The Walt Disney Company

Have I ever shown you my Mickey Mouse impression?

You've done your uh Mario impression for me. All right, all right, give me give me Mickey. Give me Mickey.

Boy, will ya look at that?

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.

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 the Oh, that's about right. That's about right. I have a great Donald Deck Turb before you coming up. I need to save it.

Alright, save it.

You're going to be blown away.

you didn't find it. Great. Alright, on to the episode. Let's do it.

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.

And we are your hosts. Today, listeners, we finally tell the story of the Walt Disney Company. Unbelievably, in 11 years of doing acquired, we have never told Waltz 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.

Oh yeah.

And it has played a prominent role in acquired history too. Our very first episode, Pixar, done Lucasfilm, we've done Marvel, done ESPN.

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 it.

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 Meriband did from the 1920s onward that made them succeed uniquely well in Hollywood?

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 with toy story posters growing up, but somehow I knew nothing about the company's early history before starting 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. Snow White was produced by

Before

World War II, Pinocchio, Bambi, these films are from the 30s and 40s. 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.

Oh yes.

So today, listeners, is the Walt Disney Company part one, Walt's Era. Well, big news from here at AcquiredHQ. This episode has a companion PDF with visuals, charts, tables, and illustrations of key concepts. including acquired's 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.

All right, so you can join the acquired email list at acquired.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 at our research, and it's where you can vote on future episode topics.

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.

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 walt quotes on this episode, Neil Gabler's biography, Walt Disney: The Triumph of the American Imagination. Gabler, 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.

Yes, at this point lost to history.

So Walt's father, Elias was sort of a frustrated entrepreneur. He was variously a carpenter, landlord, farmer, newspaper route owner, 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

And Elias moved the family'cause 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. Like when it was going to maybe Chicago and Kansas City, and they were like, and this place on the map looks good. And they started the town of Marseille.

Marceline. Exactly, exactly. And Robert, the uncle, had bought real estate there kind of speculating again that this is Marceline's gonna grow. So Marceline was basically a Disney movie. There's 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.

And commerce.

And that would go on to drive not only the rest of his life, but the company, the studio, the movies. I mean, change America.

Absolutely. The thing about Marceline though, you said it's idyllic and like it's out of a Disney movie. The reality of living in Marceline and life on the farm is that it was very hard. All the kids are involved. There's not, you know, magical economic prosperity everywhere. It's sort of a tough life, even though

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 all this bliss around him. Yeah, the reality is it's pretty tough for the family to make a living. And in fact So Elias adds farming to his list of entrepreneurial failures. And when Walt is nine years old, they have to move the family again out of Marceline.

There are so many protagonists that we study and 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 he never stops drawing.

Nine years maybe

Nine years older?

Much older.

is living and Walt has a plan that he's gonna seek his fortune finally as a true professional cartoonist. 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 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 from the art shop named Ub Iwo.

I sort of think of Ub as the Steve Wozniak of Disney.

Yes, absolutely. Walt is like the original Steve Jobs, and I think you can definitely make the case that Ub is the Steve Wozniak.

Although I think wall 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

So after the two of them get laid off. 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 the driving force 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 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 feature films.

And at this point, animation was really primarily used in advertising, right? There wasn't really a successful thriving industry yet of 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. 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

That's exactly right.

So part of the reason that cartoons are working well in advertising right now for the Slideco is

Is that it?

this novelty, you know, almost 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'd never seen before. Of course it's interesting.

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, 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, you know, good luck, young Walt Disney in Kansas City, Missouri.

Here.

So while Nub start experimenting on nights and weekends. with their own work, just trying out creating their own animations using the Slideco equipment and cameras. And Walt puts together a few short cartoons that he creates all himself. 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 laphograms become a hit in Kansas City. Audiences love them.

I love that the thing that led to the Walt Disney company is called Laugh Ogram. Like laugh dash oh dash gram. 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 right 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 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 humor and the only real way to do humor is slapstick. So it's just these like super exaggerated, they called 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.

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

And

Most of his movies are exactly what you describe, eh?

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 and most movies by going, Oh, he fell down.

Exactly. So in May of 1922, 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 Lafogram Films Inc. And once again he convinces a biworks to quit and come along too, along with a few other animators from the slide company. And it's another failure.

All right, I got a stat on this. In the 1920s, the average American went over 40 times per year to the theater.

哇

This is what you did every week for entertainment. Wow.

Wow yeah, compare that to today where like m maybe you go once a year.

It's two. The the American 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 or you could go see a live show, ballet or opera or or like a sporting event, like a baseball game, or you could go to the movie theater. That's it.

And when you'd 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 show cartoons as part of the bundle and that their audiences like it, which is by far the lowest of any of the other. filler options. So Lafagram can't really find a market outside of their local popularity in Kansas City. And in 1923, the company goes bank. And shuts down. And Walt, that is now this sort of 1.5 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, D you know, kid. 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 and Walt's older brother Roy have just also skipped town from Kansas City and moved out west to Los Angeles.

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 this story of the universal lot? No. So he rolls up to the Universal 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

Amazing. I didn't know that story. So once he inevitably gets rejected at all the major Hollywood studios, he says later, when things began to look hopeless. I got my cartoon things out again and he sets up shop animating again. He's like, Well, a 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 popular cartoon left in the industry is Felix the Cat.

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, were A new process by which you could go and film a real life actor and then have them interact on screen with cartoon characters and put them in the cartoon.

Yes. Very cool. And also had the unique property of being cheaper to produce than 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 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 kind of get everything that you're pointing it at for free. Like the actor is interacting with a bunch of stuff. And when you're

Yep. So Walt sends Alice's Wonderland off to Winkler 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?

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 October nineteen twenty three between Walt Disney of forty four oh six Kingswell Avenue, Hollywood, California, blah, blah, blah, blah, blah. And yeah, you're exactly right.

And

This we I also have a picture of this on the last page of this contract because this is effectively the contract that puts Disney in business. I mean, this becomes the Walt Disney company.

Yeah, this is the moment. This is the beginning of 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. 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. 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 the two of them found the Disney Brothers cartoon studio right there in October nineteen twenty three. As a true partnership between the brothers, Roy manages the business and the finance. Walt manages the creative. And they get to work. Yep. So Walt, of course, writes uh IWorks 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.

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 the Alice comedies become a moderate success in the marketplace. Again, I think the novelty of cartoons plus live animation audiences are entertained for a few years. Ultimately, the Disney Brothers studio produces fifty-seven of the Alice comedies from 1923 to 1927. And then in 1927, Winkler's relatively new husband, Charles Mintz, who actually got his start working for her in the business, by this point in time, he has taken over as sort of head of the business.

Big opportunity.

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. to rival Felix. Now now mind you, he and Winkler are still the distributor for Felix, for Sullivan, and they're creating a new character to compete with him on the side.

Sort of like they're building their own chips while still buying NVIDIA.

And so he turns around and taps Disney says, Hey Walt, can you make us a new series and a new character? You know, like Felix, but 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 Walt and Ub cast about. What can we come up with? It's like a cat, but maybe shares a lot of the same recognizable attributes like, you know, a lot of white fur, a tail, some big ears, easy to draw in black and white. And they come up, not with Picky Mouse, but with Oswald the Lucky Rabbit. And 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 Mince, and a big hit for the Disney Brothers cartoon studio.

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,

Well I think it really was the partnership of the two of them. had like immense artistic talent as an animator and was able to do that. And Walt had taste. Like he recognized it and he Knew when and where to apply it. Yep. So on the back of the Oswald success, the Disney Brothers cartoon studio grows. pretty quickly from this ragtag group from Kansas City to like a real operation, like a real, you know, at this point

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 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 Walt's 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, now that the studio has become a real operation. moves from actually doing a lot of the animation and camera work Mostly to overseeing the studio. Which you have to with an operation of twenty five artists and creative people and camera folks. You need someone who has an overall vision and taste to drive everything. Yep. 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.

Yeah. The husband of Winkler back in New York, who has sort of already proved his stripes by his dealings with Felix the Cat and Pat Sullivan, he senses another opportunity. He thinks that Walt has become superfluous. And that it's actually just the animators who really matter.

And because

The Walt Disney studio doesn't actually own the IP of Oswald the Lucky Rabbit, Universal does only

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. 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.

In the paint department, that's right.

We'll get to that.

As a couple to New York, where one of the items on the agenda is for Walt to go meet with Mince and ask. for a raise in the amount that the studio is getting paid per Oswald short. 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 are doing around here any longer. But I tell you what.

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.

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 crucially, before this meeting even happens.

He's already stolen the animators and

Mintz has an ace in the hole. He has, I think, signed contracts 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.

Yeah, only Ub and and I think maybe two or three other animators refused to sign these secret deals with Mints and stayed loyal to to Walt and to Roy. Once Walt realizes this There's nothing he can do. Like it's a 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 IP, 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 enterprise value, so the the the entire value of Walt Disney Studios is effectively zero. Yep.

It is a extremely bitter lesson for Walt and for Roy. And it is one that you can bet they never forget for the rest of their lives. And really like 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. I have a fun bit of trivia for you, Ben. Ooh. So as I think you know, Disney eventually does get the rights to Oswald.

This is gonna be my trivia for you.

Right.

Actually ask your question. We might have different takes on it.

Disney eventually does get the rights to Oswald back. In two thousand six.

Bob Iger, one of his first acts as CEO, did the deal. Yeah.

Do you know how Bob got Oswald back for Disney?

So let's see. By this point Disney had acquired ABC.

Yep.

Yeah. And who owned Oswald at this point? It was Universal, which was owned by NBC, which is now owned by Concord.

Correct.

So there's a ABC asset that Bob effectively trades in exchange for Oswald. And I think that ABC ESPN Monday night football asset is Al Michaels.

Al Michaels, the Monday Night Football commentator, like a sports team trade, to NBC in exchange for the IP rights to Oswald the Rabbit.

And Oswald is repatriated and NBC gets Al Michaels and all's right in the world.

Amazing. So back to nineteen twenty eight. Walt and Roy are basically back at square one here. They have Not really just nothing. They actually have less than nothing, because mints ever the uh Well, really just kinda weasel is the right word. Yeah. He makes Walt and Walt Disney Studios. Finish out the current 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.

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Okay, so David, how does this Oswald catastrophe lead to Mickey Mouse?

All right, 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. 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

It's Borton.

Now, the real story is more likely that Walt and Lillian get back to LA and Walt is like 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 fortune.

And also when you see Mickey and you see Oswald, it's not hard to imagine where Mickey Mouse came from. It's like kind of 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 Take Oswald and do something like Oswald.

And make damn sure we own it.

Exactly.

And didn't Walt claim that he sort of like always had a fondness for mice, because there were mice that would like jump in his trash can in Kansas City while he was animating and

Sure, 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 Ub is the one who first draws Mickey, not Walt on the train, but either way. Ub definitely was the primary animator of the first Mickeys for the whole first series of Mickeys, including Steamboat Willy. So By the summer of nineteen twenty eight, we've finished out the Oswald contract and Walton Ubb and the small little Mary crew have gotten two Mickey shorts ready for production.

Without all the, you know, thousands or hundreds of thousands of raving fans for it. Exactly.

Exactly.

And then the

the Eureka breakthrough idea. One of the gang recalls that the Jazz Singer, the famous first popular talkie, you know, movie with dialogue and sound that had just come out the previous fall. when they went to see it, that there was a cartoon screened alongside it. And while When he hears this, puts the two ideas together in his mind of a cartoon and sound, and supposedly he says, That's it! That's it! That's what we've gotta do. Stop all these silent picks. Now at this point.

Synchronized sounds.

Synchronized. Yes, exactly. Where what was happening in real time in the cartoon 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 Mickey on screen bop into something, then you might hear a xylophone on the exact same downbeat play a note.

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. Yeah.

There's a great business model lesson in this, which is 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 Felix, 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.

Walt lines up access to the Cinephone sound recording system from a character named Pat Powers, who had actually helped create Universal. uh 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 Ub and Crew animate a test sequence. of a Mickey with sound and they screen it for all their wives and girlfriends.

So interesting. And it's not obvious. At first. It's obvious in retrospect, but you can totally see how when Walt had this insight and then they made the investment, because 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

And sound did the same thing for live action movies. But it's not that big a leap to have humans talking, like humans talk. You know, sound just made it way better. Sound for cartoons was this giant leap. These characters, this art, can now be actual characters with personalities. Yep. In a way that they couldn't before.

Non obvious at the time, completely obvious in retrospect.

Yep. So they make Steamboat Willy as the third Mickey but the first with synchronized 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.

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

I don't want to be first in line.

Yeah, exactly. Exactly. They're 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 in the colony theater. So going around distributors just to get this in one theater as a test.

Yeah.

And so Steamboat Willie premieres in New York City on November eighteenth, nineteen twenty eight, before the film Gang War. Nobody really remembers Gang War because Steamboat Willie is 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. I don't know that like we can really trust that this isn't just a fad, that the future sound Mickeys are also gonna be a hit and that you can repeat the magic. And famously, one distributor while Walt is meeting with him here

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 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 t 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, the audience was gonna know if they liked the picture, they were gonna know Walt Disney's name. Ultimately, what Walt does is he turns to Pat Powers, his partner in the sound technology, who had been one of the, you know, original universal executives.

Yeah.

And indeed. 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 mint. to Disney. He wanted to start working with Walt, 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, because that wasn't the real prize he was after.

And

Just a year later, in nineteen thirty, powers does the unthinkable. He convinces Ub IWorks to quit. and leave Disney. He says, Ub, we're gonna get you set up with your own studio. You're gonna work with me. We're gonna create new characters. It's the exact same thing that Mints Did to Disney last time.

Absolutely brutal.

Except it plays out the exact opposite way.

'Cause learned his lesson.

has learned his lesson. By the time this happens, over a dozen Mickey shorts with sound have come out, every single one of them branded prominently up front and at the end, a Walt Disney comic, and they had become huge hits. So even though Power Steals IWorks away,

Nobody cares.

Everybody still wants the Mickeys, everybody still wants Walt Disney comics. Disney has made himself the lifesavers of animation. 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 that it leads to the discovery of a whole new business model for Disney and the company, the intellectual property flywheel. And it starts

Basically discovered by Disney by accident.

Totally by accident. So in the summer of nineteen twenty nine, just a few months after Steamboat Willie and the first sort of nationally distributed Mickeys The manager of the Fox Dome Theater in Ocean Park, California contacts Walt with an idea. Why don't we partner to start 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 again and again and again.

Yeah.

Yeah, like a franchise right 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? 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, etcetera. And all of this revenue is getting split back with Disney, the twenty five dollar club charter and then all the merchandise revenue. Pretty quickly there are eight hundred Mickey Mouse clubs 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 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 trying to think how how word could even spread that quickly. I guess through Disney's distributors to the theaters.

This is like a no brainer proposition. for a movie theater operator. You're gonna take your Saturday or Sunday afternoons, which are probably reserved mostly for kids anyway, all your matinee showings. Right. You're gonna convert it into a Mickey Mouse club.

Yeah, it's amazing. Okay, so they take the learnings from the Mickey Mouse Club, right? And they kind of 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 1930, they launch a daily Mickey comic strip with King Features Syndicate in newspapers around the country. It gets published daily in sixty US newspapers and then also internationally in twenty more countries around the world.

And even if they weren't getting paid for it, the marketing on that so that people go see Mickey film.

Exactly. Yeah. It never becomes a huge revenue or profit driver for them. But like that free daily marketing in most major newspapers around the country is incredible.

Yep. Interesting to know, 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,

Well, uh, you're teeing up the big one here, which is merch and consumer products. Yep. So pretty quickly after Steamboat Willy, Walt Is walking the street in New York and a man comes up to him, like comes up to Walt Disney on the street and offers Walt$300 to license. the Mickey character to put it on a series of children's writing workbooks that he's producing there in New York. And this is like really early days.

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 a 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. 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 he's able to figure it out and emerge. It's the American spirit.

Yep, yep, yep. So back to the writing tablet. They take off and do huge, huge sales. Disney doesn't even know how much sales because all they have is three hundred bucks and 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 Kay Kamen, who had owned an advertising firm, and they agree to do a deal where Kay becomes the exclusive

All right, so make your case. What w what what goes on to happen here?

So within six months, Kay takes Disney merchandising from this hodgepodge of random licenses of guys that Walt met on the street.

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. That then grows. over the next two years to seventy million dollars annually. of gross merchandise sales all around the globe from over forty separate super high quality consumer product partners. So the most successful and famous example of this. is the deal that Kay does in 1933, right after he takes over, with the Ingersoll Watch Company.

Crazy that within just a few years they can be at a 70 million dollar level in 1935 of merch. I mean, there's so much pent-up demand to buy Mickey Mouse stuff. that you can sort of explode out of the gate. I don't even really understand how Kay 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 so much demand for Disney merch. So the 70 million dollars is a like gross sales to the end consumer number. So most deals that K would do would be for five percent royalties on the wholesale price of the goods. And the 70 million dollars was retail. So if you assume 100% retail markup.

I'm 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. 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 Walt is always investing ever more and more in the production of the cartoons themselves. By this point in time in the mid-30s, he's investing like thirty thousand dollars plus.

So summarizing that, films are tens or low hundreds of thousands of dollars of profit coming in, and the merch is on the order of a million dollars.

Yep. And film profitability is highly dependent on a film by film basis. It's got to play out in theaters, et cetera, et cetera.

All right. So I cut you off on the Ingersoll watch company. Yeah.

Just as one example of like the deals that Kay is doing, in nineteen thirty three, right after he takes over, he does a deal with the Ingersoll Watch Company to manufacture the famous Mickey Mouse watch. 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.

Hm. 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.

It's fascinating. And of course the the modern Apple Watch uh Mickey watch face is a reference to this'cause 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.

Yep, this is the birth of the Disney flywheel and nobody else has.

So is this a point where David I could make my pedantic aside that I've been telling you about?

Yes, go for it. We had a great email from a listener a couple months ago about how 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.

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 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 don't think this was premeditated in any way by Walt, but it was just something he innately cared so deeply about. is to make the highest quality, genuinely most compelling, new IP.

Yeah.

Now, critically for Disney, and again I think completely accidentally discovered by Walt, the IP that works best For flywheel dynamics. almost has to be animated, i.e., not live action. Because with live action characters, the characters are too bound up in the actors. that play them. And that creates all sorts of problems. Like one, especially today, it makes your economics as a studio just like way worse because you gotta pay the stars so much.

Right, there's wholesale transfer pricing. 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. Now like you you you gotta like pay the animators and they get paid very well to animate them.

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 through animation in a way that you just can't when you're using real people. I mean Star Wars, as great as Star Wars is, and we'll talk about it later in the episode. is gonna have a problem when Mark Hamill and Harrison Ford die. I mean I guess unless AI gets really good.

And live action is sort of dated to a time and place in a way that cartoons can sort of transcend. Yes. Like Mickey can always exist in the present. in a way that we're going to talk about Davy Crockett later, but at some point it became completely uninteresting to watch Davy Crockett, even though he was like a complete heartthrob obsession that was great IP for the moment. It just wasn't as durable.

Yeah. Live action IP, with very few exceptions, tends not to have the staying power over decades and generations that animation does.

Few exceptions being like James Bond, but God, have they tried to do all sorts of crazy stuff in order to let that IP keep living? I mean, like there's been six, seven James Bonds, you know? And they have to keep rebooting the story over 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, 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. It's sort of a scale economies thing. If you're going to invest a whole bunch in making it the very best you can, then you need to distribute it everywhere in order to maximize the impact from that huge upfront investment.

Which of course applies to any film and any IP, but for Disney and the flywheel business model, they're willing to make every sacrifice possible to maximize distribution because they know that they're gonna monetize. through the flywheel in a way that nobody else can.

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 itself. 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 other arenas as possible. And this is exactly what Disney was doing.

Right, other mediums.

Merch, clubs, comics, books, magazines. The beauty here and the discovery that Disney makes is that when you put the IP into these other ancillary nodes, It doesn't cannibalize the core IP. Like you're not gonna oversaturate Mickey by having a Mickey comic strip and daily exposure in the way that if you released a new Mickey film every single day, people would get tired of Mickeys. If you structure the nodes of the flywheel right. the additional exposure reinforces the core IP.

That's really interesting. So you do need some scarcity of the character in its main medium, where you need like a really high quality bar and not oversaturate there. Exactly. But in your 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 SQL at this like ever increasing cadence of the core IP and the core delivery vehicle, people get tired of it.

Mm. That's super interesting.

But the flywheel lets you get that constant exposure without oversaturating the core IP. It's like absolutely brilliant.

Not to mention releasing films is actually not and never has been a great 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. Th and any studio that is purely a studio is in for a rough go. But if you're you're trying to basically create this like durable platform of profit with all of these ancillary businesses, then you can focus on scarcity, quality, 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.

Do you think that 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 to lower the quality bar outside the primary medium. Like can Disney throw Mickey Mouse on all sorts of crap? without diminishing the 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. 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 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 the canon.

That's exactly right. But it does deepen your fandom. Yeah.

Yes. Exactly. Exactly. Huh. So all of this as Walt starts to understand the business model power of what they've created.

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. I 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

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, Vercel. So building software in the agentic AI era demands a completely different kind of infrastructure.

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What's Disney's folly?

Yeah. 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.

Yeah, follow. 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. 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 fifteen thousand dollar or 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 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

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.

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 the illusion of motion with a series of still frames. like a ton of still frames, 24 still frames per second. So that requires a lot of clever tricks to make it economically possible, to make it consistent, and to make it enjoyable. And if you really do your job, to make it emotional for the viewer.

And to be clear, live action film 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? 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.

I see where you're going with this at this point.

at this point. So then the sound department gets involved 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.

Yeah. And that was what, seven, eight minutes long? Yes.

Meanwhile, you have the layout department who is doing the staging, the camera framing, the composition of these shots. the lighting for every scene. Now when I say things like staging, there's there's no stage, camera framing,

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 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 Rembrandts or Picasso's or Degas. They should be in a museum.

And they are basically in a museum. Disney has eleven 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.

Statutes.

Right, they're perfect so that you can kind of 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.

But their mouth is speaking correctly. Yeah.

Right, as the character drifts closer to the synthetic camera, are they getting big in a way that feels consistent with the laws of physics? 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 around 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 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 lead animators draw the keyframes with the essential poses or major character movements and then the assistance or the in-betweeners go to the drawings.

Yep, by this point as they're heading into Snow Wave. This had become a real scale production process. I mean, it wasn't quite like an assembly line. This is still art here, but 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. So let's talk about inkers. 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.

Yeah, it was not skilled.

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 self.

Yep. And then the inchers would flip the cells over and pass them off to the painter.

Yes.

So this is how they get color in. You want your 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 on the front side.

Thank you.

Thinking is harder than painting.

Painting is forgiving. Yeah.

Mm-hmm.

But Disney has this room with thousands and thousands of colors of handmade on-site paint 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 Snow White, 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 dwarf's 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?

The multiplane. This is incredible.

So Disney and Bill Garrety 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.

Yeah, yes, yes. And then Walt rehired iWorks later to come back and lead within Disney.

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, but something like that. 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.

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 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 and 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 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. Yep.

I think that's right. All right, so that's the animation process.

Absolutely enormous undertaking. So when all is said and done, it takes one and a half million dollars. of investment over three years of studio work to create Snow White. Remember, this is at the same time as Disney is making short cartoons for like I don't know, twenty thirty thousand dollars. And even that is way above what anybody else in the industry is spending.

$35 million inflation adjusted. And yeah, movies are like$300 million budgets today, but imagine. Nobody's doing that and you have the first idea to create an animated movie and you're like, I'd like 35 million dollars of budget 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. Two million sketches and 250,000 finished drawings and cells.

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

Yeah, I mean you made the point a few minutes ago, Bandit. 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 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. Like this is art that they're creating.

An obsession with quality.

Absolutely. So the movie finally premieres in Hollywood on December 21st, 1937.

And

I mean it's one of the greatest films ever made. The Academy Awards creates a special Oscar for Snow White, a special award.

Yeah,'cause they didn't think it could be eligible for Best Picture. Right, this movie. Uh I don't want to bury the lead. It was the highest grossing film not only of the year, but ever. Ever. It did eight million dollars of rental revenue on a one point five million dollar production cost. And like 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 Oscars below it.

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. Time magazine writes prophetically. that Snow White is an authentic masterpiece to be shown in theaters and beloved by new generations long after the current crop of Hollywood stars, writers, and directors.

Yeah, the uh an interesting thing about this story, I'm curious since you have daughters who watch it, David, is it's kinda dark. And w Walt did meaningfully change the brothers Grimm story that he sort of adapted it from. It's very interesting that all of these early Disney's cartoon movies, animations are adapted fairy tales or adapted existing lore that Disney sort of changes. The film was not really made as a children's movie. No. Yes, it was animated, but it's dark.

No, and in fact a lot of those decisions, like giving each of the seven dwarves personalities to in part were motivated to soften the darkness of the fairy tale and Walt would always say that he didn't make movies for children, but of course he wanted children to be able to watch them too. But Some of the decisions were actually made with the flywheel in mind and the dwarves' personalities is one of these.

That's true. When you go to Disneyland, there's a lot of people walking around with like dopey and grumps.

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 Theatrical rum.

Which dramatically changes the studio's financial position.

Yes, yes. Now it is a bit of a misconception that the profits from Snow White, the film itself. would end up paying for the new Burbank studio that Walt's about to construct. That's not entirely true. I think most of the film profits from Snow White went to repay all the loans to Bank of America.

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

It's the share of Disney the Studio plus their distributor.

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 1940 IPO prospectus, which we are going to get to. You can very clearly see that over a one year and nine month period, they make $4.5 million in film rental income, the producer's share. So this is just Disney's from Snow White and the Seven Dwarves. So that's our real source of truth that we know. 4.5 million dollars. Now

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 for the company, but it's not quite as transformative from the box office alone as people would think.

Right. So they they effectively have two point two million dollars left over after paying the theater, 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 making two point two million dollars in profits from Snow White. There's all that good, good flywheel revenue to come along with it. So, you know, if Walt thought that the flywheel worked well for Mickey Mouse Snow White is like a whole nother level. So before the film is even widely released around the country. They have their next major flywheel node, their next business model innovation already in market.

And the songs are are quite catchy.

With a lot of

Yeah.

Yeah, et cetera, et cetera. So the soundtrack's huge. Beyond that, they're supposedly I read, are 2,183 separate SKUsh merchandise that get pumped into the global market? by K Kmans Consumer Products Organization.

Unreal.

Who actually writes this that quote sales of snow white products might be America's path out of the depression. Wow. That's how successful it was. I mean, this movie was such a grand success. artistically for Walt film wise for the studio, for the whole medium of animation and legitimizing it right alongside live action. and for the flywheel business model of Disney. So all of this enables Walt to pursue his next dream.

Right. He basically sees the success of Snow White and thinks, Oh yeah, we're we're gonna do a lot, lot more Let's let's build all the infrastructure to like really do that right. Yes.

So Walt's goal with the new Burbank studio was to be able to house twelve hundred plus Animators and staff. up from call it 300 before Snow White and then Ben what did you say 750 that the ranks had swelled to during Snow White. Yep. And he thinks that with this new campus, everything that they're gonna install there and all the additional staff that Disney will now be able to produce two new feature animated releases every single year.

Which th was a complete pipe dream and they never were built to do.

Also in his mind, think comes to see this Burbank campus.

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. Yep. He wanted 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

Keep producing the same thing.

films every three years. Yes. But the st the the lot itself is unbelievable. It's 51 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 Googleplex before the Google Plex.

This is nineteen forty when they opened this.

And you're right, it's it's kind of designed to keep you there. Why would you need to go anywhere else? And really there's nowhere else to go around.

Ray and Burback.

It reminds me a little bit of uh Epic Systems too. Yeah.

Yeah, yeah, yeah, yeah. Very similar. Very similar.

So here's an example of the lengths that they went to on this campus. So 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 was showing David and I around listeners why this is. And he said that it was Walt's priority when they were building it to offer the exact perfect conditions for lighting to animators. 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 our 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. 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 heatsink. It's like got fins.

Yes. It's an animation driven company.

Yes. So it's got this like utopian vibe, 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 cost. alone worth three million dollars. So that's more than the money they had left over from Snow White 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 revenue could be.

But still 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 animators. So that's an extra four hundred and fifty new animation staff they need to hire. And to feed Walt's vision of having multiple films in production at the same time, he greenlights production on Pinocchio, Bambi, and Fantasia all at the same time.

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 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 a very naturalist film. These are wildly different skill sets and

Wall can't help himself. Yes. So in total, between the three million dollars for the campus and then these three movies that they all have in production. which collectively cost about five million dollars in so called negative costs before they get released. So before they earn a dollar of revenue.

They just keep going to Bank of America over and over again, just remortgaging the company.

And then the hope was that Pinocchio, the first of the new films to come out, would be a hit and earn profits quickly. Unfortunately, World War Two 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 eleven.

Yeah. In a scale economies business, if you lose out on potential eyeballs and potential revenue. but your fixed costs stay the same, that's super, super bad news. I mean y 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

in half of your audience. Yeah.

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 is a flop, Walt and Roy decide they basically only have one recourse at this point because Bank of America is not going to loan them any more money. They need to sell equity in the company for the first time. So in April 1940, Disney retains investment bankers.

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.

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 three point eight seven five. A little bit of that went to the bankers.

There was some trades.

So they only raise about three and a half million dollars directly to their balance sheet, 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'cause 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 in 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.

So that summer in nineteen forty, Walt has a rather ominous get together with Henry Ford. of the Ford Motor Company, uh just sort of as like a friendly meeting of these two American business titans. And while they're together, Walt mentions to Henry about uh the IPO that they just did. And reportedly Ford tells him

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, so we lost a bunch of money on that. We still have big ambitions. And like this is Walt's implicit choice here with going out and raising all this debt, raising all this equity, betting the farm again. Yep.

This is the downside of Walt's uh always go for broke and shoot the works. Philosophy Yep. And it leads probably to the darkest moment of Walt's life.

That would change his relationship with the company forever.

Forever. And irreparably his relationship with Disney animation. The strike. 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 years leading up to this.

Which there were several of at this point in time. We've been sort of very Disney centric, but there is an industry around this.

decides finally to target Disney employees. Now There's a reason why the Screen Cartoonist Guild had stayed away from Disney, despite it obviously being the leader in animation 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 earlier, Ben. But here with the cash crunch. That all comes crashing down.

Yeah. Yeah. There's a great excerpt from the book The Animated Man by Michael Barrier. 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 costs to about$15,000 a week.

Yep. Well layoffs coming. They haven't happened yet. And this is part of why the organization and the strike happens. So hundreds of employees end up striking. They picket the Burbank campus, 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 lasts for three and a half months.

Uh probably

Probably not what you want to tell your employee base after you just slash their salaries.

Yeah.

Yeah, a labor magazine would write afterwards Walt Disney's speech recruited more members for the Screen Cartoonist Guild than a year of campaigning.

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 kind of deluded here into thinking, well, it's not actually my employees that are doing this, it's these communist, very few communist agitators 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 that

Yeah, it's a mess. And then it gets worse. So in the middle of the strike, which again lasts for three and a half months that hundreds of employees are gone from their jobs that are not working and marching and protesting outside the company.

While they're trying to make Bambi, which is equally ambitious. Right.

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 goodwill trip to Latin America. with Nelson Rockefeller's Office of the Coordinator of Inter American Affairs. This is the trip that uh 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 Apcot. 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. Yeah, he basically just leaves the country and walks out on the whole thing and tells Roy to settle it.

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 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. So taking total headcount before the strike down from twelve hundred to under seven hundred. These are the layoffs, Ben, that you referred to.

And 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.

Decide that.

the company Disney and he, Walt Disney, have a creative and business future, but yeah, he never has the same relationship to the studio or animation after this.

Yep. He apparently, according to Don Lusk, who was an animator there, made a list of everyone who went out on strike and said that uh everyone on this list isn't true to Disney and one day will not be here. Yep.

So, Ben, you mentioned uh Walt's 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 testify after World War Two in front of the House on American Activities Committee, you know, Huex. as a friendly witness corroborating communist infiltration in Hollywood.

He named names of people who he said were communists 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.

course this would lead to the famous Hollywood blacklists and, you know, all the terrible stuff that comes out of that. One thing 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.

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.

Yeah, same. Definitely anti communist, for sure. Uh. But um Anyway, so speaking of 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.

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?

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 total flop. They couldn't exhibit it anywhere, lost tons and tons of money. Later It has this huge resurgence. I mean, I remember when I was growing up as a kid, my parents loved Fantasia.

I actually thought Fantasia was a modern movie. It's crazy to me that it was Disney's second. Right.

Right. I think it was like the sixties and the hippies that thought like oh this is like the coolest 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 film in Hollywood history. Unbelievable.

And kind of 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.

Yeah, yeah, yeah. Okay, so back to nineteen forty one. No sooner does Roy settle the strike than 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 for their business like Coca-Cola or Mars or Lockheed. World War II is a disaster for Disney. Nothing of value gets built for Disney during the war. It basically breaks every single node in the flywheel.

Yeah. So the first thing that happens is within hours and then days 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

You know why?

Hundreds of troops, there are two reasons, that set up 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. 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 to Lockheed. Yes.

Real close specifically to Lockheed Skunkworks 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. So that's probably the bigger reason why the military requisitions the Disney lot is to protect skunk orcs.

Fascinating. Yeah. So you've got that happening. You've got a whole bunch of the animators getting drafted. 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.

So all of the studio production work during the US's time as an active participant in World War II, yeah, basically just gets repurposed to propaganda and training materials for the government.

And insanely, they do use Disney IP. Like you see all these crazy old posters with like y you know, Donald Duck holding a gun and I mean th stuff you sort of would never see with these characters today. But not only did Disney say we're work for hire, they said we we we can use the Disney IP. But interestingly, David Do you know about Mickey Mouse's role?

Ooh, no.

They really did not employ Mickey Mouse. They protected Mickey Mouse from the w war image and Donald Duck sort of led the charge.

Interesting.

On all the the the war films.

Part of this was because uh canonically Donald Duck is a sailor, right?

Oh okay that makes sense.

Yeah, yeah. But that 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.

The goody two shoes and then Donald was the foil.

Yeah.

Yeah. So all of this though, to our point earlier, does nothing either for the flywheel model or for generating new IP to feed it.

Or pushing the envelope of technology or pushing the bounds of creativity, like all the things that contribute to Disney's core. Yep. I mean, the way that they make it through this period is they they actually are generating net income reliably. Not a lot, but

From the government work.

Exactly.

And there's one other Big innovation, an actual bright spot 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.

Faults.

Yes.

So in 1944, the company is so cash-trapped that they come up with the I again, at the time, crazy seeming idea to re-release Snow White in theaters. Because hey, we can't make new stuff, but people sure like that old movie. 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.

Exactly.

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 1944, they re-release Snow White in theaters. And it brings in three million dollars in revenue to Disney 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.

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 initial release. It turns out conveniently that seven years is just about the right amount of time for a new generation of children to come along and reach an age uh where they would be interested in consuming snow white 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 1951 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. You're an adult much longer than you're a kid.

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, 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 sort of lessons and these fairy tales uh of old. Like there there are there are these simple but resonant story.

And it carries through right to today. What is the cadence between Disney's frozen movies today and Frozen one comes out twenty thirteen. 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 sequels now too. Yep. 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. Two, 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, but not too frequently lest you dilute its impact.

with effectively evergreen content.

Yep. Roy has a great quote that he would tell the Wall Street Journal many years later. Our product is practically eternal. And it's so true.

Yep.

So despite this genuine innovation of adding the vault concept to the flywheel, by the time the war ends in nineteen forty-five.

Yeah. But clearly something happened because the Disney we know today is quite successful.

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So listeners, if you are wrangling AI across your company, go check out service now dot com slash acquired and just tell'em that Ben and David sent you. All right, so we're coming out of the war. There's sort of a uh a few moving parts here at Disney right now. So the revenue from the government has dried up. So that the thing that was putting them on sound financial footing is not there for the sort of quick revenue hits.

Return. And so they try a bunch of stuff. On the animation side, they do packages. 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 Mine 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? is the movie Song of the South.

Bugs Bunny

Ironically, it's a former Disney story department employee, Charles Thorson, 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 Hannah 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. 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 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.

Yep. 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. We'll watch it and see. We're very interested.

Mm, the first bright spot in a long time.

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 uh Walt pounds the table to make this thing and then he kind of 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 soundstage and see whether that scene's going to work. Waltz 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.

Yes. Basically the same amount of money as Snow White. I think it does eight million dollars in film rentals in the first year.

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. Gnarly decade there. Yeah. 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. 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. 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.

And hey, he was right. Yep.

All right.

Alright, so we've talked about Walt being disengaged here. W what is he doing?

So Walt is playing with trains. I mean,

Yes, he is.

That's about the best way that I can frame this is he's getting really into trains and really into miniatures. Yeah.

trains specifically model trains, and miniatures like miniature furniture and like rooms in homes in miniatures.

Yeah, I mean... Gosh, I said we weren't gonna dive into Walt's psyche on this episode, but I kind of 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, because he's sort of bored. Like animation isn't doing it for him the way that it used to. And he's like reaching back into his childhood for inspiration.

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, 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.

Yeah, this isn't like billionaire hobbies today. This is like a Waldo's hanging out with other enthusiasts, kind of man of the people stuff.

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 Brogy, who sort of led the machine shop team who would go on to build a Serious, serious model train for Walt. Roger would also become just a foreshadow here, the first imagineer. Yeah.

Yes, yes, yes. Well, just to foreshadow even more, all of this would lead to imagineering.

Yes. So this team in the machine shop, uh, and Walt end up building this train. 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 and there was a half mile of track that went through a tunnel. That tunnel that which he dug under his wife's garden.

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. A major consideration was is there room for a giant train l to be laid out? He ends up it's on Carrollwood Avenue, I believe, Carrollwood Street. And he ends up naming it the Carrollwood Pacific. The uh steam engine is named the Lily Bell after his wife. I d i 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 Brogie as you're saying. And uh then there's also the Roy Disney.

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 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 can recreate down to the smallest detail that is mine and perfect.

And it would become something much bigger that would also be his and also be perfect.

Yeah.

So

Out of this stew comes Disneyland.

Which is so funny because Walt would insist in interviews until his dying day. that quote, the idea for Disneyland came about when my daughters were very young, and as I'd sit there while they rode the Merry Go Round, I felt that there should be something built where parents and children could have fun together. So that's how Disneyland started. It all started from a daddy with two daughters wondering where he could take them, where he could have a little fun with them too.

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. Yeah.

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. And the constraint that he had was we've got this 16-acre plot of land that's adjacent to the Burbank studio lot between that and the river. So that's sort of what we're working with here.

Yeah. And that's the natural place you would put this.

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.

A snowway.

A snow white. It's a snow white. It's actually cheaper than a snow white given the uh inflation.

Right, right, right. Much deeper 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 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.

Roy and the board are none too enthused about this, but

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?

Kinda like

inarticulatable idea, yeah, right next to the studio lot.

Yeah. Kinda goes over like a lead balloon.

Yes. So 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 kind of 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. Yep. This is personal company that he can do weird personal stuff with.

Yes.

So over the course of nineteen fifty-two, Walt starts poaching people from Disney to work on this thing. And at first it's just like a half dozen people. and they're set up in a building on the back lot at Burbank. These would become the first imagineers. Yes. And the interesting thing is the people he's poaching, these are artists.

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.

Is the Walt Disney who 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 Kurtz style, and started his own separate company on the Disney campus where he is poaching and recruiting some of the best. Disney animators and artists. To come over and stop doing animation and start working with him building a theme park. 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 kind of the like Elon before Elon. So there ends up being two problems with this plan. One is Walt and the architecture company that he hired.

You could describe Disneyland as lots of things, but carnival like atmosphere clearly they did not get the vision.

Right. The the magic is that it isn't. Exactly. So they need to find a bigger plot of land and they need to uh work with a team that is really good at odd research based tasks and You're never gonna guess, listeners, where he goes for this. It is like a a crazy nugget of history. He goes to SRI, 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 y 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

That SRI is the research firm that Walt hires to go identify what ultimately becomes Anaheim the

The perfect spot. They absolutely knock it out of the park. But when you describe it, The site sounds completely nuts. Ten times bigger than the original site. A full 160 acres. Yep. Twenty-five miles away from Los Angeles. It is currently just some orange growth. Anaheim itself was a small farming town. There wasn't even a highway connecting it to Los Angeles.

There was a planned 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.

Just incredible.

So uh 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.

gonna need a lot of money.

So Walt.

goes back to the company.

Yeah. 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 as supportive as

Strong armed into supporting this.

While still trying to protect the company. 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 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 to go build stuff.

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 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. 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. 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 do

I 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

Right.'Cause 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. Yeah. 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.

Yep.

There was just so much more running room with his concept than he had time on this earth to execute.

Yep.

Do you know how I know the nineteen sixty six market cap? Is this ringing any bells for you, David?

No.

So during the Buffett partnerships.

Mm-hmm.

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 since it had a market cap under ninety million dollars at the time.

ninety million dollars.

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 investor.

And even more so like Charlie Munger investing, because it was a great business at a great price. Wow. A ninety million dollar company doing twenty one million in pre-tax that has Disney's flywheel is the buying opportunity of a lifetime when Buffett bought it.

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 sort of strange reasons, it doesn't end up going through. But

Wow.

Fascinating.

So, like just to reflect to this point in history, this is something I really never realized. 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.

There are essentially zero synergies as conceptualized so far for Disneyland.

Yep. But all of that's about to change because Disneyland even post all of the budget expansion after SRI and moving to Orange County and 160 acres. is getting so out of hand in its budget. that it needs to actually come back to the company.

Sort of.

Sous-titrage ST' 501

So here's the corporate structure. Originally they thought they would need about five million dollars for the Anaheim Disneyland. 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 y 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.

So in order to go get the bulk of the financing for the park. Walt comes back fully into the fold at the Disney studio and does something that no other movie executive is willing to do. At this point in time, he embraces television. He goes to the T V networks for money.

Yeah. And the fascinating thing is it's in part because they 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 where we have this Disneyland ink joint venture and someone else is, 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, it would steal audiences away from the theaters. It's just like in our NFL episode where baseball 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 Walt realizes just like the NFL did, that TV actually was a huge new opportunity.

So A B C had been wanting to do something with Walt. I mean, lobbying over and over and over again. uh because Walt did this one special a few years before, I think it was on NBC, not ABC, and it it was great. Like there is something very compelling about Walt Disney and Disney stuff in a television special. Yeah.

Yes, yes. A vuncular Walt Disney beaming into living rooms around America.

Bye! ABC 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 wanna take advantage of the full reach of a television network, it's not ABC.

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 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 S bundled deal with a doing a TV show, this is really weird. Yep.

ABC though, 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. 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.

Do you know the structural thing with the television industry that was going on in nineteen fifty two?

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. until 1952, 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.

Yeah, so all these networks now have a basically government protected oligopolis.

Accidentally. Yes. So if 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 Walt goes to ABC, kind of knowing this and knowing they're in third place and says, Okay, I will make this show for you, but

Yes. So ABC ends up investing five hundred thousand dollars in equity in Disneyland Inc., same 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 that 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 500,000 and the 4.5 million, ABC is also gonna pay five million dollars per year to Walt Disney Productions. 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 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. Either way, they do get the television show, and it works out to be a great deal for everybody involved, because Ben, to your point about supply and demand, 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 Tomorrowland, Frontierland, Adventureland, etc.

Yep. So pretty quickly, Disneyland, because of course they name the TV 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? Yeah.

So it quickly becomes the second most popular show on television after I Love Lucy. And it's the first ABC program to crack the top twenty-five shows. Ever. Like it was all NBC and CBS until Disneyland.

Unbelievable. Also, ABC lets Disney run trailers 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 TV, 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.

Yes.

So in that same fall and winter of nineteen fifty four into nineteen fifty five The show has its first big, like viral moment even before the park opens. So in December of nineteen fifty-four, Disney begins a three part live action mini-series on the show. About the story of Davy Crockett. Davy Crockett.

Oh, that's right.

And America 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 miniseries becomes a massive flywheel moment for Disney, totally unintentionally. Davy Crockett Coonskin Caps become the must-have kids product. of nineteen fifty five. They sell ten million caps in nineteen fifty five. Unreal. 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. In total, Disney would go on to do around$300 million.

And David, this is really gonna blow your mind. That is actually more than the amount of income they had received ever cumulatively from first run animated features. If you add up all the pluses and all the minuses by 1957 m money they had made ever in profit dollars from their first release films was a hair over seven million dollars.

Yeah.

And they made by your estimates, seven and a half million.

They made more from Coonskin caps and record sales than 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

So movie executives r really had good cause to be concerned about T V.

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 multiplicative way, you know? Yeah.

Yeah. Man, incredible timing.

And Walt Ez Ever had a quote on this. This is from the special that he did back in nineteen fifty 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.

Man was he right.

Man was he right.

It's just so incredible that because he started playing with trains. Disney became a major force in television. And of course open the portrait.

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.

Right. I did see that. Yes. And then they've got the four and a half million of debt guaranteed by A B C.

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 Ben, I've read a bunch of places this ended up costing seventeen million dollars.

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 is a contract between Disneyland Inc. and Wed enterprises, which Walt owns a hundred percent of to actually build it all. So all of this leads up to July seventeenth, nineteen fifty-five.

Yes, but before we do that, now is a great time to thank our friends at Statsake.

So Walt Disney had this idea that he would often talk about 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 moved through it.

Yep. This idea though 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.

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. Alright, so the development of the park.

He's like, Great, I will stay here all weekend with you and tell you about the theme party.

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.

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 taste. on how they could do a park with green space, much more pleasant, less carnival like, safer, kind of a less CD experience than you are getting in theme parks in the US. That is the goal.

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. 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.

Yeah. 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. absolutely exquisite landscaping to 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. This thing is like Walt's fever dream reflection of America, all in the most idealized, safe, clean, cheery way.

You know what? I actually never realized that that 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 fantasyland. That's your other option if you don't want the past or 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. To this day, I think the most impressive thing about Disneyland is the sightlines. Despite

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 on Surface Street. It's crazy. Think of the scale of the stuff that they were building. Yep. 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.

It's 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.

Yes, this is the other just like absolute galaxy brain walt addition to the flywheel that he brings in with the parks corporate sponsorship.

Yes.

There were sixty five corporate sponsors in Disneyland within the first few years of it opening.

So at opening, there was Richfield Auto for Autopia, Bank of America. Of course they had to be there, sponsor of Fantasyland, Coca-Cola as well. You won't believe this, in addition to Coca-Cola, Pepsi. They had a sponsorship in Frontierland. Coke actually didn't become the exclusive uh supplier sponsor until nineteen ninety. Yeah.

Yeah, that's right.

Right. American Motors, 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. The National Rifle Association.

Oh wow. Frontierland? Yeah.

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. So you go.

Oh, flywheel in action. Yeah.

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 2019, which is excellent if you've never been on it, was rumored to cost anywhere from 200 million to 450 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.

Right? I mean uh permitting was pretty light back then. So we get to opening day.

How's it going?

Well, less than half of the planned rides were open. 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 20,000 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, and there are legends of women's high heels sinking into the asphalt because of that.

And that was in person.

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 1955 technology. The viewership numbers are astonishing. It was the world's largest live telecast ever. 83 million people tuned in to watch from home. 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

He's gonna be.

A giant deal, so you better be watching when it happens.

Do you know I'm sure you do, but do you know who the three anchors were that ABC hired to do the opening? One was

Ronald Reagan.

Yeah, Ronald Reagan's the big one. Art Link later, Bob Cummings, 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 every

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.

And this was just to watch guys talk about what's going on behind them at 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 160,000 visitors. Two months after opening, the millionth visitor walked in. And in the first year, there had been 3.6 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 the most popular park in America is now Disneyland.

And today the park has over nine hundred million visitors since opening day.

My favorite little bit of trivia about Disneyland was learning about the original business model. So you used to have to pay to get on the ride. You would pay I think it was a dollar for admission to the park and then you could buy booklets of tickets.

Yes, absolutely. 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 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,

And then of course, you know, fast forward to today at Disneyland or Disney World.

You go for like fourteen hours.

Yeah, right. Well per day. 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 there.

And if you're going to Disney World, then they're there a whole week. Yep. 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. Disney Parks and Cruises today does thirty six billion dollars in revenue. and ten billion dollars in profit per year. That is twice the amount of profit that their entertainment division produces.

Yeah. Also just wild to think about physical amusement parks having essentially a 30% net income margin. What 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. Yes. Like twice as big of a business. And this is You know, there's 160 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, and that spits off more profit. Twice as much profit. than all of the other Disney things you can experience anywhere, anytime.

We're gonna get into this in a minute here. Really the impressive thing is that 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. 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.

Yep, all true. And all necessary because of how they had always operated the company. He wasn't taking lots of cash out of the company.

Until the sort of renegotiation of his 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 when you visit Disneyland, don't you assume hey wait this is

Mm.

So in nineteen sixty, when the company actually had enough cash to do it That's when Roy negotiated, hey, we'll pay you seven and a half million dollars to buy out your your stake. So by 1960, the publicly traded company Walt Disney Productions did own all of Disneyland Inc. But that leaves wet enterprises which had been hired as a contractor to build all this stuff.

Yes, and Wed Enterprises is Imagineering today, Disney Imagineering.

But Wed Enterprises, the entity, at this point in time, 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 Walt.

Right. So Wedd, which Walt is the 100% shareholder of, actually owned the railroad outright.

Of course he did.

As a part of the personal services contract, because it was like, hey, I was already doing this side project and now I'm just putting it on Disneyland. It all.

Yeah.

So he got ticket revenue from it as an annuity, basically.

Right,'cause all the rides cost money. So the the railroad at Disneyland.

Same thing with the monorail. These were not owned by Disneyland Inc., they were owned by WED. We also mentioned since WED was Walt's personal company, it owned Walt's name and likeness, which led to that 10% royalty on merchandise. In nineteen sixty-three, eight years after the park opened, Roy was getting very nervous that the public shareholders would sue over this.

Right, right.

And inside of Retlaw, Walt would get to keep the trains, the monorail, and his ten percent royalty. This is in nineteen sixty five. 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. In exchange for$43 million of Disney stuff.

Wow. So I guess the question as a Disney shareholder would have been, was it worth it? Right. And the obvious answer is yes.

I mean there's all these conflicts of interest everywhere and this would never fly today with sort of modern shareholder and SEC and securities laws. But in practice, if you were a Disneyland shareholder then and you held through all of this, that worked out great for you.

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. And Disneyland, the combination of the television show and the park. have really added a fifth element to the flywheel business model.

That's right. You've got one compelling great IP, two maximize distribution in the core vehicle. Three, feed the IP into as many ancillary vehicles as possible. Four, you've got the re releases in the vault. And now five, parks and television. This is uh television to amplify interest in all of the characters

thinking about it more now, television was adding another node to the flywheel, for sure. The parks are almost this like hybrid flywheel plus IP because all the core Disney IP, of course, goes into the parks. 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're a source of IP development, not just a sink of IP development.

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 park.

Right. A lot of stuff hasn't done as well. Like Haunted Mansion has never really worked as well.

Yeah, it never really works.

But yeah, th that that is a great point that the park serve as a way to feed the rest of the flywheel, not just be a sink of it. So this year, nineteen fifty five with the park, with TB revenue from Davy 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. Disney effectively stops being a movie studio and it becomes this new form of diversified

In November of nineteen fifty-seven, Disney finally lists its stock on the New York Stock Exchange. 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 with still their sort of family company, 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 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 unique business model, and this was one of the most fun things to discover in our research

So the article's title is Disney's Land, Waltz Profit Formula, Dream, Diversify, and Never Miss An Angle.

And this article in the Wall Street Journal is where the famous Disney flywheel illustration comes from, that 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 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 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. 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, help us with some kind of illustration that makes this point that you have a wholly unique new business model in the media landscape.

It's a beautiful, beautiful diagram. The whole article is great. Roy has these amazing quotes within it. He says Our diversified activities are related and tend to complement each other, helping us to do relatively fine business in the face of otherwise difficult times for the motion picture industry. 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.

In nineteen fifty eight. How crazy is this? At Disneyland, which 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. We're building hype for a movie that was basically in 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.

So the article walks through the easy. 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 Sleeping Beauty, the upcoming movie. Next. Disney is producing and selling Princess Aurora dolls and costumes. They're working on producing and publishing books 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 already preparing the soundtrack album to go on sale before the movie's release. And then finally. of Aurora 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.

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.

Yep. Now there is one other thing we haven't talked about, which is that Disney in housed their own film distribution right before the launch of Disneyland. Yeah.

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 distributor since I think nineteen thirty-six. Howard Hughes ended up owning it and it had been kind of a train wreck as he spiraled out of control toward the end of his life.

Mm-hmm.

Then quickly thereafter, they did Lady in the Tramp and 20,000 Leagues Under the Seas distribution through Buena Vista instead of through an outside distributor. It was kind of like a test, like can we pull this off? They got pretty good at it pretty fast, with the exception of International, where they then had to rely on sub distributors for a long time. But Disney had become such a household name

It's kind of 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.

Cash flow.

You can't be a distributor unless you're on great financial footing because the cash flow cycle means that you are fronting money to print films, distribute them before you actually get paid by the theaters when tickets.

Of course.

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 vertically integrate and own their own distribution and that makes sense. You need a lot of work and capital to do so.

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.

That's an absolute no brainer with the re releases.

At this point, Disneyland plus the merchant licensing provides this really stable foundation. They almost like re-platformed 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

Roy must have been so happy on that day. And Walt was already scheming how to blow some more money.

Yes. 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. Part of that was it had a 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

Building around it.

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.

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 1960. the company actually shows a loss. Like they flip briefly from looking increasingly profitable to suddenly net income negative because

For the moment. ABC would come back.

Yes. But the takeaway is the company is actually financially stable now, that this is okay.

Yeah, the last time that Walt and the company bet 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, merch and 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. Here's the trend. 1957 they do$3.6 million in net income. Then the next year 3.9. Then the next year$3.4. Then ah 1960 happens. That perfect storm of badness.$1.3 million loss.

Mm-hmm. Mm-hmm. And then Walt decided that it was too stable and he needed to blow it all up again.

Or at least he wanted to.

So he starts wondering How can I bet it all again?

And in a bigger way, right? Is Disneyland, like is 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 at an amusement park? What if the next time we build an entire city? maybe like an experimental prototype community of tomorrow.

And if you think you know what we're talking about because you've been to Epcot. That's not a good thing. 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 for 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 one place.

So this was Walt's final project, the Florida project. That never got built, as you say. And I thought

Think

It all kinda stems back to Burbank and that brief moment. before the strike, when the studio at Burbank really was this utopian physical place that was the perfect marriage of art And commerce. I really think that that's what Walt always wanted 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.

Yes, yes, yes. So the way that Walt starts working towards realizing this vision is the 1964 World's Fair in New York. So Walt gets this great idea leading up to the fair that Disney, on the success that they have at Disneyland, can partner with other big American companies and institutions. to create Disney sponsored pavilions and exhibitions at the fair that they can then transfer into Disneyland.

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, 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. And that last one of which is how Disney Imagineering develops audio animatronics. Yep. For Abraham Lincoln.

Yes, this whole thing is this amazing testbed 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.

Right.

Disney Imagineering is inventing in the late fifties, early sixties.

Well, David, 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. 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. 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.

All right. I know.

Okay, so three of the four get ported over to Disneyland, but all of it leads right into planning for 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. He does have a nagging concern that an East Coast audience is more sophisticated than a West Coast audience, and there isn't.

Demand.

for a theme park like Disneyland in Florida. 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.

Well, obviously if Disney is gonna do anything on the East Coast, it should be in Florida. I mean, it has the warmest year round weather and even more important Abundant cheap land all throughout the state.

Yeah.

So Walto, 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.

So one It starts with a brand new airport of the future. paired together with a vast entrance and park. Two, there will, of course, be a theme park, a new Disney World Magic Kingdom theme park. That was initially intended to be five times the size of Disneyland. Just for just for the theme part. Three, a 1,000-acre industrial park. intended to house satellite RD offices for America's greatest companies. Think everybody that Walt is partnering with at the World's Fair, Ford, GE, Pepsi.

Meanwhile, I gotta say, they 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 through 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

That's a good point. But perhaps you haven't heard the vision for what this city is yet.

Please lay it on me.

Okay. It will have A radical radial design plan. So the city itself is going to fan out like spokes on a wheel from a domed central downtown hub. Yes. You did hear that right. a 50-acre enclosed climate-controlled fully domed central downtown city that will have no surface streets. Fully pedestrian walkways.

Yeah.

Well yes. The the only motorized forms of transportation will be monorails and this new concept of people movers. And then below ground, there will be a vast network of tunnels. have multi-layered tunnels underneath the ground for cars and industrial vehicles to circulate throughout the city. On the edge of this downtown dome, there'll be high density apartment buildings.

Self governing. But in a special district carved out and controlled lawfully by the Walt Disney Company.

I mean, it sort of sounds like a I don't know if it's a utopian or a dystopian film or both or you know.

Yeah.

It's definitely ambitious. So on November 15th, 1965, Waltz, along with Roy and the then governor of Florida, Hayden Burns, hold a press conference where they announced

That's

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 will be coming to the state, and that planning has already begun and they will be seeking public approvals.

They bought 27,000 acres. That is the size of San Francisco. Yes.

Yes, twice the size of Manhattan. Uh it's almost 40 square miles that they have purchased. 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 government approval To drain the swamp and prepare to build Walt's vision.

Let's go.

If only. So in late October of nineteen sixty six,

I mean he was notorious for his hacking cough. That is how people knew that he was 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 had started experiencing pains in his body. He assumes that it's all the stress from, you know, all these new projects that he's working on, or maybe it's old polo injuries that he has, or maybe it's this Nag and cough, but 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 where doctors find

The thing is

What a sliding door moment.

He was always escalating 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 that.

That's such a good point.

If they had pulled off the Florida project, what would he have done next?

Like a colony on the moon? Yeah.

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 it may have protected his legacy that he didn't live another 10 or 20 years to see this through.

Yep. I mean, even just building a domed city, like how would you actually do that?

And look, I could be completely wrong. They invented, you know, amazing thing after amazing thing, but this one Nuts.

I mean it was. I think it's a totally fair point. So immediately after Walt's death, Roy renames the whole Florida project Walt Disney World in his honor.

And importantly, to carve out the Reedy Creek Development District. which gave the company a lot more autonomy over the area containing the land that they purchased than they ever had in Anaheim. And famously Walt was very regretful that they didn't buy up all the land around Disneyland too,'cause he just hated all of the, you know, hotels and restaurants and crummy stuff around there. And uh they run the show there in Florida.

That they do. Roy is not Walt, and he's not willing to bet the company like Walt was. So he does see. Walt Disney World through, but he dramatically scales it back. Mostly because he doesn't want to take on any additional debt for the company. So he sets a goal that he's gonna get this thing constructed without raising debt for the company.

Which is unbelievable. They built the Magic Kingdom, the Walt Disney World

The theme part. Yeah. That is an incredible achievement. Yes. And it is absolutely not what Walt would have done. No. So it's just the Magic Kingdom. There's no city. There's no Epcot. 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 extremely confident that Disneyland is gonna work here, so we'll build it.

And it was extremely successful.

Yep.

But it's not betting the company he

And it's not

Blazing a new trail. I mean, look, hey, 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.

Which may actually be to your point. It's probably just as likely, if not more likely, that Walt Disney's death when it came, preserved his reputation. And that this this might have actually been the better path for the Florida project. Regardless, though, what it is not is shooting for the stars. And after Walt's death, the company basically stops doing that in every dimension. Roy himself.

It's kinda poetic. It seems like he he said he was gonna see this thing through and he did.

And he did for his brother. Yeah. And then what follows is 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. 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.

Yeah, yeah. That's bigger than Cinderella, certainly bigger than Sleeping Beauty, Hundred and One Dalmatians, any of the other movies around that era.

Yep.

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. Parks do a whopping two hundred and twenty-three million in revenue.

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. 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 flywheel businesses do thirteen million in profit.

Okay, so parks and 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, 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 with only two point two million dollars. in operating. So yeah, by the end of this period here, basically IP wise, the company is creatively bankrupt and they're running a parks and merch business.

No way. Okay, give me the profit numbers from 1984 again.

So together parks and consumer products generate 250 million in operating income, so quarter billion dollars from the parks and consumer products, and film and TV is two point two million. It really illustrates what happens to the company during this period.

It's funny'cause 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 a hundred million in nineteen sixty five to one point four billion. 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

Great. But what you're sort of illustrating is the core is rotting. Yes. That they're not contributing new IP onto the pile that consumers love. Otherwise, we'd be seeing that in the the films division.

Name a Disney film from the seventies. you can even think of today.

They're just harvesting over in the parks. Yes.

So r really the th the biggest problem, what this comes down to is that American mythmaking moved on. It moved elsewhere. So this is the era when George Lucas makes Star Wars and Steven Spielberg makes Indiana Jones and E.T. And these guys become the new American storytellers. not Disney and not Disney animation. Disney animation during this decade goes from a staff of roughly five hundred at the time of Walt's death.

Yeah, wasn't it like ten years in development?

10 years in development and production ties up the studio forever. And then when they eventually do release it in 1985, it's a total flop.

And it's super dark, right? It's like a scary kids movie.

Yeah, it's a P G rated Disney.

Ryan it was the first one ever rated PG.

Yeah. Yeah. Yeah.

They do have some success with live action. Since nineteen sixty-four, with the massive success of Mary Poppins, which won five Oscars, they kind of 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. Yep. But animation, the core of the company. And of course Mary Povins was made.

During Walt's life.

Walt's involvement before his death, but

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 in 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

The flywheel.

No. No.

So then in 1984, basically the inevitable happens. Wall Street corporate raiders come gunning 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, take over the

Super undervalued, right?

Yeah, I mean the market cap of this company is only like two billion dollars despite one and a half billion in top line revenue and call it a hundred million in net income. But this would be super easy to break up Disney, sell off the theme parks, 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 David, I I think you're getting ahead of yourself. I'm pretty sure this should be how we start part two.

Ah, yes. is the story for next time. But just know for now, as a little teaser, that this period of the company ends, improbably, not with Disney being broken up. But with three complete outsiders. coming in to run the company, none of whom have any history in animation Any familiarity with the flywheel business model or any experience or demonstrated ability to operate anything outside film and television. So like running parks, nope, doing merch, nope, nothing, none of that.

So that's what, two Paramount executives and a lawyer turned Warner Brothers exec?

Yep. That's right.

It's like the other Hollywood studios executives are gonna team up and come in and save Disney.

Doesn't sound like it's gonna work, but we'll have to tell that story on part two. Because boy did it ever. All right.

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?

And I think the question should be, why has nobody else built an IP flywheel like Disney?

Is it as simple as Disney was the first IP flywheel company? And so they've been the biggest and I mean that 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 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.

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 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.

To be fair, okay. The terrible business thing is not fair. 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, but even then it's not Disney.

I mean, isn't Universal running effectively the the same playbook, but with 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, I think animation is super, super key. I mean Bob Iger when he took over the company in two thousand five had that famous quote of As animation goes, so goes the company. Yep. There really is something unique about animated IP in its timelessness.

And it's all created in house. You know, it's funny, I threw out Harry Potter. Universal doesn't own all of the rights to everything Harry Potter, but Disney for sure does own all the rights to everything Buzz Lightyear, net now that they own Pixar or Aladdin or Mickey Mouse. Like this is true vertical integration. Yeah. There's also Disney, for all its ups and downs, made the decision to never sell its catalog so they could compound longer than everyone else.

And I think there's something else too that only comes when you really fully embrace the flywheel business model and the trade-offs that it involves. And it's the vault and the reissue strategy. Yeah. Disney let's put Marvel aside for a minute. Uh with the exception of Marvel. Yeah.

gotta put Star Wars in that pile too. Because I know where you're going with this. And I the way you feel about Marvel, I feel about the um over exploitation of Star Wars.

Yeah, yeah. Okay, great, okay, okay. All right, let's l 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 an infrequent enough basis that it doesn't 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 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 of flywheel point two and flywheel point three. Point two was maximized distribution of each core IP's.

And blurred, yeah.

And like, yeah, what's the difference between ancillary content and primary content? It all ends up in the same place. And that's kinda how I feel when I watch some of the overexploited IP now.

Uh-huh. Uh-huh.

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. Yep.

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 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 uh th there's really not the right 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, 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?

Ha right. No idea. The Top Gun theme song?

W what's your favorite universal song?

Right.

But like everyone's got a litany of answers to what's your favorite Disney song. Yes. They actually managed to associate all of this love and heritage and fandom and universe interaction with the studio itself.

It's back to becoming the lifesavers of animation. Yep. So okay. As I was thinking about this, I was trying to ask myself, are there any other companies in the broader

Nintendo

Entertainment landscape. 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.

Ja.

Yes. But yes, they have this exact same ethos. And fly with it.

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 The only way it could work would be if one of them buys the other. Right. Yep. Yep.

Great. Seven powers? So listeners, this is the part of the show where we walk through Hamilton Helmer's Seven Powers Framework. that effectively helps analyze why does a business get to be more profitable than its nearest competitor and do so sustainably. And those seven are scale economies, network economies, counter positioning, switching costs, branding, cornered resource, and process power. And I think we're just analyzing this for pre 1984 Disney. Yep.

Well, easy one to start with, counter positioning for days. Being willing to invest in a feature length animated picture. I mean, that was the peak of this relative to anybody else doing animation leading up to Snow White.

Right, because their competitive set would have needed to be people who have the talent of their animation staff, which is not zero people, but few people, and who had all the cash from Mickey and the Mickey merch, which would have been almost no one. I don't know, actually, that's almost like capital as a moat to go pursue. Snow White. Because they weren't there was no one else who really could have done it.

Mm-hmm. You're right versus the other animation studios, but Disney was counterpositioned, I think, versus the big live action studios because they never would have made a three year one and a half million dollar investment in a film.

Or do they have the capability though?

Yeah.

So let's see, early on, I mean branding pretty quickly played a role as soon as Mickey Mouse was established.

Walt Disney production, absolutely. Yeah.

Yeah, you'd pay more for a Walt Disney production than

It was brand for Disney itself.

I wonder if there was process power. Uh, reading in some of the old recollections of animators, it seems like there were people that kinda traded between studios and left and started rival studios and they were able to produce great work. So maybe there's not process power. I mean the the big two once it started to really kick in are scale economies and network economies. The flywheel is sort of all about that.

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. They would say, Oh, because Disney has the cornered resource of all that IP. Right. And like, what do you want me to do? I can't devise a strategy that's gonna work in the next five to ten years to suddenly beat Disney when they have

Yep, yep. Which really comes down to while always playing the long game and always being willing.

To bet the whole farm. Yep. And being right enough times and managing to survive through the times where he was wrong.

All right. Quintessence? Yeah.

So mine is Disney managed to take not only a set of IP and build their flywheel, but a cohesive set of IP. an opinionated universe of timeless stories about durable emotional story arcs that are universally applicable, that work together as one. And that is something that can stay relevant and of course monetize for a very long time. across generations. They can't fully avoid being a hitspace business. They are a movie studio, but they've gotten about as far away from it as they possibly can.

Mm-hmm.

It's funny listening to you say that. I think that entire passage could equally apply to Nintendo. Which really just shows how the companies they are the two flywheel companies. They are the two intellectual property flywheel companies out there.

Yeah.

Okay, so my quintessence goes all the way back to the beginning of the episode and Marceline

Of course.

Does. Art and commerce. Those two things got married in Walt's head when he was a little kid, and that is Disney. It really is art. When Disney is at its best, what they make is not just a commercial product. It exists at a higher level than that. And it is married to this incredible commerce engine that is in of itself beautiful. And like Disneyland and Disney World and all the parks are the most perfect expression of that.

In. That sounds exactly right. The sightlines, man. The the I I like going to Disneyland just to walk around. It's the craziest thing. I the rides are free and I have just as much fun not going on them, even though I've already paid for them.

Any parent who's been to Disney with their kids knows exactly what I'm talking about, and it is like irreplicable at any other company or place in the world. 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 nineteen thirty four, they hired radio actor Clarence Nash to do his voice. Do you know how Clarence Nash got his start doing animal voices on the radio?

Trader Jones.

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. Which we didn't talk about, but Walt also owned that personally. It opened in sixty three. He put up the capital for it. I think Wedd owned it. And it 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's right. All right. Carve outs. What do you got?

All right, follow up to yours from the Vanguard episode. The shoes, Brooks Vanguards, are indeed great. I ordered a pair, they're excellent. Uh 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 great shoes. I got two pairs.

I wear'em around the neighborhood, they're awesome. I have two YouTube channels.

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 park. and it walks you through the insanity of Action Park in where is that, New Jersey?

I also have two carve-outs. My first one is we got a new car. A Volvo EX thirty.

The little guy?

The little guy, A, it is 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 Geely, which is a Chinese company. And the EX thirty is a Ghili platform EV with Volvo branding, unlike the other Volvo cars. I mean, this thing is crazy. It only costs like$35,000. And it's awesome. Unfortunately, that leads to C

Short window.

And like, man, I get Chinese EVs now. This is a really, really good car for not a lot of money. 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.

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 Vercel, the developer tools and cloud infrastructure, to build and scale fast, secure applications on the web, Vercel.com slash acquired, to ServiceNow, the platform that puts AI to work for people.

Disney. Part two.

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 Navaratnam 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 simpatico here with acquired learn more at worldlypartners.com.

That really was incredible. Thank you to all of you.

You to Mike Miller, former Wall Street Journal editor and now frequently helping us with acquired episodes. Mike, you are awesome. to Graydon Hoare, who emailed us last year with the observation that the entire business community misuses the phrase flywheel. Yes. Appreciate your your help, Graydon.

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 with all of you. to Mitch Lasky, our friend Mitch Lasky, former partner at Benchmark, who helped me think through a whole bunch of the flywheel dynamics.

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. 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, acquired.fm slash email.

and

We are writing in the Wall Street Journal. You can get access to read the columns at acquired.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, acquired.fm slash WSJ, you can always be able to read our article. And with that listeners, we'll see you next time.

We'll see you back here this fall for Disney Part two.

Yes.