All right. So, David, the real question is: after this episode gets released, it becomes this durable IP that is part of an IP franchise. Will we turn this into a musical?
Yes, absolutely. With masks, dancing in the aisles.
And I'm thinking too, we may as well do Acquired on Ice.
Yeah. While we're at it, let's go.
Yet another adaptation of it.
Can we do Acquired in Space? Ooh. We know a few people who could make that happen.
Yeah. Help make that happen. All right.
All right. Let's do this.
Who got the 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. Say it straight. Another story on the way. Who got the truth? Welcome to the fall 2026 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.
And we are your hosts. Disney is so much more than you think it is. It is Mickey and Minnie and Ariel and Simba and Elsa and Woody and Buzz and Nemo and all the Pixar characters. And of course, it's the Avengers and Luke Skywalker and Darth Vader and Winnie the Pooh and Disneyland and Disney World and Disney Cruises, Disney Hotels, but now it's also The Simpsons and Avatar and National Geographic, plus the entire studio of 20th Century Fox, a privately owned government inside the state of Florida, a private island in the Bahamas, Y10 Broadway musicals, the special effects firm Industrial Light and Magic and Skywalker Sound, one of the four major US broadcast networks, ABC. It is, of course, ESPN.
I was wondering when you were going to get to the worldwide leader here.
Unexpectedly, a giant amount of the profits of the whole company come from... Absolutely. It is the SEC network. And for a period of time, David, they got even more exotic, owning the NHL team, the Mighty Ducks. Oh, yeah. The Anaheim Angels.
Angels in the outfield, baby.
And the 1936 British ocean liner, the Queen Mary.
Despite being one of America's most storied and stable brands, the company is going through a time of immense upheaval. They're in the midst of a transition to streaming with Disney Plus and Hulu and ESPN making giant technology and marketing investments to support that transition that lost billions for half a decade. And they're doing this while their old fantastically profitable businesses are fading. Consumers don't really go to the movies like they used to. They don't buy movies on VHS or DVD or Blu-ray. And of course, consumers are also cutting the cords to cancel their cable subscription. So those fat profits from cable channels like ESPN are shrinking every year. And Disney, despite being over a hundred years old, is at the very center of the most interesting business strategy questions that have ever been posed. Can we fight the innovator's dilemma and win? What exactly is enduring about our business as technology and trends change? And can our future be as bright as our past? Today, listeners, we tell the story of how Disney went from Walt's tidy, neat idea of an animation studio turned theme park operator into the global, sprawling, diversified behemoth that Disney acquired and expanded its way to today. And we'll answer that question: what does their future look like from here? Yes. All right. Well, big news from acquired headquarters. This episode has a companion PDF with visuals, charts, tables, and illustrations of the key concepts we discuss. You can get access and follow along by clicking the link in the show notes or going to library.acquired.fm. You can join the email list at acquired.fm/e. That's where we'll send out behind-the-scenes photos of research, past episode corrections, and it's where you can vote on future episode topics. Plus, we'll give away a little hint each time at what the next episode is about. That is acquired.fm/e. And if you are in the Bay Area on September 17th, you should join us for the official 2026 Acquired Meetup with our friends at Sentry. Details are at acquired.fm/meetup. Boom. Before we dive in, we want to thank our brand spanking new presenting partner, Sierra. Yes, Sierra is not only the very best partner for agents in the enterprise, but also home to the self-proclaimed co-presidents of the acquired fan club, Clay Bavor and Brett Taylor.
Yes, as Brett and Clay shared on stage with us a few weeks ago when we were in New York together.
Yes, indeed. Thank you, Sierra.
So, with that, listeners, this show is not investment advice. David and I may have investments in the companies we discuss and this show is for informational and entertainment purposes only. All right. Well, we start in 1984, the year I was born. All this was happening. I had no idea. Disney is in chaos. In the 18 or so years since Walt died, Disney's star has faded so badly that it looks like no wish can save it. So Disney animation, once the shining pillar of the American can-do spirit and the core of Disney's beautiful flywheel business model, has become a rotting carcass of its former self. That's the kindest way I could think to put it. Epcot has just launched in Florida, not as Walt Disney's utopian dream of a city of the future, but as a massively overbudget and underwhelming World's Fair knockoff that the company has sunk hundreds of millions of dollars deep into debt to build. Family drama among the Disneys runs rampant. Roy Disney's son, Roy E. Disney, has resigned from the company and is scheming to launch a boardroom attack on Walt's once beloved son-in-law, Ron Miller, who is currently the CEO running the company. The stock is in the dumps. There have been multiple corporate raiders swirling their deals on the table to break up Disney, sell off the film library, Snow White, Cinderella, Sleeping Beauty, sell it all off to MGM, sell the theme parks off to hotel operators, maximize shareholder value here in the 1980s. And in the midst of all this, desperate to ward off these corporate raiders, management strikes a series of friendly deals with four oil and gas and real estate brothers in Fort Worth, Texas, the Bass family, and their famous investment manager, Richard Rainwater. That results in the Bass family owning about 25% of the Walt Disney Company and becoming Disney's largest shareholders. Yeah. How crazy is this? It's quite the introduction that the company was in such bad shape in 1983. Their stock dropped from $82 to $52, that the company was worth more if you sold it for parts than actually running it. And so the only defense that they have against these corporate raiders is to find a corporate raider of their own, right? Dilute shareholders so much that they're creating all these new shares to give to these new guys, these Texas guys, the Bass family. So they can own 25%, which basically makes them, you know, pseudo controlling shareholders, more than any of the remaining branches of the Disney family. Yes. And that is by far the best option to fend off these corporate raiders. Dark times. And David, things have gotten so bad in the creative core engine that nearly every dollar of profit is coming from the parks and licensing consumer products. At this point, films and TV, you know, the Disney that you know of, the content business is basically break even. In 1984, Disney generated a quarter billion dollars of profit from its parks and consumer products and a mere $2 million from film and TV. The core of the famous Disney flywheel is completely broken. But there is a spark of hope. A group of young innovators who will ignite a whole revolution in the movie industry come in and save the company. I'm not talking about Michael Eisner, Frank Wells, and Jeffrey Katzenberg.
Oh, I thought that's where you were.
You would think that's where we're going. Rather, the group that I am talking about is a new hope for the core of Disney animation, the center of the flywheel. All right. So, Ben, what if I told you that during this very same time as everything that I just said, Disney animation is floundering. All of the following people are being taught the craft of Disney animation in a small basement room just a half hour's drive north of the Disney Burbank lot in another institution that Walt Disney himself had created, set up, and endowed in his will. Cal Arts. John Lasseter, Brad Bird, Tim Burton, John Musker, who would do The Little Mermaid, Aladdin, and then many years later, Moana, and then later after them, Andrew Stanton, of course, writer and director of Finding Nemo, Wall-E, Toy Story 5, Brenda Chapman, head of story for The Lion King, and of course, Pete Docter, who today is chief creative officer at Pixar. All of these people are in a basement classroom, classroom A113, home of the character animation program at the California Institute of the Arts or Cal Arts, which was basically created as a pipeline for Disney, right? Yes, exactly. That was why Walt created Cal Arts. He wanted it to be this institution that would keep the pipeline of new animation talent flowing into Disney long after he was gone. And Walt left like half of his estate to fund this institution. And it was that, I mean, so those people I mentioned, John Lasseter, Brad Bird, Tim Burton, John Musker, Brenda Chapman, all of them were hired directly by Disney in Disney animation right out of school and then Disney fired all of them. But they all end up back. So, there's this amazing story that one day while John Lasseter is a student there in the late '70s, he and a bunch of these people, they drive down to go spend a day at Disneyland and John's girlfriend at the time comes along with them and she says to them, 'Just think someday this park is going to be filled with the characters that you guys are going to create.' And she had no idea both how right and how wrong she was. Yes. It would just take a few decades. Yes. Okay. So, how does this company turn around? Because I was looking at the financials and it looks like 1982 earnings are down 19% and you sort of expect, oh, maybe that's a hiccup. It'll come back. Then 1983, earnings are down another 7%. Yep. So, in the wake of all that, in 1984, Roy E. Disney decides enough is enough. Together with the Bass brothers, the new 25% shareholders, Roy and his business partner Stanley Gold, who's also on the Disney board with him, they gang up and they finally force out Ron Miller as CEO, who again is Roy's cousin by marriage, married to Walt's daughter. And they do this via dramatic boardroom coup that happens on September 7th, 1984. And then over a period of just 14 days because Disney now like is without a leader is in double crisis here. They go out and they identify, recruit, sell, and hire arguably the greatest two-person management team in media company history. Michael Eisner and Frank Wells. And then Michael quickly brings in his number two from Paramount, Jeffrey Katzenberg, to run the film studios. Yep. All right. So, who are these guys? So, first the board goes after Frank Wells. Frank had been the president of Warner Brothers and had since retired. But before that, earlier in his career, he was the mentor of Stanley Gold, Roy Disney's, you know, business partner and fellow Disney board member now back at their old law firm. So, Frank is their first call. They trust him deeply. He's eminently qualified. He's recently retired, so he's available. Frank says, 'I'm interested, but I can't do this alone. There's somebody else you got to call. You got to call Michael Eisner.' So, Michael, until recently, the timing is just crazy on this, had been probably the hottest Hollywood movie studio executive in town. He had been the number two executive at Paramount under Barry Diller and had architected one of the most legendary runs in Hollywood history. The two of them, Barry Diller and Michael, within a span of seven years, they made Indiana Jones, Star Trek, Saturday Night Fever, Grease, Footloose, Flashdance, the list goes on and on.
This is when Paramount was number one.
Yeah. And the way they did it was this famous strategy that they called the singles and doubles strategy. The idea was they would keep their production costs low. They would generally not work with A-list stars and directors and instead they would focus on the quality of the scripts and the stories and let that be their guiding judgment as opposed to the typical Hollywood thing of who's attached to the project. Like, do we have the stars?
And the singles and doubles name appealed to shareholders. That didn't exactly appeal to talent. And so the way they built it the other direction was high concept. Exactly. Describing a unique idea whose originality can be conveyed briefly.
Yep. So Michael writes a famous memo in Hollywood history that gets leaked and spread around the rest of Hollywood describing the strategy. And he writes, spoiler alert, no memo actually ever leaks in Hollywood. They're all intentionally leaked. Yes, they're written for publication. Yeah, that's the way this town works. Oh, so Michael writes, 'We have no obligation to make art. We have no obligation to make history. We have no obligation to make a statement. But to make money, it is often important to make history, to make art, or to make some significant statement. Not even the greatest screenwriter or actor or director can be counted on to save a film that lacks a strong underlying concept.' There you go, Ben. High concept.
That's right. And there was another memo leaked later by Jeffrey Katzenberg who, you know, speaking of the lieutenants, you got Barry Diller's lieutenant is Michael Eisner. Michael Eisner's lieutenant is Jeffrey Katzenberg. Jeffrey writes a memo later where he espouses this really great line that celebrity can open a film, but celebrity can't carry a film. So yes, you can pay up to attach these big names, but ultimately the audience does experience the quality of the story for itself, and you kind of need the story and the characters and the emotion to take it from there.
Yep. Yep. Now, on the one hand, this is crazy that these guys are coming in to run Disney. Disney is not a Hollywood company, right? It's a Warner Brothers retired executive and a hot shot Paramount executive. Michael from Paramount has not seen Disney movies. He was not raised on them. He had never seen Snow White or Sleeping Beauty. He wasn't really a Disney guy despite the fact that as soon as he later gets the job, he was never without his Mickey Mouse tie.
Of course. Of course. But yeah, didn't know how to run a theme park, flywheel, anything. But when you think about it though, Michael's philosophy actually is pretty sympatico with the Disney philosophy. It's all about story. It's all about concept. And yes, Walt had a very different way of doing this. He was go big and invest tons in technology and animation. And Michael is like produce things cheap, singles and doubles.
But they're both story first. They're both obsessed with can we create characters that take you on these emotional journeys and tell compelling stories.
And then the unthinkable happens. Michael gets forced out of Paramount at the peak of his success.
Well, sort of. Barry leaves, as we talked to Barry about on stage at Radio City Music Hall to team up with Rupert Murdoch and launch Fox.
Yes. Fox the TV network, because Fox the film studio already existed. So Barry leaves. Michael is supposed to get the job that Barry had as chairman of the movie studio over at Paramount. And he doesn't get that job largely because of internal politics and who's making how much money, those sort of games. And Michael basically, his contract says that he's owed a check if he does not get the job when Barry leaves. So Michael decides, you know what? I don't really want to stay here without Barry anyway. I'm going to start poking around for other things. He had been having these kind of background conversations. I'll take the check and get out of here.
Yep. So all of a sudden, Michael's available right as all this drama is going on at Disney. He was on the board of Cal Arts with Roy E. Disney. So they've been talking for a while, but now it all comes together. So Frank is offered the top job and Michael's offered number two.
Then there's a second iteration where they're sort of offered co-CEOs and Michael basically tells Frank, "Hey, look, if I'm going to do this, I'm CEO or I'm chairman, I think is even what he says, and you're number two because we need to send a signal to the world that Disney is run by a creative executive, of which he was at Paramount." And Frank had always sort of been more the numbers and legal and operations.
Operational. You know, he was a legal background, right?
So, if this is going to work, I have to be the top guy. And Frank, this tells you everything about who Frank is and sort of how the company would work for the next decade. Frank says, "Okay, that makes sense to me. I'm perfectly happy to do it. I'll be your number two as long as we both just report to the board. I'll be president, you can be the chairman, but we both have our own relationship with the board." Michael says, "Works for me."
Yep. So, on September 21st, 1984, Michael Eisner and Frank Wells are introduced as the new CEO and president of the Walt Disney Company. Can we just talk about what dire straits this company was in that they had to go and in a matter of weeks find two people who had zero relationship with the company, had never worked there, and bring them in and make one of them chairman of the board? Also, we should say there was a giant comp package if the studio did well. There was massive profit sharing. There was big stock options issued. It was like we need a complete reboot and we're bringing in these Hollywood guys from other studios to make it happen.
Yep. Yep. Yep. They turn around quickly and bring in Jeffrey Katzenberg from Paramount as well to come in and run the studios under Michael at Disney. And the plan is Disney's going to become Paramount. [laughter] Actually, one of the first items on their agenda is they move the animation department out of the Burbank lot and basically exile Disney animation over to Glendale. They're like, "Hey, we got to make room for all the, you know, movie producers that we're going to bring in here and make live-action films."
If you're one of these animators who is looking at it from the perspective of what makes this place special, and the very first thing, let's say you were optimistic about change, that happens is they kick the animators out of the building that Walt's office was in. This is like the historic animation building. They clear them out and they say, "Go to Glendale in this like really rickety, rundown building instead." Not looking good for the core of the Disney flywheel here. And then Eisner and Wells turn their attention to the parks. And this is where some light bulbs start to go off. One of the first things they do that ends up, I think, really setting up all the following success that Eisner and Wells and Katzenberg have is they raise the ticket prices at Disneyland and Disney World. Ticket prices at the Disney parks have basically been flat since Walt died. Like the spirit around the company and the ethos of management, it's like, well, Walt wanted this to be accessible to everybody and he set these prices, so like we shouldn't change them. Never mind that inflation was rampant during the 1970s. So, parking at Disney World and Disneyland when Eisner and Wells come in to run the company is still only a buck. So, they start raising ticket and parking prices at the parks. Not enormously, but like...
They had so much headroom here. I mean, you can criticize them all you want today for raising prices, but they had, I don't know, 5 to 10x of you can raise the price and it wouldn't impact demand for a second back then.
I mean, you can raise the price of parking from $1 to $5, so nobody will care. But when you do that in an operational business like parks, all of that incremental profit falls right to the bottom line. This is pure incremental cash flow into the Walt Disney Company because they're not changing the operations at all. They're just making more money. So Eisner and Wells turn around and they take all these quick profits from the parks and they start investing them into building the live-action studios and running the Paramount Playbook.
Sort of. That still didn't generate as much cash as they'd actually need to finance the full film slate. So for each of the films, all 75 films they would make over the next eight years, those were financed by a partner called Silver Screens.
Ah, interesting. So Michael's singles and doubles strategy worked at Paramount. It works even better at Disney. They make Down and Out in Beverly Hills, Three Men and a Baby, Good Morning Vietnam, Dead Poets Society, Pretty Woman. These are all huge hits with, you know, singles and doubles-sized budgets. And they would get actors that would go on to be big, big names. I mean, you name Robin Williams and Bette Midler, Julia Roberts...
And they were basically looking for ways to get deals on talent. So, a lot of times it was like actors that had been in rehab and were looking to make a comeback [laughter], or it was these up-and-comers, but it was in many ways like a young Warren Buffett strategy of looking for cigar butts that they knew they could get a guaranteed return on.
But it works, man. All told, 27 of their first 33 movies that they make are profitable, which in Hollywood to have a hit rate like that, that's like making 33 venture capital investments and only losing money on six of them, right?
Films are like books or like startups, power law distributed normally.
But of course, along the way, as we all know, they do quickly realize that, hey, there's some potential in this animation thing here, too.
Well, this is a Roy E. Disney special. Roy views his job as the keeper of Walt's vision and the keeper of the thing that made the company special. And the thing that made the company special was this ridiculous flywheel, for lack of a better term, that they had where you make amazing, compelling characters on universally relatable stories, told through animation, drawn in a spectacular way that no other studio can do. And then you get to pump that into consumer products and parks and kids pass down to their kids and it's this like beautiful special business model.
You re-release the classics in theaters from the Disney vault and you make cash flow on that.
And Roy's sitting here looking at the current business of singles and doubles and live action and being like, "Hey, we got to do the Disney thing."
Yep. So as part of the deal when they brought Eisner and Wells in, Roy had made them promise not to fully kill animation and then he had made them make him chairman of the animation division under Katzenberg who's running all the studios.
Okay. So flash back to the day that Michael and Frank take over. What had happened the 13 years up to that point?
Disney Animation had only released three movies from 1971 to 1984 and they had a film called The Black Cauldron in development for nearly a decade.
And morale is low. There's even a sense by the current animators on staff that they weren't making anything as good as what the company used to make.
And this is when all that young talent that's coming in from Cal Arts, Disney's either firing or they're leaving because they're just like, "Hey, this place is cooked."
Yes. Okay. So, we brought up Jeffrey Katzenberg. I was having breakfast with Jeffrey to prep for this episode and he...
Told me this story where Michael calls Jeffrey into his office on his first day, and this is before animation had been moved out to Glendale. So he's still pointing down at the original animation building, and he points to that ink and paint door, and Michael says to Jeffrey, 'Do you know what they do down there?' And Jeffrey goes, 'No,' cuz you know Jeffrey's background is live-action Paramount stuff with Michael.
And Michael says, 'Neither do I.' [laughter] He goes, 'That's where they made the animated movies, and that's your problem.' [laughter]
And so Jeffrey, like Michael, doesn't know anything about animation. The animators, when he sort of gets in there and he says, 'Okay, I'm the boss now,' start looking at this invasion from Hollywood. I mean, Disney always existed outside the realm of Hollywood doing their own thing. And now you've got effectively the suits coming into a culture that is like a bunch of whackados. I mean, it is like the most fun, crazy place in animation. And this was quite the clash at first.
Yep. But at some point — and I don't know, was it Katzenberg or was it Eisner and Wells — who realized like, hey, there actually is an opportunity here.
Well, it was both of them, and it would take a third guy, and that guy is Peter Schneider.
Yes. So his quote when accepting the job is, 'I knew I could do no worse than The Black Cauldron. You can't fall off the first floor.' [laughter]
So Peter and Jeffrey come in and they start making changes, and Peter had this license to like examine everything. He was not afraid to break any process. So he starts saying, 'Why do we use this type of paint? Why do we make our own paint? Why do we use this style of animation pegs? Is there a better style? Why aren't we using computers? It seems like that could really help us.' It sends a cultural message here in '84, '85, '86 that things are really changing. And all the way from the top, we are trying to get better. We want to make something great. We want to make great films, and we want to debate each other over how good of an idea things are. We want to iterate, all in service of making a great film.
But this is exactly what they needed: new blood, a complete shakeup. There was good talent there, but they were just sort of like wasting around, not being led at all. And there was this sort of dichotomy where the old guard was stuck in their ways and the young people who came in with all these fresh ideas were falling on deaf ears, and they'd never been part of anything successful. So they sort of didn't know what success looked like or felt like.
So they slowly start to turn it around in animation. You know, at first with films like The Great Mouse Detective in 1986, nothing to write home about. They did Oliver & Company in 1988, that gets a little bit more press. There's people sort of saying, 'Hey, look, Disney animation can make good things that are commercially successful.' But then the big idea, the crazy one that really worked, was to refine the formula of the Disney animated movie and make them musicals.
These are going to be Broadway musicals, but animated.
Yes. We're going to turn these things from cartoons with music to musicals that are cartoons. And it makes all the difference in the world.
From story arc to the type of music. I mean, Snow White had some really catchy tunes. 'Whistle While You Work,'
'Heigh-Ho,' blah blah. Yeah.
But they weren't musicals and they didn't follow the sort of musical stage performance story structure. So Jeffrey Katzenberg recruits a guy named Howard Ashman.
Yes. Interestingly introduced by David.
I was going to say, yeah — David Geffen connects them, right? [laughter]
Yes. Howard, when he hears the word Disney, instantly says, 'I want to work in animation. I feel there is a connection between animation and musical theater.' And I don't think this was obvious to anyone else. This is like a unique Howard insight. So Howard brings along Alan—
Composer Alan Menken. The two of them had done Little Shop of Horrors together, and they hit the ground running. They come into Disney animation, and the first film that they work on together is The Little Mermaid.
These guys are geniuses. When we really started to dig into the question of like the Disney Renaissance — who was responsible, who created these incredible movies and totally turned around Disney? It's these guys.
Yeah. They weren't the original story pitch.
No. And they weren't the executives, but they brought the magic. So Howard has this great quote where he says, 'In every great Broadway musical, the third song, the leading lady goes and she sits on something — might be a rock, might be a trash can — and she sings a song to the world, telling the audience what she wants, if she could only have this thing in life. And then the whole rest of the film, we root for them. That is the entire crux of the play: what does the leading lady want?' And we hope that she gets there. And he's like, 'I just realized we could do that in Little Mermaid.'
So Part of Your World is just the setup song for Ariel sitting there explaining to everyone, 'I just want to, you know, go where the people are. I want to see them dancing, walking around on — what do you call them? Oh, feet.' And this amazing sort of like lyrical explanation of what she feels as a character that ends up kind of carrying the whole movie.
Howard is also the one who says, 'Hey, that little crab — should we make him Jamaican?'
And that leads to the whole song Under the Sea. I mean, these are like formative songs that are in — at least, David, you and I, our generation's head forever, and why we watch the films, I'm sure, a million times when we were kids.
Yep. And why they survive. I mean, my girls are watching these movies today. So, Little Mermaid comes out in 1989. It's a classic,
but it's not like it blew the doors off at the box office. And it had a pretty big budget. Animation grew its headcount from that low when it was left for dead of 150 people to 550 people. And here's a great quote from our friend Ben Cohen at the Wall Street Journal in a piece that he wrote: 'Once upon a time, Disney movies got beat at the box office by romcoms. The Little Mermaid made less money than When Harry Met Sally in 1989. Only when it came out on home video in 1990 and kids could watch VHS tapes of The Little Mermaid anytime they wanted did the iconic children's movie become truly massive.'
So if you're just looking at box office, you're kind of like, 'Okay, I see green shoots here. We're really on to something. People love this,' but it's not like it magically made the company. It's not like we just generated a bunch of profits,
Which, you know, look, trust in Disney animation had eroded, right? Like people were used to crap coming out of the studio.
So they do Rescuers Down Under in 1990. It's fine, but it's not like one of the great Disney Renaissance films the way that Little Mermaid and the one we're about to talk about.
And then Beauty and the Beast. I know Lion King's bigger, but like Beauty and the Beast is my favorite of these movies.
It was my first movie in theaters.
And this is another Howard Ashman special.
Yes. So, Beauty and the Beast builds on the momentum of the team that trusts each other, the new style of musicals as animation. This one actually lights up the box office: $330 million gross at the box office on a $25 million production budget.
Man — Disney animation is back.
They do it again the next year. I'm telling you, year after year after year, 1992 with Aladdin. Box office—
500 million is what I saw. Right.
On a $28 million production budget. And they're pulling out the stops on sort of the Disney stars at this point. They're bringing in Robin Williams to be the genie—
From Good Morning Vietnam to the Genie. Yeah.
That's right. And then they do it again two years later with The Lion King, 1994. This time a little bit bigger production budget. It's $45 million. It's very sophisticated animation. You know, you've got James—
How much money did this thing make?
This brings in $750 million.
Yeah. Unprecedented at the time.
The most successful traditionally animated hand-drawn film in history.
Michael Eisner actually announces then they are going to build a new animation building and bring all of the animators back onto the Disney lot.
Which, as a fun little aside, Disneyland, when it was originally supposed to be like a little 15-acre park or something right next to the Disney lot before it became a much bigger project — this is actually the plot of land where the new animation building is today. So great. So great.
So that's the Disney Renaissance.
So it's interesting, right? Little Mermaid cost $40 million to make, and then Beauty and the Beast and Aladdin were cheaper, and you said like, 'Oh, production budgets ballooned back up with Lion King, but only to 45 million.' How are they making these so cheap?
Yes. So, the process of actually doing the hand-drawn animation — and it all was still hand-drawn at this era — had progressed from the actual inking and painting to kind of skipping the inking...
step because they use xerography. So you could directly transfer the paper sketches onto the transparent celluloid for each frame so that you can photograph it. But the thing that Disney does here during the Renaissance films is something called CAPS, starting in 1990, the Computer Animation Production System. This was really pushed by Roy E. Disney, who felt this was a big part of his uncle Walt's legacy, kind of pushing the frontier of technology and how investing in new technology can push the state-of-the-art in storytelling. Computers had advanced a lot by 1990, and so they got to thinking, why are we still using physical paint to color in the lines on every single one of these hand-drawn frames? Also, multiplane cameras were really, really expensive to operate. So they started cheaping out in the dark times, where rather than photographing really complicated, you know, six-plane animation, they would just kind of slap one animation cell down, put a background underneath it, photograph it, and move on to the next one. And so they invested $10 million in fixed costs into software that could do two things.
One was effectively Microsoft Paint for 2D animation, where you could look at all the lines on a computer, you could select a color, you could bring over your little paint tool and dump your bucket of color into an enclosed area. It sounds like I'm describing something that you're like, 'Yes, we've all used MS Paint.' But this was rocket science at the time. This was really cool and meant that not only do you not have to do inking anymore, you don't do painting either. And on top of that, what CAPS was was a super-duper multiplane camera that could do an unlimited number of planes, not just limited to whatever you could actually do in Walt's era. So you could do it faster and cheaper without actually operating the multiplane camera. So The Little Mermaid, which only had three multiplane shots because it was before CAPS, by the time you get to The Lion King, it had hundreds. So it's better, it's faster, and it keeps the budget down.
Yeah. Seems odd that Disney, a, you know, media company, would develop this computer software technology in-house.
Yes. They relied on a partner for that who was getting really, really good at early computer graphics: Pixar.
Yeah. Mhm. Well, put a pin in that.
Yes. And one other, just fun, just because this is cool, nerdy stuff: the scene in Beauty and the Beast that is the ballroom dancing scene that has this crazy cool camera pan. It's a quick shot, but it's one of the most memorable shots of the whole film. The background of that was actually 3D rendered using Pixar software.
and then they composited using CAPS a 2D hand-drawn Belle and the Beast dancing. And that is the first time they used any 3D animation in
any Disney films. Oh, that's so cool.
Yeah. And if you go back and watch it, you're like, 'Whoa, yeah, the background is computer-generated.'
Yeah. Oh, that's awesome. Okay, so on the back of all these Disney Renaissance animated hits, the flywheel is soaring again at Disney. I mean, really, for the first time since Walt died, the core animated IP at the center of the company is back. It's inspiring new generations of children, their parents, and Eisner and Wells not only embrace all of it, they extend the flywheel even further. So, they add three new incredible extensions to the Disney business model, all based on these characters and stories and this timeless IP that Disney animation is once again creating. So, the first, home video. Man, this is a banger. So, the Disney Vault already existed. Disney would take their classic movies like Snow White or Cinderella and re-release them in theaters every seven years or so to, you know, get a new generation of children exposed,
which was the only way to watch movies. My brain sort of can't understand this since home video has existed my entire life.
No Disney Plus back then, baby.
Nope. And until 1985, there was no way to watch a Disney film outside of a theater.
Yep. Yep. So Eisner and Wells and Katzenberg, they're like, 'Well, we can do the same thing with home video.' You know, VHS exists now. It's a big thing. You know, it's high penetration in US households. None of the old people at Disney want to do it. Roy is opposed. The family's opposed.
It's heresy. Michael has to convene the whole Disney family and get their approval to release Pinocchio as the first of the classics that they're going to put on VHS here in 1985.
And they're starting low stakes. I mean, Pinocchio has already been re-released in theaters five times, seven years apart. You would think you're not cannibalizing much at this point on the sixth re-release
of Pinocchio. So, they agree to a very limited 1.7 million unit run of VHS of Pinocchio priced
I'm glad you found this, too.
at the very high $29.95 at retail per copy. It sells out like instantaneously. So that's $50 million in gross merchandise sales. Basically zero incremental production costs except for the couple bucks of printing the cassette tapes. And then they do it the next year with Cinderella, which proves the exact same thing. So they do a theatrical re-release on schedule of Cinderella, does $34 million in box office revenue, and then they put out the VHS home video, 6 million units. So, between the two of them, that is $200 million in gross revenue from Cinderella.
Oh man. I mean, it's basically another box office smash like for free that they're getting here.
Yeah. So, it's this crazy thing they discovered where it seems to not hurt anything, not dampen any demand, because Michael Eisner would sort of later famously point out, people buy these tapes but they break, they lose them.
It doesn't make people any less excited to go to the theater losing VHS tapes,
right? It's not like, oh, you're permanently destroying an asset now that those tapes exist in the world. No, it only increases the demand for more Cinderella now that the tapes are out.
This is the core philosophy behind how Walt Disney's flywheel business strategy works. I had read that Disney was keeping like between 17 to $20 a pop in profits per VHS tape that they were selling because I think they had so much leverage over the retailers. So home video quickly becomes a billion-dollar business for the Walt Disney Company. It's the second biggest profit center for the whole company after the theme parks. And then that's just re-releasing the classics. Then they start doing home video of the new hits that are coming out and like, man, does that blow the doors off.
Having a home video release channel instantly makes whatever you want to spend on animation worth it.
It is this sudden renewed focus on animation because they realize, oh my god, there's a way to get value out of this.
Yes. So, the numbers on this: Aladdin sells 30 million VHS tapes in 1993.
So, that's $900 million in sales of tapes.
Yeah. Yeah. And then The Lion King eclipses it in 1995 when it comes out on VHS with 32 million units. The bestselling VHS of all time, period, in history, ever.
That's a billion dollars of Lion King tapes sold.
Yes. That Disney is getting roughly 50% or greater cash flow margin out of that. You should think each of those is half a billion dollars in Disney's bank account because these films are already quite profitable from the box office because the budgets are low and the box office is super high.
I mean, Lion King is just ridiculous, right? Like $750 million at box office on a $45 million production. So, let's say, what does Disney make? $300 million in cash flow out of that theatrical
minus distribution and marketing expenses. I don't know, 250.
Yeah. Okay. Sure, 250. Out of half a billion from home video, you're at three-quarters of a billion in cash out of The Lion King within a year of release. And then, well, we'll get to what else comes out of The Lion King in a second.
And I don't think there was much backend at that point for any of the actors. So, I think this is literally just going to Disney. Oh, this is also why it fits so great with Eisner's philosophy because even though they were signing stars to be voice actors like Robin Williams is the genie, etc., etc., they weren't getting paid much. Like these are very different deals, especially back then, for those actors than for the live-action films that were starting to get expensive and actors were, you know, making real money out of.
So that's home video. Next, they launched Disney retail stores across the country.
Do you remember these? Spent so many weekends at the mall when I was a kid in Disney retail stores
plastered with Disney stuff. Giant piles of stuffed animals. It was a hallucinogenic experience to go in there.
Yes. So they build more than 750 Disney stores, retail stores, in basically every mall in America, which now, between home video where for the first time you've got kids and families watching these movies over and over and over again at home, then on the weekends, these American families, they go to the mall, they go to the Disney store, they buy the merch, they revel in all this Disney. Like it is back to the peak of Disney under Walt where it just takes over America basically.
Yep. I bet people of our generation have a unique relationship with Disney because of this period because we were there in such a heyday. I bet people
that are 10, 15 years older than us don't have the same Disney relationship.
Yeah. Since they were sort of grown-ups by the time the Eisner era hit.
Yeah. I mean it was the dark period when they were children and you got to get children to make this work and then they pass it on to their children and etc etc.
So okay home video Disney retail [gasps] and then three Broadway. This is an absolute master stroke. When we first started the research we like oh yeah we'll put a thing about the Lion Kingdom musical in there and Broadway they do that you know great. It's a thing that Eisner and team do in the '90s right? Oh it must be like Disney on Ice.
contributed, but they did very often theater. Disney owns that in, you know, in New York now. Then they put on the Lion King musical, which is spectacular.
Oh, amazing. I haven't been in, I don't know, 15 years or something, but I have a visceral memory of the parade of animals walking down the aisle and just how uniquely they did the costume designs with the faces of the animals that sort of hover above their heads. It's art. It's back to Walt Disney. It's art and commerce, like right absolute art.
And it becomes the highest grossing Broadway show in history.
It's still running today. And if you add up gross on Broadway over the past 30 years plus the touring company, The Lion King musical has grossed over $11 billion in total revenue in its run, which I think makes it the single highest grossing entertainment product in history in any medium. Film, music, TV, video games, other Broadway shows.
What? Lion King the Musical is the highest grossing piece of entertainment ever created in history.
Of any medium? The highest grossing is a Broadway musical.
Yep. Of a single like non episodic, but like a single piece of media, a single story concept.
How is it 11 billion? Cuz even the biggest box office films do 2.8, 2.9 billion. I mean, that's Avatar. That's Avengers Endgame. And then if you were to add like an entire home video on top of that, we already said the Lion King home video was a billion.
Yeah. You double it, maybe more. Yeah.
How do they get to 11 for a Broadway musical?
It's been running for 30 years.
And they're packing the house around the world.
Traveling show. Pretty high ticket price to go to a musical in London. It's in New York. It's got the traveling company.
Yeah. So even spread out over 30 years. Lion King the musical on average that means it has generated $350 million in gross revenue for Disney every single year. That is an extra hit movie every year. [laughter]
And they own it outright.
Yeah. I mean they have to share theater revenue with you know especially the touring company when they go to theaters around the world but that's the same as any movie. It's another movie every year.
Absolutely incredible. So Eisner in this era really did crack the extensions of the brand thing and he also kind of dipped his foot back into traditional marketing more. Didn't they start running a whole bunch of like come to Disneyland commercials and like explaining the rides and I think this is also when they started the campaign where the winning Super Bowl MVP would always say I'm going to world right after they won the Super Bowl.
Well, so, so this is the other big big thing that Michael Eisner does is he transforms the parks. The parks were obviously Walt's genius and part of the original Walt vision and business model for what Disney would become, but they're just theme parks when Michael takes over.
Yeah. They're not really resorts.
He makes the parks and especially Florida a resort. He goes from, "Ah, yeah, we got Disney World and we got Epcot and sure, come to Florida." They build the Grand Fian Hotel. They build the Swan. They build the Dolphin. They start the vacation club time share program with the Old Key West Resort, which my family was a member of. And so what did we do every year? We went to Walt Disney World every single year. It was a resort. It was a vacation. They add Hollywood Studios, then they add the Animal Kingdom. They completely transform what a theme park resort is.
And the Animal Kingdom in particular is a wild pitch. What if we build an actual animal kingdom with lions and zebras and you know the most it's not it it won't feel like a zoo. It'll feel like you're on the African safari when you're out doing it. They changed the park from something that could compete with going to a baseball game on a Saturday to something that could compete with your European 5day vacation.
Yes. Yes. And they get into all the real estate all around it. All those hotels that they're developing, having Imagineering develop. It's not just Marriotts that they're throwing in there, right? And with him raising prices, plowing cash into building out the next 10, 15, 20 years of parks and attracting, oh, I'm not going to spend $300 here. I'm going to drop $3,000 here on a family vacation. This starts to become kind of a behemoth business of its own.
Totally. I mean, it sets the stage for today. Last year, Disney Parks and Experiences contributed 10 billion dollars in operating profit to Disney. And it starts with this nuts. Now, it's not all sunshine and rainbows on the park side during the Eisner era.
There is Euro Disney, [laughter] uh, which costs 4 billion to develop and just loses money for years. The sort of glib line that I like about this is it took Disney a decade to figure out that European parents want to drink wine while their kids run around.
[laughter] There's more to it than that. But and also, I'm not sure that Europeans love being called Euro. Like, if you're if you if you live in Paris, you consider yourself French or or Parisian. You don't consider yourself Euro. So, they rename it Disneyland Paris. They make a whole bunch of changes. They eventually write the ship and there's a global macro thing that changes, too. They sort of opened into a recession, but yeah, that was a disaster for a while.
Yep. Yep. But that aside, I mean, man, by the time we're in the mid '9s here, Disney and the Eisner, Wells, Katsenberg dream team is just crushing it. Operating profit at the company goes from well under 300 million when they take over in 1984 to just under two billion a decade later. So, you know, almost what's that 8x operating profit in a decade.
Wow. And it had been declining. I mean, it fell 25% in 2 years before they joined.
Yeah. Those three guys didn't just save Disney. Like, they made Disney flourish in a way that Walt only could have dreamed of.
It is quite reasonable to say that Disney has never been as successful as they were in this period from the early to mid '90s.
Well, I've got the stat to prove it. So by 1994, Disney's market cap hits $22 billion, up 10x from when the Eisner crew took over, and it becomes the highest valued of all the traditional media companies. More valuable than Time Warner, more valuable than Viacom, more valuable than Fox and News Corp. Disney is on top of the world and it's all about to fall apart. [laughter and gasps] But before we tell that story, now is a great time to thank our new presenting partner, a company that we are very excited about, Sierra. Yes, we study founders and CEOs of some of the greatest businesses in history. And those folks today are all wrestling with the same question. How do I use AI to grow my business without losing what makes us unique?
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Yes. Sierra has built customerfacing AI agents that can do a huge range of things. Not just basic support stuff like answering questions, but the kind of hard things that are closer to a company's core value creation. So, think about things like helping with a mortgage application all the way to closing or a car accident to getting a claim paid, a doctor's referral to handling a specialist appointment, or other use cases like renewing customers at risk of turn, collecting overdue bills, or turning around abandoned shopping carts into completed purchases. So, the magic is that these are not one-off conversations. These are journeys that unfold over days, weeks, or even months across phone calls, texts, emails, chat. Every interaction teaches your AI something new, which creates knowledge that is uniquely yours as a company and strengthens your competitive advantage over time.
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And in fact, we think so highly of Sierra that we invested in the company. So to find out how you can build standout customer experiences that grow your business with AI, visit sierra.ai/acquired and just tell them that Ben and David sent you. Okay, so David, they're flying high. What could possibly go wrong?
Oh man. Well, 1994 is a great year for Disney as a business because Lion King comes out. It's a terrible year for Disney as a company. And there's three huge blows that hit the company in quick succession. First, on Easter Sunday 1994, Frank Wells is shockingly and tragically killed in a helicopter crash while helisking. This is terrible um on every level for the company and the management team for all that Michael Eisner was been as you said like the creative executive and had to be the public face of the Walt Disney Company and the Disney Renaissance. Frank was like the guy behind the scenes holding it all together. He absolutely was the ying to Michael's Yang and all of a sudden he's gone. like one day's here, one day's gone.
And there's big personalities at the table. Michael's a big personality. Jeffrey's a big personality. And Frank was kind of the the peacekeeper, the the one who could always relate to everyone, be the intermediary, calm people down when they were hot about something.
I mean, he was the guy who when Michael said, "I need to be number one," he said, "Okay, no problem. Let's all go make magic together." Y and that force is just not at the company anymore. So then three months later, while Michael is at the annual Allen and Company conference in Sun Valley, Idaho, he starts experiencing chest pains and has to be rushed back to LA into emergency quadruple bypass open heart surgery.
Yeah. And he's out of commission. I mean, he is recovering from open heart surgery in the hospital while they're feeling the loss of Frank Wells. There's a lot of decisions that need to get made and there's a lot of like personnel clashes that needed to get sorted through. But what can Michael do? He's like literally on the operating table. He even thought there was some chance he might not make it. He gave his wife instructions. Hey, if I don't wake up, do X, Y, and Z. Harrowing times.
Yeah. Yeah. So then in the middle of this, Katsenberg quits.
Well, there's a lot of different sides to this story. One version of it is that Jeffrey was promised the number two job at the company if Frank ever moved on or, you know, retired or anything.
Yep. That was certainly Jeffrey's understanding that Michael had promised him that.
Yes. There were other perspectives, including from Roy E. Disney that, hey, Jeffrey is great in the job that he has, uh, running the studios, you know, animation and the other film studios, but he's by no means ready to be the the president of the Walt Disney Company, which again, at this point is much more than just the film studios. You know, it's all of those other businesses that we talked about, right? And so, we need to sit tight for a little while. So Jeffrey's interpretation of this, which is again quite reasonable, is well, I thought you told me this was mine. I am itching to do something bigger than my current responsibility. I been a good team player. I just created some of the most successful movies ever.
That's right. With the Disney Renaissance films, Lion King and and Beauty and the Beast and all these. If you don't think I have a a future here to become president of this company, then I'm out. I'm going to go do something else.
So, he elects that option and leaves.
Yep. And he doesn't just leave. [sighs and gasps] He leaves and starts a competitor and starts a lawsuit.
Yes. Yes. He also sues the Walt Disney Company for bonuses that he was owed. They end up settling that lawsuit many years later for a reported $280 million. But yeah, he leaves and starts a competitor.
Yes. with Stephen Spielberg and David Geffen. And the intention is DreamWorks is going to be a full stack Disney competitor. They're going to do live action. They're going to do animation. They're going to do music with David Geffin. They're going to do television. They're going to do video games. Basically, the whole Disney Flywheel minus the parks, but then they sign up with Universal as their movie distributor, and they set up their headquarters on Universal's lot, which is also a theme park. So yeah, suddenly a very very formidable competitor and then they decide to build the DreamWorks Animation Studio just down the street from Disney in Glendale.
And they start poaching the Disney animators. And one of the first people that Katzenberg recruits is Brenda Chapman, member from Cal Arts in room A13, who is head of story for The Lion King.
And DreamWorks Animation would soon go on to create Shrek. that would do half a billion dollars at the box office. This is the first time Disney has had something like this, a full stack competitor in its backyard.
Yep. Adding insult to injury here is you might say, okay, well, animation is roaring and you know, it wasn't all Jeffrey, so they should be fine. Sadly, Howard Ashman passed away from AIDS just a couple years before this.
And there's a vacuum of Howard's presence in the animation department and in the films that they would go on to make from here.
Yep. So, kind of from here, what comes out of Disney animation is next one is Pocahontas, right?
Yep. Then Hunchback of Notredam, Hercules, Mulan, Tarzan, Fantasia 2000, a movie called Dinosaur in 2000, which I actually remember fondly. I think that was Disney's first 3D animated theater. Yeah, exactly.
Emperor's New Groove, Atlantis, Lilo and Stitch, and Treasure Planet.
Yeah. You know, you know, some of those films, none of them are The Lion King, right? So, Right. So yeah, in the vacuum left by all of this, Michael decides that uh the person he's going to promote to number two, president and chief operating officer of the Walt Disney Company is himself.
Yeah, it's the Michael Eisner company now through and through.
Yeah. Hey, he was great. Like uh he's he's eminently qualified.
I mean, the last 10 years have been unbelievable. So yeah, but uh that's a big job on top of an already very big job. And really what he's saying is, look, there's there's no one obviously ready to be number two across films and TV and the parks. And so until we figure that out, I'm I'm just going to be the guy.
Yep. Yep. And he's also about to pull the trigger on a pretty fundamental change in what the Walt Disney Company was that he had been planning for a couple years. He's been sniffing around the TV networks.
Yes. And wasn't there some regulatory reason why suddenly this was possible?
Yes. So, back in 1993, the FCC had repealed a law called the Financial Interest and Syndication Rules that prohibited TV networks from owning the programs that they aired.
Right? Because the thinking behind this, I think in the 70s when it was enacted, is that these TV broadcast networks, the the big three networks are kind of a monopoly on content in the country. There's no cable. So if those companies basically vertically integrate and own a movie studio and then they air those movies on just the three networks, then we kind of have a problem because there's not enough competition in this marketplace. But as two decades go by, now you've got cable TV and suddenly you've hamstrung all these networks and the networks aren't allowed to produce their own content while they're trying to fight this existential battle of oh my god, cable's coming in and eating our lunch.
Yep. So, of course, the thing that makes sense, which is great. I love it when laws get repealed when they they don't make sense anymore. That law is repealed and suddenly you now have like open season on movie studios and TV networks trying to combine.
Yep. So Michael is sniffing around. He's like interested in CBS first, right?
Yeah. He's sniffing around CBS. NBC isn't for sale. He talks to ABC. Does a typical Michael kind of lowball off that goes nowhere. But Michael had actually started his career at ABC. So Barry Diller and Michael, they were TV guys at ABC before they went to Paramount, right? So he knew everybody there. And then at the Sun Valley Conference the next year in 1995, it's always at Sun Valley. Always at Sun Valley, Michael strikes a deal for the Walt Disney Company to acquire ABC Capital Cities for $19 billion, which was the second largest acquisition in history to that point. Man, crazy. $19 billion. That's like quaint today.
The only bigger one was RJR and Aiscoco.
Yes. Yes. Which is going to come up here in a sec.
And I think there's there's so much great lore around this, but I think this was like a parking lot conversation where Michael had been hoping to run into Warren Buffett and he finally did. And Warren calls over Tom Murphy who was there.
Capital Cities ABC. Yep. and they kind of start talking and I think within days, maybe a week or something, then they've got a deal hammered out.
Yep. Yep. Yeah. So, Warren Buffett in Brookshire was the largest shareholder in ABC Cap Cities, which had been created a decade earlier in the famous Minnow Swallows whale transaction.
That's right. A lot of listeners probably won't know this, but ABC is actually not the parent company that Disney was going after to acquire. ABC was owned by something called Capital Cities, which had unbelievably managed to acquire ABC even though ABC is much bigger than it was.
It was like four times bigger.
You might say, "How is this possible?" Well, they had the financial backing of Warren and Bshire Hathway.
That's right. That's right. So, it's basically a uh using Berkshire Hathaway's capital and the small company of capital cities to sort of jointly buy and control ABC.
Yeah. one of Warren Buffett's many, you know, genius deals.
Y so Buffett and Bircher are the largest shareholders in ABC cap cities here. So really the person that Eisner is pitching is is Buffett. Now Ben, you mentioned something really important which was that the reason that these laws had been repealed by the FCC was the new competition from cable TV. I mean the broadcast networks used to have this monopoly on television content in America. Now all of a sudden here in the '9s, cable and pay TV is just this explosion of content in America and the broadcast networks are under threat. So the broadcast networks like ABC went from like historically these great businesses to kind of like okay businesses because so much of American viewing time and thus advertising dollars had transitioned over to cable.
But it just so happened that buried within ABC was the single best cable asset in the history of mankind, the entertainment and sports programming network, better known as ESPN. Yes. Oh man, the history of ESPN is like completely crazy on its own. It was acquired by the Getty Oil Company just months after it was founded when it was still a startup. Texico then acquired Getty sold off ESPN to ABC. This happened in 1984. ABC wanted a financial partner for the deal. So they bring in Nabiscoco like Nabiscoco as a 20% minority partner in ESPN.
Why? I guess in theory like Nabiscoco was going to get some advertising synergies for their CPG products. Uh I I don't know.
Okay. Uh it doesn't matter because the next year Nabiscoco gets taken private by KKR in the Barbarians at the Gate, you know, largest acquisition of all time. Yep.
As part of that, they sell off this 20% ESPN minority stake to the Hurst Corporation, which still owns it to this day. and Hurst over the ensuing like four decades just gets billions and billions of dollars of free cash flow out of ESPN in a complete free ride. They don't have to doesn't have to lift a finger.
That's right. That's right.
But yeah, ESPN became this juggernaut and they actually invented a whole second revenue line for cable networks in addition to advertising, the affiliate fee business model. was before cable channels would just let themselves show up in a cable bundle. They'd let the cable bundle distribute and say like, "Oh, well, we're selling ads, so can you just do the distribution for us so that anybody who's buying your cable bundle will get my channel and thus see my ads?" And pre ESPN that was the whole business model.
Even more than that, I think for a lot of startup cable networks, the dollars went the other way. I think they were even paying, right? They would pay to be included, cable operators to carry the channel, right?
Yes. And ESPN sort of realizes like they were buying sports rights to broadcast leagues and they needed to cover their costs. So they asked the bundlers, hey, the the cable companies like, hey, will you pay us X cents per viewer so that we can actually afford to go buy these rights, the money to buy the sports?
That may have been how it started. But pretty quickly though, ESPN and then within ABC, once ABC owns it, they realize that sports rights are the biggest point of leverage that they could possibly have over the cable operators because all ESPN has to do is threaten to pull the plug [laughter] on any given cable operator and say to, you know, their thousands or millions of subscribers out there, "Oh, Oh, hey. You know, you wanted to watch those NBA games or those MLB games or those NFL games or see those highlights on Sports Center. Sorry, we're in a carriage dispute with ESPN. We're not going to be able to show those.
A stick that still gets used today.
Right. I mean, when that happens, people actually show up at the doorstep of the cable operators and basically riot. Americans love nothing more than their sports.
Yep. That is pricing power right there. And so once ESPN figures out this business model, it just becomes this incredible juggernaut. At first, Ben, like you said, they get the cable operators to pay them a few cents per subscriber that gets the ESPN channel, and it goes up to a dollar, then $2 a month, and then $5 a month. Do you know what ESPN's current affiliate fee average deal is per month with pay TV operators? I know it's the single highest paid channel by like 3x 4x.
Yeah. Much higher than I'm going to guess I don't know $10 per subscriber.
$942 per month per subscriber that the cable operators pay ESPN. This is billions and billions and billions of highly predictable cash money dollars [laughter] flowing into ESPN.
Contractually guaranteed.
Virtually guaranteed every month. I mean, yeah, sports are the reason, especially today, that people are buying cable, right? And ESPN is very aware of that value that they provide to the bundle.
They are very good at value capture.
Yes. Yes. So, back to the Disney Cap City Cities ABC deal here in 1995. I don't think if they're really honest that Disney and Michael really knew how how big ESPN was going to become. At this point, ESPN had 66 million cable subscribers, but they were only just beginning to really ramp their pricing leverage. There's a Roy E. Disney quote on this. Nobody would have told you when that deal, the ABC deal, was being made that ESPN was going to turn out to be the weightlifter of the group. [snorts] Nobody involved in it in any way ever would have thought that.
Yep. Yep. At that point, ESPN's average monthly affiliate fee with their cable partners was still less than a buck. So, there was so much more room to scale ahead of it. But absolutely quickly after Disney acquires Cap Cities in 1996, ESPN becomes this just crown jewel within the company, almost overnight and almost completely by accident. The business model once they got it going was so simple, just like call up the cable operators every year or two and say, "Hey, we're going to raise carriage rates 20%." Oh, you don't like that? Um, okay, we'll pull the plug. You sure you don't like that? All right, 20% it is.
And they had locked up the sports rights for like a decade for any of the sports they were bidding on. They realized that though we should go get the longest contracts we can so we have the most leverage over these cable companies.
Yep. So this is like the heyday of ESPN here in the late 90s into the early 2000s. MLB, NBA, they do a big NFL deal in 1998 to get Sunday Night Football and Monday Night Football rights for ABC. They get three Super Bowls out of that. Meanwhile, they invented the whole sports highlight category, which is just like, "Hey, we've got these rights." And live sports are worthless the minute after they aired, but what if we show them again a few hours later in a nightly highlight show with a lot of sizzle and some great anchors and this is Sports Center and like, man, was it awesome. Yep. The cost to operate ESPN beyond the sports rights was not that much. They're operating out of Bristol, Connecticut.
Yeah. The cherry on top to all this, too. So, so Disney is already in the cable game before acquiring ABC Cap City's ESPN. They had launched Disney Channel in 1983. Yep. I think that's right.
And it was super rocky at first, expensive to get off the ground, way over budget. It was actually part of the problems they were going through in ' 83 along with Epcot cost overruns. But now that they have ESPN, they're able to like collectively bargain with the cable companies. So, not only could they command premium rates for ESPN, they would also say, "Oh, the Yeah, you want the Disney Channel and A&E and Lifetime." Yeah. Those rates are going up, too. Yep. Exactly. It's almost like a bundle within a bundle.
And that's not even getting into ESPN 2, ESPN Classic, ESPN News, ESPN Oo. You know, [laughter] these days the SEC network, they go they go nuts.
So, this is a grand slam for Disney, an absolute grand slam. But it's yet another huge management item competing for Michael Eisner's attention among all the other existing management items at the Walt Disney Company. And Eisner's thought going in was it is important to have the Disney brand and our products and our content distributed on television. Walt did this. That's how they built the Disneyland mania around that TV show with ABC bringing it full circle. And all that did become important. It was kind of amazing to have ABC and these cable stations as an outlet to promote Disney stuff, you know, in this kind of flywheel synergistic aligned way that we've been talking about. But to your point, David, what it ended up actually being was just an amazing source of continuous free cash flow that they could do other stuff with. Yeah, it's great that we can promote the Disney brand and it can provide all this alignment, but you know what's even better than that? just spinning off mountains of cash that we can use in movies, in parks to sort of expand the the business.
Yeah, I think you can make an argument that ABC fits in with the Walt Disney Company and the Disney Flywheel. ESPN is this wholly separate thing [laughter] that really doesn't.
Mickey Mouse and Sports Center do not meet.
I mean, they try to put uh what ESPN World of Sports in Disney World and stuff like that. wide world of sports and ESPN zone.
Yeah, that's right. Oh, ESPN zone. Yeah. Yeah. Yeah.
But the correct move that they figured out eventually was kind of firewall ESPN out on its own. Make the best ESPN you can and just enjoy the dollars. Yep. And the timing totally lines up with everything you were talking about, David. Expanding the parks, building hotels, leaning into resorts. This is how they funded it all was all the cash that ESPN and the cable networks, but mostly ESPN were spitting out. There's even a quote in Bob Iger's book which which we haven't talked about Bob yet but we will.
Comes into Disney via the Cap Cities acquisition.
That's right. He worked at Capital Cities.
Bob is COO of Cap Cities.
Yep. The quote is it gave Disney a scale to remain independent while other studios were falling on hard times. ESPN also further stabilized the business during the ups and downs of animation. And here David is an astonishing statistic laid on me. So, we're flashing forward, but later on in the 2008 to 2011 time frame, Disney's cable networks segment, of which analysts believe that 3/4 of the cable network segment is ESPN.
That segment accounted for 60% of the entire company's operating income during that 2008 to 2011 period. Yeah. over $5 billion dollar in profit just from the cable channels. I mean, they evolved into the cable TV affiliate fees company.
Yep. So, back here to the late 90s into the early 2000s, Michael's just overloaded managing all this. And one element of the backdrop to all this is it's the dot era. [laughter] Disney does all sorts of crazy stuff. Uh they acquire Starwave, Paul Allen's company, uh after Microsoft, right here in Seattle. Yep. Starwave was basically like a web developer that they I think paid a couple hundred million dollars for. Then they buy Infosek, which was like the seventh place search engine. They then create a separate Disney Internet assets tracking stock that they float [laughter] what publicly. Yeah, you can't make all this stuff up. It's, you know, do insanity and like, hey, okay, great. Give give Eisner a pass because everybody's doing insanity during this era.
Well, the biggest credit to give is the deal that he didn't do.
Exactly. Yeah. AOL approached him. Steve Casease approached him before Time Warner about an AOL Disney combination. And to Michael's eternal credit, maybe the best thing he did as CEO of the Walt Disney Company, among many, many great things other than buying ESPN. other than buying ESPN. But yeah, it was was say thanks but no thanks to AOL. Yeah, I mean looking at what AOL did with Time Warner, AOL merged its stock that was highly marked, but the intrinsic value of the company was actually worthless with Warner Brothers, like a a real durable, stable company, at least at the time. And that could have happened to Disney, too. But amidst all these very high valuations of the dot era and I watched a bunch of interviews of Michael at this time, he was skeptical and very careful about not giving away Disney in like a foolish transaction like that.
Yep. Yep. Yep. While we're on bad decisions during this era, Michael does finally hire a number hire a president. Yeah. [laughter] And a number two. his close friend and Hollywood super agent Michael Oitz comes in as um Disney president to be Eisner's number two and help him operate the company in uh 1995. Michael famed past acquired guest.
That's right. Founder of Creative Artist Agency. This was huge. This was huge news in Hollywood.
Earthshattering stuff. I mean Michael Oitz built CIA into such a force in not only Hollywood but kind of the whole creative community. The only thing that rivaled the power of the studios at the time was CIA. Going to be the number two after being the founder number one at at CIA said a lot.
And you know what? It also speaks to what Eisner had built and assembled at Disney, especially after Cap Cities that like it was the place to be in media.
And it was almost immediately a horrible decision.
Oitz was an agent. Eisner was an executive. This was a bad idea from the start.
You know what the job of a president and COO is? It's to sit in meetings all day, herd cats, make aligned decisions, tell people no, don't people please, make sure that the thing runs, and manage processes that take a really long time with tens or hundreds of thousands of employees to carry out. The job of being an agent is being liked, saying yes, wielding your power, making things happen quick, being involved in 15 projects at once, or in Michael's case, 500 projects at once. The day-to-day operations of being the number two at Disney could not have been more different than the skill set he had perfected at CIA.
Yep. So Oitz lasts just over a year at Disney and leaves in December 1996 with a $140 million severance package cuz neither Oitz nor Eisner thought there was any chance this was going to fall apart. And so the Walt Disney Company was willing to put in a contract and say if you don't make it x amount of time then you get $140 million extra dollars.
Yep. Now, all of this, frankly, is just window dressing on what the real problem is. The real problem is Disney animation.
Ben, you talked about what the movies were after 1994, and some of them were good, but it's a a downhill slide. And by the time you get to the end of that period, Atlantis, Treasure Planet, these are bad movies.
Yeah. And with Capital City's ABC, ESPN coming in, it's a little bit confusing how to think about and organize the company because before you had this nice, tidy flywheel business. You make films with characters that people love on these universally relatable journeys. You make money at the box office, home video, parks, consumer products, and then you recycle the IP every seven years. It's articulatable in one sentence. when they bought Capital Cities, it's totally different. Owning TV stations that generate revenue from advertising, from cable subscriptions, mostly using one-time use content that is not evergreen, most of which you don't create yourself inhouse. I mean, it it can be profitable and and sometimes fantastically profitable, but it's worth acknowledging that that's a totally different business model. And now you have these two completely different uh sort of business model, operating model things under one roof. And bringing in Michael Oitz, what was he supposed to run? Because they're actually two two very different things.
Yep. Yep. So all this and you know in animations now without Katzenberg. Uh Roy is still there, but a lot of the talent is bleeding out to DreamWorks. Even the talent that stays, they're getting competitive offers from DreamWorks. So Disney has to pay them more. So all their costs in animation are going up. It's really a downward spiral. And for the first couple years, it didn't really matter that much because the parks were still doing great. They still had all the great IP from the Disney Renaissance that was driving everything that they could, you know, put into the parks.
Yeah. Because they don't make most of their money from actual profits at the box office when the movie comes out the first time, there's a delayed impact to animation sucking that doesn't show up in the financials until way later.
Yes. or until something happens to the parks, which [sighs] is exactly what happens in September 2001 with September 11th, obviously national tragedy, but Disney's parks business basically instantly falls off a cliff. I mean, it's like CO for Disney parks for the few weeks and months after September 11th. All of a sudden, this crown jewel asset within the empire just goes to, you know, close to zero.
Yep. I mean, for a few weeks, zero planes are in the air.
And for years after that, people don't feel safe traveling. Not to mention, it triggers this like consumer spending impact. Not good if you're running a high fixed cost theme park business.
Yep. Yep. So Disney stock falls nearly 25% in the days after the September 11th attacks. Fairly quickly thereafter, they're forced to close the vast majority of the Disney retail stores that they had opened in malls across America. The operating profit from the whole consumer products division had already been slowly ticking down as no new good IP was coming out of Disney animation to sell dolls and costumes. Now it's down to like a trickle.
The worst part of all of this, for Michael Eisner at least, is that the Bass family, which to this point are still Disney's largest shareholders and Michael's strongest supporters among the shareholder base, in the days after September 11th, they face a margin call on their other investments. They have to become forced sellers of$2 billion dollar worth of Disney shares which puts even further downward pressure on the Disney stock which has already just fallen by 25%. They sell the majority of their Disney holdings in a block transaction and overnight Eisner's support in the shareholder base or at least the biggest bulk of it is like gone. Disney is now trading at depressed levels. I mean, it's almost like 1984 all over again. Corporate raiders showing up to break up the company.
It's eerily similar. Animation in the dumps. Before it was Parks holding the company up, but now it's ESPN holding the company up.
Exactly. And even ESPN for, you know, a short period of time is shaky. Like sporting events stop after 9/11. It's a weird time for the country.
Yep. And then [sighs and gasps] just when it seemed that things couldn't get any worse at Disney in the years after 9/11, on November 30th, 2003, Roy E. Disney announces that he is resigning from the Disney board of directors, citing quote serious differences of opinion about the direction and style of management. Man, this really is a mirror of 20 years earlier.
Is it ever? Except this time it all plays out in public because Roy and Stanley Gold, his business partner, who also resigns from the board, would promptly turn around and launch a firstofits-kind public grassroots shareholder campaign with the website saved Disney.com with the stated goal of mounting a proxy vote to oust Michael Eisner. there as the CEO of the Walt Disney Company.
Yeah. Ben, uh, this playbook of starting a website of save companyx.com, like an insider, resigning from the company, starting a website, and a public grassroots campaign would famously be repeated once more in American corporate history. Do you know what company?
Savepa John's.com. [laughter] No way. Yeah. Save Disney and save Papa John's. Oh man. [laughter] Well, before we tell the story of Save Disney and Disney's ultimate leadership transition to Bob Iger that would come out of it, now is a great time to thank one of our favorite companies, Sentry. That's right. That's S E N T R Y, like someone standing guard, which is what they do for developers. Sentry helps teams debug everything from errors to latency issues, basically any software problem and fix them before users get mad. It is considered quote unquote not bad by millions of developers out there. And David, this might be one of the most ontheme sponsor moments that we have ever had on acquired. We are about to spend a good chunk of time on the Disney Plus launch later the episode.
Yes. And uh think about what that launch actually was. One service going live on basically every device on Earth all at once. Phones, video game consoles, smart TVs, streaming sticks, tablets, already for tens of millions of subscribers on day one. At that scale, things break in places you've never seen. Disney Plus launched with Century as the centralized error logging service behind it. So when something broke, the team knew exactly why it broke on which device and in which release, all before the angry email started. And here's the wild part. That was 2019. What Sentry does now goes a step further. Software is starting to fix itself in production. And the clever thing is how they pull it off. So Sentry is already watching your app in production. So the second it breaks, it has the whole picture. Error logs, the trace, the release that it started in, it hands that context straight to the tools developers already use. is whether that's claude code or cursor or century's new agent sear and it automatically finds the root cause and opens the PR for the human to review. That is what makes software self-healing and it's why 200,000 organizations run
On Sentry. Yes, thanks to Sentry for making sure everyone's favorite stuff, including Disney Plus, which let me tell you is our favorite stuff in this household, actually works. They've got an incredible customer list including not only friends of the show Anthropic and Vercel, but also Cursor, Linear, GitHub, and many more. If you want to learn more, go check out sentry.io/acquired. And one last thing, Sentry is the host this year of the official Acquired community meetup with David and me in San Francisco, Thursday, September 17th at Fort Mason. David and I are going to have a live conversation going behind the scenes of Acquired. We'll have food and drink and a room full of the Acquired community. Tickets are $20 and 100% of the proceeds will go to the Susan G. Komen Foundation for early detection of lung cancer.
It really is. Space is limited to 500 people only. So grab your spots now at acquire.fm/meetup and we look forward to seeing you there.
All right, David. So the Save Disney campaign. First, let me just open with an excerpt from Ride of a Lifetime, Bob Iger's book. This is about the resignation letter that Roy had written, which he sent copies to Eisner, the board, and then the Wall Street Journal, the New York Times, and the LA Times. He went on a blistering three-page critique of Michael's stewardship of the company. The first 10 years had been a success, he acknowledged, but the latter years had been defined by seven distinct failures, which Roy laid out point by point. One, a failure to bring ABC Prime Time back from its ratings abyss. Two, the consistent micromanagement of everyone around you with the resulting loss of morale throughout the company. Three, a lack of adequate investment into theme parks. Building on the cheap that has depressed park attendance, which is counter to every other thing that I've heard.
I mean, yeah. Well, park attendance was down because of September 11th, right? Michael sort of famously had an eye for making the theme parks great. The sort of second only since Walt, nobody invested in the parks like Michael Eisner.
Right. Right. Four, the perception by all of our stakeholders that the company is rapacious, soulless, and always looking for the quick buck rather than long-term value, which is leading to a loss of public trust. Disney was by this point distributing Pixar's early films, but Eisner and Pixar had a very contentious relationship. We'll put a pin in that for now. Yep. Five, a creative brain drain from the company due to mismanagement and low morale. Six, a failure to build good relationships with Disney's partners, particularly Pixar. And seven, your consistent refusal to establish a clear succession plan. This is a brutal letter. Yeah. And then Roy ends the letter with, "Michael, it is my sincere belief that it is you who should be leaving and not me. Accordingly, I once again call for your resignation and retirement." Woo! Man, so what is Roy so upset about? Amazingly, Disney animation had continued to go downhill, right? 2003 had Brother Bear. 2004 had Home on the Range. 2005 was Chicken Little. You've never heard of any of these films, I'm sure. Maybe you've heard 2007 they had Meet the Robinsons, which I guess would have been in development.
Yeah. Yeah. Yeah. Bolt was the end of this misery in 2008.
Yeah. I mean, if you are a little bit younger than David and I, call it 25, maybe 30, you probably don't actually have any Disney movies from your childhood that you remember the way that we remember Aladdin and The Lion King and The Little Mermaid and Beauty and the Beast.
Totally. But yeah, back to Roy and this Save Disney campaign. I mean, look, Roy, as we already talked about earlier, he's a complicated guy. He's so upset about Disney animation. I mean, technically he's the one in charge of Disney animation. So, like, who's he upset at here? Like himself. But I think really like what this is really about and Roy's superpower for Disney was that even if he wasn't, you know, the best executive or leader or in touch with the marketplace as evidenced by the total flop of Fantasia 2000, he absolutely was the steward and protector of the Disney spirit. And it was so clear that the Disney spirit, the creative spirit, the spirit that made these timeless stories that got handed down from generation to generation had left the building and the company just spread two things. Got two completely different business models doing two completely different things from this merger with ABC.
Yep. So what happens next? Roy and Stanley had resigned in a huff from the board at the end of 2003, right at the holidays. Disney's annual shareholder meeting is coming up in March of 2004 where the vote is going to happen to hopefully in their minds oust Michael Eisner as CEO of Disney. Disney in response schedules an analyst day, an investor day for the company in Orlando in February of 2004 ahead of the meeting to sort of shore up support for Michael and shore up support for the stock. And they have good news to share. Pirates of the Caribbean is going to save the company. The movie did great based on a Disneyland ride. I mean, you can't write a better story. Can't write a better story. Revenue for the quarter is up 19%. Johnny Depp riding in. Going to save Michael Eisner's job. They all wake up the morning of the investor day. Eisner's there. Bob Iger is there. By this point in time, he's been promoted to be president and COO of the Walt Disney Company. And they read the news that Comcast, the Philadelphia-based cable company, is making a hostile takeover bid to acquire Disney for $54 billion in Comcast stock. I remember when this news hit, it was shocking. I mean, it was shocking. The idea that a cable company, a cable company could take over the Walt Disney Company was like offensive. There were practically no more hated, you know, genre of corporations in America than cable operators, largely in part thanks to the Walt Disney Company and ESPN riling everybody up against them. And that they would be taking over with stock this treasure of America. Honestly, for Roy and for Stanley and their Save Disney campaign, it was the best thing that could have happened because to many people, they look at this and they're like, "How low has the Walt Disney Company fallen."
But Disney is doing great. The parks business was down because of September 11th, but it's coming back. Pirates of the Caribbean is a big success. They've got this great partnership with Pixar. They've got freaking ESPN, which is still crushing it. Why does Comcast want to buy Disney? They sense this opening, this weakness. And wouldn't it be amazing if Comcast could all of a sudden acquire its most important supplier in ESPN that has all of this leverage over them?
They're constantly going to war with ESPN every year to renegotiate the carriage rates. Be nice to own it.
We might be able to get ESPN. Holy crap. Let's try it.
Oh man. Just to underscore this ESPN thing, friend of the show Ben Thompson has a great reflection on all this. Walt Disney's chart, the famous flywheel one, may have been a very satisfying business model, but the reality of Disney's TV business is that it was scalable in a way that the Disney chart could never be. The beauty of the cable bundle is that nearly every household in America paid for it every single month, regardless of whether or not Disney had a hit TV show or a must-watch sporting event. Thanks to its suite of channels anchored by ESPN, Disney received a big chunk of that money and it grew like clockwork. In that world, Walt Disney's model was a nice side business to the real money maker.
Yep. Yep. Man, it's all all about ESPN. Everything that's happening.
Yep. The cable network's operating income, the profit within the Walt Disney Company at this point was $2 billion. Companywide, they were only making $4.5 billion. So like almost 50% of the company's total profits is just these cable networks.
Yeah. Which is really ESPN. So on the back of this narrative of you know how low the Disney company has sunk under leadership of Michael Eisner which gets ridiculous but it's the narrative out there. The two major shareholder advisory services back the Save Disney campaign and Roy, and they advise shareholders to vote to withhold their support of Michael Eisner as CEO at the March shareholder meeting. CalPERS, the big California pension fund, they announced that they're going to vote their Disney shares against Eisner and vote for him to resign. So, all of this comes to a head on March 3rd, 2004 at the Disney annual shareholder meeting, which hilariously had been scheduled that year to take place in Philadelphia, headquarters of Comcast.
They're like just a few blocks away.
At the end of the day, 43% of the shareholder base votes to withhold support for Eisner as CEO, which is a huge number. You don't renew a CEO's contract when 43% of your shareholders don't want that CEO.
Yep. So, the Disney board meets in an emergency executive session without management present during which they decide to remove Michael as chairman but let him remain CEO of Disney for the moment. They announce this. The Disney stock jumps in response. Meanwhile, Comcast stock has been falling. So, a few weeks later, Comcast formally withdraws their bid, but this doesn't placate Roy and Stanley in the Save Disney campaign. Eisner is still CEO. A few months after that, Michael announces that he will leave the company when his contract expires at the end of 2006. So, he's announced that he's going to resign. But now there's question, okay, who's going to take over?
Yep. The board announces that it is going to initiate a public high-stakes CEO search and they intend to name Michael's successor by June of 2005. Everyone everyone believes it's got to be an external candidate that is going to come in and take over Disney just like Wells and Eisner came in 20 years ago.
Well, do you know what the press release says who it names? Well, it says that there will be external candidates and that there will be one internal candidate.
Initially, it actually said internal and external candidates. And Bob Iger was reviewing the press release cuz he's COO. And he goes to the board and says, "Wait, Michael's going to be CEO for another year." Bob's like, "You you can't really do this. Are there other internal candidates or is it just me?" And they say, "It's just you." And he said, "Well, then you need to put me in the press release because it it's there's going to be otherwise going to be chaos around here, right? People will need someone to look to for leadership because no one's going to be looking to Michael. He's a lame duck." And there's going to be all these people vying for power or the company will not function. You have to say external candidates and Bob Iger. And they agree and say, "Okay, then we'll do it."
So Bob is announced as the internal candidate and the board promises they will run an exhaustive search for external candidates. Bob, and he recounts all of this in Ride of a Lifetime, comes up with, I think, one of the most brilliant campaign framings that I have ever heard. And he actually hires like a political campaign consultant to help him with this. And he realizes that, okay, I am the number two to an unpopular incumbent. I'm like the vice president of a massively unpopular president right now who has just become a lame duck. Right. Every board member's first, second, and third question for me should be, "Why should we pick you when you were a part of the previous administration and how did you screw up so badly?" Yeah. So, he realizes that his only chance is to completely reframe the situation. This isn't about what happened in the past. This is only about the future. Which both is the right way to look at this and it is Bob's only chance to win.
Yes. So he proposes to the board in his candidacy three pillars of his vision and strategy for the future of the Walt Disney Company. Number one, we need to devote most of our time and capital to the creation of high quality branded content. Aka, we need to revive Disney animation and along with it the Disney flywheel. Spot on. Especially now because the amount of content in the world is exploding. We're here entering the social media era. There's Facebook. We're about to get YouTube. Consumers have infinite choice for content. The only way for a company like Disney to hope to try and still be relevant is to go back to making the very best content and build a brand to be known for that so people know to look to you for that highest quality tier.
And still nobody is better positioned than Disney to do that. Even despite all the problems and distractions and the downfall of animation over the last 10 years, it's still Disney.
Yep. So, that's one. Two, we need to embrace technology to the fullest extent. Now, this sounds like, duh, why wouldn't you do that? But this is actually kind of a radical statement at this point in time. We're about to enter an era where the entire traditional media industry is going to be either running scared or actively trying to fight tech in Silicon Valley. Viacom is about to launch a lawsuit against YouTube to try and sue it out of existence. Everybody remembers what just happened to the music industry and Napster. Bob is saying, "No, we are going to embrace technology both to produce fresh new cutting edge content the way that Walt did, but also embrace technology as a distribution medium and figure out how to use that to our advantage, not let technology be the reason for our downfall."
Yep. And then Bob's third pillar of his strategy is expand global reach. We need to better penetrate certain markets, particularly the world's most populous countries like China and India. Unlike Walt's era, at this point, something like a third of the global population lives in those two countries. And Disney is all about scale economies. Make the deepest, best, highest quality content and characters and stories possible and get as many people around the world to fall in love with them as possible.
Yep. And we need to get into those two countries.
Yep. So, amazingly, Bob wins on this campaign. In March of 2005, the board announces Bob Iger will be the future CEO of the Walt Disney Company. They accelerate his start date and Michael's departure date to that September 2005, a year ahead of when Michael had initially announced. And the Michael Eisner era at Disney comes to an end after 21 years.
It's so interesting. Michael Eisner's tenure at Disney in my mind is really two chapters. There's that whole first chapter that sort of ends with Frank Wells passing, Katzenberg leaving, the end of the great Disney animation era and acquiring Capital Cities. But the ownership of Capital Cities is sort of that that whole second era.
Yes. Yeah. I think that's the way I would frame it too. He and Wells and Katzenberg did an incredible job turning around Disney in the first 10 years that sort of went sideways in the second 10 years, but also Michael made one of the greatest acquisitions of all time in the second 10 years and because of all the drama doesn't get anywhere near enough credit for it.
Yeah. It's so interesting when you say the greatest acquisitions of all time when I look at ABC Capital Cities. It was because it had ESPN, but it also cost the company its strategic clarity.
Yes. Disney never again would get to be just Disney. It's the flywheel business and the ESPN affiliate advertising cable business.
Yep. And it's worth it because buying ESPN was this pseudo infinite wellspring of capital to fund everything else.
Yep. That's exactly right.
By the numbers, Michael's tenure was unbelievable. He comes in with a market cap a little shy of 2 billion, leaves with it worth, I don't know, 50ish billion. I think there was some dilution, so it wasn't quite a 25x, closer to a 20x of the stock. He comes in, revenue is 1.7 billion. He leaves at 31 billion. That's a 15% compound annual growth rate over his two decades. And net income goes from 97 million to 2.5 billion.
Yeah. 26x net income during his tenure by the numbers.
Great. And you know, ESPN is arguments one, two, and three of why was he a great CEO?
Yep. Yep. Yep. And also Disney's Renaissance, but like I put that at four below ESPN, ESPN, and ESPN and then the Disney Renaissance. Yeah.
Yes. I don't know. You got to count Lion King the musical for something.
That's true. That's very true.
So Bob Iger is named CEO. One of his first calls after he gets the news on I think a Sunday afternoon is to Steve Jobs, the then CEO of Pixar, in addition to being the CEO of Apple. And he writes in Ride of a Lifetime, "I barely knew Steve at that point. He was typical Steve. How long have you worked for Michael?" he asked. "10 years." "Huh?" he said. "Well, I don't see how things will be any different, but sure. When the dust settles, be in touch." And it turned out that that phone call was probably the most important phone call in the history of the Walt Disney Company. But before we tell the story of Pixar, now is a great time to thank one of our favorite companies, Work OS.
Yes. So, I want to start with a line that we quote on this show all the time. Focus on what makes your beer taste better.
Yes. One of the great business metaphors from back when breweries ran their own power plants. All that electricity did nothing for the taste of the beer. And every era of software has its own version of the power plant. Right now, the cost of building software is collapsing to near zero. And you can build a real working product with AI writing 100% of the code. The stuff that differentiates you is what you build, your ideas, and how to serve customers. And this is where Work OS comes in. Something that you absolutely should not build yourself is enterprise authentication. Nobody needs to roll their own. If you're selling software to B2B or enterprise buyers, they deeply care about their data and they care about security. They need things like SSO or SCIM, audit logs, RBAC accounts, the entire checklist. None of that is the sort of thing that you listeners can uniquely do well to make your product better. But all of it sits in between you and closing a deal with a customer. This is the whole reason Work OS exists. They turn those enterprise requirements into drop-in APIs. Your team adds enterprise SSO in an afternoon instead of a couple months and gets back to the stuff that really differentiates your product.
Yes. And that is why OpenAI, Cursor, Perplexity, friend of the show Anthropic, and hundreds of other AI startups build on Work OS instead of building the power plant themselves. They just plug into the grid so the product that you built over a weekend can be ready for the enterprise on Monday. You can learn more at workos.com and just tell them that Ben and David sent you.
So during his CEO audition process, Bob Iger had completely lost faith that Disney animation can be fixed from within. And secretly he concludes that the only viable path to restore Disney animation to its proper glory is to replace the entire leadership team with Pixar leadership. There's this famous moment that Bob writes about where he's at the opening parade of Hong Kong Disneyland in 2005. He's watching all the floats go by and he sees, you know, Cinderella and Mickey and Snow White and he realizes that there are no Disney characters from the last 10 years or so that are in this parade. And on the contrary, it's stuffed to the gills with Pixar characters.
Yep. And that's the moment where he's like, "You know what? The path is clear. Pixar needs to take over Disney animation." And that's why he called Steve Jobs the evening that he knew he was going to become CEO.
So listeners, we thought something that would be fun on this episode is to tell the whole Pixar story. We could have done it sort of in line earlier with Disney animation, but we wanted to carve it out, give it its own special section and in a really poetic thing for David and I, redo our very first episode on Acquired which was on Pixar here as a segment of this episode.
Yep. Pixar is the spiritual successor of Walt Disney's vision for Disney animation. Yep. All right. So, we're winding the clock back. Let's start with John Lasseter. Yep.
So, this is a guy who dreamed of becoming a Disney animator his whole life. One of his early jobs is work in the Jungle Cruise at Disneyland.
And David, as you mentioned, he ends up getting into CalArts. It's a complete dream come true. Classes are taught by Disney's legendary animators who worked with Walt, the nine old men, as they are affectionately referred to. Now, he does get a job at Disney animation, but it's unfortunately during those dark times in the early 80s. Jon gets obsessed with the budding field of computer animation, even though no one else in the department is, although actually Tron was happening elsewhere in Disney. So, cool computer stuff was happening, just not in the culture of Disney animation. This all comes to a head when John gets the chance for his directorial debut on the movie Brave Little Toaster. And in his big pitch meeting, he comes in with the idea that he's going to use computer animation to do it. Now, remember, this is the early 80s, so computer animation was pretty primitive stuff.
The time wasn't actually right yet.
He gets asked if it's going to be faster and cheaper than traditional animation cuz why else are they doing it? And he says neither. It's just going to push the envelope on what is possible in great storytelling. John is immediately, and I'm not kidding, same day, let go.
Wow, I didn't realize it was same day.
It was, "Thank you for your meeting. We are declining to put this project into production. And since your project is over, you really have no reason to be here. Thanks for your meeting. You're fired." Yes. So, we'll put a pin in John's story for now while we introduce another co-founder of Pixar. Flashback to 1963. We're at the University of Utah where we meet Ed Catmull. Ed also wanted to do animation his whole life, but he felt that he didn't have the chops to cut it as an artist. So, he got into computers instead. He finds himself in this truly magical program for computer graphics at Utah, though it was sort of just this like pocket of an esoteric field that most people did not really care about or appreciate at the time. Ed ends up creating one of the first films ever with computer graphics, a rotating model of his own hand, just a black and white wireframe. His classmates are famed computer scientist Alan Kay, Jim Clark of Netscape and Silicon Graphics. Yep. And John Warnock, who founded Adobe.
And also, wasn't Nolan Bushnell knocking around there?
Yep. Past Acquired guest Nolan Bushnell, the famous founder of not only Atari, but Chuck E. Cheese.
That's right. That's right.
So, Ed ends up getting recruited to build out this pioneering computer graphics program at New York Tech on Long Island. So, he's sort of in this academic sphere now. Meanwhile, in Northern California, the year is now 1979, and there's a guy named George Lucas who is looking for someone who can help him, yeah, heard of him, push the field of computer graphics forward. George had just released Star Wars and he was working on Empire Strikes Back and he had this experience, this amazing firsthand experience of how computers could unlock brand new film making methods and not just for Star Wars but George was looking to develop tools to make the whole industry better. This is pretty heady stuff at the time. No one in Hollywood was looking to invest in building out new computer technology just because. And the reason why George, this is actually pretty interesting from a business analysis perspective. Why did George want to make stuff to push all of film making forward? Well, a filmmaker can only make one film at a time and that takes one, two, three years. But you want an audience who's used to always going to the movies every week or every month and has a great experience. So if you are a filmmaker, you're rooting for all the other filmmakers to make amazing films to sort of condition your customer set that your product is good and they should have a habit of going to the movies. So unlike other industries, being a filmmaker has this like sort of delightful sort of collaborators slash competitors, right? So George gets put in touch with Ed. Ed accepts a job, moves across the country to join Lucasfilm. He brings Alvy Ray Smith with him from New York Tech and they create the computer graphics group at Lucasfilm. Yep. And really the goal here is figure out how to do stuff that you couldn't do with traditional live-action techniques. Pretty broad. The first big success is actually not with a Star Wars film, but a Star Trek film in The Wrath of Khan. It was a flyby of a planet as it was being terraformed and it's shot from all these crazy swooping angles.
So this is now where the two paths collide. You got John Lasseter and Ed Catmull and they see each other at an industry conference of all places on the Queen Mary. John has just been fired from Disney. Ed doesn't actually know that. Ed is hitting the limitations within his graphics group where none of them really know how to tell stories or create characters or imbue any emotion into the things that they're making. Ed begs John to see if there's any chance he could take some time and come up north to hang out at Lucasfilm Graphics and improve the storytelling in the short films that they're starting to think about.
John's like, "Oh, let me check my calendar." Uh, yeah, I'm free.
Yes. And this is really the first chance that they had to get like a real animator. So the duo was now together, but computer hardware at the time was not capable of doing what they needed. So the group needs to develop hardware. They make the Pixar Image Computer within Lucasfilm. This is the first time they've actually used the Pixar name for anything. So they're making these short films, which there's no, it's not a real market. It's fun to make, but it's not like anyone's buying them. The Pixar Image Computer could do MRIs. Basically, anything where you needed to turn images into 3D renders, they did the first volumetric renders of an MRI. They also would analyze satellite photos for intelligence agencies and build 3D models there. So, they're finding these like niche interesting markets to try to make some money for their software and hardware.
Yeah. So, it's interesting. All of this is part of Lucasfilm. Is George interested in MRIs or or even like making animated films?
Not particularly. I mean, he wants them to develop capability for future films, but he doesn't want to actually staff up a big story team and have this be a film making division. And no, I don't think he's particularly interested in the MRIs. He actually has a different piece of news to share with the team. He's going through a divorce. He's short on cash. He needs to free up cash for the divorce. So actually what he wants to do is sell the graphics group.
Which this is fascinating by the way. This all happened because George believes so deeply in Star Wars and the movies he was making that he didn't want to give up any equity in Lucasfilm as part of his divorce. So he needed to raise cash to pay his former wife cash instead of giving her any equity in Lucasfilm. Wild. This is like the butterfly flaps its wings that results in Pixar saving Disney. So he finds a buyer.
Steve Jobs. Amazingly, they are first introduced by Alan Kay, legendary computer scientist, former classmate of Ed's, and a trusted friend of Steve. Steve visits Lucasfilm to see the technology firsthand, and he's impressed. But then he goes dark. Yeah. Just vanishes for a while. The Lucasfilm guys are wondering what's going on. And it turns out this is right in the middle of when Steve is getting fired from Apple and ousted from his own company. So then Steve gets back in touch after the dust settles. And at first what he actually wants is the Pixar team and technology to create a rival consumer computer company to Apple. He wants to get back at Apple using Pixar as the seeds of the company.
He wants Pixar to be next.
Exactly. Ed and John and Alvy and the team have no interest in doing that. Steve eventually does go and start NeXT on his own, but he keeps in touch and he likes these guys and he kind of comes around on the vision to create films. He does agree to buy the company and kind of rescue it out of Lucasfilm and he goes into business with Ed and John and the team. He writes in 1986 a $5 million check to George Lucas to buy the company, another $5 million check into a new entity that he just created to fund the company. It's formally named Pixar and it is owned 70% by Steve Jobs and 30% by employees.
And that's Pixar. Can we just say how insane this story is? There's a guy who worked at hallowed Disney Animation. He gets his first directing gig, but he's fired for advocating to use the technology of the future. Then he finds a kindred spirit who happens to be working for George Lucas. George freaking Lucas right in between Star Wars and Empire. They're inventing all this insane stuff, but George needs to sell it off and somehow manages to find Steve goddamn Jobs. It is like the Avengers of technology, of film, of business. I mean, the only way this story could get any more awesome is if they somehow beat Disney at their own game, got bought by Disney, breathed new life into the core of the company, and Steve Jobs became the largest shareholder of Disney itself.
Uh, it sounds like a Pixar movie, doesn't it? This is like... This is why Acquired exists.
It's so uh it's so great. So, they spin off the company. They don't have any customers for the product. So they go out and they recruit someone to come and buy their software as a commercial product.
Yes. And that customer is Disney.
Yes. The first check to Pixar Inc. is from Disney to work with them and create the CAPS system for improving their 2D animation.
Yep. This is the beginning of the Disney Pixar relationship as a vendor.
As a vendor. So Pixar decides they need to show the world who they are. They make this short little film about a lamp and a baby lamp and they're playing with a ball and they show it to industry conferences because that's what you did with computer graphics back then and people go nuts.
You were texting me your dad was at the conference where they showed Luxo Jr.
Yeah, at one of them. It wasn't the original SIGGRAPH, but it was right there in the late 80s. It was a joint robotics and computer animation conference. And I remember when I was a kid, he just told me, I think it was when we were seeing Toy Story and it was the little short before it. I remember him telling me, "Yeah, I saw this at a conference and I just I knew this was going to change the world." Wow. Wow. I just rewatched Luxo Jr. this morning. You go on an emotional journey and develop feelings for lamps over 90 seconds. To me, this is where the storytelling aptitude and ability to animate lifeless objects into something you really care about starts to come through.
So, full steam ahead, right? Let's let's go make movies. Well, there's a problem. You need like $30 million to go do that. So, first they start making a bunch of commercials to try to pay the bills. They develop RenderMan as a piece of software. It's actually still an industry standard today for computer animation. They release it externally. It actually gets used on Jurassic Park, on Terminator 2, a bunch of cool films with early computer graphics, but the business is not working. These image computers are insanely expensive. They've only sold like 300 of them ever. If they're going to do their dream of an animated film, they need to go all in on it and someone needs to fund it. So, here's what happens. John rekindles his relationship to Disney. From what I could tell, this is completely outside of the whole CAPS relationship. John is being recruited to join Disney as a director. This is 1991 or so.
Oh, wow. So, right as the Disney Renaissance is happening, they want him back.
That's right. And instead, he says, "No, I, you know, I kind of threw my lot in with these guys in Northern California. We got something cool here. It's a great team. Uh, no. I'm turning down multiple offers to be a Disney animation director," his lifelong dream. And he says, "But here's what I think we should do. Let's do a 30-minute Christmas special based on our Tin Toy short." And he's got a little bit of leverage to kind of ask for stuff here cuz they just really want him to direct something. And Disney, really, it's Peter Schneider who works with Jeffrey Katzenberg says, "Hey, forget the 30-minute TV special. Let's do a whole feature film, Toy Story."
Yep. And this is how Toy Story happens.
So, why is this such a crazy idea? I mean, why is it going to cost $30 million? Why did the folks at Disney think this was such a kind of nutty idea to make a computer animated film?
Yeah, it seems on the surface like this should be easier than 2D animation, right? You're going to just get computers to do all of it. Not quite. So, we got to go spend a day at Pixar and learn from the folks there who make Pixar movies how they do it. And wow, it was so cool. Embarrassingly, I did not really understand that the way these things are made is kind of like a stage play. You actually lay out all the objects on a stage in a 3D virtual environment and you can put cameras and lights anywhere you want, all in this virtual environment. It's like a video game.
Yeah. They're creating the universe basically. It's not just that you're illustrating a still frame.
Yes. So, hilariously, the best explanation of this, the best sort of seven-step process is on the inside cover of their S-1 IPO prospectus. We'll put it in the email. It has this little animated guide, the Pixar animation steps. So, here they are. Step one, storyboards. Over 4,000 storyboard drawings are created as the blueprint for the action and dialogue of a feature-length Pixar film. I think the most interesting part of this is they then take the storyboards and put them together in a story reel where they're able to like watch it like a movie even though they're still frames and they either narrate over it or they do temp dialogue on top. So in a very inexpensive way using 2D sort of sketching, you really can get a true sense of what's going on. This also makes it very iterable and revisable. So, we were chatting with folks at Pixar and they said, "Yeah, there's usually about eight different iterations where we are revising the plot, the script, the dialogue to really nail it and make sure that the story works." And I was watching old interviews with Lasseter and Jobs and Lasseter has this quote, "If it's working in our story reels, when we animate it and put color to it, it's going to work even better. If it's not working in story reels, the animation won't save it." And then Jobs says, in essence, "It lets us beta test and iterate on our films before we actually make it. We believe it's one of the reasons that the hit rate can be substantially different." So they basically make a low-res 2D movie before they make a 3D movie.
Yeah. And the story and characters all have to work in 2D first.
All right. So step two, models. Pixar's proprietary animation software, Marionette, is used to create the three-dimensional computer models for characters, props, and sets. Three, layout. Each scene is begun by assembling the models for the required characters, props, and sets and blocking out the action. This is where they really go into the computer for the first time. They take the models and they lay them out to kind of resemble the 2D paper sketches that they made for the story reels. Now, hilariously, you can watch some of these. Like, you can watch the film when it's only done in the layout stage. The characters don't have any of their limbs that move. Their mouths don't move. They're these like lifeless puppets being dragged around. You kind of get the plot, but you get no personality or emotion.
Yeah. They're like the 3D equivalent of stick figures.
Yeah. They have to, the animators haven't really performed the characters yet.
So, then step four, animation. Pixar's proprietary animation software allows Pixar's animators to choreograph the motion in each scene by defining key frames or poses. So, this is the exciting step. Each character goes through something called rigging by this point where they provide the animators with a buffet of options for each character like moving the hand at the wrist or the arm or the elbow or the shoulder. And the animator then very carefully frame by frame first animates the bodies and then later the faces. Because if the body motions are working for the story with no facial expressions, then all of the facial expression and mouth moving is just icing on the cake. But you never want to rely on the facial expressions to do the heavy lifting for you.
This is such a cool part of the process. You're turning them from stick figures into something that's alive is really the best way to frame it.
Yeah. And to your point, they use the same thing here that the animators used in 1938 with Snow White where they film themselves acting it out first and then they use that video as sort of reference for how would this character act. And there's all this great footage on YouTube of in 1992 the guy who was animating Woody sort of going through motions or for the army men to figure out how the army men were going to move in Toy Story, they duct taped ski boots to a giant plank of wood and they sort of jumped around the room in it to really understand how would a person move if their feet were locked together. So, it's this really amazing like performance and then you're teaching the computer through the rigging and through effectively like pulling the strings how to make the character move the way that you wanted to. Yep. Then there's shading, computer programs that describe these surface characteristics like textures, finishes, colors that are added to every object in the scene. This is where you can get things like wood and metal and fabric and glass and hair and skin. Then step six is lighting using digital lights. Each scene is lit much in the same manner as stage lighting. David, you and I saw some really cool examples of scenes that look boring and lifeless and then they go through lighting and oh my god, suddenly they're gorgeous and emotional. Yep. And then lastly, step seven, rendering. Pixar's RenderMan software draws the finished image by computing every pixel of the image from the model, animation, shading, and lighting information. This is insane. This is the part that if you think about all the computing involved for every single frame, it needs to compute and recompute every pixel based on what object something is, where all the light sources are, each one for each pixel, if they're in motion, and if so, how to apply motion blur. Rendering is so computationally expensive here. In those days, each frame would take an hour or two to render, and they could only render like three and a half minutes of footage per week. They were on this Sun Microsystems hardware that was state-of-the-art at the time, and they had 117 of them clustered together to create a render farm for the film.
Yeah, this last step just highlights what a fundamentally different thing this is from 2D animation. 2D animation is art. It's like you're painting a picture. What Pixar does is they are creating a universe and then they are calculating every atom of that universe.
That's exactly right. And where it really really does have the same spirit as Walt and Disney is that every single one of those steps is also a story step. It's not just like, oh great, we wrote the story. Let's throw it over to the tech guys and like turn it into the renders. It is all a collaboration, creating a universe and constantly refining the story and making it better and better and better over years. All right, so back to Toy Story. January 19th, 1993, they get the green light from Disney. And specifically what they have is a deal to make up to three pictures, just one for now, and Disney has the exclusive option to extend for two more, where Disney's basically hiring Pixar to make a movie for them. And here are the terms. Disney puts up all the capital for production. It ends up being about $30 million. Initially, it was budgeted to be about 17 million. Disney is also responsible for the marketing costs. Pixar exclusively can make films with Disney. Pixar is entitled to a small amount of the profits and that is profit after paying back some of the marketing costs. So that ends up being less than 10% of the profits which is not exactly an engine that they can use to build a business.
Yeah. Oh, by the way, Disney keeps all of the intellectual property rights to Toy Story. All the characters, all the merch, all etc., etc. Disney also will have the right to make sequels if they choose. They will offer Pixar to make the sequels with them. But if Pixar declines, they're still Disney's to make. And lastly, the three-picture deal does not actually include those sequels, even if Disney elects to make them. So if Disney wants a sequel, Pixar makes a sequel, but it does not count against the total of three. So, it's kind of a crappy deal, but it is all of their dream and it is basically the only option. And it's Disney, right? I mean, it's Disney. You do it, right? Well, there's no other studio that would make this with them. And Disney did stuff like this. So, they made The Nightmare Before Christmas with Tim Burton. It's like, "Hey, this is stop-motion animation. It's something different than what we do here at Disney animation. Uh, let's get this out there. It's a boutique thing. We'll publish it. We're the best in the world at publishing animated family pictures and distributing them to theaters, marketing them. Great."
Yep. So, what are they actually making here? Pixar knows they want to make a film that is different than your typical Disney animation. They don't want to
Make it a musical, because at this point in 1993, the last four were all musicals, and they don't want it to be a fairy tale. They don't want to hearken back to sort of the classic Walt tales either. But that does sort of mean that they're in uncharted waters. They have to develop their own tone and style and process. So they start translating John Lasseter's vision into the storyboards, and they keep going to Disney for notes, which is both useful because Pixar doesn't really know what they're doing yet, and contractually required.
So Katzenberg is at the helm at this point. He keeps pushing to make the film edgier. And through a combination of Pixar not really feeling their confidence in storytelling and the notes pushing them this way, Woody ends up very mean. He's got this like brand of insult humor. He's so threatened by Buzz that that emotion overshadows every other action he could possibly take in any scene. He's like actively and intentionally pushing Buzz out windows and, you know, behind dressers and stuff like that. So December of '93, the story reel screening happens down in Burbank. They're like, "All right, here's all the notes that we've taken. Here's the story we've got." It goes over like a lead balloon. Katzenberg hates it. Roy E. Disney hates it. None of the characters were working. So Disney cuts it off. Disney says, "I know we've got a deal, but we are stopping production. No more money." The Pixar team's like, "Whoa, whoa, whoa, whoa. Crap." Like that. That's our whole company. Can we have two to three weeks? We just want to do a total rewrite. We'll work day and night. And so they go back up to Northern California and they make the version of the film that they want to make. And it's not perfect, but suddenly these characters get multi-dimensional. They come back and it's good enough. There's real tension in the story. Disney, to their credit, looks at it again and says, "Okay, you're back on." Continue the process over the course of 1994. They're looking at their story reels. They're kind of iterating through. They're adding more depth, and the early tests of the scenes that have gone through most of the render pipeline, they're really good. The Pixar team knows it. Steve Jobs has become a believer, and he's starting to believe, hey, we've got a hit on our hands. And David, I know you've got this part.
Yeah. So Steve, being Steve, starts thinking through this and realizes if Toy Story is a hit, what's going to happen? Disney and Michael Eisner, who's still CEO at this point in time, are going to realize that they actually just created their worst nightmare, a true animation competitor to Disney that can do something that they can't. So, let's play this out. That happens, he's probably going to come back to us and want to renegotiate the deal to lock us up for longer. We want to have as much leverage as possible. In order to do that, we need to have our own capital to actually go in 50/50 on the production budget of the movies that we're making together. If we don't bring any capital, Disney will be able to walk all over us and keep the majority of the profits, plus take their distribution fee, etc., etc. Okay, how are we going to get the capital? We need to go public, and we can't go public now because the last four years have been losses and we have not yet released a movie. We don't want to wait too long after the movie comes out. So, I think we should go public the week after Toy Story comes out. And this is where Steve was just brilliant because he was like, "If it's a success, we'll make a big splash. We'll be the darlings of the media. We'll have a big hit movie. That is the time to go public."
If you're anyone else at Pixar, you have to be thinking, "No, no, no, no. Can't we just do this one and see how it works out?" But this is Steve Jobs.
Yeah. So, Toy Story comes out on November 22nd, 1995, grosses nearly $400 million worldwide. It is the Thanksgiving movie for families to see. It made $29 million in its opening weekend. Went on to become the number one film in the US, and it was the first ever animated film that was a blockbuster that was not created by Disney.
And it was the highest grossing film of the whole year.
Not children's movie, like highest grossing period.
Period. So, one week later after Toy Story premieres on November 29th, 1995, Pixar goes public, right? Which means Steve had been like flying around doing a road show, meeting with all these investment bankers as Toy Story is finishing production and getting ready to go out. It's unbelievable.
Well, this is actually a theme that we're going to come back to in a minute. There's no other business guys at Pixar. It's just Steve. Steve does everything that's not creative and making the movies. So Pixar closes its first day of trading at a $1.5 billion market cap. This is how big a hit Toy Story was and how much it was in the public consciousness. This is how Steve Jobs becomes a billionaire.
Yes, the Toy Story IPO. He didn't make anywhere near that kind of money from Apple. Toy Story and Pixar is how Steve Jobs makes his fortune. So that $140 million they raised makes it the largest IPO of the year. Larger than Netscape.
The numbers on Steve. He bought the company for $5 million. He actually did dump $54 million into it over 9 years.
He was like wiring money for payroll and stuff like that. And on IPO day, he owned 78% of the company.
So what's that, like 1.2 billion?
