquired. That's V-E-R-C-L.com slash acquired, and just tell them that Ben and David sent you. All right, so David Before we Tell the story of how Snow White came to be.

1:22:55 We gotta tell the nickname. Of Snow White the project. That was going around Hollywood. Do you know what that was? Disney's folly. Yes.

1:23:04 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 about Jack Bogle with Bogle's folly with creating the Vanguard index funds. We gotta like start a a folly tracker here on fire. But yeah, I mean, even for Walt Disney, as successful as he in the studio have become The idea of a feature length animated film was Crazy. In nineteen thirties, Hollywood. And it had never been tried before. I mean, Roy tried to persuade him not to do it. He argues that it's gonna bankrupt the studio. Yeah, this is a multi million dollar undertaking when, David, as you were talking about before, the shorts were like

1:23:42 fifteen thousand dollar, thirty thousand dollar undertakings. Yep. Walt would say later about Snow White. We had decided There was only one way we could successfully do Snow White, and that was to go for broke, shoot the works. There would be no compromise on money, talent, or time. 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. It had to be a masterpiece or the whole thing was gonna fall apart. Okay, so why was this so expensive? Why it's such a giant undertaking to create a

1:24:18 animated feature full length film. 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? Yes, it's a true technical wonder. And

1:24:34 You and I got to actually do it. When we went to visit the Disney studio. It was so fun. Well, one part of one frame of it. Yes. One tiny part of inking and painting. Listeners will include some behind the scenes ink and paint photos of David and I in the email. So Let's start with the goal. The goal is to create

1:24:55 the illusion of motion with a series of still frames. Like A ton of of still frames.

1:25:03 twenty four still frames per second. So That requires a lot of clever tricks. To Make it economically possible.

1:25:14 To make it consistent and to make it enjoyable. And if you really do your job. To make it emotional. And to be clear. Live action film.

1:25:24 is the same thing. It's an illusion. But as we talked about earlier It doesn't cost anything to Animate the humans. And you get physics for free. So believability comes for free. 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 because you're shooting it in the real world. Yep. So Where does it all start?

1:25:48 It starts with a good story. So there's something called the story department that kicks off the process with little sketches that are sort of pinned to cork boards. And so these story meetings are great. You have people acting out alongside the drawings to illustrate their idea, how the characters move and interact and talk and waltz. was famously amazing to watch when he did this acting. So this then gets put into a story reel of static sketches, just kind of illustrating the main flow of the story. At this point, it is super easy to edit, reorder, change dialogue, anything. I see where you're going with this at this point. At this point. So then the sound department gets involved.

1:26:31 And That's both music and voice. So first you'll have oftentimes a temp voiceover, so the animators have something to animate to if you don't have the real actors laying down the vocal track yet. 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 gonna sound insane.

1:26:58 Is broken down by frame. By syllable of dialogue. And by beat of the music. And these are mapped together. So this way the animator can do their drawings exactly

1:27:10 To the music and dialogue. Now you can kind of understand the insanity of what Steamboat Willie was trying to do and why that was so difficult. Uh the the Disney Studio kinda had to invent this process. Yeah. And that was what Seven, eight minutes long? Yes.

1:27:26 Meanwhile, you have the layout department, who is doing the staging the camera framing, the composition of these shots, the lighting for every scene. 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 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, 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.

1:28:04 Scene. 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 the panning across the scene. Whenever you go into the Disney archives, you can see these. I don't know, four foot wide by something like eight inch tall backgrounds because the camera has to pan around as the character move around against the background. And then the other side of the fork is the animators who are doing their work on the characters themselves. Yep. Yeah, the backgrounds are just beautiful when you see them in person. That was my favorite part about the archive to get to see

1:28:46 the backgrounds of Snow White or Cinderella or the other great Disney classics. You just look at them and think Oh my God, these are Right up there with Rembrandt, sir. Picasso's or de God, they should be in a museum. And they are basically in a museum. Disney has eleven

1:29:04 rooms in the animation research library, which are temperature controlled and humidity controlled. And they've got all these UV filters all over everything. And there's these drawers and drawers and drawers inside almost looks like data centers. Uh where they have all of these old background paintings and all the drawings we're about to talk about. Yep. So the animation department then develops what's called a character model sheet that shows the character from several different angles and positions they're likely to be in throughout the film. This is distributed to each animator who works on that character, because often And

1:29:38 by necessity there are multiple, since that character is going to exist on film for, you know, eighty, ninety, a hundred minutes. There's a lot of drawing to do. Then there's the model department. 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 examine under a lamp. So these are, you know, eight inch tall versions of the characters that are little statues.

1:30:09 Right, they're perfect. So that you can kinda say how how would they look from that angle? How would they look if I stood eight feet away? Yep. Then you have animation itself. So it starts with sketching on Paper with a pencil or with charcoal. 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. Does this character move like I think they should move. Are they consistent in their motion? Is their clothing sort of twirling the right way when they turn left? It's an insane art. Or their mouth is speaking correctly. Yeah. Right.

1:30:52 As the character drifts closer to the synthetic camera, are they getting big in a way that feels consistent with the laws of physics? I my mind is so blown by the skill and talent of these people. So twenty four frames per second means twelve to fourteen drawings per second. So think a thousand ish per minute. That's road eighty thousand in a feature length film of this era. And of course that's if there's only one character doing one thing on one layer. Yes, there's

1:31:19 Usually about what, double that? Triple, quadruple, yeah. So there's two ways that this can happen. One is the most clean and obvious one, straight ahead, which is where an animator draws every frame in order. Or there's something called in betweeners. Where

1:31:36 lead animators draw the keyframes with the essential poses or major character movements, and then the assistants or the in betweeners go to the drawings and they sort of bridge between those frames. And the goal of doing this is to make the most efficient use of the skilled artists. Time. on the film. Now over a time a division of labor started to emerge where which kind of makes sense, a super skilled animator would do work kind of fast and loose with sketches that had little extra lines hanging off everywhere. There'd be like revisions on top of their original drawing without actually cleaning up the the the mistakes underneath. And then it was handed over to a cleanup artist 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.

1:32:27 bounciness shape form of the lines. 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. Yep, by this point as they're heading into Snow White. This had become a real scale production process. 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. 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. So then there's ink and paint.

1:33:11 So let's talk about anchors. Back in nineteen fourteen, Earl Hurd had invented a concept known as cell animation, C E L, where you would draw with ink on the front of a piece of transparent plastic, or cell in the business, short for celluloid. And that way you could keep redrawing just the character in each frame and the background could stay static. That essentially made animation possible at all. in nineteen fourteen. 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

1:33:46 Yeah. film was actually playing, but two, it just was economically infeasible to draw every line every time. Yeah, it was not scalable. So it had evolved since then where there were now armies of people who were almost exclusively women at this point in history 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. Every single frame. Yes. So what you would see on screen i 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.

1:34:24 Yeah. And then The anchors. Would flip the cell over And pass them off.

1:34:31 The painters. Yes. This is how they get Colour it. You want your

1:34:37 outlines on the front, so it it masks any colors that sort of overflow out of, you know, the dwarf's shirt or Mickey's shoe. And then on the back, that's where you do your painting. You put all the colors on. Uh and David, what you were referring to is is you and I uh did did some painting on a pre inked Mickey Mouse. We did a little bit of inking. Inking is harder than painting. Painting is forgiving. Yeah. But Disney has this room with thousands and thousands of colors of handmade

1:35:10 Yeah. That is a production facility for paint color and applying that color to animation cells. It used to be called the Rainbow Room. Those colors, that paint went into

1:35:22 Cinderella, Peter Pan, Alice in Wonderland. Thousands of people each making thousands of drawings. It multiplies fast. So then you've got your special effects layer. So like Tinkerbell's wings use effectively spray paint, like a 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. What if you want to make it look like there's a little bit of a 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 so the animators and Walt could look at the rough action and see if it felt right, see if it had the right physics, correctly represented each character's. Tone and emotions. It's almost like a higher fidelity prototype. Than the one that we first

1:36:23 is a way to catch things that weren't working before you got all the way to full fidelity. Then camera. This is like the coolest part of the whole thing. This is incredible. So Disney and Bill Garity took the idea of a multi-plane camera that had existed before Disney. Ub iWorks actually built one of the first advanced multiplane cameras back in thirty three while he was away from the company doing his own thing, using parts from an old Chevy.

1:36:51 Yeah. Walt Rehired. I works later to come back and lead Within Disney.

1:36:59 Yep, like process improvement for how we do animation. So Disney created the first one to be used in a feature film. It is unbelievably cool. It has an entire massive room to itself. There's a team of operators to make it work. You had to climb a ladder to get all the way to the top. So here's how it works. There's a still frame photo camera mounted on the top of this thing. Pointed straight down. Yeah, it's like what, probably fifteen feet tall. That feels high, ten, twelve. Yeah, but something like that.

1:37:28 There were up to seven planes that you could use. So you've got these horizontal planes between the floor and where the camera is mounted, you know, up twelve 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. And then all the elements of the background at various Sort of different depths away from the character are

1:37:53 painted on panes of glass and paper below that. And you'd want the background broken out onto multiple panes, so you could do things like a parallax effect if they were sort of panning by, 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, bring the panes of glass closer to the camera. at different calculated rates. So the distance between the planes could be adjusted to really sell the the animation. David, you and I saw one of these in the corporate archives in Burbank. You've actually seen two of the three that exist, right? Yes, yes. 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. Worth calling out, this is a photo camera. Not a movie camera. So it would just photograph one frame at a time, and then all the technicians would adjust all the knobs layer placements for the next frame. So when you look at the level of invention required to create a multiplane camera and operate it. you kinda start to understand how these guys in the animation department

1:38:59 could evolve into imagineers. Yes. This there's a lot of physicality. involved in animation that I don't think I really understood until Diving into this process.

1:39:10 You know what? W what's happening at Disney Isn't just the intersection of art and commerce. It's the three way intersection of art and commerce. And engineering. And always has been.

1:39:21 Yep. I think that's right. All right. So that's the animation process. That is why this is such a giant difficult undertaking to create something like Snow White. Absolutely enormous undertaking. So when all is said and done. It takes one and a half million dollars. of investment over three years.

1:39:41 To create. Snow White. Remember, this is at the same time as Disney is making short cartoons for like I don't know, twenty, thirty thousand dollars.

1:39:53 And even that is way above what anybody else in the industry. spending. This is thirty-five million dollars inflation adjusted. And yeah, movies are like three hundred 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 thirty five million dollars of budget to make that. Right. When Roy said that he was worried it was gonna bankrupt the studio, like Roy was being the rational one. Yes. They have to take out a whole series of loans from Bank of America 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, et cetera. Ben, as you were saying all the art and the work that goes into it.

1:40:36 Two million sketches. And two hundred and fifty thousand Finished. Drawings and cells. Go into the

1:40:45 Snow white. This is at a scale so beyond what anybody else in the entire entertainment industry is doing. Gabler in his book uses the analogy of it was like a gothic cathedral in animation. That is like the only kind of Analogy that makes sense here. They staffed up to seven hundred and fifty studio artists. And did three years of nonstop work on production. Yep, incredible. They actually went so far as to hire actors to play each of the roles 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. This is so much different than

1:41:27 animating a cartoon mouse, the massive investment in all the little details just to make the viewer buy in emotionally to these characters. 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 the test footage how the character moved around in the world. Yeah. I mean you made the point a few minutes ago, Ben, that Walt Disney wasn't doing this because he was some capitalist. 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 gonna motivate him to film a whole live action version in costume just so that they can make sure they get the spirit right this is art That they're creating. Absolutely. So The movie finally premieres in Hollywood on december twenty first, nineteen thirty seven. And

1:42:28 I mean it's one of the greatest films ever made. The Academy Awards. Creates a special Oscar. For Snow White.

1:42:37 special of the Yeah, because they didn't think it could be eligible for Best Picture. Right movie, uh I don't want to bury the lead. It was the highest grossing film not only of the year. But Ever. Ever did eight million dollars of rental revenue on a one point five million dollar production cost. And

1:42:53 The category was so new and different that they were like uh Instead of being eligible to be nominated for Best Picture, let's just create a special new category for it. So the o the the the Oscar statue that they give Walt and Disney For Snow White. is the only one that's ever been made. It is A large Oscar it is snow white, and then seven little Oscar below it.

1:43:15 Walt personally would go on to win more Academy Awards than anyone in history. Yes. Walt has twenty six academy awards. The next highest is thirteen. Yes, I mean the audience reception was incredible. Like you said, Ben, it was the highest grossing film. ever made of of any kind, animated or otherwise, in history to that point. The critics' reception is equally glowing, but Time magazine writes prophetically.

1:43:40 That's Snow White is An authentic masterpiece to be shown in theaters and 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 Of course, foreshadowing the Disney Vault. Snow White is alive and well today, as my two young daughters will attest. Yeah, the uh an interesting thing about this story, I'm curious, since you have daughters who watch it, David, is that the other thing is that I'm

1:44:11 It's kinda dark. And Walt did meaningfully change the brother's grim story that he sort of adapted it from. 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

1:44:29 changes. The film was not really made as a children's movie. No. Yes, it was animated, but it's Dark. No, and in fact a lot of those decisions, like giving each of the seven dwarves personalities. In part were motivated to soften the darkness of the fairy tale and

1:44:49 Walt would always say that he didn't make movies for children, but of course he wanted children to be able to watch them too. But Some of the decisions were actually made With The flywheel.

1:45:01 And the dwarves personalities is one of these. They wanted to sell A lot of Seven Dorps merchandise. And what better way to do that? than to give them all.

1:45:13 distinct personalities. That is true. When you go to Disneyland, there's a lot of people walking around with like dopey and grumsy and exactly, exactly. So as we said, the movie itself Extremely profitable. It does eight million dollars in film rental revenue against the one and a half million dollar production cost just in its First. Which dramatically changes the studio's financial position. Yes, yes. Now it is a bit of a misconception.

1:45:42 That the profits from Snow White The film itself. would end up paying for The new Burbank studio that Walt's about to construct. That's not entirely true. I think most of the

1:45:55 Film profits from Snow White. went to repay all the loans to Bank of America. Yes. So listeners, it's worth diving into a little bit of the complexity of how each of the parties in the value chain of making and distributing movies work. There's the studio, like Disney, who makes the actual movie. There's a distributor like United Artists or RKO who

1:46:17 Does a lot of stuff. Take the finished, they create all the prints that'll go to theaters, they have the sales force that sells the film to theaters, they plan the film's marketing, they also ship the films and handle all of the billing and payments. And then of course there's the theater or the exhibitor as they're called. And so Disney has this nineteen forty-four annual report for employees that David actually found when we were in the archives. We were flipping through annual reports and you were like, what is this? There there's two reports for 1944, what's going on here? And they actually had a different one for employees than for shareholders. The annual report for employees has this great graphic that says where does the money come from and has a breakdown of if for a dollar getting spent at the box office, what are the splits? And so

1:47:01 Sixty five percent actually gets retained at the exhibitor or the theater. Thirteen percent goes to the distributor and twenty two percent. goes to the studio. And so when we've been saying rentals, here's the interesting thing about that.

1:47:17 The distributor and the studio come together And they actually rent their collectively owned film to The exhibitor. So this eight million dollars is actually even higher than you think it is. The gross box office would be significantly higher than

1:47:35 That eight million dollars, like two and a half X or something. And That eight million is the thirteen percent plus the twenty two percent. Right. It's the share Of Disney the studio plus their distributor.

1:47:48 That's exactly right. And so then I know I'm doing some financial gymnastics here. 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. If you go look at what is really the source of truth here. The

1:48:09 nineteen forty IPO prospectus, which we are gonna get to. you can very clearly see that over a one year and nine month period. They make four point five million dollars in film rental income, the producer's share, so this is just Disney's from Snow White and the Seven Dwarves. So that's our real source of truth that we know.

1:48:33 Four point five million dollars. Now They had about$2.3 million of debt from the$1.5 million of production costs plus the interests. That they owed Bank of America. Yeah.

1:48:46 So a huge portion of The net that they're taking home Just from the box office of Snow White. Is going to repay the debt. Let alone operating expenses for the studio, et cetera, et cetera. So yes, it's like great

1:49:02 For the company. But it's not quite as transformative. From the box office alone. Uh. People would think.

1:49:10 Right. So they they effectively have two point two million dollars left over after paying the feeder, paying the distributor, paying back the principal on the loan, and paying the interest. Okay, two point two million dollars in nineteen thirty seven, still a lot of money. But uh they wanna go build a gigantic campus. Yes. But then of course. Disney isn't just

1:49:34 making two point two million dollars in profits from Snow White. There's all that good, good flywheel to come along with it. So, you know, if Walt thought that the flywheel Work well for Mickey Mouse. Snow white. Is like

1:49:50 A whole nother level. So before The film is even Widely released. Around

1:49:59 The country. They have Their next Major flywheel node. their next business model innovation.

1:50:07 already in market. The movie Soundtrack. I I couldn't believe this when I learned it. Snow White.

1:50:16 was the very First. Movie soundtrack. Every Created and sold.

1:50:23 to the public. It all started with Snow White. There were no sound movie soundtrack albums. Before then. It is. A huge hit. Both because, you know, it's a great soundtrack, but like Before

1:50:36 This album There was never anything that audiences could Take home actually. Of the picture that they saw

1:50:46 in theaters. There's no home video, right? There's no streaming. There's no television. Right. You go to see something in the movie theater, sure, you could buy a piece of merch, like a doll or a costume, and there were a lot of those out there for Snow White. But you couldn't take home The movie. Except in the form of the soundtrack. And the songs are are quite catchy. So the soundtrack's huge. Beyond that They're supposedly.

1:51:11 I read. Two thousand One hundred and eighty three Separate skews.

1:51:21 They get pumped. in the global markets. By K Kamen's consumer products organization. Unreal. Actually writes this that Quote Sales of Snow White Products.

1:51:35 might be America's path out of the depression. Wow. It was. I mean, this movie was such A grand success. Artistically.

1:51:48 For Wall. Film wise, for the studio, for the whole medium of animation and legitimizing it. Right alongside live action. And For the flywheel.

1:52:00 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.

1:52:10 Animator's paradise. Ben, as you alluded to, the new Disney Burbank animation studio. Still the uh corporate headquarters of the company to this Very day. Right. He basically sees the success of Snow White and thinks Oh yeah. We're we're gonna do a lot, lot more of these let's let's build all the infrastructure to like really do that right. Yes. So Walt's goal

1:52:34 With the new Burbank studio. was to be able to house twelve hundred plus Animators and staff. Up from call it three hundred before Snow White and then Ben, what did you say? Seven fifty? the the ranks had swelled to during Snow White. Yep. And he thinks that with this new campus

1:52:52 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.

1:53:03 Every single year. plus shorts. So like it took three years. To make snow white. With all the learning from that. All the innovations of the new campus, all the new staff.

1:53:14 He thinks they're now gonna be able to pump out Great new feature films. Every six months. Which th was a complete pipe dream and they never built to do. Walt also in his mind Think comes to see this Burbank campus.

1:53:28 As Really a utopian like place kind of almost like a college campus. 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. 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. And He kinda 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. Well the thing he f 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 gonna be a different new idea that's gonna be more ambitious and have more cost and require more people. And so this Burbank studio was necessary even to

1:54:22 Keep the same pace. But the st the the lot itself is unbelievable. It's fifty one acres. There are sports fields, a cafeteria, there's art classes, there's massages available, there's sunbathing in the penthouse club. In many ways, this is like the Google Plex before the Google Plex. Yeah, this is nineteen forty when they opened this. Yes. And you're right, it's it's kinda designed to keep you there. Why would you need to go anywhere else? And really there's nowhere else to go around here. It reminds me a little bit of uh Epic Systems too. Yeah, yeah, yeah, yeah. Very similar. Very similar. So here's an example of the lengths that they went to on this campus. So

1:54:59 I was looking at Google Maps, planning our visit, David. And it looks weird. It's it's offset from the Burbank street grid at an angle. And we asked the person who we're showing David and I around listeners. Uh why this is And he said that it was Walt's priority when they were building it to offer the exact

1:55:18 Which of course, David, you know the the spoiler here. Yes, to have offices that face north because Northern Light is true. Light. Do you know why northern light is preferable? No, I just know that that's what

1:55:33 Our very kind tour guide told us. So if you are in the northern hemisphere. The sun moves across the south sky. 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. so that there's a whole ton of north facing sides. Like the whole thing almost looks like a CPU heat sink. It's like got fins so that it's got all these north facing windows. It's for the time, it's an architectural marvel. Yeah. It's one of the first buildings with air conditioning in Southern California. The windows had custom built sort of slats that were adjustable so the animator could let in the exact right amount of sunlight, indirect sunlight that they wanted into that room. 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. And to meet it really symbolizes That

1:56:30 Animators. are the crown. of Disney in this era, in the way that it at Google it's engineers, and at Apple it's designers, and at at Microsoft it's PMs. Uh the the the the animators, uh to the extent that anyone but Walt has the power, the animators are sort of the most valuable resource. Yes. Yes. It's an animation driven company. Yes. So it's got this like utopian vibe.

1:56:54 But there were trade offs. I mean, this was huge compared to the old Hyperion site. People are more sectioned off to do their specific work. You had less access to Walt to know exactly what was going on upstairs if you were the rank and file. But to achieve all this, Walt does need capital. Yes. Oh yes he does. He doesn't want to give up any control But eventually he and Roy decide. We've only ever taken on bank loans. maybe we need another source of capital. Yep. I've got the numbers on all of this. So the Burbank campus construction costs alone.

1:57:27 Worth three million dollars. So that's more than the money they had left over proceeds after they repaid the Bank of America debt. But obviously they had all the you know the revenue from the soundtrack and the consumer products and all the flywheel coming up. But still

1:57:42 They're they're planning to do Pinocchio, they're planning to do Fantasia. Right. So the three million is just to build the facility. Then they gotta Staff it. With Twelve hundred

1:57:55 Animators. So that's an extra four hundred and fifty new animation staff they need to hire. And to feed Waltz Vision of having

1:58:07 multiple films in production at the same time. He greenlights production on Pinocchio Bambi. And fantasia. All at the same time. And all of these were completely different animation styles. Yes. And completely different from Snow White. 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. style set to classical music. And Bambi is again another completely different take of

1:58:44 a very naturalist film. These are wildly different skill sets and Bigger and bigger investments using completely new techniques. So you're not really just like making more snow whites. Yep. You're doing like discontinuous unknown High risk bets. Walt can't help himself. Yes. So

1:59:05 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 five million dollars in so called negative costs before they get released. So before they earn A dollar of revenue. By early nineteen forty

1:59:22 Disney's yeah, in this new campus and set up for this next phase of the company. But their eight million dollars In the hole. So Bank of America had loaned them another four and a half million dollars.

1:59:35 They just keep going to Bank of America over and over again, just remortgaging the company. And then the hope was that Pinocchio were the first of the new films to come out. would be a hit and earn profits. Quickly. Unfortunately, World War Two

1:59:50 Had started in Europe. By early nineteen forty when Pinocchio gets released. 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. Yeah, in a scale economies business, if

2:00:06 You lose out on potential eyeballs and potential revenue. But your fixed costs stay the same. That's super, super bad news. I mean you you y there's no ability to retroactively scale back how ambitious you're being with investing in a film. You know, y you've already spent all the money to create it and now you find out that you can't distribute it to half the screen. Yeah.

2:00:30 Yeah. 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 uh summer of nineteen forty. No. So after Pinocchio's a flop, Walton Roy decide

2:00:44 They basically only have one. recourse at this point because Bank of America is not gonna loan them Any more money. They need to Sell equity.

2:00:54 In the company. For the first time. So In April. Nineteen forty.

2:01:00 Disney Retains investment bankers. And sells three point eight seven five million Of convertible preferred stock. With a six percent dividend.

2:01:12 Which technically. Is Disney's IPO. Is it technically? It doesn't go on a stock exchange. It's just over the counter. It's a public offering I guess, but it's a pretty small group of the public. Exactly. Exactly. It is a non exchange traded public offering. And it's got this six percent cumulative dividend attached to it. So the expectation when you're investing is this company is gonna pay me six percent of my investment back every year. Yep. So it's it's actually a pretty sweet deal for the investors. They sell thirty percent of the company to do this to raise that. It's funny, you said 3.875. A little bit of that went to the bankers. There's some transaction fees. So they only raise about three and a half million dollars directly to their balance sheet.

2:01:57 But they give up thirty percent of the company to do that, and it comes with that six percent cumulative dividend to those shareholders. Wow. So this means they're flying even closer to the sun than I realize because they've got the eight million dollars in sort of investments that they need to fund. And they have four and a half million from Bank of America. And then if they're only getting three and a half million

2:02:19 And proceeds from the IPO. That's exactly eight million dollars. They are shaving off every piece of their Current self and future cash flows. to rebet the farm. That is the the way to think about this.

2:02:33 So that summer in nineteen forty, Walt has a rather ominous get together. With Henry Ford, Of the

2:02:41 Ford Motor Company. Uh just sort of as like a friendly meeting of these two American business titans. And While they're together, we'll Mentions to Henry about uh The IPO that they just did. And

2:02:55 Reportedly Ford. Tells him. Walt, if you sold any of it, you should have sold all of it. Ominous. Ominous. a real board of directors gets established for the first time as part of this and the preferred get a director on the board. So an outside voice.

2:03:12 in the company. Who certainly is not gonna share Walt's vision here. So by the end of the year in nineteen forty, despite the capital raise from the stock offering, Disney's in a cash crunch. Uh Wall before the IPO had even set up a kind of like

2:03:27 Proto employee ownership system where they set aside twenty percent that stakes profit distribution to fund an annual employee bonus pool. They have to eliminate that, like Months basically after Walt.

2:03:43 Institutes it. Is they raise salaries of the few top Animators in the firm. And then They keep the same or they lower.

2:03:55 Salaries. For everybody else. In the Burbank Lot. And this causes. Huge resentment.

2:04:02 And unrest. In the animation workforce. Yeah, I I mean I bet that's gonna make no one happy, but this is the like literal trade off. This is We Spent a bunch of money on Pinocchio. Yep. We didn't have Europe.

2:04:14 So we lost a bunch of money on that. We still have big ambitions. And Like this is Walt's implicit choice.

2:04:23 here with going out and raising all this debt, raising all this equity, betting the farm again. Yep. This is the downside of Waltz, uh always go for broke and shoot the works. Philosophy. Yep. And it leads Probably to the darkest moment of Walt's life.

2:04:39 That would change his relationship with the company forever. Forever. And Irreparably. his relationship with Disney animation. The strike.

2:04:49 So On may twenty ninth, nineteen forty one. The Screen Cartoonist Guild, which is a union that had unionized Every other major animation studio in Hollywood and New York over the couple of years leading up to this. Which there were several of at this point in time. Yep. We've been sort of very Disney centric, but there is an industry around this.

2:05:09 Okay. Decides finally to target Disney employees. There's a reason why the Screen Cartoonist 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. Like he established the bonus pool for animation, he constructed this campus, everything you were talking about.

2:05:39 earlier Ben. But here with the cash crunch. That all comes crashing down. Yeah. There's a great excerpt from the book The Animated Man by Michael Barrier.

2:05:49 In the spring of nineteen forty one, under pressure from the Bank of America and holders of preferred stock, Walt Disney Productions agreed to scale back its production cost to about$15,000 a week. 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, since labor costs made up eighty five to ninety percent of Disney's total costs, implementing such severe economies would mean laying off more than half the staff. So you've got cost reduction in some of the people sticking around, and you've got big layoffs'cause Pinocchio didn't pay back. Well layoffs coming. They haven't happened yet. And this is part of why the organization and the strike happens. So

2:06:33 Hundreds of Of employees. End up striking. They pick it. The Burbank campus.

2:06:40 They march all day. They carry signs with slogans like Snow White and the Seven Hundred Dwarves. Or uh what is a drawing of Pinocchio with the caption No strings on me. The strike. Lass.

2:06:54 For three and a half months. And it's uh completely shattering event for Walt personally and for the company. As the union is organizing the employee base. In uh

2:07:08 Days and weeks leading up to the strike while decides that he's gonna make a speech. and address the entire company. Which he thinks. Well, he will explain his position and the challenging state that the company's in and It will resolve everything and the employees will rally.

2:07:24 Around him and the company. Unfortunately, it has the opposite effect. It is a complete disaster. He lectures the entire company for nearly three hours. Some of his lines from the speech, which he had written out ahead of time, so it's preserved. Or My first recommendation to the lot of you is this.

2:07:42 Put your own house in order. You can't accomplish a damn thing by sitting around and waiting to be told everything. If you're not progressing as you should, instead of grumbling and growling, do something about it. 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. And I don't give a damn what idealistic plan is cooked up. Nothing can change that. Probably not what you want to tell your employee base after you just slash their salaries. Yeah. Yeah. A labor magazine would write afterwards

2:08:15 Walt Disney's speech recruited more members for the Screen Cartoonist Guild than a year of campaigning. Uh. Yeah, a a about the worst reaction. that you could possibly have. And Walt I don't know if you found this in your research, but it seems like He's

2:08:34 kinda deluded here into thinking Well it's not actually my Employees that are doing this, it's These communist Very few communist agitators.

2:08:46 Who have Undercover. become my employees and they're riling up the rest of them. And Walt's like kind of removed himself and he's in denial.

2:08:57 That this is actually what his workforce wants. The the the family atmosphere that we had at Hyperion is now a like real corporate, you know, have and have nots here on the Burbank campus. Yeah. Yeah, it's a mess. And then it gets worse.

2:09:15 So in the middle of the strike, which again last 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 company. While they're trying to make Bambi, which is Equally ambitious. Right.

2:09:29 Walt is just So depressed and in denial and upset about the whole thing, that in August of nineteen forty one, He agrees to go On a good will trip.

2:09:41 To Latin America. with Nelson Rockefeller's office of the coordinator of Inter American Affairs. This is the trip that ultimately results in the uh Disney films Saludos Amigos and the Three Caballeros, if you've seen those or been to the Three Caballeros ride in uh Disney World in Nepcot. It's actually great. It also results in Roy having to resolve the strike because Walt is uninterested in dealing with it. 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. I'm leaving for ten weeks. Do your best. Yep. So while Walt is gone in Latin America, Roy does settle the strike after federal mediation. Disney

2:10:34 ends up recognizing the screen cartoonist guild union. They raise salaries for the remaining employees. And they agree to a negotiated layoff. of over five hundred Employees.

2:10:49 So taking total headcount before the strike. Down from twelve hundred. To under Seven hundred. These are the layoffs spent. You

2:10:58 Referred to. The studio would Never. Fully. Recover from this.

2:11:06 Not under Walt and not for many Many years. afterwards. Really not at all in the period of classical animation before computer animation comes along. And

2:11:17 to sort of equally as importantly Walt would never recover from this. as it pertains to his relationship with the company Walt Disney Productions. Yes. It no longer feels like his family. it feels like a creation he's made that has sort of run away from his control. Yep. 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. Yeah. He apparently, according to Don Lusk, who was an animator there,

2:11:53 made a list. And said that uh everyone on this list Isn't true to Disney. And one day will not be here.

2:12:02 Yeah. So Ben you mentioned uh Walt sort of anti communist streak that comes out of this. Yeah, for the rest of his life. He would blame all of this on communist influences in Hollywood. He would actually

2:12:16 testify after World War Two in front of the House on American Activities Committee, you know, Hue AC. As a friendly witness corroborating communist infiltration in Hollywood. He named names of people who he said were communists. Yeah.

2:12:31 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. Yeah. And of course this would lead to the famous Hollywood blacklists and you know all the terrible stuff that comes out of that.

2:12:49 later sort of by association with this, uh people would accuse Walt of being anti-Semitic since much of the communist movement in in the US and especially in Hollywood was in the Jewish community. Gabler investigates this pretty thoroughly in his book and Concludes. That there's not any evidence that Wald ever really was anti Semitic.

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. Yes, definitely anti communist, for sure. Yep. But um Anyway, so speaking of

2:13:27 The war. By the way, this is like four giant blows to the company in a row. You've got Europe dropping even before the US enters the war. You've got the the European distribution falling off. There's a thing we didn't talk about, which was Fantasia tried to make this giant bet in a new type of sound for movies called Santa sound. This alone almost killed the company. The budget for Fantasia was fifty percent bigger than Snow White. And in the first run at the box office, they tried to use FantaSound, this new sound technology they had invented. And distributors didn't pick it up to do like a real first run. And so out of the two point three million dollar budget in that first year it came out in nineteen forty one, they recouped three hundred and twenty five thousand.

2:14:13 Wow. That is a giant loss on Fantasia. I think Disney was also funding the development and and distribution of Phantasound. So you've got Those two then the strike. Now the US enters the war.

2:14:27 Yeah. One more note on Fantasia though, uh before we talk about the impact of the US entering the war. Do you know What ultimately ended up happening. With Fantasia.

2:14:37 They made Fantasia two thousand, sixty years later. No. Yes, the uh uh that is true, but that is not what I was getting at. So yeah. The initial release of Fantasia as you said, was a tot. They couldn't exhibit it anywhere, lost tons and tons of money. Later.

2:14:55 It has this huge resurgence. I mean, I remember when I was growing up as a kid, my parents loved Fantas. Yeah, I actually thought Fantasia was a modern movie. It's crazy to me that it was Disney's second. Right, right, right. I think it was like The sixties and the hippies that thought like, oh, this is like the coolest thing. So Fantasia, if you look today at the list of inflation adjusted Top films in history uh by box office gross, inflation adjusted. Fantasia. Is the twenty fourth highest grossing.

2:15:24 Film. In Hollywood history. Unbelievable. So it has second wife. And kinda timeless. Totally. It's an amazing, amazing. Production. I mean the music, the symphonies, the sound, it's uh Go watch Fantasia if you've never seen it. It is well worth your time. And now a hard cut over to World War Two. Okay.

2:15:48 Back to Nineteen forty one. No sooner. Does Roy settle the strike? Then

2:15:55 Pearl Harbor happens and the US now enters World War Two. And unlike Many of the other great American companies of that era that we've covered on this show before Where World War Two was Great.

2:16:09 for their business like Coca-Cola or Mars or Lockheed. World War Two is a Disaster. For Disney. Nothing of value gets built.

2:16:20 For Disney. During the war. It basically breaks Every single node in the flywheel. And on top of the strike it just

2:16:29 Completely grinds to a halt. All new core IP. production. For the studio. Yeah, so the first thing that happens is within hours and then days.

2:16:40 Of Pearl Harbor getting bombed, the US military moves into the studio. Yes. They look at Burbank and they think this is a great asset. And so hundreds of troops. There are two reasons that setup shop using the sound stages to work on all the optical systems for anti-aircraft. Sound systems are awesome. There's no windows. It's a giant room.

2:17:02 The I mean like it's it's the the thing you would want for stuff like this. The second reason that I suspect you're hinting at, David, is it is Real close. Yes, real close specifically. To Lockheed Skunkworks.

2:17:16 department which is in Burbank, the secret Lockheed Skunk Works Airplane hangers and 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 Skunkworks. Fascinating. Yeah. So you've got that happening, you've got a whole bunch of the animators getting drafted.

2:17:45 Yep. I mean, so you're you're you're down manpower, you're just coming out of the strike. You have these huge failures in Pinocchio, Fantasia, and also Bambi. Again, you've lost European distribution. Yep. And so the appetite for making more things like those three movies.

2:18:02 drops to like zero. I mean at this point there's a financial reality that Disney owes a dividend to these uh shareholders, which interestingly enough, it actually suspended. In nineteen forty two, they actually didn't pay out the dividend, but they do have to pay Bank of America. The films aren't gonna be the thing doing it. And conveniently they've got the US government saying Can you help us with some propaganda films? Can you help us encourage people to pay their taxes and buy war bonds and support the troops? And so Disney kinda looks at everything, how it's all playing out and says Yeah. That's what we're gonna be doing for the war. So all of the studio production work during the US's

2:18:41 In World War Two. Yeah, basically Just gets repurposed to propaganda and training materials for 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, but not only did Disney say we're work for hire, they said do we we we can use the Disney IP. But interestingly, David Do you know about Mickey Mouse's role? Ooh, no. They

2:19:14 really did not employ Mickey Mouse. They protected Mickey Mouse from the w war image. And Donald Duck sort of led the charge on all the the the war films. Well part of this is because uh canonically Donald Duck is a sailor, right? Oh okay that makes sense. Yeah, yeah. But then it makes sense to protect Mickey too. And Donald's also the more like fighter of a character. Yeah. Mickey started off as this troublemaker, but then kind of became the like nice protagonist. Yes, the goodie T S and then Donald was the foil. Yeah. Yeah, so all of this though to our point earlier.

2:19:49 Does nothing either for the flywheel model. Or for generating new IP to feed it. Or pushing the envelope of technology or pushing the bounds of creativity, like all the things that contribute to Disney's core. Yep. They they are financially floated, though, by the war. I mean, the way that they make it through this period is they they actually are generating reliably. Not a lot, but from the government work. Exactly. 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? Ooh. Uh oh, the Disney Vault. The Vault. Yes. Yes. So in nineteen forty four The company is so cash strapped.

2:20:35 Yeah. They come up with the again, at the time crazy seeming idea. To re release Snow White. In theaters.

2:20:46 Because hey, we can't make new stuff, but people sure like that old movie. Let's just Put it in theaters and see what happens. And the thing you gotta remember is with no home video and no TV Th no one had seen Snow White in seven years. Exactly.

2:21:00 It truly vanished off the face of the earth except for the copies of the film that were held. In the Disney Vault. In the Disney Vault, yes. So in nineteen forty four They re release In theaters.

2:21:13 And it brings in Three million dollars. In Revenue. To Disney.

2:21:19 On just a like a few hundred thousand in cost. They basically just gotta print a few new copies of the film and then distribute it out. to theaters. Right. The theaters get their normal cut, the distributor gets their normal cut, but Disney's cost to develop the film is like zero zero. Yeah. They've already developed it. It's already done. This is an enormous boost for the company. And Ben, to your point about the seven year gap since the

2:21:43 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. And reach an age. Uh where they would be interested in consuming snow white.

2:21:59 That haven't seen it before and they discover it. For the first time. And yet it's infrequent enough that it doesn't Dilute. The IP. So Walt's got an amazing quote on this, actually from the second re release in nineteen fifty one of Snow White. In the eight years since then, our first re-release, our potential audience has been increased by twenty five million children who either were not born or were too young to attend a motion picture theater in nineteen forty four.

2:22:26 You're an adult much longer than you're a kid. It's so amazing. And they totally stumble into the seven year thing. Like it's not like they intended when they made Snow White to say, okay, we're gonna put it in the vault, and then seven years from now we're gonna take it out. 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.

2:22:49 Basically becomes The core Disney IP Cadence to this very day. And Disney could uniquely do it versus other studios because their IP was more timeless. It's animated and it's based on these Timeless.

2:23:04 sort of lessons and these fairy tales uh of old. Like there there are there are these Simple but resonant stories. And it carries through right to today. What is the cadence between Disney's frozen movies today? Mm. Frozen one comes out twenty thirteen.

2:23:21 Frozen two. comes out twenty nineteen. Frozen three, slated for release next year, twenty twenty seven. Six to eight years like clockwork. It's interesting they've applied it to SQL now too. Yep.

2:23:34 All right, so now we've got four components to the flywheel business. 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. You've got three feed that IP into as many ancillary profitable flywheel nodes as possible. And now we've got four. Yep. The vault, the re releases. Strategically re-release it. Every seven or so years. Frequently enough to capture each new generation of children.

2:24:06 But not Lest you dilute. It's impact. with effectively evergreen content. Yep. Roy has a great quote that he would tell the Wall Street Journal many years later.

2:24:20 Our product is practically eternal. And it's so true. Yep. So despite this genuine innovation of Adding the vault concept to The flywheel.

2:24:32 By the time the war ends in nineteen forty five Disney is Not in a good place. 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

2:24:52 Disengaged and Disillusioned. Yeah. But clearly something happened because the Disney we know today is quite successful. Yes. But before we continue the story. Yes, listeners, this is a great time to thank our friends at service now. Longtime friends of the show.

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2:25:31 Plus It's gotta be secure, stay governable, and still be able to take real actions. You get all that working together, and that's when magic happens. 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. It looks effortless, but behind the scenes, thousands of moving parts are being coordinated in real time from a control center that nobody ever sees. And that's what ServiceNow has been building for over twenty years. The foundation AI needs to succeed. And they've done it at scale. Over a hundred billion workflows, trillions of transactions, and the operational knowledge of how work actually gets done. That's why more than eighty five percent of the Fortune five hundred work with ServiceNow.

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. So listeners, if you are wrangling AI across your company, go check out service now.com slash acquired and just tell them that Ben and David sent you. All right. So We're coming out of the war. There's sort of a a few moving parts here at Disney right now.

2:26:43 So the revenue from the government has dried up. So tha 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. Yep. 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. And so they try a bunch of stuff. On the animation side, they do packages.

2:27:10 Where they take a bunch of shorts and they package them together as feature films. These are movies that you almost assuredly have never seen called like Make Mind Music or Fun and Fancy Free Not big successes. The other thing they try in animation is to go back to the original Alice's idea of combining animation and live action. The result of that

2:27:33 Is the movie Song of the South. Yeah. Which historians look back on as racist and deeply problematic and uh Disney has never released on home video or streaming. So uh Not a big success for the flywheel there either. And for the first time in animation There's now actually real competition in the marketplace. So

2:27:58 Before the war Warner Brothers had started Looney Tunes, you know, with like Daffy Duck and Porky Pig, and then Elmer Fudd, and of course Bugs Bunny. Ironically. It's a former

2:28:10 Disney Story Department employee, Charles Thorsen. That does the initial designs. For Bugs Bunny. And then in nineteen forty, you know, same year it all started to fall apart for Disney. Joseph Barbera and William Hanna start working together. They produce Tom and Jerry for MGM. So the other major studios and the Flintstones. Yeah, the Flintstones, of course. 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. Meanwhile. Disney they go the other way and they get into live action. Yeah, they somehow had a bunch of cash tied up.

2:28:50 in Europe that they couldn't repatriate. 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. Live action is far less expensive to create. You can do it fast, and they needed to do something with this cash. But you know, you're not buying a lot of treasure island merch today. It's not durable like the the animated stuff. As we talked about earlier, live action. Doesn't feed the flywheel, at least for Disney in quite the same way.

2:29:17 Yeah. They started doing nature documentaries. They did one called Seal Island, shot in Alaska. They also started studying the emerging TV medium to see if they should do something here. But at this point in time decide Eh, basically not. But

2:29:33 We'll watch it and see. We're very interested. But Walt Hart really was in animation. He wanted to get back to making animated feature films that push the envelope. Roy, meanwhile, hates this idea since the studio is not on good financial footing. It has lots of debt. Walt ultimately has to give an ultimatum that if we don't get back to this, then we should just sell the company. Like what are we even doing here? In nineteen fifty

2:29:57 Roy capitulates and the company went and raised another two million dollars for to finance their next film. Which was Cinderella. H the first Bright spot in a long time.

2:30:09 And their first full length feature film in eight years since Bambi in nineteen forty two. And the way they made Cinderella was quite different. Right. Yeah, so

2:30:20 Uh, Walt pounds the table to make this thing and then he kinda realizes the way they are gonna 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. Yeah, there's a great quote from the animator Frank Thomas, who worked on Cinderella. We planned Cinderella more carefully and shot it all in live action first, so we could judge it. 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. The animation has to be right the first time. Yeah. Not the mindset that they took into Snow White. And this basically flips the like live action animation thing from a source of inspiration and study to a crutch. So they were filming every scene and then rotoscoping, effectively like tracing the live action footage out of the camera to make it animated. Which can lead to this much more rigid feeling animation. Also, once you film it, you are completely locked into that view. It's not like you can move the theoretical camera because you haven't really built the muscle to

2:31:26 animate in that style for the film. So you're you're kind of stuck with this like how it looked in the camera. Is how we trace it. on paper. It just had less of the like lavish detail that they put into Pinocchio and Bambi. All this ultimately leads to like Waltz Hart is just not in it. He he kinda 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. I believe it makes Basically the same amount of money as Snow White. I think it does eight million dollars in film rentals in the first year. Yep, on a cost of two point two million. Yep. So really this is the first big financial success for the company since before the war. It's the biggest success since Snow White. It got the company back on sound footing after a Pretty gnarly uh time. Yeah.

2:32:20 But yeah, so Cinderella is is a huge bright spot. It was a one time financial boost to the studio. 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. And like obviously those films still hold up today. Over the next few years, they then released Alice in Wonderland, which surprise, ballooned over budget and did not pay back. That is in part because 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.

2:33:02 But never quite had a clear idea on exactly what to do with it. So it's it's hard to put together these sort of disjoint vignettes into one Cohesive film, but artistically Beautiful. So

2:33:15 But Interesting. Comment On Alice.

2:33:20 From the nineteen fifty one annual report from Roy. Alice has not performed as well at the box office as Cinderella. Because of these circumstances, which were generally poor attendance at theaters, He actually blames the macro, which is interesting. And because Alice in Wonderland is our highest cost feature, it is not expected to produce a profit from its first release.

2:33:40 However It is a classic property, which should be a valuable asset to the company indefinitely. And hey, he was right. Yeah. Alright, so

2:33:49 We've talked about Wall being disengaged here. W what is he doing? Yeah. So Walt Is

2:33:59 Playing with trains. Yeah. I mean I is. That's about the best way that I can frame this, is he's getting really into trains and really into miniatures.

2:34:11 Yes. Train specifically. Model trains. And miniatures like Miniature.

2:34:17 furniture and like Rooms in the year. Homes in miniatures. Yeah. I mean

2:34:24 Gosh, I said we weren't gonna dive into Walt's psyche on this episode, but I kinda think about this. 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 cause he's sort of bored. Like animation isn't doing it for him the way that it used to, and he's

2:34:46 like reaching back into his childhood for inspiration. 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. That's what he would always say. Right, that these were nice things to do after a hard day at work. Yep. But they became obsessions. Yes. When I said reaching back to his childhood There was a train that ran through Marceline.

2:35:09 Which is why Marceline existed. And there's this like deep seated psyche around trains and small town America. He and some of the other senior animators develop this interest in large scale model trains, which are one eighth the scale of an actual railroad train. So Like big. Like ones you could ride around sitting on top of. There's amazing old footage of of Walt like riding around on these

2:35:34 Yep. So Walt took this extremely seriously. He ends up traveling to the nineteen forty eight and nineteen forty nine Chicago train fair and He kind of dove into this community of fellow train enthusiasts. I was thinking this was strange. Like I kept reading about this and I was like this is n wild.

2:35:53 There were six million train enthusiasts, like model train enthusiasts at the time. This was actually like a pretty big thing. Yeah, this isn't like billionaire hobbies today. This is like a Waldo hanging out with Other enthusiasts, kind of man of the people style. Yes, and it was something that was really tangible for him to do with his hands. I mean he was building tr some of the train cars himself. He he actually had a workspace in the machine shop in Burbank where he was building with the machine shop staff. There was a a guy, Roger Brogi, who sort of led the machine shop team, who would go on to build a

2:36:27 serious, serious model train for Walt Roger would also become just a foreshadow here, the first imagineer. Yes, yes, yes. Well, Just to foreshadow even more. All of this.

2:36:40 would lead to imagineering. Yes. So this team in the machine shop, uh, and Walt end up Building. This training.

2:36:49 And and David, you were saying like man of the people style. In a very not man of the people style thing, he ends up sinking fifty thousand dollars, which is like a giant amount of money at the time and a huge amount of his personal liquidity in nineteen fifty. into building a train in his backyard. There was a half mile of track. That went through a tunnel.

2:37:11 That tunnel that which he dug under his wife's garden. On its own was ninety feet long. Yes. When Walt gets obsessed with something, he he goes. To un unreasonable extremes. When he and his wife were looking at houses to figure out where what property they were gonna buy and then build a house on.

2:37:30 A major consideration was is there room for a giant train? to be laid out. He ends up it's on Carrollwood Avenue, I believe, Carolwood Street. And he ends up naming it the Carolwood Pacific. The uh steam engine is named the Lily Bell after his wife. It's a whole thing. Yep. 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. So there's the Lily Bell engine at Walt Disney World. There's the Ward Kimball, who is the original animator that gets him into this hobby. There's the Roger Brogi, as you're saying, and uh then there's also the Roy Disney.

2:38:11 Oh nice. I did not know that. So This is great quote in a PBS American Experience documentary by historian Nancy Cohn, where she's reflecting on m 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. I can't even completely control my company. So here's a world I could recreate.

2:38:33 down to the smallest detail that is mine. And Perfect. And it would become something much bigger. That would also be his

2:38:42 And also be perfect. Yes. So Out of this stew comes Disneyland. Yes. Which is so funny because Wall would insist in interviews until his dying day and

2:38:55 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. So that's how Disneyland started. It all started from a daddy with two daughters wondering where he could take them. Where he can have a little fun with them too. It's also that. You know, I'm sure that's part of it. Yeah. Some of both but really the trains. Okay, so how did Disneyland happen? Well the initial thing was actually pretty small. Yep. The initial idea. Yes.

2:39:31 There was a name floated Mickey Mouse Village. that sort of quickly changed to Disneyland since uh it was much more about his new passions, trains, Americana, and miniatures than it was about Mickey Mouse. And He started working with artists to sketch out What it would be.

2:39:49 And the constraint that he had was we've got this sixteen acre plot of land That's adjacent to the Burbank studio lot. between that and the river. So that's sort of what we're working with here. And that's the natural place you would put this.

2:40:03 Of course, of course. So in March of nineteen fifty two Walt announces it. Disneyland. To be constructed on that little strip of land for a cost of one point five million dollars.

2:40:17 A snow white. A snow white. Yeah, we should speak and use it to Snow White. It's actually cheaper than a Snow White given the uh inflation. Right, right, right. Much cheaper than a snow white. It's now been uh fifteen years. So he decides I'd actually like to spend some money on a a larger study for this because I've got a couple of like artist renderings here that include

2:40:36 cool little river and a train that runs on this and we're gonna figure out you know, attractions that that go in this thing, but I We really gotta jam a lot in here, so I'd like More money.

2:40:47 Roy and the board are none too enthused about this. Yeah. Think about everything that we have said. over the last I don't know hour about the state of the company. And Walt is saying, Hey, I found a thing I'm interested in. Can I have some money to explore building this

2:41:04 inarticulatable idea, yeah. Right next to the studio lot. Yeah. Kinda goes over like a lead balloon. Yes. So

2:41:14 The Walt Disney company, at this time called Walt Disney Productions, does not free up the purse strings for this. So what does Walt do? He kinda talks to Roy about it and they they they figure out a path forward. He's gonna start his own company. That would get formalized later in the year in nineteen fifty two. That ends up being called Wed Enterprises. W E D, Walter Elias Disney. Personal company that he can do Weird personal stuff with

2:41:41 Yes. So over the course of nineteen fifty two Walt starts poaching people from Disney. To work on this thing. And

2:41:50 At first it's just like a half dozen people. And they're set up in a building on the back lot at Burbank. These would become the first Imagineers. The interesting thing is the people he's poaching These are artists.

2:42:05 And they're animators. They're being hired to build A theme park? And like Big physical trains. This gives you a sense of Walt's leadership style. He would take a talented, creative person.

2:42:17 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. We also just gotta pause here for a minute and really underline what's happening here. This is Walt Disney. Yes, by this point in history he is the Walt Disney. He is the Walt Disney who

2:42:35 Has come up. with a crazy new idea based on his obsessive hobby with model trains. That the board of Disney Studios has basically rejected And so he has gone full crackpot, like Colonel Kurt 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

2:43:04 Doing animation and start working with him. Building a theme park. That is what is happening here. I was about to make the uh comment, Oh, this sounds a lot like Elon Musk, but none of Elon's companies have a board that would vote against him. And so that's really the only difference here. It's kinda the like Elon before Elon. Yes. So there ends up being two problems with this plan.

2:43:27 One is Walt and the architecture company that he hired kinda come to the conclusion that this plot of land, it's just too small. Even with all the clever ideas to be space efficient. There's just too much that he wants to do with this Disneyland concept. It keeps growing in scope to accomplish all of it in that little strip of land. The second problem is

2:43:46 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. You could describe Disneyland as lots of things, but Carnival Lake Atmosphere. Clearly they did not get the vision. Right. The the magic is that it isn't. Exactly. Very easily could have been.

2:44:08 So They need to find a bigger plot of land and they need to uh Work with A team.

2:44:16 That is really good at Odd. research based Tasks. And

2:44:22 You're never gonna guess, listeners, w where he goes for this. It is like a a crazy Nugget of history. He goes to S R I.

2:44:32 The Stanford Research Institute. If you've heard SRI before, it is one letter off from Siri, which was a spin out of SRI. Yes, that SRI. That it was. I was just gonna say that. You you just triggered like you know Probably two million phones. Some of which are running uh the beta, so they'll have the new Siri AI. Yeah, yeah, yeah. Uh Yes. Yeah. SRI. That SRI is the research firm that Walt hires

2:45:03 To go. Identify. What ultimately becomes. Yeah, I'm the perfect spot. They absolutely knock it out of the park.

2:45:12 But when you describe it The site sounds completely nuts. Ten times bigger than the original site, a full 160 acres. Yep. Twive miles away from Los Angeles. It is currently just some orange groves. Anaheim itself.

2:45:29 Was a small farming town. There wasn't even a highway. Connecting it to Los Angeles. There was a plan highway. Yes. So there's a quote from The Animated Man by Michael Barrier. 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, since the idea was that TV will play an important part in the promotion and development of Disneyland.

2:45:59 The study pointed toward a location southeast of Los Angeles in Anaheim, in Oran County, just off the Santa Ana Freeway. That freeway was then under construction, but most of it between downtown Los Angeles and Orange County was scheduled for completion. The foresight of all the factors that they considered there. Just incredible. So uh

2:46:18 There is one problem though, which is great. We found the perfect site. It's a hundred and sixty acres, and we're gonna do this much bigger and better than we were before. We're gonna need some money. We're gonna need a lot of money. So Walt Goes back. to the company.

2:46:33 Yes. And remember, they had no interest in pursuing this, which is why he had to set up WED in the first place. It's becoming clear that this is happening. I mean, Walt Disney is a force of nature and Roy becomes supportive, or at least Right. While still trying to protect the company.

2:46:51 And so in nineteen fifty three, in April, Walt Disney Productions Board of Directors. This is a public company. agreed to a personal services contract with Walt and contracts with Wedd to design and build the Disneyland park attractions. This is done as a cost plus contract. So Wed and Walt personally don't have to take

2:47:11 Any risk. At least in in this part of it. It is just like We will pay you Whatever it is plus your profit margin.

2:47:20 To go build stuff. And No, it's kind of a blank check. There are some pretty wild other terms in this personal services contract, according to a nineteen ninety article. decades later in the LA Times.

2:47:34 Walt is allowed to pursue outside projects, which effectively gives him all the benefits of being a free agent while still drawing his hundred and fifty three thousand dollar salary from Walt Disney Productions. Okay. Another point. 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 ten percent of all merchandise sold. Wow. I actually didn't find this. This is wild. So here's the next bullet point. 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. So why did he negotiate for this? I mean

2:48:15 My feeling about Wald after doing all this research is that he didn't actually really care that much personally about money. Was he trying to accumulate Cash so that he could fund Disneyland? Exactly. Uh exactly. 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, so I kinda want more out of it. That's sort of the less generous take on it.

2:48:40 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 see. This is happening no matter what. So we can do it the easy way or we can do it the hard way. It is interesting on his relationship with money. He was interested in money But For the sake of deploying it. I mean, hoarding money was never his thing. Like he did live extravagantly compared to most people. He had that train and you know, a s a vacation house in Palm Springs and all that, but it's not what the other big

2:49:15 Hollywood moguls were doing. Lillian Disney has a comment in 1956. She said, I've always been worried. I have never felt secure. Never. Mm. He's always telling us how wealthy we are, how much we've got. And we haven't got anything. And she's kinda right. Because he's always putting it back in. Yes, and it's all tied up in the enterprise value of Disney, which he keeps sort of remortgaging and rebetting the farm. Yes.

2:49:38 So there's that angle. He also always believed in the park, just like he always believed that animation, feature animation had a a long runway ahead of it. And I I was trying to think of the best way to contextualize this. So to validate him there. This is a crazy stat. I'm just how right he was about all of this.

2:49:56 Walt built this company over his entire lifetime from age twenty one until he died in nineteen sixty six. And if you look at the company's market cap today compared to where it was in nineteen sixty six. Ninety nine point nine five percent of the value was created after Walt Disney died. Yeah. There was just so much more running room with his concept than he had time on this earth to execute.

2:50:21 Yep. Do you know how I know the nineteen sixty six Market cap. Is this ringing any bells for you, David? No.

2:50:29 So during the Buffett partnerships. Warren Buffett saw that Disney was an underpriced asset. In nineteen sixty six, Right before Walt died. So Buffett bought a bunch of the stock in sixty six.

2:50:45 since it had a market cap under ninety million dollars at the time. Ninety million dollars. The company was doing twenty one million in pre-tax earnings. And at this point, because this is after Disneyland, this after a bunch of stuff It had More cash than debt. Wow. This is like Ben Graham bargain investing. And even more so like Charlie Munger investing, because it was a great business at a great price. Yeah. Wow. A ninety million dollar company doing twenty one million in pre tax that has Disney's flywheel. This is the buying opportunity of a lifetime when Buffett bought it.

2:51:18 That's why he's the goat. He did, of course, sell it. Well, that was the right move after Walt's death, as we will see in a few minutes. Anyway, that's sort of how I would characterize Walt's relationship with wealth and sort of what his his goal was in this personal services contract. This whole thing ultimately becomes so contentious that three board directors actually resign. from the public company, there's also a shareholder lawsuit that gets brought. And for

2:51:45 sort of strange reasons, it doesn't end up going through But The remaining board members end up approving it. Essentially it was Roy's way of saying, okay, 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. From the company so you can

2:52:01 Figure out how to do more of the funding of this thing. Yourself. Wow. Fascinating. So like just to reflect to 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. No, it's very intentionally not the flywheel in the beginning. Right. There are essentially zero synergies. as conceptualized so far for Disneyland. Yeah. But all of that's about to change.

2:52:32 Because Disneyland even post all of the budget expansion after SRI and moving to Orange County and 160 acres. So out of hand.

2:52:45 In its budget. But it needs to be a to actually come back to the company. Sort of. Sort of. So here's the corporate structure. Originally they thought they would need about five million dollars for the Anaheim Disneyland.

2:52:58 Spoiler, they would go way, way over that. But because they thought it was gonna 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. At a five million dollar price tag. The company cannot afford to fund this. Yep.

2:53:19 If you look at nineteen fifty two when planning began Walt Disney Productions made less than half a million dollars in net income. So Ten times that for the park's budget is is is not gonna fly. There's not cash for it. But At this point the company is kind of like all right, the proverbial train is moving forward here. There is actually a good

2:53:38 plan to integrate a whole bunch of Disney stuff into the park. This can be a a Walt Disney productions thing in one way or another. We're good for five hundred thousand dollars. But we need to go find the bulk of the five million dollars somewhere else. Yep. What can we do? So in order To go get it.

2:53:56 The bulk of the financing for the park? Walt comes back fully fold. At the Disney studio. And does something The no other

2:54:07 Movie executive. is willing to do. At this point in time. He embraces Television.

2:54:15 He goes to the T V networks. For money. Yeah. And the fascinating thing is It's In part because they

2:54:23 Don't really want a pure financial partner. for the park. Like they don't want to just go raise a bunch of debt. That they'll then have to Pay back. This has hamstrung them so many times. They're trying to think creatively of how can we do like a one plus one equals five thing here.

2:54:38 Where are we? have this Disneyland ink joint venture and someone else's you know, building this thing and funding it. So yeah, uh at the time the prevailing sentiment in Hollywood was that TV was a threat. That if Hollywood movie studios started putting their content on TV

2:54:57 It would steal audiences away from the theaters. It's just like in our NFL episode where baseball uh was deathly afraid of television. I think the quote was radio wets the appetite for attending baseball games live and TV satiates it. Yes. But Wall realizes just like the NFL did The T V 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. I had the feeling then that it was important and that we ought to get in it. 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. Bypassing the middle man, I said, Roy, this television thing can be the greatest thing because we will be going direct to And he also thinks it might be his ticket to financing the park. So ABC had been wanting to do something with Walt. I mean lobbying over and over and over again.

2:56:02 Uh, because Walt did this one special a few years before, I think it was on NBC, not ABC. And It was great. Like there is something very compelling about Walt Disney and Disney stuff in a television special. Yes. Yes.

2:56:19 A Vuncular Walt Disney beaming into living rooms around America. But A B C is the third place network. They don't have as many affiliates, they don't have as much reach. If you're gonna get a partner for something that you really want to take advantage of the full reach of a television network, It's not ABC.

2:56:40 You really want CBS. Or NBC. Yes. And so Walt actually goes to CBS at NBC with this pitch. I think it might be Roy actually flying to New York and doing this, but They're not interested, at least for the whole package that Walt is proposing. Yes, they both say, Hey, well, we would gladly do a regular television series with you, but uh

2:57:02 I don't know about this park thing. You're asking for the better part of five million dollars so that we can build a theme park with you and that's a bundle deal with a doing a TV show, this is really weird. Yep. A B C though.

2:57:16 Ben as you were saying, they're the newest of the networks. And they're struggling to catch on. 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. Yeah. Do you know the structural thing with the television industry that was going on in nineteen fifty two?

2:57:43 No. 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. It was supposed to last like six to twelve months but it ended up lasting four years.

2:58:01 Until nineteen fifty two, a freeze. On the ability to get a new broadcast license. So the existing big four networks, which are about to be three NBC, CBS, and ABC. Became pretty entrenched. Meanwhile, the number of households with TVs was absolutely exploding. It went from nine percent of households in nineteen fifty to sixty five percent.

2:58:22 Just five years later. In nineteen fifty five. Basically government protected oligopoly. In this massive new market. Yes. 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 on content. suddenly a giant swath of Americans could pay attention instantly. So they're like really hungry for super compelling content. So What goes to ABC kinda knowing this and knowing they're in third place and says, Okay, I 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. And ABC says, Yes, absolutely, that sounds fine, Mr. Disney. Yes. So ABC ends up investing five hundred thousand dollars in equity in Disneyland Inc. Same

2:59:26 Terms and amount as Disney. Productions. In addition, though, They also guarantee four and a half million dollars in bank loans. So boom, there's the rest of the financing.

2:59:38 But they think. They need to get Disneyland off the ground. In debt guaranteed by ABC. 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. So in addition to this five hundred thousand and the four point five million, ABC is also gonna pay five million dollars per year to Walt Disney Productions.

3:00:00 To make the show that they're gonna put on the air. And it was ABC's to air for seven years, which made it the largest TV programming contract in history. Yes, this is an Absolutely. over the top deal. There is one other deal point, which is uh ABC negotiated to have the right to all the profits from Disneyland's food and beverage for the first decade. They're like, Hey, we need something else out of this. Yes. Yes. But

3:00:26 A part of this contract that is completely set in stone. is the opening date. July seventeenth. Nineteen fifty five. 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 Great deal. for everybody involved because

3:00:47 It becomes a huge hit. Like instantaneously when it launches in the fall of nineteen fifty four. The content is basically a behind the scenes look at all the different lands and content for each. So tomorrow land, frontier land, adventureland, et cetera. Yep. So pretty quickly. Disneyland, because of course they name

3:01:09 The T V show the same as the park. Sure. I mean, if Walt gets to control all the programming, like why not just make it the most perfectly aligned advertisement Every week for a whole year to get ready. It quickly becomes the second most popular show on television. After I love Lucy.

3:01:27 And it's the first A B C program. To crack the top twenty five shows. Ever. Like it was all MBC and CBS. Until Disneyland. Unbelievable. Also, ABC lets Disney run trailers.

3:01:41 inside each episode for their current theatrical release. Yes. So it both promotes Disneyland and the current movie slate. It it becomes a whole nother no to the flywheel. Yes. And for the first time they get repeat exposure. I mean, Disney only gets a touch point once every few years with a consumer with a movie, and maybe you watch their shorts. But with T V It's this way to build a repeated relationship. They had this in a certain way with the comic strip before, but this is like that on steroids.

3:02:10 Yes. So In that same fall and winter of nineteen fifty four into nineteen fifty five. The show

3:02:19 Has It's first big like viral moment even before the park opens. So in December Disney.

3:02:31 begins a three part Live action mini series. On the show. About the story of Davey Crockett. David Crackett. Oh, that's right. And America

3:02:43 Goes. Nuts for Davy Crockett. For listeners who don't know, Davy Crockett is like a historical American figure that fought and died in the Battle of the Alamo in Texas. Over a century. Before this. Which Disney highly fictionalizes the character. Yes, totally. But this mini series becomes

3:03:04 A massive Flywheel. Moment. For Disney totally unintentionally. Davy Crockett Coonskin Caps become the must have kids product of nineteen fifty five. They sell

3:03:18 Ten million caps. In nineteen fifty five. Even better. 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 seven million records.

3:03:35 In total, Disney would go on to do around three hundred million dollars for of gross sales of Davy Crockett merchandise. Which at this point they fully In house. Commercial products. Kamen had tragically passed away in a airplane crash in 1949, after which they inhouse all of this within Disney. So if all that happened with the same splits we mentioned before at five percent royalties on that three hundred million dollars.

3:04:00 Assuming again a hundred percent retail markup from wholesale. That's seven and a half million dollars. to Disney Which uh you know I Think is more in actual Revenue?

3:04:16 to Disney than they had earned from Any Film. at that point in history. And David, this is really gonna blow your mind.

3:04:26 That is actually more Then the amount Of income. They had received

3:04:32 Every yeah cumulatively from first run animated features. If you add up all the pluses and all the minuses by 1957 The ever in profit dollars from their first release films was a hair over seven million dollars. And they made

3:04:51 By your estimates, seven and a half million. Incredible. And what timing? Right before Disneyland opens. Insane. Amazing. Disney absolutely crushed the timing. on switching their horse to TV or sort of embracing TV and embracing it in this huge way. And not just with programming, but uh directing all this attention at Disneyland. We gave that stat earlier all the way in the the twenties that the average American went to theaters Over forty times. By nineteen forty seven, that number was down to about

3:05:25 thirty-two times and by nineteen fifty six, the year after Disneyland opened, it was down to fourteen times per year. Thanks to our friend Arvin at Worldly Partners for gathering all this data. So movie executives really had good cause to be concerned about TV. Absolutely. Attention was shifting to television and right as it was shifting in droves, boom. That is right where Disney showed up in this like

3:05:49 multiplicative way, you know. Yeah. Man, incredible timing. And Walt Ez ever had a quote on this. This is from the special that he did back in 1950 as an experiment. He said, I regard television as one of our most important channels for the development of a new motion picture audience. Millions of televiewers never go to a picture theater, and countless others infrequently. In these highly competitive days, we must use the television screen along with every other promotional medium to increase our potential audience.

3:06:20 Man was he right. Man was he right. Because he started playing with trains. Disney became a major force in television. And of course open the park.

3:06:33 Yes. Okay. So how does this all come together? We've got this like Joint venture called Disneyland Inc. It's got five hundred thousand dollars from Walt Disney Productions, it's got five hundred thousand dollars from ABC, it's got two hundred thousand dollars from Western Publishing, who distributed their books. And then Walt himself Put in two hundred and fifty thousand dollars. That's right. I did see that. Yes.

3:06:55 And then they've got the four and a half million of Yeah. Guaranteed by ABC. Exactly. So there's a total of six ish million dollars that they have to spend to build the thing. Plus there was actually another two million of ten year bonds that ABC was committed to if they really, really needed an extra two million dollars to flex from a budget of six to a budget of eight. So then I've read a bunch of places this ended up costing seventeen million dollars.

3:07:22 Yes, that is correct. So the cap table is uh Walt Disney Productions and ABC each own thirty four percent, Western Publishing owns fourteen percent, and Walt himself personally owns seventeen percent. And there's a contract between Disneyland Inc. and And Wed enterprises, which Walt owns a hundred percent of To actually Build it all.

3:07:42 So All this leads up to July seventeenth, nineteen fifty five The opening. of Disneyland that would change The company forever.

3:07:53 That would change American vacations forever. A giant part of Disney's business model going forward. the opening of Disneyland. Yes. But before we do that.

3:08:04 Now is a great time to thank our friends at StatSync. Yes. So Walt Disney Had this idea. That he would often talk about.

3:08:12 Plusing. Most amusement parks would be effectively complete at opening, and then they'd call it finished. But not Disneyland. Walt treated the park as something that you have to Keep improving forever. And he constantly looked at how guests move through it. Yep. This idea, though.

3:08:28 Only works if you can see what's happening. You can't improve an experience on a hunch. 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. You can ship faster than ever now, but the hard part becomes knowing which changes actually improve the product. 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. So a small change to a prompt or model can have surprisingly large downstream effects. Offline evals will really only get you so far and you need to be getting signals from real users and making decisions on that. And that's where Statseg comes in. They offer product teams experimentation, feature flags and product analytics all in one place. You can ship quickly, roll out changes safely, and measure how those changes impact users, making your product actually better. Instead of just guessing.

3:09:22 Yes. So just like Walt continuously was plussing Disneyland still today. Statsig is how you improve your product after you've shipped it. You can learn more at Statsig.com slash acquired and just tell them that Ben and David sent you. All right. So the development of the park. The team at Wedd had been getting

3:09:43 inspiration and sort of concepting and iterating while all the ABC stuff is happening, while all the hype building around America is happening, and of course while the financial negotiations are are happening. So In September of nineteen fifty three, 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?

3:10:12 And Herb looks at him and he's like. Disney what? This is the first time hearing of this. And he's like The theme park. You're gonna come work on that with me. And he's like

3:10:21 I don't even work here. I I used to work at Disney, but I I don't work here now. And Walt was like, Yeah, but you're the guy to do this. And so Herb kinda looks at him. He says, Can you tell me a little bit more about this theme park? Walk I I this is metaphorical. Kinda locks the door. Yeah. He's like great, I will stay here all weekend with you and tell you about the theme park.

3:10:42 And out of the weekend emerges This beautiful drawing that we will send out in the email acquire.fm slash email that they can use as a sales tool for the first meeting with ABC. You've got a castle, you've got mountains, you've got the railroad, you've got the river, the bones are all there. The core vision of what Disneyland is. Yes.

3:11:04 Yes. Other Wed employees, meanwhile, start traveling all over the US looking at the best existing theme parks. Walt and others travel overseas to places like Tivoli Gardens and Copenhagen to get sort of a 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 seedy experience than you are getting in theme parks in the US. That is the goal. So This year leading up to the park, what we were about to describe is completely insane. Remember I said the the date was fixed.

3:11:37 in the television deal, in part because the TV show was gonna culminate In a live broadcast. of the actual park opening. And there was all sorts of like brand new technology and logistics and operations that ABC was going to bring to bear for that. So they were they were planning around that. And There are some sources that say

3:11:58 That it was three hundred and sixty six days to build the park. If you actually look at physical construction It was less than that. Eleven. Months. Wow. So

3:12:07 They end up building Disneyland in one third the time that it took to make Snow White. Incredible. 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. There's gonna be multiple rivers? Robotic animals coming out of the water on the jungle cruise. A castle.

3:12:31 American Indians performing live shows of dances. Cars. That kids Like three year old kids can drive around. And crash into stuff. Still my favorite part of Disneyland. Yes. Autopia. An intense amount of greenery and trees that all had to be brought in. I mean, they're doing pine trees and they're doing palm trees.

3:12:51 absolutely exquisite landscaped reinforce how pleasant and safe of a place that it was. A passenger train built from scratch on real railroad ties that had to be laid down. Th this thing is like Walt's fever dream reflection of America, all in the most idealized, safe, clean, cheery way. Possible. They've got the past, they've got the future with tomorrowland and Frontierland and Adventureland. But no sign of the present. So you can be completely immersed and disconnected from your day-to-day troubles. You know what? I actually never realized that.

3:13:23 Yeah. Disneyland is One hundred percent about the past and the future and zero percent about the present. And about the fantasy. You can uh go to fantasy land. That's your other option if you don't want the past to the future. 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. Yeah. Despite several very, very different environments on a relatively small plot of land. I mean from Star Wars today to Frontierland, Adventureland, Tomorrowland, Main Street. you really only ever see what the imagine years want you to. And it creates that unique experience where Main Street can feel nostalgic and wholly different than the jungle over an adventureland and very, very different than the strip mall mania happening just a few acres away on any side of you. Yep.

3:14:20 I'll just keep going on the insanity of building this thing. There wasn't yet any on site buildings to fabricate the rides. So they did construction at Burbank. That's right. And they trucked it all down. That's a fifty minute drive if you don't hit traffic and the highway was still being built. So it's all in surface streets. It's crazy. Think of the scale of the stuff that they were building. Yep.

3:14:41 Halfway through construction, they discover that rivers of America almost doesn't work at all. when they filled it with water, the water just drained into the dirt underneath. And David, as you mentioned cost ballooned from the original five million to a total of seventeen million, but That's actually pretty cheap.

3:14:58 Totally. I I did the inflation math. That's two hundred and ten million dollars today. You absolutely could not build anything remotely close to Disneyland today for two hundred million dollars or in a single year. It is astounding how it all got built. Also. Very, very convenient for Disney that they sold a lot of coonskin caps as the budget was ballooning. Yes, and found sponsors to sponsor lands and rides and drew on every ounce of debt they could. This is the other just like

3:15:26 Absolute galaxy brain. Walt addition to the flywheel that he brings in with the parks. Corporate sponsorships. Yes. There were sixty five corporate sponsors.

3:15:37 in Disneyland within the first few years of an opening. So at opening There was Richfield Auto for Autopia. Bank of America. course they had to be there a sponsor of Fantasy Land. Coca-Cola as well. You won't believe this in addition to Coca Cola.

3:15:51 Pepsi They had a sponsorship in Frontierland. Coke actually didn't become the exclusive uh supplier sponsor until nineteen ninety. Yeah, that's right. Americans, Santa Fe Railway, TWA for the Rocket to the Moon, Monsanto was actually a sponsor. That's right. Carnation, Kodak. The list goes on, but I I do have one favorite, David. Hm. The National Rifle Association. Oh wow. Frontierland? Yes. Inside the Davy Crockett Museum there was a shooting gallery. There you go. It's unclear from the historical records if it is technically a sponsorship, but the rifles were provided by the NRA. Like real rifles. There you go. Flywheel in action. Yes.

3:16:33 Mm. So I was trying to do some Comparison. on this uh seventeen million inflation adjusted to two hundred and ten million. The Rise of the Resistance Star Wars ride that they built in twenty nineteen, which is excellent if you've never been on it.

3:16:48 was rumored to cost anywhere from two hundred million to four hundred and fifty million. For just one ride. Right. And they built the whole park for less than that. Yes. Man, the things you could do back then. Yes, right.

3:17:02 I mean, uh permitting was pretty light back then. So we get to opening day. How's it go? Well less Then half of the planned rides were open.

3:17:11 And uh 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 twenty thousand Leagues Under the Sea exhibit. the day before it opened. Opening day comes, it's nearly a hundred 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 that But they don't yet have the plumbing finished to turn on. So if you want something to drink in this hundred degree heat, you can go buy a Pepsi. Exactly. The restaurants ran out of food.

3:17:50 Rides were breaking down. Mr. 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 five hundred people onto it, which was double the two hundred and fifty That he was supposed to. But

3:18:07 despite all of this, it is a giant Giant hit. that first day that was technically a preview day for press and invited guests fifteen thousand people were invited, but it is believed that thirty thousand attended. And then that was in person.

3:18:23 Yes. Then there's the TV show. So ABC rolls in with twenty-two live TV cameras and a giant crew to operate it all. With nineteen fifty five technology. The viewership numbers are astonishing. It was the world's largest live telecast ever. Eighty three million people tuned in to To watch from home.

3:18:45 Which means that nearly half of America Watched this broadcast. Watch this ninety minute commercial. Right. And it's it's crazy, right? It's live coverage of this like wackadoo amusement park opening. On the one hand, why would you want to watch that? 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 gonna be a giant deal, so you better be watching when it happens.

3:19:11 Do you know I'm sure you do, but do you know who the three anchors were? That ABC. hired to do the opening. Ronald Reagan. Ronald Reagan's the big one. Art Link later, Bob Cummings.

3:19:24 And future president of the United States of America. Ronald Reagan. It's crazy. The the T V strategy just absolutely knocked it out of the park. what does half of America tune into anymore? I mean ever. Yeah, I mean even the Super Bowl today, which is the biggest television event in America only gets about forty percent of US households tuning in.

3:19:46 And this was just to watch guys talk about What's going on behind them in an amusement park? No, I think it was that America had been primed via the TV show for the whole past year, that this was gonna be The event of nineteen fifty five. Yeah. So cool. By the end of the first week, there was a hundred and sixty thousand visitors. Two months after opening the millionth

3:20:09 visitor walked in. And in the first year there had been three point six million visitors. Yep. In the second year of the park's operation, it does over four million visitors, which makes it more popular than both the Grand Canyon and Yellowstone National Park. It's like

3:20:26 The most popular park? In America is now Disneyland. visitors since opening day. My favorite little bit of trivia about Disneyland was learning about the original Business model.

3:20:39 So you used to have to pay To get on the rides. You would pay I think it was a dollar for admission to the park. And then you could buy Booklets of tickets. That would

3:20:51 Get you admission. to the various rides and attractions and different rides and attractions would have different ticket It was this whole complicated business model that they obviously have drastically simplified since then. Raise prices astronomically. Yes, absolutely.

3:21:10 And I mean the 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

3:21:20 great business. Yes. Harrison Price, who led the research at SRI for Disneyland, said Disney's rethinking of the American amusement park had striking and immediate business consequences. Because his park was such a pleasant place. people stayed there longer and because they stayed longer they spent more time. Basically, price said he tripled per capita expenditures because he tripled time. And then of course, you know, fast forward to today it Disneyland or Disney World. You go for like fourteen hours. Yeah, right. I mean you you you're not going there for just a day. You're going there for multiple days. Right. You're making a whole trip out of it. And if you're going to Disney World, then they're there a whole week. Yep.

3:21:57 So I I promise we won't do too much part two foreshadowing on this episode, but this is just one point I gotta drive home. Disparks and Cruises today does thirty-six. billion dollars in revenue. and ten billion dollars in profit. per year.

3:22:13 That is twice the amount of profit. that their entertainment division. Produces. Yeah. Also just wild to think about

3:22:21 physical amusement parks having essentially a thirty percent net income margin. Wha what other physical park operator is gonna operate with those kind of margins? And the fact that it's a bigger business for Disney than their movies. Like a twice as big of a business. And this is You know. There's a hundred and sixty acres in California. There's a a big swath of land in Florida. There's five or six of them around the world. There's some cruise ships

3:22:46 And that spits off more profit. Twice as much profit. than all of the other Disney things you can experience anywhere anytime. Well We're gonna get into this in a minute here. Really the impressive thing is that

3:23:00 Disney films are. Now great again. And still the parks do more revenue. We're about to hit a period where the parks do a lot more net income than the films. Because the films suck. Now, reflecting on all this, Disneyland actually was not a Bet the Company move for Walt Disney Productions. financially. It was cleverly structured by Roy to not be, but reputationally, 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. 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 he betting the company, he was betting his own personal fortune too. Remember that two hundred and fifty thousand dollars that he put in. Yep. He sold his vacation house in Palm Springs. Yep, he borrowed a hundred thousand dollars against his life insurance and he took on a personal loan. to fund that obligation. Yep, all true. And all necessary because of how they had always operated the company, he Until the sort of renegotiation of his

3:24:17 Employment contract. Yep. So There is a fascinating coda to all this crazy corporate stuff on how the park was formed. You might be wondering. Well wait, doesn't the Walt Disney company own the park outright now? I mean

3:24:31 When you visit Disneyland Don't you assume hey wait this is Just part of Disney. What about that weird joint venture thing and A V C and Walt personally? So here's how it all goes down. The headline is The Walt Disney company would not actually own

3:24:44 The park and everything within its borders for a full twenty seven years. after opening in nineteen eighty two. So here's the the full story of who sold what and when. Pretty quickly. uh Walt Disney producti exercise their right to buy out Western publishing and Walt personally. 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. So in nineteen sixty, when the company actually had enough cash to do it. That's when really negotiated, hey, we'll pay you seven and a half million dollars to buy out your your stake. So by nineteen sixty the publicly traded company Walt Disney Productions did own all of Disneyland Inc.

3:25:28 But that leaves Wet Enterprises, which had been hired as a contractor to build all the stuff. Yes, and Wet Enterprises is imagineering today, Disney Imagineering. Yes. But Wet Enterprise is the entity At this Yeah.

3:25:43 Also owned rights to some elements in the park. Right. And it wasn't consolidated into Disney the company yet, right? It was still this separate thing owned by Wall. Right.

3:25:55 So Which Walt is the one hundred percent shareholder of. Actually owned the railroad. Outright. It had been negotiated as a part of the personal services contract. Cause it was like, Hey, I was already doing this side project and now I'm just putting it on Disneyland. It all comes back to trades.

3:26:15 So he got ticket revenue from it. As an annuity, basically. Mm, right,'cause all the rides cost money. So the the railroad at Disneyland. Yes. Same thing with the monorail. These were not owned by Disneyland Inc., they were owned by Wed.

3:26:31 Amazing. We also mentioned since WED was Walt's personal company, it owned Walt's name and likeness, which led to that ten percent royalty on merchandise. In nineteen sixty three, eight years after the park opened, Roy was getting very nervous that the public shareholders would sue over this. Admittedly, very tenuous structure. So they reached a deal. Wed would get sliced into two pieces. Imagineering the architectural engineering department and everything else. Disney Productions would buy

3:27:00 the half of Wed that was imagineering. So they finally inhouse Imagineering in nineteen sixty five. the rest of the holdings would be renamed Retlaw. Which is Walter backwards. Right, right. And inside of Retlaw Walt would get to keep the trains, the monorail, and his ten percent royalty.

3:27:19 This is in nineteen sixty five. Yeah. That would actually last all the way until nineteen eighty two, 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 forty three million dollars of Disney stock. Insanely. Wet Enterprises, which would later be Ret Law. got a total of seventy five million dollars in checks from Walt Disney Productions for the Disneyland Railroad and for the Monorail between nineteen fifty three and nineteen eighty one and another Forty six

3:27:57 million for name royalties. Wow. So I guess the question as a Disney shareholder would have been Was it worth it? Right.

3:28:07 Obvious answers. Yes. I mean, there's all these conflicts of interest everywhere and this would never fly today with sort of m modern shareholder and SEC and securities laws. But In practice. If you were a Disneyland shareholder then and you held through all of this, that W worked out great for you.

3:28:24 Well, speaking of how great it would have worked out for you, After The launch of the TV show, the park. The company is just Firing on all cylinders again.

3:28:37 And Disneyland. The combination of the television show And The park. I've really added a fifth element to the flywheel business model. That's right. You've got

3:28:48 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. And now five, Parks and television.

3:29:04 This is uh television to amplify interest in all of the characters 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, but a huge monetization event. And of course, you do that. I I mean, I just got back from Disneyland. Guess what we're watching? A lot of Toy Story this week at my house. It's a refresher on your fandom. Thinking about it more now, I Television

3:29:32 was adding another node to the flywheel. For sure. The parks are almost this like hybrid Flywheel plus IP.

3:29:43 Because all the core Disney IP 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. They they're a source of IP development, not just a a a sink of IP development. And I mean this would literally become true with Pirates of the Caribbean much later. I mean that's gotta have grossed billions after all these sequels. You actually have new IP generation coming out of Imagineering and the parks.

3:30:11 Right. A lot of stuff hasn't done as well. Like Haunted Mansion has never really worked as a movie. Never really worked. Double Cruise. But yeah, th that 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. So this year, 1955, with the park with TV revenue from Davey Crockett, Mickey Mouse Club, this is basically the inflection point for the company. revenue doubled from fifty four to fifty five 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. And November of nineteen fifty seven, Disney finally lists its stock on the New York Stock Exchange.

3:30:56 Stock had obviously been held by the public ever since the nineteen forty stock offering, but it wasn't Listed and traded on the New York Stock Exchange until nineteen fifty seven. Interestingly, post IPO, Walt and Roy do still effectively control the company. Forty seven percent of the voting power of the company is held by the Disney Voting Trust. And so you just don't need that many other shareholders for your votes to carry the day. Yep. So even as a public company, it was still their sort of family company. Yep. For a little bit. That would sort of wane over the decades from here. Yep. Once the company's listed publicly and people start to realize

3:31:32 The incredible power of the business behind Disney in early nineteen fifty eight. The Wall Street Journal. Runs a front page story. About Disney's

3:31:43 Unique Business model. And this was One of the most fun things

3:31:50 In our research. So the article's title. Is Disney's Land. Waltz profit formula.

3:31:58 Dream, diversify, and never miss an angle. And this Article. In the Wall Street Journal. Is where

3:32:05 The famous Disney flywheel. Illustration. The Ben you are holding up live that you have framed in your studio. This has been on the wall of my office for years. So

3:32:18 I the legend that's out there that everybody believes is that this was a napkin sketch that Walt Himself. Drew. 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. And then We asked the Wall Street Journal. to pull the original piece out of their archives. 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. Yeah, it's it serves as an illustration for something that at the time was actually a pretty difficult to articulate concept of a business flywheel. I will say the word flywheel never appears in the Wall Street Journal article. No. That nomenclature would get added later. But it was like the journal saying, Hey, Disney, uh help us with some kind of illustration that makes this point that you have a wholly unique new business model in the media landscape. And it's a beautiful, beautiful diagram. The whole article. Is great. Roy has these amazing quotes within it. He says

3:33:21 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. Integration is the key word around here. We don't do anything in one line without giving a thought to its likely profitability. In our other lines. So spot on. And then They walk through the steps of the company's flywheel. With their plans.

3:33:49 for their upcoming feature film release. of Sleeping Beauty, which was still a year away from release. At the time of the article. In nineteen fifty eight. How crazy is this? At Disneyland, which w opens in nineteen fifty five, there is the centerpiece of the whole thing is Sleeping Beauty Castle. That movie wouldn't come out for another four years. Right. That was Basically in

3:34:11 Pre production at this point. In fact, it was based on concept art that was effectively a German castle because it was so far from the film. Yes, incredible. So the article walks through At Disneyland, they've installed animated dioramas as an attraction that they're charging a thirty five cent admission fee for. These are animated dioramas of

3:34:33 Sleeping Beauty, the upcoming movie. Next Disney is producing And selling Princess Aurora dolls and costumes. They're working on producing and publishing Books.

3:34:43 Of the Disney version of the fable that will be told in the movie. Of course they are. And of course, there are segments in the Disneyland TV show. About Sleeping Beauty. They're

3:34:55 already preparing the soundtrack album. To go on sale before the movie's released. And then finally Comics. Of Aurora.

3:35:06 And the Sleeping Beauty story. are already starting to come out. As part of the Disney treasury of classic tales syndicated. Comic strip. Fascinating. Just amazing.

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. 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. I mean The foresight They are so bought in on we're just dumping valuable IP onto the pile and we want it to live forever.

3:35:40 Yep. Now there is one other thing we haven't talked about. Which is the Disney in house Their own film distribution. Right before the launch. Of Disneyland? Yes.

3:35:50 Yeah, and this actually comes up in that journal article too. Yep. They create something called Buena Vista distribution. And they left RKO Radio Pictures, who had been their distributors. Howard Hughes ended up owning it and it had been kind of a train wreck as he spiral out of control toward the end of his life. 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. So in fifty three, two years before Disneyland opened,

3:36:27 They incorporated Buena Vista. The Living Desert was their first film. It's one of these nature documentaries. Then quickly thereafter. They did Lady in the Tramp.

3:36:38 And twenty thousand leagues under the seas distribution through Buena Vista. Instead of through an outside distributor. It was kinda like a test, like can we pull this off? They got pretty good at it pretty fast. With the exception of International.

3:36:54 where they then had to rely on sub distributors for a long time. But Disney had become such a household name, especially because of that weekly ABC show and because of Disneyland, where they were pretty uniquely well suited to actually self-distribute without a middleman. I mean this is like Walt's dream from the early cartooning days. It's kinda surprising that they didn't start doing it after Snow White. I mean, who's gonna turn down a Disney picture? All right, you tee me right up'cause I was wondering the same thing.

3:37:24 Cash flow. Mm. 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

3:37:38 before you actually get paid by the theaters when tickets. So Disney didn't have the working capital. to pull this off. until their real strength in the mid fifties. Mm, that's such a good point. I always had wondered why more studios didn't

3:37:54 vertically integrate and own their own distribution and That makes sense. You need a lot of work and capital to do so. That's exactly right. In the long run, it's a pretty amazing strategy since they'd been paying, I don't know, what is it, about a third of the total rentals to another distributor. 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. They almost like replatformed the business is what one way you could put it, 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 and they do the films to like add new stuff to the pile, but the platform itself is Disneyland.

3:38:41 T V And merch and and licensing. So then a few years later in nineteen sixty one, Walt Disney Productions, after twenty two years of being in debt to Bank of America, finally paid off their last loan. Roy must have been so happy on that day. And Walt was already scheming how to blow some more money. Yes. Yeah.

3:39:05 So one thing we foreshadowed is is Sleeping Beauty. We talked about Sleeping Beauty Castle. You might be wondering what ended up happening with the film. This like many of the other films we talked about. Did not recoup costs. I mean, since then, it's done phenomenally well and made probably hundreds of millions of dollars in cumulative profit for Disney, but did not pay back at the box office. Mm-hmm. Part of that was it had a

3:39:29 Really high production cost, right? After all the success of Disneyland and all the ballyhooing about the flywheel and everything in the Wall Street Journal article. I mean they've got whole hog on this one. Yeah, they spent six million dollars making it. It was the most expensive to produce to date. Yep. 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. But yeah, if if it wasn't such an extravagantly detailed animation piece, then it probably would have been profitable. And hey, given the company's business model They're happy to play the long game. Right.

3:40:03 So the weird thing is the financial blip that happens in this year, 1959, everything is true about this really stable platform. But if you look at that year, the financial year nineteen sixty 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. Mm-hmm. A B C cancelled Zoro and Mickey Mouse Club, which were both

3:40:30 T V shows that Disney was making. Which was related to Walt Disney productions blowing up the Disneyland deal. and saying, Yeah, you guys are kinda difficult to work with now. We wanna buy you out of Disneyland and ABC's like, All right, then we're gonna stop paying you huge sums for your T V shows and giving you all this free marketing. So that relationship ended there, at least for For the moment. A V C would come back in the Yes. But the takeaway is the company is actually financially stable now, that this is okay.

3:40:59 Yeah, the last time That Walt and the company Bit big on investing in production ahead of revenues was nineteen forty with the move to Burbank and having Pinocchio and Fantasia and Bambi in production all at once. Any one of those almost killed the company on their own. Yeah. Now though, post Disneyland, they've got this stable base that they can take these big swings. Yeah, m merchant licensing taught'em to crawl and then they 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. Nineteen fifty seven, they do three point six million dollars in net income. Then the next year three point nine. Then the next year three point four, then ah 1960 happens, that perfect storm of badness, one point three million dollar loss. Then they bop right back, 1961, 4.5. Then five point two, then six point five, then seven, then eleven, then twelve. I mean they just

3:41:52 Stability. Mm-hmm. Mm-hmm. And then Walt decided.

3:41:58 That it was too stable. And he needed To blow it all up again. Or at least he wanted to. So he starts wondering.

3:42:08 How can I bet it all again? And in a bigger way, right? Is Disneyland like is a theme park gonna really be my legacy? Are these animated films really gonna be my legacy? I Shouldn't I do something actually meaningful to the world? Yes. I mean this this idea of a physical Disney location. worked really well. But what if we don't stop?

3:42:29 At an amusement park. What if the next time? We build An entire city. Maybe

3:42:38 Like. An experimental prototype community of tomorrow. You know. Epcot.

3:42:48 And if you think you know what we're talking about because you've been to Epcot. That is not what we're talking about. That's a theme park. Named Epcot. But Walt had this insane, insane vision that never got built, but got pretty far along in the process.

3:43:05 Four 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 in futuristic transport mechanisms and all the most innovative companies locate their innovation centers all in in one place.

3:43:28 together and there's this beautiful tower in the center of it. I mean this is The ideal Future. So this Was Waltz.

3:43:38 Final project. The Florida Project. That never got built, as you say. And I think It all kinda stems from Back.

3:43:49 The Burbank? Hm. And that brief moment. Before The strike. When the studio at Burbank

3:43:57 Really was This utopian physical place that was the perfect marriage. Of art. And commerce. I really think that that's what Wall. Always

3:44:09 to realize in the world. And now after the success of Disneyland His ambition is restoked. And he wants to build it. in this city. To my mind, the most interesting part about this is how far it got.

3:44:23 Yes, yes, yes. So the way that Walt starts working. Towards realizing this vision. Is the nineteen sixty four World's Fair In New York. So what gets this great idea?

3:44:35 Leading up. to the fair. That Disney On the success. that they have at Disneyland.

3:44:42 Can partner. With other big American companies and institutions To create Disney Sponsored

3:44:51 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 That will be a partnership. Between

3:45:12 American industry. Disney. And the public. So The four exhibitions that they create.

3:45:19 For the nineteen sixty four World's Fair. Many of which should probably sound familiar to you. It's a small world. Sponsored by Pepsi and UNICEF.

3:45:29 Which is actually designed by Mary Blair, who's this famous designer. She brought modernism to Disney. She's the one that. basically did all the concept art for Alice in Wonderland, which is why it looks the way that it does. 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. And then she's the one who does Small World. Yep. By far the most successful. Pavilion at the fair that makes its way to Disneyland. So that's one. Two, the carousel of progress.

3:46:04 Sponsored by General Electric. Three, the Magic Skyway sponsored by Ford. And then four great moments with Mr. Lincoln. Sponsored. By the state of Illinois.

3:46:16 And that's one of which catch that is how Disney Imagineering develops. Audio animatronics. Yep. For Abraham Lincoln. Yes, this whole thing is this amazing test bed for audio animatronics, which Disney kinda invents and then popularizes. In Disneyland and then in Disney World. Yeah. And because it's Disney and part of Disneyland, we think oh yeah, audio animatronics like Disneyland. Like these are robots that

3:46:41 Disney imagineering is inventing. in the late fifties, early sixties. Well, David, and you 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. Like that is still where a lot of cutting edge robotics happens. Yes. So all four of those rides after the fair get ported right over to Disneyland because of course Three of the four.

3:47:05 Oh, the Ford one does not. 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. Of course, in addition to footing the bill for Building it.

3:47:19 But I'll forgive that million dollars if you let us put it in Disneyland afterwards. Because we want to get some value of it out after the fair and Ford says, We'll just pay the million. Poor decision on Ford's part. I know. Okay, so three of the four get ported over to Disneyland. But all of it leads right into planning. Four. The Florida project. And I think while the Florida project initially is not A theme park, and Walt very much is uninterested in building an East Coast Disneyland. He says it explicitly over and over again.

3:47:53 He Does have a nagging concern. That An East Coast audience is more sophisticated than a West Coast audience, and there isn't Demand.

3:48:04 Four. a theme park like Disneyland in Florida. 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. I think it's like I'm afraid it'll fail. And one of the big takeaways from the world's fair is No, people would absolutely love a Disneyland type thing, especially with audio animatronics and all this cool new technology you're developing for the world's fair.

3:48:31 Well, obviously if Disney is gonna do Anything. On the east coasts. It should be in Florida. I mean it has the warmest year round weather and even more important abundant cheap land. Abundant cheap land all throughout the state. Yeah.

3:48:47 So Walt though, like you said, had no interest in just building another Disneyland. So what is this Florida project? I had heard about this lore and legend over the years before doing the research, but diving in uh It blew my mind and it will blow yours too, hearing about what Walt's vision for it was. The ambition.

3:49:05 So one. It starts with the A brand new Airport of the future. Paired together.

3:49:13 With a vast Entrance. Complex and park. Two. There will, of course, a

3:49:21 A new Disney World Magic Kingdom theme park. That was initially intended to be five times the size. Of Disneyland. Just for just for the theme park.

3:49:34 Three. A one thousand acre. Industrial Park. Intended to house satellite. R D offices.

3:49:43 For America's greatest think everybody that Walt is partnering with at the Worlds Fair, Ford, GE Pepsi. All the companies that are corporate sponsors back at Disneyland. He wants them. Monsanto. 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. So Walt Epcot was going to be, in his own words, A living blueprint of the future. Where people actually live a life they can't find anywhere else in the world, a showcase to the world. For the ingenuity and imagination of American free enterprise.

3:50:29 And basically It is a sci fi City. Meanwhile, I gotta say They

3:50:37 Couldn't open most of Tomorrowland. for nineteen fifty five when they opened Disneyland and they're having a really hard time keeping up with the pace of technology. I walk tomorrowland even today and I'm like, this all feels really dated and nothing like tomorrow. I think Walt himself has a famous quip on this, which is tomorrow comes a lot faster into today than we can kind of keep up with. So you could imagine if they actually built this thing, it it very quickly would would not feel like the future. I mean You you plow a bunch of capex into concrete and futuristic concepts, new stuff gets invented real fast, and then it's Ugly.

3:51:09 and old. That's a good point. But perhaps you haven't heard the vision for what this city is yet. Okay. It will have A radical

3:51:20 radial design plan. So the city itself is gonna fan out like spokes on a wheel. From a domed central downtown hub. Yes. You did hear that right.

3:51:34 A fifty acre Enclosed, climate controlled Fully domed. Central downtown city. That will have

3:51:46 No surface streets. fully pedestrian walkwa. Monorails. Yes. The the only motorized forms of transportation will be monorails and And This new concept of people movers is And then below ground

3:52:02 There will be a vast network of tunnels. Multi layered tunnels underneath the ground. For cars and industrial vehicles to circulate Throughout the city. On the edge of this downtown dome.

3:52:17 There'll be high density apartment buildings. Surrounding that There is a vast green belt. of parks and recreation facilities. And then finally The outer ring of the city.

3:52:29 Is low density. Single family home. Neighborhoods. And the plan is that twenty thousand people We'll live here.

3:52:37 In this city. with full self governing infrastructure, so schools, public services, everything. And it is all gonna be founded As a new city. In the state of Florida.

3:52:49 This is unreal. Self governing. But in a special district. Carved out and controlled. lawfully by the Walt Disney Company. I mean

3:53:01 It sort of sounds like a I don't know if it's a utopian or a dystopian film or both. Yeah. It's definitely ambitious. So

3:53:12 On November fifteenth, nineteen sixty five Waltz along with Roy. And the then governor of Florida, Hayden Burns. Hold a press conference. Where they announce

3:53:25 Yeah. Disney has been buying Land in central Florida. Under various uh subsidiaries and obscured names, so no one would catch on to what they're doing. Yep. And that a very large new Disney project.

3:53:39 Well becoming. To the state. That planning has already begun and they will be seeking Public. Approvals.

3:53:47 They bought twenty seven thousand acres. That is the size of San Francisco. Yes. Yes. Twice the size of Manhattan. Uh it's almost forty square miles. That they have Purchased.

3:54:00 in the middle of Florida. And it's all Swampland right now. It's uninhabitable. And so In May of nineteen sixty six, so a few months later. They get

3:54:12 Government approval. To Dream the swamp. And prepare To build Walt's vision.

3:54:19 Let's go. Hmm If only. So And late.

3:54:28 October. Of Nineteen sixty six. Walt records a film.

3:54:35 Of a pitch. full reveal for the Epcot vision. We'll link to it in the show notes. You should absolutely go watch this movie. It is the second to last

3:54:46 recorded appearance. The wall makes. In his life and He has no idea, but The last one I think is a day or two later.

3:54:54 And he ends the video. With Speaking for myself and for the entire Disney organization We're ready to go right now. Unfortunately.

3:55:06 He dies. About two months later. His death is both Incredibly fast. Incredibly unexpected.

3:55:15 And of course Kind of uh Slow motion. disaster that's been brewing his whole life ever since he started chain smoking in France when he was seventeen years old. I mean, he was notorious for his hacking cough. That is how people knew that he was b approaching if you were in a building on the Burbank campus. Yeah. You'd hear him hacking. So that summer in nineteen sixty six, Walt

3:55:39 had started experiencing pains in his body. He assumes that it's all the stress from Or maybe it's old polo injuries that he has, or maybe it's this Nag and cough, but

3:55:53 Obviously it's Cancer. Eating away at him. Finally in November of nineteen sixty six, so right after recording the Epcot pitch video, He checks himself into the hospital.

3:56:05 Where doctors find A pretty massive tumor. in his lungs. They do emergency surgery to remove it. He comes back to the studio afterwards and the company announces publicly that Walt is back. They say he's gonna 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. His health goes downhill quickly, and on december fifteenth, nineteen sixty six Just ten days after his sixty fifth birthday.

3:56:35 Walt Disney passes away. Right in the middle. Of This Epcot thing. I mean like what a sliding door moment. He was always escalating

3:56:47 Bigger and bigger and bigger, it would have always been right in the middle of the biggest thing he's ever done. That's such a good point. 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, every point in his life, he was betting the farm over and over and over again, and he always pushed all his chips in. It would have always felt like this. That's such a good point. If they had pulled off the Florida project, what would he have done next? Right. Like a colony on the moon? Yeah.

3:57:17 I gotta be honest though, I will say I don't have the faith. After watching a lot of videos and documentaries and reading about the Florida project. It just doesn't make sense to me. And

3:57:29 It may have protected his legacy. that he didn't live another ten or twenty years to see this through. Mm. Yeah. I mean, even just building a domed city. Like how would you actually do that?

3:57:43 And look, I could be completely wrong. They invented you know amazing thing after amazing thing, but This one. Felt. Nuts. 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. And in fact, just a couple months later. In May of nineteen sixty seven.

3:58:16 Roy Gets full approval from the Florida state legislature. Yeah. Build

3:58:23 Epcot. Walt Disney World. And importantly. The Reedy Creek Development District.

3:58:31 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 because he just hated all of the, you know, hotels and restaurants and crummy

3:58:51 stuff around there and uh they run the show there in Florida. That they do. But Roy is not Wall. And he's not willing to bet the company.

3:59:03 Like Walt was. So He does see Walt Disney World. Through.

3:59:10 But he dramatically scales it back. Mostly because he doesn't want to take on any additional debt. For the company. So he sets a goal that he's gonna get this thing constructed.

3:59:22 Without Raising debt for the company. Which is unbelievable. They built the Magic Kingdom, the Walt Disney World the theme part of Disneyland in Florida. For four hundred million dollars with two hotels And no debt.

3:59:37 Yes. That is an incredible achievement. Yes. And it is Absolutely not what Walt would have done. Nope. So it's just the magic kingdom. There's no city. There's no There's no airport, there's no industrial park. It's more or less like hey, we've got all this land and we're

3:59:52 extremely confident that Disneyland is gonna work here, so we'll build it. And it was Extremely successful. Yep. But

4:00:01 It's not betting the company he And it's not Blazing a new trail. I mean, look, like how could you say Disney World isn't a success? Like it's an incredible success. And there's like so much cool innovation there. The underground tunnels they they took everything about Disneyland and and made it better. Yes. Okay, now we don't have to have people wandering around carrying trash bags. 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. We've got this network of underground tunnels where we can all do it exactly the way that we would have wanted to. I'm pretty sure the underground tunnels are actually street level and all of Disney World is up one story. It's it's this like whole

4:00:41 insane concept of what if we could do Disneyland over again, but not as cowboys, as as real planners and builders and engineers and a much bigger budget. Which may actually be, to your point. It's probably Just as likely, if not more likely that Walt Disney's Death.

4:00:59 When it came preserved his reputation. And that this this might have actually been The better path. Four. The Florida project.

4:01:07 May have been. Regardless though What it is not is shooting for the stars. And after Walt's death.

4:01:16 The company. Basically stops doing that. And Every dimension. Roy himself.

4:01:23 Tragically dies two and a half months after Opening Disney World at the end of nineteen seventy one. It's kinda poetic. It seems like he d he said he was gonna see this thing through and he did. And he did for his brother. Yeah. And then what follows is

4:01:39 Basically kinda. Thirteen years of Disney becoming a parks company. 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 nineteen sixty seven. He was deeply involved in this one. It was a smash hit grossing twenty three million dollars.

4:02:01 twenty three million in its first. box office run, which implies a cut of about eleven million dollars for Disney and Buena Vista. on a budget of just four million dollars. This, though, would be Disney's most successful film for the next two decades. Yeah, yeah.

4:02:17 That's bigger than Cinderella. Certainly bigger than Sleeping Beauty, Hundred and One Dalmations. Any of the other movies around that era? Yep.

4:02:27 So the financials of the company keep growing. But really it's All cause of the parks, and you can see it when you look at the numbers. So in nineteen seventy two, the first year of Disney World, Films do Seventy eight million in revenue and forty four million in profit.

4:02:44 Parks. Do a whopping two hundred and twenty three million in revenue. And thirty eight million. In profit. And then all the rest of the flywheel consumer merchandising, et cetera, does twenty seven million in revenue.

4:02:58 And thirteen million in profit. This is before the corporate expenses? Yes, before the corporate expenses. Okay, so what are the three profit numbers for each of those again? So you've got In nineteen seventy two Forty four million in profit from films. Yep.

4:03:11 biggest profit engine. It's actually a lot. The IP of the company is still in good shape here in nineteen seventy two. Parks do thirty eight million in profit. And Other flywheeles do thirteen million in profit. Okay, so parks and

4:03:26 movies are pretty comparable then. Yes. Pretty comparable right after Disney World opens. Yep. But then. Twelve years later, by the end of this period in nineteen eighty four,

4:03:38 Parks and consumer products. Generate. two hundred and fifty million dollars of operating income on over a billion dollars in revenue. While film and TV barely breaks even.

4:03:51 With only two point two million dollars. So yeah, by the end of this period here. Basically IP wise, the company is creatively bankrupt. And they're running up.

4:04:05 Parks and merch. Business. No way. Okay, give me the profit numbers from nineteen eighty four again. So together parks and consumer products generate two hundred and fifty million in operating income. So quarter billion dollars. From the parks and consumer products. And

4:04:22 Film and TV is two point two million. Unbelievable. It really illustrates what happens to the company during this period. 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 А hundred milyen in Nineteen Sixti Five. To One point four billion

4:04:45 In nineteen eighty four. And then over on the net income after all the corporate expenses in nineteen sixty five goes from eleven million. all the way up to ninety seven million in nineteen eighty four. So if you just look at the whole business. Yeah, the consolidated financials looks great. But w what you're sort of illustrating is The core is rotting. Yeah.

4:05:09 new IP onto the pile that consumers love. Otherwise we'd be seeing that in the The film's division. Name a Disney film from the seventies. Yeah. You can even Think of today.

4:05:21 They're just harvesting over in the parks. Yes. So Really the the the biggest problem what this comes down to is that American myth making. moved on. It moved elsewhere. So

4:05:36 This is The era when George Lucas makes Star Wars. And Steven Spielberg makes Indiana Jones and E.T. And These guys become

4:05:46 The new American Storytellers. Not Disney and not Disney animation. Disney animation during this decade goes from a staff of roughly five hundred at the time of Walt's death.

4:06:00 All the way down to just a hundred and twenty five. Bye. The early eighties. There's all sorts of problems. The films they do make are Disasters. The worst example of this is the Black Caun. Did you read about this?

4:06:14 Yeah, wasn't it like ten years in development? Ten years in development and production ties up the studio. Forever. And then when they eventually do release it in nineteen eighty five. It's a total flop. And it's super dark, right? It's like a scary kids' movie. Yeah, it's a PG rated. Oh, right. It was the first one ever rated PG. Yeah. Yeah. Yeah.

4:06:33 They do have some success with live action since nineteen sixty four with the massive success of Mary Poppins, which won five Oscars. They kinda leaned into that side of the house. Yep. They start touchstone pictures and that has a couple you know, big hits like Splash is a big hit for them. Yeah. But animation, the core of the company. Is Dying.

4:06:53 And of course Mary Povins was made during Walt's life. Walt's involvement before his death. But To your point all episode, you know, great. They started touch tone pictures. Great. They made Twenty Thousand Leagues Under the Sea and Old Yeller and The Absent Minded Professor and They made a bunch of Herbie the Love Bug live action movies. Yeah.

4:07:13 The sixties and seventies. And that's not to hate on any of these things on their own. Like my parents loved Herbie. I I remember them talking about it. They showed it to me when I was a kid. is that durable IP that feeds No. No. No. Yeah.

4:07:28 So then In nineteen eighty four. Basically the inevitable happens. Wall Street corporate raiders come. Gunning.

4:07:37 For Disney. I mean, it's an easy target, right? The financials look great. There's a lot of net income here. And there's also a lot of hard assets between the parks, the real estate, the old films in the vault. This is like Easy pickings to come in. Super undervalued, right? Yep. 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.

4:08:03 And call it a hundred million in Net income. But this would be super easy to break up Disney, sell off the theme park, sell off the IP to other movie studios. You could come in and make a killing doing this. And that's what Saul Steinberg tries to do. Come in, raid the company, break it up for parts. But uh

4:08:22 David, I I think You're getting ahead of yourself. I'm pretty sure this is a should be how we start part two. Ah yes.

4:08:31 This Is the story. For next time. But just know for now. It's a little teaser. that this period of the company ends

4:08:40 Improbably. Not with Disney being broken up. But with three complete outsiders. Coming in. to run the company.

4:08:50 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. And Those three men. Michael Eisner. Frank Wells.

4:09:14 And Geoffreatzenberg. Would pull off. Probably Media company. Come back.

4:09:23 In history? So that's what, two Paramount executives and a lawyer turned Warner Brothers exec? Yep. That's right. the other Hollywood studios executives are gonna team up and come in and save Disney? Doesn't sound like it's gonna work.

4:09:38 But we'll have to tell that story on part two. Because boy did it ever. All right. Well, should we do some analysis? Yes, absolutely. Do you still like the thing that we did on Vanguard, which is have one big question that we we try to answer?

4:09:54 Why has nobody else built an IP flywheel like Disney? Mm. Is it as simple as Disney was the first IP flywheel? And so they've been the

4:10:07 biggest and I mean uh no, that's not it. But it is interesting they're the first and they're like The biggest, best IP flywheel company at that point in history, nineteen eighty four. Yeah, and I I mean really like even to

4:10:20 Today. I don't think any of the other movie studios out there, any of the other major studios are anywhere near As good a business.

4:10:30 No, they're all terrible businesses. Yeah. Despite Having At this point going on a hundred years of Watching Disney operate and seeing exactly how

4:10:40 the flywheel business model works. I mean the Wall Street Journal wrote that article in nineteen fifty eight. Why has nobody else Copy them successfully. The business of movie production on its own. is a terrible business, but the other studios, like you gotta give Universal a ton of credit. And I guess that's my point. Universal is probably the closest.

4:11:01 But even then it's not. Disney. I mean, isn't universal running effectively the the Same playbook. But with

4:11:11 less valuable IP or IP that they don't own. So they have to sort of share it, think like Harry Potter. Yep. Or just at smaller scale. Yeah, still nobody else is Disney and and to me, I think It all comes back. To when we first talked about the flywheel all the way in the beginning of the episode.

4:11:29 I think animation Is super, super key. I mean, Bob Iger, when he took over the company in 2005, had that famous quote of As animation goes, so goes the company. Yep. There really is something unique about animated IP in its timelessness. in the ever availability of its stars, in the better economics of not having to share too much on the backend or in merchandising fees, et cetera, with stars. And then I think really just like the ability of people

4:11:58 To form deep lasting relationships. With the characters versus Live action. And because Disney's always had animation at its core That's what creates all this special IP. And it's all created in house. You know, it's funny, I throw out Harry Potter.

4:12:15 Universal doesn't own all of the rights to everything Harry Potter, but Disney for sure does own all the rights to everything buzz light year. N now if they own Pixar or Aladdin or Mickey Mouse, like this is true vertical integration. Yes. Yes. There's also Disney for all its ups and downs, made the decision to never sell its catalogue.

4:12:38 So they could compound longer than everyone else. Lotta these other studios have sold their back catalogs. And some of them are are worthless since it's live action films in black and white that no one's ever gonna watch. But Disney hasn't. They own everything they've ever made, and that ties to Waltz Oswald experience. Yep. And I think there's something else too.

4:12:59 Yeah. only comes when you really fully embrace the flywheel business model and the trade-offs that it involves. And it's the vault of the reissue strategy. Yeah. Disney let's put Marvel aside for a minute. Uh with the exception of Marvel. You gotta put Star Wars in that pile too. 'Cause I know where you're going with this and I f the way you feel about Marvel, I feel about the um over exploitation of Star Wars. Yeah, yeah, okay, great, good, okay. All right, let's

4:13:26 Let's put Star Wars aside in the pile too. Core Disney and Disney animation and Pixar. have been so disciplined over the years. About metering out their content and the core delivery of that content. on a infrequent enough basis that it doesn't

4:13:43 Dilute it. And Marvel, ironically, I think, really is the counterexample here. Yeah. It was on a great, great run, but honestly, it feels like the Disney plussification of Marvel. We'll we'll get to this in the next episode. But that that my my gripe would be that the developing a lot of content to always have something fresh there. Maybe what the issue that we're both describing is actually a Blurring.

4:14:05 Of Flywheel point two and flywheel point three. Point two was maximized distribution of each core IP's primary initial delivery vehicle. And your point three was feed IP into as many ancillary profitable flywhees as possible kind of feels like

4:14:23 with direct consumer Disney Plus those two things got confused. And like, yeah, what's the difference between ancillary content and primary content? 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. Mm-hmm. Mm-hmm. It goes back all the way back to the point you made, I don't know, six hours ago or whatever, that you you have to be really clear about giving a nice lane around your primary medium and delivery vehicle so that stuff still feels scarce special and canonical. Yeah. Yep, yep.

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. Yeah. Especially once they have a franchise that's working. Get the sequels out.

4:15:12 As fast as possible. And get the sure profits from them. And Disney is playing a many decade compounding game which can take three decades to really kick in. And all these other studios ha change ownership every decade. And so

4:15:26 Like ownership incentive structure. to play a three decade game. Yep. And I think this impacts the creative decisions too. Because when you don't need to release content

4:15:42 You can Keep working on the content and make sure that you only release it once it's truly great. Yeah. There's one other point on this though that we haven't really touched on, which is universe cohesion. Mm-hmm. Here's my favorite way to make the point. What's your favorite Paramount song?

4:15:59 Right, yeah. No idea. The Top Gun theme song. What's your favorite universal song? Right. Yeah. But like Everyone's got a litany of answers to what's your favorite Disney song. Yes. They actually managed to associate

4:16:13 all of this love and heritage and fandom and universe interaction with the studio itself. It's back to becoming the lifesavers of animation. Yeah. So okay. As I was thinking about this I was trying to ask myself, are there any other companies

4:16:29 In the broader Nintendo. Entertainment landscape. Ah, you got it. That do this. I thought I was gonna get you. Which is so great because Nintendo and Disney Nintendo started on the back of Disney, right? As we talked about on our Nintendo episodes. Right. It was the Disney license for the playing cards in Japan that kicked off modern Nintendo. Yeah. Yes. But yes, they have the exact same

4:16:53 Ethos. And flywheel. But interestingly, they sort of don't play together now. I mean that's the thing about vertically integrated companies is they don't really work together. Right, and Nintendo is partnered with Universal now for their perks. I kinda 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. Yeah. Yep. Great. Seven powers. T. So listeners, this is the part of the show where we walk through Hamilton Helmer's seven powers framework.

4:17:24 that effectively helps analyze why does a business get to be more profitable than its nearest competitor and do so sustainably. And those seven are scale economies, network economies. Counter positioning, switching costs, branding, cornered resource, And process power. And I think we're just analyzing this for pre nineteen eighty four Disney. Yep. Well

4:17:45 Easy one to start with. Counter positioning. For days. being willing to invest in a feature length animated picture. I mean that was the peak Leading up to Snow White.

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. And who had all the cash from Mickey and the Mickey merch, which would have been almost no one. I don't know, actually, that's almost like capital as a moat. To go pursue. Snow white.

4:18:18 'Cause they weren't there was no one else who really could have done it. Mm-hmm. You know what? You're right versus the other animation studios. But Disney was counter positioned, I think, versus the big live action studios because they never would have made a three year one and a half million dollar investment.

4:18:36 In a film. Well, nor do they have the capability though. Yeah. So Let's see, early on. I mean, branding pretty quickly as soon as Mickey Mouse was established. Walt Disney production, absolutely. Yeah.

4:18:49 Yeah, you'd pay more for a Walt Disney production than than otherwise. It was brand for Disney itself. I wonder if there was process power. reading in some of the old recollections of animators, it seems like there were people that kinda traded between studios and left and started Rival Studios, and they were able to produce great work. So maybe there's not process power. Mm. I mean the the big two once it started to really kick in

4:19:11 are scale economies and network economies. Yeah. The flywheel is sort of all about that. Th these films are all scale economies. It's can I go plop down six 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. And then of course the network economies of If you have a big enough release

4:19:36 It is a cultural moment. It matters to the world. Right. Gosh, I see it with my girls now today buying, you know, the Aurora costume that their friends also have so that they can dress up and play together. Yeah, the flywheel is built on network economies. It's like a combination of scale economies and network economies. Scale economies to enable the investment in the IP, and then network economies across all of the nodes. But the whole thing, if you were to go ask that question of why isn't another Company able to replicate the success of Disney to any of the very smart executives and their great teams that work at competitive companies.

4:20:13 they would say, Oh, because Disney has the cornered resource of all that IP. Right. And like, what do you want me to do? I can't devise a strategy that's going to work in the next five to ten years to suddenly beat Disney when they have a hundred years of heritage and the world caring about their IP. The entire thing is predicated on that. Yeah, yeah. Which really comes down to Wall. Always playing the long game.

4:20:35 And always being willing. To bet the whole farm. Yep. And being right enough times. And managed to survive through the times where he was wrong. That it worked.

4:20:44 Yeah. All right. Quintessence? Yes. So mine is

4:20:49 Disney managed to take not only a set of IP and build their flywheel, but a cohesive set. of IP. An opinionated universe of timeless stories about durable emotional story arcs that are universally applicable. that work together as one. And that is something that can stay relevant.

4:21:06 And of course monetize for a very long time. Across generations. they can't fully avoid being a hit space business. They are a movie studio. But they've got about as far away from it as they possibly can. Mm-hmm.

4:21:21 It's funny listening to you say that. I think that entire Passage could equally apply to Nintendo. Yeah. Which really just shows how the companies they are the two flywheels. 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. Art and commerce. Those two things got married in Walt's head. When he was a little kid. And that is Disney.

4:21:51 It really is art when Disney is at its best. What they make is not just a commercial product. It exists at a higher level than that. And It is married to this incredible commerce engine that is in of itself beautiful and like

4:22:08 Disneyland and Disney World and all the parks are the most perfect expression of that. Yeah. That sounds exactly right. The sightlines, man. The the I I like going to Disneyland.

4:22:20 Just to walk around. It's the craziest thing. I the rides are free. And I have just as much fun not going on them, even though I've already paid for them. Any parent who's been to Disney with their kids knows exactly what I'm talking about and it is like Irreplicable.

4:22:35 at any other company or place in the world. All right, before we do carve outs, I've got one Fun little thing that didn't make the narrative. So When Disney launched Donald Duck in 1934.

4:22:48 They hired radio actor. Clarence Nash to do his voice. Do you know how Clarence Nash Got his start.

4:22:58 Doing animal voices on the radio. You won't guess it, but it's An awesome acquired crossover. He was the radio spokesperson

4:23:09 For Eador Dairy Farms in Southern California. Trader Joe's Trader Joe's. That's awesome. Crossover. Trader Joe's Donald Duck. There you go. Trader Joe's original milk supplier before they got bought by Trader Joe's competitor seven eleven. Yep. That's right. And of course, Trader Joe's itself was in part inspired by the enchanted tiki room at Disneyland. That's right.

4:23:34 Which we didn't talk about, but Walt also owned that personally. It opened in 63. He put up the capital for it. I think Wedd owned it. And he was ticketed separately. I think it was like an extra seventy five cents or something to go to Walt Disney's personal tiki room, which is why it's named that. Tiki room. That's right. All right. Carve outs. What you got? All right, follow up to yours from the Vanguard episode, the shoes Brooks Vanguards are indeed great. I ordered a pair.

4:24:00 They're excellent. I'm not wearing them today because They're not squishy enough to stand for whatever we're at, nine hours. Yes, but they are grews. I got two pairs. I wear'em around the neighborhood, they're awesome. I have two YouTube channels.

4:24:14 Ooh, nice. One is defunct land. I used to watch this channel all the time. I forgot about it for a while and then I rediscovered it while we were doing research. It is the stories of either defunct or never built theme parks, and it walks you through the insanity of Action Park. in where is that New Jersey? Yep, I think that's right. Tons of great Disney ones, Disney parks that were never built. There's a great one on the the Florida project. So I highly recommend Defunct Land. My second one is Animographs.

4:24:43 Mm. There's not a lot of videos on this channel, but they're all so cool. It is Three D 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. One, how a mechanical watch works, and two, how a formula one car works. I highly recommend the channel, Animographs. It is awesome. I also have two carve outside. My first one is We got a new car.

4:25:15 Mm Volvo EX thirty. The little guy? The little guy. A It is

4:25:22 Awesome. It's like the perfect car for San Francisco. It fits in tight parking spaces, but it can hold my whole family, hold a bunch of gear. B, oh my God, Chinese EVs are incredible. So Volvo is owned by Geeley, which is a Chinese company. And the EX thirty is a Gilly platform EV with Volvo

4:25:44 Branding unlike the other Volvo cars. I mean, this thing is crazy. It only costs like thirty five thousand dollars. And it's Awesome. Unfortunately that leads to C Which is Volvo just canceled it in the US right after 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 E Vs now. This is a really Really good car for not a lot of money.

4:26:12 Okay, my second carve out. is the San Francisco Symphony. Jenny and I went the other night. They have a new Music director coming in Elm Chan. And this was her first performance since being named

4:26:26 Music director. She's awesome. She's thirty-nine years old. She's so much fun and so much energy. And going to the symphony, which I hadn't been in forever. made me realize that actually through Classical. Animation.

4:26:41 I got a ton of exposure to classical music growing up. I think more than anything else, like through Disney films and Looney Tunes and Warner Brothers. I was just sitting there like Man, I feel like I should be watching Some animation right now.

4:26:55 Awesome. All right, well, we have got some thank yous to people who helped us with our research, but first to our partners this season. JP Morgan, trusted, reliable payments infrastructure for your business, no matter the scale, jpmorgan.com slash acquired to Vercell, the developer tools and cloud infrastructure. to build and scale fast secure applications on the web, versel.com slash acquired, to service now. the platform that puts AI to work for people.

4:27:20 ServiceNow.com slash acquired and stat Sig. Bringing experimentation, feature flags, and product analytics into one unified system for product teams, statsic.com slash acquired. Thanks to all four of 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. Disney. Part two.

4:27:43 Yes. The Renaissance. Ben and David will return. 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. And a special thank you to Arvin Navarotnum at Worldly Partners for his great write up on Disney linked in the show notes. Arvin, for folks that don't know, is at Worldly Partners, which is a long-term investment firm focused on multi-decade compounding businesses. Very sympathical here with acquired 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, all sorts of awesome stuff. Personally, thank you to Jeffrey Katzenberg. We had a great breakfast when I was down in Burbank and helped us out a lot with research. And you'll hear a lot more about him on part two. to Josh DeMarrow, 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. That really was incredible. Thank you to all of you. To Mike Miller, former Wall Street Journal editor and now frequently helping us with acquired episodes. Mike. You are awesome. To great and horror. who emailed us last year with the observation that the entire business community misuses the phrase flywheel. Yes.

4:29:15 Appreciate your your help, Creighton. Glad we finally found the perfect episode. To bring this up. 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. We will link to that. in the show notes. Can't wait to share it.

4:29:32 with all of you to Mitch Laske, our friend Mitch Lasky, former partner at Benchmark, who helped me think through a whole bunch of the flywheels to Ryan Schear, who is Walt's great grandson. And is on the board of the Walt Disney Family Museum here in San Francisco, which really is a Excellent. museum. It's done by the family. It's about Walt the Persid. Highly recommend going to see it next time.

4:29:57 You are in San Francisco. If you like this episode, go check out our recent episodes on Vanguard, Ferrari, and Coca-Cola, and back in the archives, our two part series on Nintendo. I think a lot of that is gonna rhyme. with Disney. Indeed. You can click the show notes to get access to the PDF companion with visuals, charts, tables, and illustrations of key concepts. You can also get it by joining our email list, acquire.fm slash email. It's where we send out our takeaways from each episode.

4:30:26 Past episode corrections, behind the scenes photos, and it's where you can vote on future episode topics. Plus we give away a little hint. each time acquire.fm slash Email. 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 you get an unpaywalled link. So whether or not you were a journal subscriber, if you were on that list, acquire.fm slash wsj, You can always be able to read our article. Every time we make an episode, we write an article now. And without listeners. We'll see you next time. We'll see you back here this fall. for Disney Part two.

4:31:08 Yes. Who got the truth? Is it you, is it you, is it you Who got the truth now? Oh.

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