The Walt Disney Company: The most successful enterprise for monetizing human nostalgia (Audio)

Have I ever shown you my Mickey Mouse. impression? [laughter]. >> You've done your uh Mario impression for. me in the past, but I'm not. >> They're a little similar. [laughter]. >> All right. All right. Give me Give me. Mickey. Give me Mickey. >> Oh, boy. Will you look at that? [laughter]. >> That is really good. You sound like Walt. himself doing Mickey, >> right? Didn't he do Mickey for like 20. years? >> Yep. Yep. Yep. He didn't at the very. first and then one of the animators. convinced him to do it and then yeah, he. did it for 20 years.

>> Have I ever given you my Donald Duck. impression? >> Oh wow. Okay. Well, now I I do I need to. sit down for this one? >> You you might need to. All right. Here. we go. [laughter]. That's about right. That's about right. I have a great Donald Durbia for you. coming up. Save it. >> All right. Save it. Save it. >> You're going to be blown away. I'm. pretty sure you didn't find it. >> Great. All right. On to the episode. Let's do it. >> Who got the [music] truth? Is it you? Is it you? Is it you? Who got.

the truth now? Is it you? Is it you? Is it you? Sit me. down. [music] Say it straight. Another. story on the way. >> Welcome to the spring 2026 season of. Acquired, the podcast about great. companies and the stories and playbooks. behind them. I'm Ben Gilbert. >> I'm David Rosenthal. >> And we are your hosts today. listeners, we finally tell the story of the Walt. Disney Company. Unbelievably, in 11. years of doing Acquired, we have never.

told Walt's story and uh it's been a. glaring omission. It is the. entertainment company different than all. the rest. It's over a hundred years old. and it has played a prominent role in. almost all of your childhoods and if. you're a parent, likely your parenting. journey, too. >> Oh, yes. >> I'm looking at you, David Rosenthal. Oh. yes, and it has played a prominent role. in acquired history too. Our very first. episode, Pixar, done Lucasfilm, we've. done Marvel, done ESPN, although those.

are a whole different version of. Acquired, we may need to decanonize. those and and redo them uh the proper. way. >> as part of this. >> Listeners, since there are tons of. biographies and documentaries and places. analyzing Walt's psyche, we're going to. focus today on Acquired Sweet Spot, which is the business. What is it that. Walt's merry band did from the 1920s. onward that made them succeed uniquely. well in Hollywood? And when you look at. Disney's profits today, it is in a whole.

different league than Paramount or. Universal or Warner Brothers or any of. the other sort of classic Hollywood. studios. The business of feature film. production is a mediocre one, especially. by the standards of uh what we study on. this show here with Acquired, except for. Disney. >> Yes, exactly. And I will say I am a huge. Disney fan. I grew up on Aladdin and the. Lion King. My first movie in theaters. was Beauty and the Beast. I'm a huge. Star Wars nerd and my wall was plastered.

with Toy Story posters growing up. But. somehow I knew nothing about the. company's early history before starting. this research. Nor did I. For example, it started in Kansas City. there was a. character that was supposed to be Mickey. Mouse before Mickey Mouse but was lost. in a contract dispute or that many of. the movies I watched in my childhood are. actually from 50 years before I was even. born. Snow White was produced before. World War II. Pinocchio, Bambi, these.

films are from the 30s and 40s. They. even predate the existence of. televisions in people's homes. Yep. And. importantly for Acquired's roots, this. really is a technology story. Giant. innovations that often bet the whole. company on things like synchronized. sound or the crazy idea of a. featurelength animated movie at all or. the multiplane camera to photograph the. whole thing and turn it into a movie. And of course, building a giant theme.

park in Anaheim when nothing else like. it existed. And they really did invent. the entire concept of the flywheel. business model that so many. entrepreneurs are trying to copy. >> Oh yes. >> So today listeners is the Walt Disney. Company part one Walt's era. Woo. >> Well, big news from here at Acquired HQ. This episode has a companion PDF with. visuals, charts, tables, and. illustrations of key concepts, including. Acquired's version of the Disney.

flywheel. We did a pilot of the idea. after our Vanguard episode and we got. such overwhelming positive response that. we are doing it again. So, you can get. access and follow along by clicking the. link in the show notes. >> You might say we're uh building out our. own flywheel here. >> We are. >> eating our own episode cooking. >> and we're we're taking this timeless IP. that we are developing and figuring out. even more things to do with it. >> That's right. >> All right. So, you can join the acquired. email list at acquired.fm/e. That's where we'll send our big.

takeaways from each episode, past. episode corrections, exclusive. behind-the-scenes photos that we found. at our research, and it's where you can. vote on future episode topics. Plus, we. will give away a little hint each time. about the next episode topic. That's. acquired.fm/e. Come talk about this episode with us in. the Slack. That's acquired.fm/slack. And before we dive in, we want to thank. our presenting partner JP Morgan. Yes, just like how we say every company has a. story, every company's story is powered. by payments and JP Morgan is a part of.

so many of their journeys from seed to. IPO and beyond. So with that, the show. is not investment advice. David and I. may have investments in the companies we. discuss and this show is forformational. and entertainment purposes only. David, take us in. Well, first a thank you to. my main source for facts and Walt quotes. on this episode. Neil Gabler's. biography, Walt Disney, the triumph of. the American imagination. Gabler, I. think, was the only author who had full. access to the Disney archives and all.

the research he did for that book is. just incredible. >> Yes. Well, with that, we start in. Chicago in December 1901 where Walter. Elias Disney is born. And the family. lore is that the Disneys are descended. from the French Disneys of Normandy. >> How do you spell that? >> D apostrophe I si G nys of Normandy who. came over to England with William the. Conqueror in 1066.

That's family lore. unverifiable. >> Yes. At this point, lost to history. >> Yes. So, Walt's father, Elias, was sort. of a frustrated entrepreneur. He was. variously a carpenter, landlord, farmer, newspaper route owner, and eventually a. failed jelly factory investor. But Elias's younger brother, Robert, Walt's uncle Robert, was the successful. one in the family. He was a real estate.

speculator among other things and that. is what brought the family to Chicago at. the turn of the century. He had invested. in a bunch of real estate in Chicago and. the Midwest and so Elias came also to. seek his fortune there. Now, when Walt. is four, Elias moves the family out of. Chicago to an idyllic farm town, also in. the Midwest, where Robert had just. purchased another tract of real estate, Marceline, Missouri. And Lily and.

Disney, Walt's future wife, would say. about Marceline, "It was the most. important part of Walt's life. He didn't. live there very long. He lived in. Chicago and Kansas City much longer. But. there was something about the farm that. was very important to him. >> And Elias moved the family because it. was kind of like let's get out of the. dangerous city of Chicago and raise the. kids, right? So sort of somewhere small. town. I think Marceline was actually. created because they needed somewhere. for the Santa Fe Railroads division.

point. >> Yes. Yes. >> Like when it was going to maybe Chicago. and Kansas City and they were like and. this place on the map looks good and. they started the town of Marceline. Exactly. Exactly. And Robert, the uncle. had bought real estate there, kind of. speculating again that this is. Marceline's gonna grow. >> So Marceline was like basically a Disney. movie. There's orchards and ponds and. animals and farmhouses. There's also. this charming little town that the. railroad had created with a main street,

a main street USA, you might say. But. that's getting ahead of ourselves. So, while the family's living there, Uncle. Robert's wife, Walt's aunt Maggie, every. time that they would come visit. Marceline to check up on their real. estate investments, she would bring Walt. gifts. And one year when Walt is. probably six or seven years old, Aunt. Maggie brings him a big chief drawing. tablet and pencil set. And Walt is. enraptured. He starts sketching all the.

time, drawing, sketching everything he. can see. And as the legend goes, one day. Walt's retired neighbor asks the young. boy to draw him a picture of his. favorite horse. And the neighbor loves. what Walt draws so much that he pays him. a nickel for it. And he hangs it in a. frame in his house. And Walt, his mind. is blown, young Walt. He's like, "My my. hobby, my my art, it can make me money.". [laughter].

Now, whatever the exact truth of that. story is, there is no doubt that. somewhere in Marceline, in prepubescent. Walt's mind, a connection is forged. between these two great forces, art and. commerce. And that would go on to drive. not only the rest of his life, but the. company, the studio, the movies. I mean, change America. >> Absolutely. The thing about Marceline. though, you said it's idyllic and like. it's out of a Disney movie. The reality.

of living in Marceline and life on the. farm is that it was very hard. All the. kids are involved. There's not, you. know, magical economic prosperity. everywhere. It's sort of a tough life. Even though he can sort of remember it. as an idyllic childhood, which I also. think is quite the foreshadow of kind of. the Disney versionification of things in. the future, it is both remembered as. idyllic but also was hard as the real. world is. Yes. And I think it's because. of the age wall was when he was there.

So they lived in Marceline only from. when he was like 4 [snorts] to 8 or nine. years old before he gets really put to. work. So he gets to just enjoy, you. know, all this bliss around him. Yeah. The reality is it's pretty tough for the. family to make a living. And in fact, they can't. So Elias adds farming to his. list of entrepreneurial failures. And. when Walt is 9 years old, they have to.

move the family again out of Marceline. to Kansas City where Elias decides he's. going to purchase a paper delivery route. for the Kansas City Star newspaper and. he's going to put the family to work. [laughter]. delivering papers. >> There are so many protagonists that we. study unacquired who started their. career as newspaper boys. I was going to. say just like Jack Bogle from Vanguard. delivering papers in his youth and. having to get up at 4 in the morning and. falling asleep at school because he has. to work so hard. Like this is quite the.

reversal here for Walt from Marceline. But he never stops drawing and he never. stops making money from it. In Kansas. City, he would draw frames for the local. barber shop who would pay him either a. nickel or a free haircut for each. And. that would, you know, be Walt's spending. money growing up that he would earn from. his art. >> Yep. So later when Walt enters high. school, Elias moves the family back to. Chicago again, this time for the Jelly. Factory, which ends up failing, where.

Walt becomes the cartoonist for his high. school newspaper. But he's not there. long before he leaves high school to go. join the Red Cross and get shipped off. to France as an ambulance driver during. World War I where unfortunately he would. acquire a chain smoking habit that he. would keep up for the rest of his life. and eventually would kill him way too. young. Yep. But Walt's not in France for. long before the war ends. And in the. fall of 1919, he lands back in Kansas. City where Roy Disney, his older.

brother, who is, I think, eight years. his senior. >> Nine years, maybe. >> Eight, nine years older. >> Yeah. Much older. >> Yep. Is living. And Walt has a plan that. he's going to seek his fortune finally. as a true professional cartoonist. So, through Roy, he gets introduced to an. advertising art shop that's looking for. apprentices to help draw like flyers for. the upcoming holiday rush. And Walt. works there for six weeks through. Christmas time and then gets.

unceremoniously laid off. But he gets. two things out of this brief experience. as an employee. One, he gets a. credential. He can now say that he is a. professional artist. >> All you have to do is get paid to do. something and then you become a. professional. >> Exactly. Exactly. And you get something. else, a co-founder, another young apprentice from the art. shop named Eyeworks. >> I sort of think of as the Steve Waznjak. of Disney. >> Yes, absolutely. Walt is like the.

original Steve Jobs. And I think you can. definitely make the case that is the. Steve Waznjak. >> Although I think Walt was more hands-on. Yes, Walt was also an animator. was just. a better animator and Walt was a camera. operator and Walt was building stuff, doing things with his hand and he was in. the primary technology and artistic. trade that his business was in. So after. the two of them get laid off, Walt. suggests that rather than go look for.

jobs again, they should just start their. own studio together. I mean, hey, they're professional artists. Like, why. not? [laughter and gasps] So, they. create I works Disney Commercial Artists. Incorporated. supposedly in that naming order so that. it didn't sound like a optometrist shop. like Disney Eyeworks. >> How amazing is this? In the first. Eyeworks and Disney partnership, in Walt. Disney's first business, he was not the. main name on the door. At least he was. not the first one. >> Yes. Not the main name on the door, but.

he is the driving force behind the. business. So he goes out to pitch. prospective clients around Kansas City. for the uh services of this new I works. Disney commercial artist firm and one of. the clients that he goes to pitch is a. upandcoming company called the Kansas. City Slide Company which happens to have. become the country's largest producer of. advertising slides and short commercials. that would get shown in movie theaters.

feature films and the slide has so much. work at this point in time as films and. movie theaters are are taking off around. the country that they say hey you guys. seem talented we don't want to just. contract with you why don't you come. work here full-time so Walt and first. entrepreneurial venture quickly comes to. an end and they go join the slide. company now the reason that they. specifically wanted Walt and is that.

they have a relatively new business line. at the slide co which is producing. animated commercials to run in movie. theaters before films and this is what. Walt and end up getting put to work. doing and they both just fall in love. with this new art form of animation. It's like everything that Walt and Obubu. loves about drawing but it's more than. just art. It's technology. You know, you.

need cameras, you need film, you need. all these new inventions to make. animation happen. >> Yep. And at this point, animation was. really primarily used in advertising, right? There wasn't really a successful. thriving industry yet as entertainment. of its own based on animation. It was. like very very early and to the extent. that it did exist as entertainment and. shorts, short films, cartoons on its. own, it was all based in New York, like.

not in Kansas City, >> right? >> But the whole industry is only like. barely 20 years old at this point in. time because you couldn't produce. animation on any sort of scale until you. had widespread commercially available. film cameras and film projectors. Like. this whole art form is brand new. It. couldn't exist before the technological. innovation of film. >> Yep. It's exactly right. >> So, part of the reason that cartoons are. working well in advertising right now. for the slide co is that it's this.

novelty, you know, almost gimmick. It. captures people's attention. >> Yep. >> Even though they have no color, no. sound, no story, it's just a series of. like visual novelties. >> It's something they never seen before. Of course, it's interesting. >> Yep. And in Walt's mind, who really is. always thinking about how can I, you. know, make a business out a career out. of this, this is also what makes it. super attractive to him, because the. whole industry is so new of animation, he figures that he can quickly become as.

good or better than anyone else in the. world at it. Unlike if he's going to try. and be the best commercial artist in the. world, you know, good luck, young Walt. Disney in Kansas City, Missouri. >> Oil painting is thousands of years old. >> Right. Right. Right. But becoming the. best cartoon animator, >> small pool. Yeah, he and might have a. shot here. >> Yep. >> So, Walt and start experimenting on. nights and weekends with their own work, just trying out creating their own. animations using the Slide Co. equipment. and cameras. And Walt puts together a.

few short cartoons that he creates all. himself. He brands them as quote. laughogs. and he ends up selling them on the side. to a local movie theater chain to run. before features and the laughs become a. hit in Kansas City. Audiences love them. >> I love that the thing that led to the. Walt Disney Company is called Laugh Oog. It reminds me of uh what was the Rolex. watch? The Turnograph. >> Oh yeah. Yeah. Yeah. That's such a like.

hokey name for, you know, what ends up. becoming. >> well, this doesn't become Disney, but. the spirit of which becomes Disney here. >> And the thing that they're doing, they're so primitive. There's no sound, there's no voices, there's no color, there's barely backgrounds. >> Yeah. It's so different from what you're. used to today. Because of those. limitations, you can't create a story or. a real sense of character for any of the. characters that are in there. Like you. can't build a relationship with the. cartoons that are being made at this.

time like you can with Mickey Mouse or. Donald or Goofy or Minnie. >> The only emotion you can invoke is. humor. And the only real way to do humor. is slapstick. So it's just these like. super exaggerated, they call them gags, like things that a character does that. isn't necessarily consistent with. anything else that they've done within a. few minutes of starting gag happening. and ending or or or sometimes even a few. seconds. Yep. And honestly, that's. actually not that different than film.

itself overall at this point in time. Like Charlie Chaplan is the big star in. America and around the world, the big. movie star right now in the silent era. >> And most of his movies are exactly what. you described, Ben. >> Honestly, it's all physical comedy, sort. of slapstick. It's the stuff that my. toddler laughs at. You could resummarize. every scene of every comic and most. movies by going, "Oh, he fell down. >> [laughter]. >> Exactly. [gasps]. Ah, so in May of 1922 at 20 years old,

Walt decides that these laughs that he's. making are having enough success that. he's ready to leave the slide company, go out on his own again and he founds. Laugh Films, Inc. And once again, he. convinces a bi works to quit and come. along too along with a few other. animators from the slide company. And. it's another failure because despite the. laugh's local popularity there in Kansas.

City, by the time we get into 22, 1923, animation and cartoons in general around. the country are starting to lose their. appeal. The novelty is wearing off. the. fad is dying down. There's actually a. survey of theater managers right around. this time in like 1922 or 1923 where one. of the questions is what filler options. do your audiences like to see around the. feature film that you're showing because. it also would be news reels or live.

comedies or short serals. Remember, there's no television. There's not even. really radio at this point in time. If. you want to get news or any kind of. entertainment, you go to the movie. theater. >> All right, I got a stat on this. In the. 1920s, the average American went over 40. times per year to the theater. >> Wow. >> This is what you did every week for. entertainment. >> Wow. Yeah. Compare that to today where. like maybe you go once a year. >> It's two the American the average. American goes to a movie theater twice a.

year now. >> Yeah. I mean, back then it was like you. could go to the movie theater or you. could go see a live show, ballet or. opera or or like a sporting event like a. baseball game or you go to the movie. theater. That's it. And when you go to. the theater, it was a bundle. I mean, yeah, you were there for a production, but I think the point you're trying to. make is there were also these cartoons. with gags. There were news reels. There. was the feature you're there to see, but. it's sort of this like bundle of all. right, let's see what the theater has in. store for me today. >> Yeah, exactly. So, this survey of. theater managers, only 23% of.

respondents say that they show cartoons. as part of the bundle and that their. audiences like it, which is by far the. lowest of any of the other filler. options. So, Laugh can't really find a. market outside of their local popularity. in Kansas City. And in 1923, the company. goes bankrupt and shuts down. And Walt. is now this sort of 1.5 times disgraced. entrepreneur here in Kansas City. >> Right in his dad's footsteps. >> Yeah. Yeah. Yeah. Exactly.

>> And he raised money from people in. Kansas City, friends, family. He he went. and lost people's loan capital that they. gave him. >> Yep. So Walt goes to rich uncle Robert. for advice on what to do given his. failure. And Robert says, "You know, kid, best thing to do if I were you, I. would just skip town. Get [laughter] out. of there.". Which actually is really sound advice. for back then. You know, people's. reputations did not travel with them. >> Nope. Your credit was the credit locally.

that you had with the people in your. town and no other way to find you. otherwise. Now, it just so happens that. both Robert and Walt's older brother, Roy, have just also skipped town from. Kansas City and moved out west to Los. Angeles. So, Walt packs his belongings, which is basically nothing at this point. in time, hops aboard the Santa Fe train. bound for LA, and joins them in. Hollywood. And when he arrives there in.

the summer of 1923, he's 21 years old. He stays with Uncle Robert and. initially, you really can't make this. up. I I couldn't believe this when I. read it. Wall at first thinks that he's. come to Hollywood. He's going to get a a. directing job in Hollywood at one of the. studios there. >> Well, yeah, he has abandoned the idea of. animation. He basically thinks he's too. late. He's seen some of the stuff that. comes out of the New York cartooning.

scene and he's like, "Well, I'll never. be as good as them, so I need to go. start over something completely new, right?" Which is sort of, you know, silly and wrong in of its own. But also. like the hubris that he thinks that he. could just show up in Hollywood with no. directorial experience and become the. next DW Griffith. That is Walt for you. >> Do you know the story of the Universal. Lot? >> No. No. No. So, he rolls up to the. Universal lot after getting there, having no job, no money, borrowing a. bed, and he goes and has fake business.

cards made that says he is with. Universal. He's just the Kansas City. representative, so no one at Universal. would really know who he is. And he. gives it to the receptionist on the. Universal lot. And he walks in. And so. he spends at least a day from what I. could tell roaming around and learning. as much as he could about film. production and like internalizes a lot. of those lessons. And then he tries to. come back in future days and say like, "Oh yeah, I'm sort of like with. Universal and now I have experience and. can you give me a job?" And he ends up.

running out of money and doesn't get a. job. >> That is amazing. I didn't [laughter]. know that story. So once he inevitably gets rejected at. all the major Hollywood studios, he says. later, "When things began to look. hopeless, I got my cartoon things out. again." And he sets up shop animating. again. He's like, "Well, as you said, Ben, this is the one thing I know how to. do. I should try that." And at this. point, pretty much the only popular.

cartoon left in the industry is Felix. the Cat. >> Yep. >> Which is created by Pat Sullivan out of. New York and distributed by the. pioneering Margaret Winkler, also in New. York. So Walt has one thing, one asset. left over from his failed laugh days, which is a real of a hybrid liveaction.

cartoon short that he had created with. right before he left Kansas City called. Alice's Wonderland about a real life. little girl who interacts on screen with. cartoons that they've drawn over the. film. which is like completely. pioneering technology. The the other. people who were doing animation at this. time were just doing cartoons. These. Alice comedies as they came to be called. were a new process by which you could go. and film a real life actor and then have.

them interact on screen with cartoon. characters and put them in the cartoon. >> Yes. Very cool. and also had the unique. property of being cheaper to produce. than full animation because you only had. to animate the characters, not all the. backgrounds and everything. >> Right. >> Right. Yeah. There is this funny. counterintuitive thing that live. production is much faster and cheaper. than animation. You just have a film. camera and you point it at something in. the world that exists and you kind of. get everything that you're pointing it. at for free. like the interring.

around you and you taking these. exposures in a video camera. >> Yep. >> So, Walt sends Alice's Wonderland off to. Winkler and she likes it. So, she. commisss Walt to create 12 more Alice. comedies for like 15 to $1,800 each. >> She does. And David, did you know we.

have seen this contract? [laughter]. >> Was this in the documents that we saw in. the Disney archives? >> Yes. So, listeners, for this episode, David and I went and spent a few days. down in Burbank looking through the. corporate archives. And one of the. things that the archavist pulled for us. was this contract. And I have a photo of. it. I'm looking at it right now. agreement entered into this 16th day of. October 1923 between Walt Disney of 4406. Kingswell Avenue, Hollywood, California, blah blah blah blah blah. And yeah, you're exactly right for 12 negatives of.

subject series and then in all caps. Alice comedies and. >> amazing. >> this we I also have a picture of this on. the last page of this contract cuz this. is effectively the contract that puts. Disney in business. I mean this becomes. the Walt Disney Company. >> Yeah, this is the moment. This is the. beginning of Disney. You can see his. signature which is much less flowery. than the version that you see in the the. Disney logo. He would sort of evolve it. over time. >> But yeah, this is the moment. Disney.

Walt is in business. It's his first. actual commercial big-time deal. >> Yes. And I think when Walt sort of gets. word from Margaret, he runs into his. brother's room. His brother Roy actually. has tuberculosis at this time. It is in. like a hospital ward. and he sort of. runs in, shows him the contract, and. says, "We got it. We got it. We got it. We're in business. We're doing it." And, you know, $15 to $1,800 a film is a lot. of money at this time. And Roy talks. through with him, and says, "Okay, let's. get right to work." And he literally. stands up and leaves the hospital ward. He's like, "All right, my tuberculosis.

is behind me.". >> And the two of them found the Disney. Brothers cartoon studio right there in. October 1923. as a true partnership between the. brothers. Roy manages the business and. the finance. Walt manages the creative. and they get to work. >> Yep. >> So Walt of course writes I works back in. Kansas City and several of the other. talented animators that they knew there.

and says, "All right, guys. [laughter]. I I got it this time. Come on out to. California. We finally got a deal. We're. going to build a real company and a real. animation studio. >> And they do. The behemoth we know as. Disney today is the Disney Brothers. cartoon studio and a whole bunch of. Kansas City guys that moved out to join. Walt to start cranking away. >> Yep. And the Alice comedies become a. moderate success in the marketplace.

Again, I think the novelty of cartoons. plus live animation. and audiences are. entertained for a few years. Ultimately, the Disney Brothers Studio produces 57. of the Alice comedies from 1923 to 1927. And then in 1927, Winkler's relatively new husband, Charles Mintz, who actually got to start. working for her in the business. By this. point in time, he has taken over as sort. of head of the business. He is no longer.

getting along with Pat Sullivan, the. creator of Felix the Cat. >> Big opportunity. >> Big opportunity. And And he has brokered. a little arrangement with Universal. Pictures, the big New York film. distributor, to on the Sly create a new. character to rival Felix. Now, now mind. you, he and Winkler are still the. distributor for Felix, for Sullivan, and. they're creating a new character to.

compete with him on the side. >> Sort of like they're building their own. chips while still buying Nvidia. >> Yeah. [laughter]. Uh, and so he turns around and haps. Disney says, "Hey, Walt, can you make us. a new series and a new character? You. know, like Felix, but but not Felix. Like like maybe not a cat, >> right? We needed to be plausibly. different while still having everything. that made Felix successful. >> Yes. So, Walt and cast about what can we. come up with that's like a cat but maybe.

shares a lot of the same recognizable. attributes like, you know, a lot of. white fur, a tail, some big ears, easy. to draw in black and white. And they. come up not with Mickey Mouse, but with. Oswald the Lucky Rabbit. And Oswald is a big hit. It's got the. backing of Universal distribution behind. it. It's a big hit for Universal, a big. hit for Winkler and Mintz, and a big hit. for the Disney Brothers cartoon studio.

And it's not surprising because if you. give the creative brief to Walt and take. something that's kind of working, but. apply your style. Their style was great. I mean, they were emotional animators. There's a great quote in the book Walt. Disney and American Original by Bob. Thomas that says, "Before Disney, cartoons were slapdash. Two-dimensional. characters in bizarre movement before. elemental backgrounds. Disney insisted. on rounded humanized figures. He wanted.

the humor to come out of the character, not the outrageous action." So, it's. sort of like, hey, here's the template, but dnify it or I workify it in a way. that really can speak to people. Well, I. think it really was the partnership of. the two of them. I think I works had. like immense artistic talent as an. animator and was able to do that and. Walt had taste like he recognized it and. he knew when and where to apply it.

>> Yep. So on the back of the Oswald. success, the Disney Brothers cartoon. studio grows pretty quickly from this. ragtag group from Kansas City to like a. real operation, like a real, you know, at this point bordering on major. animation studio. They hire about 25. employees and start turnurning out. Oswald cartoons. Yep. They move into a. real studio building on Hyperion Avenue. in the Silver Lake neighborhood of Los. Angeles. And when they move there, Walt.

and Roy decide at a unclear which. brothers instigation that they need to. rename the company and the studio from. the Disney Brothers Cartoon Studio to. the Walt Disney Studio. So, there's two. stories about this. >> I was going to say I've seen both. >> One is that it was actually Royy's idea. >> Yes. [laughter] because he's like, "Hey, you know, we need to start building a. brand and like people need to know who. is making these Oswalds and it should be.

the Walt Disney Studio. >> and you're very clearly the frontman. You know, you're selling. You're the. visionary. You're the sort of creative. talent and this is a creative company. Of course, it should be you.". >> Yep. The other story is that Waltz. always had a dream since he got to. Hollywood of having his name up on a. neon sign. >> [laughter]. >> now that they have their own real. studio. He wants a neon sign constructed. that says the Walt Disney Studio, [laughter]. which I think does happen. >> Yes, we'll put the photo in the email. The Hyperion Avenue studio has this.

really cool sign or did for a long time. before it got knocked down and I think. it's a strip mall or something today. And in that vein, now that the studio. has become a real operation, Walt moves. from actually doing a lot of the. animation and camera work mostly to. overseeing the studio, which you have to. with an operation of 25 artists and. creative people and camera folks. You. need someone who has an overall vision. and taste to drive everything. Yep.

>> Now, as Walt is transitioning from, you. know, sort of doer to really studio head. >> and worth knowing, the ownership of Walt. Disney Studios that would become Walt. Disney Productions that would become the. Walt Disney Company was at this point. 60% owned by Walt and his wife and 40%. owned by Roy and his wife. >> Yep. So Mintz, the husband of Winkler. back in New York, who has, you know,

sort of already proved his stripes by. his dealings with Felix the Cat and Pat. Sullivan, he senses another opportunity. He thinks that Walt has become. superfluous and that it's actually just. the animators who really matter. And. because the Walt Disney Studio doesn't. actually own the IP of Oswald the Lucky. Rabbit, Universal does, >> although the Walt Disney Studio was was.

acting like this was sort of their. creation that they owned. >> Yeah. I don't think Walt uh or Roy. really read the fine print on the. contracts here. So, in early 1928, Walt and his wife Lillian, who Lillian. also was an early studio employee. >> in the Ink and Paint Department. That's. right. >> We'll get to that. >> They make a fateful trip as a couple to. New York, where one of the items on the. agenda is for Walt to go meet with Mintz. and ask for a raise in the amount that.

the studio is getting paid per Oswald. Short. So Walt sits down with Mintz and. Mintz is like, "Well, I don't know about paying you more. I. don't think I like that idea. In fact, I'm not even really sure, Walt, what you. are doing around here any longer. But I. tell you what, I'm a nice guy. I'm. willing to let you and your little. studio stay involved here and keep. making the Oswalds, but we're going to. have to pay you less, not more. like.

$500 per cartoon. less, >> which my understanding is that basically. wiped out the margin and they were. saying we'll pay you cost to make these. Oswald cartoons. >> Yeah, I think Mintz had basically. calculated, okay, if Walt takes this, then I'm willing to let his studio keep. making it, and if he doesn't take it, then it's all equal to me. I'm just. going to steal his animators and go make. it myself. And crucially, before this. meeting even happens, >> he's already stolen the animators.

>> Mint has an ace in the hole. He has, I. think, signed contracts with nearly all. the animators except Eyeworks. He has. sort of through an act of subtrafuge. gotten in touch with each of them. individually and brought them over. >> Yeah. only and and I think maybe two or. three other animators refused to sign. these secret deals with Mintz and stayed. loyal to to Walt and to Roy. Once Walt. realizes this, there's nothing he can. do. Like, it's a free country. He can't.

force his animators to stay. He doesn't. have employment contracts with them. And. he also doesn't have any control or. rights to the actual Oswald IP. So, he. has no leverage. He's got nothing. He's. got no customer contract. He's got no. employees. He's got no intellectual. properties. Suddenly, the enterprise. value, so that the the entire value of. Walt Disney Studios is effectively zero. Yep. It is a extremely bitter lesson for.

Walt and for Roy. And it is one that you. can bet they never forget for the rest. of their lives. And really like. everything in Disney's history and all. of the enterprise value that Disney has. built that we will see all across the. rest of this episode traces back to this. moment. >> It's a hard reaction to this lesson. >> Totally. I have a fun bit of trivia for. you, Ben. >> Oo. >> So, as I think you know, Disney. eventually does get the rights to Oswald.

back. >> This is gonna be my trivia for you, [laughter]. >> right? Actually, ask your question. We. might have different takes on it. Disney. eventually does get the rights to Oswald. back in 2006. >> Bob Iger, one of his first acts as CEO, did the deal. >> Yes. Do you know how Bob got Oswald back. for Disney? >> So, let's see. By this point, Disney had. acquired ABC. >> Yep. >> And had acquired ESPN. >> And who owned Oswald at this point? It.

was Universal, which was owned by NBC, which is now owned by Comcast. >> Correct. So, there's a ABC asset that. Bob effectively trades in exchange for. Oswald. And I think that ABC ESPN Monday. Night Football asset is Al Michaels. >> Al Michaels, the Monday Night Football. commentator, [laughter]. like a sports team trade to NBC in. exchange for the IP rights to Oswald the.

Rabbit. >> And Oswald is repatriated and NBC gets. Al Michaels and all is right in the. world. Amazing. So, back to 1928. Walt and Roy are. basically back at square one here. They. have not really just nothing. They. actually have less than nothing because. Mintz ever the uh well really just kind. of weasel is the right word. >> Yeah. He makes Walt and Walt Disney Studios.

finish out the current Oswald contract, which still had a few cartoons left to. animate on it, and pay all of the. animators who had all betrayed him and. were all about to defect. Mince is like, "No, no, you've got a contract. You're. going to keep paying these folks while. they finish up the last couple shorts on. this brutal contract." Just brutal. absolutely. humiliating for Walt. And so then, as. legend has it, on the long, long train.

ride back home from New York, Walt is. struck by a bolt of inspiration. And he. scribbles a sketch for a new cartoon. character right there on his drawing pad. on the train trip. a character that. wouldn't just reverse all the woes of. the Oswalds and turn around the. company's fortune, but would maybe. become. one of, if not the most recognized.

figure in all of human history. But. before we tell the story of Mickey. Mouse, now is a great time to thank our. friends at JP Morgan. >> Yes, our presenting partner. So today we. are sharing a story from one of JP. Morgan's partners and a company that you. may know, Bill, which is formerly. Bill.com. Right. Bill is the financial. operations platform for half a million. small and midsize businesses, what they. call the Fortune 5 million. They help. manage and maximize cash flow for SMB.

companies. And Bill's Divvyard product. is what employees at those businesses. use to fund their operations day-to-day. So, uh, here's a scenario that many. listeners may have experienced. Someone. on your team maxes out the credit line. on their corporate card with an. unexpected purchase. You send a wire to. pay off the card so you can continue. using it, but it takes 2 to 3 days to. clear. Meanwhile, your team can't. transact. Yeah, Bill solved that for its. half a million customers using an. embedded payment solution from JP. Morgan. With API based subleddgering,

they can manage millions of payments in. real time on any platform, all with one. bank account. Every bill customer gets a. unique virtual account number. So the. moment a payment is received, the credit. line is restored. The result is a way. simpler way to receive and route. payments at scale. And the actual. numbers are awesome. Payment posting. went from 2 to 3 days to seconds. Inquiries dropped 83%. Even Bill's own. Treasury team reclaimed 20 hours a week. from manual reconciliation. For decades,

these were Fortune 500 only. capabilities. But Bill and JP Morgan. figured out how to deliver that same. infrastructure to the Fortune 5 million. while also improving Bill's internal. operations. You can read the full case. study as always at. jpmorggan.com/acquired. And something else, if you want to join. us and JP Morgan in person, we'll be on. stage at the We Are Developers World. Congress in San Jose this September. Click the link in the show notes to. learn more. >> Okay, so David, how does this Oswald. catastrophe lead to Mickey Mouse? All.

right. So, here's the story of Mickey. Mouse, as Walt would tell it. It's March. 1928. He and Lillian are on the long. train ride back home to LA from New. York. He's struck by the bolt of. inspiration for a new cartoon scenario. about a pluckucky mouse named Mortimer. who is attempting to fly an airplane. just like his hero Charles Lindberg. And. this would go on to become the Mickey. cartoon Plane Crazy. So Walt shows his.

sketches that he's making to Lillian and. Lillian says, "I like it, but Mortimer, that's too a name. How about. Mickey?" And thus Mickey Mouse is born. Now, the real story is more likely that. Walt and Lillian get back to LA and Walt. is like sweating. So he and Roy and the. couple other animators who stayed loyal. to them hole up and they start. brainstorming ideas for some kind of new.

idea or new character that they can. create to replace Oswald and turn around. the studios fortunes. >> And also when you see Mickey and you see. Oswald, it's not hard to imagine where. Mickey Mouse came from. It's like kind. of like shorten the ears, make them. circles, you know, they both kind of. have this white face and the black. outline. >> I mean, it's really just the same brief. that created Oswald. It was like, "Hey, take Felix and. >> do something like Felix." Except this. time it's. >> take Oswald and do something like Oswald. >> and make damn sure we own it.

>> Yes. Exactly. So, they land on the idea. of a mouse. >> And didn't Walt claim that he sort of. like always had a fondness for mice cuz. there were mice that would like jump in. his trash can in Kansas City while he. was animating. And. >> sure, whatever. [laughter]. >> You know, it's all it's all just part of. the Walt myth. >> Yes. And at least according to the Neil. Gabler book, most likely. is the one who first draws Mickey, not. Walt on the Train. But.

>> either way, definitely was the primary animator of. the first Mickey's for the whole first. series of Mickey's, including Steamboat. Willie. So, by the summer of 1928, we've. finished out the Oswald contract and. Walt and the small little merry crew. have gotten two Mickey shorts ready for. production. Plain crazy and the Gallop. and Gala show. And Walt takes them. around to distributors. You know, the.

Walt Disney Studio is well known at this. point. This seems like it would be. promising new IP. And none of the major distributors are. interested. They're like, "Yeah, I don't. know. This is Mickey. It's like Oswald, but. >> without all the, you know, thousands or. hundreds of thousands of raving fans for. it." So, >> Exactly. Exactly. And then comes the Eureka Breakthrough. idea. One of the gang recalls that the.

Jazz Singer, the famous first popular. talky, you know, movie with dialogue and. sound that had just come out the. previous fall, when they went to see it, that there was a cartoon screened. alongside it. And Walt, when he hears. this, puts the two ideas together in his. mind of a cartoon and sound. And. supposedly he says, "That's it. That's. it. That's what we've got to do. Stop. all these silent pictures. Now, at this. point, people had made cartoons with.

sound, but nobody had ever made a. cartoon with sound like the jazz singer. had sound. >> Synchronized sound. >> Synchronized. Yes. Exactly. Where what. was happening in real time in the. cartoon was then played in sound. Exactly. Synchronized in the movie. theater. >> Yeah. The concept before was there's. music that plays, but it's only loosely. attached. And this is to the frame and. to the beat of the music. Like if you.

see Mickey on screen bop into something, then you might hear a xylophone on the. exact same downbeat play a note. >> Yeah. It's not just that like there's. some music accompanying this cartoon. that you're watching. It's that what is. happening in the cartoon feels like it. is producing the sound. >> Yes. There's a great business model. lesson in this, which is with the first. two Mickey's flopping, if you just do. the same thing as an existing competitor. who already has distribution, brand,

customers, it's not enough. You need to. go do something leveraging a new piece. of technology or a new platform. You got. to come at it from an orthogonal way in. order to leaprog and make people pay. attention to you. Otherwise, you're just. a like smaller, worse, also ran. >> Totally. And and that could be anything. I mean, the only reason that the Oswalds. worked, even though they were a ripoff. of Felix was because they came built in. with the Universal distribution, but. yeah, Walt taking out the Mickey's. before bringing sound. Like, he's got.

nothing to bring to the table here. >> Yep. >> So, Walt lines up access to the. Cinnaphhone sound recording system from. a character named Pat Powers, who had. actually helped create Universal, you. know, some number of decades earlier. and then had gone on to become a sound. accolade and entrepreneur developing a. sound system for this new movie. technology. And so Walt and crew animate. a test sequence of a Mickey with sound.

and they screen it for all their wives. and girlfriends and writes later of what. happened next when they screen the. synchronized sound Mickey for the first. time. I never saw such a reaction in an. audience in my life. The scheme worked. perfectly. The sound itself gave the. illusion of something emanating directly. from the screen. Walt kept crying, "This. is it. This is it. We've got it.". [laughter and gasps]. It turned out that sound was the.

critical enabling technology for. animation to go beyond a novelty and. allow the characters that are on screen. to actually have personality that. audiences connect with. >> So interesting. And it's not obvious. at first. It's obvious in retrospect, but you can totally see how when Walt. had this insight and then they made the. investment cuz doing a test animation. and synchronizing the sound, like even. to show a little screener must have been. really hard at the time cuz none of the. tools existed. They sort of had to. invent the way to synchronize the.

drawings with the music and the systems. It's sort of a big bet even to try and. see if that creates personality. >> Right. Right. And sound did the same. thing for liveaction movies, but it's. not that big a leap to have humans. talking. Like humans talk, you know, sound just made it way better. Sound for. cartoons was this giant leap. These. characters, this art can now be actual. characters with personalities.

>> Yeah. >> In a way that they couldn't before. >> Non-obvious at the time, completely. obvious in retrospect. >> Yep. So, they make Steamboat Willie as. the third Mickey, but the first with. synchronized sound, >> which we're going to skip over the whole. headache nightmare of creating this. thing. But it was like Walt constantly. going back and forth to New York, betting every last dollar that he had, inventing all these new processes, trying different ways to get an. orchestra synced to the sound. >> Oh, yeah. They like animated a little.

ball on the screen that would sync to. the orchestra as they were playing. >> Yes. and he couldn't get the original. conductor of the orchestra to actually. use his method. The orchestra guy was. like, "Ah, trust me." And then it was. all out of sync with the screen. The the. net of it is it's a giant painful. operational struggle to get this thing. out, but my god does it hit. >> Yes. Well, [laughter]. [gasps] you know, this is the nature of. the New York distributors. They get it. made. Walt takes it and shops it around.

all the big folks in New York. And. they're so conservative. They're like, "Well, this is cool, but um I don't know. how audiences are going to react to. this. We kind of want to see a test. first.". >> I don't want to be first in line. >> Yeah. Exactly. Exactly. kind of like VCs. like [laughter]. so Walt decides that he's going to take. matters into his own hands and he goes. directly to the manager of the Colony. Theater in New York City and cuts a deal. for $1,000.

to run Steamboat Willie before the. features that they're showing in the. Colony Theater. So going around. distributors just to get this in one. theater as a test. >> Yep. And so Steamboat Willie premieres. in New York City on November 18th, 1928. before the film Gang War. Nobody really. remembers Gang War because Steamboat. Willie is a revolution. Critics love it. Audiences love it. >> Yeah. Isn't there some famous story of.

people sort of standing up and. screaming, "We want Steamboat Willie. again instead of playing the the main. feature.". >> Yeah. Yeah. Exactly. Exactly. But still, you know, Disney now needs to find a. distributor. And now he's got the proof. point. [laughter]. These New York distributors, they're. still so conservative. They're like, "Well, you had one hit. I don't know. that like we can really trust that this. isn't just a fad that the future sounds. are also going to be a hit and that you.

can repeat the magic." And famously, one. distributor while Walt is meeting with. him here and he's trying to explain to. Walt why he's going to pass again on the. Mickey deal picks up a package of. Lifesavers candy. And he says to Walt, "The public knows the Lifesavers brand. They know what these are. They don't. know Walt Disney and they don't know. your mouse." [laughter]. >> I I can only imagine Walt sitting here. just seething. >> Yeah. But this makes a huge impression.

on him. I think this is an important. thing about Walt. He definitely has a. huge ego, right? But he is very willing. to learn even from pretty obnoxious. people. He's like, "You know what? You're right.". >> Oh, I think he's motivated by learning. He's motivated. >> I think he's an engineer. I think he's. uh he loves picking things apart and. learning the way they work. I think he's. motivated to make the best art he can in. addition to making the best business he. can. So, if someone's going to offer him. >> a lesson, >> a way to learn something. Yeah. >> Yeah. He'll take it. he'll take it even.

if he might be mad at the person. So he. writes about this moment later. From now. on, the audience was going to know if. they like the picture, they were going. to know Walt Disney's name. Ultimately, what Walt does is he turns to Pat. Powers, his partner in the sound. technology, who had been one of the, you. know, original Universal executives, and. they cut a deal where Powers will be. Disney's direct distribution agent in. return for just 10% of the gross revenue.

on the Mickey's, which seems like a. pretty good deal. >> Yeah. And indeed, it was kind of a too. good to be true deal because Powers, like all these New York guys, was basically plotting to do the exact. same thing as Mintz to Disney. He wanted. to start working with Walt, give him a. sweetheart deal, and then lure away the. animation talent because Powers,

remember, has the sound technology that. he's given to Walt. So he's thinking, if. I get the animators, right, >> what do we need Walt for? >> So this explains the sweetheart deal on. distribution because that wasn't the. real prize he was after. >> And. just a year later in 1930, Powers does. the unthinkable. He convinces Eyeworks to quit and leave. Disney. He says, "U, we're going to get. you set up with your own studio. You're.

going to work with me. we were to create. new characters. It's the exact same. thing that Mintz did to Disney last. time. >> Absolutely brutal. >> Except it plays out the exact opposite. way. >> Cuz Walt's learned his lesson. >> Walt has learned his lesson. By the time. this happens, over a dozen Mickey shorts. with sound have come out. Every single. one of them branded prominently up front. and at the end a Walt Disney comic. And. they had become huge hits. So even.

though Power Steals Eye Works away, nobody cares. Everybody still wants the. Mickey's. Everybody still wants Walt. Disney Comics. Disney has made himself. the lifesavers of animation. >> Disney first switches to Columbia for. distribution and then to United Artists. And audiences just keep loving Mickey. In fact, they love him so much that it. leads to the discovery of a whole new.

business model for Disney and the. company, the intellectual property. flywheel. And it starts with the Mickey. Mouse Club. This is wild. I had no idea. about the origins of the Mickey Mouse. Club. >> Basically discovered by Disney by. accident, right? >> Totally by accident. [laughter]. So, in the summer of 1929, just a few months after Steamboat Willie. and the first sort of nationally. distributed Mickeyy's, the manager of. the Fox Dome Theater in Ocean Park,

California, contacts Walt with an idea. Why don't we partner to start a Mickey. Mouse club for kids? I've got like a. thousand kids who keep showing up here. at the theater every weekend and all. they want to do is watch the Mickey's. again and again and again. I think we. should capitalize on this. We can create. a club like a kids club and we can. charge parents a membership fee. The.

kids will love it. The parents will get. them out of the house every weekend. It'll be great. and we can pilot it here. at the Foxdome Theater and then if it. works I think we can franchise this. nationally. And so this is exactly what. Walt and this theater manager do. The. way it works when they take it national. is that theaters would buy a quote. Mickey Mouse Club charter from the. company from the Walt Disney Studio.

>> It's like a franchise. >> Yeah, like a franchise right. >> for $25. And then as part of the club, the kids and their parents would gain. the right to buy exclusive Mickey. merchandise. >> I mean, it's kind of amazing, right? Pay. to become a member of a club to dedicate. yourself to fandom. So, you have the. right to buy more things. >> The right to buy more things. Yes. So, like hats, buttons, banners, etc. And. all of this revenue is getting split.

back with Disney. the $25 club charter. and then all the merchandise revenue. >> Pretty quickly, there are 800. Mickey Mouse clubs across the country. with more than 1 million total members. That is more members than the Boy and. Girl Scouts of America combined at this. point in time. >> That's insane scale and insane speed of. adoption pre- internet.

>> Right. Right. pre- internet, pre-cable, pre-bro TV, the ability to get a million. Americans doing something within a few. years is uh like how did that even work? I mean, I'm trying to think how word. could even spread that quickly. I guess. through theaters, Disney's distributors. >> to the theaters. >> Well, this is like a no-brainer. proposition for a movie theater. operator. You're going to take your. Saturday or Sunday afternoons, which are. probably reserved mostly for kids.

anyway. all your matinea showings, right? You're going to convert it into a. Mickey Mouse club. >> Kids are going to love it. They're going. to buy a bunch of stuff [laughter]. that you otherwise wouldn't have the. opportunity to sell to them. Parents are. going to love it because they get rid of. the kids. And then for Disney, they're. just getting this turbocharged. distribution and brand recognition of. Disney the company and Mickey Mouse the. character. >> Yeah, it's amazing. Okay, so they take. the learnings from the Mickey Mouse. Club, right? And they kind of lean into.

Mickey in a in a big way at the. corporate level. >> Totally. So just a few months after the. Mickey Mouse Club kicks off in January. 1930, they launch a daily Mickey comic. strip with King Features Syndicate in. newspapers around the country. It gets. published daily in 60 US newspapers and. then also internationally in 20 more. countries around the world. So Disney is. getting paid.

to produce a Mickey comic strip, which. only cost them the salary of the one. animator that they have making it every. day, a 24-year-old named Floyd. Gotfredson, who would do it every day. for 45 years. >> Wow. Wild. So, not only are they getting. revenue for this, they're getting free. daily advertising and IP exposure to. probably a 100 million plus people.

through this newspaper comic. distribution every single day. >> And even if they weren't getting paid. for it, the marketing on that so that. people go see Mickey films. >> Exactly. Yeah. It never becomes a huge. revenue or profit driver for them, but. like that free daily marketing in most. major newspapers around the country is. incredible. >> Yep. Interesting to know Oswald actually. was on a candy bar back in the day, but. when Walt, who at the time saw he owned. Oswald, had the opportunity to monetize.

it, he was like, I I didn't even. consider it. It it doesn't need to be an. additional revenue stream. It's just. really good for me if Oswald is on the. candy bar. Right. So, that's sort of uh. they're getting the seeds of like, okay, we're making some money on the comics, but it it it really is like a massive. marketing engine. >> Well, uh you're teeing up the big one. here, which is merch and consumer. products. >> Yep. So pretty quickly after Steamboat. Willie, Walt is walking the street in. New York and a man comes up to him, like.

comes up to Walt Disney on the street. and offers Walt $300. to license the Mickey character to put. it on a series of children's writing. workbooks that he's producing there in. New York. And this is like really early. days. Mickey's just starting to work. The studio still needs money. So Walt's. like, "Uh, sure. Yeah, I'll take 300. bucks. Why not?". >> And 300 bucks in 1929, it's a lot of. money. I mean, this is the beginning of.

the Great Depression. >> Yes. Yes. Mi Mickey takes off during the. depression. In fact, he sort of becomes. like a national champion. It's part of. his success that people view Plucky. Mickey's success as a mouse, as the. underdog, as like something that. >> Americans can identify with through the. depression. >> And life is hard. I mean, having a sort. of way to disassociate a little bit and. then just enjoy a like funloving, problemfree cartoon. I don't think. people know this. Mickey's role in these. early comics is exactly what you're. saying, the underdog. He's getting.

himself into these tricky situations by. someone that seems bigger and stronger. and he's able to figure it out and. emerge. It's the American spirit. >> Yep. Yep. Yep. So, back to the writing. tablets, they take off and do huge, huge sales. Disney doesn't even know how much sales. because all they have is 300 a handshake. from this guy. [laughter]. So, Walt and Roy figure, "All right, we. need to get smarter about merch." So, they contact an adman in Kansas City. that Walt admired named K. Cayman who.

had owned an advertising firm and they. agree to do a deal where Kay becomes the. exclusive. commercial products agent for all Disney. merchandise licensing beginning in 1933. And the deal they do is that Disney. would get 60% of the first $100,000 in. royalties that Kay is able to generate. from licensing Disney brands and. mascots. And then after the first 100k,

they would split every dollar of. licensing revenue 5050. >> and there would be a lot of dollars. after the first 100k. This is a huge. moment. I mean there there is a real. case to be made that besides Walt and. Roy and and of I works too, but at least. on the business side besides Walt and. Roy K. Cayman was the third most. important person in the first, you know, half century of Disney.

>> All right. So, make your case. What what. what goes on to happen here? >> So, within 6 months, Kay takes Disney. merchandising from this hodgepodge of. random licenses of guys that Walt met on. the street. >> and many of which were a lot more than. $300. >> Yes. Yes. to a real professional. operation. doing $6 million. of gross merchandise sales within six. months. That then grows over the next.

two years to $70 million annually of. gross merchandise sales all around the. globe from over 40 separate super high. quality consumer product partners. So. the most successful and famous example. of this is the deal that Kay does in. 1933 right after he takes over with the. Ingresol Watt company. This is crazy.

that within just a few years they can be. at a $70 million level in 1935. of merch. I mean, there's so much pent. up demand to buy Mickey Mouse stuff that. you can sort of explode out of the gate. I don't even really understand how Kay. lined up 40 merchants and got all this. stuff manufactured and distributed in. such a short period of time. >> Well, I think part of it though is that. he's like a real professional and well. respected in the industry with contacts.

But yeah, to your point, Ben, there's. just so much demand for Disney merch. So. the $70 million is a like gross sales to. the end consumer number. So most deals. that K would do would be for 5%. royalties on the wholesale price of the. goods and the $70 million was retail. So. if you assume 100% retail markup, that's. $35 million in wholesale revenue. Y.

>> Disney and Cayman are splitting 5% of. that number between them, but even that. is $1.75 million. split 50/50 between Disney and K. This. is like an astronomical number and it is. a way way bigger and better business. than the cartoons themselves at this. point in time. >> It's funny. I I found the comment on the. Disney Family Museum site that by the.

late 1930s, royalty income from. merchandise had exceeded revenue from. film rentals. But. >> it wasn't even by the late 1930s, it was. 1934. >> It was quick and it was by a lot. >> Yes. Yes. So, just to illustrate the. difference, the distribution deal that. Disney does with United Artists for the. Mickey films and for the Silly. Symphonies, which is the second cartoon. series that Disney starts in the 30s, Disney gets an advance of $15,000 per. film, but Walt is always investing.

ever more and more in the production of. the cartoons themselves. By this point in time in the mid30s, he's investing like $30,000 plus per. cartoon. He's only getting a $15,000. advance. So, it's not even guaranteed. that each individual cartoon would be. profitable. Usually, they were, but they. would have to earn out on the back end. Compare that to, you know, half of. basically $2 million in pure margin,

almost pure margin revenue coming in. from K every year. It doesn't even. matter that Walt is investing everything. back into the cartoons. He's got this. money spiggot coming in. >> Right. So, summarizing that, films are. tens or low hundreds of thousands of. dollars of profit coming in and the. merch is on the order of a million. dollars. >> Yep. And film profitability is highly. dependent on a film by film basis. It's. got to play out in theaters, etc., etc.

>> All right. So, I cut you off on the. Ingresol watch company. >> Yeah. Just as one example of like the. deals that Kay is doing, in 1933, right. after he takes over, he does a deal with. the Ingresol Watch Company to. manufacture the famous Mickey Mouse. watch. That watch would sell 2 and a. half million units [laughter] over the. next two years. The Ingresol Watch. Company was about to go bankrupt during. the depression. It saves the company.

Hm. And wasn't it the most popular watch. in America? >> I think that's right. At least for some. point in time during the 30s. >> It's fascinating. And of course, the the. modern Apple Watch Mickey watch face is. a reference to this cuz he's using his. arms to point to the the times on that. original Incorolaw watch. >> This is a whole different shape of a. business than has ever existed before. I. mean, it's funny. We started the episode. comparing Disney to other Hollywood. studios, but this is not a Hollywood. studio. They're not shooting liveaction.

films. They're making these cartoons. The rest of the industry is is kind of. doing slap dash ones. They're doing like. really high production value sound. synchronized cartoons and they're. actually making more of their money from. merchandise. They've got these Mickey. Mouse clubs. >> Like this is a new thing that no one. else is doing. >> Yep. This is the birth of the Disney. flywheel and nobody else has it. So, is. this a point where David I could make my. pedantic aside that I've been telling.

you about? >> Yes. Yes. Yes. Go for it. [laughter]. >> We had a great email from a listener a. couple months ago about how flywheel, this term that everybody uses in. business is actually completely the. wrong term for what you're want to. describe. >> So, Disney is famous for this concept, as is Amazon, and it inspired a zillion. other founders to try and articulate. their own flywheel and and draw it out. But hilariously, David, as you say, it. is a misnomer. It describes the wrong.

physics phenomenon. People are trying to. describe a system that has a positive. feedback loop where inputs into one. element of the system are amplified and. add energy to other parts of the system. But that is not actually what a flywheel. is. A flywheel is a primitive battery. It it is a way to store energy to be. deployed later. >> Yeah. It's like a version of the same. mechanism that a spring serves in a. mechanical watch. >> Right. Exactly. But in reality, there's. not really a better shorthand for system.

of integrated components that creates. positive feedback loops. So uh we will. continue alas to use the phrase. flywheel. But uh the important thing. here is that Walt really did sort of. either discover or invent this business. model of the intellectual property. flywheel that we see replicated all over. the place today. I mean, I think it. really revealed itself to him and Roy in. these early years of Mickey. And it's. probably worth taking a moment to talk. about why this works so well. So the. most important thing, and I don't think.

this was premeditated in any way by. Walt, but it was just something he. innately cared so deeply about, is to. make the highest quality, genuinely most compelling new IP as. possible that audiences can build a deep. relationship with. This is like what. Walt was building to and too through all. of his early years in animation. all the. technical innovations, every step was. getting to a character that audiences.

can fall in love with. >> Yeah. >> Now, critically for Disney, and again, I. think completely accidentally discovered. by Walt, the IP that works best for. Flywheel Dynamics almost has to be. animated, i.e. not live action. Because. with live action characters, the. characters are too bound up in the. actors that play them. And that creates. all sorts of problems. Like one,

especially today, it makes your. economics as a studio just like way. worse because you got to pay the stars. so much, >> right? There's wholesale transfer. pricing. A huge amount of the margin you. could get ends up getting paid out to. effectively your partner in creating the. character, the actual actor. >> Whereas Mickey works for free. No, like. you you got to like pay the animators. and they get paid very well to animate. them. It's. >> that's on the value capture side, but on. the value creation side, which I think. is the more important thing, Mickey is. always available to work.

>> Yes. Yes. >> And Mickey doesn't age. >> Yes. Exactly. You can create a eternal. character through animation in a way. that you just can't when you're using. real people. I mean, Star Wars, as great. as Star Wars is, and we'll talk about it. later in the episode, is going to have a. problem when Mark Hamill and Harrison. Ford die. I mean, I guess unless AI gets. really good. >> And live action is sort of dated to a. time and place in a way that cartoons.

can sort of transcend. Like Mickey can. always exist in the present. >> in a way that we're going to talk about. Davy Crockett later, but at some point. it became completely uninteresting to. watch Davy Crockett. Even though he was. like a complete heartthrob obsession. that was great IP for the moment, it. just wasn't as durable. >> Yeah. Live action IP with very few. exceptions tends not to have the staying. power over decades and generations that. animation does. >> Yeah. few exceptions being like James.

Bond, but god have they tried to do all. sorts of crazy stuff in order to let. that IP keep living. I mean, like. there's been six, seven James Bonds, you. know, and they have to keep rebooting. the story over and over. >> Exactly. Okay, so that's step one. Genuinely great IP that audiences fall. in love with has to be at the core. Then step two, you need to maximize the. distribution for that IP as wide and as. far as possible in its primary delivery. vehicle. So like Mickey in those films,

get those films into as many theaters as. possible to just completely saturate the. world. It's sort of a scale economies. thing. If you're going to invest a whole. bunch in making it the very best you. can, then you need to distribute it. everywhere in order to maximize the. impact from that huge upfront. investment. >> Which of course applies to any film and. any IP. But for Disney in the flywheel. business model, they're willing to make. every sacrifice possible to maximize. distribution because they know that.

they're going to monetize through the. flywheel in a way that nobody else can. If they saturate all of America or all. of the English speaking world with a. character, then that character, that. movie can become a shared cultural. memory. >> So then that leads right into the third. thing, which is the ancillary nodes of. the flywheel itself. Once you've got the. great IP, once you've distributed it as. widely as possible, then you want to get. that IP into as many other arenas as.

possible. And this is exactly what. Disney was doing, >> right? Other mediums, >> merch, clubs, comics, books, magazines. The beauty here and the discovery that. Disney makes is that when you put the IP. into these other ancillary nodes, it. doesn't cannibalize the core IP. Like. you're not going to oversaturate Mickey. by having a Mickey comic strip and daily.

exposure in the way that if you released. a new Mickey film every single day, people would get tired of Mickey's. >> If you structure the nodes of the. flywheel, right, >> the additional exposure reinforces the. core IP. That's really interesting. So. you do need some scarcity of the. character in its main medium where you. need like a really high quality bar and. not oversaturate there but in your. secondary mediums then you can cover the. earth and be like everywhere all the.

time. >> Exactly. And so then if you flash. forward to today and like the problems. that Hollywood and most other studios. have and Disney too, especially with. Marvel, if you come out with sequels all. the time at this like everinccreasing. cadence of the core IP and the core. delivery vehicle, people get tired of. it. >> That's super interesting. >> But the flywheel lets you get that. constant exposure without oversaturating. the core IP. It's like absolutely. brilliant. Not to mention releasing.

films is actually not and never has been. a great business model. It's just not. that high margin. It's not that. repeatable or predictable in its. success. So you kind of. >> you have to invest years ahead in. production before you get any payout. >> Right. Right. That and any studio that. is purely a studio is in for a rough go. But if you're you're trying to basically. create this like durable platform of. profit with all of these ancillary. businesses, then you can focus on.

scarcity, quality, innovation in the. kind of primary medium. >> Yep. Because you know you're going to. drive revenue basically in perpetuity. out of it through the flywheel. >> Do you think I'm thinking about this as. it pertains to acquired, we're so. obsessed with quality and just being in. one medium. Do you think that it is okay. to lower the quality bar outside the. primary medium? Like, can Disney throw. Mickey Mouse on all sorts of crap.

without diminishing the brand of Mickey. Mouse as long as the primary medium of. film stays really high quality. >> Basically, I think the answer to that is. yes. >> Huh. >> At least for Disney. I don't know about. acquired. [laughter]. >> Yeah. I don't I don't know if it applies. to premium brands or luxury brands, but. >> you got to be really careful about what. the mediums are. This is why comics is. so perfect for the flywheel because. people are used to consuming a daily bit.

of content in a comic strip and they. don't have expectations that it's going. to be, you know, a great masterpiece. like Snow White or Steamboat Willie each. time. >> Right. And when you read the noncanon. Star Wars books, >> Yes. it doesn't detract from the canon. >> That's exactly right. But it does deepen. your fandom. >> Yes. Exactly. Exactly. >> Huh. So all of this as Walt starts to. understand the business model power of. what they've created leads him right to.

the natural conclusion that Disney. should basically always invest as much. time and money as possible in the. creation of new core IP. And Walt is. starting to get a crazy idea of how he. might be able to do that, which is to. create Hollywood's first fulllength. animated. feature film,

Snow White. Yeah. And David, you put it. in such a capitalist way there that it's. it's to maximize the amount of of. dollars that you sink into making the. quality so that it federates onto this. flywheel. I'm sure there was an element of that. There also is an artist with Walt where. he's been creating these cartoons. He's. starting to like really identify with. the artistic community, with the fine. artists of the time, build a lot of.

those relationships. and he wants to. create something that is sort of seen as. not only a technology breakthrough but. like an art breakthrough. Can can he. create a masterpiece in this new medium. >> and can he play with your emotions? I. mean, we we know that cartoon characters. in a slapstick way can make you laugh, but there is this like total open. question in the world of can you create. animation so realistic and characters so. compelling that you can make audiences.

cry. >> Yeah, >> that's the other side of the ludicrously. capitalist big investment into Snow. White. >> You're totally right. I'm looking at it. through like a business model, capitalist lens. And uh I I don't think. Walt was thinking about it that way. specifically. >> He did want to build the most successful. company that he possibly could that. could take bigger and bigger swings. >> Yes. >> So listeners, before we tell you the. story of Snow White and how it came to. be, now is a great time to tell you.

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

source agent framework. >> Yep. Eve is the glue that ties their. agent stack together. Building an. enterprisegrade agent used to take. weeks. With Eve, it now just takes. minutes. Think of it as like the next.js. for agents, opinionated, open- source, and it runs everywhere. And Verscell. uses it for their whole business. Their. data agent gives the whole company. ondemand analytics scoped to each. person's permissions. their sales agent. nearly doubled pipeline coverage and.

their autonomous AI sales rep platforms. is in the top 10% of their human reps uh. you know for only a few thousand dollars. a year. They also rolled out new support. for enterprise apps and agents because. here's what every executive is realizing. once everyone can build an agent. The. hard part is knowing who can access what. and what every agent is actually doing. Wouldn't it be nice to run your agents. and apps inside your own cloud so that. everything you build stays within your. own security boundary? Verscell does. exactly that. >> Versel's your one-stop shop for the.

Agentic era. Tools, frameworks, infrastructure, all engineered to work. together and built for enterprises. And. one last cool thing, their ship. conference is hitting more cities. worldwide. So you can find out more at. verscell.com/acquired. That's verel.com/acquired. And just tell them that Ben and David. sent you. All right. So, David, before. we tell the story of how Snow White came. to be, we got to tell the nickname of. Snow White, the project that was going.

around Hollywood. Do you know what that. was? >> Disney's folly. >> Yes. Yes. I think it was maybe Walt's. folly, but either way, it's the exact. same thing that people said about Trip. Hawkins when he was working on Madden, about Jack Bogle with Bogle's folly with. creating the Vanguard index funds. We. got to like start a a folly tracker here. on tracker. [laughter]. >> But yeah, I mean even for Walt Disney, as successful as he and the studio have. become, the idea of a featurelength. animated film was crazy in 1930s.

Hollywood. >> And it had never been tried before. >> I mean, Roy tried to persuade him not to. do it. He argues that it's going to. bankrupt the studio. >> Yeah, this is a multi-million dollar. undertaking. When David, as you were. talking about before, the shorts were. like $15,000, $30,000 undertakings. >> Yep. Walt would say later about Snow. White, we had decided there was only one. way we could successfully do Snow White, and that was to go for broke, shoot the. works. There would be no compromise on. money, talent, or time. We did not know.

whether the public would go for a. cartoon feature, but we were darn sure. that audiences would not buy a bad. cartoon feature. [laughter]. So good. It had to be a masterpiece or. the whole thing was going to fall apart. >> Okay. So, why was this so expensive? Why. was such a giant undertaking to create a. animated feature fulllength film? Listeners, I thought it'd be fun on this. episode to dive into the process and. give everyone a little primer on what. are the steps to create an animated. film.

>> Yes, it's a true technical wonder and. you and I got to actually do it when we. went to visit the Disney studio. It was. so fun. >> Well, one part of one frame of. [laughter] it. Yes. >> One tiny part of inking and painting. >> Listeners, we'll include some behind the. scenes ink and paint photos of David and. I in the email. So, let's start with the. goal. The goal is to create the illusion. of motion with a series of still frames.

Like a ton of still frames, 24 still. frames per second. So that requires a lot of clever tricks. to make it economically possible, to. make it consistent, and to make it. enjoyable. And if you really do your. job, to make it emotional for the. viewer. >> And to be clear, liveaction film is the. same thing. It's an illusion, but as we. talked about earlier, it doesn't cost. anything to animate the humans,

>> and you get physics for free. So. believability comes for free. You don't. have to do clever things like figure out. how do things stretch and squish when. someone bounces on the ground. It all. just sort of happens because you're. shooting it in the real world. Yep. >> So, where does it all start? It starts. with a good story. So, there's something. called the story department that kicks. off the process with little sketches. that are sort of pinned to corkboards. And so, these story meetings are great. You have people acting out alongside the.

drawings to illustrate their idea, how. the characters move and interact and. talk. And Walt was famously amazing to. watch when he did this acting. So this. then gets put into a story reel of. static sketches just kind of. illustrating the main flow of the story. At this point, it is super easy to edit, reorder, change dialogue, anything. >> I see [snorts] where you're going with. this. at this point. >> at this point. So then the sound. department gets involved and that's both.

music and voice. So first you'll have. oftentimes a temp voice over so the. animators have something to animate to. if you don't have the real actors laying. down the vocal track yet. You also have. the music scored and recorded at this. phase. And the way that animation and. sound are synced at this point is. through something called bar sheets or. exposure sheets where the entire film, this is going to sound insane, is broken. down by frame, by syllable of dialogue.

and by beat of the music and these are. mapped together. So this way the. animator can do their drawings exactly. to the music and dialogue. Now you can. kind of understand the insanity of what. Steamboat Willie was trying to do and. why that was so difficult. The the. Disney studio kind of had to invent this. process. >> Yeah. And that was what 7 8 minutes. long. >> Yes. Meanwhile, you have the layout. department who is doing the staging, the.

camera framing, the composition of these. shots, the lighting for every scene. Now, when I say things like staging, there's there's no stage. camera. framing. There is a camera, but that's. not even the camera this is referring. to. This is where the synthetic camera. is aiming in the synthetic action. composition, lighting. This isn't like. lighting the way you think of lighting. This is this very abstract art of. imagining what it would look like if. these characters were real and there.

were real lights and figuring out how to. draw that scene. Then this gets forked into two parallel. processes where background painters are. doing their work on these gorgeous. watercolors on paper and oil paintings. on these super wide panes of glass to. allow for the panning across the scene. Whenever you go into the Disney. archives, you can see these I don't know. 4 foot wide by something like 8 in tall. backgrounds because the camera has to. pan around as the characters move around.

against the background. And then the. other side of the fork is the animators. who are doing their work on the. characters themselves. >> Yep. Yeah. The backgrounds are just. beautiful when you see them in person. That was my favorite part about the. archive to get to see the backgrounds of. Snow White or Cinderella or the other. great Disney classics. You just look at. them and think, "Oh my god, these are. right up there with Rembrandt or. Picassos or Da. They should be in a. museum.".

>> And they are basically in a museum. Disney has 11 rooms in the animation. research library which are temperature. controlled and humidity controlled. And. they've got all these UV filters all. over everything. And there's these. drawers and drawers and drawers inside. It almost looks like data centers where. they have all of these old background. paintings and all the drawings we're. about to talk about. >> Yep. So, the animation department then. develops what's called a character model. sheet that shows the character from. several different angles and positions.

they're likely to be in throughout the. film. This is distributed to each. animator who works on that character cuz. often and by necessity there are. multiple since that character is going. to exist on film for you know 80 90 100. minutes. There's a lot of drawing to do. Then there's the model department who. makes something called a mckette. The. animators who are drawing a character. hundreds and hundreds or thousands of. times or tens of thousands of times need. a consistent physical reference that.

they can hold and rotate and examined. under a lamp. So these are, you know, 8. in tall versions of the characters that. are. >> little statues, >> right? They're perfect so that you can. kind of say how would they look from. that angle? How would they look if I. stood 8 ft away? Then you have animation. itself. So, it starts with sketching on. paper with a pencil or with charcoal, and they're literally sketching one. frame at a time. And they are flipping. pages on their pad of paper back and.

forth, back and forth, over and over. again to get a feel for how the emotion. of the drawing is coming through frame. to frame. Does this character move like. I think they should move? Are they. consistent in their motion? Is their. clothing sort of twirling the right way. when they turn left? It's an insane art. >> Are their mouths speaking correctly? Yeah. >> Right. As the character drifts closer to. the synthetic camera, are they getting. big in a way that feels consistent with. the laws of physics? My mind is so blown.

by the skill and talent of these people. So 24 frames per second means 12 to 14. drawings per second. So think a,000ish. per minute. That's around 80,000 in a. featurelength film of this era. And of. course that's if there's only one. character doing one thing on one layer. >> Yes. There's usually about what? Double. that. >> Triple quadruple. Yeah. >> So there's two ways that this can. happen. One is the most clean and. obvious one straight ahead which is.

where an animator draws every frame in. order. Or there's something called. inbetweeners where lead animators draw. the key frames with the essential poses. or major character movements and then. the assistants or the inbetweeners go to. the drawings and they sort of bridge. between those frames and the goal of. doing this is to make the most efficient. use of the skilled artists time on the. film. Now, over a time, a division of. labor started to emerge where, which.

kind of makes sense, a super skilled. animator would do work kind of fast and. loose with sketches that had little. extra lines hanging off everywhere. There'd be like revisions on top of. their original drawing without actually. cleaning up the the the mistakes. underneath. And then it was handed over. to a cleanup artist to trace their. drawings with a single line versus the. hairy mess to kind of get it ready for. the next stage. But again preserving the. same correct emotion, flow, bounciness, shape, form of the lines. Both the.

inbetweeners and the cleanup artists. were kind of a result of the. industrialization of the animation. process versus the early days in the. early Mickey ones of a kind of a single. artist animating the entire thing. >> Yeah. By this point, as they're heading. into Snow White, this had become a real. scale production process. I mean, it. wasn't quite like an assembly line. This. is still art here, but it's a lot closer. to Henry Ford than it is to Picasso in. his studio,

>> right? At least you do need to sort of. synchronize and coordinate teams and. make the highest use of the most. valuable scarce resources, stuff like. that. >> Yep. >> So, then there's ink and paint. So, let's talk about inkers. Back in 1914, Earl Herd had invented a concept known. as cell animation, CEL, where you would. draw with ink on the front of a piece of. transparent plastic or cell in the. business, short for celluloid. And that. way you could keep redrawing just the.

character in each frame and the. background could stay static. That. essentially made animation possible at. all. In 1914, you could imagine if you. had to just redraw every line on every. frame every time. One, it would look. crappy because things would sort of. wiggle all over the place when the film. was actually playing, but two, it just. was economically infeasible to draw. every line every time. >> Yeah. It was not scalable. So it had. evolved since then where there were now. armies of people who were almost. exclusively women at this point in. history who would literally duplicate.

every line that the animators drew on. paper with pencil and they would trace. over their entire drawing with ink on. cell every single frame. >> Yes. So, what you would see on screen is. in a film is actually not the direct. work of an animator, but it's the. painstaking work of an inker who traces. over the animator's line on the. transparent celluloid instead of on. paper. >> Yep. And then the inkers would flip the. cells over and pass them off to the.

painters. >> Yes. So, this is how they get color in. You want your outlines on the front so. it it masks any colors that sort of. overflow out of, you know, the dwarf's. shirt or Mickey's shoe. And then on the. back, that's where you do your painting. You put all the colors on. Uh, and. David, what you were referring to is is. you and I uh did did some painting on a. pre-inked Mickey Mouse. >> Hey, we did a little bit of inking on. the first. >> We did a little bit inking. Ink.

[laughter] inking is hard. >> Inking is harder than painting. >> Painting is forgiving. >> Yeah. But Disney has this room with. thousands and thousands of colors of. handmade on-site paint that is a. production facility for paint color and. applying that color to animation cells. >> It used to be called the Rainbow Room. Those colors, that paint went into Snow. White, Cinderella, Peter Pan, Alice in. Wonderland. >> Thousands of people each making. thousands of drawings. It multiplies. fast. So then you've got your special.

effects layer. So like Tinkerbell's. wings use effectively spray paint like a. a little paint gun so it can be. partially translucent or the dwarf's. glasses or sparkles or another thing in. special effects is like water effects. What if you want to make it look like. there's a little bit of a ripple in the. water or some depth of field on some. leaves that are closer to the camera? So. before any of this inking and painting. which was super expensive and. timeconuming they would do something.

called a pencil test where they would. take the pencil sketch drawings on paper. and put them all through the camera so. the animators in Walt could look at the. rough action and see if it felt right. See if it had the right physics. correctly represented each character's. tone and emotions. It's almost like a. higher fidelity prototype than the one. that we first talked about that came out. of the story meetings. It was a way to. catch things that weren't working before. you got all the way to full fidelity. Then camera. This is like the coolest.

part of the whole thing. >> The multiplane. This is incredible. >> So Disney and Bill Gity took the idea of. a multiplane camera that had existed. before Disney. Eyeworks actually built. one of the first advanced multiplane. cameras back in 33 while he was away. from the company doing his own thing. using parts from an old Chevy. >> Yes. [laughter] Yes. And then Walt. rehired I works later to come back and. lead within Disney. >> Yep. Like process improvement for how we.

do animation. So Disney created the. first one to be used in a feature film. It is unbelievably cool. It has an. entire massive room to itself. There's a. team of operators to make it work. You. had to climb a ladder to get all the way. to the top. So here's how it works. There's a stillframe photo camera. mounted on the top of this thing pointed. straight down. >> Yeah, it's like what? Probably 15t tall. >> That feels high. 10, 12, yeah, but. something like that. There were up to. seven planes that you could use. So,

you've got these horizontal planes. between the floor and where the camera. is mounted, you know, up 12 ft in the. air. Typically, with the character on. the celluloid almost all the way close. to the top of the camera, unless you had. like special effects or some foreground. obscuring the character or something. like that. And then all the elements of. the background at various sort of. different depths away from the character. are painted on panes of glass and paper. below that. And you'd want the. background broken out onto multiple. panes. So you could do things like a.

parallax effect if they were sort of. panning by. Or if you wanted to do like. an establishing shot to zoom in on a. subject from far away, you could. progressively in every single photo that. the camera took every frame bring the. panes of glass closer to the camera at. different calculated rates. So the. distance between the planes could be. adjusted to really sell the the. animation. David, you and I saw one of. these in the corporate archives in. Burbank. You've actually seen two of the. three that exist, right?

>> Yes. Yes. One of the other ones is at. the Walt Disney Family Museum in the. Prescidio in San Francisco, which is an. incredible museum and resource that. informed a lot of this episode. >> Worth calling out, this is a photo. camera, not a movie camera. So, it would. just photograph one frame at a time, and. then all the technicians would adjust. all the knobs and layer placements for. the next frame. So when you look at the. level of invention required to create a. multiplane camera and operate it, you. kind of start to understand how these. guys in the animation department could. evolve into Imagineers.

>> Yes. >> Like this. There's a lot of physicality. involved in animation that I don't think. I really understood until diving into. this process. >> You know what? What's happening at. Disney isn't just the intersection of. art and commerce. It's the three-way. intersection of art and commerce and. engineering. and always has been. >> Yep, I think that's right. All right, so. that's the animation process. That is. why this is such a giant difficult. undertaking to create something like. Snow White. >> Absolutely enormous undertaking. So when.

all is said and done, it takes $1.5. million. of investment over three years of studio. work to create Snow White. Remember, this is at the same time as Disney is. making short cartoons for like, I don't. know, 20 $30,000. And even that is way. above what anybody else in the industry. is spending. This is $35 million. inflation adjusted. And yeah, movies are.

like $300 million budgets today, but. imagine nobody's doing that. And you. have the first idea to create an. animated movie and you're like, I'd like. $35 million of budget to make that, >> right? When Roy said that he was worried. it was going to bankrupt the studio, like Roy was being the rational one. here. [laughter]. [gasps]. >> They have to take out a whole series of. loans from Bank of America in order to. finance production. Even with all the. money they have coming in from the. Flywheel and Consumer Products and the.

Mickey Mouse Club, etc. Ben, as you were. saying, all the art and the work that. goes into it, 2 million sketches and. 250,000. finished drawings and cells go into Snow. White. This is at a scale so beyond what. anybody else in the entire entertainment. industry is doing. Gabler in his book. uses the analogy of it was like a gothic. cathedral in animation. That is like the. only kind of analogy that makes sense.

here. They staffed up to 750 studio. artists and did three years of non-stop. work on production. >> Yeah. Incredible. >> They actually went so far as to hire. actors to play each of the roles and put. them in full costumes so they could film. them for inspiration just so the. animators could watch and see the. natural motion so it would look as. lifelike as possible to sell the. illusion. This is so much different than. animating a cartoon mouse. the massive.

investment in all the little details. just to make the viewer buy in. emotionally to these characters. My. favorite one of these little tidbits is. that the actress who played Snow White. even wore a hair helmet since the drawn. character's proportions were actually. pretty different than a real life woman. so that they could kind of get a sense. from watching the test footage how the. character moved around in the world. >> Yeah. Yeah. I mean, you made the point a. few minutes ago, Ben, that Walt Disney. wasn't doing this because he was some. capitalist. I think he really did.

recognize the incredible. flywheel business model that he had sort. of accidentally created and leaned into. it. But like that's not going to. motivate him to film a whole liveaction. version in costume just so that they can. make sure they get the spirit right. Like this is art that they're creating. >> An obsession with quality. >> Absolutely. So, the movie finally. premieres in Hollywood on December 21st, 1937. And I mean, it's one of the greatest.

films ever made. The Academy Awards. creates a special Oscar for Snow White, a special award. >> Yeah, cuz they didn't think it could be. eligible for best picture. This movie, I. don't want to bury the lead. It was the. highest grossing film, not only of the. year, but ever. It did $8 million of. rental revenue on a $1.5 million. production cost. And like the category. was so new and different that they were. like, uh, instead of being eligible to. be nominated for best picture, let's.

just create a special new category for. >> So the the the Oscar statue that they. give Walt and Disney for Snow White is. the only one that's ever been made. It. is a large Oscar. It is Snow White and. then seven little Oscars below it. [laughter]. Walt personally would go on to win more. Academy Awards than anyone in history. Walt has 26 Academy Awards. The next. highest is 13. Yes. I mean, the audience. reception was incredible. Like you said, Ben, it was the highest grossing film.

ever made of of any kind, animated or. otherwise, in history to that point. The. critics's reception is equally glowing. Time magazine writes prophetically that. Snow White is an authentic masterpiece. to be shown in theaters and beloved by. new generations long after the current. crop of Hollywood stars, writers, and. directors are sleeping where no prince's. kiss can wake them. [laughter]. Of course, foreshadowing the Disney. vault.

Snow White is alive and well today, as. my two young daughters will attest. >> [laughter]. >> Yeah. The uh an interesting thing about. this story, I'm curious since you have. daughters who watch it, David, is it's. kind of dark and Walt did meaningfully. change the Brothers Grimm stories that. he sort of adapted it from. It's very. interesting that all of these early. Disney's cartoon movies animations are. adapted fairy tales or adapted existing. lore that Disney sort of changes. The.

film was not really made as a children's. movie. No. >> Yes, it was animated, but it's dark. >> No. And in fact, a lot of those. decisions, like giving each of the seven. dwarves personalities, in part were motivated to soften the. darkness of the fairy tale. And Walt. would always say that he didn't make. movies for children, but of course, he. wanted children to be able to watch. them, too. But some of the decisions. were actually made with the flywheel in.

mind. And the dwarves personalities is. one of these. >> They wanted to sell a lot of seven. dwarves merchandise. [laughter]. And what better way to do that than to. give them all distinct personalities. >> It's true. When you go to Disneyland, there's a lot of people walking around. with like dopey and grumpy. >> Exactly. Exactly. So, as we said, the. movie itself extremely profitable. It. does $8 million in film rental revenue. against the $1.5 million production cost.

just in its first theatrical run, >> which dramatically changes the studio's. financial position. >> Yes. Yes. Now, it is a bit of a. misconception that the profits from Snow. White, the film itself, would end up paying for the new Burbank. studio that well, it's about to. construct. That's not entirely true. I. think most of the film profits from Snow. White went to repay all the loans to. Bank of America. Yes. So listeners, it's.

worth diving into a little bit of the. complexity of how each of the parties in. the value chain of making and. distributing movies work. There's the. studio like Disney who makes the actual. movie. There's a distributor like United. Artists or RKO who does a lot of stuff. They take the finished film. They create. all the prints that'll go to theaters. They have the salesforce that sells the. film to theaters. They plan the film's. marketing. They also ship the films and. handle all of the billing and payments. And then of course there's the theater.

or the exhibitor as they're called. And. so Disney has this 1944 annual report. for employees that David actually found. when we were in the archives. We were. flipping through annual reports and you. were like, "What is this? There there's. two reports for 1944. What's going on. here?" And they actually did a different. one for employees than for shareholders. The annual report for employees has this. great graphic that says where does the. money come from and has a breakdown of. if for a dollar getting spent at the box. office, what are the splits? And so 65%.

actually gets retained at the exhibitor. or the theater, 13% goes to the. distributor, and 22% goes to the studio. And so when we've been saying rentals, here's the interesting thing about that. The distributor and the studio come. together and they actually rent their. collectively owned film. Yes. >> To the exhibitor. So this $8 million is.

actually even higher than you think it. is. The gross box office would be. significantly higher than $8 million, like 2.5x or something. And that 8. million is the 13% plus the 22%. >> Right. It's the share of Disney the. studio plus their distributor. >> That's exactly right. And so then I know. I'm doing some financial gymnastics. here. >> Well, hey, all of this Hollywood. accounting, even through to this very. day, is so obscure and arcane. I think. on purpose so that neophites to the.

business don't really understand the. deals that they're making. If you go. look at what is really the source of. truth here, the 1940 IPO prospectus, which we are going to get to, you can. very clearly see that over a oneyear and. 9-month period, they make $4.5 million. in film rental income, the producers. share, so this is just Disney's from. Snow White and the Seven Dwarfves. So.

that's our real source of truth that we. know, $4.5 million. Now, they had about. $2.3 million of debt from the $1.5. million of production costs plus the. interest that they owed Bank of America. >> Yep. So, a huge portion of the net that. they're taking home just from the box. office of Snow White is going to repay. the debt, let alone operating expenses. for the studio, etc., etc. So yes, it's.

like great for the company, but it's not. quite as transformative from the box. office alone as people would think, >> right? So they they effectively have. $2.2 million left over after paying the. theater, paying the distributor, paying. back the principal on the loan, and. paying the interest. Okay. $2.2 million. in 1937. Still a lot of money, >> but uh they want to go build a gigantic. campus. Yes, but Ben, of course, Disney.

isn't just making $2.2 million in. profits from Snow White. There's all. that good good Flywheel revenue to come. along with it. So, you know, if Walt. thought that the flywheel worked well. for Mickey Mouse, Snow White is like a. whole another level. So before the film. is even widely released around the. country, they have their next major.

flywheel node, their next business model. innovation already in market, the movie soundtrack. I couldn't believe. this when I learned it. Snow White was. the very first movie soundtrack ever. created and sold to the public. It all. started with Snow White. There were no. sound movie soundtrack albums before. then and it is a huge hit both because.

you know it's a great soundtrack but. like before this album there was never. anything that audiences could take home. actually of the picture that they saw in. theaters. There's no home video, right? There's no streaming. There's no. television. You go to see something in. the movie theater. Sure, you could buy a. piece of merch like a doll or a costume. and there were a lot of those out there. for Snow White, but you couldn't take. home the movie except in the form of the.

soundtrack. >> and the songs are are quite catchy. whistle. So, the soundtrack is huge. Beyond that, there supposedly. [gasps] I read are 2,183. separate SKUs of Snow White merchandise. that get pumped into the global markets. by KKman's consumer products. organization. Unreal. The New York Times.

actually writes this that quote, "Sales. of Snow White products might be. America's path out of the depression.". [laughter]. >> Wow. >> That's how successful it was. I mean, this movie was such a grand success. artistically for Walt filmwise, for the. studio, for the whole medium of. animation and legitimizing it right. alongside live action. and for the flywheel business model of.

Disney. So, all of this enables Walt to. pursue his next dream, which is that he. wants to build a brand new. state-of-the-art. animators paradise. Ben, as you alluded. to, the new Disney Burbank animation. studio, still the uh corporate. headquarters of the company to this very. day, >> right? He basically sees the success of. Snow White and thinks, "Oh, yeah. We're. going to do a lot lot more of these. Let's let's build all the infrastructure.

to like really do that, right? >> Yes. So, Walt's goal with the new. Burbank studio was to be able to house. 1,200 plus animators and staff up from. call it 300 before Snow White and then. Ben, what did you say 750 that the ranks. had swellled to during Snow White? Yep. >> And he thinks that with this new campus, everything that they're going to install. there, and all the additional staff, that Disney will now be able to produce. two new feature animated releases every.

single year, plus shorts. So, like, it. took three years to make Snow White. With all the learning from that, all the. innovations of the new campus, all the. new staff, he thinks they're now going. to be able to pump out great new feature. films every six months, >> which was a complete pipe dream and they. never were able to do. >> Walt also in his mind think comes to see. this Burbank campus as really a utopian.

like place kind of almost like a college. campus. I mean, Walt didn't even. graduate high school, let alone go to. college, but he intentionally places it. in Burbank, which back then was like the. sticks outside of LA. >> He wanted the Disney lot, the Disney. studio to be this special place kind of. away from all these other studios. controlled by their distributor bosses. back in New York. And he kind of I think. really wanted to create this band of. merry men and women type feeling where.

they could achieve the impossible like. producing two feature animated films a. year. >> Well, the thing he sort of didn't factor. in is that you might be able to make. Snow White faster in the future, but. every idea that you have is going to be. a different new idea that's going to be. more ambitious and have more cost and. require more people. And so this Burbank. studio was necessary even to keep the. same. >> producing films every 3 years. >> Yes. >> But the the the lot itself is. unbelievable. It's 51 acres. There are. sports fields, a cafeteria. There's art.

classes. There's massages available. There's sunbathing in the penthouse. club. In many ways, this is like the. Google Plex before the Google Plex. >> Yeah. This is 1940 when they opened. this. >> Yes. And you're right. It's it's kind of. designed to keep you there. Why would. you need to go anywhere else? And really. there's nowhere else to go around here. It reminds me a little bit of uh Epic. Systems, too. >> Yeah. Yeah. Yeah. Yeah. Very similar. Very similar. >> So, here's an example of the lengths. that they went to on this campus. >> So, I was looking at Google Maps.

planning our visit, David, and it looks. weird. It's it's offset from the Burbank. Street grid at an angle. And we asked. the person who were showing David and I. around listeners uh why this is. And he. said that it was Walt's priority when. they were building it to offer the exact. perfect conditions for lighting to. animators, which of course, David, you. know the the spoiler here. >> Yes. To have offices that face north. because northern light is true light. >> Do you know why northern light is.

preferable? >> No, I just know that that's what our our. very kind tour guide told us. >> So if you are in the northern. hemisphere, the sun moves across the. south sky. So if you're north facing. windows, your window offers the most. consistent and nondirect light. And so. every animator got a window and they. built the building shape so that there's. a whole ton of north facing sides. Like. the whole thing almost looks like a CPU.

heat sink. It's like got fins so that. it's got all these north facing windows. It's for the time it's an architectural. marvel. It's one of the first buildings. with air conditioning in Southern. California. The windows had customuilt. sort of slats that were adjustable so. the animator could let in the exact. right amount of sunlight, indirect. sunlight that they wanted into that. room. And once they sort of got this. building architecturally laid out on the. campus, they're like, "Yeah, let's build. the entire campus around this." And to. me, it really symbolizes that.

>> animators are the crown of Disney in. this era. in the way that at Google it's. engineers and at Apple it's designers. and at at Microsoft it's PMs. Uh. [laughter] the the animators to the. extent that anyone but Walt has the. power the animators are sort of the most. valuable resource. >> Yes. Yes. It's an animationdriven. company. >> Yes. So it's got this like utopian vibe. but there were trade-offs. I mean this. was huge compared to the old Hyperion. site. People are more sectioned off to.

do their specific work. You had less. access to Walt to know exactly what was. going on upstairs if you were the rank. and file. But to achieve all this, Walt. does need capital. >> Yes. Oh, yes, he does. >> He doesn't want to give up any control, but eventually he and Roy decide, we've. only ever taken on bank loans. Maybe we. need another source of capital. >> Yep. I've got the numbers on all of. this. So, the Burbank campus. construction costs alone were $3. million. So that's more than the money.

they had left over from Snow White. proceeds after they repaid the Bank of. America debt. But obviously they had all. the, you know, the revenue from the. soundtrack and the consumer products and. all the flywheel revenue coming. >> But still, they're they're planning to. do Pinocchio. They're planning to do. Fantasia, >> right? So the 3 million is just to build. the facility. Then they got to staff it. with 1,200 animators. So that's an extra. 450.

new animation staff they need to hire. And to feed Walt's vision of having. multiple films in production at the same. time, he greenlights production on. Pinocchio, Bambi, and Fantasia all at. the same time. >> And all of these were completely. different animation styles. Yes. And. completely different from Snow White. If. you look at these films, we sort of have. this notion today of like, oh, it's the. Disney style that is not really. reflective in the darkness of Snow White.

in Fantasia's really experimental. artistic vignette style set to classical. music. And Bambi is again another. completely different take of a very. naturalist film. These are wildly. different skill sets and bigger and. bigger investments using completely new. techniques. So you're not really just. like making more snow whites. >> You're doing like discontinuous unknown.

high-risisk bets. >> Walt can't help himself. >> Yes. So in total between the $3 million. for the campus and then these three. movies that they all have in production. which collectively cost about $5 million. in so-called negative costs before they. get released. So before they earn a. dollar of revenue by early 1940 Disney's. yeah in this new campus and set up for. this next phase of the company, but. they're $8 million in the hole. So, Bank.

of America had loaned them another $4. and a half million dollars. >> They just keep going to Bank of America. over and over again, just reorggaging. the company. >> And then the hope was that Pinocchio, the first of the new films to come out, would be a hit and earn profits quickly. Unfortunately, World War II had started. in Europe by early 1940 when Pinocchio. gets released. So international box. office is basically zero and Pinocchio. ends up losing money like a lot of money.

over a million dollars in losses on. Pinocchio alone. >> Yeah. In a scale economy's business if. you lose out on potential eyeballs and. potential revenue but your fixed costs. stay the same. That's super super bad. news. I mean you you there's no ability. to retroactively scale back how. ambitious you're being with investing in. a film. you know, you've already spent. all the money to create it and now you. find out that you can't distribute it to. half of your audience.

>> Yeah. Not good. >> Yeah. Not to mention the impact on all. the rest of the flywheel businesses. Like not a lot of Pinocchio merch. getting sold in Europe in summer of. 1940. >> No. >> So after Pinocchio is a flop, Walt and. Roy decide they basically only have one. recourse at this point because Bank of. America is not going to loan them any. more money. They need to sell equity in. the company for the first time. So in. April 1940, Disney retains investment.

bankers and sells 3.875. million of convertible preferred stock. with a 6% dividend, which technically is. Disney's IPO. Is it technically? It. doesn't go on a stock exchange. It's. just over the counter. It's a public. offering, I guess, but it's a pretty. small group of the public. >> Exactly. Exactly. It is a non-exchangeed. public offering, >> and it's got this 6% cumulative dividend.

attached to it. So, the expectation when. you're investing is this company is. going to pay me 6% of my investment back. every year. Yep. >> So, it's it's actually a pretty sweet. deal for the investors. They sell 30% of. the company to do this to raise that. It's funny you said 3.875 875. A little. bit of that went to the bankers. There. was some [laughter] transaction fees. So, they only raise about $3.5 million. directly to their balance sheet, but. they give up 30% of the company to do. that. And it comes with that 6%.

cumulative dividend to those. shareholders. >> Wow. So, this means they're flying even. closer to the sun than I realize cuz. they've got the $8 million in sort of. investments that they need to fund and. they have $4.5 million from Bank of. America and then if they're only getting. three.5 million in proceeds from the. IPO, that's exactly $8 million. >> They are shaving off every piece of. their current self and future cash flows. to rebet the farm. That is the the way.

to think about this. So that summer in. 1940, Walt has a rather ominous get. together with Henry Ford of the Ford. Motor Company. Uh just sort of as like a. friendly meeting of these two American. business titans. And while they're. together, Walt mentions to Henry about. uh the IPO that they just did. And. reportedly Ford tells him, "Walt, if you. sold any of it, you should have sold all.

of it." [laughter]. Ominous. Ominous. A real board of. directors gets established for the first. time as part of this and the preferred. get a director on the board. So an. outside voice in the company who. certainly is not going to share Walt's. vision here. So by the end of the year. in 1940, despite the capital raised from. the stock offering, Disney's in a cash. crunch. Uh Walt before the IPO had even. set up a kind of like proto employee. ownership system where they set aside.

20% of the company's equity and used. that stake's profit distribution to fund. an annual employee bonus pool. They have. to eliminate that like months basically. after Walt institutes it. And what they. end up doing as a result is they raise. salaries of the few top animators in the. firm and then they keep the same or they. lower salaries for everybody else in the. Burbank lot. And this causes huge.

resentment and unrest in the animation. workforce. >> Yeah. I I mean I bet that's going to. make no one happy. But this is the like. literal trade-off. This is we spent a. bunch of money on Pinocchio. Yep. We. didn't have Europe, so we lost a bunch. of money on that. We still have big. ambitions. And like this is Walt's implicit choice. here with going out and raising all this. debt, raising all this equity, betting. the farm again. >> Yep. This is the downside of Walt's uh.

always go for broke and shoot the works. philosophy. >> Yep. >> And it leads probably to the darkest. moment of Walt's life. >> that would change his relationship with. the company forever. forever and. irreparably. his relationship with Disney animation. The strike. So on May 29th, 1941, the. Screen Cartoonist Guild, which is a. union that had unionized every other. major animation studio in Hollywood and.

New York over the couple years leading. up to this, >> which there were several of at this. point in time. We've been sort of very. Disneycentric, but there is an industry. around this. >> Yep. decides finally to target Disney. employees. Now, there's a reason why the. Screen Cartoonist Guild had stayed away. from Disney despite it obviously being. the leader in animation up until this. point, which is I think Walt's utopian. dream more or less was true or at least.

true enough. Like, he established the. bonus pool for animation. He constructed. this campus. everything you were talking. about earlier, Ben, but here with the. cash crunch, that all comes crashing. down. >> Yeah. There's a great excerpt from the. book The Animated Man by Michael. Barrier. In the spring of 1941, under. pressure from the Bank of America and. holders of preferred stock, Walt Disney. Productions agreed to scale back its. production cost to about $15,000 a week. According to Walt Disney himself, that.

meant he had to hold the negative cost. of new features to about $700,000 or. onethird the cost of Pinocchio or. Fantasia, which was also in development. at the time. Since labor costs made up. 85 to 90% of Disney's total costs, implementing such severe economies would. mean laying off more than half the. staff. >> O, so you've got cost reduction in some. of the people sticking around. And. you've got big layoffs because Pinocchio. didn't pay back. >> Yeah. Well, layoffs coming. they haven't. happened yet and this is part of why the.

organization and the strike happens. So. hundreds of employees end up striking. They pick it the Burbank campus. They. march all day. They carry signs with. slogans like Snow White and the 700. dwarves or uh what is a drawing of. Pinocchio with the caption no strings on. me. The strike lasts for three and a. half months and it's a completely. shattering event for Walt personally and.

for the company. As the union is. organizing the employee base in the days. and weeks leading up to the strike, Walt. decides that he's going to make a speech. and address the entire company, which he. thinks, well, he will explain his. position and the challenging state that. the company's in and it will resolve. everything and the employees will rally. around him and the company. Unfortunately, it has the opposite. effect. It is a complete disaster. He.

lectures the entire company for nearly 3. hours. Some of his lines from the. speech, which he had written out ahead. of time, so it's preserved, are, "My. first recommendation to the lot of you. is this. Put your own house in order. You can't accomplish a damn thing by. sitting around and waiting to be told. everything. If you're not progressing as. you should, instead of grumbling and. growling, do something about it." And. then don't forget this. It's the law of. the universe that the strong shall. survive and the weak must fall by the. way. And I don't give a damn what.

idealistic plan is cooked up. Nothing. can change that. Probably not what you want to tell your. employee base after you just slash their. salaries. Yeah. Yeah. A labor magazine. would write afterwards, "Walt Disney's. speech recruited more members for the. Screen Cartoonist Guild than a year of. campaigning. >> [sighs and gasps]. >> Yeah, about the worst reaction that you. could possibly have. And Walt, I don't.

know if you found this in your research, but it seems like he's kind of deluded. here into thinking, well, it's not. actually my employees that are doing. this. It's these communist, very few. communist agitators who have undercover. become my employees and they're riing up. the rest of them. and Walt's like kind. of removed himself and he's in denial. that this is actually what his workforce.

wants. The the the family atmosphere. that we had at Hyperion is now a like. real corporate, you know, have and have. knots here on Burbank campus. >> Yeah. >> Yeah. Yeah. It's a mess. And then it. gets worse. So in the middle of the. strike, which again lasts for three and. a half months, that hundreds of. employees are gone from their jobs that. are not working and marching and. protesting outside the company. >> while they're trying to make Bambi, which is equally ambitious, >> right? Walt is just so depressed and in.

denial and upset about the whole thing. that in August of 1941, he agrees to go. on a goodwill trip to Latin America with. Nelson Rockefeller's office of the. coordinator of interamerican affairs. This is the trip that ultimately results. in the Disney films Saludos amigos and. the three cabayeros. If you've seen. those or been to the three cabarios ride. in Disney World in Epcot, it's actually. great.

>> It also results in Roy having to resolve. the strike because Walt is uninterested. in dealing with it. >> Yeah. The real reason Walt goes on this. trip and he would write about he would. call it a quote godsend and say that it. gives him a chance to get away from this. god-awful nightmare in Burbank. Yeah. He basically just leaves the. country and walks out on the whole thing. and tells Roy to settle it. I'm leaving. for 10 weeks. Do your best. >> Yep. So, while Walt is gone in Latin. America, Roy does settle the strike.

after federal mediation. Disney ends up. recognizing the Screen Cartoonist Guild. union. They raise salaries for the. remaining employees and they agree to a. negotiated layoff of over 500. employees. So, taking total headcount. before the strike down from 1,200 to. under 700. These are the layoffs, Ben, that you referred to.

>> The studio would never fully recover. from this. Certainly not under Walt and. not for many, many years afterwards. Really, not at all in the period of. classical animation before computer. animation comes along. And sort of. equally as importantly, Walt would never. recover from this as it pertains to his. relationship with the company Walt. Disney Productions. Yes. >> It no longer feels like his family. It.

feels like a creation he's made that has. sort of run away from his control. >> Yep. He ultimately does decide that the. company Disney and he Walt Disney have a. creative and business future. But yeah, he never has the same relationship to. the studio or animation after this. >> Yep. He apparently according to Don. Lusk, who was an animator there, made a. list of everyone who went out on strike. and said that uh everyone on this list. isn't true to Disney and one day will.

not be here. >> Yeah. So Ben, you mentioned uh Walt's. sort of anti-communist streak that comes. out of this. Yeah. For the rest of his. life, he would blame all of this on. communist influences in Hollywood. He. would actually testify after World War. II in front of the House on American. Activities Committee, you know, Huak as. a friendly witness corroborating. communist infiltration in Hollywood. He. named names of people who he said were.

communists based on things he had heard. about them like no even proof. And. you've got like a major figurehead of a. big US corporation testifying. There's. all this video of it of him saying I. believe so and so is a communist. >> Yeah. And of course this would lead to. the famous Hollywood blacklist and you. know all the terrible stuff that comes. out of that. One thing later sort of by. association with this uh people would. accuse Walt of being anti-Semitic since. much of the communist movement in in the. US and especially in Hollywood was in.

the Jewish community. Gabler. investigates this pretty thoroughly in. his book and concludes that there's not. any evidence that Wald ever really was. anti-Semitic. I turned over every stone. I possibly could on this company and we. spent I don't know the better part of. the year so far researching this and I. found zero evidence of that. >> Yeah, same definitely anti-communist for. sure. Uh yep, >> but um anyway, so [sighs] speaking of. the [snorts] war, >> by the way, this is like four giant.

blows to the company in a row. You've. got Europe dropping even before the US. enters the war. You've got the the. European distribution falling off. There's a thing we didn't talk about. which was Fantasia tried to make this. giant bet in a new type of sound for. movies called Santa sound. >> This alone almost killed the company. The budget for Fantasia was 50% bigger. than Snow White. >> And in the first run at the box office, they tried to use Fanta Sound, this new. sound technology they had invented, and.

distributors didn't pick it up to do. like a real first run. And so out of the. $2.3 million budget in that first year. it came out in 1941 they recouped. 325,000. >> Wow. That is a giant loss on Fantasia. I. think Disney was also funding the. development and and distribution of. Fantasound. So you've got those two then. the strike. Now the US enters the war. >> Yeah. One more note on Fantasia though. Uh before we talk about the impact of.

the US entering the war, do you know. what ultimately ended up happening with. Fantasia? >> They made Fantasia 2000, 60 years later? No. [laughter]. >> Yes, that is true, but that is not what. I was getting at. So yeah, the initial. release of Fantasia, as you said, was a. total flop. They couldn't exhibit it. anywhere, lost tons and tons of money. Later, it has this huge resurgence. I. mean, I remember when I was growing up. as a kid, my parents loved Fantasia.

>> Yeah. I actually thought Fantasia was a. modern movie. It's crazy to me that it. was Disney's second. >> Right. Right. Right. I think it was like. the 60s and the hippies that thought. like, "Oh, this is like the coolest. [laughter] thing." So, Fantasia, if you. look today at the list of. inflationadjusted. top films in history by box office. gross, inflation adjusted, Fantasia is. the 24th highest grossing film in. Hollywood history. [laughter]. >> Unbelievable.

>> So, it has all. >> and kind of timeless. >> Totally. It's an amazing amazing. production. I mean, the music, the. symphonies, the sound, it's go watch. Fantasia if you've never seen it. It is. [laughter] well worth your time. >> And now a hard cut over to World War II, right? Okay, so back to 1941. No sooner does Roy settle the strike. than Pearl Harbor happens and the US now. enters World War II. And unlike many of.

the other great American companies of. that era that we've covered on this show. before where World War II was great for. their business like Coca-Cola or Mars or. Lockheed, World War II is a disaster for Disney. Nothing of value gets built for Disney. during the war. It basically breaks. every single node in the flywheel. And. on top of the strike, it just completely.

grinds to a halt. All new core IP. production for the studio. >> Yeah. So, the first thing that happens. is within hours and then days of Pearl. Harbor getting bombed, the US military. moves into the studio. They look at. Burbank and they think, "This is a great. asset." And so hundreds of troops, there. are two reasons that set up shop using. the sound stages to work on all the. optical systems for anti-aircraft. Sound. systems are awesome. There's no windows.

It's a giant room. I mean, like it's. it's the the thing you would want for. stuff like this. The second reason that. I suspect you're hinting at, David, is. it is real close to Lockheed. >> Yes. real close specifically to Lockheed. Skunkworks department. >> which is in Burbank. The secret Lockheed. Skunk Works. >> airplane hangers and and department was. in Burbank because Burbank was the. sticks back then and Disney is right.

next door. So that's probably the bigger. reason why the military requisitions the. Disney lot is to protect Skunk Works. >> Fascinating. Yeah. >> So you've got that happening. You've got. a whole bunch of the animators getting. drafted. >> Yep. >> I mean, so you're you're you're down. manpower. You're just coming out of the. strike. You have these huge failures in. Pinocchio, Fantasia. And also Bambi. Again, you've lost European. distribution. >> Yep. >> And so the appetite for. making more things like those three.

movies drops to like zero. I mean, at. this point, there's a financial reality. that Disney owes a dividend to these uh. shareholders, which interestingly. enough, it actually suspended in 1942. They actually didn't pay out the. dividend, but they do have to pay Bank. of America. The films aren't going to be. the thing doing it. And conveniently, they've got the US government saying, "Can you help us with some propaganda. films? Can you help us encourage people. to pay their taxes and buy war bonds and. support the troops?" And so Disney kind.

of looks at everything, how it's all. playing out, and says, "Yeah, that's. what we're going to be doing for the. war.". >> So all of the studio production work. during the US's time as an active. participant in World War II. Yeah. Basically just gets repurposed to. propaganda and training materials for. the government. >> And insanely they do use Disney IP. like. you see all these crazy old posters with. like you know Donald Duck holding a gun. and I mean the stuff you sort of would.

never see with these characters today. but not only did Disney say we're work. for hire they said we can use the Disney. IP but interestingly David do you know. about Mickey Mouse's role. >> no. >> they really did not employ Mickey Mouse. >> they protected Mickey Mouse from the war. image and Donald Duck sort of led the. charge. >> Interesting. >> On all the the the war films. >> Well, part of this was because uh. canonically Donald Duck is a sailor, right?

>> Oh, okay. That makes sense. >> Yeah. Yeah. But then it makes sense to. protect Mickey, too. >> And Donald's also the more like fighter. of a [laughter] character. >> Yeah. Mickey started off as this. troublemaker, but then kind of became. the like nice protagonist. >> Yeah. The goody two shoes. And then. Donald was the foil. >> Yeah. >> Yeah. So all of this though to our point. earlier does nothing either for the. flywheel model or for generating new IP. to feed it. >> or pushing the envelope of technology or. pushing the bounds of creativity like. all the things that contribute to.

Disney's core that they they are. financially floated though by the war. I. mean the way that they make it through. this period is they actually are. generating net income reliably not a lot. but. >> from the government work. >> Exactly. And there's one other big. innovation, an actual bright spot that. comes out of this back against the wall. moment during the war that the company's. in financially. Do you know what that. is? >> Ooh. Uh oh. The Disney vault.

>> The vaults. Yes. >> Yes. So in 1944, the company is so. cashstrapped that they come up with the. again at the time crazy seeming idea to. re-release Snow White in theaters. because hey, we can't make new stuff, but people sure like that old movie. Let's just put it in theaters and see. what happens. >> And the thing you got to remember is. with no home video and no TV, no one had. seen Snow White in seven years. >> Exactly. It truly vanished off the face.

of the earth except for the copies of. the film that were held in the Disney. vault. >> In the Disney vault. Yes. So in 1944. they re-release Snow White in theaters. and it brings in $3 million. in revenue to Disney on just a like a. few hundred,000 in cost. They basically. just got to print a few new copies of. the film and then distributed it out to. theaters. >> Right. The theaters get their normal. cut, the distributor gets their normal.

cut, but Disney's cost to develop the. film is like zero. >> Yeah, they've already developed it. It's. already done. This is an enormous boost. for the company. And Ben, to your point. about the 7-year gap since the initial. release, it turns out conveniently that. 7 years is just about the right amount. of time for a new generation of children. to come along and reach an age uh where. they would be interested in consuming. Snow White that haven't seen it before.

and they discover it for the first time. and yet it's infrequent enough that it. doesn't dilute the IP. So Walt's got an. amazing quote on this actually from the. second re-release in 1951 of Snow White. In the 8 years since then, our first. re-release, our potential audience has. been increased by 25 million children. who either were not born or were too. young to attend a motion picture theater. in 1944. You're an adult much longer. than you're a kid. >> It's so amazing. And they totally.

stumble into the seven-year thing. Like. it's not like they intended when they. made Snow White to say, "Okay, we're. going to put it in the vault and then. seven years from now we're going to take. it out." It just happened that seven. years later they had a big cash crunch. They needed some easy profits and they. put Snow White back in theaters. And 7. years, you know, give or take a couple. years basically becomes the core Disney. IP cadence to this very day. And Disney. could uniquely do it versus other. studios because their IP was more. timeless. It's animated and it's based.

on these timeless sort of lessons and. these fairy tales of old. Like there. there are these. simple but resonant stories and it. carries through right to today. What is. the cadence between Disney's Frozen. movies today? >> Frozen 1 comes out 2013. >> Frozen 2 comes out 2019. >> Frozen 3 slated for release next year. 2027. six to eight years like clockwork.

>> It's interesting they've applied it to. sequels now, too. >> Yep. >> All right. So, now we've got four. components to the flywheel business. Your original three, genuinely. compelling new intellectual property. with characters that you resonate with. Two, maximize distribution of each. element in the primary delivery vehicle. You've got three, feed that IP into as. many ancillary profitable flywheel nodes. as possible. And now we've got four. Yep. >> The vault, the re-releases. >> Strategically re-release it every seven.

or so years. Frequently enough to. capture each new generation of children, but not too frequently lest you dilute. its impact. >> with effectively evergreen content. >> Yep. [laughter] Roy has a great quote. that he would tell the Wall Street. Journal many years later. Our product is. practically eternal. [laughter]. And it's so true. >> Yep. >> So despite this genuine innovation of. adding the vault concept to the.

flywheel, by the time the war ends in. 1945, Disney is not in a good place. The. flywheel is basically completely broken. There hasn't been any compelling IP. generated for the past several years. And worst of all, Walt himself is. disengaged and disillusioned. >> Yeah. But clearly something happened. because the Disney [laughter] we know. today is quite successful.

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service.com/acquired. and just tell them that Ben and David. sent you. All right, so we're coming out. of the war. There's sort of [laughter] a. few moving parts here at Disney right. now. So the revenue from the government. has dried up. So that the thing that was. putting them on sound financial footing. is not there for the sort of quick. revenue hits. The long-term stuff other. than the re-releases, they haven't. stoked the fire in a while. >> So the strategy over these next few. years is to sort of kickstart to try to.

do stuff that doesn't cost a lot of. money but might have a lot of return. >> And so they try a bunch of stuff on the. animation side. They do packages where. they take a bunch of shorts and they. package them together as feature films. These are movies that you almost. assuredly have never seen called like. Make Mine Music or Fun and Fancyfree. Not big successes. The other thing they. try in animation is to go back to the. original Alice's idea of combining.

animation and live action. The result of. that is the movie Song of the South. Yeah. which historians look back on as. racist and deeply problematic. And uh. Disney has never released on home video. or streaming. So uh not a big success. for the flywheel there either. And for. the first time in animation, there's now. actually real competition in the. marketplace. So before the war, Warner. Brothers had started Looney Tunes, you.

know, with like Daffy Duck and Porky Pig. and then Elmer Fud and of course. >> Bugs Bunny. >> Ironically, it's a former Disney story. department employee, Charles Thorson, that does the initial designs for Bugs. Bunny. >> And then in 1940, you know, same year it. all started to fall apart for Disney, Joseph Barbara and William Hannah start. working together. They produce Tom and. Jerry for MGM. So the other major. studios. >> and the Flintstones. >> Yeah. The Flintstones, of course. Yeah.

The other major studios are starting to. creep in on the animation game. And so. by this post-war period, these other. studios had grown in popularity and were. really starting to rival Disney. Meanwhile, Disney, they go the other way. and they get into live action. >> Yeah. They somehow had a bunch of cash. tied up in Europe that they couldn't. repatriate, so they needed to spend it. in London. So, they went and shot a. liveaction film, Treasure Island, in. London, which did well for them. Live.

action is far less expensive to create. You can do it fast, and they needed to. do something with this cash. But, you. know, you're not buying a lot of. Treasure Island merch today. It's not. durable like the the animated stuff. >> As we talked about earlier, live action. doesn't feed the flywheel, at least for. Disney, in quite the same way. >> Yep. They started doing nature. documentaries. They did one called Seal. Island shot in Alaska. They also started. studying the emerging TV medium to see. if they should do something here, but at.

this point in time decide, nah, basically not. But we'll watch it and. see. We're very interested. But Walt. Hart really was in animation. He wanted. to get back to making animated feature. films that push the envelope. Roy, meanwhile, hates this idea since the. studio is not on good financial footing. It has lots of debt. Walt ultimately has. to give an ultimatum that if we don't. get back to this, then we should just. sell the company. Like, what are we even. doing here? >> In 1950, Roy capitulates and the company. went and raised another $2 million to.

finance their next film, which was. Cinderella. >> The first bright spot in a long time. >> and their first fulllength feature film. in eight years since Bambi in 1942. >> And the way they made Cinderella was. quite different, right? Yeah. So Walt. pounds the table to make this thing and. then he kind of realizes the way they. are going to make it feels compromised. to him because the budget just can't be. what they were blowing before in those.

early 40s to try to really push the. envelope. >> Yeah. There's a great quote from the. animator Frank Thomas who worked on. Cinderella. We planned Cinderella more. carefully and shot it all in live action. first so we could judge it. This was. without costumes or a set. just go on a. sound stage and see whether that scene's. going to work. Walt said, "We can't. afford to animate it and then change it. The animation has to be right the first. time." Yeah. Not the mindset that they. took into Snow White. >> And this basically flips the like.

liveaction animation thing from a source. of inspiration and study to a crutch. So. they were filming every scene and then. rotoscoping effectively like tracing the. liveaction footage out of the camera to. make it animated which can lead to this. much more rigid feeling animation. Also. once you film it you are completely. locked into that view. It's not like you. can move the theoretical camera because. you haven't really built the muscle to. animate in that style for the film. So. you're kind of stuck with this like how.

it looked in the camera is how we trace. it on paper. It just had less of the. like lavish detail that they put into. Pinocchio and Bambi. All this ultimately. leads to like Walt's hard is just not in. it. He he kind of helps kickstart the. whole thing but then is not engaged. during the production of this film. It. does end up being a critical and. commercial huge success though. Yes. >> I believe it makes basically the same. amount of money as Snow White. I think.

it does $8 million in film rentals in. the first year. >> Yep. On a cost of 2.2 million. >> Yep. >> So really, this is the first big. financial success for the company since. before the war. It's the biggest success. since Snow White. It got the company. back on sound footing after a pretty. gnarly uh time. >> Gnarly decade there. Yeah. But yeah, so. Cinderella is is a huge bright spot. It. was a onetime financial boost to the. studio that didn't solve all the. company's problems, but it did get.

animation back on the right foot. creatively. Even though Walt was no. longer, you know, as deeply involved as. he was in the Snow White era, it did. turn things around enough that like at. least they were making quality work. again. And like obviously those films. still hold up today. Over the next few. years, they then released Alice in. Wonderland, which surprise ballooned. over budget and did not pay back. That. is in part because a lot of historians. say it's a film that Walt felt like he. should do because of his reverence for.

the source material. >> Yep. >> But never quite had a clear idea on. exactly what to do with it. So, it's. it's hard to put together these sort of. disjoint vignettes into one cohesive. film, but artistically beautiful. So, put a pin in that. We'll come back to. it. But interesting comment on Alice. from the 1951 annual report from Roy. >> Alice has not performed as well at the. box office as Cinderella. Because of. these circumstances, which were. generally poor attendance at theaters,

he actually blames the macro, which is. interesting. And because Alice in. Wonderland is our highest cost feature, it is not expected to produce a profit. from its first release. However, it is a. classic property which should be a. valuable asset to the company. indefinitely. >> And hey, he was right. >> Yep. >> All right. So, we've talked about Walt. being disengaged here. What is he doing? [sighs and gasps]. >> So, Walt. is playing with trains. [laughter].

>> I mean, [snorts]. >> yes, he is. That's about the best way. that I can frame this is he's getting. really into trains and really into. miniatures. >> Yes. Trains, specifically model trains. and miniatures like miniature furniture. and like rooms in homes in miniatures. >> Yeah. I mean, gosh, I said we weren't. going to dive into Walt's psyche on this. episode, but I kind of think about this. This is me editorializing.

as. this like soulsearching half decade. where he's just looking for what is he. going to get passionate about next cuz. he's sort of bored like animation isn't. doing it for him the way that it used to. and he's like reaching back into his. childhood for inspiration. >> And the way Walt would frame this is. that he was developing these hobbies to. keep his mind off of the problems at the. studio. That's what he would always say, >> right? That these were nice things to do.

after a hard day at work. >> Y. >> but they became obsessions. >> Yes. >> When I said reaching back into his. childhood, there was a train that ran. through Marceline, which is why. Marceline existed. And there's this like. deep-seated psyche around trains and. small town America. He and some of the. other senior animators developed this. interest in largecale model trains, which are 1/8 the scale of an actual. railroad train. So like big like ones. you could ride around sitting on top of.

There's amazing old footage of of Walt. like riding around on these these 1/8. scale trains. >> Yep. So Walt took this extremely. seriously. He ends up traveling to the. 1948 and 1949 Chicago train fair and he. kind of dove into this community of. fellow train enthusiasts. I was thinking. this was strange. Like I kept reading. about this and I was like this is wild. There were six million train. enthusiasts, like model train. enthusiasts at the time. This was. actually like a pretty big thing.

>> Yeah. This isn't like billionaire. hobbies today. This is like a Wald. hanging out with other enthusiasts kind. of man of the people style. >> Yes. And it was something that was. really tangible for him to do with his. hands. I mean, he was building some of. the train cars himself. He he actually. had a workspace in the machine shop in. Burbank where he was building with the. machine shop staff. There was a guy. Roger Broki who sort of led the machine. shop team who would go on to build a. serious serious model train for Walt.

Roger would also become just to. foreshadow here the first Imagineer. >> Yes. Yes. Yes. Well, just to foreshadow. even more all of this would lead. [laughter] to Imagineering. >> Yes. So, this team in the machine shop. uh and Walt end up building this train. and and David, you were saying like man. of the people style in a very not man of. the people style thing. He ends up. sinking $50,000. which is like a giant amount of money at. the time and a huge amount of his.

personal liquidity in 1950 into building. a train in his backyard. There was a. half mile of track that went through a. tunnel. That tunnel that which he dug. under his wife's garden on its own was. 90 ft long. >> Yes. When Walt gets obsessed with. something, he he goes to un unreasonable. extremes. >> When he and his wife were looking at. houses to figure out where what property. they were going to buy and then build a. house on, a major consideration was, is.

there room for a giant train to be laid. out? He ends up, it's on Carolwood. Avenue, I believe, Carolwood Street, and. he ends up naming it the Carolwood. Pacific. The uh steam engine is named. the Lily Bell after his wife. It's a. whole thing. >> Yep. And if you go to Disneyland or. Disney World today, most of the steam. engines of the railroads are named in. callbacks to this period and this. inspiration in Walt's life. So, there's.

the Lily Bell engine at Walt Disney. World. There's the Ward Kimble who is. the original animator that gets him into. this hobby. There's the Roger Broie as. you're saying and uh then there's also. the Roy Disney. >> Oh, nice. I did not know that. So, this. is great quote in a PBS American. Experience documentary by historian. Nancy Conn where she's reflecting on. Walt in this moment and her quote is, "I. can't control my employees. Turns out I. can't control the larger stage right. now. I can't even completely control my.

company. So, here's a world I can. recreate down to the smallest detail. that is mine and perfect. >> And it would become something much. bigger that would also be his and also. be perfect. >> Yes. So, out of this stew comes. Disneyland. >> Yes. Which is so funny because Walt. would insist in interviews until his. dying day that quote, "The idea for. Disneyland came about when my daughters. were very young. And as I'd sit there.

while they rode the merry-goround, I. felt that there should be something. built where parents and children could. have fun together. So that's how. Disneyland started. It all started from. a daddy with two daughters wondering. where he could take them where he could. have a little fun with them, too. >> It's also that, >> you know, I'm sure that's part of it. >> Yeah, >> some of both, but really the trains. [laughter]. >> Okay, so how did Disneyland happen? Well, the initial thing was actually. pretty small. >> Yep. the initial idea.

>> Yes, there was a name floated Mickey. Mouse Village that sort of quickly. changed to Disneyland since uh it was. much more about his new passions, trains, Americana, and miniatures than. it was about Mickey Mouse. And he. started working with artists to sketch. out what it would be. And the constraint. that he had was we've got this 16 acre. plot of land that's adjacent to the. Burbank studio lot between that and the. river. So that's sort of what we're. working with here.

>> Yeah. And that's the natural place you. would put this. >> Of course. Of course. So in March of. 1952, Walt announces it Disneyland to be. constructed on that little strip of land. >> for a cost of $1.5 million. >> A Snow White. >> A Snow White. Yeah, we should speak in. units of Snow White. It's actually. cheaper than a Snow White given the. inflation. >> Right. Right. Right. Much cheaper than a. Snow White. It's now been uh 15 years. So, he decides, I'd actually like to.

spend some money on a larger study for. this because I've got a couple of like. artist renderings here that include cool. little river and a train that runs on. this and we're going to figure out, you. know, attractions that that go in this. thing, but we really got to jam a lot in. here. So, I'd like more money. >> Roy and the board are none too enthused. about this. >> Yeah. Think about everything that we. have said over the last, I don't know, hour about the state of the company. And. Walt is saying, "Hey, I found a thing.

I'm interested in. Can I have some money. to explore building this kind of like. inarticulatable idea?" Yeah. Right next. to the studio lot. >> Yeah. It kind of goes over like a lead. balloon. >> Yes. So, the Walt Disney Company at this. time called Walt Disney Productions does. not free up the purse strings for this. So, what does Walt do? He kind of talks. to Roy about it and they they they. figure out a path forward. He's going to. start his own company that would get. formalized later in the year in 1952. that ends up being called Wed.

Enterprises. We wed Walter Elias Disney. His personal company that he can do. >> weird personal stuff with. [laughter]. >> Yes. [snorts] So over the course of. 1952, Walt starts poaching people from Disney. to work on this thing. >> And at first it's just like a halfozen. people and they're set up in a building. on the back lot at Burbank. These would. become the first Imagineers.

>> Yes. >> And the interesting thing is the people. he's poaching, these are artists and. they're animators. that are being hired. to build a theme park and like big. physical trains. This gives you a sense. of Walt's leadership style. He would. take a talented, creative person and. he'd be perfectly willing to assign them. to things that they've never done before. and say, "Yeah, he'll figure it out.". >> We also just got to pause here for a. minute and really underline what's. happening here. This is Walt Disney.

>> Yes. By this point in history, he is the. Walt Disney. He is the Walt Disney who. has come up with a crazy new idea based. on his obsessive hobby with model trains. that the board of Disney Studios has. basically rejected. And so he has gone. full crackpot like Colonel Kurtz style. [laughter]. and started his own separate company on. the Disney campus where he is poaching. and recruiting some of the best Disney.

animators and artists to come over and. stop doing animation and start working. with him building a theme park. [laughter] That is what is happening. here. I was about to make the comment, "Oh, this sounds a lot like Elon Musk.". But none of Elon's companies have a. board that would vote against him. And. so that's really the only difference. here is kind of the like Elon before. Elon. >> Yes. >> So there ends up being two problems with. this plan. One is Walt and the. architecture company that he hired kind.

of come to the conclusion that this plot. of land, it's just too small. Even with. all the clever ideas to be space. efficient, there's just too much that he. wants to do with this Disneyland. concept. It keeps growing in scope to. accomplish all of it in that little. strip of land. The second problem is. after provisional approval, the Burbank. City Council starts to learn more and. they decline the proposal since they do. not want a quote carnival-like. atmosphere right there on the side of. the river. >> You could describe Disneyland as lots of.

things, but carnival-like atmosphere. [laughter] Clearly, they did not get the. vision, >> right? The the magic is that it isn't. It very easily could have been. So, they. need to find a bigger plot of land and. they need to uh work with a team that is. really good at odd research-based tasks. And you're never going to guess, listeners, where he goes for this. It is. like a a crazy nugget of history. He.

goes to SRRI, the Stanford Research. Institute. If you've heard SRRI before, it is one letter off from Siri, which. was a spinout of SRRI. Yes, that SRRI. >> that it was I was just going to say that. you you just triggered like, you know, probably two million phones, [laughter]. >> some of which are running uh the betas, so they'll have the new Siri AI. >> Yeah. Yeah. Yeah. Uh, yes. SRS SRRI is.

the research firm that Walt hires to go. identify what ultimately becomes. Anaheim. The perfect spot. They. absolutely knock it out of the park. But. when you describe it, the site sounds. completely nuts. 10 times bigger than. the original site, a full 160 acres. >> Yep. >> 25 miles away from Los Angeles. It is. currently just some orange groves. Anaheim itself was a small farming town.

There wasn't even a highway connecting. it to Los Angeles. >> There was a planned highway. >> Yes. So, there's a quote from the. animated man by Michael Barrier. The. SRRI analysis from August 1953 took into. account a large number of factors. including likely population growth, freeway construction, and the effect of. terrain on television transmission. Since the idea was that TV will play an. important part in the promotion and. development of Disneyland, the study.

pointed toward a location southeast of. Los Angeles in Anaheim in Orange County, just off the Santa Ana Freeway. That. freeway was then under construction, but. most of it between downtown Los Angeles. and Orange County was scheduled for. completion. The foresight of all the. factors that they considered there, >> just incredible. >> So, uh, there is one problem though, which is great. We found the perfect. site. It's 160 acres and we're going to. do this much bigger and better than we. were before. We're going to need some. money. >> We're going to need a lot of money. So,

Walt goes back to the company. >> Yes. And remember, they had no interest. in pursuing this, which is why he had to. set up Wed in the first place. It's. becoming clear that this is happening. I. mean, Walt Disney is a force of nature. and Roy becomes supportive or at least. as supportive as. >> strong armed into supporting this, >> right? While still trying to protect the. company. And so in 1953 in April, Walt. Disney Productions board of directors, this is a public company, agreed to a. personal services contract with Walt and.

contracts with WED to design and build. the Disneyland Park attractions. This is. done as a cost plus contract. So Wed and. Walt personally don't have to take any. risk at least in in this part of it. It. is just like we will pay you whatever it. is plus your profit margin to go build. stuff and you know it's kind of a blank. check. There are some pretty wild other. terms in this personal services contract. according to a 1990 article decades.

later in the LA Times. Walt is allowed. to pursue outside projects which. effectively gives him all the benefits. of being a free agent while still. drawing his $153,000. salary from Walt Disney Productions. Okay, another point. Walt argues that he. should be compensated for the use of his. name. He ends up getting it again, worked into this deal, and the contract. awards him 10% of all merchandise sold. >> Wow, I actually didn't find this. This.

is wild. So, here's the next bullet. point. He will now get the right to. invest alongside Walt Disney Productions. in each liveaction film project, which. he would later do on Mary Poppins and. other films. So, why did he negotiate. for this? I mean, my feeling about Wald. after doing all this research is that he. didn't actually really care that much. personally about money. Was he trying to. accumulate cash so that he could fund. Disneyland? >> Exactly. >> Exactly. There's also some like personal.

stuff tied up in here, his relationship. with the company where he's like, "It's. not really mine anymore, so I kind of. want more out of it." That's sort of the. less generous take on it. But he and Roy. definitely kind of came to this. understanding of, well, if Walt is going. to have to fund a lot of this, then we. need to figure out a way for Walt to get. more cash so that he can do. >> I see this is happening no matter what. So, we can do it the easy way or we can. do it the hard way. [laughter]. >> It is interesting on his relationship. with money. He was interested in money.

but for the sake of deploying it. I. mean, hoarding money was never his. thing. Like, he did live extravagantly. compared to most people. hit that train. and you know a vacation house in Palm. Springs and all that, but it's not what. the other big Hollywood moguls were. doing. Lillian Disney has a comment in. 1956. She said, "I've always been. worried. I have never felt secure. Never. >> He's always telling us how wealthy we. are, how much we've got, and we haven't. got anything.". >> And she's kind of right.

>> because he's always putting it back in. >> Yes. And it's all tied up in the. enterprise value of Disney, which he. keeps sort of reorggaging and rebetting. the farm. >> Yes. So there's that angle. He also. always believed in the park just like he. always believed that animation feature. animation had a long runway ahead of it. And I I was trying to think of the best. way to contextualize this. So to. validate him there, this is a crazy stat. and just how right he was about all of. this. Walt built this company over his. entire lifetime from age 21 until he.

died in 1966. And if you look at the company's market. cap today compared to where it was in. 1966, 99.95%. of the value was created after Walt. Disney died. >> Yep. >> There was just so much more running room. with his concept than he had time on. this earth to execute. >> Yep. >> Do you know how I know the 1966 market. cap? Is this ringing any bells for you, David? >> No. So during the Buffett partnerships,

Warren Buffett saw that Disney was an. underpriced asset in 1966, right before Walt died. So Buffett. bought a bunch of the stock in ' 66. since it had a market cap under $90. million at the time. >> Under $90 million. >> The company was doing 21 million in. pre-tax earnings. And at this point, cuz. this is after Disneyland, this after a. bunch of stuff, it had more cash than.

debt. >> Wow. This is like Ben Graham bargain. investing. >> and even more so like Charlie Mer. investing cuz it was a great business at. a great price. >> Yeah. Wow. >> A $90 million company doing 21 million. in pre-tax that has Disney's flywheel. This is the buying opportunity of a. lifetime when Buffett bought it. >> That's why he's the goat. [laughter]. >> He did, of course, sell it. So, right. >> Well, that was the right move after. Walt's death, as we will see in a few. minutes. >> Anyway, that's sort of how I would. characterize Walt's relationship with.

wealth and sort of what his his goal was. in this personal services contract. This. whole thing ultimately becomes so. contentious that three board directors. actually resign from the public company. There's also a shareholder lawsuit that. gets brought and for sort of strange. reasons, it doesn't end up going. through, but the remaining board members. end up approving it. Essentially, it was. Royy's way of saying, "Okay, the company. doesn't want to be too tied up in this. project if it fails, but we will provide. you a way to get more cash flows from.

the company so you can figure out how to. do more of the funding of this thing. yourself.". >> Wow. Fascinating. >> So, like just to reflect to to this. point in history, this is something I. really never realized. The origin of. Disneyland is, at least so far in the. story, not about the company. intentionally looking for more places to. put its intellectual property. >> No, it's very intentionally not the. flywheel in the beginning. >> Right. There are essentially zero. synergies as conceptualized so far for. Disneyland.

>> Yep. But all of that's about to change. because Disneyland, even post all of the budget expansion. after SRRI and moving to Orange County. and 160 acres, is getting so out of hand. in its budget that it needs to actually. come back to the company. >> Sort of. >> Sort of. [laughter]. >> So, here's the corporate structure. Originally, they thought they would need. about $5 million for the Anaheim. Disneyland. spoiler, they would go way,

way over that. But because they thought. it was going to be this expensive, Walt. went back to the company again and said, "Look, I know we did this personal. services contract thing, but like I. think it's better if this is actually a. Disney thing, and let's figure out a way. to really tie it all together here." At. a $5 million price tag, the company. cannot afford to fund this. If you look. at 1952 when planning began, Walt Disney. Productions made less than half a. million dollars in net income. So 10. times that for the park's budget is is. is not going to fly. There's not cash.

for it. But at this point, the company. is kind of like, all right, the. proverbial train is moving forward here. There is actually a good plan to. integrate a whole bunch of Disney stuff. into the park. This can be a a Walt. Disney Productions thing in one way or. another. We're good for $500,000, but we need to go find the bulk of the. $5 million somewhere else. Y. >> what can we do? So, in order to go get. the bulk of the financing for the park, Walt comes back fully into the fold at.

the Disney studio and does something. that no other movie executive is willing. to do at this point in time. He embraces. television. He goes to the TV networks. for money. Yeah. And the fascinating. thing is it's in part because they don't. really want a pure financial partner. for the park. Like they don't want to. just go raise a bunch of debt that.

they'll then have to pay back. This has. hamstrung them so many times. They're. trying to think creatively of how can we. do like a 1 + 1 equals 5 thing here. where we have this Disneyland Inc. joint. venture and someone else is, you know, building this thing and funding it. So. yeah, at the time the prevailing. sentiment in Hollywood was that TV was a. threat. That if Hollywood movie studios. started putting their content on TV, it. would steal audiences away from the. theaters. It's just like in our NFL.

episode where baseball was deathly. afraid of television. I think the quote. was, "Radio wetss the appetite for. attending baseball games live and TV. satiates it.". >> Yes. But Walt realizes just like the NFL. did that TV actually was a huge new. opportunity. Walt says, "When television. first hit, I went back to New York and I. spent a week in New York just to study. television. I had the feeling then that. it was important and that we ought to.

get in it." The feeling of the motion. picture business was that television was. something we should fight or we should. ignore it and maybe it would go away or. some darn thing. I said television is. going to be my way of going direct to. the public, bypassing the middleman. I. said, Roy, this television thing can be. the greatest thing because we will be. going direct to the public. And he also thinks it might be his. ticket to financing the park. [laughter]. So ABC had been wanting to do something. with Walt. I mean, lobbying over and.

over and over again. Uh because Walt did. this one special a few years before. I. think it was on NBC, not ABC. And it it. was great. Like there is something very. compelling about Walt Disney and Disney. stuff in a television special. >> Yes. Yes. AUNCular Walt Disney. [laughter]. beaming into living rooms around. America. >> But ABC is the third place network. They.

don't have as many affiliates. They. don't have as much reach. If you're. going to get a partner for something. that you really want to take advantage. of the full reach of a television. network, it's not ABC. >> You really want CBS or NBC. >> Yes. And so Walt actually goes to CBS at. NBC with this pitch. I think it might be. Roy actually flying to New York and. doing this, but they're not interested. at least for the whole package that Walt. is proposing. >> Yes. They both say, "Hey, Walt, we would. gladly do a regular television series.

with you, but uh I don't know about this. park thing. >> You're asking for the better part of $5. million so that we can build a theme. park with you and that's a bundled deal. with a doing a TV show. This is really. weird.". >> Yep. ABC though, Ben, as you were. saying, they're the newest of the. networks and they're struggling to catch. on. They need something like Disney and. Disneyland to break out. So they say, "Yes, Walt's line on this was that ABC.

needed the show so badly that they. bought the amusement park with it.". [laughter]. Do you know the structural thing with. the television industry that was going. on in 1952? >> No. So, back in 1948, and I promise this. is related, back in 1948, the FCC paused. the ability to get a new broadcast. license while the FCC was sorting out. some technical and policy problems. It. was supposed to last like 6 to 12. months, but it ended up lasting 4 years.

until 1952, a freeze on the ability to. get a new broadcast license. So, the. existing big four networks, which are. about to be three, NBC, CBS, and ABC, became pretty entrenched. Meanwhile, the. number of households with TVs was. absolutely exploding. It went from 9% of. households in 1950 to 65%. just 5 years later in 1955. [clears throat]. >> Yeah. So, all these networks now have a. basically governmentprotected oligopoly.

>> accidentally. >> in this massive new market. >> Yes. So if ABC could put on a hit show, like there's not that many choices of. stuff to watch at any given time because. of this supply demand mismatch on on. content. Suddenly a giant swath of. Americans could pay attention instantly. So they're like really hungry for super. compelling content. So Walt goes to ABC. kind of knowing this and knowing they're. in third place and says, "Okay, I will. make this show for you, but a you're.

doing the park with me, and b I have. complete say on what happens during the. program, and I can change my mind. anytime, and there's no part of the. contract about what I'm making for you.". And ABC says, "Yes, absolutely. That. sounds fine, Mr. Disney.". >> Yes. So ABC ends up investing $500,000. in equity in Disneyland Inc. same terms. and amount as Disney Productions. In. addition though, they also guarantee.

$4.5 million in bank loans. So boom, there's the rest of the financing that. they think they need to get Disneyland. off the ground in debt guaranteed by. ABC. and they would televise the TV. show, but Walt Disney Productions would. have to produce it. But they're actually. buying a pretty expensive TV show also. So in addition to this 500,000 and the. 4.5 million, ABC is also going to pay $5. million per year to Walt Disney. Productions to make the show that.

they're going to put on the air. And it. was ABC's to air for 7 years, which made. it the largest TV programming contract. in history. >> Yes, this is an absolutely. over-the-top deal. There is one other. deal point which is uh ABC negotiated to. have the right to all the profits from. Disneyland's food and beverage for the. first decade. [laughter and gasps]. >> They're like, "Hey, we need something. else out of this.". >> Yes. >> Yes. But a part of this contract that is. completely set in stone is the opening.

date, July 17th, 1955. Interesting. I. didn't realize that the opening date was. set in this contract with ABC. Either. way, they do get the television show and. it works out to be a great deal for. everybody involved because Ben, to your. point about supply and demand, it. becomes a huge hit, like instantaneously. when it launches in the fall of 1954. >> The content is basically a. behind-the-scenes look at all the. different lands and content for each.

So, Tomorrowland, Frontier Land, Adventure Land, etc. >> Yep. So, pretty quickly, Disneyland, because of course they name the TV show. the same as the park. >> Sure. I mean, if Walt gets to control. all the programming, like why not just. make it the most perfectly aligned. advertisement every week for a whole. year to get ready? >> Yes. So, it quickly becomes the second. most popular show on television after I. Love Lucy, and it's the first ABC.

program to crack the top 25 shows ever. Like it was all NBC and CBS until. Disneyland. >> Unbelievable. Also, ABC lets Disney run. trailers inside each episode for their. current theatrical release. So, it both. promotes Disneyland and the current. movie slate. >> It it becomes a whole another no to the. flywheel. >> Yes. And for the first time, they get. repeat exposure. I mean, Disney only. gets a touch point once every few years. with a consumer with a movie. And maybe. you watch their shorts. But with TV,

it's this way to build a repeated. relationship. >> They had this in a certain way with the. comic strip before, but this is like. that on steroids. >> Yes. >> So, in that same fall and winter of 1954. into 1955, the show has its first big like viral. moment even before the park opens. So, in December of 1954,

Disney begins a threepart liveaction. miniseries on the show about the story. of Davy Crockett. Davy Crockett. >> Oh, that's right. >> And America goes nuts for Davy Crockett. For listeners who don't know, Davy. Crockett is like a historical American. figure that fought and died in the. Battle of the Alamo in Texas, over a. century before this, >> which Disney highly fictionalizes the.

character. >> Yes, totally. But this miniseries. becomes a massive flywheel moment for. Disney. Totally unintentionally. Davy. Crockett Coonkin caps become the. musthave kids product of 1955. They sell. 10 million caps in 1955. >> Unreal. >> Even better, the theme song, The Ballad. of Davy Crockett, you know, King of the. Wild Frontier, reaches number one on the.

Billboard charts in America and sells 7. million records. In total, Disney would. go on to do around $300 million of gross. sales of Davy Crockett merchandise, which at this point they fully in-housed. commercial products. K. Cayman had. tragically passed away in a airplane. crash in 1949, after which they in-house. all of this within Disney. So, if all. that happened with the same splits we. mentioned before at 5% royalties on that. $300 million, assuming again 100% retail.

markup from wholesale, that's $7.5. million. to Disney, [laughter]. which uh you know, I think is more in. actual. revenue to Disney than they had earned. from any film at that point in history. And David, this is really going to blow. your mind. That is actually more than. the amount of income they had received.

ever cumulatively from firstr run. animated features. >> If you add up all the pluses and all the. minuses, by 1957, >> the money they had made ever in profit. dollars from their first release films. was a hair over $7 million. [laughter]. And they made by your estimates seven. and a half million. >> They made more from skin caps and. record sales than [laughter]. incredible. And what timing? Right.

before Disneyland opens. >> Insane. >> Amazing. >> Disney absolutely crushed the timing on. switching their horse to TV or sort of. embracing TV and embracing it in this. huge way. And not just with programming, but directing all this attention at. Disneyland. We gave that stat earlier. all the way in the the 20s that the. average American went to theaters over. 40 times. By 1947, that number was down. to about 32 times. And by 1956, the year. after Disneyland opened, it was down to.

14 times per year. Thanks to our friend. Arvin at Worldly Partners for gathering. all this data. >> So movie executives really had good. cause to be concerned about TV. >> Absolutely. attention was shifting to. television and right as it was shifting. in droves, boom, that is right where. Disney showed up in this like. multiplicative way, you know. >> Yeah, man. Incredible timing. >> And Walt, as ever, had a quote on this. This is from the special that he did. back in 1950 as an experiment. He said,

"I regard television as one of our most. important channels for the development. of a new motion picture audience. Millions of tele viewers never go to a. picture theater and countless others. infrequently. In these highly. competitive days, we must use the. television screen along with every other. promotional medium to increase our. potential audience. >> Man, was he right. >> Man, was he right. >> And it's just so incredible that because. he started playing with trains, Disney became a major force in.

television. and of course opened the park. >> Yes. Okay. Okay. So, how does this all. come together? We've got this like joint. venture called Disneyland, Inc. It's got. $500,000 from Walt Disney Productions. It's got $500,000 from ABC. It's got. $200,000 from Western Publishing, who. distributed their books. And then Walt. himself put in $250,000. >> That's right. I did see that. >> Yes. >> And then they've got the $4.5 million of. debt guaranteed by ABC.

>> Exactly. So, there's a total of $6ish. million that they have to spend to build. the thing. Plus, there was actually. another 2 million of 10-year bonds that. ABC was committed to if they really. really needed an extra $2 million to. flex from a budget of six to a budget of. eight. >> So, Ben, I've read a bunch of places. this ended up costing $17 million. [laughter]. >> Yes, that is correct. So the cap table. is uh Walt Disney Productions and ABC. each own 34%, Western Publishing owns. 14% and Walt himself personally owns 17%.

and there's a contract between. Disneyland Inc. and Wed Enterprises. which Walt owns 100% of to actually. build it all. So all of this leads up to. July 17th, 1955, the opening of Disneyland that would. change the company forever. that would. change American vacations forever. Yeah. >> That would lay out a giant part of. Disney's business model going forward,

the opening of Disneyland. >> Yes. But before we do that, now is a. great time to thank our friends at. Statsake. >> Yes. So, Walt Disney had this idea that. he would often talk about plusing. Most. amusement parks would be effectively. complete at opening and then they'd call. it finished. But not Disneyland. Walt. treated the park as something that you. have to keep improving forever and he. constantly looked at how guests move. through it. >> Yep. This idea though only works if you. can see what's happening. You can't.

improve an experience on a hunch. What. mattered was how guests really behaved, not what anyone assumed in a meeting, which is largely the same problem that. product teams have today, just at speed. and scale. You can ship faster than ever. now, but the hard part becomes knowing. which changes actually improve the. product. And now coding with AI only. raises those stakes because LLMs are. non-deterministic, meaning that the same. input doesn't always produce the same. output. So a small change to a prompt or. model can have surprisingly large.

downstream effects. Offline evals will. really only get you so far and you need. to be getting signals from real users. and making decisions on that. >> And that's where stats comes in. They. offer product teams experimentation, feature flags, and product analytics all. in one place. You can ship quickly, roll. out changes safely, and measure how. those changes impact users, making your. product actually better instead of just. guessing. Yes. So, just like Walt. continuously was plusing Disneyland. still today, Statig is how you improve.

your product after you've shipped it. You can learn more at. statsig.com/acquired. and just tell them that Ben and David. sent you. All right. So, the development. of the park, the team at WED had been. getting inspiration and sort of. concepting and iterating while all the. ABC stuff is happening, while all the. hype building around America is. happening, and of course, while the. financial negotiations are are. happening. So, in September of 1953, as. legend goes, Roy is about to walk into.

meetings with television executives, and. Walt famously locks himself in a room. with Herb Ryman for an entire weekend. and says, "Herb, can you draw the first. full drawing of Disneyland?" And Herb. looks at him and he's like, "Dis what?". The first time hearing of this and he's. like, "The theme park, you're going to. come work on that with me." And he's. like, "I don't even work here. I I used. to work at Disney, but I I don't work. here now. And Walt was like, "Yeah, but. you're the guy to do this." And so Herb. kind of looks at him. He says, "Can you.

tell me a little bit more about this. theme park?" Walt, this is metaphorical, kind of locks the. door. >> Yeah. He's like, "Great. I will stay. here all weekend with you and tell you. about the theme park.". >> And out of the weekend emerges this. beautiful drawing that we will send out. in the email acquire.fm/e FM/AL that. they can use as a sales tool for the. first meeting with ABC. You've got a. castle, you've got mountains, you've got. the railroad, you've got the river. The.

bones are all there. >> The core vision of what Disneyland is. >> Yes. Yes. Other Wed employees, meanwhile, start traveling all over the. US looking at the best existing theme. parks. Walt and others travel overseas. to places like Tivoli Gardens and. Copenhagen to get sort of a a completely. different take on how they could do a. park with green space, much more. pleasant, less carnival-like, safer, kind of a less seedy experience than you. are getting in theme parks in the US. That is the goal. So, this year leading.

up to the park, what we were about to. describe is completely insane. Remember. I said that the date was fixed in the. television deal in part because the TV. show was going to culminate in a live. broadcast of the actual park opening and. there was all sorts of like brand new. technology and logistics and operations. that ABC was going to bring to bear for. that. So they were they were planning. around that. >> and there are some sources that say that. it was 366 days to build the park. If.

you actually look at physical. construction, it was less than that. 11. months. Wow. So, they end up building. Disneyland in onethird the time that it. took to make Snow White. Incredible. This whole thing sounds like a fever. dream when you describe it. A main. street reflecting how Walt pictured the. ideal small town from his childhood. Multiple rivers with different types of. boats. There's going to be multiple. rivers. Robotic animals coming out of. the water on the Jungle Cruise. a.

castle. American Indians performing live. shows of dances. Cars that kids, like. three-year-old kids, can drive around. and crash into stuff. >> Still my favorite part of Disneyland. >> Yes. Autotopia. >> An intense amount of greenery and trees. that all had to be brought in. I mean, they're doing pine trees and they're. doing palm trees. Absolutely exquisite. landscaping to reinforce how pleasant. and safe of a place that it was. A. passenger train built from scratch on. real railroad ties that had to be laid.

down. This thing is like Walt's. feverdream reflection of America all in. the most idealized, safe, clean, cheery. way possible. They've got the past, they've got the future with Tomorrowland. and Frontier Land and Adventure Land, but no sign of the present. So, you can. be completely immersed and disconnected. from your day-to-day troubles. >> You know what? I actually never realized. that that Disneyland is 100% about the. past and the future and 0% about the. present.

>> and about the fantasy. You can go to. fantasy land. That's your other option. if you don't want the past or the. future. >> So, the first part of construction is. the 20 foot high burm insulating all of. Disneyland from the outside world with. the Disneyland Railroad sitting right at. top it. To this day, I think the most. impressive thing about Disneyland is the. sightelines. Yeah. Despite several very. very different environments on a. relatively small plot of land, I mean. from Star Wars today to Frontier Land,

Adventure Land, Tomorrowland, Main. Street, you really only ever see what. the imagineers want you to. And it. creates that unique experience where. Main Street can feel nostalgic and. wholly different than the jungle over at. Adventureland and very, very different. than the strip mall mania happening just. a few acres away on any side of you. >> Yep. I'll just keep going on the. insanity of building this thing. There. wasn't yet any on-site buildings to. fabricate the rides. So, they did. construction at Burbank.

>> That's right. And they trucked it all. down. >> That's a 50minute drive if you don't hit. traffic. And the highway was still being. built. So, it's all on surface streets. It's crazy. Think of the scale of the. stuff that they were building. >> Yep. >> Halfway through construction, they. discover that Rivers of America almost. doesn't work at all. when they filled it. with water, the water just drained into. the dirt underneath. And David, as you. mentioned, cost ballooned from the. original 5 million to a total of 17. million. But that's actually pretty. cheap. >> Totally. >> I I did the inflation math. That's $210.

million today. You absolutely could not. build anything remotely close to. Disneyland today for $200 million or in. a single year. It. >> is astounding how it all got built. Also. very very convenient for Disney that. they sold a lot of Coonkin caps as the. budget was ballooning. [laughter]. >> Yes. And found sponsors to sponsor lands. and rides and drew on every ounce of. debt they could. >> Yes. This is the other just like. absolute galaxy brain Walt addition to. the flywheel that he brings in with the.

parks. Corporate sponsorships. >> Yes. >> There were 65 corporate sponsors in. Disneyland within the first few years of. it opening. So, at opening there was. Richfield Auto for Autotopia, Bank of. America, of course they had to be there, a sponsor of Fantasy Land, Coca-Cola as. well. >> You won't believe this. In addition to. Coca-Cola, Pepsi, they had a sponsorship. in Frontier Land. Coke actually didn't. become the exclusive uh supplier sponsor. until 1990. >> Yeah, that's right.

>> American Motors, Santa Fe Railway, TWWA. for the rocket to the moon, Monsanto was. actually a sponsor. >> That's right. Carnation, Kodak, the list. goes on. But I I do have one favorite, David. >> The National Rifle Association. [laughter]. >> Wow. Frontier Land. [gasps]. >> Yes. Inside the Davy Crockett Museum, there was a shooting gallery. There you. go. >> And it's unclear from the historical. records if it is technically a. sponsorship, but the rifles were. provided by the NRA. Like real rifles.

>> There you go. Flywheel in action. >> Yes. [laughter]. So, I was trying to do some comparison. on this 17 million inflation adjusted to. 210 million. The Rise of the Resistance. Star Wars ride that they built in 2019, which is excellent if you've never been. on it, was rumored to cost anywhere from. 200 million to$450 million for just one. ride. >> Right. And they built the whole park for. less than that. >> Yes, [laughter] man. The things you. could do back then.

>> Yes. Right. I mean, uh, permitting was. pretty light back then. So, we get to. opening day. How's it go? Well, less. than half of the planned rides were. open. And, uh, just to give you a sense. of how down to the wire it came, Walt. personally put on a mask and was helping. to paint the 20,000 Leagues Under the. Sea exhibit the day before it opened. Opening day comes, it's nearly 100° in. the middle of July in Southern. California. that created issues with the.

newly poured asphalt and there are. legends of women's high heels sinking. into the asphalt because of [laughter]. that. There are water fountains, but they don't yet have the plumbing. finished to turn on. So, if you want. something to drink in this 100° heat, you can go buy a Pepsi. >> Exactly. >> The restaurants ran out of food. Rides. were breaking down. Mr. Toad's Wild Ride. went down because it was too much for. the power grid. and the Mark Twain. riverboat began to sink since the.

operator let 500 people onto it, which. was double the 250 that he was supposed. to. But despite all of this, it is a. giant giant hit. That first day that was. technically a preview day for press and. invited guests, 15,000 people were. invited, but it is believed that 30,000. attended. >> And then that was in person. >> Yes. >> Then there's the TV show. So ABC rolls. in with 22 live TV cameras and a giant.

crew to operate it all with 1955. technology. The viewership numbers are. astonishing. It was the world's largest. live telecast ever. 83 million people. tuned in to watch from home, which means. that nearly half of America watched this. broadcast, >> watched this 90minute commercial, [laughter]. >> right? Yes. >> And it's it's crazy, right? It's live. coverage of this like Wackadoo amusement. park opening. On the one hand, why would.

you want to watch that? On the other. hand, you've been conditioned over the. last year by one of the most popular. televisions programs in America that. this is going to be a giant deal, so you. better be watching when it happens. >> Do you know I'm sure you do, but do you. know who the three anchors were that ABC. hired to do the opening? >> One was Ronald Reagan, right? >> Ronald Reagan is the big one. Art. Linklator, Bob Cummings, and future. president of the United States of. America, Ronald Reagan. >> It's crazy that the TV strategy just.

absolutely knocked it out of the park. What does half of America tune into. anymore? I mean, ever. >> Yeah. I mean, even the Super Bowl today, which is the biggest television event in. America, only gets about 40% of US. households tuning in. And this was just. to watch guys talk about what's going on. behind them in an amusement park. >> No, I think it was that America had been. primed via the TV show for the whole. past year that this was going to be the. event of 1955.

>> Yeah. So cool. By the end of the first. week, there was 160,000 visitors. Two. months after opening, the millionth. visitor walked in. And in the first. year, there had been 3.6 6 million. visitors. >> You have in the second year of the. park's operation, it does over 4 million. visitors, which makes it more popular. than both the Grand Canyon and. Yellowstone National Park. It's like the. most popular park in America is now. Disneyland. >> And today, the park has over 900 million.

visitors since opening day. >> My favorite little bit of trivia about. Disneyland was learning about the. original business model. So, you used to. have to pay to get on the rides. >> You would pay, I think it was a dollar. for admission to the park, >> and then you could buy booklets of. tickets that would get you admission to. the various rides and attractions and. different rides and attractions would. have different ticket grades and would. be priced differently. It was this whole.

complicated business model that they. obviously have drastically simplified. since and raised prices astronomically. Yes, absolutely. And I mean the the. biggest sort of success of the whole. thing is it just couldn't be farther. from a carnival or fairground. And that. turned out to be a great great business. Yes. Harrison Price, who led the. research at SRRI for Disneyland, said. Disney's rethinking of the American. amusement park had striking and. immediate business consequences. Because.

his park was such a pleasant place, people stayed there longer, and because. they stayed longer, they spent more. time. Basically, Price said he tripled. per capita expenditures because he. tripled time. >> And then, of course, you know, fast. forward to today at Disneyland or Disney. World. >> You go for like 14 hours. >> Yeah. Right. Per day. I mean, you you're. not going there for just a day. You're. going there for multiple days, right? >> You're making a whole trip out of it. >> And if you're going to Disney World, then you're there a whole week. >> Y. >> So, I I promise we won't do too much.

part two foreshadowing on this episode, but this is just one point I got to. drive home. Disney parks and cruises. today does $ 36 billion in revenue and. $10 billion in profit per year. That is. twice the amount of profit that their. entertainment division produces. >> Yeah. Also just wild to think about. physical amusement parks having. essentially a 30% net income margin. [laughter]. >> What other physical park operator is.

going to operate with those kind of. margins? And the fact that it's a bigger. business for Disney than their movies. Yes. Like twice as big of a business. And this is, you know, there's 160 acres. in California. There's a big swath of. land in Florida. There's five or six of. them around the world. There's some. cruise ships. And that spits off more. profit, twice as much profit than all of. the other Disney things you can. experience anywhere, anytime. >> Well, we're gonna get into this in a. minute here. Really, the impressive. thing is that Disney films are now great.

again, and still the parks do more. revenue. We're about to hit a period. where the parks do a lot more net income. than the films because the films suck. Now, reflecting on all this, Disneyland. actually was not a bet the company move. for Walt Disney Productions financially. It was cleverly structured by Roy to not. be, >> but reputationally it absolutely was. I. mean, people were willing to take these. giant leaps on Walt because of who he.

was and what he had accomplished the. same way that they do with Elon or Steve. Jobs or Warren Buffett getting deals. that no one else could get. So Roy was. like great at making sure it wouldn't. financially bankrupt the company. But. Walt was sort of betting that reputation. extremely publicly to half the. households in the US. So not only was he. betting the company, he was betting his. own personal fortune, too. Remember that. $250,000 that he put in? He sold his. vacation house in Palm Springs. He. borrowed $100,000 against his life.

insurance and he took on a personal loan. to fund that obligation. >> Yep. All true and all necessary because. of how they had always operated the. company. He wasn't taking lots of cash. out of the company. >> until the sort of renegotiation of his. employment contract. >> Yep. >> So, there is a fascinating kod to all. this crazy corporate stuff on how the. park was formed. You might be wondering, well, wait, doesn't the Walt Disney. Company own the park outright now? I.

mean, when you visit Disneyland, don't. you assume, hey, wait, this is just part. of Disney. What about that weird joint. venture thing and ABC and Walt. personally? So, here's how it all goes. down. The headline is the Walt Disney. Company would not actually own the park. and everything within its borders for a. full 27 years after opening in 1982. So here's the the full story of who sold. what and when. Pretty quickly, Walt. Disney Productions exercised their right. to buy out Western Publishing and Walt.

personally. So by 1958, 3 years after. opening, they owned 66%. But the buyout right to ABC stake, that. wasn't pre-negotiated. M. >> so in 1960 when the company actually had. enough cash to do it that's when Roy. negotiated hey we'll pay you $7.5. million to buy out your your stake so by. 1960 the publicly traded company Walt. Disney Productions did own all of. Disneyland Inc. But that leaves Wed. Enterprises which had been hired as a.

contractor to build all the stuff. >> Yes. And Wed Enterprises is Imagineering. today. Disney Imagineering. >> Yes. But Wed Enterprises, the entity at. this point in time, also owned rights to. some elements in the park, >> right? And it wasn't consolidated into. Disney, the company yet, right? It was. still this separate thing owned by Walt, >> right? So Wed, which Walt is the 100%. shareholder of, actually owned the.

railroad outright. It had been. negotiated. >> Of course, he did [laughter]. >> as a part of the personal services. contract because it was like, hey, I was. already doing this side project and now. I'm just putting it on Disneyland. [laughter]. >> It all comes back to trains. >> So, he got ticket revenue from it as an. annuity basically. >> Right. Cuz all the rides cost money. So, the the railroad at Disneyland, >> yes, >> was Walts. >> Same thing with the Montreal. These were. not owned by Disneyland Inc., they were.

owned by Wed. >> Amazing. We also mentioned since Wed was. Walt's personal company, it owned Walt's. name and likeness, which led to that 10%. royalty on merchandise. >> In 1963, 8 years after the park opened, Roy was getting very nervous that the. public shareholders would sue over this. admittedly very tenuous structure. So, they reached a deal. Wed would get. sliced into two pieces. Imagineering, the architectural engineering. department, and everything else. Disney. Productions would buy the half of Wed.

that was Imagineering. So they finally. in-house Imagineering in 1965. The rest. of the holdings would be renamed Rhett. Law, which is Walter backwards. >> Right. Right. >> And inside of Rhettaw, Walt would get to. keep the trains, the Montreal, and his. 10% royalty. This is in 1965. that would actually last all the way. until 1982, nearly three decades after. the opening, where the company says. enough is enough. Goes to Walt's family,

cuz this was after he passed away, and. they bought out the name rights, the. Montreal, and the railroad in exchange. for $43 million of Disney stock. Insanely Wed Enterprises, which would. later be Rhett Law, got a total of $75. million in checks from Walt Disney. Productions for the Disneyland Railroad. and for the Montreal between 1953 and. 1981 and another 46 million for name. royalties.

>> Wow. So, I guess the question as a. Disney shareholder would have been, was. it worth it, >> right? >> And the obvious answer is yes. I mean, there's all these conflicts of interest. everywhere, and this would never fly. today with sort of modern shareholder. and SEC and securities laws, but in. practice, if you were a Disneyland. shareholder then and you held through. all of this, that worked out great for. you. >> Well, speaking of how great it would. have worked out for you after the launch.

of the TV show, the park, the company is. just firing on all cylinders again. and. Disneyland. The combination of the. television show and the park have really. added a fifth element to the flywheel. business model. That's right. You've got. one, compelling great IP. Two, maximize. distribution in the core vehicle. Three, feed the IP into as many ancillary. vehicles as possible. Four, you've got.

the re-releases in the vault. And now. five, parks and television. This is uh. television to amplify interest in all of. the characters. You've got parks to do. almost like the extreme bottom of. funnel. The way to experience the most. Disney thing you possibly could. experience every once in a while, but a. huge monetization event. And of course, you do that. I I mean, I just got back. from Disneyland. Guess what? We're. watching a lot of Toy Story this week at. my house. It's a refresher on your. fandom. Thinking about it more now,

television was adding another node to. the flywheel for sure. The parks are. almost this like hybrid flywheel plus IP. because all the core Disney IP of course. goes into the parks. I mean, you've got. the Peter Pan ride, you've got the Star. Wars rides today, but the parks are also. not just a destination, >> right? They're a source of IP. development, not just a a sync of IP. development. >> And I mean, this would literally become.

true with Pirates of the Caribbean much. later. >> I mean, that's got to have grossed. billions after all these sequels. >> You actually have new IP generation. coming out of Imagineering and the. parks, >> right? A lot of stuff hasn't done as. well. Like Haunted Mansion has never. really worked as Jungle Cruise. But. yeah, that that is a great point that. the parks serve as a way to feed the. rest of the flywheel, not just be a sink. of it. So this year 1955 with the park. with TB revenue from Davy Crockett, Mickey Mouse Club, this is basically the.

inflection point for the company. Revenue doubled from 54 to 55 and it. would just keep on climbing for decades. from this point forward. Disney. effectively stops being a movie studio. and it becomes this new form of. diversified. stable entertainment company. >> Yes. In November of 1957, Disney finally. lists its stock on the New York Stock. Exchange. Stock had obviously been held. by the public ever since the 1940 stock.

offering, but it wasn't listed and. traded on the New York Stock Exchange. until 1957. Interestingly, post IPO, Walt and Roy do still effectively. control the company. 47% of the voting. power of the company is held by the. Disney Voting Trust. >> And so, you just don't need that many. other shareholders for your votes to. carry the day. Y. >> So, even as a public company, it was. still their sort of family company. >> Y. >> for a little bit, that would sort of. wayne over the decades from here. >> Yep. Once the company's listed publicly.

and people start to realize the. incredible power of the business behind. Disney, in early 1958, the Wall Street. Journal runs a front page story about. Disney's unique business model. And this. was one of the most fun things to. discover in our research. So the. article's title is Disney's land, Walt's. profit formula, dream, diversify, and. never miss an angle. And this article in.

the Wall Street Journal is where the. famous Disney flywheel illustration. comes from that Ben, you are holding up. live that you have framed in your. studio. >> This has been on the wall of my office. for years. So, the legend that's out. there that everybody believes is that. this was a napkin sketch that Walt. himself drew. No, it was actually. created by a Disney studio artist as an.

illustration for this Wall Street. Journal piece. Disney confirmed this for. us when we were visiting them in the. archives. And then we asked the Wall. Street Journal to pull the original. piece out of their archives. We'll link. to it in the show notes. So cool that. this is the origin of where it all came. from. >> Yeah, it it serves as an illustration. for something that at the time was. actually a pretty difficult to. articulate concept of a business. flywheel. I will say the word flywheel. never appears in the Wall Street Journal. article. >> No, that nomenclature would get added.

later, >> but it was like the journal saying, "Hey. Disney, help us with some kind of. illustration that makes this point that. you have a wholly unique new business. model in the media landscape.". >> And it's a beautiful, beautiful diagram. The whole article is great. Roy has. these amazing quotes within it. He says, "Our diversified activities are related. and tend to complement each other, helping us to do relatively fine. business in the face of otherwise.

difficult times for the motion picture. industry. Integration is the key word. around here. We don't do anything in one. line without giving a thought to its. likely profitability in our other. lines.". so spot-on. And then they walk through. the steps of the company's flywheel with. their plans for their upcoming feature. film release of Sleeping Beauty, which. was still a year away from release at. the time of the article. In 1958, how. crazy is this? At Disneyland, which.

opens in 1955, there is the centerpiece. of the whole thing is Sleeping Beauty. Castle. That movie wouldn't come out for. another four years, right? They were. building hype for a movie that was. basically in pre-production at this. point. >> In fact, it was based on concept art. that was effectively a German castle cuz. it was so far from the film. >> Yes. Incredible. So, the article walks. through at Disneyland, they've installed. animated diaramas as an attraction that. they're charging a 35 cent admission fee.

for. These are animated diaramas of. Sleeping Beauty, the upcoming movie. Next, Disney is producing and selling. Princess Aurora dolls and costumes. They're working on producing and. publishing books of the Disney version. of the fable that will be told in the. movie. Of course, they are. And of. course, there are segments in the. Disneyland TV show about Sleeping. Beauty. They're already preparing the. soundtrack album to go on sale before.

the movie's released. And then finally, comics of Aurora and The Sleeping Beauty. Story are already starting to come out. as part of the Disney Treasury of. Classic Tales syndicated comic strip. >> Fascinating. >> Just amazing. >> The other thing this article reveals is. that Disney was intentionally making its. TV shows in color even when TVs were. still black and white because they. thought it was likely TVs would go color. soon and they knew that the IP they were. making would stay valuable for decades.

I mean the foresight they are so bought. in on we just dumping valuable IP onto. the pile and we want it to live forever. >> Yep. Now there is one other thing we. haven't talked about which is that. Disney in-housed their own film. distribution right before the launch of. Disneyland. >> Yes. Yeah. And this actually comes up in. that journal article too. >> Yep. They create something called Buena. Vista Distribution and they left RKO. Radio Pictures who had been their.

distributor since I think 1936. Howard Hughes ended up owning it and it. had been kind of a train wreck as he. spiraled out of control toward the end. of his life. Disney didn't really want. to be a part of that chaos. And at the. same time, Walt had really started. thinking about Disney as vertically. integrated entertainment, not just a. film studio who would rely on others for. distribution. So in 53, 2 years before. Disneyland opened, they incorporated. Buenav Vista, The Living Desert was.

their first films, one of these nature. documentaries. >> Mhm. Then quickly thereafter, they did. Lady in the and 20,000 Leagues. Under the Seas distribution through. Buenav Vista instead of through an. outside distributor. It was kind of like. a test like can we pull this off? >> They got pretty good at it pretty fast. with the exception of international. where they then had to rely on. subdistributors for a long time. But. Disney had become such a household name,

especially because of that weekly ABC. show and because of Disneyland, where. they were pretty uniquely well suited to. actually self-distribute without a. middleman. I mean, this is like Walt's. dream from the early cartooning days. >> It's kind of surprising that they didn't. start doing it after Snow White. I mean, who's going to turn down a Disney. picture? >> All right, you te me right up cuz I was. wondering the same thing. Cash flow. >> M. You can't distribute.

them before you actually get paid by the. theaters when tickets. >> So Disney didn't have the working. capital to pull this off until their. real strength in the mid-50s. >> That's such a good point. I always had. wondered why more studios didn't. vertically integrate and own their own. distribution. And that makes sense. You. need a lot of working capital to do so.

It's exactly right. In the long run, it's a pretty amazing strategy since. they'd been paying I don't know what is. it about a third of the total rentals to. another distributor. And especially with. these re-releases. >> Yeah, it's an absolute no-brainer with. the re-releases. At this point, Disneyland plus the merchant licensing. provides this really stable foundation. They almost like replatformed the. business is what one way you could put. it where it's the same like spiritual. entity, but instead of the business.

being in the films, they now have the. business in this stable foundation and. they do the films to like add new stuff. to the pile, but the platform itself is. Disneyland, TV, and merch and and. licensing. So then a few years later in. 1961, Walt Disney Productions after 22. years of being in debt to Bank of. America finally paid off their last. loan. >> Roy must have been so happy on that day. [laughter]. and Walt was already scheming how to.

blow some more money. [laughter]. >> Yes. So one thing we foreshadowed is is. Sleeping Beauty. We talked about. Sleeping Beauty Castle. You might be. wondering what ended up happening with. the film. This, like many of the other. films we talked about, did not recoup. costs. I mean, since then, it's done. phenomenally well and made probably. hundreds of millions of dollars in. cumulative profit for Disney, but did. not pay back at the box office. >> Mhm. Part of that was it had a really. high production cost, right? After all.

the success of Disneyland and all the. bihooing about the flywheel and. everything in the Wall Street Journal. article, I mean, they're building around. it. >> Whole hog on this one. >> Yeah. They spent $6 million making it. It was the most expensive to produce to. date. >> Yep. >> But yeah, I mean, Walt was pretty. distracted with Disneyland, so he wasn't. that kind of authoritative voice to help. the team find the great story in there. But yeah, if if it wasn't such an. extravagantly detailed animation piece, then it probably would have been. profitable. >> And hey, given the company's business.

model, they're happy to play the long. game, >> right? So the weird thing is the. financial blip that happens in this year. 1959. Everything is true about this. really stable platform. But if you look. at that year, the financial year 1960, the company actually shows a loss. Like. they flip briefly from looking. increasingly profitable to suddenly net. income negative because Sleeping Beauty. had that hole. >> Mhm. >> ABC canceled Zoro and Mickey Mouse Club, which were both TV shows that Disney was.

making, which was related to Walt Disney. Productions blowing up the Disneyland. deal. and saying, "You guys are kind of. difficult to work with now. We want to. buy you out of Disneyland." And ABC's. like, "All right, then we're gonna stop. paying you huge sums for your TV shows. and giving you all this free marketing.". So that relationship ended there, at. least for. >> for the moment. ABC would come back in. the beginning. >> Yes. But the takeaway is the company is. actually financially stable now. That. this is okay. >> Yeah. The last time that Walt and the.

company bet big on investing in. production ahead of revenues was 1940. with the move to Burbank and having. Pinocchio and Fantasia and Bambi in. production all at once. >> Any one of those almost killed the. company on their own. >> Yeah. Now though, post Disneyland, they've got this stable base that they. can take these big swings. >> Yeah. Merchant licensing taught them to. crawl and then they they walked and ran. with Disneyland in terms of that that. stable platform. Just to illustrate this. bounceback point, here's the trend. 1957, they do $3.6 million in net.

income. Then the next year, 3.9. Then. the next year, 3.4. Then, ah, 1960. happens. That perfect storm of badness, $1.3 million loss. Then they bop right. back. 1961, 4.5, then 5.2, then 6.5, then 7, then 11, then 12. I mean, they. just stability. >> Mhm. And then Walt decided that it was too. stable [laughter].

and he needed to blow it all up again or. at least he wanted to. So he starts. wondering how can I bet it all again and. in a bigger way, right? Is Disney land. like is a theme park going to really be. my legacy? Are these animated films. really going to be my legacy? I. shouldn't I do something actually. meaningful to the world? >> Yes. I mean, this this idea of a. physical Disney location. worked really well. But what if we don't. stop at an amusement park, what if the.

next time we build an entire city? Maybe like an experimental. prototype community of tomorrow, you. know, Epcot. [laughter]. And if you think you know what we're. talking about because you've been to. Epcot, that's not it. >> That's not what we're talking about. >> That's a theme park named Epcot. But. Walt had this insane insane vision that.

never got built, but got pretty far. along in the process for. again a fever dream. Not just of a place. that you go for a day, but a place where. you live and you work and you are. transported and futuristic transport. mechanisms and all the most innovative. companies locate their innovation. centers all in in one place together and. there's this beautiful tower in the.

center of it. I mean, this is the ideal. future. So this was Walt's final. project, the Florida project that never. got built as you say. And I think. it all kind of stems back to Burbank. >> and that brief moment before the strike. when the studio at Burbank really was. this utopian physical place that was the.

perfect marriage of art and commerce. I. really think that that's what Walt. always wanted to realize in the world. And now after the success of Disneyland, his ambition is restored. and he wants to build it in this city. >> To my mind, the most interesting part. about this is how far it got. >> Yes. Yes. Yes. So the way that Walt. starts working towards realizing this. vision is the 1964 World's Fair in New.

York. So Walt gets this great idea. leading up to the fair that Disney on. the success that they have at Disneyland. can partner with other big American. companies and institutions. to create Disney sponsored pavilions and. exhibitions at the fair that they can. then transfer into Disneyland. But even.

more than that, the New York World's. Fair can serve as this sort of. undercover test bed for this big idea of. an East Coast city that will be a. partnership between American industry, Disney, and the public. So, the four. exhibitions that they create for the. 1964 World's Fair, many of which should. probably sound familiar to you, It's a. Small World, sponsored by Pepsi and. UNICEF, which is actually designed by.

Mary Blair, who's this famous designer. She brought modernism to Disney. She's. the one that basically did all the. concept art for Alice in Wonderland, which is why it looks the way that it. does. She's kind of responsible for that. aesthetic. And she was one of the. original team members of Imagineers that. came over from Wed and I believe the. first female Imagineer. >> That's right. That's right. And then. she's the one who does Small World. >> Yep. By far the most successful pavilion. at the fair that makes its way to.

Disneyland. So that's one. Two, the. Carousel of Progress sponsored by. General Electric. Three, the Magic. Skyway sponsored by Ford. And then four, Great Moments with Mr. Lincoln sponsored. by the state of Illinois and that last. one of which. >> catch that. >> is how Disney Imagineering develops. audio animatronics. >> for Abraham Lincoln. >> Yes. This whole thing is this amazing. test bed for audio animatronics which. Disney kind of invents and then.

popularizes in Disneyland and then in. Disney World. >> Yeah. And because it's Disney and part. of Disneyland, we think, oh yeah, audio. animatronics like Disneyland like these. are robots, [laughter]. >> right? that Disney Imagineering is. inventing in the late 50s, early 60s. >> Well, David, you you and I have had the. privilege of being at some pretty cool. robotics conferences and you meet these. like PhD researchers who are sort of in. and out of Disney. Like that is still. where a lot of cutting edge robotics. happens. >> Yes. So, all four of those rides after.

the fair get ported right over to. Disneyland because of course. >> three of the four. >> the Ford one does not. The part of the. deal is that Walt says, "You have to pay. a million dollars to use my name as a. part of your attraction." Of course, in. addition to footing the bill for. building it, but I'll forgive that. million dollars if you let us put it in. Disneyland afterwards because we want to. get some value of it out after the fair. And Ford says, "We'll just pay the. million." [laughter].

>> Poor decision on Ford's part. >> I know. >> Okay. So, three of the four get ported. over to Disneyland, but all of it leads. right into planning for the Florida. Project. >> And I think while the Florida Project. initially is not a theme park, and Walt. very much is uninterested in building an. East Coast Disneyland, he says it. explicitly over and over again. He does. have a nagging concern that an east. coast audience is more sophisticated.

than a west coast audience and there. isn't demand for a theme park like. Disneyland in Florida. And I always. think he uses that as kind of his like. emotional defense mechanism air cover. for why he's like, "Oh, I don't want to. just do the same thing again." I think. it's like I'm afraid it'll fail. And one. of the big takeaways from the World's. Fair is no, people would absolutely love. a Disneyland type thing, especially with. audio animatronics and all this cool new. technology you're developing for the.

World's Fair. >> Well, obviously if Disney is going to do. anything on the East Coast, it should be. in Florida. I mean, it has the warmest. yearround weather and even more. important, >> abundant cheap land. >> Abundant cheap land all throughout the. state. >> Yep. So, Walt though, like you said, had. no interest in just building another. Disneyland. So, what is this Florida. project? I had heard about this lore and. legend over the years before doing the. research, but diving in, it blew my.

mind, and it will blow yours, too, hearing about what Walt's vision for it. was, >> the ambition. So, one, it starts with a. brand new airport of the future paired. together with a vast entrance complex. and park. Two, there will of course be a. theme park, a new Disney World Magic. Kingdom theme park that was initially. intended to be five times the size of.

Disneyland just for just for the theme. park. Three, a 1,000 acre industrial. park intended to house satellite R&D. offices for America's greatest. companies. Think everybody that Walt is. partnering with at the World's Fair. Ford, GE, Pepsi, all the companies that. are corporate sponsors back at. Disneyland. He wants them. >> Yeah, Monsanto m move their most. advanced R&D teams to this new city in.

Florida. And then four, most important, the heart of the whole project is Epcot. But again, not the Epcot you know today. So Walt Epcot was going to be in his own. words a living blueprint of the future. where people actually live a life they. can't find anywhere else in the world. A. showcase to the world for the ingenuity. and imagination of American free. enterprise. And basically.

it is a sci-fi city. >> Meanwhile, I gotta say they couldn't. open most of Tomorrowland for 1955 when. they opened Disneyland and they're. having a really hard time keeping up. with the pace of technology. I walk. through Tomorrowland even today and I'm. like this all feels really dated and. nothing like tomorrow. I think Walt. himself has a famous quip on this which. is tomorrow comes a lot faster into. today than we can kind of keep up with. So you could imagine if they actually. built this thing, it it very quickly.

would would not feel like the future. I. mean, you plow a bunch of capex into. concrete and futuristic concepts. New. stuff gets invented real fast and then. it's ugly and old. >> That's a good point. But perhaps you. haven't heard the vision for what this. city is yet. >> Please, please lay [laughter] it on me. >> Okay. It will have a radical radial. design plan. So, the city itself is. going to fan out like spokes on a wheel. from a domed central downtown hub. Yes,

you did hear that right. A 50 acre. enclosed climate controlled. fully domed central downtown city. that will have no surface streets, fully. pedestrian walkways, >> Montreals. Well, yeah. Yes. The the only. motorized forms of transportation will. be Montreals and this new concept of. people movers. And then below ground,

there will be a vast network of tunnels, a multi-layered tunnels underneath the. ground for cars and industrial vehicles. to circulate throughout the city. On the. edge of this downtown dome, there'll be. highdensity apartment buildings. Surrounding that, there is a vast green. belt of parks and recreation facilities. And then finally, in the outer ring of. the city is lowdensity single family.

home neighborhoods. And the plan is that. 20,000 people will live here in this. city with full self-governing. infrastructure. So, schools, public. services, everything. And it is all. going to be founded as a new city in the. state of Florida. This is unreal. [laughter]. >> Self-governing, but in a special district carved out and. controlled. lawfully by the Walt Disney Company.

>> I mean, it sort of sounds like a I don't. know if it's a utopian or a dystopian. film or both. [laughter]. Yeah, it's definitely ambitious. So on. November 15th, 1965, Walt along with Roy and the then. governor of Florida, Hayden Burns, hold. a press conference where they announced. that Disney has been buying land in. Central Florida.

>> under various uh subsidiaries and. obscured names so no one would catch on. to what they're doing. >> Yep. and that a very large new Disney. project will be coming to the state. That planning has already begun and they. will be seeking public approvals. >> They bought 27,000 acres. That is the. size of San Francisco. >> Yes. Yes. Twice the size of Manhattan. Uh it's almost 40 square miles that they. have purchased in the middle of Florida.

and it's all swamp land right now. It's. uninhabitable. And so in May of 1966, so. a few months later, they get government. approval to drain the swamp and prepare. to build Walt's vision. Let's go. [laughter]. [gasps]. [sighs]. If only. So, in late October of 1966,

Walt records a film of a pitch, the full. reveal for the Epcot Vision. We'll link. to it in the show notes. You should. absolutely go watch this movie. It is. the second to last recorded appearance. that Walt makes in his life, and he has. no idea. The last one, I think, is a day. or two later. and he ends the video. with, "Speaking for myself and for the. entire Disney organization, we're ready.

to go right now." Unfortunately, [sighs]. he dies. about 2 months later. His death is both. incredibly fast, incredibly unexpected, and of course kind of a slow motion. disaster that's been brewing his whole. life ever since he started chain smoking. in France when he was 17 years old. >> I mean, he was notorious for his hacking. cough. That is how people knew that he.

was approaching if you were in a. building on the Burbank campus. >> Yeah. You'd hear him hacking. So that. summer in 1966, Walt had started. experiencing pains in his body. He. assumes that it's all the stress from, you know, all these new projects that. he's working on, or maybe it's old polo. injuries that he has, or maybe it's this. nagging cough, but obviously it's cancer. eating away at him. Finally, in November. of 1966, so right after recording the.

Epcot pitch video, he checks himself. into the hospital where doctors find a. pretty massive tumor in his lungs. They. do emergency surgery to remove it. He. comes back to the studio afterwards and. the company announces publicly that Walt. is back. They say he's going to recover, but the cancer is metastasized and the. doctors tell him, "Hey, you probably. only have a couple weeks or months to. live." His health goes downhill quickly.

And on December 15th, 1966, just 10 days after his 65th birthday, Walt Disney passes away right in the. middle of this Epcot thing. I mean, what. a sliding door moment. He was always escalating bigger and. bigger and bigger. It would have always. been right in the middle of the biggest. thing he's ever done. That's such a good. point. >> Mickey with Synchronized Sound, Snow. White with the first animated feature. film, the Burbank Campus, plowing cash.

into all the expensive failures after. Snow White, Disneyland. Every point in. his life, he was betting the farm over. and over and over again, and he always. pushed all his chips in. It would have. always felt like this. >> That's such a good point. If they had. pulled off the Florida project, what. would he have done next? >> Right. Like a colony on the moon. Like. [laughter]. >> Yeah. I gotta be honest though. I will. say I don't have the faith after. watching a lot of videos and. documentaries and reading about the. Florida project. It just doesn't make. sense to me. >> And it may have protected his legacy.

that he didn't live another 10 or 20. years to see this through. >> Yep. I mean, even just building a domed. city, like, how would you actually do. that? >> And look, I could be completely wrong. They invented, you know, amazing thing. after amazing thing, but this one felt. nuts. [laughter]. >> I mean, it was I think it's a totally. fair point. So, immediately after Walt's. death, Roy renames the whole Florida.

project Walt Disney World in his honor. And Roy postpones his own retirement to. dedicate himself to finishing this. project. And in fact, just a couple. months later, in May of 1967, Roy gets. full approval from the Florida State. Legislature to build Epcot, to build. Walt Disney World, and importantly to. carve out the Reedy Creek Development.

District, which gave the company a lot. more autonomy over the area containing. the land that they purchased than they. ever had in Anaheim. And famously, Walt. was very regretful that they didn't buy. up all the land around Disneyland, too, because he just hated all of the, you. know, hotels and restaurants and crummy. stuff around there. And, uh, they run. the show there in Florida. >> that they do. But Roy is not Walt and.

he's not willing to bet the company like. Walt was. So he does see Walt Disney. World through, but he dramatically. scales it back mostly because he doesn't. want to take on any additional debt for. the company. So he sets a goal that he's. going to get this thing constructed. without raising debt for the company, >> which is unbelievable. They built the. Magic Kingdom, the Walt Disney World, >> the theme park,

>> copy paste of Disneyland in Florida for. $400 million with two hotels and no. debt. >> Yes. That is an incredible achievement. Yes. And it is absolutely not what Walt. would have done. >> Nope. >> So, it's just the Magic Kingdom. There's. no city. There's no Epcot. There's no. airport. There's no industrial park. It's more or less like, hey, we've got. all this land and we're extremely. confident that Disneyland is going to. work here, so we'll build it. >> And it was extremely successful. >> Yep.

>> But it's not betting the company. And. it's not blazing a new trail. I mean, look, like, how could you say Disney. World isn't a success? Like, it's an. incredible success. >> And there's like so much cool innovation. there. The underground tunnels, they. took everything about Disneyland and and. made it better. Okay, now we don't have. to have people wandering around carrying. trash bags. Okay, we don't have to have. characters appearing in the wrong land. because the only way for them to, you. know, come quote unquote on stage is. through a door that's inconveniently. placed. We've got this network of.

underground tunnels where we can all do. it exactly the way that we would have. wanted to. I'm pretty sure the. underground tunnels are actually street. level and all of Disney World is up one. story. It's this like whole insane. concept of what if we could do. Disneyland over again, but not as. cowboys, as as real planners and. builders and engineers and a much bigger. budget. >> Which may actually be, to your point, it's probably just as likely, if not. more likely, that Walt Disney's death. when it came preserved his reputation.

[laughter] and that this this might have. actually been the better path for the. Florida project. >> May have been. Regardless though, what. it is not is shooting for the stars. And. after Walt's death, the company. basically stops doing that and every. dimension. Roy himself tragically dies 2. and a half months after opening Disney. World at the end of 1971.

>> It's kind of poetic. It seems like he he. said he was going to see this thing. through and he did. >> And he did for his brother. Yeah. And then what follows is basically kind. of 13 years of Disney [snorts]. becoming a parks company. >> Yeah. I mean, if you look over at the. film side of things, the last film that. Walt worked on was Jungle Book, which. ended up coming out after his death in. 1967. He was deeply involved in this. one. It was a smash hit, grossing $23.

million. 23 million in its first box. office run, which implies a cut of about. $11 million for Disney and Buen a Vista. on a budget of just $4 million. This. though would be Disney's most successful. film for the next two decades. >> Yeah. Yeah. That's bigger than. Cinderella, certainly bigger than. Sleeping Beauty, 101 Dalmatians, any of the other movies around that era. >> Yep. So the financials of the company. keep growing, but really it's all.

because of the parks. And you can see it. when you look at the numbers. So in. 1972, the first year of Disney World, films do 78 million in revenue and 44. million in profit. Parks do a whopping. 223. million in revenue and 38 million in. profit. And then all the rest of the. flywheel, consumer merchandising, etc. does 27 million in revenue and 13. million in profit. >> This is before the corporate expenses.

>> Yes, before the corporate expenses. >> Okay. So, what are the three profit. numbers for each of those again? >> So, you've got in 1972. 44 million in profit from films. >> Yep. >> Biggest profit engine. >> It's actually a lot. >> The IP of the company is still in good. shape here in 1972. Parks do 38 million. in profit and other flywheel businesses. do 13 million in profit. >> Okay. So parks and movies are pretty. comparable then. >> Yes. Pretty comparable right after.

Disney World opens. >> Yep. >> But then 12 years later, by the end of. this period in 1984, parks and consumer products generate. $250 million of operating income on over. a billion dollars in revenue, while film. and TV. barely breaks even with only $2.2 $2. million in operating. >> income. So yeah, by the end of this. period here, >> basically IPwise, the company is.

creatively bankrupt and they're running. a parks and merch business. >> No way. Okay, give me the profit numbers. from 1984 again. >> So together, parks and consumer products. >> generate 250 million in operating. income. So4 billion dollars from the. parks and consumer products. and film. and TV is 2.2 million. [laughter]. >> Unbelievable. >> It really illustrates what happens to. the company during this period.

>> It's funny because I only have the. topline numbers from all the annual. reports that we took photographs of when. we were in the archives. Revenue goes. from 100 million in 1965. to. 1.4 billion in 1984. And then over on. the net income after all the corporate. expenses in 1965 goes from 11 million. all the way up to 97 million in 1984. So. if you just look at the whole business.

>> yeah the consolidated financials. >> looks great but what you're sort of. illustrating is the core is rotting. Yes. That they're not contributing new. IP onto the pile that consumers love. Otherwise we'd be seeing that in the the. films division. Name a Disney film from. the 70s that you can even think of. today. >> They're just harvesting over in the. parks. >> Yes. So really the the biggest problem. what this comes down to is that American.

mythmaking. moved on. It moved elsewhere. So this is. the era when George Lucas makes Star. Wars and Stephen Spielberg makes Indiana. Jones and ET and these guys become the. new American storytellers, not Disney. and not Disney animation. Disney. animation during this decade goes from a. staff of roughly 500 at the time of. Walt's death all the way down to just.

125 by the early8s. There's all sorts of. problems. The films they do make are. disasters. The worst example of this is. The Black Cauldron. Did you read about. this? >> Yeah. Wasn't it like 10 years in. development? >> 10 years in development and production. Ties up the studio forever. And then. when they eventually do release it in. 1985, it's a total flop. >> And it's super dark, right? It's like a. scary kids movie. >> Yeah. It's a PG rated Disney,

>> right? It was the first one ever rated. PG. >> Yeah. Yeah. Yeah. >> They do have some success with live. action since 1964 with the massive. success of Mary Poppins, which won five. Oscars. They kind of leaned into that. side of the house. >> Yep. They start Touchstone Pictures and. that has a couple, you know, big hits. like Splash is a big hit for them. But. animation, the core of the company is. dying. And of course, Mary Poppins was. made. >> during Walt's life. >> with Walt's involvement before his. death. >> But to your point all episode, you know,

great, they started Touchtone Pictures. Great. They made 20,000 Leagues Under. the Sea and Old Yeller and The. Absent-minded Professor and. >> they made a bunch of Herby the Love Bug. liveaction movies in. >> right. >> the 60s and 70s. >> And that's not to hate on any of these. things on their own. Like my parents. loved Herby. I I remember them talking. about it. They showed it to me when I. was a kid. Is that durable IP that feeds. >> the future of Disney? No. >> No. No. >> So then in 1984,

basically the inevitable happens. Wall. Street corporate raiders come gunning. for Disney. I mean, it's an easy target, right? The financials look great. There's a lot of net income here. And. there's also a lot of hard assets. between the parks, the real estate, the. old films in the vault. This is like. easy pickings to come in, take over the. >> super undervalued, right? >> Yeah. I mean, the market cap of this. company is only like $2 billion despite.

1.5 billion in topline revenue and call. it a hundred million in net income. But. this would be super easy to break up. Disney, sell off the theme parks, sell. off the IP to other movie studios. You. could come in and make a killing doing. this. >> And that's what Saul Steinberg tries to. do. Come in, raid the company, break it. up for parts. But, uh, David, I I think. you're getting ahead of yourself. >> I'm pretty sure this should be how we. start part two.

Yes, this is the story for next time, but just know for now as a little teaser. that this period of the company ends. improbably. not with Disney being broken up, but. with three complete outsiders. coming in to run the company, none of. whom have any history in animation, any. familiarity with the flywheel business. model, or any experience or demonstrated. ability ility to operate anything.

outside film and television. So like. running parks, nope. Doing merch? Nope. Nothing. None of that. And those three men, Michael Eisner, Frank Wells, and Jeffrey Katzenberg, would pull off probably the greatest. media company comeback in history. So. that's what two Paramount executives and. a lawyer turned Warner Brothers exec. >> Yep, that's right.

>> It's like the other Hollywood Studios. executives are going to team up and come. in and save Disney. >> Doesn't sound like it's going to work, but we'll have to story on part two. because [laughter] boy did it ever. >> All right. Well, should we do some. analysis? >> Yes, absolutely. Do you still like the. thing that we did on Vanguard which is. have one big question that we we try to. answer? >> And I think the question should be why. has nobody else built an IP flywheel. like Disney?

>> Is it as simple as Disney was the first. IP flywheel company and so they've been. the biggest? I mean that no that's not. it. But it is interesting they are the. first and they're like the biggest best. IP flywheel company at that point in. history. 1984. >> Yeah. And I mean really like even to. today, I don't think any of the other. movie studios out there, any of the. other major studios are anywhere near as. good a business.

>> No, they're all terrible businesses. >> Yeah. Despite having at this point going. on a hundred years of watching Disney. operate and seeing exactly how the. flywheel business model works. I mean, the Wall Street Journal wrote that. article in 1958. Why has nobody else. copied them successfully? >> To be fair, okay, the terrible business. thing is not fair. The business of movie. production on its own is a terrible. business, but the other studios, like, you got to give Universal a ton of. credit. >> And I guess that's my point. Universal.

is probably the closest, but even then, it's not Disney. I mean, isn't Universal. running effectively the the same. playbook but with less valuable IP or IP. that they don't own? So, they have to. sort of share it. Think like Harry. Potter. >> Yep. >> Or just at smaller scale. >> Yeah. Still, nobody else is Disney. And. and to me, I think it all comes back to. when we first talked about the flywheel. all the way in the beginning of the. episode. I think animation is super.

super key. I mean Bob Iger when he took. over the company in 2005 had that famous. quote of as animation goes so goes the. company. Yep. >> There really is something unique about. animated IP in its timelessness, in the. ever availability of its stars, in the. better economics of not having to share. too much on the back end or in. merchandising fees, etc. with stars. And. then I think really just like the. ability of people to form deep lasting.

relationships with the characters versus. live action. And because Disney's always. had animation at its core, that's what. creates all this special IP. >> And it's all created in house. You know, it's funny. I threw out Harry Potter. Universal doesn't own all of the rights. to everything Harry Potter, but Disney. for sure does own all the rights to. everything Buzz Lightyear now that they. own Pixar or Aladdin or Mickey Mouse. Like, this is true vertical integration. >> Yes. Yes. There's also Disney, for all.

its ups and downs, made the decision to. never sell its catalog, so they could. compound longer than everyone else. A. lot of these other studios have sold. their back catalogs, and some of them. are are worthless since it's live action. films and black and white that no one's. ever going to watch, but Disney hasn't. They own everything they've ever made, and that ties to Walt's Oswald. experience. >> Yep. And I think there's something else. too that only comes when you really.

fully embrace the flywheel business. model and the trade-offs that it. involves. And it's the vault and the. reissue strategy. >> Yeah. >> Disney. Let's put Marvel aside for a. minute. [laughter] Uh with the exception. of Marvel, >> you got to put Star Wars in that pile, too, because I know where you're going. with this. And I the way you feel about. Marvel, I feel about the um. overexloitation of Star Wars. >> Yeah. Yeah. Okay. Great. Okay. All. right. Let's [laughter]. Let's put Star Wars aside of the pile, too. Core Disney and Disney animation.

and Pixar have been so disciplined over. the years about metering out their. content and the core delivery of that. content on an infrequent enough basis. that it doesn't dilute it. And Marvel, ironically, I think really is the. counter example here. Yeah, it was on a. great great run, but honestly, it feels. like the Disney plusification of Marvel. We'll get to this in the next episode, but that my gripe would be that the. developing a lot of content to always. have something fresh there.

>> Maybe what the issue that we're both. describing is actually a blurring of. flywheel point. 2 and Flywheel 3. Point. 2 was maximized distribution of each. core IP's. primary initial delivery vehicle. And. your point three was feed IP into as. many ancillary profitable flywheel nodes. as possible. Kind of feels like with. direct consumer Disney Plus, those two. things got confused. Yeah.

>> And like ah what's the difference. between ancillary content and primary. content it all ends up in the same. place. And that's kind of how I feel. when I watch some of the overexploited. IP now. M mhm. Mhm. >> It goes back all the way back to the. point you made, I don't know, 6 hours. ago or whatever, that you you have to be. really clear about giving a nice lane. around your primary medium and delivery. vehicle. So that stuff still feels. scarce, special, and canonical. >> Yep. Yep. Yep. But I think for every. other studio out there, their incentives.

have always been and are always going to. be release as much content as quickly as. possible. Yeah. especially once they. have a franchise that's working, get the. sequels out as fast as possible and get. the sure profits from them. >> And Disney is playing a many decade. compounding game which can take three. decades to really kick in. And all these. other studios change ownership every. decade. And so there's really not the. right like ownership incentive structure.

to play a three decade game. >> Yep. And I think this impacts the. creative decisions too because when you. don't need to release content, you can keep working on the content and. make sure that you only release it once. it's truly great. >> Yeah. There's one other point on this. though that we haven't really touched. on, which is universe cohesion. >> Here's my favorite way to make the. point. What's your favorite Paramount. song?

>> Right. Yeah. No idea. The Top Gun theme. song. What's your favorite Universal. song? >> Right. Yeah. >> But like everyone's got a litany of. answers to what's your favorite Disney. song. Yes. >> They actually managed to associate all. of this love and heritage and fandom and. universe interaction with the studio. itself. >> It's back to becoming the lifesavers of. animation. >> Yep. >> So, okay, as I was thinking about this, I was trying to ask myself, are there. any other companies in the broader.

>> entertainment landscape? Ah, you got it. [laughter] That do this. I thought I was. going to get you. Which is so great because Nintendo and. Disney, you know, Nintendo started on. the back of Disney, right? As we talked. about on our Nintendo episodes, right? It was the Disney license for the. playing cards in Japan that kicked off. modern Nintendo. >> Yep. >> Yes. But yes, they have the exact same. ethos. >> and flywheel. >> But interestingly, they sort of don't. play together now. I mean, that's the. thing about vertically integrated. companies is they don't really work.

together, >> right? And Nintendo has partnered with. Universal now for their perks. I kind of. suspect the way that a relationship. between Disney and Nintendo, the only way it could work would be if. one of them buys the other, >> right? >> Yep. >> Yep. >> Great. Seven powers. >> Great. So listeners, this is the part of. the show where we walk through Hamilton. Helmer's seven powers framework that. effectively helps analyze why does a. business get to be more profitable than. its nearest competitor and do so.

sustainably. And those seven are scale. economies, network economies, counterpositioning, switching costs, branding, cornered resource, and process. power. And I think we're just analyzing. this for pre984 Disney. >> Yep. Well, easy one to start with. Counterpositioning for days. Being. willing to invest in a featurelength. animated picture. I mean, that was the. peak of this relative to anybody else. doing animation leading up to Snow. White, >> right? Cuz their competitive set would.

have needed to be people who have the. talent of their animation staff, which. is not zero people, but few people, and. who had all the cash from Mickey and the. Mickey merch, which would have been. almost no one. I don't know, actually. That's almost like capital as a moat to. go pursue Snow White cuz they weren't. there was no one else who really could. have done it. >> Mhm. You know what? You're right. Versus. the other animation studios, but Disney. was counterpositioned, I think, versus. the big liveaction studios because they.

never would have made a three-year $1.5. million investment in a film when it was. >> nor they have the capability though. >> Yep. >> So, let's see. early on. I mean, branding pretty quickly played a role as. soon as Mickey Mouse was established. >> Walt Disney production. Absolutely. >> Yeah. Yeah. You'd pay more for a Walt. Disney production than than others. >> It was brand for Disney itself. >> I wonder if there was process power. Reading in some of the old recollections. of animators, it seems like there were. people that kind of traded between.

studios and left and started rival. studios and they were able to produce. great work. So, maybe there's not. process power. M. >> I mean the the big two once it started. to really kick in are scale economies. and network economies. The flywheel is. sort of all about that. The these films. are all scale economies. It's can I go. plop down $6 million and then get the. entire world to care about my movie for. a year and make as much as possible on. that and then expand it out into the. flywheel and take advantage of all those.

ancillary streams. And then of course. the network economies of if you have a. big enough release, it is a cultural. moment. Yeah. It matters to the world, >> right? Gosh, I see it with my girls now. today buying, you know, the Aurora. costume that their friends also have so. that they can dress up and play. together. Yeah. The flywheel is built on. network economies. It's like a. combination of scale economies and. network economies. Scale economies to. enable the investment in the IP and then. network economies across all of the. nodes. But the whole thing, if you were.

to go ask that question of why isn't. another company able to replicate the. success of Disney to any of the very. smart executives and their great teams. that work at competitive companies, they. would say, "Oh, cuz Disney has the. cornered resource of all that IP." And. like, what do you want me to do? I can't. devise a strategy that's going to work. in the next 5 to 10 years to suddenly. beat Disney when they have a hundred. years of heritage and the world caring. about their IP. The entire thing is.

predicated on that. >> Yep. Yep. Which really comes down to. Walt always playing the long game and. always being willing. >> to bet the whole farm. >> Yep. >> And being right enough times and. managing to survive through the times. where he was wrong that it worked. >> Yep. All right, Quintessence. >> Yes. So mine is Disney managed to take. not only a set of IP and build their. flywheel, but a cohesive set of IP, an. opinionated universe of timeless stories. about durable, emotional story arcs that.

are universally applicable that work. together as one. And that is something. that can stay relevant and of course. monetize for a very long time across. generations. They can't fully avoid. being a hitbased business. They are a. movie studio, but they've gotten about. as far away from it as they possibly. can. >> It's funny listening to you say that. I. think that entire passage could equally. apply to Nintendo. >> Yeah.

>> Which really just shows how the. companies, they are the two flywheel. companies. They are the two intellectual. property flywheel companies out there. >> Yeah. >> Okay. Okay, so my quintessence goes all. the way back to the beginning of the. episode and Marceline. >> Of course it does. >> Art and commerce. Those two things got. married in Walt's head when he was a. little kid. And that is Disney. It. really is art. When Disney is at its. best, what they make is not just a. commercial product. It exists at a. higher level than that.

And it is married to this incredible. commerce engine that is in of itself. beautiful and like Disneyland and Disney. World and all the parks are the most. perfect expression of that. >> in it sounds exactly right. The. sightelines man the the I I like going. to Disneyland just to walk around. It's. the craziest thing. I the rides are free. and I have just as much fun not going on. them even though I've already paid for. them. Any parent who's been to Disney.

with their kids knows exactly what I'm. talking about. And it is like. irreplicable at any other company or. place in the world. All right, before we. do carveouts, I've got one fun little. thing that didn't make the narrative. So, when Disney launched Donald Duck in. 1934, they hired radio actor Clarence. Nash to do his voice. Do you know how. Clarence Nash got his start doing Animal. Voices on the radio?

You won't guess it, but it's an awesome. acquired crossover. >> He was the radio spokesperson for Ador. Dairy Farms. Whoa. >> In Southern California. >> Trader Joe's. >> Trader Joe's. [laughter]. >> That's awesome. >> Crossover. Trader Joe's. Donald Duck. There you go. Trader Joe's original milk. supplier before they got bought by. Trader Joe's competitor 7-Eleven. >> Yep, that's right. And of course, Trader. Joe's itself was in part inspired by the.

Enchanted Tiki Room at Disneyland. >> That's right. Which we didn't talk. about, but Walt also owned that. personally. It opened in ' 63. He put up. the capital for it. I think Wed owned. it. And it was ticketed separately. I. think it was like an extra 75 cents or. something to go to Walt Disney's. personal tiki room, which is why it's. named. >> the Tiki Room. That's right. All right. Carveouts, what you got? >> All right. Followup to yours from the. Vanguard episode. The shoes, Brooks. Vanguards are indeed great. I ordered a.

pair. They're excellent. Uh I'm not. wearing them today because they're not. squishy enough to stand for whatever. we're at 9 hours. >> Yes. But they are great shoes. I got two. pairs. >> I wear them around the neighborhood. They're awesome. I have two YouTube. channels. >> Oo, nice. >> One is Defunct Land. >> I used to watch this channel all the. time. I forgot about it for a while and. then I rediscovered it while we were. doing research. It is the stories of. either defunct or neverbuilt theme parks. and it walks you through the insanity of.

action park in where is that? New. Jersey. >> Yep, I think that's right. >> Tons of great Disney ones, Disney parks. that were never built. There's a great. one on the the Florida project. So, I. highly recommend defunct Land. My second. one is Animagraphs. >> There's not a lot of videos on this. channel, but they're all so cool. It is. 3D models explained by a narrator of how. really interesting pieces of machinery. work. I've used it for at least two. episodes that I can think of off the top.

of my head. One, how a mechanical watch. works and two, how a Formula 1 car. works. I highly recommend the channel, Animagraphs. It is awesome. >> I also have two carveouts. My first one. is we got a new car, >> a Volvo EX30. >> The little guy. >> The little guy. A, it is awesome. It's. like the perfect car for San Francisco. It fits in tight parking spaces, but it. can hold my whole family, hold a bunch. of gear. B, oh my god, Chinese EVs are.

incredible. So Volvo is owned by Giley, which is a Chinese company, and the EX30. is a Gily. platform EV with Volvo branding, unlike. the other Volvo cars. I. >> mean, this thing is crazy. It only costs. like $35,000. And it's awesome. Unfortunately, that leads to C, which is. Volvo just canceled it in the US right. after I got it. Yeah, I think because of. tariffs. Yeah.

>> Oh, >> it is an amazing car. You can no longer. buy it in the US, but you can. internationally. >> It was a short window. >> And like, man, I get Chinese EVs now. This is a really, really good car for. not a lot of money. Okay, my second. carve out is the San Francisco Symphony. Jenny and I went the other night. They. have a new music director coming in, Ellen Chan, and this was her first. performance since being named music. director. She's awesome. She's 39 years. old. She's so much fun and so much.

energy. And going to the symphony, which. I hadn't been in forever, made me. realize that actually through classical. animation, I got a ton of exposure to. classical music growing up. I think more. than anything else, like through Disney. films and Looney Tunes and Warner. Brothers, I was just sitting there like, man, I feel like I should be watching. some animation right now. [laughter]. >> Awesome. All right. Well, we have got. some thank yous to people who helped us. with our research. But first, to our.

partners this season. JP Morgan, trusted, reliable payments. infrastructure for your business, no. matter the scale. JPorggan.com/acquired. to Verscell, the developer tools and. cloud infrastructure to build and scale. fast, secure applications on the web. Verscell.com/acquired. to Service Now, the platform that puts. AI to work for people. Service. Now.com/acquired. and Statsig, bringing. experimentation, feature flags, and. product analytics into one unified. system for product teams. statsig.com/acquired.

Thanks to all four of these companies. for being awesome partners with us this. season as we wrap here with this finale. and leave you with a cliffhanger here. over the summer when we'll be back for. our fall season in August. >> Disney part two. >> Yes, >> the Renaissance. >> Ben and David will return. >> Yes. As always, thank you to all of our. sources, the books that we read for this. episode. They're all linked in the show. notes, and a special thank you to Arvin. Navaratnam at Worldly Partners for his. great write up on Disney, linked in the.

show notes. Arvin, for folks that don't. know, is at Worldly Partners, which is a. long-term investment firm focused on. multi-deade compounding businesses. Very. sympatico here with Acquired. Learn more. at worldlypartners.com. He provided us with the data on the rise. of televisions. Actually, some annual. reports that we were missing even from. our time in the Disney archives for the. original offering document for Disney. selling shares to the public. All sorts. of awesome stuff. Personally, thank you. to Jeffrey Katzenberg. We had a great.

breakfast when I was down in Burbank and. helped us out a lot with research and. you'll hear a lot more about him on part. two. to Josh Dearo, the new CEO of the. Walt Disney Company, for his time. chatting through some stuff that we were. wrestling with and helping us with. research. Also to Nancy Lee and all the. Disney folks in the archives, animation. research library and all the other great. folks in Burbank we met with on our. research trip. >> That really was incredible. Thank you to. all of you. >> To Mike Miller, former Wall Street.

Journal editor and now frequently. helping us with acquired episodes. Mike, you are awesome. to Graden who. emailed us last year with the. observation that the entire business. community misuses the phrase flywheel. >> Yes. >> Appreciate your your help, Graden. >> Glad we finally found the perfect. episode to bring this up. >> Yes. Well, speaking of the Wall Street. Journal, thank you to Ben Cohen and. Emily Nelson over there who helped us. track down the original Flywheel. article. We will link to that in the.

show notes. Can't wait to share it with. all of you. to Mitch Laskkey, our friend. Mitch Laskkey, former partner at. Benchmark, who helped me think through a. whole bunch of the flywheel dynamics. To. Ryan Shear, who is Walt's greatgrandson. and is on the board of the Walt Disney. Family Museum here in San Francisco, which really is a excellent museum, and. it's done by the family. It's about. Walt, the person. Highly recommend going. to see it next time you are in San. Francisco. If you like this episode, go.

check out our recent episodes on. Vanguard, Ferrari, and Coca-Cola. And. back in the archives, our two-part. series on Nintendo. I think a lot of. that is going to rhyme with Disney. >> Indeed. >> You can click the show notes to get. access to the PDF companion with. visuals, charts, tables, and. illustrations of key concepts. You can. also get it by joining our email list, acquired.fm/e. It's where we send out our takeaways. from each episode, past episode. corrections, behind the scenes photos, and it's where you can vote on future.

episode topics. Plus, we give away a. little hint each time. acquire.fm/e. And we are writing in the Wall Street. Journal. You can get access to read the. columns at acquire.fm/wsj. And if you sign up there, we will email. you every time the column comes out and. we will make sure that you get an. unpaywalled link. So whether or not you. were a journal subscriber, if you were. on that list, acquire.fm/wsj, you can always be able to read our. article.

>> Every time we make an episode, we write. an article now. >> And with that, listeners, we'll see you. next time. >> We'll see you back here this fall for. Disney part two. >> Yes. >> Who got the truth? Is it you? Is it you? Is it you? Who got. the truth [music] now? Huh? >> [music].