Disney：文艺复兴与帝国

So, David, the real question is: after this episode gets released, it becomes this durable IP that's part of an IP franchise—will we turn this into a musical?

Oh yes. Absolutely. With masks and dancing in the aisles.

And I'm thinking, too, we may as well do Acquired on Ice and find—

Oh yeah, while we're at it. Let's go.

—yet another adaptation of it.

Can we do Acquired in space?

Ooh. We know a few people who could make that happen.

Yeah, help make that happen. All right.

All right. Let's do this.

Disney is so much more than you think it is. It is Mickey and Minnie, Ariel, Simba, Elsa, Woody, Buzz, Nemo, all the Pixar characters, and, of course, The Avengers, Luke Skywalker, Darth Vader, Winnie the Pooh, Disneyland, Disney World, Disney cruises, and Disney hotels. But now it's also The Simpsons, Avatar, and National Geographic, plus the entire studio of 20th Century Fox, a privately owned government inside the state of Florida, a private island in the Bahamas—

Yep.

—10 Broadway musicals, the special-effects firm Industrial Light & Magic and Skywalker Sound, one of the 4 major U.S. broadcast networks, ABC, and, of course, ESPN.

I was wondering when you were going to get to the worldwide leader here.

Unexpectedly, a giant amount of the profits of the whole company comes from—

Absolutely.

—it is the SEC Network. And for a period of time, David, they got even more exotic, owning the NHL team, the Mighty Ducks.

Oh yeah.

The Anaheim Angels in the MLB.

Angels in the Outfield, baby.

And the 1936 British ocean liner, the Queen Mary.

That's right.

Despite being one of America's most storied and stable brands, the company is going through a time of immense upheaval. They're in the midst of a transition to streaming with Disney+ and Hulu, and ESPN is making giant technology and marketing investments to support that transition. Those investments lost billions for half a decade, and they're doing this while their old, fantastically profitable businesses are fading.

Consumers don't really go to the movies like they used to. They don't buy movies on VHS, DVD, or Blu-ray, and, of course, consumers are also cutting the cord to cancel their cable subscriptions, so those fat profits from cable channels like ESPN are shrinking every year.

Disney, despite being over 100 years old, is at the very center of the most interesting business-strategy questions that have ever been posed. Can we fight the innovator's dilemma and win? What exactly is enduring about our business as technology and trends change? And can our future be as bright as our past?

Today, listeners, we tell the story of how Disney went from Walt's tidy, neat idea of an animation studio turned theme-park operator into the global, sprawling, diversified behemoth that Disney acquired and expanded its way into today. And we'll answer that question: What does their future look like from here?

Yes.

All right. Well, big news from Acquired headquarters. This episode has a companion PDF with visuals, charts, tables, and illustrations of the key concepts we discuss. You can get access and follow along by clicking the link in the show notes or going to library.acquired.fm. You can join the email list at acquired.fm/email. That's where we'll send out behind-the-scenes photos of research, past episode corrections, and it's where you can vote on future episode topics. Plus, we'll give away a little hint each time at what the next episode is about. That is acquired.fm/email. And if you are in the Bay Area on September 17th, you should join us for the official 2026 Acquired meetup with our friends at Sentry. Details are at acquired.fm/meetup.

Woo.

Before we dive in, we wanna thank our brand spanking new presenting partner, Sierra.

Yes. Sierra is not only the very best partner for agents in the enterprise, but also home to the self-proclaimed co-presidents of the Acquired Fan Club, Clay Bavor and Brett Taylor.

Yes, as Brett and Clay shared on stage with us a few weeks ago when we were in New York together.

Yes, indeed. Thank you, Sierra.

Listeners, this 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.

1. Disney Falls Into Crisis

All right. Well, we start in 1984, the year I was born. All this was happening. I had no idea. Disney is in chaos. In the 18 or so years since Walt died, Disney's star has faded so badly that it looks like no wish can save it.

Disney Animation, once the shining pillar of the American can-do spirit and the core of Disney's beautiful flywheel business model, has become a rotting carcass of its former self. That's the kindest way I could think to put it. Epcot has just launched in Florida, not as Walt Disney's utopian dream of a city of the future, but as a massively over-budget and underwhelming World's Fair knockoff that the company has sunk hundreds of millions of dollars deep into debt to build.

Family drama among the Disneys runs rampant. Roy Disney's son, Roy E. Disney, has resigned from the company and is scheming to launch a boardroom attack on Walt's once-beloved son-in-law, Ron Miller, who is currently the CEO running the company.

The stock is in the dumps. There have been multiple corporate raiders swirling. There are deals on the table to break up Disney, sell off the film library—Snow White, Cinderella, Sleeping Beauty—sell it all off to MGM, sell the theme parks off to hotel operators, and maximize shareholder value here in the 1980s.

And in the midst of all this, desperate to ward off these corporate raiders, management strikes a series of friendly deals with 4 oil-and-gas and real-estate brothers in Fort Worth, Texas—the Bass family—and their famous investment manager, Richard Rainwater. That results in the Bass family owning about 25% of the Walt Disney Company and becoming Disney's largest shareholders.

Yeah. How crazy is this? It's quite the introduction: the company was in such bad shape in 1983, and its stock dropped from $82 to $52, that the company was worth more if you sold it for parts than if you actually ran it. And so the only defense that they have against these corporate raiders is to find a corporate raider of their own—

Right.

—dilute shareholders so much that they're creating all these new shares to give to these new guys—

These Texas guys.

—the Bass family—so they can own 25%, which basically makes them pseudo-controlling shareholders.

More than any of the remaining branches of the Disney family.

Yes. And that is by far the best option to fend off these corporate raiders. Dark times.

And David, things have gotten so bad in the creative core engine that nearly every dollar of profit is coming from the parks and licensing consumer products at this point. Films and TV—the Disney that you know of, the content business—is basically break-even. In 1984, Disney generated a quarter billion dollars of profit from its parks and consumer products, and a mere $2 million from film and TV. The core of the famous Disney flywheel is completely broken.

2. The CalArts Animation Pipeline

But there is a spark of hope. A group of young innovators who will ignite a whole revolution in the movie industry come in and save the company. I'm not talking about Michael Eisner, Frank Wells, and Jeffrey Katzenberg.

Ooh, I thought that's where you were.

You would think that's where we're going. Rather, the group that I am talking about is a new hope for the core of Disney Animation, the center of the flywheel.

All right, so Ben, what if I told you that during this very same time as everything that I just said—Disney Animation is floundering—all of the following people are being taught—

Ah.

—the craft of Disney Animation in a small basement room just a half-hour's drive north of the Disney Burbank lot, in another institution that Walt Disney himself had created, set up, and endowed in his will.

CalArts.

John Lasseter, Brad Bird, Tim Burton, John Musker, who would do The Little Mermaid, Aladdin, and then, many years later, Moana.

Mm-hmm.

And then later after them, Andrew Stanton, of course, writer and director of Finding Nemo, WALL-E, and Toy Story 5. Brenda Chapman, head of story for The Lion King. And, of course, Pete Docter, who today is chief creative officer at Pixar. All of these people are in a basement classroom, classroom A113, home of the character-animation program at the California Institute of the Arts, or CalArts.

Which was basically created as a pipeline for Disney, right?

Yes, exactly. That was why Walt created CalArts. He wanted it to be this institution that would keep the pipeline of new animation talent flowing into Disney long after he was gone. And Walt left half of his estate to fund—

Huh.

—this institution. And it was that. I mean, John Lasseter, Brad Bird, Tim Burton, John Musker, and Brenda Chapman—all of them were hired directly by Disney and Disney Animation right out of school.

And then Disney fired all of them.

But they all ended up back eventually.

But they all ended up back. So there's this amazing story that one day, while John Lasseter was a student there in the late ’70s, he and a bunch of these people drove down to spend the day at Disneyland. John's girlfriend at the time came along with them, and she said to them, “Just think, someday this park is gonna be filled with the characters that you guys are gonna create.” And she had no idea both how right and how wrong she was.

Yes.

It would just take a few decades.

Yes. Okay, so how does this company turn around? Because I was looking at the financials, and it looks like 1982 earnings are down 19%, and you sort of expect, “Oh, maybe that's a hiccup, it'll come back.” Then 1983 earnings are down another 7%.

Yep. So in the wake of all that, in 1984, Roy E. Disney decides enough is enough. Together with the Bass brothers, the new 25% shareholders, Roy and his business partner, Stanley Gold, who's also on the Disney board with him, they gang up and finally force out Ron Miller as CEO, who, again, was Roy's cousin by marriage, married to Walt's daughter. They do this via a dramatic boardroom coup that happened on September 7, 1984.

Then, over a period of just 14 days, because Disney is now without a leader and is in a double crisis, they go out and identify, recruit, sell, and hire arguably the greatest 2-person management team in media company history: Michael Eisner and Frank Wells. Then Michael quickly brings in his number 2 from Paramount, Jeffrey Katzenberg, to run the film studios.

Yep.

All right, so who are these guys? First, the board goes after Frank Wells. Frank had been the president of Warner Bros. and had since retired. But before that, earlier in his career, he was the mentor of Stanley Gold—Roy E. Disney's business partner and fellow Disney board member—back at their old law firm.

So Frank is their first call. They trust him deeply. He's eminently qualified. He's recently retired, so he's available. Frank says, “I'm interested, but I can't do this alone. There's somebody else you gotta call. You gotta call Michael Eisner.”

So Michael, until recently—the timing is just crazy on this—had been probably the hottest Hollywood movie studio executive in town. He had been the number 2 executive at Paramount under Barry Diller and had architected one of the most legendary runs in Hollywood history. Within a span of 7 years, the 2 of them, Barry Diller and Michael, made Indiana Jones, Star Trek, Saturday Night Fever, Grease, Footloose, Flashdance—the list goes on and on.

This is when Paramount was number 1.

Yep. And the way they did it was through this famous strategy that they called the singles-and-doubles strategy. The idea was they would keep their production costs low, they would generally not work with A-list stars and directors, and instead they would focus on the quality of the scripts and the stories and let that be their guiding judgment, as opposed to the typical Hollywood thing of who's attached to the project. Do we have the stars?

And the singles-and-doubles name appealed to shareholders. It didn't exactly appeal to talent. So the way they billed it in the other direction was “high concept”—describing a unique idea whose originality can be conveyed briefly.

Exactly.

Yep. So Michael writes a famous memo in Hollywood history that gets leaked and spread around the rest of Hollywood describing this strategy, and he writes—

Spoiler alert: no memo actually ever leaks in Hollywood. They're all intentionally leaked.

Yes, they're written for publication. That's the way this town works. So Michael writes, “We have no obligation to make art. We have no obligation to make history. We have no obligation to make a statement. But to make money, it is often important to make history, to make art, or to make some significant statement. Not even the greatest screenwriter or actor or director can be counted on to save a film that lacks a strong underlying concept.” There you go, Ben: high concept.

That's right. And there was another memo leaked later by Jeffrey Katzenberg who, speaking of the lieutenants, Barry Diller's lieutenant is Michael Eisner, and Michael Eisner's lieutenant is Jeffrey Katzenberg. Jeffrey writes a memo later in which he espouses this really great line: “Celebrity can open a film, but celebrity can't carry a film.”

Mm. Yep.

So yes, you can pay up to attach these big names, but ultimately the audience does experience the quality of the story for itself, and you need the story, the characters, and the emotion to take it from there.

Yep, yep. Now, on the one hand, this is crazy: These guys are coming in to run Disney. Disney is not a Hollywood company.

Right? One is a retired Warner Bros. executive, and the other is a hotshot Paramount executive. Michael from Paramount has not seen Disney movies. He was not raised on them. He had never seen Snow White or Sleeping Beauty. He wasn't really a Disney guy—

No.

—despite the fact that as soon as he later got the job, he was never without his Mickey Mouse tie.

Of course. But he didn't know how to run a theme park, the flywheel—anything. But when you think about it, Michael's philosophy actually is pretty simpatico with the Disney philosophy. It's all about story. It's all about concept. And yes, Walt had a very different way of doing this. He was, “Go big and invest tons in technology and animation,” and Michael is like, “Produce things cheap, singles and doubles.”

But they're both story first.

Exactly.

They're both obsessed with: Can we create characters that take you on these emotional journeys and tell compelling stories?

And then the unthinkable happens. Michael gets forced out of Paramount at the peak of his success.

Well, sort of. Barry leaves, as we talked to Barry about on stage at Radio City Music Hall.

Yeah, to team up with Rupert Murdoch and launch Fox.

Yes, Fox the TV network, because Fox the film studio already existed. So Barry leaves. Michael is supposed to get the job that Barry had as chairman of the movie studio over at Paramount, and he doesn't get that job, largely because of internal politics and who's making how much money—those sorts of games.

Michael's contract says he's owed a check if he does not get the job when Barry leaves. So Michael decides, “You know what? I don't really wanna stay here without Barry anyway. I'm gonna start poking around for other things.” He had been having these kinds of background conversations. “I'll take the check and get out of here.”

Yep. So all of a sudden Michael's available right as all this drama is going on at Disney. He was on the board of CalArts with Roy E. Disney. So they've been talking for a while, but now it all comes together.

So Frank is offered the top job, and Michael's offered number 2. Then there's a second iteration where they're offered co-CEOs, and Michael basically tells Frank, “Hey, look, if I'm gonna do this, I'm CEO”—or, “I'm chairman,” I think is even what he says—“and you're number 2, because we need to send a signal to the world that Disney is run by a creative executive”—he was one at Paramount—“and Frank had always sort of been more the numbers and legal and operations.”

Operational. He has a legal background.

Right. So if this is going to work, I have to be the top guy. And Frank, this tells you everything about who Frank is and how the company would work for the next decade. Frank says, “Okay.”

Great.

“That’s—”

No problem.

“That makes sense to me. I'm perfectly happy to do it. I'll be your number 2, as long as we both just report to the board. I'll be president, you can be the chairman, but we both have our own relationship with the board.” Michael says, “Works for me.”

Yep. So on September 21, 1984, Michael Eisner and Frank Wells are introduced as the new CEO and president of the Walt Disney Company.

Can we just talk about what dire straits this company was in, that they had to go, in a matter of weeks, find 2 people who had zero relationship with the company, had never worked there, and bring them in and make 1 of them chairman of the board? Also, we should say there was a giant comp package if the studio did well. There was massive profit sharing. There were big stock options issued. It was like, “We need a complete reboot, and we're bringing in these Hollywood guys from other studios to make it happen.”

Yep, yep, yep. They turn around quickly and bring in Jeffrey Katzenberg from Paramount as well to come in and run the studios under Michael at Disney.

Yep.

And the plan is Disney's gonna become Paramount. Actually, 1 of the first items on their agenda is that they move the animation department out of the Burbank lot and basically exile Disney Animation over to Glendale. They're like, “Hey, we gotta make room for all the movie producers that we're gonna bring in here and make live-action films.”

If you're 1 of these animators looking at it from the perspective of what makes this place special, and the very first thing that happens—let's say you were optimistic about change—is they kick the animators out of the building that Walt's office was in. This is the historic animation building. They clear them out and say, “Go to Glendale and this really rickety, run-down building instead.”

Not looking good for the core of the Disney flywheel here.

And then Eisner and Wells turn their attention to the parks, and this is where some light bulbs start to go off. One of the first things they do that ends up really setting up all the following success that Eisner, Wells, and Katzenberg have is raise the ticket prices at Disneyland and Disney World.

Ticket prices at the Disney parks have basically been flat since Walt died. The spirit around the company and the ethos of management is, “Walt wanted this to be accessible to everybody, and he set these prices, so we shouldn’t change them.” Never mind that inflation was rampant during the 1970s. So parking at Disney World and Disneyland when Eisner and Wells come in to run the company is still only a buck. They start raising ticket and parking prices at the parks. Not enormously.

They had so much headroom here. I mean, you can criticize them all you want today for raising prices, but they had, I don’t know, 5 to 10X of headroom to raise the price, and it wouldn’t impact demand for a second back then.

Totally. I mean, you can raise the price of parking from $1 to $5, and nobody will care. But when you do that in an operational business like the parks, all of that incremental profit falls right to the bottom line. This is pure incremental cash flow into The Walt Disney Company because they’re not changing the operations at all. They’re just making more money. So Eisner and Wells turn around, take all these quick profits from the parks, and start investing them into building the live-action studios and running the Paramount playbook.

Sort of. That still didn’t generate as much cash as they’d actually need to finance the full film slate. So for each of the films—all 75 films they would make over the next 8 years—those were financed by a partner called Silver Screens.

Ah, interesting. So Michael’s singles-and-doubles strategy worked at Paramount. It works even better at Disney. They make Down and Out in Beverly Hills, Three Men and a Baby, Good Morning, Vietnam, Dead Poets Society, and Pretty Woman. These are all huge hits with singles-and-doubles-sized budgets.

And they would get actors that would go on to be big, big names. I mean, you’re naming Robin Williams and Bette Midler.

Julia Roberts.

And they were basically looking for ways to get deals on talent.

Yes.

So a lot of times it was actors that had been in rehab and were looking to make a comeback. Or it was these up-and-comers, but it was, in many ways, a young Warren Buffett strategy of looking for cigar butts.

Yes.

They knew they could get a guaranteed return on them.

But it works, man. All told, 27 of their first 33 movies are profitable, which in Hollywood, to have a hit rate like that, is like making 33 venture capital investments and only losing money on 6 of them.

Right. Films are like books or like startups: power-law distributed.

Yep.

Normally.

But of course, along the way, as we all know, they do quickly realize that, hey, there’s some potential in this animation thing here, too.

Well, this is a Roy E. Disney special. Roy views his job as the keeper of Walt’s vision and the keeper of the thing that made the company special. The thing that made the company special was this ridiculous flywheel, for lack of a better term, that they had, where you make amazing, compelling characters in universally relatable stories told through animation, drawn in a spectacular way that no other studio can do. Then you get to pump that into consumer products and parks, and kids pass it down to their kids, and it’s this beautiful, special business model.

You re-release the classics in theaters from the Disney Vault, and you make cash flow on that.

And Roy’s sitting here looking at the current business of singles and doubles and live-action and being like, “Hey, we’ve got to do the Disney thing.”

Yep. So as part of the deal when they brought Eisner and Wells in, Roy had made them promise not to fully kill animation. Then he had made them make him—Roy—chairman of the animation division, under Katzenberg, who’s running all the studios.

Okay, so flash back to the day that Michael and Frank take over. What had happened in the 13 years up to that point was that Disney Animation had only released 3 movies from 1971 to 1984, and they had a film called The Black Cauldron in development for nearly a decade.

Yeah, brutal.

And morale is low. There’s even a sense among the current animators on staff that they weren’t making anything as good as what the company used to make.

And this is when all that young talent coming in from CalArts—Disney is either firing them, or they’re leaving because they’re just like, “Hey, this place is cooked.”

Yes. Okay, so we brought up Jeffrey Katzenberg. I was having breakfast with Jeffrey to prep for this episode, and he told me this story where Michael calls Jeffrey into his office on his first day. This is before animation had been moved out to Glendale, so he’s still pointing down at the original animation building. He points to the ink-and-paint door, and Michael says to Jeffrey, “Do you know what they do down there?”

And Jeffrey goes, “No,” because Jeffrey’s background is live-action Paramount stuff with Michael.

And Michael says, “Neither do I.”

He goes, “That’s where they made the animated movies, and that’s your problem.” And so Jeffrey, like Michael, doesn’t know anything about animation. When he gets in there and says, “Okay, I’m the boss now,” the animators start looking at this invasion from Hollywood. I mean, Disney had always existed outside the realm of Hollywood, doing their own thing, and now you’ve got, effectively, the suits coming into a culture that’s a bunch of wackadoos.

Yep.

I mean, it is the most fun, crazy place in animation, and this was quite the clash at first.

Yep. But at some point—and I don’t know, was it Katzenberg or was it Eisner and Wells who realized—“Hey, there actually is an opportunity here”?

Well, it was both of them, and it would take a third guy, and that guy is Peter Schneider.

Hmm, yes.

So his quote when accepting the job is, “I knew I could do no worse than The Black Cauldron. You can’t fall off the first floor.”

That’s great. That’s great.

So Peter and Jeffrey come in and start making changes, and Peter had this license to examine everything. He was not afraid to break any process. He starts saying, “Why do we use this type of paint? Why do we make our own paint? Why do we use this style of animation pegs? Is there a better style? Why aren’t we using computers? It seems like that could really help us.”

It sends a cultural message here in ’84, ’85, and ’86 that things are really changing, and all the way from the top, we are trying to get better. We want to make something great. We want to make great films, and we want to debate each other over how good of an idea things are. We want to iterate, all in service of making a great film.

But this is exactly what they needed: new blood, a complete shakeup. There was good talent there, but they were just wasting away, not being led at all. There was this sort of dichotomy where the old guard was stuck in their ways, and the young people who came in with all these fresh ideas were met with deaf ears. They’d never been part of anything successful, so they didn’t know what success looked like or felt like.

Yep.

So they slowly start to turn it around in animation, at first with films like The Great Mouse Detective in 1986—nothing to write home about. They did Oliver & Company in 1988, and that gets a little bit more press. People are saying, “Hey, look, Disney Animation can make good things that are commercially successful.” But then the big idea, the crazy one that really worked, was to refine the formula of the Disney animated movie and make them musicals.

Yes.

These are going to be Broadway musicals, but animated.

Yes. We’re going to turn these things from cartoons with music to musicals that are cartoons, and it makes all the difference in the world.

From story arc to the type of music. I mean, Snow White had some really catchy tunes: “Whistle While You Work.”

“Heigh-Ho,” blah blah, yeah, yeah.

But they weren’t musicals.

No.

And they didn’t follow the musical stage-performance story structure. So Jeffrey Katzenberg recruits a guy named Howard Ashman.

Yes.

Interestingly, he was introduced by David Geffen.

David Geffen connects them, right?

Yes. Howard, when he hears the word Disney, instantly says, “I want to work in animation. I feel there is a connection between animation and musical theater.” And I don’t think this was obvious to anyone else. This is a unique Howard insight. So Howard brings along Alan Menken.

Composer Alan Menken.

The two of them had done Little Shop of Horrors together, and they hit the ground running. They come into Disney Animation, and the first film that they work on together is The Little Mermaid.

Yeah. These guys are geniuses. When we really started to dig into the question of who was responsible for the Disney Renaissance—who created these incredible movies and totally turned around Disney?—it’s these guys.

Yeah. They weren’t the original story pitch.

No, and they weren't the executives.

Right.

But they brought the magic.

Howard has this great quote where he says, “Well, in every great Broadway musical, the third song, the leading lady goes and she sits on something. It might be a rock, it might be a trash can, and she sings a song to the world, telling the audience what she wants. If she could only have this thing in life, and then the whole rest of the film, we root for them.” That is the entire crux of the play: What does the leading lady want? We hope that she gets there.

He’s like, “I just realized we could do that in Little Mermaid.” So “Part of Your World” is just the setup song for Ariel sitting there, explaining to everyone, “I just want to go where the people are. I want to see them dancing, walking around on—what do you call them? Oh, feet.” It’s this amazing lyrical explanation of what she feels as a character that ends up carrying the whole movie.

Howard is also the one who says, “Hey, that little crab, should we make him Jamaican?”

Yep.

And that leads to the whole song “Under the Sea.” These are formative songs that are in at least your and my generation’s heads forever, and why we watched the films a million times when we were kids.

Yep, and why they survive. My girls are watching these movies today. So The Little Mermaid comes out in 1989. It’s a classic.

But it’s not like it blew the doors off at the box office, and it had a pretty big budget. Animation grew its headcount from that low of 150 people, when it was left for dead, to 550 people. Here’s a great quote from our friend Ben Cohen at The Wall Street Journal in a piece that he wrote: “Once upon a time, Disney movies got beat at the box office by rom-coms. The Little Mermaid made less money than When Harry Met Sally in 1989. Only when it came out on home video in 1990, and kids could watch VHS tapes of The Little Mermaid anytime they wanted, did the iconic children’s movie become truly massive.”

So, if you’re just looking at box office, you’re kind of like, “Okay, I see green shoots here. We’re really onto something. People love this.” But it’s not like it magically made the company. It’s not like we generated a bunch of profits.

Which, look, trust in Disney Animation had eroded, right? People were used to crap coming out of the studio.

Yep.

So they do The Rescuers Down Under in 1990. It’s fine, but it’s not one of the great Disney Renaissance films the way that The Little Mermaid and the one we’re about to talk about are.

And then Beauty and the Beast. I know The Lion King is bigger, but Beauty and the Beast is my favorite of these movies.

It was my first movie in theaters.

Oh, wow.

And this is another Howard Ashman special.

Yep. It’s so good.

Yes. So Beauty and the Beast builds on the momentum of the team that trusts each other and the new style of musicals as animation. This one actually lights up the box office: $330 million at the box office on a $25 million production budget.

Man. Disney Animation is back.

They do it again the next year. I’m telling you, year after year after year: 1992 with Aladdin.

Yep.

500 million—

500 million is what I saw, right?

That’s right.

A half a billion.

On a $28 million production budget, and they’re pulling out the stops on the Disney stars at this point. They’re bringing in Robin Williams—

Yeah.

—to be the Genie.

From Good Morning, Vietnam to the Genie.

That’s right. Then they do it again 2 years later with The Lion King in 1994. This time, it’s a little bit bigger production budget: $45 million. It’s very sophisticated animation.

Yeah, yeah, yeah. Give us the box office.

James Earl Jones.

How much money did this thing make?

This brings in $750 million.

Yeah, unprecedented at the time.

The most successful traditionally animated, hand-drawn film in history.

In history.

Michael Eisner actually announces then that they are going to build a new animation building and bring all of the animators back onto the Disney lot.

Yes, back to Burbank.

As a fun little aside, Disneyland, when it was originally supposed to be a little 15-acre park or something right next to the Disney lot before it became a much bigger project, is actually on this plot of land.

Where the new animation building is today? So great. So great.

So that’s the Disney Renaissance.

So it’s interesting, right? The Little Mermaid cost $40 million to make, and then Beauty and the Beast and Aladdin were cheaper. You said production budgets ballooned back up with The Lion King, but only to $45 million. How are they making these so cheaply?

Yes. The process of actually doing the hand-drawn animation—and it was all still hand-drawn in this era—had progressed from actual inking and painting to skipping the inking step, because they used xerography. You could directly transfer the paper sketches onto the transparent—

On the cels.

—celluloid for each frame so that you could photograph it.

But the thing that Disney does here during the Renaissance films is something called CAPS, starting in 1990: the Computer Animation Production System. This was really pushed by Roy E. Disney, who felt this was a big part of his Uncle Walt’s legacy—pushing the frontier of technology and how investing in new technology can push the state of the art in storytelling.

Computers had advanced a lot by 1990, and so they got to thinking, “Why are we still using physical paint to color in the lines on every single one of these hand-drawn frames?” Also, multiplane cameras were really, really expensive to operate, so they started cheaping out in the dark times. Rather than photographing really complicated 6-plane animation, they would just slap one animation cel down, put a background underneath it, photograph it, and move on to the next one.

They invested $10 million in fixed costs into software that could do 2 things. One was effectively Microsoft Paint for 2D animation, where you could look at all the lines on a computer, select a color, bring over your little paint tool, and dump your bucket of color into an enclosed area. It sounds like I’m describing something where you’re like, “Yes, we’ve all used MS Paint,” but this was rocket science at the time.

Yeah.

This was really cool, and it meant that not only did you not have to do inking anymore, you didn’t do painting either. On top of that, CAPS was a super-duper multiplane camera that could do an unlimited number of planes, not just limited to whatever you could actually do in Walt’s era. So you could do it faster and cheaper without actually operating the multiplane camera.

The Little Mermaid, which only had 3 multiplane shots because it was before CAPS, had hundreds by the time you got to The Lion King. So it’s better, it’s faster, and it keeps the budget down.

Yeah. Seems odd that Disney, a media company, would develop this computer software technology in-house.

Yes. They relied on a partner who was getting really, really good at early computer graphics: Pixar.

Yeah. Mm-hmm. Well, put a pin in that.

Yes. One other fun thing, because this is cool nerdy stuff: The ballroom dancing scene in Beauty and the Beast has this crazy cool camera pan. It’s a quick shot, but it’s one of the most memorable shots of the whole film. The background was actually 3D-rendered using Pixar software.

Oh, cool.

Then they composited, using CAPS, a 2D hand-drawn Belle and the Beast dancing, and that is the first time they used any 3D animation—

3D animation.

—in any Disney film.

Oh, that’s so cool.

Yeah. If you go back and watch it, you’re like, “Whoa, yeah, the background is computer-generated.”

Yeah. Oh, that’s awesome.

3. The Disney Flywheel Returns

Okay. So on the back of all these Disney Renaissance animated hits, the flywheel is soaring again at Disney—for the first time since Walt died, really. The core animated IP at the center of the company is back. It’s inspiring new generations of children and their parents, and Eisner and Wells not only embrace all of it, they extend the flywheel even further.

So they add 3 new incredible extensions to the Disney business model, all based on these characters and stories and this timeless IP that Disney Animation is once again creating. The first: home video. Man, this is a banger.

The Disney Vault already existed. Disney would take their classic movies, like Snow White or Cinderella, and re-release them in theaters every 7 years or so to get a new generation of children exposed to them.

Which was the only way to watch movies.

Right.

My brain can’t understand this, since home video has existed my entire life.

No Disney+ back then, baby.

Nope. Until 1985, there was no way to watch a Disney film outside of a theater.

Yep, yep. So Eisner and Wells and Katzenberg are like, “Well, we can do the same thing with home video.” VHS exists now. It’s a big thing, with high penetration in U.S. households.

None of the old people at Disney want to do it. Roy's opposed. The family's opposed.

It's heresy.

It's heresy. Michael Eisner has to convene the whole Disney family and get their approval to release Pinocchio as the first of the classics they're going to put on VHS in 1985.

And they're starting low stakes. I mean, Pinocchio—

Pinocchio, right.

—has already been re-released in theaters 5 times.

Yep.

Seven years apart. You would think you're not cannibalizing much at this point on the 6th re-release—

Yes, of Pinocchio. So they agree to a very limited 1.7 million-unit run of Pinocchio on VHS.

I'm glad you found this, too.

Priced at the very high $29.95 at retail per copy, it sells out instantaneously. So that's $50 million in gross merchandise sales, with basically zero incremental production costs except for the couple of bucks of printing the cassette tapes. Then they do it the next year with Cinderella, which proves the exact same thing.

They do a theatrical re-release of Cinderella on schedule. It does $34 million in box office revenue, and then they put out the VHS home video: 6 million units. Between the two of them, that is $200 million in gross revenue from Cinderella. I mean, it's basically another box office smash, for free, that they're getting here.

So it's this crazy thing they discovered where it seems not to hurt anything or dampen any demand, because Michael Eisner would later famously point out, "People buy these tapes, but they break and they lose them."

Right. Right.

It doesn't make people any less excited to go to the theater 6 or 7 years later.

You know what kids are really good at?

Losing VHS tapes.

Right. It's not like you're permanently destroying an asset now that those tapes exist in the world. No.

Yep.

It only increases the demand for more Cinderella now that the tapes are out.

This is the core philosophy behind how Walt Disney's flywheel business strategy works. I had read that Disney was keeping between $17 to $20 a pop—

Wow.

—in profits per VHS tape that they were selling, because I think they had so much leverage over the retailers.

So home video quickly becomes a billion-dollar business for the Walt Disney Company. It's the 2nd-biggest profit center for the whole company after the theme parks. And that's just re-releasing the classics. Then they start doing home video of the new hits that are coming out, and, man, does that blow the doors off.

Having a home video release channel instantly makes whatever you want to spend on animation worth it. It is this sudden renewed focus on animation because they realize, "Oh my God, there's a way to get value out of this."

Yes. The numbers on this: Aladdin sells 30 million VHS tapes in 1993.

So that's $900 million in sales?

Yeah, in sales.

In sales of tapes.

Yep, yep. And then The Lion King eclipses it in 1995 when it comes out on VHS with 32 million units—the best-selling VHS of all time, period, in history, ever.

That's $1 billion of The Lion King tapes sold.

Yes, and Disney is getting roughly a 50% or greater cash flow margin out of that. You should think of each of those as half a billion dollars in Disney's bank account.

Because these films are already quite profitable from the box office. The budgets are low and the box office is super high.

I mean, The Lion King is just ridiculous, right? $750 million at the box office on a $45 million production. So let's say Disney makes $300 million in cash flow out of the theatrical release.

Minus distribution and marketing expenses. I don't know, $250 million?

Yeah, okay, sure, $250 million. Add a half-billion from home video, and you're at three-quarters of a billion dollars in cash out of The Lion King within a year of release. And then we'll get to what else comes out of The Lion King in a second.

And I don't think there was much backend at that point for any of the actors. So I think this is literally just going to Disney.

No, this is also why it fits so well with Eisner's philosophy. Even though they were signing stars to be voice actors, like Robin Williams as the Genie, they weren't getting paid much. These were very different deals, especially back then, from the live-action films that were starting to get expensive and where actors were making real money.

Yep.

So that's home video. Next, they launch Disney retail stores across the country.

That's right.

Do you remember these? I spent so many—

Yes.

—weeks at the mall when I was a kid in Disney retail stores.

Plastered with Disney stuff and giant piles of stuffed animals. It was a hallucinogenic experience to go in there.

It was peak 1990s.

Yes.

So they build more than 750 Disney Stores—retail stores—in basically every mall in America. Now, between home video, where for the first time you've got kids and families watching these movies over and over and over again at home, and the weekends when these American families go to the mall and buy the merch at the Disney Store, they revel in all this Disney. It is back to the peak of Disney under Walt, where it just takes over America, basically.

Yep. I bet people of our generation have a unique relationship with Disney because of this period, because we were there in such a heyday. I bet people who are 10 or 15 years older than us don't have the same Disney relationship, since they were sort of grown-ups by the time the Eisner era hit.

Yeah, I mean, it was the dark period when they were children.

Yes.

And you have to get children to make this work.

Yep.

Then they pass it on to their children, and so on. So, okay: home video, Disney retail, and then, 3, Broadway. This is an absolute masterstroke. When we first started the research, we were like, "Oh, yeah, we'll put a thing about The Lion King musical in there, and Broadway. They do that. Great. It's a thing that Eisner and his team do in the '90s."

Right. It must be like Disney on Ice—some random extension that I'm not really sure how much it contributed, but cool that they did that, and very artistic of them.

Okay. So first they do Beauty and the Beast. That's a big success on Broadway. They end up buying the New Amsterdam Theatre. Disney owns that in New York now. Then they put on The Lion King musical.

Which is spectacular.

Oh, amazing.

I haven't been in, I don't know, 15 years or something, but I have a visceral memory of the parade of animals walking down the aisle and how uniquely they did the costume designs, with the faces of the animals sort of hovering above their heads.

It's art. It's back to Walt Disney. It's art and commerce.

Yes.

Right?

Yes.

It is absolute art. And it becomes the highest-grossing Broadway show in history. It's still running today, and if you add up the gross on Broadway over the past 30 years, plus the touring company, The Lion King musical has grossed over $11 billion in total revenue in its run. I think that makes it the single highest-grossing entertainment product in history, in any medium: film, music, TV, video games, or other Broadway shows.

What?

The Lion King musical is the highest-grossing piece of entertainment ever created in history.

Of any medium, the highest-grossing is a Broadway musical?

Yep. Of a single, non-episodic piece of media—a single story concept.

Hmm.

The Lion King musical.

How is it $11 billion? Because even the biggest box office films do $2.8—

Two—

—$2.9 billion.

Yeah.

I mean, that's Avatar, that's Avengers: Endgame. And then if you were to add an entire home video on top of that, we already said The Lion King home video was $1 billion.

Yeah, you double it, maybe more. Yeah.

How do they get to $11 billion for a Broadway musical?

It's been running for 30 years.

30 years.

And they're packing the house around the world.

Traveling show. Pretty high ticket price to go to a musical.

Yep. It's in London, it's in New York, and it's got the traveling company.

Wow.

Yeah. Even spread out over 30 years, that means it has generated $350 million in gross revenue for Disney every single year. That's an extra hit movie every year.

And they own it outright?

Yeah. They have to share theater revenue with theaters, especially with the touring company when they go to theaters around the world, but that's the same as—

Wow.

—any movie. It's another movie every year.

Wow. $11 billion. Fascinating.

Absolutely incredible.

So Eisner in this era really did crack the extensions of the brand thing, and he also kind of dipped his foot back into traditional marketing more. Didn't they start running a whole bunch of "Come to Disneyland" commercials?

Yes.

And explaining the rides. I think this is also when they started the campaign where the winning Super Bowl MVP would always say—

Yes, they’ll go to Disney World.

…“I’m going to Disney World” right after they won the Super Bowl.

Yes, yes. Well, this is the other big thing that Michael Eisner does: he transforms the parks. The parks were obviously Walt’s genius and part of the original Walt vision and business model for what Disney would become, but they’re just theme parks when Michael takes over.

Yeah, they’re not really resorts.

He makes the parks, and especially Florida, a resort. It goes from, “Ah, yeah, we got Disney World, and we got Epcot, and sure, come to Florida.” They build the Grand Floridian Hotel. They build the Swan. They build the Dolphin. They start the Disney Vacation Club timeshare program with Old Key West Resort—

Mm.

…which my family was a member of. So what did we do every year? We went to Walt Disney World every single year. It was a resort. It was a vacation. They add Hollywood Studios. Then they add the Animal Kingdom. They completely transform what a theme park resort is.

And the Animal Kingdom in particular is a wild pitch. What if we build an actual animal kingdom with lions and zebras? It won’t feel like a zoo. It’ll feel like you’re on an African safari when you’re out doing it. They changed the park from something that could compete with going to a baseball game on a Saturday to something that could compete with your European 5-day vacation.

Yes. Yes. And they get into all the real estate all around it, all those hotels that they’re developing, having Imagineering develop. It’s not just Marriotts that they’re throwing in there.

Right. And with him raising prices, plowing cash into building out the next 10, 15, 20 years of parks, and attracting, “Oh, I’m not going to spend $300 here. I’m going to drop $3,000 here on a family vacation,” this starts to become a behemoth business of its own.

Totally. I mean, it sets the stage for today. Last year, Disney Parks and Experiences contributed $10 billion in operating profit to Disney, and it starts with this.

Nuts.

Now, it’s not all sunshine and rainbows on the parks side during the Eisner era.

Euro Disney?

There is Euro Disney, which costs $4 billion to develop and just loses money for years. The glib line that I like about this is it took Disney a decade to figure out that European parents want to drink wine while their kids run around. There’s more to it than that, but—

And also, I’m not sure that Europeans love being called Euro.

Yeah.

If you live in Paris—

Yeah.

…you consider yourself French or Parisian. You don’t consider yourself Euro.

Yeah.

So they rename it Disneyland Paris. They make a whole bunch of changes. They eventually right the ship, and there’s a global macro thing that changes, too. They sort of opened into a recession, but yeah, that was a disaster for a while.

Yep, yep. But that aside, I mean, man, by the time we’re in the mid-’90s here, Disney and the Eisner, Wells, Katzenberg dream team is just crushing it. Operating profit at the company goes from well under $300 million when they take over in 1984 to just under $2 billion a decade later. So, you know, almost 8X operating profit in—

In a decade.

…a decade.

Wow.

I mean—

And it had been declining. I mean, it fell 25% in 2 years before they joined.

Yeah. Those 3 guys didn’t just save Disney. They made Disney flourish in a way that Walt only could’ve dreamed of.

It is quite reasonable to say that Disney has never been as successful as they were in this period from the early to mid-’90s.

Well, I’ve got the stats to prove it. So by 1994, Disney’s market cap hits $22 billion, up 10X from when the Eisner crew took over, and it becomes the highest-valued of all the traditional media companies. More valuable than Time Warner, more valuable than Viacom, more valuable than Fox and News Corp. Disney is on top of the world, and it’s all about to fall apart.

Okay, so David, they’re flying high. What could possibly go wrong?

Oh, man. Well, 1994 is a great year for Disney as a business because The Lion King comes out. It’s a terrible year for Disney as a company, and there are 3 huge blows that hit the company in quick succession.

First, on Easter Sunday, 1994, Frank Wells is shockingly and tragically killed in a helicopter crash while heli-skiing. This is terrible on every level. For the company and the management team, for all that Michael Eisner was, Ben, as you said, the creative executive and had to be the public face of The Walt Disney Company and the Disney Renaissance, Frank was the guy behind the scenes holding it all together. He absolutely was the yin to Michael’s yang, and all of a sudden he’s gone. One day he’s here, one day he’s gone.

And there are big personalities at the table. Michael’s a big personality. Jeffrey’s a big personality.

Yep.

And Frank was the peacekeeper, the one who could always relate to everyone, be the intermediary, and calm people down when they were hot about something.

I mean, he was the guy who, when Michael said, “I need to be number one,” said, “Okay, no problem. Let’s all go make magic together.”

Yep.

And that force is just not at the company anymore. So then 3 months later, while Michael is at the annual Allen & Company conference in Sun Valley, Idaho, he starts experiencing chest pains and has to be rushed back to L.A. into emergency quadruple-bypass open-heart surgery.

Yeah, and he’s out of commission. I mean, he is recovering from open-heart surgery in the hospital while they’re feeling the loss of Frank Wells.

Yep.

There are a lot of decisions that need to get made, and there are a lot of personnel clashes that need to get sorted through, but what can Michael do?

He’s in the hospital.

He’s literally on the operating table. He even thought there was some chance he might not make it. He gave his wife instructions: “Hey, if I don’t wake up, do X, Y, and Z.” Harrowing times.

Yeah, yeah. So then in the middle of this, Katzenberg quits.

Well, there are a lot of different sides to this story.

Yep.

One version of it is that Jeffrey was promised the number 2 job at the company if Frank ever moved on or retired or anything.

Yep. That was certainly Jeffrey’s understanding, that Michael—

Yes.

…had promised him that.

Yes. There were other perspectives, including from Roy E. Disney, that, “Hey, Jeffrey is great in the job that he has, running the studios”—animation and the other film studios—“but he’s by no means ready to be the president of The Walt Disney Company.”

Which, again, at this point is much more than just the film studios. You know, it’s all of those other businesses that we talked about.

Right. And so we need to sit tight for a little while. Jeffrey’s interpretation of this, which is again quite reasonable, is, “Well, I thought you told me this was mine. I am itching to do something bigger than my current responsibility. I’ve been a good team player. I just created some of the most successful movies ever.”

Iconic IP.

That’s right, with the Disney Renaissance films, The Lion King and Beauty and the Beast, and all these. “If you don’t think I have a future here to become president of this company, then I’m out. I’m going to go do something else.”

Yep.

So he elects that option and leaves.

Yep. And he doesn’t just leave. He leaves and starts a competitor.

And starts a lawsuit.

Yes, yes. He also sues The Walt Disney Company for bonuses that he was owed. They end up settling that lawsuit many years later for a reported $280 million. But yeah, he leaves and starts a competitor.

Yes.

DreamWorks.

Yes.

With Steven Spielberg and David Geffen, and the intention is that DreamWorks is going to be a full-stack Disney competitor. They’re going to do live action. They’re going to do animation. They’re going to do music with David Geffen. They’re going to do television. They’re going to do video games. Basically, the whole Disney flywheel minus the parks.

But then they sign up with Universal as their movie distributor, and they set up their headquarters on Universal’s lot, which is also a theme park. So, yeah.

Suddenly, a very, very formidable competitor.

And then they decide to build the DreamWorks Animation studio just down the street from Disney in Glendale, and they start poaching the Disney animators. One of the first people Katzenberg recruits is Brenda Chapman, remember, from CalArts—

Ah.

—in room A-113, who was head of story for The Lion King. DreamWorks Animation would soon go on to create Shrek, which would do half a billion dollars at the box office. This is the first time Disney has had something like this: a full-stack competitor in its backyard.

Yep. Adding insult to injury here, you might say, “Okay, well, animation is roaring, and it wasn’t all Jeffrey, so they should be fine.” Sadly, Howard Ashman passed away from AIDS—

Yeah.

—just a couple of years—

A couple years earlier.

—before this, and there’s a vacuum of Howard’s presence in the animation department and in the films that they would go on to make from here.

Yep.

So, from here, what comes out of Disney Animation is—

The next one is Pocahontas, right?

Yep, then The Hunchback of Notre Dame, Hercules—

Yep.

—Mulan, Tarzan—

Tarzan.

—Fantasia 2000, a movie called Dinosaur—

Yeah.

—in 2000, which I actually remember fondly.

I think that was Disney’s first 3D computer-animated movie.

Yeah, exactly.

Yeah.

The Emperor’s New Groove, Atlantis, Lilo & Stitch, and Treasure Planet.

Yeah. Some of those films—none of them are The Lion King.

Right.

So—

Right.

So yeah, in the vacuum left by all of this, Michael decides that the person he’s going to promote to number two, president and chief operating officer of The Walt Disney Company, is himself.

Yeah. It’s the Michael Eisner company now, through and through.

Yep. He was great. He was eminently qualified.

I mean, the last 10 years have been unbelievable.

Yeah. But it’s a big job on top of an already very big job.

And really what he’s saying is, “Look, there’s no one obviously ready to be number two across films and TV and the parks, and so until we figure that out, I’m just going to be the guy.”

Yep, yep. And he’s also about to pull the trigger on a pretty fundamental change in what The Walt Disney Company was, that he had been planning for a couple years. He’s been sniffing around the TV networks.

Yes. And wasn’t there some regulatory—

Yes.

—reason why suddenly this was possible?

Yes. So back in 1993, the FCC had repealed a law called the Financial Interest and Syndication Rules that prohibited TV networks from owning the programs that they aired.

Right, because the thinking behind this, I think, in the ’70s when it was enacted, is that these TV broadcast networks—the big 3 networks—are kind of a monopoly on content in the country. There’s no cable. So if those companies basically vertically integrate and own a movie studio, and then they air those movies on just the 3 networks, then we kind of have a problem, because there’s not enough competition in this marketplace.

But as 2 decades go by, now you’ve got cable TV, and suddenly you’ve hamstrung all these—

Yes.

—networks, and the networks aren’t allowed to produce their own content while they’re trying to fight this existential battle of, “Oh my God, cable’s coming in and eating our lunch.”

Yep.

So, of course, the thing that makes sense—which is great; I love it when laws get repealed when they don’t make sense anymore—is that law is repealed, and suddenly you now have open season on movie studios and TV networks trying to combine.

Yep. So Michael is sniffing around.

He’s interested in CBS first, right?

Yeah, he’s sniffing around CBS. NBC is up for sale. He talks to ABC, does a typical Michael lowball offer—

Lowball, yeah.

—that goes nowhere. But Michael had actually started his career at ABC, so Barry Diller and Michael were TV guys at ABC before they went to Paramount.

Right.

So he knew everybody there. And then at the Sun Valley Conference the next year, in 1995—

It’s always at Sun Valley.

—always at Sun Valley—Michael strikes a deal for The Walt Disney Company to acquire Capital Cities/ABC for $19 billion, which was the second-largest acquisition in history to that point. Man, crazy. $19 billion—that’s quaint today.

The only bigger one was RJR Nabisco.

Yes, yes, which is going to come up here in a second.

And I think there’s so much great lore around this, but I think this was a parking lot conversation where Michael had been hoping to run into Warren Buffett.

Yep.

And he finally did, and Warren calls over Tom Murphy, who was there too.

Yep, CEO of Capital Cities/ABC.

And they kind of start talking, and I think within days, maybe a week or something, they’ve got a deal hammered out.

Yep, yep. Warren Buffett and Berkshire were the largest shareholder in Capital Cities/ABC, which had been created a decade earlier in the famous minnow-swallows-whale transaction.

That’s right. A lot of listeners probably won’t know this, but ABC is actually not the parent company that Disney was going after to acquire. ABC was owned by something called Capital Cities, which had unbelievably managed to acquire ABC even though ABC was much bigger than Capital Cities.

Yeah, it was about 4 times bigger.

You might say, “How is this possible?” Well, they had the financial backing of Warren—

Warren Buffett.

—and—

And Berkshire Hathaway.

That’s right, that’s right. So it’s basically using Berkshire Hathaway’s capital and the small company of Capital Cities to jointly buy and control ABC.

Yeah, one of Warren Buffett’s many genius deals.

Yep.

So Buffett and Berkshire are the largest shareholders in Capital Cities/ABC here, so really the person that Eisner is pitching is Buffett. Now, Ben, you mentioned something really important, which was that the reason these laws had been repealed by the FCC was the new competition from cable TV.

I mean, the broadcast networks used to have this monopoly on television content in America. Now, all of a sudden here in the ’90s, cable and pay TV is just this explosion of content in America, and the broadcast networks are under threat. So the broadcast networks like ABC went from historically being these great businesses to, eh, these kind of okay businesses.

Hmm.

Because so much of American viewing time, and thus advertising dollars, had transitioned over to cable. But it just so happened that buried within ABC was the single best cable asset in the history of mankind: the Entertainment and Sports Programming Network, better known as ESPN.

Yes.

Oh, man, the history of ESPN is completely crazy on its own. It was acquired by the Getty Oil Company just months after it was founded, when it was still a startup. Texaco then acquired Getty and sold off ESPN to ABC. This happened in 1984. ABC wanted a financial partner for the deal, so they brought in Nabisco as a 20% minority partner in ESPN.

Huh.

Why?

I guess, in theory, Nabisco was going to get some advertising synergies for their CPG products. I don’t know.

Okay.

It doesn’t matter, because the next year, Nabisco gets taken private by KKR in *Barbarians at the Gate*, the largest deal in history.

Right, the largest acquisition of all time.

Yep, yep.

Yeah.

As part of that, they sell off this 20% ESPN minority stake to the Hearst Corporation, which still owns it to this day.

And Hearst, over the ensuing 4 decades, just gets billions and billions of dollars of free cash flow out of ESPN.

In a complete free ride.

Free ride.

They don't have to—

Doesn't have to lift a finger.

That's right. That's right.

But yeah, ESPN became this juggernaut, and they actually invented a whole second revenue line for cable networks in addition to advertising: the affiliate-fee business model.

Because before, cable channels would just let themselves show up in a cable bundle. They'd let the cable bundle distribute and say, "Oh, well, we're selling ads, so can you just do the distribution for us, so that anybody who's buying your cable bundle will get my channel and thus see my ads?" And pre-ESPN, that was the whole business model.

Even more than that, I think for a lot of startup cable networks, the dollars went the other way. I think they were even paying—

Oh, right, they would pay to be included—

—the cable operators to carry the channel, right?

Yes. And ESPN sort of realizes they were buying sports rights to broadcast leagues, and they needed to cover their costs. So they asked the bundlers—the cable companies—"Hey, will you pay us X cents per viewer so that we can actually afford to go buy these rights?"

The money to buy the sports rights. That may have been how it started, but pretty quickly, though, ESPN, and then within ABC once ABC owns it, realizes that sports rights are the biggest point of leverage that they could possibly have over the cable operators. All ESPN has to do is threaten to pull the plug on any given cable operator and say to their thousands or millions of subscribers out there, "Oh, hey, you wanted to watch those NBA games, or those MLB games, or those NFL games, or see those highlights on SportsCenter? Sorry, we're in a carriage dispute with ESPN. We're not going to be able to show those."

A stick that still gets used today.

Right? I mean, when that happens, people actually show up at the doorstep of the cable operators and basically riot.

Yeah.

Americans love nothing more than their sports.

Yep, that is pricing power right there.

And so once ESPN figures out this business model, it just becomes this incredible juggernaut. At first, Ben, like you said, they get the cable operators to pay them a few cents per subscriber that gets the ESPN channel, and it goes up to a dollar, then $2 a month, and then $5 a month. Do you know what ESPN's current affiliate-fee average deal is per month with pay-TV operators?

I know it's the single highest-paid channel by, like, 3X?

4X.

Yeah, much higher than—I'm going to guess, I don't know, $10 per subscriber.

Yeah. $9.42 per month per subscriber that the cable operators pay ESPN. This is billions and billions and billions of highly predictable cash-money dollars flowing into ESPN.

Contractually guaranteed.

Virtually guaranteed every month.

I mean, yeah, sports are the reason, especially today, that people are buying cable.

Right.

And ESPN is very aware of that value that they provide to the bundle.

They are very good at value capture.

Yes. Yes.

So, back to the Disney–Capital Cities/ABC deal here in 1995. I don't think, if they're really honest, that Disney and Michael Eisner really knew how big ESPN was going to become. At this point, ESPN had 66 million cable subscribers, but they were only just beginning to really ramp their pricing leverage.

There's a Roy E. Disney quote on this: "Nobody would've told you when that deal," the ABC deal, "was being made that ESPN was going to turn out to be the weightlifter of the group." Nobody involved in it in any way ever would've thought that.

Yep, yep. At that point, ESPN's average monthly affiliate fee with their cable partners was still less than a buck. So there was so much more room to scale ahead of it. But absolutely quickly after Disney acquires Capital Cities in 1996, ESPN becomes this crown jewel within the company, almost overnight and almost completely by accident. The business model, once they got it going, was so simple: just call up the cable operators every year or two and say, "Hey, we're going to raise carriage rates 20%." "Oh, you don't like that?" "Okay, we'll pull the plug." "You sure you don't like that?" "All right, 20% it is."

And they had locked up the sports rights for, like, a decade for any of the sports that they were bidding on. They realized, "Oh, we should go get the longest contracts we can so we have the most leverage over these cable companies."

Yep. So this is the heyday of ESPN here in the late '90s into the early 2000s. MLB, NBA—they do a big NFL deal in 1998 to get Sunday Night Football and Monday Night Football rights for ABC. They get 3 Super Bowls out of that. Meanwhile, they invented the whole sports-highlight category.

That's right.

Which is just like, "Hey, we've got these rights, and live sports are worthless the minute after they air. But what if we show them again a few hours later in a nightly highlights show with a lot of sizzle and some great anchors?" And this is SportsCenter. Man, was it awesome.

Yep.

The cost to operate ESPN beyond the sports rights was not that much. They're operating out of Bristol, Connecticut.

Yeah. The cherry on top to all this, too: Disney is already in the cable game before acquiring Capital Cities, ABC, and ESPN. They had launched Disney Channel in 1983.

Yep, I think that's right.

And it was super rocky at first—expensive to get off the ground, way over budget. It was actually part of the problems they were going through in '83, along with Epcot cost overruns. But now that they have ESPN, they're able to collectively bargain—

Yes.

—with the cable companies. So not only could they command premium rates for ESPN, they would also say, "Oh, yeah, do you want the Disney Channel and A&E and Lifetime?"

Yeah, those rates are going up, too.

Yep.

Exactly.

It's almost like a bundle within a bundle.

And that's not even getting into ESPN2, ESPN Classic, ESPN News, ESPN Ocho, you know.

These days, the SEC Network—they go nuts.

So this is a grand slam for Disney, an absolute grand slam, but it's yet another huge management item competing for Michael Eisner's attention, among all the other existing management items at The Walt Disney Company.

And Eisner's thought going in was, "It is important to have the Disney brand and our products and our content distributed on television." Walt did this. That's how they built the Disneyland mania around that TV show.

With ABC.

Bringing it full circle. And all that did become important. It was kind of amazing to have ABC and these cable stations as an outlet to promote Disney stuff, in this kind of flywheel, synergistic, aligned way that we've been talking about. But to your point, David, what it ended up actually being was just an amazing source of continuous free cash flow that they could do other stuff with. Yeah, it's great that we can promote the Disney brand, and it can provide all this alignment, but you know what's even better than that? Just spinning off mountains of cash that we can use in movies, in parks, to sort of expand the business.

Yep. I think you can make an argument that ABC fits in with The Walt Disney Company and the Disney flywheel. ESPN is this wholly separate thing that really doesn't.

Yes.

Mickey Mouse and SportsCenter do not meet.

I mean, they try to put ESPN Wide World of Sports in Disney World and stuff like that.

Wide World of Sports.

Yep.

And ESPN Zone.

Yeah, that's right. Oh, ESPN Zone. Yeah, yeah, yeah.

But the correct move that they figured out eventually was kind of firewalling ESPN off on its own, making the best ESPN you can, and just enjoying the dollars.

Yep.

And the timing totally lines up with everything you were talking about, David: expanding the parks, building hotels, leaning into resorts. This is how they funded it all—the cash that ESPN and the cable networks, but mostly ESPN, were spitting out.

Yep. I—there's even a quote in Bob Iger's book, which we haven't talked about Bob yet, but we will.

He comes into Disney via the Capital Cities acquisition.

That's right. He worked at Capital Cities.

Bob is COO of Capital Cities.

Yep. The quote is, "It gave Disney a scale to remain independent while other studios were falling on hard times. ESPN also further stabilized the business during the ups and downs of animation." And here, David, is an astonishing statistic.

Lay it on me.

We're flashing forward, but later on, in the 2008 to 2011 timeframe, Disney's cable networks segment—which analysts believe is three-quarters ESPN—accounted for 60% of the entire company's operating income during that 2008 to 2011 period.

Yeah.

Over $5 billion in profit just from the cable channels. I mean, they evolved into the cable-TV affiliate-fees company.

Yep.

So, back here to the late '90s into the early 2000s, Michael's just overloaded managing all this.

And one element of the backdrop to all this is that it’s the dot-com era. Disney does all sorts of crazy dot-com stuff.

I was wondering where you were going with that.

They acquire Starwave, Paul Allen’s company after Microsoft.

That’s right, right here in Seattle.

Yep. Starwave was basically a web developer that they, I think, paid a couple hundred million dollars for. Then they buy Infoseek, which was the seventh-place search engine. They then create a separate Disney Internet Group tracking stock that they float—

What? Really?

—publicly. Yeah, you can’t make all this stuff up. It’s dot-com insanity. Like, hey, okay, great, give Eisner a pass because everybody’s doing dot-com insanity during this era.

Well, the biggest credit to give is the deal that he didn’t do.

Exactly, yeah. AOL approached him.

That Time Warner did.

Steve Case approached him before Time Warner about an AOL–Disney combination, and to Michael’s eternal credit, maybe the best thing he did as CEO of The Walt Disney Company, among many, many great things—

Other than buying ESPN.

—other than buying ESPN, but yeah, it was to say thanks but no thanks to AOL.

Yeah. Looking at what AOL did with Time Warner, AOL merged its stock, which was highly marked, but the intrinsic value of the company was actually worthless, with Warner Bros., a real durable, stable company, at least at the time. That could’ve happened to Disney, too. But amidst all these very high valuations of the dot-com era, and I watched a bunch of interviews of Michael at this time, he was skeptical and very careful about not giving away Disney in a foolish transaction like that.

Yep. While we’re on bad decisions during this era, Michael does finally—

Hire a number 2.

—hire a president.

Yeah.

And a number 2. His close friend and Hollywood super-agent Michael Ovitz comes in as Disney president to be Eisner’s number 2 and help him operate the company in 1995.

Michael, famed past Acquired guest.

That’s right. Founder of Creative Artists Agency. This was huge news in Hollywood.

Earth-shattering stuff. I mean, Michael Ovitz built CAA into such a force in not only Hollywood, but the whole creative community. The only thing that rivaled the power of the studios at the time was CAA. Going from being the founder and number 1 at CAA to being the number 2 said a lot.

And you know what? It also speaks to what Eisner had built and assembled at Disney—

Right.

—especially after Cap Cities, that it was the place to be in media.

And it was almost immediately a horrible decision.

Yeah.

On both sides.

Ovitz was an agent. Eisner was an executive. This was a bad idea from the start.

You know what the job of a president and COO is? It’s to sit in meetings all day, herd cats, make aligned decisions, tell people no, don’t people-please, make sure that the thing runs, and manage processes that take a really long time with tens or hundreds of thousands of employees to carry out. The job of being an agent is being liked, saying yes, wielding your power, making things happen quickly, being involved in 15 projects at once, or, in Michael Ovitz’s case, 500 projects at once. The day-to-day operations of being the number 2 at Disney could not have been more different from the skill set he had perfected at CAA.

Yep. So Ovitz lasts just over a year at Disney and leaves in December 1996 with a $140 million severance package.

Because neither Ovitz nor Eisner thought there was any chance this was going to fall apart, and so The Walt Disney Company was willing to put in a contract and say, “If you don’t make it X amount of time, then you get $140 million extra dollars.”

Yep. Now, all of this, frankly, is just window dressing on what the real problem is. The real problem is Disney Animation.

Hmm. That’s interesting.

Ben, you talked about what the movies were after 1994, and some of them were good, but it’s a downhill slide. By the time you get to the end of that period, Atlantis and Treasure Planet, these are bad movies.

Yeah, and with Capital Cities/ABC/ESPN coming in, it’s a little bit confusing how to think about and organize the company. Before, you had this nice, tidy flywheel business. You make films with characters that people love on these universally relatable journeys. You make money at the box office, home video, parks, and consumer products, and then you recycle the IP every 7 years. It’s articulable in 1 sentence.

When they bought Capital Cities, it’s totally different. Owning TV stations that generate revenue from advertising and cable subscriptions, mostly using one-time-use content that is not evergreen, most of which you don’t create yourself in-house. It can be profitable, and sometimes fantastically profitable, but it’s worth acknowledging that that’s a totally different business model. Now you have these 2 completely different business model and operating model things under 1 roof. Bringing in Michael Ovitz, what was he supposed to run?

Right.

Because they’re actually 2 very different things.

Yep. So all this, and animation’s now without Katzenberg. Roy E. Disney is still there, but a lot of the talent is bleeding out to DreamWorks. Even the talent that stays is getting competitive offers from DreamWorks, so Disney has to pay them more. All their costs in animation are going up. It’s really a downward spiral, and for the first couple of years, it didn’t really matter that much because the parks were still doing great. They still had all the great IP from the Disney Renaissance that was driving everything they could put into the parks.

Yeah, because they don’t make most of their money from actual profits at the box office when the movie comes out the first time. There’s a delayed impact to animation sucking that doesn’t show up in the financials until way later.

Yes.

—

Yes. Or until something happens to the parks, which is exactly what happens in September 2001 with September 11th. Obviously, it’s a national tragedy, but Disney’s parks business basically instantly falls off a cliff. It’s like COVID for Disney parks for the few weeks and months after September 11th. All of a sudden, this crown-jewel asset within the empire just goes close to zero.

Yeah.

Real bad.

Yep. For a few weeks, zero planes are in the air, and for years after that, people don’t feel safe traveling.

Yep.

Not to mention, it triggers this consumer-spending impact.

Yep.

Not good if you’re running a high-fixed-cost theme-park business.

Yep. So Disney stock falls nearly 25% in the days after the September 11th attacks. Fairly quickly thereafter, they’re forced to close the vast majority of the Disney retail stores that they had opened in malls across America. The operating profit from the whole consumer products division had already been slowly ticking down as no new good IP was coming out of Disney Animation to sell dolls and costumes. Now it’s down to a trickle.

The worst part of all of this, for Michael Eisner at least, is that the Bass family, which to this point are still Disney’s largest shareholders and Michael’s strongest supporters among the shareholder base, face a margin call on their other investments in the days after September 11th. They’re forced sellers of $2 billion worth of Disney shares, which puts even further downward pressure on the Disney stock, which has already just fallen by 25%. They sell the majority of their Disney holdings in a block transaction, and overnight, Eisner’s support in the shareholder base, or at least the biggest bulk of it, is gone. Disney is now trading at depressed levels. It’s almost like 1984 all over again.

I know, right? It—

Could there be corporate raiders showing up to break up the company?

It’s eerily similar. Animation in the dumps. Before, it was parks holding the company up, but now it’s ESPN holding the company up.

Exactly. And even ESPN, for a short period of time, is shaky. Sporting events stop after 9/11. It’s a weird time for the country.

Yep.

And then, just when it seemed that things couldn’t get any worse at Disney in the years after 9/11, on November 30th, 2003, Roy E. Disney announces that he is resigning from the Disney board of directors, citing, quote, “Serious differences of opinion about the direction and style of management.”

Man, this really is a mirror of 20 years earlier.

Is it ever, except this time it all plays out in public because Roy and Stanley Gold, his business partner, who also resigns from the board, promptly turn around and launch a first-of-its-kind public grassroots shareholder campaign with the website SaveDisney.com, with the stated goal of mounting a proxy vote to oust Michael Eisner as the CEO of The Walt Disney Company.

Man, Ben, this playbook of starting a website, of “Save Company X dot com,” with an insider resigning from the company, starting a website, and launching a public grassroots campaign—

Yeah.

—would famously be repeated once more in American corporate history. Do you know what company?

Hmm. No.

SavePapaJohns.com.

No way.

Yeah. Save Disney and Save Papa John's.

Wow.

Oh, man. Well, before we tell the story of Save Disney and Disney's ultimate leadership transition to Bob Iger that would come out of it, now is a great time to thank one of our favorite companies, Sentry.

That's right. That's S-E-N-T-R-Y, like someone standing guard.

Which is what they do for developers. Sentry helps teams debug everything from errors to latency issues, basically any software problem, and fix them before users get mad. It is considered, quote-unquote, “Not bad” by millions of developers out there.

And David, this might be one of the most on-theme sponsor moments that we have ever had on Acquired. We are about to spend a good chunk of time on the Disney+ launch later the episode.

Yes, and think about what that launch actually was. One service going live on basically every device on Earth all at once, phones, video game consoles, smart TVs, streaming sticks, tablets, all ready for tens of millions of subscribers on day one. At that scale, things break in places you've never seen. Disney+ launched with Sentry as the centralized error logging service behind it, so when something broke, the team knew exactly why it broke, on which device, and in which release, all before the angry emails started.

And here's the wild part. That was 2019. What Sentry does now goes a step further. Software is starting to fix itself in production, and the clever thing is how they pull it off. So Sentry is already watching your app in production, so the second it breaks, it has the whole picture, error logs, the trace, the release that it started in. It hands that context straight to the tools developers already use, whether that's Claude Code or Cursor or Sentry's new agent, Sear, and it automatically finds the root cause and opens the PR for the human to review. That is what makes software self-healing, and it's why 200,000 organizations run on Sentry.

Yes. Thanks to Sentry for making sure everyone's favorite stuff, including Disney+, which let me tell you, is our favorite stuff in this household, actually works. They've got an incredible customer list, including not only friends of the show, Anthropic and Vercel, but also Cursor, Linear, GitHub, and many more. If you wanna learn more, go check out sentry.io/acquired.

And one last thing, Sentry is the host this year of the official Acquired community meetup with David and me in San Francisco, Thursday, September 17th at Fort Mason. David and I are gonna have a live conversation going behind the scenes of Acquired. We'll have food and drink and a room full of the Acquired community. Tickets are $20, and 100% of the proceeds will go to the Susan Wojcicki Foundation for early detection of lung cancer.

So great.

It really is. Space is limited to 500 people only, so grab your spots now at acquired.fm/meetup, and we look forward to seeing you there.

Indeed.

All right, David, so the Save Disney campaign. First, let me just open with an excerpt from Ride of a Lifetime, Bob Iger's book. This is about the resignation letter that Roy had written.

He sent copies to Eisner, the board, and then The Wall Street Journal, The New York Times, and the L.A. Times.

He went on a blistering, 3-page critique of Michael's stewardship of the company. The first 10 years had been a success, he acknowledged, but the latter years had been defined by 7 distinct failures, which Roy laid out point by point.

1. A failure to bring ABC primetime back from its ratings abyss. 2. The consistent micromanagement of everyone around you, with the resulting loss of morale throughout the company. 3. A lack of adequate investment in theme parks, building on the cheap that has depressed park attendance. That is counter to every other thing that I've heard.

I mean, park attendance was down because of September 11.

Right. Michael sort of famously had an eye for making the theme parks great, second only to Walt.

Nobody invested in the parks like Michael Eisner.

Right. Right. 4. The perception by all of our stakeholders that the company is rapacious, soulless, and always looking for the quick buck rather than long-term value, which is leading to a loss of public trust. Disney was, by this point, distributing Pixar's early films, but Eisner and Pixar had a very contentious relationship. We'll put a pin in that for now.

Yep.

5. A creative brain drain from the company due to mismanagement and low morale. 6. A failure to build good relationships with Disney's partners, particularly Pixar. And 7. Your consistent refusal to establish a clear succession plan. This is a brutal letter.

Yeah. And then Roy ends the letter with, “Michael, it is my sincere belief that it is you who should be leaving and not me. Accordingly, I once again call for your resignation and retirement.”

Ooh, man. So what is Roy so upset about? Amazingly, Disney Animation had continued to go downhill.

Right. 2003 had Brother Bear.

Yep.

2004 had Home on the Range. 2005 was Chicken Little.

Yeah.

You've never heard of any of these films, I'm sure. Maybe you've heard of 2007. They had Meet the Robinsons, which I guess would've been in development.

Yeah. Yeah, yeah. Bolt was the end of this misery in 2008.

Yeah. I mean, if you are a little bit younger than David and me—call it 25, maybe 30—you probably don't actually have any Disney movies from your childhood that you remember the way that we remember Aladdin and The Lion King—

Yep.

—and The Little Mermaid and Beauty and the Beast.

Totally. But, yeah, back to Roy and this Save Disney campaign. Roy, as we already talked about earlier, is a complicated guy. He's so upset about Disney Animation. Technically, he's the one in charge of Disney Animation, so who's he upset at here—himself?

But I think what this is really about, and Roy's superpower for Disney, was that even if he wasn't the best executive or leader, or in touch with the marketplace, as evidenced by the total flop of Fantasia 2000, he absolutely was the steward and protector of the Disney spirit. It was so clear that the Disney spirit—the creative spirit, the spirit that made these timeless stories that got handed down from generation to generation—had left the building.

And the company's just spread too thin.

Yep.

It's got 2 completely different business models doing 2 completely different things from this merger with ABC.

Yep. So what happens next? Roy and Stanley had resigned in a huff from the board at the end of 2003, right at the holidays. Disney's annual shareholder meeting is coming up in March 2004, where the vote is going to happen to, hopefully in their minds, oust Michael Eisner as CEO of Disney.

Disney, in response, schedules an analyst day—an investor day—for the company in Orlando in February 2004, ahead of the meeting, to shore up support for Michael and shore up support for the stock. And they have good news to share: Pirates of the Caribbean is going to save the company.

The movie did great. Based on a Disneyland ride, I mean, you can't write a better story.

Can't write a better story. Revenue for the quarter is up 19%. Johnny Depp riding in, going to save Michael Eisner's job.

They all wake up the morning of the investor day. Eisner's there. Bob Iger is there. By this point in time, he's been promoted to be president and COO of The Walt Disney Company. And they read the news that Comcast, the Philadelphia-based cable company, is making a hostile takeover bid to acquire Disney for $54 billion in Comcast stock.

I remember when this news hit. It was shocking. The idea that a cable company—a cable company—could take over The Walt Disney Company was—

Just offensive.

—offensive. There were practically no more hated genres of corporations in America than cable operators, largely in part thanks to The Walt Disney Company and ESPN riling everybody up against them. And that they would be taking over, with stock, this treasure of America—honestly, for Roy and for Stanley and their Save Disney campaign, it was the best thing that could've happened, because to many people, they look at this and they're like, “How low has The Walt Disney Company fallen?”

Yeah.

But Disney is doing great. The parks business was down because of September 11, but it's coming back. Pirates of the Caribbean is a big success. They've got this great partnership with Pixar. They've got freaking ESPN, which is still crushing it.

Why does Comcast want to buy Disney? They sense this opening, this weakness, and wouldn't it be amazing if Comcast could all of a sudden acquire its most important supplier in ESPN—

Right.

—that has all of this leverage over them.

They're constantly going to war with ESPN every year to renegotiate the carriage rates. Be nice to own it.

We might be able to get ESPN?

Right.

Holy crap, let's try it.

Yep.

Oh, man.

Just to underscore this ESPN thing, friend of the show Ben Thompson has a great reflection on all this:

“Walt Disney's chart, the famous flywheel one, may have been a very satisfying business model, but the reality of Disney's TV business is that it was scalable in a way that the Disney chart could never be. The beauty of the cable bundle is that nearly every household in America paid for it every single month, regardless of whether or not Disney had a hit TV show or a must-watch sporting event.”

Thanks to its suite of channels anchored by ESPN, Disney received a big chunk of that money, and it grew like clockwork. In that world, Walt Disney's model was a nice side business to the real moneymaker.

Yep. Yep. Man, it's all about ESPN—everything that's happening.

Yep. The cable network's operating income—the profit within The Walt Disney Company at this point—was $2 billion. Company-wide, they were only making $4.5 billion, so almost 50% of the company's total profits came just from these cable networks.

Yeah, which is really—

ESPN.

ESPN. So, on the back of this narrative of how low the Disney Company had sunk under the leadership of Michael Eisner—which gets ridiculous, but it's the narrative out there—the 2 major shareholder advisory services backed the Save Disney campaign and Roy Disney, and they advised shareholders to vote to withhold their support of Michael Eisner as CEO at the March shareholder meeting. CalPERS, the big California pension fund, announced that it was going to vote its Disney shares against Eisner and vote for him to resign.

So all of this came to a head on March 3, 2004, at the Disney annual shareholder meeting, which hilariously had been scheduled that year to take place in Philadelphia—the headquarters of Comcast.

They're just a few blocks away.

At the end of the day, 43% of the shareholder base voted to withhold support for Eisner as CEO, which is a huge number.

You don't renew a CEO's contract when 43% of your shareholders don't want that CEO.

No. Yep. So the Disney board met in an emergency executive session without management present, during which they decided to remove Michael as chairman but let him remain CEO of Disney for the moment. They announced this, and the Disney stock jumped in response. Meanwhile, Comcast stock had been falling, so a few weeks later, Comcast formally withdrew its bid.

But this didn't placate Roy and Stanley and the Save Disney campaign. Eisner was still CEO. A few months after that, Michael announced that he would leave the company when his contract expired at the end of 2006. So he had announced that he was going to resign, but now there was the question: Who's going to take over?

Yep.

The board announced that it was going to initiate a public, high-stakes CEO search, and it intended to name Michael's successor by June of 2005. Everyone believed it had to be an external candidate who was going to come in and take over Disney, just like Wells and Eisner came in 20 years ago.

Well, do you know what the press release says—who it names?

Well, it says that there will be external candidates and that there will be 1 internal candidate.

Initially, it actually said internal and external candidates, and Bob Iger was reviewing the press release because he was COO. He went to the board and said, "Wait, Michael's going to be CEO for another year?" Bob said, "You can't really do this. Are there other internal candidates, or is it just me?" And they said, "It's just you." He said, "Well, then you need to put me in the press release—"

Right.

"—because there's going to be a power vacuum."

Otherwise, there's going to be chaos around here.

Right. People will need someone to look to for leadership because no one's going to be looking to Michael. He's a lame duck, and there are going to be all these people vying for power. The company will not function. You have to say, "External candidates and Bob Iger." And they agreed and said, "Okay, then we'll do it."

So Bob was announced as the internal candidate, and the board promised it would run an exhaustive search for external candidates. Bob, as he recounts all of this in The Ride of a Lifetime, came up with what I think is one of the most brilliant campaign framings I have ever heard, and he actually hired a political campaign consultant to help him with this.

He realized, "Okay, I am the number 2 to an unpopular incumbent. I'm like the vice president of a massively unpopular president right now, who has just become a lame duck."

Right. Every board member's first, second, and third question for me should be, "Why should we pick you when you were a part of the previous administration that we think sucked?"

And how did you screw up so badly?

Yeah.

So he realized that his only chance was to completely reframe the situation. This isn't about what happened in the past. This is only about the future, which is both the right way to look at this and Bob's only chance to win.

Yes.

So he proposed to the board, in his candidacy, 3 pillars of his vision and strategy for the future of The Walt Disney Company.

Number 1: We need to devote most of our time and capital to the creation of high-quality branded content. In other words, we need to revive Disney Animation and, along with it, the Disney flywheel. Spot on, especially now, because the amount of content in the world is exploding. We're entering the social media era. There's Facebook. We're about to get YouTube. Consumers have infinite choice for content. The only way for a company like Disney to hope to still be relevant is to go back to making the very best content.

And build a brand to be known for that, so people know to look to you for that highest-quality tier.

And still, nobody is better positioned than Disney to do that. Despite all the problems and distractions and the downfall of animation over the last 10 years, it's still Disney.

Yep.

So that's 1. Number 2: We need to embrace technology to the fullest extent. Now, this sounds like, duh, why wouldn't you do that? But this is actually kind of a radical statement at this point in time.

We're about to enter an era where the entire traditional media industry is going to be either running scared or actively trying to fight tech in Silicon Valley. Viacom is about to launch a lawsuit against YouTube to try and sue it out of existence. Everybody remembers what just happened to the music industry and Napster. Bob is saying, "No, we're going to embrace technology."

Both to produce fresh, new, cutting-edge content the way that Walt did, but also embrace technology as a distribution medium—

Yes.

—and figure out how to use that to our advantage, not let technology be the reason for our downfall.

Yep. And then Bob's third pillar of his strategy is to expand global reach. We need to better penetrate certain markets, particularly the world's most populous countries, like China and India. Unlike Walt's era, at this point, something like 1/3 of the global population lives in those 2 countries, and Disney is all about economies of scale.

Make the deepest, best, highest-quality content, characters, and stories possible, and get as many people around the world to fall in love with them as possible.

Yep.

And we need to get into those 2 countries.

Yep.

So amazingly, Bob won on this campaign. In March of 2005, the board announced that Bob Iger would be the future CEO of The Walt Disney Company. They accelerated his start date and Michael's departure date to September 2005, a year ahead of when Michael had initially announced, and the Michael Eisner era at Disney came to an end after 21 years.

It's so interesting. Michael Eisner's tenure at Disney, in my mind, is really 2 chapters. There's that whole first chapter that sort of ends with Frank Wells's passing—

Yep.

—Katzenberg leaving, the end of the great Disney Animation era—

And acquiring Capital Cities.

But the acquisition of Capital Cities is sort of that whole second era.

Yes. Yeah, that's the way I would frame it, too. He, Wells, and Katzenberg did an incredible job turning around Disney in the first 10 years. That sort of went sideways in the second 10 years. But Michael made 1 of the greatest acquisitions of all time in the second 10 years, and because of all the drama, he doesn't get anywhere near enough credit for it.

Yeah. It's so interesting when you say 1 of the greatest acquisitions of all time. When I look at Capital Cities/ABC, it was because it had ESPN, but it also cost the company its strategic clarity.

Yes.

Disney never again would get to be just Disney. It's the flywheel business and the—

ESPN business.

—the affiliate and advertising cable business.

Yep.

And it's worth it, because buying ESPN was this pseudo-infinite wellspring of capital to fund everything else, but it cost the company its clarity.

Yep, that's exactly right.

By the numbers, Michael's tenure was unbelievable. He came in with a market cap a little shy of $2 billion—

Yep.

—and left with it worth, I don't know, $50-ish billion. I think there was some dilution, so it wasn't quite a 25x, closer to a 20x return on the stock. He came in when revenue was $1.7 billion and left with it at $31 billion.

Yep.

That's a 15% compound annual growth rate over his 2 decades, and net income went from $97 million to $2.5 billion.

Yeah, 26x net income during his tenure.

By the numbers—

By the numbers.

—great. And, you know, ESPN is arguments 1, 2, and 3 for why he was a great CEO. And also Disney's renaissance, but I put that at 4—below ESPN, ESPN, and ESPN.

And then the Disney renaissance, yeah.

Yes.

I don't know. You gotta count The Lion King musical for something.

That's true. That's very true.

So Bob Iger is named CEO.

One of his first calls after he gets the news, on, I think, a Sunday afternoon, is to Steve Jobs, then CEO of Pixar in addition to being the CEO of Apple. He writes in The Ride of a Lifetime: “I barely knew Steve at that point. He was typical Steve. ‘How long have you worked for Michael?’ he asked. ‘10 years.’ ‘Huh,’ he said. ‘Well, I don’t see how things will be any different, but sure. When the dust settles, be in touch.’” It turned out that phone call was probably the most important phone call in the history of The Walt Disney Company.

But before we tell the story of Pixar, now is a great time to thank one of our favorite companies, Work OS.

Yes. So I wanna start with a line that we quote on this show all the time: Focus on what makes your beer taste better.

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This is the whole reason Work OS exists. They turn those enterprise requirements into drop-in APIs. Your team adds enterprise SSO in an afternoon instead of a couple months, and gets back to the stuff that really differentiates your product.

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So during his CEO audition process, Bob Iger had completely lost faith that Disney Animation could be fixed from within. Secretly, he concludes that the only viable path to restore Disney Animation to its proper glory is to replace the entire leadership team with Pixar leadership. There’s this famous moment that Bob writes about when he’s at the opening parade of Hong Kong Disneyland in 2005. He’s watching all the floats go by, and he sees Cinderella, Mickey, and Snow White. He realizes that there are no Disney characters from the last 10 years or so in this parade. On the contrary, it’s stuffed to the gills with Pixar characters.

Yep.

And that’s the moment where he’s like, “You know what? The path is clear. Pixar needs to take over Disney Animation.” That’s why he called Steve Jobs the evening that he knew he was going to become CEO.

Yes. So listeners, we thought something that would be fun on this episode is to tell the whole Pixar story. We could have done it in line earlier with Disney Animation, but we wanted to carve it out, give it its own special section, and, in a really poetic thing for David and me, redo our very first episode on Acquired, which was on Pixar, here as a segment of this episode.

Yep. Pixar is the spiritual successor of Walt Disney’s vision for Disney Animation.

Yep. All right. So we’re winding the clock back. Let’s start with John Lasseter.

Yep.

This is a guy who dreamed of becoming a Disney animator his whole life. One of his early jobs was working the Jungle Cruise at Disneyland. And David, as you mentioned, he ends up getting into CalArts. It’s a complete dream come true. Classes are taught by Disney’s legendary animators who worked with Walt, the Nine Old Men, as they are affectionately referred to.

That’s right.

He does get a job at Disney Animation, but unfortunately, it’s during those dark times in the early 1980s. John gets obsessed with the budding field of computer animation, even though no one else in the department is obsessed with it. Actually, Tron was happening elsewhere in Disney.

That’s right.

Full computer stuff was happening, just not in the culture of Disney Animation. This all comes to a head when John gets the chance for his directorial debut on the movie Brave Little Toaster, and in his big pitch meeting, he comes in with the idea that he’s going to use computer animation to do it. Remember, this is the early 1980s, so computer animation was pretty primitive stuff.

The time wasn’t actually right yet.

He gets asked if it’s going to be faster and cheaper than traditional animation, because why else are they doing it? And he says, “Neither. It’s just going to push the envelope on what is possible in great storytelling.” John is immediately—and I’m not kidding—let go the same day.

Wow, I didn’t realize it was the same day.

It was: “Thank you for your meeting. We are declining to put this project into production, and since your project is over, you really have no reason to be here.”

“Thanks for your meeting. You’re fired.”

Yes. So we’ll put a pin in John’s story for now while we introduce another co-founder of Pixar.

Flashback to 1963. We’re at the University of Utah, where we meet Ed Catmull. Ed also wanted to do animation his whole life, but he felt that he didn’t have the chops to cut it as an artist, so he got into computers instead. He finds himself in this truly magical program for computer graphics at Utah, though it was just this pocket of an esoteric field that most people did not really care about or appreciate at the time. Ed ends up creating one of the first films ever with computer graphics: a rotating model of his own hand, just a black-and-white wireframe.

His classmates are famed computer scientist Alan Kay, Jim Clark of Netscape and Silicon Graphics—

Yep.

—and John Warnock, who founded Adobe.

And also, wasn’t Nolan Bushnell knocking around there?

He was. Yep. Past Acquired guest Nolan Bushnell, the famous founder—

Founder of Atari.

—of not only Atari, but Chuck E. Cheese.

That’s right. That’s right.

So Ed ends up getting recruited to build out this pioneering computer graphics program at the New York Institute of Technology on Long Island. So he’s in this academic sphere.

Meanwhile, in Northern California, the year is now 1979, and there’s a guy named George Lucas who is looking for someone—

Heard of him.

—who can help him push the field of computer graphics forward. George had just released Star Wars, and he was working on The Empire Strikes Back. He had this amazing firsthand experience of how computers could unlock brand-new filmmaking methods. And not just for Star Wars, but George was looking to develop tools to make the whole industry better.

This is pretty heady stuff at the time. No one in Hollywood was looking to invest in building out new computer technology just because. And the reason why George wanted to make stuff to push all of filmmaking forward is actually pretty interesting from a business analysis perspective.

A filmmaker can only make one film at a time, and that takes 1 to 3 years. But you want an audience that’s used to always going to the movies every week or every month and having a great experience. So if you’re a filmmaker, you’re rooting for all the other filmmakers to make amazing films, to condition your customer set that your product is good and they should have a habit of going to the movies.

So unlike other industries, being a filmmaker has this delightful, cooperative—

Yeah, you’re sort of collaborators and competitors.

Right. So George gets put in touch with Ed. Ed accepts a job, moves across the country to join Lucasfilm, and brings Alvy Ray Smith with him from New York Tech. They create the computer graphics group at Lucasfilm.

Yep.

And really, the goal here is to figure out how to do stuff that you couldn’t do with traditional live-action techniques. Pretty broad. The first big success is actually not with a Star Wars film, but a Star Trek film, in Star Trek II: The Wrath of Khan. It was a flyby of a planet as it was being terraformed, and it was shot from all these crazy swooping angles.

Mm.

So this is now where the 2 paths collide. You’ve got John Lasseter and Ed Catmull, and they see each other at an industry conference, of all places, on the Queen Mary. John has just been fired from Disney. Ed doesn’t actually know that. Ed is hitting the limitations within his graphics group, where none of them really know how to tell stories, create characters, or imbue any emotion into the things that they’re making.

Ed begs John to see if there’s any chance he could take some time and come up north to hang out at Lucasfilm Graphics and improve the storytelling in the short films that they’re starting to think about.

John’s like, “Oh, let me check my calendar.” “Yeah, I’m free.”

Yes. And this is really the first chance that they had to get a real animator. So the duo is now together, but computer hardware at the time was not capable of doing what they needed. The group needs to develop hardware.

They make the Pixar Image Computer within Lucasfilm. This is the first time they’ve actually used the Pixar name for anything. They’re making these short films, but there’s no real market for them. They’re fun to make, but it’s not like anyone’s buying them.

The Pixar Image Computer could do MRIs—basically anything where you needed to turn images into 3D renders. They did the first volumetric renders of an MRI. They would also analyze satellite photos for intelligence agencies and build 3D models from them. So they’re finding these niche, interesting markets to try to make some money.

For their software and hardware?

Yeah.

So it’s interesting. All of this is part of Lucasfilm. Is George Lucas interested in MRIs or even making animated films?

Not particularly. I mean, he wants them to develop capabilities for future films, but he doesn’t want to staff up a big story team and have this be a filmmaking division. And no, I don’t think he’s particularly interested in the CGI.

He actually has a different piece of news to share with the team. He’s going through a divorce, he’s short on cash, and he needs to free up cash for the divorce. So what he wants to do is sell the graphics group.

Which, by the way, is fascinating. This all happened because George Lucas believed so deeply in Star Wars and the movies he was making that he didn’t want to give up any equity in Lucasfilm as part of his divorce. He needed to raise cash to pay his former wife instead of giving her any equity in Lucasfilm.

Wild.

This is like the butterfly flaps its wings, resulting in Pixar saving Disney.

He finds a buyer.

Yes. Enter Steve Jobs.

Steve Jobs.

Amazingly, they’re first introduced by Alan Kay, a legendary computer scientist, former classmate of Ed Catmull’s, and a trusted friend of Steve Jobs. Steve visits Lucasfilm to see the technology firsthand, and he’s impressed, but then he goes dark.

Yeah.

He just vanishes for a while. The Lucasfilm guys are wondering, “What’s going on?” It turns out this is right in the middle of when Steve is getting fired from Apple and ousted from his own company.

Steve gets back in touch after the dust settles, and at first, what he actually wants is the Pixar team and technology to create a rival consumer computer company to Apple. He wants to get back at Apple, using Pixar as the seed of the company.

He wants Pixar to be next.

Exactly. Ed Catmull, John Lasseter, Alvy Ray Smith, and the team have no interest in doing that. Steve Jobs eventually does go and start NeXT on his own, but he keeps in touch, and he likes these guys. He comes around to the vision of creating films.

He does agree to buy the company and rescue it from Lucasfilm. He goes into business with Ed Catmull, John Lasseter, and the team. In 1986, he writes a $5 million check to George Lucas to buy the company and another $5 million check into a new entity that he just created to fund the company.

It’s formally named Pixar, and it’s owned 70% by Steve Jobs and 30% by employees.

And that’s Pixar.

And that’s Pixar. Can we just say how insane this story is? There’s a guy who worked at hallowed Disney Animation. He gets his first directing gig, but he’s fired for advocating the use of the technology of the future.

Then he finds a kindred spirit who happens to be working for George Lucas. George freaking Lucas, right—

Yeah.

—in between Star Wars and The Empire Strikes Back.

Yep.

They’re inventing all this insane stuff, but George needs to sell it off and somehow manages to find Steve goddamn Jobs. It’s like the Avengers of technology, film, and business.

I mean, the only way this story could get any more awesome is if they somehow beat Disney at its own game, got bought by Disney, breathed new life into the core of the company, and Steve Jobs became the largest shareholder of Disney itself.

It sounds like a Pixar movie.

Doesn’t it?

It does.

This is why Acquired exists.

It’s so great. So they spin off the company. They don’t have any customers for the product, so they go out and recruit someone to come and buy their software as a commercial product.

Yes, and that customer is Disney.

Yes.

The first check to Pixar, Inc. is from Disney, to work with them and create the CAPS system for improving their 2D animation.

Yep. This is the beginning of the Disney-Pixar relationship as a vendor.

As a vendor. So Pixar decides they need to show the world who they are. They make this short little film about a lamp and a baby lamp playing with a ball, and they show it at industry conferences, because that’s what you did with computer graphics back then. People go nuts.

You were texting me. Your dad was at the conference where they showed Luxo Jr.?

Yeah, at one of them. It wasn’t the original SIGGRAPH, but it was right there in the late ’80s. It was a joint robotics and computer animation conference.

I remember when I was a kid, I think it was when we were seeing Toy Story and there was the little short before it, my dad told me, “Yeah, I saw this at a conference, and I just knew this was going to change the world.”

Wow. Wow.

I just rewatched Luxo Jr. this morning. You go on an emotional journey and develop feelings for lamps over 90 seconds. To me, this is where the storytelling aptitude and an ability to animate lifeless objects into something you really care about starts to come through.

Yep.

So, full steam ahead, right? Let’s go make movies. Well, there’s a problem: You need about $30 million to do that.

So first, they start making a bunch of commercials to try to pay the bills. They develop RenderMan as a piece of software. It’s actually still an industry standard today for computer animation. They release it externally, and it gets used on Jurassic Park, Terminator 2, and a bunch of cool films with early computer graphics.

But the business isn’t working. These image computers are insanely expensive, and they’ve only sold about 300 of them ever. If they’re going to realize their dream of making an animated film, they need to go all in on it, and someone needs to fund it.

Here’s what happens. John Lasseter rekindles his relationship with Disney. From what I could tell, this is completely outside of the whole CAPS relationship. John is being recruited to join Disney as a director. This is around 1991.

Oh, wow. So right as the Disney Renaissance is happening.

That’s right.

They want him back.

That’s right. Instead, he says, “No, I threw my lot in with these guys in Northern California. We’ve got something cool here. It’s a great team. No, I’m turning down multiple offers to be a Disney Animation director,” which had been his lifelong dream.

And he says, “But here’s what I think we should do. Let’s do a 30-minute Christmas special based on our Tin Toy short.” He’s got a little bit of leverage to ask for something here, because Disney really wants him to direct something.

Disney—really, it’s Peter Schneider, who works with Jeffrey Katzenberg—says, “Hey, forget the 30-minute TV special. Let’s do a whole feature film: Toy Story.”

Yep, and this is how Toy Story happens.

So why is this such a crazy idea? Why is it going to cost $30 million? Why did the folks at Disney think this was such a nutty idea, to make a computer-animated film?

Yeah, it seems on the surface like this should be easier than 2D animation, right? You’re just going to get computers to do all of it. Not quite.

We got to spend a day at Pixar and learn from the folks there who make Pixar movies how they do it, and wow, it was so cool.

Embarrassingly, I didn’t really understand that the way these things are made is like a stage play. You actually lay out all the objects on a stage in a 3D virtual environment, and you can put cameras and lights anywhere you want, all in this virtual environment. It’s like a video game.

Yeah. They’re creating the universe, basically.

Yes.

It’s not just that you’re illustrating a still frame.

Yes. The best explanation of this—the best seven-step process—is on the inside cover of their S-1 IPO prospectus. It has this little animated guide called the Pixar Animation Steps.

So here they are. Step 1: storyboards. Over 4,000 storyboard drawings are created as the blueprint for the action and dialogue of a feature-length Pixar film.

I think the most interesting part is that they then take the storyboards and put them together in a story reel, where they’re able to watch it like a movie even though they’re still frames. They either narrate over it or do temporary dialogue on top.

So, in a very inexpensive way, using 2D sketching, you really can get a true sense of what’s going on. This also makes it very iterable and revisable. We were chatting with folks at Pixar, and they said, “Yeah, there are usually about 8 different iterations where we revise the plot, the script, and the dialogue to really nail it and make sure that the story works.”

I was watching old interviews with John Lasseter and Steve Jobs, and Lasseter has this quote: “If it’s working in our story reels, when we animate it and put color to it, it’s going to work even better. If it’s not working in story reels, the animation won’t save it.”

Then Jobs says, “In essence, it lets us beta-test and iterate on our films before we actually make them. We believe it’s one of the reasons that the hit rate can be substantially different.”

So they basically make a low-resolution 2D movie before they make a 3D movie.

Yeah.

And the story and characters all have to work in 2D first.

Yep.

All right, so step 2: models. Pixar's proprietary animation software, Marionette, is used to create the 3D computer models for characters, props, and sets.

Step 3: layout. Each scene is begun by assembling the models for the required characters, props, and sets, and blocking out the action. This is where they really go into the computer for the first time. They take the models and lay them out to resemble the 2D paper sketches that they made for the story reels.

Hilariously, you can watch some of these. You can watch the film when it's only done in the layout stage. The characters don't have any of their limbs that move. Their mouths don't move. They're these lifeless puppets being dragged around. You get the plot, but you get no personality or emotion.

Yeah, they're like the 3D equivalent of stick figures.

Yeah, the animators haven't really performed the characters yet.

Yep.

So then step 4: animation. Pixar's proprietary animation software allows Pixar's animators to choreograph the motion in each scene by defining key frames, or poses. This is the exciting step. Each character goes through something called rigging—

Yeah.

—by this point, where they provide the animators with a buffet of options for each character, like moving the hand at the wrist, or the arm, or the elbow, or the shoulder.

The animator then very carefully, frame by frame, first animates the bodies and then later the faces, because if the body motions are working for the story with no facial expressions, then all of the facial expression and mouth movement is just icing on the cake. You never want to rely on the facial expressions to do the heavy lifting for you.

This is such a cool part of the process. You're turning them from stick figures into something that's alive. That's really the best way to frame it.

Yeah. To your point, they use the same thing here that the animators used in 1938 with Snow White, where they film themselves acting it out first, and then they use that video as a reference for how this character would act.

There's all this great footage on YouTube of, in 1992, the guy who was animating Woody going through the motions. For the army men, to figure out how the army men were going to move in Toy Story, they duct-taped ski boots to a giant plank of wood and jumped around the room in it to really understand how a person would move if their feet were locked together.

It's this really amazing performance, and then you're teaching the computer, through the rigging and through effectively pulling the strings, how to make the character move the way that you want it to.

Yep.

Then there's shading: computer programs that describe the surface characteristics—textures, finishes, and colors—that are added to every object in the scene. This is where you can get things like wood, metal, fabric, glass, hair, and skin.

Then step 6 is lighting, using digital lights. Each scene is lit much in the same manner as stage lighting. David, you and I saw some really cool examples of scenes that look boring and lifeless, and then they go through lighting, and suddenly they're gorgeous and emotional.

Yep.

And then lastly, step 7: rendering. Pixar's RenderMan software draws the finished image by computing every pixel of the image from the model, animation, shading, and lighting information.

This is insane. This is the part that, if you think about all the computing involved, for every single frame it needs to compute and recompute every pixel based on what object something is, where all the light sources are for each pixel, whether they're in motion, and, if so, how to apply motion blur.

Rendering is so computationally expensive here. In those days, each frame would take an hour or 2 to render, and they could only render 3 and a half minutes of footage per week. They were on Sun Microsystems hardware that was state of the art at the time, and they had 117 of them clustered together to create a render farm for the film.

Yeah, this last step just highlights what a fundamentally different thing this is from 2D animation. 2D animation is art. It's like you're painting a picture. What Pixar does is they're creating a universe, and then they are calculating every atom of that universe.

That's exactly right.

And where it really does have the same spirit as Walt Disney is that every single one of those steps is also a story step. It's not just like, "Oh, great, we wrote the story. Let's throw it over to the tech guys and turn it into the renders." It is all a collaboration: creating a universe, and constantly refining the story and making it better and better and better over years.

All right, so back to Toy Story. January 19, 1993: they get the green light from Disney. Specifically, what they have is a deal to make up to 3 pictures, just 1 for now, and Disney has the exclusive option to extend for 2 more, where Disney is basically hiring Pixar to make a movie for them.

Here are the terms. Disney puts up all the capital for production. It ends up being about $30 million. Initially, it was budgeted to be about $17 million. Disney is also responsible for the marketing costs. Pixar exclusively can make films with Disney. Pixar is entitled to a small amount of the profits, and that is profit after paying back some of the marketing costs.

Yep.

So that ends up being less than 10% of the profits, which is not exactly an engine that they can use to build a business.

Yeah. Oh, by the way, Disney keeps all of the intellectual property rights to Toy Story.

Yes.

All the characters, all the merchandise, all of it.

Disney also will have the right to make sequels if they choose. They will offer Pixar the opportunity to make the sequels with them, but if Pixar declines, they're still Disney's to make.

And lastly, the 3-picture deal does not actually include those sequels, even if Disney elects to make them. So if Disney wants a sequel, Pixar makes a sequel, but it does not count against the total—

Yep.

—of 3. So it's kind of a crappy deal, but it is all of their dream, and it is basically the only option. And it's Disney, right? I mean, it's Disney. You do it.

Right. Well, there's no other studio that would make this with them, and Disney did stuff like this. They made The Nightmare Before Christmas with Tim Burton. It's like, "Hey, this is stop-motion animation. It's something different from what we do here at Disney. Let's get this out there. It's a boutique thing. We'll publish it. We're the best in the world at publishing animated family pictures and distributing them to theaters and marketing them. Great."

Yep. So what are they actually making here? Pixar knows they want to make a film that is different from your typical Disney animation. They don't want to make it a musical, because at this point in 1993, the last 4 were all musicals, and they don't want it to be a fairy tale. They don't want it to harken back to the classic Walt tales either.

But that does mean that they're in uncharted waters. They have to develop their own tone and style and process. So they start translating John Lasseter's vision into the storyboards, and they keep going to Disney for notes, which is both useful, because Pixar doesn't really know what they're doing yet, and contractually required.

Katzenberg is at the helm at this point. He keeps pushing to make the film edgier. Through a combination of Pixar not really feeling confident in its storytelling and the notes pushing them this way, Woody ends up very mean. He's got this brand of insult humor. He's so threatened by Buzz that that emotion overshadows every other action he could possibly take in any scene. He's actively and intentionally pushing Buzz out windows and behind dressers and stuff like that.

So December of 1993, the story reel screening happens down in Burbank. They're like, "All right, here's all the notes that we've taken. Here's the story we've got." It goes over like a lead balloon. Katzenberg hates it. Roy E. Disney hates it. None of the characters were working.

So Disney cuts it off. Disney says, "I know we've got a deal, but we are stopping production. No more money." The Pixar team's like, "Whoa, whoa, crap. That's our whole company. Can we have 2 to 3 weeks? We just want to do a total rewrite. We'll work day and night."

And so they go back up to Northern California, and they make the version of the film that they want to make. It's not perfect, but suddenly these characters get multidimensional. They come back, and it's good enough. There's real tension in the story. Disney, to their credit, looks at it again and says, "Okay, you're back on. Continue the process."

Over the course of 1994, they're looking at their story reels. They're iterating through. They're adding more depth. The early tests of the scenes that have gone through most of the render pipeline are really good. The Pixar team knows it. Steve Jobs has become a believer, and he's starting to believe, "Hey, we've got a hit on our hands."

And David, I know you've got this part.

Yeah. So Steve, being Steve, starts thinking through this and realizes, if Toy Story is a hit, what's going to happen? Disney and Michael Eisner, who's still CEO at this point in time, are going to realize that they actually just created their worst nightmare: a true animation competitor to Disney that can do something that they can't.

So let’s play this out. That happens. He’s probably going to come back to us and want to renegotiate the deal to lock us up for longer. We want to have as much leverage as possible. In order to do that, we need to have our own capital to actually go in 50/50 on the production budget of the movies that we’re making together.

If we don’t bring any capital, Disney will be able to walk all over us and keep the majority of the profits, plus take their distribution fee, et cetera, et cetera. Okay, how are we going to get the capital? We need to go public.

And we can’t go public now because the last 4 years have been losses, and we have not yet released a movie. We don’t want to wait too long after the movie comes out. So I think we should go public the week after—

Yeah.

—Toy Story comes out.

And this is where Steve was just brilliant, because he was like, “If it’s a success, we’ll make a big splash. We’ll be the darlings of the media. We’ll have a big hit movie. That is the time to go public.”

If you’re anyone else at Pixar, you have to be thinking, “No, no, no, no. Can’t we just do this one and see how it works out?” But this is Steve Jobs.

Yeah. So Toy Story comes out on November 22, 1995, and grosses nearly $400 million worldwide.

It is the Thanksgiving movie for families to see.

Yep.

It made $29 million in its opening weekend, went on to become the number-one film in the U.S., and it was the first-ever animated film that was a blockbuster that was not created by Disney.

And it was the highest-grossing film of the whole year.

Not children’s movie—highest-grossing film, period.

Period. So 1 week later, after Toy Story premieres, on November 29, 1995, Pixar goes public.

Right? Which means Steve had been flying around doing a roadshow, meeting with all these investment bankers as Toy Story was finishing production and getting ready to go out. It’s unbelievable.

Well, this is actually a theme that we’re going to come back to in a minute. There are no other business guys at Pixar. It’s just Steve. Steve does everything that’s not creative and making the movies.

So Pixar closes its first day of trading at a $1.5 billion market cap. This is how big a hit Toy Story was and how much it was in the public consciousness. This is how Steve Jobs becomes a billionaire.

Yes.

The Toy Story IPO. He didn’t make anywhere near that kind of money from Apple. Toy Story and Pixar are how Steve Jobs makes his fortune.

So that $140 million they raised makes it the largest IPO of the year, larger than Netscape?

Netscape, yes.

The numbers on Steve: he bought the company for $5 million. He actually did dump $54 million into it over 9 years.

Yep.

He was wiring money for payroll and stuff like that. And on IPO day, he owned 78% of the company.

So what’s that, like $1.2 billion?

Yes. Pixar alone made Steve Jobs a billionaire on IPO day.

Yep. Incredible.

Also, this was just a bet-the-company move. I mean, if Toy Story didn’t work, then the IPO wasn’t going to work, and then the whole thing would go bust. And if the IPO didn’t work—

Then Pixar would’ve gotten crushed by Disney—

Yeah.

—in the next negotiations.

This was a series of successive bet-the-company moves that all needed to work in order for it to work at all. So what happens next? Steve was exactly right. Michael Eisner wants to renegotiate after realizing, “Oh my God, we only have 2 more films left with these guys, and they’re the only credible competitor.”

Jobs throws out, “Hey, let’s do it 50/50, with joint participation 50/50 in the upside, now that Pixar has the cash to do it.” Michael Eisner agrees, as long as they can expand into a brand-new 5-picture deal, rolling the remaining 2 from the old contract into the new deal.

So after Toy Story, Disney would have the right to make 5 more movies with Pixar, in addition to sequels. Now, Disney also would be doing the distribution of the film, so they’d actually end up with more like 65%, not 50%. But that’s some Hollywood accounting that—I don’t actually think Steve realized that at the time.

Well, the story I heard was that he did, and it makes sense. Distribution has real costs, and marketing, and of course Disney should get paid for that. The story I heard is that Steve found out later from George Lucas that the terms of Lucas’s distribution deal with Fox were better than the distribution terms that Pixar got with Disney, and that’s what he was pissed about.

So the second film they make is A Bug’s Life. This was also a big success—$360 million at the box office. Pixar is sort of viewed as this hit factory. It’s only been 2 so far, but they’re developing Toy Story 2 as the next film after that.

Meanwhile, the relationship with Michael Eisner is—

Deteriorating.

—kind of deteriorating, yeah, with Steve Jobs. Disney wants to go direct-to-video with Toy Story 2. This is actually interesting to flash back and think about. Disney had never done anything except direct-to-video for sequels. The thinking was that you make something great once, you put it in theaters, and then—

You don’t overexploit the IP.

That’s exactly right. But also, the belief was that sequels can’t possibly be as good. You’re always making this lesser, second-tier thing. And they actually hadn’t done a ton of sequels, which is quite funny, because it’s completely flipped now.

Now the goal of creating the first film is to be able to create a franchise so they can exploit the IP more and more after that. Toy Story 2 is where they learn the lesson that, oh, actually, that is a viable business model.

It’s actually the Pixar team that goes to Disney and says, “Hey, this sucks. We don’t want to create an A team and a B team at Pixar.”

Yeah.

Because the A team is on A Bug’s Life. The B team is clearly working on the thing that’s going to be lower-budget, lower-distribution, direct-to-video. We don’t know how to do it.

Disney says, “Okay.” So in February of ’98, Disney says, “Toy Story 2, you are green-lit for theatrical release.”

But the question is, does it count towards the deal or not?

So Steve realizes Toy Story 2 is going to be good. And again, he wants to renegotiate. He goes to Eisner and says, “Hey, can the 5-picture deal include sequels?”

Meanwhile, Michael Eisner is like, “Why would I do that? The paper says what it says. We negotiated this for a reason. You want to change the terms of the deal. I don’t want to change the terms of the deal, so we’ll just stick with the deal we have.”

Yep.

You can see why the relationship starts to deteriorate.

Yes. Yes. They make Toy Story 2. It doesn’t count. They release it in theaters. It grosses almost $500 million.

Pixar’s highest-grossing film yet, and Disney learns all the way to the bank that sequels can be really profitable.

Yes, they do. So meanwhile, the backdrop to all of this is Steve Jobs had come back to Apple. By this point in time, Apple had bought NeXT. Steve is now CEO of Apple, leading the turnaround and the renaissance at Apple.

The iPod comes out, iTunes comes out, and one of the big marketing campaigns for the iPod and iTunes is “Rip, Mix, Burn.”

But you know who doesn’t like the word “rip”? It’s Michael Eisner.

So Eisner goes and testifies in front of Congress in 2002 against the technology industry, and specifically calls out Apple’s “Rip, Mix, Burn” marketing campaign, saying it encourages theft of intellectual property via digital piracy.

And Bob Iger has a quote about this in The Ride of a Lifetime: “It was clear that Pixar was gaining swagger as Disney was losing it, and these 2 strong-willed personalities were destined to battle each other for supremacy.”

Man, and if you really want to poke Steve Jobs, it’s one thing to go after him in the Pixar negotiations. It’s another thing to come after him at Apple. Now, to be totally fair to Eisner here, Disney had a big music business and a big album business.

Oh, and regardless, at this point, everyone’s sort of banding together and realizing, what’s going to happen to music is happening to movies next.

Yep, yep, yep. So he had good reason to be worried here. But—

Yeah.

—yeah, you probably don’t want to come after Steve Jobs and Apple, one of your most important partners at Pixar.

So then it gets even worse. Finding Nemo is the next movie in the deal, and as Nemo’s coming together, Eisner sees an early screening of one of the reels of Nemo. He decides he doesn’t like it.

Which is how story reels work. They’re crap at first. This is Pixar’s process to iterate—

Right.

—and make them better. Early ones are always bad.

Yep. So Pixar has become a board-level topic at this point for Disney. After seeing the Nemo reel, Eisner writes a memo to the Disney board where he says that he’s seen the Nemo reel, it’s a bad movie, it’s going to flop, and it’ll be, quote, “a reality check for those guys.” And it’ll be great for Disney’s negotiating leverage for Pixar to fail.

Never mind that Disney is getting over 50% of the economics in Nemo, so you should be incentivized to want it to succeed.

The memo leaks, right?

The memo gets leaked from the board to the press.

And Jobs can see that Michael thinks Nemo’s bad. He’s actively rooting against it, even though he’s the creative partner producing it with Pixar, and that it’ll give leverage over Pixar in a negotiation.

You can almost interpret it as, “I’m gonna actively work to make it fail so we can increase our leverage.”

Yeah. So Nemo comes out in 2003, and Michael could not have been more wrong. It grosses $871 million in theaters, making it the second-highest-grossing movie of 2003, behind only The Lord of the Rings: The Return of the King. Then they put it out on home video, on DVD.

And so even before this, let’s say the theaters get, I don’t know, $400 million of that, so that’s $470 million to Disney and Pixar—

Yeah.

—from this film, even before DVD.

Ugh. These were the days, Ben. These were the days. The Finding Nemo DVD was, just like The Lion King VHS was the high-water mark for VHS, the Finding Nemo DVD was the peak, the absolute pinnacle—

Of home video?

—of home video in the DVD era.

’Cause even Netflix isn’t streaming yet at this point. This is 2004.

There’s no streaming. This is the peak. So we heard in the research that Disney and Pixar would sell 65 million copies—

—of the Finding Nemo DVD, all told, across all timeframes.

$30 a pop. That is $2 billion in home video gross. So $3 billion, give or take, in total gross revenue for Finding Nemo, just between theatrical and DVD alone. That’s not including merch. That’s not including parks. That’s not including TV rights. Steve and Pixar did get a reality check, and the reality check is that they don’t need Disney at all.

The LA Times had an article right around this time after Nemo. “Pixar films have accounted for as much as half of Walt Disney’s studio operating income in recent years,” and much of that is driven by Nemo. Remember, this is the same time that Disney Animation is releasing Treasure Planet and Atlantis: The Lost Empire. So Jobs is pissed. He comes back with an even stronger counterproposal.

He thinks, at this point, Pixar is an established studio that knows how to make hits, and he just looks at Disney as a financing and distribution partner.

Yep.

Which is true, but they did have a contract that still had 2 more movies in it. He proposes a deal to Eisner, and this is where the relationship becomes irreparable. Pixar should actually be getting 100% of the profits, not 50%, and they’re now prepared to fund the budget themselves, too. Disney would just get a 10% distribution fee, much like Lucasfilm’s deal with Fox, and to top it all off, Jobs asks Disney to relinquish its co-ownership of the past movies.

Jobs knows that at this point Disney needs Pixar real bad. Eisner stands his ground and declines, and, in reality, Steve was asking for too much here. It actually wouldn’t make economic sense for Disney to do it because they had such little upside in the straw man that Steve was putting together. But, man, would it hurt to lose Pixar when it is really the only thing working right now.

Yep.

Except for ESPN.

Yep.

So all this comes to January 2004, where Pixar pulls the plug on the negotiations. And they issue a press release. I found it on the Wayback Machine. You can actually see Pixar posted it to their website: “After 10 months of trying to strike a deal with Disney, we’re moving on. We’ve had a great run together, one of the most successful in Hollywood history, and it’s a shame that Disney won’t be participating in Pixar’s future successes.”

Classic Steve Jobs.

That is definitely written by Steve personally.

Definitely written by Steve.

The deal will be up after Pixar finishes out the contract with The Incredibles in 2004 and Cars in 2005. Pixar is actively in talks with other Hollywood studios. They think at this point they just need a distributor. Disney actually does start a new studio inside the company called Circle 7 Animation that will be tasked with developing, right away, Toy Story 3, Monsters, Inc. 2, and Finding Nemo 2.

Yep.

I think they had actually done work on Toy Story 3.

Man, you can bet that that is buried pretty deep in the vault these days.

Yes. So all this happens in the last breaths of the Eisner administration.

Yeah, this is part of the backdrop happening during the Save Disney campaign, the Comcast offer, the shareholder proxy vote, and the CEO search.

In fact, in that earnings call that blew the doors off—

Yeah, it wasn’t just Pirates of the Caribbean. It was Nemo.

Exactly. Exactly. Both of those movies opened in that quarter.

Yep. So this brings us back to Bob Iger’s phone call to Steve and his conviction that Pixar needed to come in and be part of Disney and not just be owned by Disney, but take over Disney Animation.

Which is a crazy call to get if you’re Steve Jobs, right? “Hey, my predecessor burned the bridge. I’d like to buy you. I’m basically open to any price, and also, I would like you guys to come and take over the core business that we operate, the most prestigious animation studio in the world. We’re waving the white flag. We’ve lost. Please come in here and take over and fix this.”

Yep. And I think Steve is so surprised that it opens the door, and it leads to this great relationship between the 2 of them. Once again, just like Bob made peace with Roy and instantly fixed that relationship, he pretty much instantly fixes the Steve Jobs relationship.

So listeners, we talked to Bob Iger as part of the prep we were doing for this episode. Bob had this idea, and before he called Steve, he went to the board and said, “Hey, can I have authorization to open a conversation with Steve Jobs about buying Pixar?” And he said that it was so unthinkable and such a surprise to the whole board that they forgot to say no. Everyone was just like, “Sure, call him,” because they thought there was no chance that it could possibly result in Steve saying yes.

Yeah.

So Bob calls Steve back and floats this idea. Disney will buy Pixar, keep it fully intact as an independent studio up in the Bay Area, with its own email addresses and its own culture. Nothing will change. John and Ed will still run it, and they’ll also commute down to LA 2 days a week and take over and run Disney Animation.

And interestingly, Iger also said, “Hey, Lasseter and Catmull, you can also tell us you think Disney Animation is unrescuable, or that you think you’d kill both things by splitting your time, and you can just tell us you want to shut down Disney Animation, and instead Pixar will just become our 1 studio.”

Yeah.

And Lasseter and Catmull have this: “We couldn’t possibly do that.” Disney Animation is so important to where we all came from in the world, and they fly down, and they meet with people, and they see, oh, there’s actually great talent here. They’re just not being led well, and we think we can apply our process and institute a brain trust and change the physical construction of the building and bring in the Pixar way and make this great again. And they do.

I mean, that’s the crazy thing: it was John and Ed’s option to look at the enemy and chop off their head.

Decide what to do with it.

And instead—

Yeah.

—they said, “No, no, no, we’re gonna come in there, and we’re gonna make this thing great.”

Yeah. So pretty quickly, they come to terms on a deal: $7.4 billion in newly issued Disney stock, which will make Steve Jobs the largest shareholder in Disney.

7%.

Yep, I think it was a 7.7%—

Wow.

—stake in the company, and he’ll join the board.

Which is much larger than the entire Disney family put together by this point.

Yep. So it’s all done. Both boards approve the deal. They’re ready to announce it. Bob flies up to the Pixar campus in Emeryville the morning of the announcement, and before the official time when they’re gonna announce the deal and meet with the whole company, Steve comes up to Bob and says, “Let’s take a walk on the Pixar campus, just the 2 of us.”

They walk for a bit, and they sit down on a bench, and Steve says, “I have to tell you something, and you have to keep it confidential. My cancer is back, and I don’t know how much longer I’m gonna live.” This is January 2006, right as they’re about to announce the acquisition. And Steve says, “I thought about it, and I feel I have an obligation to tell you before we announce the deal, and I wanna give you an option to back out if you want, knowing that I’m about to become your largest shareholder, and I don’t know what’s gonna happen to my stake after I die.” Bob says, “Wow, that’s a lot.”

And I’ve got 30 minutes.

Yeah, I’ve got 30 minutes to decide.

And I can tell no one.

Steve is ever the negotiator. But he makes the decision that the deal is still on. But, oh, man, it’s devastating. So Steve would end up living another 5.5 years after this, but he, Bob, Apple, and then eventually the rest of the world knew soon that it was all borrowed time.

And this is why Steve sold Pixar. One of the questions that we had going into the research for this episode was, could Pixar have actually built a full-stack, flywheel-based competitor to Disney if they’d remained independent? I mean, they had defeated Disney. They won on every dimension, and why did they sell?

And we asked all the Disney people this, and we asked all the Pixar people this, and we asked everyone we could this question because, from the business strategy lens, they have what it takes.

Yep.

They have the core IP, they have movies, they could slowly move into theme parks. After the 5 films, they would have control of their own sequel and merch rights, and they could do it. And it took us talking to all the people involved to realize, no, there was no chance.

Yeah.

Pixar never, ever, ever would have done what it takes to become Disney.

So I think there are 2 reasons. One, Pixar is what Walt wanted the Burbank Animation campus to be when he built it in 1940. It is a utopian, creative artist's paradise. There are no suits at Pixar. It's all about the stories and the art and the films.

Yes.

And amazingly, by getting acquired, they kept it that way.

Yes.

I mean, there were no suits in the early days, but all the suits are in Burbank. It just gets to be creative in Emeryville.

It's this crazy course of history that allows this treasure to exist in Emeryville in a way that it couldn't at Disney. It didn't work at Disney Animation in Burbank to make it this utopian paradise because it had to be a business, too.

Yep.

The reason that could happen before they sold to Disney was Steve Jobs.

Right.

It was only Steve that could have done it. And I do think if Steve had lived, and if he had felt he had the energy to do it alongside Apple, or maybe, who knows, even merge the 2 companies, he could have done it. He could have built a Disney competitor, but he knew he was going to die.

Right. But without Steve, you could imagine the rest of the Pixar folks looking at each other like, “Who among us has any interest in doing that?”

Yeah, we're not going to do that.

No, we just want to keep making unbelievably good stories and delighting audiences and making the very best feature films we can.

Yep.

Which does not make a Disney competitor.

Yep. So Pixar had to find a home—

In particular, Disney is the home.

Yep.

This is the thing that brings it full circle. The Walt era of animation had a spiritual successor, which was the Disney Renaissance, which had a spiritual successor that was Pixar.

Yes, absolutely. And this leads to the revival of Disney Animation: The Princess and the Frog, Tangled, Frozen, Big Hero 6, Zootopia, Moana—all Pixar era. Meanwhile, the hits just keep on rolling at Pixar: Cars, Ratatouille. That was a big thing before the acquisition. Word had gotten out that Pixar was working on a movie about rats making food.

In a kitchen.

Yeah. Who could do that? What a terrible idea. An amazing movie. WALL-E, Up, Toy Story 3, Brave, Inside Out—just the best. So years later, after many of these movies come out, during the months before Steve died, he and his wife Lorraine have one last dinner with Bob Iger and his wife Willow, and during it, Steve raises a glass in a toast to Bob and them together and says, “Look what we did. We saved 2 companies.”

The first time I read that years ago, I thought, “I don't really get it. I get that it saved Disney, but how did it save Pixar?” And then now, doing the full research and understanding Steve was going to die, and that Pixar really couldn't continue independently without him, that's how they saved 2 companies together. It's just such an incredible story.

Yeah, it is. And to validate the Disney Animation thing, I really wondered about this. How did Disney Animation turn into that hit factory? They're not Pixar movies, but they rhyme so closely. We were talking with Kristen Bell to prep for this episode, who of course plays Anna in Frozen, and she very much confirmed the way that Disney Animation works today is similar to that Pixar blueprint from the early '90s.

It's an iterative process, all about making sure that you're feeling if the story is landing when you're looking at the early reels and the scripts, this collaborative way to take the notes without ego, having a willingness to stop, take apart the story, and rebuild it if it's not working. Her perspective was like, this actually has a lot to do with why Disney the company works.

Yeah, I mean, super validating to hear that now, what is it, 20 years after the acquisition?

Yeah. So if we sit here today and look back at the Pixar acquisition, it's just such an obvious giant, giant success. I mean, the first thing is it clearly saved Disney Animation, which if you believe the thesis that that's the center of everything good and durable at the company, then great, pencils down, easy answer.

They paid $7.4 billion, $6.4 billion when you back out the billion of cash, but effectively $6.4 billion is the hurdle that you're trying to overcome. There's a couple ways to slice it. Ben, you and I did the Finding Nemo exercise earlier. There's another exercise you can run, kind of going franchise by franchise.

Toy Story alone did over $4 billion at the box office, which means $1.5 billion to $2 billion to Disney. $30 billion in retail sales so far, lifetime of all Toy Story consumer goods. So with Disney's 5% licensing fee on that, that's another $2 billion. So that's $3.5 billion conservatively in very high-margin revenue to Disney before you even start thinking about the contribution to Disney parks.

Yep.

They have 19 attractions across 4 lands with 2 hotels, or doing any attribution from Disney+ revenue, or any of the licensing deals that they did for a long time with Netflix.

Yep. Or any of that sweet, sweet home video revenue back in the day—

Right.

—from Toy Story 1 and Toy Story 2.

So you get at least half, probably two-thirds, of the purchase price back from the Toy Story franchise alone, even without all of that ancillary sort of flywheel revenue. But really, here I think is the most useful way to justify it. We've heard that the vast majority of the top 15 movies viewed every week on Disney+ are either Pixar or Disney Animation—not live action, not Star Wars, not the Avengers—the stuff that kids watch over and over, and those Disney Animation movies—

Are almost all—

All the top ones—

Yeah.

—that they're actually watching, kids these days, are the post-2005 Catmull and Lasseter era films.

Yep.

Kids are not sitting there binging Snow White on repeat. They're watching Frozen and Encanto and Moana and Zootopia, and this is on Disney+, which is the biggest strategic bet that the company has made in the last decade. I mean, all of their chips are there for the future of the company.

Yep. No question. The acquisition absolutely saved the company. So after Pixar, Bob and the Disney board are like, “Well, that worked well. What can we do next?”

And that sure is in line with Bob's point number 1 in his 3-point strategy of—

Absolutely.

—making the very best content.

4. Marvel And Star Wars Expand

But before we talk about the other two of Bob's big three acquisitions, Marvel and Lucasfilm, now is a great time to thank our friends at Anthropic, the makers of Claude.

Yes. And today we are going to share how Claude saved us on recording day a couple months ago on our Disney Part One episode. So David, do you wanna set the scene?

Yes. So we were in the middle of recording Part One, and recording days are always very time crunched. The whole thing feels like a high wire act. And right when we got to Snow White's box office numbers, we realized that a bunch of authoritative sources listed $8 million as the revenue for Snow White's box office in its original release. But we also had Disney's actual 1940 financial statements in front of us, and they showed four-and-a-half million. We immediately thought, “Well, those can't both be right,” and started reconciling the two numbers. We couldn't, and so we had to pause recording.

So this was actually the day that Fable 5 came out. So while David and I were trying to sort through, I figured I'd let Claude kinda give it a shot. We uploaded photos we took of the original financials, along with another annual report that we had showing how the revenue breakdowns actually worked, and Claude untangled the whole thing for us. There are actually two different ways to report movie revenue, gross box office, which was that $8 million, and film rentals, which is Disney and the distributors' share after the theaters take their cut. That is the $4.5 million number. All the sources we found saying $8 million in revenue to Disney were actually wrong, and Claude figured that out.

Which is what let us develop the novel point that we hadn't seen anywhere else. Snow White's profits alone couldn't pay for the Burbank Animation campus. Walt had to go borrow more money, which created the cascading set of events that we talked about in the rest of the episode.

So 20 minutes later, we were back to recording, and we were able to finish the episode both on time and—

Sort of.

—to be factually correct, which is the clearest example I've ever personally had of Claude being able to solve a problem in the moment using analysis from primary sources that we couldn't find anywhere else in the middle of a live recording day within minutes. So listeners, if you wanna try out Fable now or you just wanna learn more, go to claude.ai/acquired, and if you're inquiring for your team or for API use, just tell 'em that Ben and David sent you.

Star Wars and Marvel.

Star Wars and Marvel. Well, Marvel is first. So in 2009, Disney acquires Marvel for $4 billion. This was highly contrarian at the time. People thought, “You're spending $4 billion for a comic book company?” The Marvel movies had already started to come out.

Iron Man had come out, I think a couple others that had been hits. But nobody could see what Marvel would end up becoming under Disney.

Yeah, superhero movies were not obviously formulaically going to work. There had been Batman movies many years before. There had been Superman movies many years before. There had recently been a Spider-Man—

Yep.

—which actually was licensed to Sony. Before pursuing this strategy, Marvel actually licensed out their best characters to other

Studios.

And so the acquisition was weird because it was kind of buying all these leftover characters. You couldn't use X-Men because Fox already had that. You couldn't use Spider-Man because Sony already had that. They had already made a film out of Iron Man, and the big dogs, Superman and Batman, were over at DC. So what are you even buying when you're buying Marvel?

But the team at Marvel Studios and Disney really figured it out. We're not going to go into all the details here, but they crafted the Marvel Cinematic Universe in a way that became the blueprint for anybody else who wants to universe-ify their franchise. This very careful world-building of all these interconnected movies eventually culminated in the Avengers movie. The first 3 phases of the Marvel Cinematic Universe were really this franchise-building masterclass to behold. By 2025, the Marvel Cinematic Universe has become the most successful film franchise in history—

Yep.

—generating nearly $32 billion at the box office. That's more than Star Wars, more than James Bond, more than anything else. Now, it helps to have 37 films, plus—

Yes, they're quite prolific.

—Avengers: Endgame, which was the 2nd-highest-grossing film of all time, second only to Avatar, I think.

Yep, I think that's right.

It's pretty difficult to estimate the profitability on this because there are too many assumptions you have to bake in, but it's fair to say there are single-digit billions in profit from the box office alone on Marvel movies. And then, of course, there's the consumer products, the park adaptations, and home video for a while, since those—

Yep.

—Marvel movies were still in—

The early ones, yep.

—the Blu-ray era. And then, of course, part of the reason people subscribe to Disney+.

Yep.

Marvel's also been great.

Yeah, Marvel's also been fantastic. I think really it was another version of the same thesis of Pixar, which was: There are great stories and storytellers here, and let's give them a bigger canvas to paint on.

Yep.

And it worked incredibly well. Incredibly—

Yep.

—incredibly well. And then Lucasfilm in 2012 for another $4 billion. I would argue, again, very different dynamics, but the same version of the story. Here is one of, if not maybe the greatest story of the last 100 years in humanity, the original Star Wars saga.

Of myth-making.

Of myth-making.

Yeah.

Yeah. And let's give that a greater canvas to paint on.

Yeah. It's pretty interesting reflecting back on these, what a tear Iger was on—identifying tier-A-plus intellectual property franchises that had running room ahead of them and building the stable. Because now they own so much of it that there's not much left. I mean, there's Harry Potter, there's the Nintendo universe. There are a few things left, but Iger kind of saw this before anyone else, went in with a bigger checkbook than I think a lot of people would've been willing to go in with, and diluted Disney to do it. These were stock acquisitions, or many of them were. But now they own these things.

It's also fun to speculate on why Lucasfilm and Marvel had lower price tags than Pixar did. Dramatically lower. Lucasfilm seems easy to me in that it certainly hasn't generated as much—

Yeah.

—returns as—

They didn't have movies in production.

Right. It was certainly right to pay less than Pixar. Turns out they should've paid well less than whatever they were willing to pay for Marvel, too.

Yep.

Because Star Wars just didn't turn out to have that much more exploitation ahead of it. And frankly, they weren't done as well, but the Avengers—

Well, we'll get to that in a minute.

Yeah, yeah. Avengers had 37 films. And there's new Star Wars stuff I like. Andor's unbelievably good. Rogue One is unbelievably good, but yeah.

Yep. So on the back of these 3 acquisitions, the Disney flywheel is revived and soaring again. The core film characters and stories are back to all-time heights, not only at Disney Animation, but now Pixar, Lucasfilm, and Marvel too. The core of Disney is much bigger and more diverse than it used to be.

Consumer products: after Frozen comes out, Disney sells 3 million Elsa and Anna dresses in the first year after the movie's released. By 2015, Disney is doing over $50 billion a year in gross sales at retail of merchandise. That's up almost 2X—

Wow.

—over the past 5 years. That is the health of the characters and IP in the company right there.

Music: hit songs are back for Disney. Let It Go wins the Oscar for Best Song, and get this—this is wild—the Frozen soundtrack is the best-selling album of 2014, selling 10 million copies with streaming equivalents in there. It even beat 1989 from Taylor Swift.

Wow.

My girls love Taylor, but they might love Frozen even more.

Wow.

The parks are revived. Disney launches Cars Land in L.A. in 2012.

So, fun fact about that: before the acquisition of Pixar, they were originally developing Cars Land. And then they bought Pixar, and they thought, "Oh, well, let's just make Cars Land."

Hmm.

This is back when the Imagineers independently developed lands that were unrelated to—

Hmm.

—franchise flywheel stuff.

Yep. Overall, parks revenue nearly doubles, and operating income nearly triples in the decade from 2005, when Bob takes over, to 2015. And overall during that time period, Disney's market cap is up 4X to $200 billion, up from the $50 billion when Bob took over. Overall revenue grows from 32 billion to 52 billion. Operating income goes from $4.7 billion to $14.7 billion. Incredible.

And I'm going to keep bringing this back to cable profits because that—

Yes.

—continues to be this guaranteed, contractual, cash-gushing business that they have. If you line up those 3 acquisitions, which sound ludicrous on their price tags, especially when you didn't know how they were going to pay off, Pixar at $7.4 billion—let's even include the cash in there—that's about 2.5 years of cable's then profit.

Right.

Marvel at $4 billion, that's less than 1 year in 2009 of cable profits. And Lucasfilm in 2012, their $4 billion was well under 1 year—

Yeah.

—of cable profits.

Yeah.

ESPN kept providing the cash to do all of this.

Such a good point. ESPN paid for Pixar, Marvel, and Lucasfilm.

With about 4 years of ESPN cable profits.

Right.

It's almost like a Buffett-type thing, where Buffett has things in his portfolio that are cash producers and cash consumers, and he's just trying to construct the most efficient way to get cash out of the cash producers, where you can't effectively reinvest the capital, and put the cash into places where you can reinvest the capital.

Yep. So speaking of ESPN, come 2015, ESPN and all the rest of Disney are really riding high.

The strategy looks completely genius, and Wall Street loves it, and consumers love it, and the franchises are all healthy and producing stuff people love, and the parks are doing great. Everyone at Disney looks like geniuses.

Yep. As you pointed out, it's like Bob has finally figured out a way to marry these 2 sides of the company. Use the cash flow geyser from ESPN to add to and feed the flywheel on the Disney side. It's all working great.

Yep.

Unfortunately, the stock hit an all-time high on the very same day as Disney's Q3 2015 earnings call.

Well, an all-time high except for that weird COVID aberration.

Right. That we'll get to.

There was a little, short-lived moment where it went even higher in 2021.

Yep. So on that earnings call on August 4th, 2015, Bob Iger mentions that ESPN was experiencing, quote, "modest subscriber losses" due to consumer cord-cutting of cable subscriptions. It would come out later in Disney's annual report that ESPN lost 3 million subscribers that year, which still meant it had 92 million in total.

But still, they'd only ever grown. I think they hit around 100 million and kind of stayed flat for a while because 100 million households—

Basically is all of America.

Yeah. But ESPN and anything related to ESPN, revenue only ever went up, and profits only ever went up.

Yeah.

So this was a shock. Even though everyone had been talking for a while about—

Oh, cord-cutting is coming. This is—

And young people, when they move, they don't necessarily activate a cable subscription. They like to access stuff online. It was like, yeah, yeah, yeah, yeah, but the numbers are still up and to the right, so we're all good.

Yep.

This sets off a barely controlled freak-out across—

the entire media landscape, with ESPN and this earnings call as ground zero. People knew that this was coming, like you said, Ben. Netflix was already a $50 billion market cap company at this point, so it shouldn't have been a surprise to anyone. But the very next day, Disney stock dropped 10%, and over the next couple of days, Fox, Time Warner, and Discovery all experienced similar drawdowns. Viacom, which people viewed as even more indexed to the cable network landscape, got whacked over 20%.

And we should say, just so we don't bury the lede, Disney's stock price today is what it was then.

Yep.

It's gone up and down, but it's flat compared to 11 years ago.

Yeah.

Meanwhile, the S&P 500—David, what did you tell me it's up by over that time?

3.5× over that time period.

Yeah. Now, market cap isn't everything, but it is a measure of what the investment community believes your company's cash flows are worth in the extreme long run.

Yeah.

So we're not here saying Disney's revenue has been flat or profit has been flat, although we'll get to all that. But what we are saying is that 11 years ago, people thought Disney's future was exactly as bright in the form of future cash flows as they believe it is today.

Yep. We're about to talk about what happens to the whole rest of the traditional media landscape after this earnings call.

Yeah, Disney managed to stay independent.

Yeah, yeah. So that moment kicks off—I really don't know how to say it other than—the most insane period of panicked frenzy in media landscape history, maybe in any industry's history. Basically, everyone in the TV and film landscape decides all at once that they need to take dramatic action to respond to cord cutting and the rise of streaming.

Over the next couple of years, Time Warner sells itself to AT&T. AT&T changes its mind and spins out Time Warner, which then merges with Discovery. Viacom re-merges with CBS, but none of those brands are any good, so they decide to name themselves Paramount after the studio that they own. Paramount almost collapses under its debt load, and David and Larry Ellison—yes, of course, that Larry Ellison—buy it and merge it into Skydance Media, so it becomes Paramount Skydance.

Which is the thing that David Ellison kind of founded and runs.

Yep. And then, of course, this all culminates in what's happening here in real time in 2026, where Warner Bros. Discovery almost gets bought by Netflix, and instead looks like it's getting merged into the Paramount Skydance fever dream. It's insanity out there.

Well, it's now on hold—

Yeah.

pending legal challenges as of the recording date, so we'll see.

But what's really happening is that all of these traditional media companies, with the exception of Disney, have basically all become kind of serfs in the streaming kingdoms of the technology companies, of which Netflix and YouTube are actually the winners here.

Yeah, I think that's the right way to phrase it. If you just do the very simple exercise of looking at who generates profits in the movie and TV Hollywood landscape right now, it is Netflix, YouTube, and Disney generating the large profit streams.

Yep. So Disney decides to launch Disney+. Bob and the board basically draw a line in the sand, and they say, “We're not going to just sit around and let ourselves get Netflixed like everyone else. We're going to stand and fight toe-to-toe. We are going to build our own direct-to-consumer streaming company.”

This goes back to Bob's priority number 2 in his strategy presentation to the board when he became CEO. Look, this is totally laudable. It's also arguably necessary. Without Disney+ and its own streaming service, Disney wouldn't have the ability to control discoverability of its films and shows, and that's so important. You want to get people into the parks; they have to interact with the IP and the characters.

Yeah, it's funny. You and I sort of had this thesis coming in where you just keep the hundreds of millions of dollars that Netflix is paying you each year, and you keep putting your content on Netflix and other places. Everything downstream of that—all the consumer products and parks and everything—works better because you're spreading your content across the whole world.

And the problem with that thesis is that once Netflix's algorithm controls whether families see your movies or not, you've got a big problem.

That's right. That's right. You have no sort of guaranteed distribution. Having Disney+, and we'll talk about all the trade-offs involved in this in a minute, because, God, are there trade-offs, but the thesis is: If we do this and stand up our own streaming service, then we can form deep, direct relationships with consumers.

We can create these whole universes on Disney+ that more deeply explore the characters from given movies, which creates more IP that the parks can use, which creates these merchandising opportunities, spinoff shows, and all this stuff. On top of this, it's crazy to think that Disney didn't have any relationship with any of its customers prior to this unless you had visited a park.

For 100 years, if you bought a home video, you bought it from a retailer. If you went to a theater, you went to a theater, or if you had a cable subscription, Disney did not know who you were.

Yeah. Disney didn't collect revenue directly from consumers except in the parks.

And they didn't collect email addresses or home addresses or demographic information. They just got the checks—

Yeah.

—from the people they were distributing through and trusted there was an end consumer on the other side.

Yep. So after August 2015, Bob and the board decide very quickly, “Let's go build our own Netflix competitor”—or, more accurately, “Let's go buy the pieces we need to build it.” Disney doesn't have any in-house capabilities to build and operate an internet streaming service here.

Right.

And this is when Disney almost buys Twitter.

The forgotten chapter.

The forgotten chapter. Thankfully, the chapter that did not come to pass. So they start looking around: What scaled internet companies are out there that we could buy and use as a base to set up our streaming service? Basically, the only ones within reach are Twitter and Snapchat.

Everything else is just too big. I mean, they're giant market cap companies.

Too big, too expensive.

They're giant market cap companies.

Jack Dorsey also happens to be on the Disney board at the time, so they basically get all the way to a deal, and then at the last minute, Bob backs out. He just can't imagine Disney owning and operating Twitter, and that was probably the right decision.

I think it was all papered, and they were going to sign Monday morning and announce it, right?

Yep. Yep. Yep.

It was Sunday night that he bailed on it.

Yep, something like that. It was very last minute. So once the Twitter deal falls apart, they turn to a far more logical candidate, although a more hidden one: BAMTech.

Yes.

BAMTech is this incredible story. It is a streaming technology platform that was part of Major League Baseball. They began a streaming service for baseball games all the way back in 2002. Initially—I remembered this from the research when I went back and looked at it—they started streaming Seattle Mariners games to Japan—

That's right.

—because Ichiro had come to MLB and was a phenomenon back in Japan.

That's right.

And I think Nintendo owned the Mariners at this point.

That's right. Nintendo of America—

Yeah.

—owned the Mariners. This group actually started MLB Advanced Media by making websites for Major League Baseball teams—

Yes.

—and then they got into streaming for Japan and Ichiro.

Yep.

And then, when they spun out of baseball, I think they stood up the streaming back end for the then-fledgling HBO Now.

Yes, yes. And they had also taken on the NHL, so they were doing the NHL's—

Okay.

—streaming service. So it's kind of perfect. They can do sports streaming, and they've run HBO Now, a streaming service for HBO. It's perfect.

In August 2016, Disney buys a 33% stake in BAMTech from Major League Baseball, with an option to increase that to a majority stake over the next couple of years. The next year, in 2017, they announce that they're going to accelerate that option to purchase a controlling stake in BAMTech, and they announce publicly that they will be launching an over-the-top direct-to-consumer streaming service for ESPN the next year, in 2018, and then a Disney streaming service in 2019.

As part of the same announcement, Ben, as you alluded to, they say they will be ending their content agreements with Netflix and pulling all Disney, Pixar, Marvel, and Lucasfilm content off of Netflix by 2019. Netflix was already paying them hundreds of millions of dollars annually for that content.

Yep. And that's just pure profit.

Yeah, no expenses associated with that.

Which Disney at that point was generating about $15 billion in Disney-wide operating income at that time. So that's 2-ish percent of the company's profits coming from that one Netflix deal.

Yeah.

And they're just saying, “All right, we're going to rip that up. We think it is worth it in the long run for us to start from zero, build an entire customer base, and then reach this customer base directly.”

And look, this is another point where having ESPN as part of the company as a bulwark, even though ESPN is now declining, is critical.

That's what enables Disney to do this.

That's a great point, and it means that you have to nerf the ESPN offering on streaming because you need to keep that gravy train flowing in. The ESPN+ thing ended up debuting in 2018.

It's kind of a nothing burger. Yeah.

Yeah, it's all the content that almost no one wants to watch because all the good stuff is still on ESPN, the cable channel that prints cash. So we're going to leave it there, thank you very much.

And look, it's a really tough thing for the ESPN side of the business to move to direct-to-consumer because part of the whole magic of the affiliate-fee business model is you get paid a subscriber fee whether those subscribers watch the channel or not. All of a sudden, you're now going to an actual usage-based model.

Yeah.

“Hey, I'm only going to get paid by the people who want to watch this.”

Well, this is the magic of bundling: you get some money from the people who would never have paid you any money before if you were trying to sell just one product. There are way fewer people who are willing to subscribe for a high-dollar amount—call it $30—to ESPN directly than there are people who are willing to pay $50, $70, $80, or $100 for all the channels. You're missing out on all of those casual fans.

The non-consumers.

That's right. That's right.

So Bob basically issues an all-hands-on-deck directive. He directs all the creative studios within Disney—Disney Animation, Disney Live Action, Pixar, Lucasfilm, and Marvel—to start producing content and gearing up specifically for the new first-party Disney streaming service coming in 2019, on top of all the existing slate of content that they were also working on. Then he gets a call from Rupert Murdoch. Rupert says that he and Fox are obviously going through the same strategic reviews and exercises as Disney and every other media company, and he has concluded that the best path forward for Fox is to combine with Disney and lend its scale, its content, and its efforts to Disney's first-party streaming service to compete with Netflix.

Well, to combine some of its assets. Basically, Fox did an analysis and looked at everything that had library value—rewatchability. The highest and best use of a library over the coming decades is going to be on these streaming services: the deep catalog. I fall asleep at night watching The Office.

I have Peacock because they have library content, so I can watch The Office. Same thing with Arrested Development, same thing with Seinfeld. They ran all the numbers and decided, “We don't really want to be in the streaming game over here at Fox. Let's try to fetch a high value for people who do.”

Yep.

They need that library content. But I think we'll keep everything that has all of its value on first run: news, sports. They went all in on linear TV instead of keeping the library, which would require building out the streaming service. It's the opposite of Disney. Disney keeps things that have high rewatchability and monetizes them over and over.

Yep. Now, you said Rupert and Fox ran some analysis on their library vis-à-vis streaming. I suspect part of that analysis also led them to the conclusion that, “Hey, our library just isn't strong enough to be compelling as a streaming product.” It's true: it's got Avatar. That's great. It's got The Simpsons.

Come on, how often are people rewatching Avatar?

Exactly. The Simpsons is rewatchable, maybe.

Family Guy. Family Guy's rewatchable.

Family Guy. Yep.

The National Geographic Channel.

But it's a lot of live-action film IP.

We do have the FX network, which has It's Always Sunny in Philadelphia and a bunch of great shows.

Right. It's not zero, but it's not anywhere near enough to be compelling on its own.

And its synergy value is actually a lot higher than the value is just to Fox. Because if you start to look at some of these things—X-Men, Deadpool, Wolverine, Fantastic Four—those are actually worth a lot more to Disney than they are to us.

Exactly. Bingo. So, in December 2017, they announce the deal. Disney will be acquiring all the entertainment and international assets of Fox in a $52 billion all-stock transaction. So not Fox News, not Fox Sports, not the Fox broadcast network, but the library and all the general entertainment assets.

And that $52 billion was after a lot of back-and-forth negotiation. It was best and final. Everyone at Disney ran all the models they possibly could to see, “What is the very most we could pay to get the value that we need out of these assets?” So the deal's done-ish.

Yep.

It just needs regulatory approval, which is going to take several months, as it always does.

Yep.

During the regulatory approval process, a different ruling around AT&T's merger causes Comcast to go—

That's right.

“Huh.” We previously counted ourselves out for these assets because we didn't think it was going to pass regulatory approval. I bet it would've. Let's see if we can lob in a bid. Even though Disney and Fox say they have a done deal, let's just throw in a bid and see.

Comcast once again. Disney ends up getting bid up to $71.3 billion.

A full $19 billion more than they had originally signed the deal for. That's a free $19 billion for Fox shareholders because Comcast lobbed in the bid.

Yep. Disney's total market cap at the time was around $170 billion, so this is 40% of the value of the entire Walt Disney Company. Way more than Pixar, Marvel, and Lucasfilm all combined. Now, to be fair, they do the deal. Disney is able to pay down a lot of that purchase price pretty quickly through divestitures of Fox's regional sports networks and then its stake in Sky, the British pay-TV operator.

Yeah. Those numbers were $14 billion and $15 billion, so together you can actually back it down $29 billion. The real price of what Disney paid and the assets they kept was about $44 billion. So that's the hurdle to overcome in trying to make this acquisition pay back.

Yep. And they probably don't get anywhere near $44 billion worth of value out of the assets that they do get. As we talked about, the library assets for the streaming service, sure, they're nice to have, but they're not really going to drive that many sign-ups or retentions for the service.

Wolverine and Deadpool had a big box-office win. Avatar now has lands in the parks.

Yep. True. Yeah, it's not nothing.

They did get a third of Hulu as part of this deal. So they already owned a third. This gave them a third, so then they had a controlling interest.

Yep. Another big part of the strategic rationale for the deal and for the increased price was that Fox had a lot of India assets—

That's right.

Both content and distribution. And this is back to Bob's strategic pillar number 3 for the company. Great, we need to enter India. This is a great way to do it. Those assets end up not performing for Disney nearly as well as they thought they would. They end up merging them with Reliance in 2024 in a deal that values them at only a fraction of what they valued them at in the Fox acquisition.

Yeah. But the general philosophy of going to buy a deep library and buying a third of a general streaming service with Hulu—not a specialized, curated one with universes like Disney—does give them this kitchen sink in addition to their highly curated thing with Disney+, where you can scale this general entertainment platform without diluting the pristine Disney brand, as long as you can keep Disney+ really separate from Hulu in the mind of consumers. That's the strategy.

Yep.

But certainly it's the worst of the 4 big acquisitions, 5 if you include BAMTech.

Yep. Either way, the deal closes in March 2019, right before Disney announces the long-awaited Disney streaming service the very next month, in April 2019, at an investor day they hold to announce Disney+. The vault is now open.

I loved this.

It was great.

The clarity of the product vision of the original Disney+ is incredibly laudable.

Totally. It was a very compelling product: all of Disney's IP, Pixar, Lucasfilm, Marvel, and the Fox assets coming in. Then they announce the price: $6.99 a month initially.

Consumers go nuts.

Nuts.

They beat every early projection they had for sign-ups to this thing.

Wall Street loves it. The stock jumps 11% the next day. By the end of April 2019, the stock is up 20%. When the service finally launches in November, Disney gets 10 million sign-ups within the first 24 hours and 26 million in the first quarter.

The setup for all this looks great. Here we are midway through 2019. Pixar and Disney Animation are soaring. Lucasfilm is crushing it. They're 2/3 of the way through the new Star Wars trilogy, plus they've made Rogue One.

Art.

An amazing movie. The Marvel run is just reaching its apex, its peak—unprecedented in Hollywood history. Avengers: Endgame is about to come out and set new records all over the world.

$2.8 billion in box-office gross just from that film.

Yep. But unfortunately, all is not quite as well as it seems. Under the hood, each of Disney's core IP pillars is actually not in a great place right now.

I'd call them fully exploited.

Well, that's part of it. There's a bunch of problems. At Pixar and Disney Animation, they're in the midst of a major leadership transition. John Lasseter has just been kicked out of the company, and Ed Catmull has just retired, so they need new leadership at both of the marquee studios of Disney. Lucasfilm looks great, but it's on the cusp of a major crisis. Solo just bombed in theaters, and audiences don't know it yet, but Episode IX is in trouble. Major trouble.

Well, Episode VIII and IX did not have a cohesive vision between the two and had different directors.

Yes.

So Episode VIII went in this interesting but somewhat not Star Wars-y direction.

Yep.

And then Episode IX had to smear Star Wars Vaseline all over the top of it so that you would remember that it was still Star Wars, so much so that we got Palpatine back from the dead again and 10,000 Star Destroyers rising up from a planet.

It was bad.

A little foresight and vision would've been nice.

Yeah, yeah. But nobody knows this yet because the film doesn't come out until December of that year.

Episode VIII was so different from the films around it, it's like no one was talking to each other.

And there was no plan—

Right.

—for Episode IX. That was the problem.

Right.

And then Marvel—Marvel's on this absolute high with Avengers: Endgame, but the problem is it's literally an endgame. The story ends right as Disney is now saying, "Oh, hey, Marvel, we need you to start pumping out even more content for the streaming service."

And it ends in this beautiful cinematic fashion. It tied 15 different strings all together. Marvel actually did have a tremendous amount of foresight. It was highly coordinated. I think I cried in that last scene.

Oh, it was so good.

It shows each character as they're reflecting back on the whole thing, and the way they handled the Snap. The character development of the villain, Thanos—he's a very relatable villain. He's a villain that's trying to do the right thing. It's the best kind of villain. Really elegant if the endgame is the endgame.

Right. Really inelegant if you're about to follow it up by increasing production 50% in the studio.

Yes.

Yeah, which they do.

And if you do flash forward, the post-2021 movie slate might actually be negative on a theatrical return. If you look at The Marvels—

For Marvel.

Ant-Man and the Wasp: Quantumania, Eternals. This is even ignoring the Disney+ shows, some of which were very cool, like Loki and WandaVision, but their existence, by trying to be bigger and broader and more expansive even than the movies, makes the original universe feel unimportant.

Yep.

My beef with Loki is, who cares about Thanos when he's killing people in just one strand of an infinite multiverse? All you should care about is what Loki's doing versus that pathetic little thing called the MCU. I just spent a decade of my life investing in that, and now you're telling me it didn't even matter?

Yeah.

So there's this big issue that it's supposed to be over, and both creatively and commercially, the stuff that comes after, people don't want it, whether it's on streaming or whether it's in theaters, other than the second Black Panther, which was amazing.

That was great.

Yeah.

That was great.

But all of this, and everything you're saying, highlights the strategic trade-off that Disney made in pursuing the streaming strategy to go toe-to-toe with Netflix. Operating a tier-one direct-to-consumer streaming business is yet another wholly and completely different business model than either the core Disney flywheel or the ESPN affiliate-fee model.

Yep.

If you're gonna try and operate a tier-one streaming service, a service that is going to reach the maximum number of subscribers—not a niche service, but a Netflix-type competitor—your number-one job is to retain subscribers that have signed up.

You gotta feed the beast.

You need to feed the beast.

You gotta give those existing subscribers content, or they're gonna churn.

Exactly. So I want to quote Ben Gilbert here.

Oh, God. When?

From the end of Acquired's 2019 Disney+ episode, in which we were incredibly excited about Disney+. It was so exciting back then. But you did say one thing at the end of the episode. You said, quote:

"One reason to doubt it," it being Disney+, "is I think Disney may be underestimating just how much content people need to stay satiated. It's a beautiful and amazing thing to have access to the entire back catalog of all these really storied franchises, but am I gonna pay $7 a month to keep an option available to go watch those things? No. If I ever wanna re-watch a Star Wars movie, I'll just reactivate my subscription at a given time. They really do need to aggressively turn on a fire hose of content here."

Oh, man.

You summed it up. You summed it up. This is the problem.

Oof.

That whole strategy of a fire hose of content is completely orthogonal to—

Yes.

—the flywheel strategy of only the best content very infrequently.

And that is what Disney did: the best content infrequently, with a theatrical release, a cultural moment around it, and then be quiet for a while.

Yep.

And harvest the fruits of that one movie, but be quiet for a while. Streaming is the exact freaking opposite. Every time I open that, there better be something new and fresh for me to consume. And I gotta wonder how much the Disney folks knew that when they made this decision to push all their chips in and accelerate going to streaming in a direct-to-consumer way.

Yep.

The biggest issue really is that Disney had something to lose. They had 2 things to lose. They had an existing content library that was highly differentiated, and when you bolt things onto a universe of a differentiated library, it makes the original content less valuable.

Yep.

I remember watching the Obi-Wan TV show on Disney+ and being like, "Oh, man, that shatters how I think about Obi-Wan."

Yeah, it's not as cool as I thought it was.

Yeah. Because you have something to lose, you actually risk destroying the stuff you had that's great by corrupting it and destroying the competitive advantage that you have in the marketplace.

This is such a good point. In a top-tier, high-quality content, stories, and characters world, every time you make a sequel, you're taking a big risk.

Totally.

And this is the risk.

This is why Disney didn't make sequels—

Yeah.

—prior to the '90s.

Yep. Now, Pixar proved to them that you can make sequels, and they can be great.

And you can do it well—

But you need to put that same amount of care and effort and time into it.

Yeah, Pixar does 1 every 7 years.

Yep. You can't increase the production line.

The second thing is that the Disney brand itself means something.

Yes.

The Netflix brand doesn't mean anything to anyone. The Netflix brand is the button that I push on my TV when I wanna watch stuff. Sometimes it's great stuff, but if it's not great stuff, whatever. It whizzes by. I don't think one way or another about Netflix. The Disney brand has something to lose. And so if you have a bunch of bombs in a row, I think less of the Disney brand, which again, takes away your compounding competitive advantage by being Disney. Whereas if you release a bunch of great things in a row, even if they're more spaced out over time and you're really judicious with it, which is not congruent with the streaming operating model, then it can really add to the brand bucket of the Disney brand. So Disney sort of has this compounding asset that is at risk when going head-to-head with Netflix.

Yep, yep, yep. So that's all the strategic trade-offs on the Disney film and TV side. Then there's the whole cable ESPN side of the house.

Yes. What is going on there in this 2018–'19 period? Well, as you can imagine, cable subscriptions are only getting canceled at a faster and faster rate, which can actually still be fine. You can actually still grow your revenue for a while if you're in the highly leveraged position that ESPN is, because you can just raise your prices faster than—

Cancellations are happening? Yeah.

Exactly. But later on, around 2023, even this would come to a head. The declines were happening too rapidly, and affiliate-fee increases could no longer outpace subscriber losses, and revenue then would start to decline from 2023 into 2024.

Basically, cable and ESPN enter the Endgame, to use an Avengers term.

Yes, yes. So that's on ESPN's revenue side. On the cost side, there's another big problem.

Yeah.

Sure, people are churning off cable, but that's manageable as long as your costs stay fixed. But the sports leagues have now realized that they can extract much more value. It turns out that in this whole value chain of watching a sports game, way more of the profits should be going to the sports league than to the network that's sort of sitting in the middle.

Yep.

And the NFL and the NBA—I think they just didn't fully extract everything that they could have for decades.

That probably is true, but they were hamstrung because there really weren't any other bidders except ESPN for so much of these rights. ESPN had this whole scale-economies power: because they were getting the most cash in affiliate fees, they could pay the biggest prices for sports rights and block everybody else out, except for the really, really big stuff that the broadcast networks would come after, too. Now, other bidders show up in the form of the tech companies.

And the tech companies not only have these incredibly deep pockets, at least until all of them started destroying all their free cash flow doing AI CapEx.

Building data centers.

Yes. But they have more ways to monetize the consumer, so they can afford to bid more for the same consumer than ESPN or a TV network could, because Amazon can get you as a Prime subscriber.

This is Amazon's NFL deal right here.

Yes. So any student of economics will see the writing on the wall here. The price is set by the highest bidder, and if somebody has a business model that structurally can out-monetize what you can, then they're going to win, and the price is going to be set by them.

Yep. This is why ESPN won for many years, and this is why the tech companies are winning now.

The other thing driving the prices up is that, as you get more and more abundance of content online and onlineness, there is an increasing return to shared cultural experiences happening live, in a way that made sports way more important than they ever have been before. The prices people were paying for World Cup final tickets, Taylor Swift tour tickets, and Super Bowl tickets—that sort of manifests in rights deals, too.

Right. There's a trickle-down effect.

Exactly. So in 2006, just look at the Monday Night Football package that ESPN buys. In 2006, it was $1.1 billion; in 2011, it was $1.9 billion a year; and by 2021, it went up to $2.7 billion a year. The viewership for Monday Night Football is actually going up, even amidst all this—

Hmm.

—cord-cutting. It turns out that the NFL is the thing that we all want to watch.

Yep.

The structural force, though, that's working against ESPN here is that ESPN used to be the only place that you could go to watch highlights and replays, and now you can get a lot of that on social media. So in the long run, if the main reason to subscribe to any given channel ends up being about the game content itself, and not differentiated by stuff around the game, then the excess profits in the long term will just be captured by the rights holders like the NFL and the NBA.

Yep. And to be clear, we've probably undersold ESPN's creativity and innovation in this episode.

Totally.

I mean, highlights, SportsCenter, everything they did was—

Even more recently—

—absolutely incredible.

—the Pat McAfee Show or, my God, ManningCast. I cannot wait for fall to watch ManningCast and Monday Night Football.

Yeah.

It is the thing I look forward to from July 15 onward.

They really are the best of the best at high-quality content production around sports. However, this is not the same as Disney. Sports have a very limited shelf life. You are not going back and watching ManningCast episodes from last season.

Yes.

The flywheel does not apply here, so you can't build long-term value around that original content. Sure, you can with 30 for 30 and stuff like that, but that's so small and niche at ESPN. The vast majority of the production that ESPN is making has a very, very limited shelf life.

That's so interesting, because the content has a very limited shelf life, but they've locked up these incredibly predictable revenue streams. There's ad sales. They have to figure out how they're going to do in ad sales, but that's plus or minus a few percent. They know a few years from now how much free cash flow they're going to get from ESPN in a way that they have no idea from their movie slate. It has been this stabilizing force.

Oh, yeah. The beauty that we've talked about on this episode, that Iger ended up realizing of having these 2 businesses together, was to take that stable cash flow and use it to invest in the Disney flywheel.

Right.

I'm just making the point that it's not like, as ESPN has come under this pressure, they could start building their own flywheel here.

Right.

It's like, no, no, this is a declining asset.

Right. Right, right, right. All right, so take us forward. How does Disney+ go? How does ESPN+ go?

So for better or for worse, I think Disney either doesn't see or doesn't have to deal with the fact that they have these pretty major strategic issues on both sides of the house with their streaming strategy, because the minute after they launch it, the entire world gets turned upside down.

Yep.

Disney+ launches in November 2019.

It's unbelievable that it was just sitting there right on app stores and in TVs the moment COVID hit.

Yeah. In February 2020, Bob Iger retires as CEO. This COVID thing is starting to happen. He says, “Hey, I'm going to remain as executive chairman for a little while to help stabilize the transition, especially in the parks, in the couple of weeks before we reopen everything here.”

Yeah.

Oh, man. Bob Chapek, of course, who was head of the parks division, has come in as the new CEO. March 2020 comes, and everybody realizes this COVID thing isn't a couple-week kind of thing here. Disney's market cap drops 40% in March of 2020 because the parks business goes to zero—actually zero. Nobody's there.

I mean, Disney's net income that year was actually negative.

Yeah. And then the roller coaster goes up. Ben, as you said, Disney+ is just sitting there. Everybody's at home now. When they announced Disney+ originally, Disney said that their goal was to get 60 to 90 million subscribers within 5 years. All of a sudden, COVID happens, everybody's sitting at home. Disney gets 100 million subscribers within 16 months. In March 2021, they announce they've passed 100 million subscribers, blown way past even their most aggressive projections. The stock goes to the moon.

Well, that's the other thing. It was zero interest rates, so any good sign—the market's amplitude is higher than normal.

Yeah.

Disney's market cap in March 2021, on this announcement, hits $360 billion at its peak.

Wow.

They all look like geniuses, and for the moment, they were. All these strategic questions we've talked about are non-issues.

And worth noting, it hit that peak right around January 1 of 2021, and by October 2021, it had begun its fall right back down to where it started.

Yep. So that December of 2021, Bob Iger fully retires. As we head into the next year, there start to be some cracks in the Disney+ strategy. Subscriber numbers are still good, but churn is high, and they're spending a lot of money acquiring and reacquiring subscribers. This is the treadmill of a Netflix competitor streaming service. You have to not only provide the content to people every month, but you have to tell them about it. On the ESPN side, ESPN didn't do the marketing to consumers. That was the cable company's job. They got the subscribers. They managed the churn. On the Disney side—

Yeah, you have to advertise a new movie so they—

Sure, sure. Yeah.

—spend tens of millions or hundreds of millions of dollars advertising the new film.

But there is no concept of churn.

Right.

You're not trying to keep everybody.

Right. So the interesting thing is, they're all in on this Disney+ and Hulu streaming strategy. And the question is, is there actually a pile of gold worth chasing in streaming? It's structurally a worse business, as you were just mentioning, than the old cable bundle where you just got checks. Consumers can cancel easily. They do so every few months. It's expensive to make the amount of content you need to make, especially now with the quality that people expect out of streaming content. They expect cinema-like—

Theatrical quality.

—TV shows. Consumers don't want to have a zillion services. You have to build your own technology and keep the user experience great as platforms add new features and change the UI and everything, which is very expensive. You have to hire and pay good engineers, good designers, and good product people. You have to acquire your own customers directly—expensive. You have to retain your own customers directly—expensive.

When they churn, you have to reacquire them.

That's right. And critically, you don't get a second exploitation window the way that a limited-edition home-video re-release has.

Yep.

Theatrical re-releases followed by home-video windows—

Oh.

That was the business—

That was the best—

—to be in.

Yeah.

And sitting here grumbling about it and wishing that that could come back is not the answer, but Disney is sort of seeing the reality in 2023 and 2024 that, oh my God, streaming wasn't just: invest some money to build it out 1 time, and then we've got this great asset.

It's this constant, expensive, nurturing thing that we haven't had to deal with before.

Yep. So heading into 2022, Bob Chapek does a reorganization, basically reorganizing the entire company around the streaming strategy. He consolidates all the studios together into one reporting segment, Disney Media and Entertainment Distribution, or DMED. Meanwhile, losses at Disney+ are just piling up as they're spending all of this money on production, customer acquisition costs, churn management, and technology development. It culminates in November 2022, in Disney's fiscal Q4 earnings call, when investors start asking a lot of questions about these losses at Disney+ and Bob Chapek and the company's strategy for addressing them, and it does not go well.

Well, there are all these other self-inflicted wounds all over the company. They announce they're moving a bunch of Imagineers to Florida, and then they cancel that expansion even after a bunch of them had already bought houses. Then there's the whole spat between Chapek and the governor of Florida.

Oh, yes.

Then they designed, built, opened, and operated a Star Wars-themed hotel at Disney World that I was very excited to go to. I mean, it's super expensive, but I really wanted to go.

You would've paid it, yeah.

And then they promptly closed it. It felt like a company in complete disarray, even aside from the streaming challenges and losses.

After the earnings call, the board meets and fires Bob Chapek as CEO of Disney, two and a bit years into his tenure. Bob Iger returns out of retirement to become CEO again and stabilize the ship.

Yeah. You and I have been going back and forth. Why did Bob come back? Why did Bob need to come back? What does it mean that Bob came back? Ultimately, I think they just chose the wrong guy—

Yeah.

—in Bob Chapek, and I think Iger's mistake in recommending Bob Chapek for the job was thinking that the company was about to enter a peacetime, a time when it needed a caretaker, when it needed the exact opposite.

Like, "Ah, yeah, all the pieces are in place. Disney+, it's doing great."

But they weren't. What Disney+ ended up being is so different from the original thing they conceived of Disney+ as. It's a super-different business, a different business model, and all the downstream effects of the Disney+ strategy meant it wasn't just, "Great, execute the strategy now." We're still learning a lot in real time. So it's almost like the person who set that in motion needed to see it through, and it was by no means just a time to keep your hand on the wheel and make sure the company was cared for.

Yep, and then things got crazier. 2023 was the year of the Hollywood strikes.

Yeah.

And then there's another proxy shareholder fight, this time with Ike Perlmutter, who was the previous owner and chairman of Marvel, and his friend and activist investor Nelson Peltz. They launched a public proxy fight against Disney. Ultimately, it doesn't go anywhere, but it's a major distraction that costs a lot of time and money. And then there's this big question of what to do with the declining asset of ESPN.

It's so funny. I've just been sitting over here chuckling about this declining asset of ESPN. It's a declining asset that does $3 billion a year in operating income.

Right. Right.

I mean, this is still a cash gusher.

I'll take that declining asset, thank you very much. Yeah.

Right. And when you say declining, it might be more fair to call it flat. The cable side is declining, but the thesis is maybe they can, using the ESPN streaming service—I don't know that Disney would acknowledge that it is a declining asset.

Which actually explains Wall Street's agitation to spin it out. "Ooh, it's not any good in Disney anymore. I would like that, please."

Right.

In response to that, in October 2023, they separate ESPN out into its own business segment for the first time in Disney's financial reporting. So there's now a sports business segment, which is ESPN. Basically, that's creating optionality to spin it out.

If that's the thinking, then I want them to make a segment for general streaming entertainment, like Hulu with Fox-like assets on it. That should be its own non-Disney company.

All right. Well, we'll get there. We'll get there. In 2025, they do a deal with the NFL. The NFL trades the NFL Network cable channel into ESPN in return for a 10% stake in ESPN itself.

I love this deal in so many ways.

Great deal for everybody.

The NFL gets 10% of ESPN, which is great if you're ESPN, honestly. It's like, "Woo, good, they're invested in our success." And then, what is the NFL doing in this content production and distribution business? It made no sense. So having NFL Network and RedZone and all that live over on ESPN, which is their core competency, what they're good at, I love it.

And for the NFL, they want ESPN to continue to be a viable bidder for their rights, so—

Right, to maximize the value—

—it's in their interest to prop up ESPN.

Yep.

Finally, at the end of the year, they launch the long-awaited full direct-to-consumer ESPN service, ESPN Unlimited: $30 a month for full, unlimited access to all ESPN channels. They aggressively bundle it with Disney+ and Hulu. Basically, if you subscribe to ESPN+, you can add Disney+ and Hulu for only an extra $6 a month.

No-brainer. Which is actually done for 2 reasons that I did not fully appreciate at first. The first is obviously the general bundling theory, which is, "Even if I'm not that big of a Disney+ fan, I'll just subscribe to this whole bundle." That way, you get subscribers that you wouldn't have otherwise—the casual fan. The second thing that I didn't realize Disney has really keyed into is churn mitigation.

Yep.

The bundle subscribers churn at a much lower rate than any individual streaming service because you're not thinking that hard about, "How much value am I getting out of this particular app this month?"

Yeah, there was just so much that Disney had to learn about operating direct-to-consumer streaming services.

Yep.

The real story of the last couple of years, though, has been the parks. Man, coming out of COVID, the parks have just been crushing it. There are all sorts of criticisms that you could levy at them, and people do, like they're charging too much and they're nickel-and-diming. But especially as ESPN has been declining and as Disney+ streaming has had a rocky go at best over the last couple of years, the parks have totally filled that gap.

David, it's so funny you say they've been crushing it. Visitors are actually down.

On a financial basis.

Everything is about price increases. There are 145 million people who visit the parks each year. Before the pandemic, it was actually 157 million. That was their all-time high. So they are down from the pre-pandemic high, even 6 years after the pandemic. But of course, the amount that they make per visit is way up and has climbed, I don't know, 5% per year for decades now.

Yeah, maybe that is a double-edged sword.

But maybe it's not. On the other hand, every time I go to Disneyland, it's super full. It doesn't seem to be keeping people away.

Yeah, exactly. That was the point I was going to make, too. I think consumers have had some version of that complaint about Disney ever since Michael Eisner took over in 1984.

Yep.

And it doesn't keep people away.

And if it did, they would stop doing it.

Yep.

Because it's in Disney's interest to keep a giant middle class wrapped around the Disney brand. I mean, if you could get the same amount of revenue from 200 million visitors a year or 100 million visitors a year, you want it more dispersed because you want all 200 million of those people imbuing Disney fandom into their core childhood memories.

Yep. So parks is now almost 60% of the company's operating income, while ESPN and sports are down to 16%. So it's a total reversal from the situation 10 years ago.

Wow.

And all that leads to February of this year, 2026, when Josh D'Amaro, the head of Disney Parks and Experiences, is announced as the next Disney CEO, effective 6 weeks later in March. Dana Walden, who came over from Fox, is named president, number 2, and chief creative officer of the company, a new role within the company. Bob Iger will stay on as a senior advisor and board member until his full retirement at the end of this year, in 2026.

Yep. So before we get to the business today, we should talk about the beginning and end of Bob Iger's tenure, just like we did with Michael Eisner. When Bob Iger came in on September 30, 2005, the market cap was about $50 billion, and the stock price had increased 5× by the time he left. So that second decade, like we talked about, was flat, but that first decade had 5× growth in it. Revenue tripled from $31 billion in 2005 to $94 billion 20 years later, and net income went from $2.5 billion to $12.4 billion. So, interestingly, net income outpaced revenue. They became 5 times more profitable while generating 3 times more revenue.

Interesting, which is also the same thing that happened under Eisner.

Right. So it's been an exercise in, for 2 big CEO stretches, making the company more profitable.

Which probably says more about the company back in 1984…

Yes.

…than it does over the last 40 years.

Yes.

But yeah.

I think that’s right. Okay, should we talk about the business today?

Yep.

First, some stats on Disney+, since that is the strategic focus of the company today. 132 million people are Disney+ subscribers. A little under half of those are in the US and Canada. Hulu has 64 million subscribers, and ESPN+ has 24 million subscribers.

So here’s a crazy number. When they last reported this in 2024, Disney generated over $19 billion in subscription revenue, up from essentially $0 in 2017, when they launched any of these streaming services. That $19 billion of revenue, probably closer to $22 billion now—they’ve stopped reporting it individually—is around a quarter of the company’s revenue and its single largest source of revenue. We’ve been talking about Disney+ in this, “Oh, it’s low margin,” or, “Oh, it costs a lot of money to build it out,” but the revenue is huge. They have transitioned revenue from other places into Disney+ now.

And as of now, it is still subscale compared to Netflix. Netflix has 325 million subscribers around the world.

That’s the last time they reported. It’s up since then.

Yep.

So it’s nearly triple Disney+.

Yep. And last year generated $45 billion in revenue. So, almost twice as much as Disney’s $25 billion in streaming revenue?

Yeah, and that’s Hulu and Disney+ combined.

Yep.

How much operating income does Netflix generate?

$13.5 billion, compared to negative for Disney, right?

No, Disney is now positive—

Oh, it’s positive. Okay, great.

—on their direct-to-consumer segment. But for a long time, it was negative.

Yep.

So Netflix’s operating income on streaming—their entire business—is the same as Disney’s entire company operating income.

Yep. Yep.

That is a completely new phenomenon. Just to go back in time, in 2017, Netflix’s operating income was under $1 billion.

Wow.

Disney’s was $14 billion.

Right.

Disney had that severe dip from COVID, parks closing, investing in Disney+, and massive losses from investing in Disney+. They’re almost back to where they were, whereas Netflix over that 8-year stretch has taken their operating income from sub-$1 billion to now equal to Disney.

Yep. And, look, streaming is a scale-economies business. The more scale you have, the more operating leverage you should have.

Yep. So to put numbers on the investment into Disney+, cumulatively, there were about $13 billion in losses that Disney incurred in building it out in that segment. But David, they are now profitable. They generated about $1 billion last year. This is not, and probably never will be, as high-margin as owning cable channels, but it is definitely a righting of the ship versus how expensive it used to be to run Disney+, acquire and retain subscribers, and all that stuff.

Yep. And really, this is what Bob Iger spent the last couple of years since coming back from retirement doing.

Moving over to the parks, like we had said earlier, there are 145 million people who visit the parks each year. They have 12 parks across 6 locations. They’re designing a new park in Abu Dhabi. They have 8 cruise ships, which will grow to 13, bringing on a new cruise ship almost every year for the next several years.

Yeah, cruises we didn’t talk about have been a big success for the company.

Yeah, that was an Eisner thing.

Yep.

The thesis originally was that after you finish up at Disney World for 3 or 4 days, you may want to go hop on a cruise for 3 or 4 days. You’d sort of depart from Florida, go down to the Bahamas, and come back up. They were wrong that people would want to do those things at the same time, but—

That was clearly a strategy not devised by people who actually have young kids.

But people love the cruises.

They’re awesome. I’ve done ’em. They’re great.

This area is where the company is investing the most heavily. In 2023, they announced that they’re investing $60 billion of capital expenditures over the next decade into parks and cruises. A lot of that is probably going to build those cruise ships—one giant cruise ship a year. $30 billion of it will be used in domestic parks in Florida and Anaheim. So if you live in the US, get excited, because there are lots of new rides and lots of new lands that are opening.

The mental model I have around this is that they had a cash gusher in cable affiliate fees. It’s going away. They had a very profitable box office, especially in the golden era, where you could make and market a film like Avengers, the original one, for, I don’t know, $200–300 million, and then gross $1.5 billion at the box office.

Yep.

That seems to be over. ESPN affiliate fees are declining. Sports leagues are commanding more of the profits. People aren’t going to the movies like they used to, and these big IP movies are more expensive than ever. I saw a rumor go by that Avengers: Doomsday is going to cost $700 million between production and marketing.

Wow.

That’ll come out this December. And of course, Disney, along with the whole world, has shifted to streaming, which has proved to not be as profitable a business as they had hoped. So where do you make your profits? Parks.

But theme parks unfortunately don’t really scale the way that cable profits did. There’s a constraint of physical room in the parks and rooms in hotels, so that’s why they turn to charging more per guest, since they really can’t cram more guests in. And what do you have to do to justify a trip to Disney World or a cruise costing thousands of dollars now?

You gotta build more stuff.

You better invest $60 billion and make it worth it.

Yep. Yep.

So that’s how you can kind of wrap your mind around this giant investment and the price increases in the parks.

Yep.

For the overall business, it’s $94 billion in revenue and $13 billion in net income. The segments are actually pretty interesting to look at. Entertainment is $42 billion. That’s movies and streaming content. Experiences is $36 billion, so somewhat comparable to entertainment. Sports is smaller at $18 billion.

But profits are where it gets interesting. In entertainment, operating income is $4.7 billion, but in experiences, operating income is $10 billion.

$10 billion, yeah.

So despite comparable revenue between entertainment and experiences, the parks and the cruises are generating twice as much profit.

Yep, yep. And this is Disney+. In theory, it should not be the case that a media content product is a lower-margin product than a physical theme park product.

Yes. Yes.

Except when you’re investing heavily into a streaming service.

Yep. Almost 60% of the profits of the entire company come from parks and cruises.

This is why Josh is CEO.

Right. Yes. And when I say the entire company, that includes the $3 billion a year of profits from ESPN, and it’s still 60% from parks and cruises.

Yep.

And my last observation: I could not believe this. I thought I was misinterpreting their annual report. Disney does report subsegments of its business. Their segment for theatrical distribution—that’s movies released in theaters—is $2.6 billion.

In revenue.

That is 3% of their overall revenue.

Yep.

From the outside, we think about The Walt Disney Company as these movies and box office, and that is not the business. That’s 3% of the revenue of this company.

Yep.

It’s streaming’s world, and Disney is just living in it.

Yep. Well, I think that is probably the perfect tee-up to transition to analysis, and the main question here, which is: was Disney+ the right strategy? Could Disney actually viably have done anything different back in 2015, 2017, or 2019?

Right. The only way to answer this question is to answer it with a real thing they could have done differently, because doing nothing was not actually an answer.

Right. Right.

Enjoying the wonderful profits of the past was not an option.

Well, yeah. So just to start off, clearly what would’ve happened in the do-nothing category is what happened to every other major media company: consolidate, get acquired, or slim down significantly.

Yep. It’s funny: the one thing that I did want was for them to slim down significantly. In my heart, I want Disney+ to be a boutique streaming service with just high-quality content on it, not to be messing around with Hulu, just to focus on the core franchises, and somehow also to discover a streaming business model that doesn’t require a content treadmill. That just treats these gems as the special gems that they are. I don’t think that’s a business, even though I like the product.

I know, I know. I so wanted this to be the answer too, all throughout our research over the past several months of making these episodes. As a consumer and as a parent, I want Disney+ just to be what it is to me, which is the very best parenting product ever invented in the history of humankind.

And the laying around on Saturday and throwing on a Marvel movie thing.

Yeah, exactly. But I don't think it's realistic.

Yeah.

And the reason I don't think it's realistic is people just don't go to the movie theater anymore.

Yep.

The old Disney business model and content model was completely dependent on that. The way that you seeded new stories and characters and reinvigorated old stories and characters into the public consciousness was through the movie theater. People go once or twice a year for a huge event movie. They'll go for The Odyssey. They'll go for Toy Story 5.

I'm going for The Odyssey on Saturday, and the reason I haven't gone before is because I've been prepping for this episode and I haven't had time.

Yeah, exactly.

I literally went to Toy Story 5, and I'm going to The Odyssey, and I have no other plans to see movies. Oh, Dune 3 I'll go see.

Nice. Yeah, yeah, I'll go see that too. But they're probably not going to go see a film like Ratatouille.

Oh, that's interesting.

Yep. They're not going to go see Encanto, and they're not going to go see Tangled.

Mm.

And those franchises are so important to Disney. So the only way that Disney can make sure that the maximum number of people and the maximum number of generations get exposed to those franchises is to have a widely available streaming service.

It's interesting. It's backed up by the numbers. If you look at the new Pixar films developed in the last 9 or 10 years, none of them have set new records.

Yep.

The only record setters and real smash hits are these sequels.

Yep. Toy Story 5 is going to be a banger, but again, five.

I don't think Pixar's gotten any worse at doing the Pixar thing. I think these have been great films—the original ones that have come out—but they've only generated $200, $300, $400 million at the box office. It's that the bogey has moved. Product-market fit is an evolving thing, not just because the product is changing, but because the market is changing.

Yep.

So what is going to get Ratatouille in front of consumers? It's either the Netflix algorithm or the YouTube algorithm, or it's a first-party streaming service that Disney owns and can make sure that Soul or Turning Red or Elemental or Encanto gets in front of consumers.

Even though you can't be that profitable by running said service.

Yep. But when you're making $10 billion out of the parks, and that's the IP that's feeding the parks, you damn sure need a way to make sure people see it.

Yep. Could you have your cake and eat it too? Could you run a high-quality, skinny service that reaches, I don't know, 30 to 50 million people who really just want the straight drip of Disney, but also make hundreds of millions of dollars licensing that content elsewhere, just kind of spreading it around to make sure that when you have a big thing that you think is the equivalent of a box-office hit, you do release it on Netflix to their 350—

Yep.

—ish million people.

That's the only other viable strategy that I could think of. Sounds like you ended up in the same—

Yeah.

—spot.

Disney+ also constrains your reach. It was quite bold to think that you could go and build a Netflix competitor 10 years after Netflix started, and just bet that the Disney IP was enough to sort of catch you up to them, and then also be as good as they are at going and getting filler content, even when you have the high-prestige Disney brand holding you back from smashing as much filler content in as you can. So the result is, you don't, and you end up with a subscale streaming platform. They do have Disney+. It does have 130 million people subscribed, but 130 is not 350.

Yep.

And so your content that you want to drive people to the parks and to merch is only reaching 40% of the people that it could if it were on Netflix, or whoever the biggest streaming service of the day would be. You'd be subservient to them in actually showing it to people, but you are hamstringing yourself by not giving your content the most reach that you possibly can. In the theatrical world, you'd come out with a Disney movie, it would go to every theater, and everyone would see it. You had reach. In the Disney+ world, Disney+ doesn't actually give you the reach that being on the biggest streaming services would give you.

Yep. I still think it probably doesn't work, and the reason is the algorithms. Netflix is not the movie theater.

Yeah, but if your content is unbelievably compelling, it will rise to the top.

Sure, for people that Netflix knows will be interested in that content. Again, it's not like the movie theater.

Yeah, but—

The movie theater, it rises to the top for everybody. People go to the movies.

No, I disagree with that. In an alternate universe where the Disney-Netflix deal is still in place, whenever a new Disney movie would get released on Netflix, it would be a top-10 movie for sure, both organically and—

Mm.

—if it's a good movie, then people are going to talk about it, and they're going to tell their friends, and it's going to get more popular and it's going to bubble up in the algorithms.

Yes, but even a top-10, top-5, top-3 movie on Netflix in a given month, what percentage of Netflix's subscriber base is watching it? I don't think it's a super-high percentage. It's a supermarket driven by an algorithm. It's not a movie theater with a curated, finite set of—

I see.

—stalls that are showing a real—

It's not power-law distributed enough that the big content each month gets 70% of people to watch it. You're saying any given piece of content tops out at, like, 10% of viewers or something like that.

You're competing with Seinfeld on Netflix. You go to the movie theater, you're competing with whatever else is out that week and the 7 other theaters in the megaplex.

Yeah. Yeah, it's interesting.

All that to say, same as you, I went in wanting there to have been a different strategy, and I'm actually not sure I could come up with a better one.

And any pontificating we could do lacks data, and Disney has all the data. If there were a better strategy, they're real smart. They probably would have come up with it.

Yeah.

And they have access to more information than we do.

Yeah.

The one thing that I don't think has become true is that Disney+ provides a deeper relationship with customers. It's not like there's any synergy with the parks. I mean, they finally unified my login, but it's not like my park experience is any different based on my Disney+ viewing habits. I'm not even sure I would want that.

Right.

I can't think of any of the synergies that you would actually want. It sounds good in a pitch to say, “Oh, we have this direct and personal relationship,” but the biggest benefit I can tell is what we already talked about: that you actually can force content in front of my eyeballs this way.

Yeah.

But this general insight that I didn't have before starting the episode is that if you want to operate a streaming service that gets to scale—and if you're going to operate a streaming service, it has to get to scale, since the fixed costs are so high—then you must have a broad set of content. It's weird that it must be a broad set of content because you must appeal to lots of people, and therefore you need diverse content to appeal to all of them. Put another way, the winning streaming service will be the kitchen sink.

Yep. Yep, yep, and that's what Netflix is.

And that's how bundles work. The winning thing in TV was the kitchen sink, the cable bundle.

Yep.

That's a kitchen sink. That's what Hulu is.

Yep. Again, I don't know that I actually could come up with a different, better strategy, but the world that Disney and all the traditional media companies entered starting in 2015 is just a fundamentally worse one for their content.

To run content businesses, yes.

Yeah. And specifically for Disney, because they've got to increase their production output so much, and the whole brand promise of the company is founded on scarce content that's always great.

Yep.

It's interesting: is it a worse world for content businesses when we actually live in the best world ever for consumers of content?

Hmm.

Consumers have an immense amount of choice. You can choose from everything from someone influencing on their phone to high-quality cinema available both in the movie theater, in IMAX, and on your TV a mere 45 days after it comes out in the theaters.

Right, an immense amount of choice for a minuscule amount of money compared to the old world.

Right. Right. It's the best deal ever for consumers.

Yeah, YouTube is free. Netflix is—

All these services combined cost approximately the same price as a cable bundle.

Right. And compare that to going to the movie theater every weekend.

The only case I can possibly make that we live in a worse environment is the overexploitation of IP franchises...

Sequelitis.

Yep.

But we live—

Yep.

—in a pretty amazing content time.

Okay, so I think we should move this into bull and bear—bull case and bear case for Disney from here. Let's start with the bear case. The core of the Disney flywheel and the ESPN beautiful affiliate-fee business model are both compromised and perhaps permanently impaired.

Yes.

That's the core of the bear case to me.

Yes. Illustrated by this question: Has Disney produced a single new franchise in the last decade that has been a commercial success? Everything I can think of that did big dollars after 2016 at the box office—and I pick 2016 because that's—

Moana.

—when Moana and Zootopia came out. Everything after that that was big box office for the company is harvesting existing IP.

Yep.

If you wanted to have a big concern, I think that's it. What's The Lion King of tomorrow, or the Toy Story of tomorrow, or the Avengers of tomorrow? Coco and Encanto are probably the best shots at it, maybe Elemental, but it's interesting because those did not have big box offices, and so you have to rely on streaming to tell you that it's big, and, number 2, to carry it.

And it's a case in point. As awesome as those movies are and those franchises are, and they're showing up in the parks, they're not Frozen. Frozen might have been the last megahit.

It's fascinating. My other one is that the 3 acquisitions—Marvel, Pixar, and Lucasfilm—were brilliant, but in retrospect, it's looking like they provided amazing fuel for about 20 years, but not for 50 years.

Yep.

I mean, where does Star Wars go next? Is Marvel fully exploited now? The company has bet so big on these IP flywheels that every new thing in the park is tied to one of them. All the sequels are tied to them. And when you run out of sequels, I've got to tell you, I'm scared for Avengers: Doomsday. I saw the trailer, and I was like, “I remember when I used to be really, really excited about this.”

I know.

And I just have a feeling in my stomach that I'm just not anymore.

I'm barely even aware that it's coming, which is even—

Hmm.

—a worse place to be.

Which says a little bit more about the cultural importance of theaters. Although, I bet you knew The Odyssey was coming.

Yep.

I bet you knew Dune 3 is coming.

Yep. So, okay, bull case. I will take the exact opposite side of what you just laid out in the long run. I think these franchises, whether it's core Disney, Pixar, Lucasfilm, or Marvel, are just like luxury brands. You cannot kill them. They will have up times and down times, but they will always come back because these are the core myths of our society, and they get handed down generation to generation. And when they are at their lowest point, that is the moment that they will turn around and surprise us in new ways.

That's a great narrative. I have no way to push back. And to make your point, at some point here in the next couple of years, I can't wait to show my son Star Wars for the first time, and he's going to grow up watching Star Wars. Is he going to care that they made a crappy Obi-Wan show? No.

Yep.

He'll never see it.

Yep.

They—it's still the core myth of his time. In fact, didn't George Lucas do a Star Wars Holiday Special way back in the '70s?

Yes.

And you know what? None of us have ever seen it, and it never affected any of the myth-making: that.

The Star Wars Holiday Special, yep. Well, I think it's actually the story of this whole episode, and it always comes back. It always comes back. These franchises, these studios, and these characters and stories are going to live forever.

Yep. All right, I've got a few reasons for optimism here.

Despite the fact that they intentionally accelerated the demise of their older profitable businesses, they're back to all-time highs on total profits now. They took those rebuilding years—5 or 6 years in the middle—and had a pandemic in the middle of it that shut down all their parks. But I think in 2026 it's looking like they'll set a brand-new net income record ever, based on the way it's trending.

Just 5 years ago, it was negative during COVID, and they really dug out of that hole after losing all this money in streaming. For all the headwinds that we described, they're going to continue to set new financial records. Now, it's not growing at the speed that you'd want for a business to justify a high multiple or a fast-growing stock price, but in many ways, Disney is a scale company that has accomplished its mission, so I don't know that I want it to be a 20% year-over-year grower. As a consumer, I quite like that it's a 3% or a 5% growth company.

Yeah. I think this might even be a version of the same thing, too. The Disney parks are also a fundamental part of our culture that gets transferred from generation to generation, that parents take their kids, and it's just always going to be that way.

Yep. The parks are amazing. No competitor has the brand affinity they have or the flywheel infrastructure they have. A lot of reason to be optimistic.

All right, then I've got one more point to the bull case for Disney.

Are you going to pitch Josh tomorrow on doing an acquisition?

Absolutely. But here's what it is. I think Disney still is just like it was when Bob took over. I think it's still the very best home for the best characters, stories, and IP franchises in the world when they need a home. And there are 2 extremely obvious ones to me out there right now. One is Bluey, which is the greatest children's show ever made, and is also much more than a children's show. It's already quasi-within Disney.

Right. It's got placement in the parks. It's got a deal with Disney+.

Bluey is not Pixar. It's not at that scale, but it has so many echoes of Pixar right now. It's not really capable of continuing and standing alone on its own. Joe Brumm isn't going to make Bluey into a Disney competitor, but Disney can be the very best steward for all the future of Bluey, and Bluey has so much more running room ahead of it—

Yep.

—in terms of what it can be.

Yep.

All right, so that's one.

There's one.

And then the other one, the opposite end of the spectrum, is Nintendo. Man, Nintendo has fallen on hard times. Do you know what Nintendo's market cap is right now? 50 billion, but down 50% from last year.

Whoa.

Yeah, I mean, you could pick up Nintendo for less than the cost of Fox now. I don't know that Nintendo would ever sell.

Japan would not let it.

Japan.

There's no way.

Japan. But look, they have this relationship with Universal now. I mean, it is a travesty, frankly, that Disney let Nintendo go to Universal. Nintendo is like Pixar, Marvel, and Lucasfilm combined. They have some of the very best IP in the entire world. They've got 3 franchises that can stand toe-to-toe with anything at Disney: Mario, Zelda, and Pokémon. And then they've got a whole slew of other great stuff: Donkey Kong, Metroid, Kirby, Star Fox, and Animal Crossing. I mean, there are movies for decades to be made here, plus the video games.

And then there are the parks. I took my girls to Nintendo Land at Universal Studios in LA. It was amazing, and it's like 1/50th the size of Disney World. With the bigger Disney canvas, Nintendo physical experiences could be so much more.

Hmm.

There you go. That's my pitch.

I like it. Seven Powers?

Powers, yes.

All right, so listeners, this is the part of the episode where we use Hamilton Helmer's framework to discuss why a company gets to be more profitable than its nearest competitor, and there are 7 of them. Scale economies, network economies, counter-positioning, switching costs, branding, cornered resource, and process power. Man, how do we do this this time?

I think we do it this time for the streaming era.

Disney+ versus streaming competitors?

Yep.

So the pitch of Disney+ versus other vertical competitors, Peacock or Paramount+, is that it has higher-quality, durable franchise intellectual property that those other ones don't really have.

Cornered resource.

And they have them forever, just like the vertical ones. Peacock has The Office forever, or Paramount+ has Star Trek forever. But Disney just has a lot more of those than the other vertical ones. The funny thing that I'm struggling with here is that it's not like they actually generate more profits than the real competitor, Netflix.

Yeah. Well, I think it's really simple. It all just comes down to scale economies in the streaming business. This is why Netflix has—what did we say?—45 billion in revenue and 13.5 billion in operating income, and Disney's streaming business is half of that in revenue and barely profitable. That is the clearest illustration of scale economies that I can present to you.

Yeah. Hmm. So does the world end up where you have Netflix, which is the giant winner-take-all scale-economies player in paid streaming, then you have YouTube, which is the giant winner-take-all one in ad-supported, free, creator-led content instead of professionally created content, and Disney can stay subscale because it's subsidized by the profits from their other businesses, so it doesn't need to be as competitive on a like-for-like basis with Netflix?

I think Disney's best bet here is to be a clear number 2.

And they probably should lean into that, ’cause if you’re trying to be number 1, then you’re gonna chase the content kitchen sink all the way there.

Yep. They need enough of a content kitchen sink to be superior to Peacock, et cetera. But frankly, they’re already there. They can dial back content production a lot and let the flywheel heal itself a little bit.

Right.

And still be just fine.

Agree.

Keep Hulu Hulu.

Yeah.

Hulu and Disney+ keep getting closer and closer together the more they bundle it and put the content in each other’s apps.

Are you starting a “Make Hulu Great Again” campaign here?

I’m starting a spinco of Hulu and Fox assets campaign here. That’s what I’m doing. Keep Avatar in Disney, but everything else has to go.

All right, quintessence. Listeners, this is our exercise to wind down the episode, bring it home, and talk about the one big idea that stuck with us.

Yep.

My quintessence is that the environment changed.

Yep.

Disney used to operate in an unbelievably easy environment. The cable bundle allowed ESPN to generate huge profits basically on autopilot. Partially because of ESPN, all the other TV channels that Disney offered were also super profitable. Customers used to go to the movies super often, and Disney had some of the most profitable and successful movies. Then, to put this on steroids, they could make money at the box office and sell the movies after that and make giant profits again.

You had everything going for you.

That was peak traditional media.

Then the modern environment is the exact opposite. The cable bundle’s getting destroyed. Disney could no longer realize those profits. People stopped going to movie theaters, so box office gross dries up. Streaming turns out to be expensive to build, expensive to maintain, expensive to acquire customers, and harder to create events around. People don’t rally around them like they did around movie theaters.

It’s expensive to retain customers, it’s far less profitable, and it’s not a replacement for the theatrical revenue. Ultimately, because of all this, there’s just not as much cushy surplus everywhere, and you have to make a lot of really shrewd business decisions if you wanna keep generating the same or more profits each year.

So where does this leave us? Disney’s gonna be fine and, if managed very carefully, thrive. They’re still gonna produce beloved characters and stories we all love, but the prosperity from the late ’90s and the 2005–2019 era was a complete anomaly due to how good all the structural forces around the business were. It’s just brutal that, as a company, they will forever be compared against those eras.

Yep. And frankly, the management team in that era just knocked it out of the park in terms of seizing those opportunities and innovating. All the stuff they added: home video, Broadway, the stores in the malls, the parks, and transforming Walt Disney World into a resort.

You know what it is? You could make money in media then.

Yeah.

You had to do clever stuff, but there was money to be made.

There was room for creativity to thrive.

There’s much less of that now.

Totally agree.

Absent a completely different business model, like being MrBeast, there’s a whole other universe where you can create very successful media business models now, but it’s so far from Disney’s universe that you can’t even see a path to it.

Yep. And that leads right into my quintessence. I guess I’m ever the optimist on this front. Disney is the home of generational myths, and you’ll never kill it. It’s what I said in my bull case.

Unkillable.

It’ll have its ups and downs, and maybe we’ll never see another era like the ’90s, and that was truly peak Disney from a business and creativity standpoint.

And the early 2010s.

And the early 2010s, too. Yep, absolutely. But this is sort of my point. It goes in 20-year cycles, and I wouldn’t be surprised if it’s back on top of the world in another 10 years.

Love it. Carve-outs?

Carve-outs. Let’s do it.

This is the part where we talk about products that we have been loving that have nothing to do with this episode, but we wanna share with you, listeners. I have a Warby Parker one to share with everyone.

Ooh, fun.

I have been wearing glasses more recently, and in the summer months, it’s nightmarish to carry 2 pairs of glasses with you. So what’s the answer? Transition lenses. But transition lenses just look so derpy. Classically, transition lenses are a treatment on regular glasses, and when you’re wearing regular glasses and they’re tinted, it just looks really bad.

Warby Parker has a product called their Transitions XTRActive, which are dark outdoors. They even transition in the car, and I got them in brown, and I think this is the key unlock. They don’t look as dorky when the tint is brown as when the tint is just regular gray. And if you get them in a frame that can play as both—

Indoor and outdoor.

Then it can work. So for the first time in my life, I’ve been wearing a form of transition lenses that I like. Brown XTRActive from Warby Parker.

Nice. Nice.

This is my fifth sunglasses carve-out. My carve-outs will exclusively be forms of eyewear.

We should start an Acquired retail—

Yes.

—sunglasses.

Yep.

All right. Moving on. I have 3 carve-outs. So my first one that I was sure you were gonna take is Michael Arndt’s Toy Story 3 lecture on YouTube.

Oh my God, it’s so good.

Michael was the screenwriter for Toy Story 3 and shared this lecture on YouTube about how story works at Pixar. It was part of our research for this episode. So many people told us about it.

And not only did he share a talk, he got permission to share a bunch of the early story reels, so you get to see the rough drafts of what the story was before the brain trust weighed in and made it better.

Yeah. It’s so good, well worth it. It’s about an hour and 20 minutes of your time. If you care at all about story or even just understanding what goes into making the magic of a Pixar movie—

Yep.

—go check it out.

Then I have a carve-out request also related to the episode. We were in New York recently for the event that we did with Sierra, and I brought the family. My older daughter was super excited to go to the Nintendo Store in Rockefeller Center in New York because she thought that, at the New York flagship, they might have Princess Peach costumes. They did not have Princess Peach costumes.

As far as I can tell, Nintendo does not make first-party Princess Peach costumes. This is why Disney needs to acquire Nintendo, because the fruit is just hanging off the trees.

Ugh.

I don’t care if it’s Disney or Nintendo or Universal or whoever. Just make some Princess Peach costumes for my almost-five-year-old.

Josh, David wants to come in and do strat planning with you, so bring him in.

Yeah.

My last carve-out is the Golden State Valkyries, the WNBA franchise here in San Francisco. We’ve gotten to know Jess Smith, the president of the Valkyries. We’ve done a few events with her.

Yeah, she’s so great. Actually, at the Sentry event that we did last year.

Yes. What she and the whole Valkyries organization and the Warriors organization—which is the same ownership group—have done with the Valkyries is nothing short of incredible. It’s the second year of the franchise. It is the most successful women’s sports franchise in the entire world. It’s worth over $1 billion now.

We went for the first time to experience it. I’ve never been to anything like it. It was one of the best sporting events I’ve ever been to, period. My little girls were so into it. It’s like magic.

Hmm.

They were standing up, cheering, applauding, yelling. The arena was sold out. They’ve sold out every single game they’ve ever played. It’s really awesome.

Hmm.

If you’re in San Francisco, go to a game.

All right, I’ll have to come down.

Yep. I've got a long list of folks to thank for all their time and conversations helping us prepare for this episode. First, to Nancy Lee, Bob Iger, Josh D'Amaro, Pete Docter, Jim Morris, and all the incredible folks who hosted us for the day at Pixar, including Danielle Feinberg, Katherine Sarafian, and the incredible people who run the Pixar archives. That was

So helpful.

An experience like none other. To Kristen Bell, the voice of Anna in Frozen, who helped us think about Disney Animation and Pixar; to our friends Ravi Nandan at A24, Chase Carey at Liberty Media and Fox, and Mitch Lasky at Benchmark; to Robbie Whelan at The Wall Street Journal, who has a book on Disney coming out later this year; and also to Ben Fritz and Emily Nelson at The Wall Street Journal. I know you have a list, too.

To Ed Catmull, who needs no introduction; to Jeffrey Katzenberg, same thing; to Bill Block, who formerly led Miramax; and to Ben Thompson for his exceptional analysis of Disney over the last decade that inspired a lot of my thinking. I think I read every Stratechery piece on the company to prepare for this. And lastly, to our friend Sean Bailey, former executive at Disney who led one of the studios there and has helped us with a bunch of episodes, but obviously this one was particularly close to home. So thank you so much, Sean.

Yep.

If you liked this episode, go check out Disney Part One on Walt's life. Some other episodes you may like, the NFL, Coca-Cola, Vanguard, or if you're willing to dive very deep into the Acquired back catalog, we've got Pixar, Marvel, Lucasfilm, ESPN, BamTech, a Disney+ episode from 2019. I may be forgetting some, but there's plenty of Disney sprinkled around in the back catalog.

You can click the link in the show notes to get access to the companion PDF with visuals, charts, tables, and key illustrations from this episode. You can join the email list at acquired.fm/email to get access to all the photos that we talked about and to learn a hint at what next episode will be. That's acquired.fm/email. Join the Slack at acquired.fm/slack. And with that, listeners, we'll see you next time.

We'll see you next time.