AcquiredThe Walt Disney Company: The most successful enterprise for monetizing human nostalgia (Audio)
EVERY SPOKEN WORD
150 min read · 30,002 words- 0:00 – 1:10
Start
- BGBen Gilbert
Have I ever shown you my Mickey Mouse impression?
- DRDavid Rosenthal
[laughs] You've done your, uh, Mario impression for me in the past, but I've not heard-
- BGBen Gilbert
Yeah, they're, they're a little similar. [laughs]
- DRDavid Rosenthal
[laughs] All right, all right. Give me, give me Mickey. Give me Mickey.
- BGBen Gilbert
Oh, boy, will you look at that? [laughs]
- DRDavid Rosenthal
[laughs] That is really good. You sound like Walt himself doing Mickey.
- BGBen Gilbert
Right? Didn't he do Mickey for, like, 20 years?
- DRDavid Rosenthal
Yep. Yep, yep. He didn't at the very first, and then one of the animators convinced him to do it, and then, yeah, he did it for 20 years.
- BGBen Gilbert
Have I ever given you my Donald Duck impression?
- DRDavid Rosenthal
Oh, wow, okay. Whoa, now I... Do I need to sit down for this one?
- BGBen Gilbert
You, you might need to. All right, here we go. [ Donald Duck impression] [laughs]
- DRDavid Rosenthal
Oh, that's about right. That's about right. I have a great Donald Duck trivia for you coming up.
- BGBen Gilbert
Ooh.
- DRDavid Rosenthal
Want me to save it?
- BGBen Gilbert
All right, save it. Save it.
- DRDavid Rosenthal
You're gonna be blown away. I'm pretty sure you didn't find it.
- BGBen Gilbert
Great. All right, onto the episode?
- DRDavid Rosenthal
Let's do it.
- SPSpeaker
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
- 1:10 – 6:03
Intro
- SPSpeaker
got the truth?
- BGBen Gilbert
Welcome to the Spring 2026 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.
- DRDavid Rosenthal
I'm David Rosenthal.
- BGBen Gilbert
And we are your hosts. Today, listeners, we finally tell the story of The Walt Disney Company. Unbelievably, in 11 years of doing Acquired, we have never told Walt's story, and, uh, it's been a glaring omission. It is the entertainment company different than all the rest. It's over 100 years old, and it has played a prominent role in almost all of your childhoods, and if you're a parent, likely your parenting journey, too. [laughs]
- DRDavid Rosenthal
Oh, yes.
- BGBen Gilbert
I'm looking at you, David Rosenthal.
- DRDavid Rosenthal
Oh, yes, and it has played a prominent role in Acquired history, too. Our very first episode, Pixar. We've done Lucasfilm. We've done Marvel. We've done ESPN.
- BGBen Gilbert
Although those are a whole different version of Acquired. We may need to de-canonize those and, and redo them-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... uh, the, the proper way.
- DRDavid Rosenthal
Yes, as part of this.
- BGBen Gilbert
Listeners, since there are tons of biographies and documentaries and places analyzing Walt's psyche, we're gonna focus today on Acquired's sweet spot, which is the business. What is it that Walt's merry band did from the 1920s onward that made them succeed uniquely well in Hollywood? And when you look at Disney's profits today, it is in a whole different league than Paramount or Universal or Warner Brothers or any of the other sort of classic Hollywood studios. The business of feature film production is a mediocre one, especially by the standards of, uh, what we study on this show here with Acquired, except for Disney.
- DRDavid Rosenthal
Yes, exactly.
- BGBen Gilbert
And I will say I am a huge Disney fan. I grew up on Aladdin and The Lion King.
- DRDavid Rosenthal
Oh.
- BGBen Gilbert
My first movie in theaters was Beauty and the Beast. I'm a huge Star Wars nerd, and my wall was plastered with Toy Story posters growing up, but somehow, I knew nothing about the company's early history before starting this research.
- DRDavid Rosenthal
Nor did I.
- BGBen Gilbert
For example, it started in Kansas City. There was a character that was supposed to be Mickey Mouse before Mickey Mouse but was lost in a contract dispute. Or that many of the movies I watched in my childhood are actually from 50 years before I was even born. Snow White was produced before World War II. Pinocchio, Bambi, these films are from the '30s and '40s. They even predate the existence of televisions in people's homes.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
And importantly for Acquired's roots, this really is a technology story. Giant innovations that often bet the whole company on things like synchronized sound or the crazy idea of a feature-length animated movie at all, or the multi-plane camera to photograph the whole thing and turn it into a movie, and of course, building a giant theme park in Anaheim when nothing else like it existed. And they really did invent the entire concept of the flywheel business model that so many entrepreneurs are trying to copy.
- DRDavid Rosenthal
Oh, yes.
- BGBen Gilbert
So today, listeners, is The Walt Disney Company, Part One: Walt's Era.
- DRDavid Rosenthal
Whoo.
- BGBen Gilbert
Well, big news from here at Acquired HQ. This episode has a companion PDF with visuals, charts, tables, and illustrations of key concepts, including Acquired's version of the Disney flywheel. We did a pilot of the idea after our Vanguard episode, and we got such overwhelming positive response that we are doing it again. So you can get access and follow along by clicking the link in the show notes.
- DRDavid Rosenthal
You might say we're, uh, building out our own flywheel here.
- BGBen Gilbert
We are.
- DRDavid Rosenthal
Eating our own episode cooking.
- BGBen Gilbert
And we're, we're taking this timeless IP that we are developing and figuring out even more things to do with it. [laughs]
- DRDavid Rosenthal
That's right.
- BGBen Gilbert
All right, so you can join the Acquired email list at acquired.fm/email. That's where we'll send our big takeaways from each episode, past episode corrections, exclusive behind-the-scenes photos that we found in our research, and it's where you can vote on future episode topics. Plus, we will give away a little hint each time about the next episode topic. That's acquired.fm/email. Come talk about this episode with us in the Slack. That's acquired.fm/slack. And before we dive in, we wanna thank our presenting partner, J.P. Morgan.
- 6:03 – 12:22
Walt's Early Life & Artistic Calling (1901-1919)
- DRDavid Rosenthal
Well, with that, we start in Chicago. In December 1901, where Walter Elias Disney is born. And family lore is that the Disneys are descended from the French D'Isignys of Normandy, who-
- BGBen Gilbert
How do you spell that?
- DRDavid Rosenthal
[laughs] D-'-I-S-I-G-N-Y-S of Normandy, who came over to England with William the Conqueror in 1066. That's family lore. Uh, un- unverifiable. [laughs]
- BGBen Gilbert
Yes, at this point, lost to history.
- DRDavid Rosenthal
Yes. So Walt's father, Elias, was sort of a frustrated entrepreneur. He was variously a carpenter, landlord, farmer, newspaper route owner, and eventually a failed jelly factory investor. [laughs] But Elias' younger brother, Robert, Walt's Uncle Robert, was the successful one in the family. He was a real estate speculator, among other things, and that is what brought the family to Chicago at the turn of the century. He had invested in a bunch of real estate in Chicago and the Midwest, and so Elias came also to seek his fortune there. Now, when Walt is four, Elias moves the family out of Chicago to an idyllic farm town, also in the Midwest, where Robert had just purchased another tract of real estate, Marceline, Missouri. And Lillian Disney, Walt's future wife, would say about Marceline, "It was the most important part of Walt's life. He didn't live there very long. He lived in Chicago and Kansas City much longer, but there was something about the farm that was very important to him."
- BGBen Gilbert
And Elias moved the family 'cause it was kinda like, "Let's get out of the dangerous city of Chicago and raise the kids right," so sorta somewhere small town. I think Marceline was actually created because they needed somewhere for the Santa Fe Railroad's division point.
- DRDavid Rosenthal
Yes, yes.
- BGBen Gilbert
Like, when it was going to maybe Chicago and Kansas City, and they were like, "And this place on the map looks good," and they started the town of Marceline.
- DRDavid Rosenthal
Exactly, exactly. And Robert, the uncle, had bought real estate there, kinda speculating again that this-
- BGBen Gilbert
Mm
- DRDavid Rosenthal
... Marceline's gonna grow. So Marceline was, like, basically a Disney movie. There's orchards and ponds and animals and farmhouses. There's also this charming little town that the railroad had created with a Main Street, a Main Street, USA, you might say. [laughs]
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
But that's getting ahead of ourselves. So while the family's living there, Uncle Robert's wife, Walt's Aunt Maggie, every time that they would come visit Marceline to check up on their real estate investments, she would bring Walt gifts. And one year, when Walt is probably six or seven years old, Aunt Maggie brings him a Big Chief drawing tablet and pencil set, and Walt is enraptured. He starts sketching all the time, drawing, sketching everything he can see. And as the legend goes, one day, Walt's retired neighbor asked the young boy to draw him a picture of his favorite horse, and the neighbor loves what Walt draws so much that he pays him a nickel for it, and he hangs it in a frame in his house. And Walt, his mind is blown. Young Walt, he's like, "My, my hobby, my, my art, it can make me money." [laughs] Now, whatever the exact truth of that story is, there is no doubt that somewhere in Marceline, in prepubescent Walt's mind, a connection is forged between these two great forces, art and commerce, and that would go on to drive not only the rest of his life, but the company, the studio, the movies. I mean, changed America.
- BGBen Gilbert
Absolutely. The thing about Marceline, though, you said it's idyllic and like it's out of a Disney movie. The reality of living in Marceline and life on the farm is that it was very hard. All the kids are involved. There's not, you know, magical economic prosperity everywhere. It's sort of a tough life, even though he can sort of remember it as an idyllic childhood. Which I also think is quite the foreshadow of kind of the Disneyversification of things in the future. It is both remembered as idyllic but also was hard as the real world is.
- DRDavid Rosenthal
Yes. And I think it's because of the age Walt was when he was there. So they lived in Marceline-
- BGBen Gilbert
Yes
- DRDavid Rosenthal
... only from when he was, like, four to eight or nine years old, before he gets really put to work. So he gets to just enjoy-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... you know, all this bliss around him. Yeah, the reality is it's pretty tough for the family to make a living, and in fact, they can't. So Elias adds farming to his list of entrepreneurial failures. And when Walt is nine years old, they have to move the family again out of Marceline to Kansas City, where Elias decides he's gonna purchase a paper delivery route for The Kansas City Star newspaper, and he's gonna put the family to work [laughs] delivering papers.
- BGBen Gilbert
There are so many protagonists that we study on Acquired who started their career as newspaper boys.
- DRDavid Rosenthal
I was gonna say, just like Jack Bogle from Vanguard delivering papers in his youth and having to get up at 4:00 in the morning and falling asleep at school because he has to work so hard. Like, this is quite the reversal here for Walt-
- BGBen Gilbert
Yeah
- DRDavid Rosenthal
... from Marceline. But he never stops drawing, and he never stops making money from it. In Kansas City, he would draw frames for the local barber shop, who would pay him either a nickel or a free haircut for each, and that would, you know, be Walt's spending money growing up that he would earn from his art.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
So later, when Walt enters high school, Elias moves the family back to Chicago again, this time for the jelly factory, which ends up failing, where Walt becomes the cartoonist for his high school newspaper. But he's not there long before he leaves high school to go join the Red Cross and gets shipped off to France as an ambulance driver during World War I. Where unfortunately, he would acquire a chain-smoking habit that he would keep up for the rest of his life, and eventually would kill him way too young.
- 12:22 – 23:05
From Commercial Art to Laugh-o-grams (1919-1923)
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
But Walt's not in France for long before the war ends, and in the fall of 1919, he lands back in Kansas City, where Roy Disney, his older brother, who is, I think, eight years his senior?
- BGBen Gilbert
Nine years, maybe.
- DRDavid Rosenthal
Eight, nine years older.
- BGBen Gilbert
Yeah, much older.
- DRDavid Rosenthal
Yep, is living. And Walt has a plan that he's gonna seek his fortune finally as a true professional cartoonist. So through Roy, he gets introduced to an advertising art shop that's looking for apprentices to help draw, like, flyers for the upcoming holiday rush. And Walt works there for six weeks through Christmastime, and then gets unceremoniously laid off. But he gets two things out of this brief experience as an employee. One, he gets a credential. He can now say that he is a professional artist.
- BGBen Gilbert
All you have to do is get paid to do something, and then you become a professional.
- DRDavid Rosenthal
Exactly. Exactly. And he gets something else: a co-founder, another young apprentice from the art shop named Ub Iwerks.
- BGBen Gilbert
I sorta think of Ub as the Steve Wozniak of Disney.
- DRDavid Rosenthal
Yes, absolutely. Walt is, like, the original Steve Jobs, and I think you can definitely make the case that Ub is the Steve Wozniak.
- BGBen Gilbert
Although, I think Walt was more hands-on.
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
Walt was also an animator. Ub was just a better animator, and Walt was a camera operator, and Walt was building stuff, doing things with his hand, and he was in the primary technology and artistic trade that his business was in.
- DRDavid Rosenthal
So after the two of them get laid off, Walt suggests that rather than go look for jobs again, they should just start their own studio together. I mean, hey, they're professional artists. Like, why not? [laughs] So they create Iwerks Disney Commercial Artists, Incorporated, supposedly in that naming order so that it didn't sound like a optometrist shop, like Disney Eyeworks. [laughs]
- BGBen Gilbert
How amazing is this? In the first Iwerks and Disney partnership, in Walt Disney's first business, he was not the main name on the door. At least he was-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... not the first one.
- DRDavid Rosenthal
Yes. Not the main name on the door, but he is the driving force-
- BGBen Gilbert
Yep
- DRDavid Rosenthal
... behind the business. So he goes out to pitch prospective clients around Kansas City for the, uh, services of this new Iwerks Disney Commercial Artists firm. And one of the clients that he goes to pitch is a up-and-coming company called the Kansas City Slide Company, which happens to have become the country's largest producer of advertising slides and short commercials that would get shown in movie theaters-
- BGBen Gilbert
Mm
- DRDavid Rosenthal
... before feature films. And the Slide Co. has so much work at this point in time, as films and movie theaters are, are taking off around the country, that they say, "Hey, you guys seem talented. We don't wanna just contract with you. Why don't you come work here full-time?" So Walt and Ub's first entrepreneurial venture quickly comes to an end, and they go join the Slide Company. Now, the reason that they specifically wanted Walt and Ub is that they have a relatively new business line at the Slide Co., which is producing animated commercials to run in movie theaters before films. And this is what Walt and Ub end up getting put to work doing. And they both just fall in love with this new art form of animation. It's like everything that Walt and Ub, too, loves about drawing, but it's more than just art. It's technology. You know, you need cameras, you need film, you need all these new inventions to make animation happen.
- BGBen Gilbert
Yep. And at this point, animation was really primarily used in advertising, right? There wasn't really a successful thriving industry yet of entertainment of its own based on animation.
- DRDavid Rosenthal
It was, like, very, very early, and to the extent that it did exist as entertainment and shorts, short films, cartoons-
- BGBen Gilbert
Yep
- DRDavid Rosenthal
... on its own, it was all based in New York, like, not in Kansas City. [laughs]
- BGBen Gilbert
Right.
- DRDavid Rosenthal
But the whole industry is only, like, barely 20 years old at this point in time. Because you couldn't produce animation on any sorta scale until you had widespread commercially available film cameras and film projectors. Like, this whole art form is brand-new. It, it couldn't exist before the technological innovation of film.
- BGBen Gilbert
Yep. That's exactly right.
- DRDavid Rosenthal
So part of the reason that cartoons are working well in advertising right now for the Slide Co. is that it's this novelty, you know, almost gimmick. It captures people's attention-
- 23:05 – 43:27
Hollywood, The Alice Comedies & Oswald's Loss (1923-1928)
- DRDavid Rosenthal
Now, it just so happens that both Robert and Walt's older brother Roy have just also skipped town from Kansas City and moved out west to Los Angeles. So Walt packs his belongings, which is basically nothing at this point in time-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... hops aboard the Santa Fe train bound for LA, and joins them in Hollywood. And when he arrives there in the summer of 1923, he's 21 years old. He stays with Uncle Robert. And [laughs] initially, you really can't make this up, I, I couldn't believe this when I read it, Walt at first thinks that he's come to Hollywood, he's gonna get a, a directing job in Hollywood at one of the studios there.
- BGBen Gilbert
Well, well, yeah, he has abandoned the idea of animation. He basically thinks he's too late. He's seen some of the stuff that comes out of the New York cartooning scene, and he's like, "Well, I'll never be as good as them, so I need to go start over something completely new."
- DRDavid Rosenthal
Right, which is sort of, you know, silly and wrong in and of its own. But also, like, the hubris that he thinks that he could just show up-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... in Hollywood with no directorial experience and become the next D.W. Griffith. That is Walt for you.
- BGBen Gilbert
Do you know the story of the Universal lot?
- DRDavid Rosenthal
No. No, no.
- BGBen Gilbert
So, so he rolls up to the Universal lot after getting there, having no job, no money, borrowing a bed, and he- ... goes and has fake business cards made that says he is with Universal. He's just the Kansas City representative, so no one at Universal would really know who he is. And he gives it to the receptionist on the Universal lot, and he walks in. And so he spends, uh, uh, at least a day, from what I could tell, roaming around and learning as much as he could about film production, and, like, internalizes a lot of those lessons. And then he tries to come back in future days and say, like, "Oh, yeah, I'm sort of, like, with Universal, and now I have experience, and can you give me a job?" And he ends up running out of money and doesn't get a job.
- DRDavid Rosenthal
That is amazing.
- BGBen Gilbert
But [laughs]
- DRDavid Rosenthal
I didn't know that story. [laughs] So once he inevitably gets rejected at all the major Hollywood studios, he says later, "When things began to look hopeless, I got my cartoon things out again."
- BGBen Gilbert
Mm.
- DRDavid Rosenthal
And he sets up shop animating again. He's like, "Well, a- as you said, Ben, this is the one thing I know how to do. I should try that." And at this point, pretty much the only popular cartoon left in the industry is Felix the Cat.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
Which is created by Pat Sullivan out of New York and distributed by the pioneering Margaret Winkler, also in New York. So Walt has one thing, one asset left over from his failed Laugh-O-Gram days, which is a reel of a hybrid live action cartoon short that he had created with Ub right before he left Kansas City, called Alice's Wonderland, about a real life little girl who interacts on screen with cartoons that they've drawn over the film.
- BGBen Gilbert
Which is, like, completely pioneering technology. The, the other people who were doing animation at this time were just doing cartoons. These Alice Comedies, as they came to be called, were a new process by which you could go and film a real life actor, and then have them interact on screen with cartoon characters, and put them in the cartoon.
- DRDavid Rosenthal
Yes. V- very cool, and also had the unique property of being cheaper to produce than full animation, 'cause you only had to animate the characters, not all the backgrounds and everything.
- BGBen Gilbert
Right, right. Yeah, there is this funny counterintuitive thing that live production is much faster and cheaper than animation. You just have a film camera, and you point it at something in the world that exists, and you kinda get everything that you're pointing it at for free.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
Like, the actor is interacting with a bunch of stuff, and when you're making an animated film, you need to draw literally everything from scratch.
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
It's, it's much harder.
- DRDavid Rosenthal
The trees, the grass.
- BGBen Gilbert
And you need to do it frame by frame by frame by frame, rather than the world just sort of happening around you, and you taking these exposures in a video camera.
- DRDavid Rosenthal
Yep. So Walt sends Alice's Wonderland off to Winkler, and she likes it. So she commissions Walt to create 12 more Alice Comedies for, like, 15 to $1,800 each.
- BGBen Gilbert
She does, and David, did you know we have seen this contract?
- DRDavid Rosenthal
[laughs] Was this in the documents that we saw in the Disney archives?
- BGBen Gilbert
Yes. So listeners, for this episode, David and I went and spent a few days down in Burbank looking through the corporate archives, and one of the things that the archivist pulled for us was this contract. And I have a photo of it. I'm looking at it right now. "Agreement entered into this 16th day of October, 1923, between Walt Disney of 4406 Kingswell Avenue, Hollywood, California," blah, blah, blah, blah, blah. And yeah, you're exactly right, "for 12 negatives of subject series," and then in all caps, "Alice Comedies." And-
- 43:27 – 1:01:21
Mickey Mouse & The Synchronized Sound Breakthrough (1928)
- BGBen Gilbert
Okay, so David, how does this Oswald catastrophe lead to Mickey Mouse?
- DRDavid Rosenthal
[laughs] All right. So here's the story of Mickey Mouse as Walt would tell it. It's March 1928. He and Lillian are on the long train ride back home to LA from New York. He's struck by the bolt of inspiration for a new cartoon scenario about a plucky mouse named Mortimer, who is attempting to fly an airplane just like his hero, Charles Lindbergh. And, uh, this would go on to become the Mickey cartoon, Plane Crazy. So Walt shows his sketches that he's making to Lillian, and Lillian says, "I like it, but Mortimer? That's too sissy a name. How about Mickey?"
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
And thus, Mickey Mouse is born. Now, the real story is more likely that [laughs] Walt and Lillian get back to LA, and Walt is, like, sweating. So he and Roy and Ubbe and the couple other animators who stayed loyal to them hole up, and they start brainstorming ideas for some kinda new idea or new character that they can create to replace Oswald and turn around the studio's fortunes.
- BGBen Gilbert
And also, when you see Mickey and you see Oswald, it's not hard to imagine-
- DRDavid Rosenthal
Yeah. [laughs]
- BGBen Gilbert
... where Mickey Mouse came from. It's, like, kinda like shorten the ears, make them circles. You know, they both kinda have this white face and the black outline.
- DRDavid Rosenthal
I mean, it's really just the same brief that created Oswald. It was like, "Hey, take Felix-
- BGBen Gilbert
Yeah
- DRDavid Rosenthal
... and do something like Felix," except this time it's, "Take Oswald and do something like Oswald." [laughs]
- BGBen Gilbert
And make damn sure we own it.
- DRDavid Rosenthal
Yes, exactly. So they land on the idea of a mouse.
- BGBen Gilbert
And didn't Walt claim that he sort of, like, always had a fondness for mice 'cause there were mice that would, like-
- DRDavid Rosenthal
Yeah, yeah
- BGBen Gilbert
... jump in his trash can in Kansas City while he was animating and-
- DRDavid Rosenthal
Sure, whatever. [laughs]
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
You know, it's all, it's all just part of the Walt myth.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
And at least according to the Neal Gabler book, most likely Ubbe is the one who first draws Mickey, not-
- BGBen Gilbert
Hmm
- DRDavid Rosenthal
... Walt on the train. But e- either way, Ubbe definitely was the primary animator of the first Mickeys for the whole first series of Mickeys, including Steamboat Willie. So by the summer of 1928, they finished out the Oswald contract, and Walt and Ubbe and the small little merry crew have gotten two Mickey shorts ready for production, Plane Crazy and The Gallopin' Gaucho. And Walt takes them around to distributors. You know, the Walt Disney Studio is well-known at this point. This seems like it would be promising new IP, and none of the major distributors are interested. They're like, "Eh, I don't know. Mickey. It's like Oswald." But-
- BGBen Gilbert
Without all the, you know, thousands or hundreds of thousands of raving fans for it, so.
- DRDavid Rosenthal
Exactly. Exactly. And then comes the eureka breakthrough idea. One of the gang recalls that The Jazz Singer, the famous first popular talkie, you know, movie with dialogue and sound, that had just come out the previous fall, when they went to see it, that there was a cartoon screened alongside it. And Walt, when he hears this, puts the two ideas together in his mind of a cartoon and sound, and supposedly he says, "That's it. That's it. That's what we've gotta do. Stop all these silent pictures." Now, at this point, people had made cartoons with sound, but nobody had ever made a cartoon with sound like The Jazz Singer had sound.
- BGBen Gilbert
Synchronized sound.
- DRDavid Rosenthal
Synchronized. Yes, exactly, where what was happening in real time in the cartoon was then played in sound exactly synchronized in the movie theater.
- BGBen Gilbert
Yeah, the concept before was there's music that plays, but it's only loosely attached, and this is to the frame and to the beat of the music. Like, if you see Mickey on screen bop into something, then you might hear a xylophone on the exact same downbeat play a note.
- DRDavid Rosenthal
Yeah, it's not just that, like, there's some music accompanying this cartoon that you're watching. It's that what is happening in the cartoon feels like it is producing the sound.
- BGBen Gilbert
Yes. There's a great business model lesson in this, which is with the first two Mickeys flopping, if you just do the same thing as an existing competitor who already has distribution, brand, customers, it's not enough. You need to go do something leveraging a new piece of technology or a new platform. You gotta come at it from an orthogonal way in order to leapfrog and make people pay attention to you. Otherwise, you're just a, like, smaller, worse also-ran.
- DRDavid Rosenthal
Totally. And, and that could be anything. I mean, the only reason that the Oswalds worked, even though they were a rip-off of Felix, was because they came built in with the Universal distribution.
- 1:01:21 – 1:09:57
The IP Flywheel & Mickey Merch Explosion (1929-1933)
- BGBen Gilbert
Interesting to know, Oswald actually was on a candy bar back in the day, but when Walt, who at the time thought he owned Oswald, had the opportunity to monetize it, he was like, "I, I didn't even consider it." It, it-
- DRDavid Rosenthal
Right
- BGBen Gilbert
... it doesn't need to be an additional revenue stream. It's just really good for me if Oswald is on the candy bar.
- DRDavid Rosenthal
Right. Right, right, right.
- BGBen Gilbert
So that, that's sort of, uh, uh, they're getting the seeds of like, okay, we're making some money on the comics.
- DRDavid Rosenthal
Right.
- BGBen Gilbert
But it, it, it really is, like, a massive marketing engine.
- DRDavid Rosenthal
[laughs] Well, uh, you're teeing up the big one here, which is merch and consumer products.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
So pretty quickly after Steamboat Willie, Walt is walking the street in New York, and a man comes up to him, like comes up to Walt Disney on the street, [laughs] and offers Walt $300 to license the Mickey character to put it on a series of children's writing workbooks-
- BGBen Gilbert
Hmm
- DRDavid Rosenthal
... that he's producing there in New York. And this is, like, really early days. Mickey's just starting to work. The studio still needs money, so Walt's like, "Uh, sure. Yeah, I'll take 300 bucks. Why not?"
- BGBen Gilbert
And 300 bucks in 1929, it's a lot of money.
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
I mean, this is the beginning of the Great Depression.
- DRDavid Rosenthal
Yes, yes. M- Mickey takes off during the Depression. In fact, he sort of becomes, like, a national champion. It's part of his success, that people view plucky Mickey's success-
- BGBen Gilbert
Hmm
- DRDavid Rosenthal
... as a mouse, as the underdog, as, like, something that Americans can identify with through the Depression.
- BGBen Gilbert
And life is hard. I mean, having a-
- DRDavid Rosenthal
Yeah
- BGBen Gilbert
... a sort of way to disassociate a little bit and then just enjoy a, like, fun-loving, m- problem-free cartoon. I don't think people know this, Mickey's role in these early comics is exactly what you're saying, the underdog. He's getting himself into these tricky situations by someone that seems bigger and stronger, and then he's able to figure it out and emerge. It's the American spirit.
- DRDavid Rosenthal
Yep, yep, yep. So back to the writing tablets. They take off and do huge, huge sales. Th- Disney doesn't even know how much sales because all they have is 300 bucks-
- BGBen Gilbert
300 bucks [laughs]
- DRDavid Rosenthal
... and a handshake from this guy. [laughs] So Walt and Roy figure, all right, we need to get smarter about merch. So they contact an ad man in Kansas City that Walt admired, named Kay Kamen, who had owned an advertising firm, and they agree to do a deal where Kay becomes the exclusive commercial products agent for all Disney merchandise licensing, beginning in 1933. And the deal they do is that Disney would get 60% of the first $100,000 in royalties that Kay is able to generate from licensing Disney brands and mascots, and then after the first 100K, they would split every dollar of licensing revenue 50/50.
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
And there would be a lot [laughs] of dollars after the first 100K. This is a huge moment. I mean, there, there is a real case to be made that besides Walt and Roy, a- and, and Ub Iwerks, too, but at least on the business side, besides Walt and Roy, Kay Kamen was the third-most important person in the first, you know, half-century of Disney.
- BGBen Gilbert
All right, so make your case. What, what, what goes on to happen here?
- DRDavid Rosenthal
So within six months, Kay takes Disney merchandising from this hodgepodge of random licenses of guys that Walt met on the street-
- BGBen Gilbert
And many of which were a lot more than $300
- DRDavid Rosenthal
... yes, yes, yes, to a real professional operation, doing $6 million of gross merchandise sales within six months. That then grows over the next two years to $70 million annually of gross merchandise sales all around the globe from over 40 separate super high-quality consumer product partners. So the most successful and famous example of this is the deal that Kay does in 1933, right after he takes over, with the Ingersoll Watch Company.
- 1:09:57 – 1:18:53
Flywheel Terminology Unpacked
- DRDavid Rosenthal
it.
- BGBen Gilbert
So is this a point where, David, I could make my pedantic aside that I've been telling you about?
- DRDavid Rosenthal
Yes, yes, yes, yes. Go for it. [laughs]
- BGBen Gilbert
[laughs] All right.
- DRDavid Rosenthal
We had a great email from a listener a couple months ago about how flywheel, this term that everybody uses in business, is actually completely the wrong term for what you're-
- BGBen Gilbert
Yeah
- DRDavid Rosenthal
... wanna describe.
- BGBen Gilbert
So Disney is famous for this concept, as is Amazon, and it inspired a zillion other founders to try and articulate their own flywheel and, and draw it out. But hilariously, David, as you say, it is a misnomer. It describes the wrong physics phenomenon. People are trying to describe a system that has a positive feedback loop, where inputs into one element of the system are amplified and add energy to other parts of the system, but that is not actually what a flywheel is. A flywheel is a primitive battery. It, it is a way to store energy to be deployed later.
- DRDavid Rosenthal
Yeah. It's like a version of the same mechanism that a spring serves in a mechanical watch.
- BGBen Gilbert
Right, exactly. But in reality, there's not really a better shorthand for system of integrated components that creates positive feedback loops. [laughs] So, uh, we will continue, alas, to use the phrase flywheel, but, uh, the important thing here is that Walt really did sort of either discover or invent this business model of the intellectual property flywheel that we see replicated all over the place today.
- DRDavid Rosenthal
I mean, I think it really revealed itself to him and Roy in these early years of Mickey, and it's probably worth taking a moment to talk about why this works so well. So the most important thing, and I, and I don't think this was premeditated in any way by Walt, but it was just something he innately cared so deeply about, is to make the highest quality, genuinely most compelling new IP as possible that audiences can build a deep relationship with. This is, like, what Walt was building to, and Ub too, through all of his early years in animation. All the technical innovations, every step was getting to a character that audiences can fall in love with.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
Now, critically for Disney, and again, I think completely accidentally discovered by Walt, the IP that works best for flywheel dynamics almost has to be animated, i.e., not live action.
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
Because with live action characters, the characters are too bound up in the actors that play them, a-and that creates all sorts of problems. Like, one, especially today, it makes your economics as a studio just, like, way worse [laughs] 'cause you gotta pay the stars so much.
- BGBen Gilbert
Right. There's wholesale transfer pricing. A huge amount of the margin you could get ends up getting paid out to effectively your partner in creating the character, the actual actor.
- DRDavid Rosenthal
Right. Whereas Mickey works for free. [laughs]
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
Now, like, you, you gotta, like, pay the animators, and they get paid very well to animate them, et cetera.
- BGBen Gilbert
That's on the value capture side, but on the value creation side, which I think is the more important thing, Mickey is always available to work.
- DRDavid Rosenthal
Yes, yes.
- BGBen Gilbert
And Mickey doesn't age.
- DRDavid Rosenthal
Yes, exactly. You can create a eternal character through animation in a way that you just can't when you're using real people. I mean, Star Wars, as great as Star Wars is, and we'll talk about it later in the episode, is gonna have a problem when Mark Hamill and Harrison Ford die. I mean, I guess unless AI gets really good. [laughs]
- BGBen Gilbert
And live action is sort of dated to a time and place in a way that cartoons can sort of transcend.
- DRDavid Rosenthal
Yes, yes.
- BGBen Gilbert
Like, Mickey can always exist in the present. In a way that... We're gonna talk about Davy Crockett later, but at some point it became completely uninteresting to watch Davy Crockett, even though he was, like, a complete heartthrob obsession. That was great IP for the moment, it just wasn't as durable.
- DRDavid Rosenthal
Yeah. Live action IP, with very few exceptions, tends not to have the staying power over decades-
- BGBen Gilbert
Right
- DRDavid Rosenthal
... and generations that animation does.
- BGBen Gilbert
Yeah. Few exceptions being, like, James Bond, but God, have they tried to do all sorts of crazy stuff in order to let that IP keep living. I mean, like, there's been six, seven James Bonds, you know?
- 1:18:53 – 1:52:01
Snow White: Walt's $1.5M Folly (1934-1937)
- DRDavid Rosenthal
all of this, as Walt starts to understand the business model power of what they've created, leads him right to the natural conclusion that Disney should basically always invest as much time and money as possible in the creation of new core IP. And Walt is starting to get a crazy idea of how he might be able to do that, which is to create Hollywood's first full-length animated feature film, Snow White.
- BGBen Gilbert
Yeah. And David, you put it in such a capitalist way there, that it's, it's to maximize the amount of, of dollars that you sink into making the quality-
- DRDavid Rosenthal
[laughs]
- BGBen Gilbert
... so that it federates onto this flywheel. Uh, I'm sure there was an element of that. There also is an artist w- with Walt-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... where he's been creating these cartoons. He's starting to, like, really identify with the artistic community, with the fine artists of the time, build a lot of those relationships, and he wants to create something that is sort of seen as not only a technology breakthrough but, like, an art breakthrough. Can, can he-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... create a masterpiece in this new medium, and can he play with your emotions? I mean, we, we know that cartoon characters, in a slapstick way, can make you laugh, but there is this, like, total open question in the world of can you create animation so realistic and characters so compelling that you can make audiences cry?
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
That's the other side of the ludicrously capitalist big investment into-
- DRDavid Rosenthal
[laughs]
- BGBen Gilbert
... Snow White.
- DRDavid Rosenthal
You're totally right. Uh, I'm looking at it through, like, a business model, capitalist lens, and, uh, I, I don't think Walt was thinking about it that way specifically.
- BGBen Gilbert
He did wanna build the most successful company that he possibly could-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... that could take bigger and bigger swings.
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
So listeners, before we tell you the story of Snow White and how it came to be, now is a great time to tell you about one of our favorite companies, Vercel. So building software in the agentic AI era demands a completely different kind of infrastructure, so that's exactly what Vercel has been building. Their tools in their agent stack have been huge for companies like Notion, Brex, and Neon for shipping agents to production, and they just made some really big announcements on stage at their annual conference called Ship, which, uh, David and I actually spoke at last year.
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
One of the biggest announcements is Eve, Vercel's open source agent framework.
- DRDavid Rosenthal
Yep. Eve is the glue that ties their agent stack together. Building an enterprise-grade agent used to take weeks. With Eve, it now just takes minutes. Think of it as, like, the Next.js for agents. Opinionated, open source, and it runs everywhere.
- BGBen Gilbert
And Vercel uses it for their whole business. Their data agent gives the whole company on-demand analytics scoped to each person's permissions. Their sales agent nearly doubled pipeline coverage, and their autonomous AI sales rep platforms is in the top 10% of their human reps, uh, you know, for only a few thousand dollars a year.
- DRDavid Rosenthal
They also rolled out new support for enterprise apps and agents because here's what every executive is realizing. Once everyone can build an agent, the hard part is knowing who can access what and what every agent is actually doing. Wouldn't it be nice to run your agents and apps inside your own cloud so that everything you build stays within your own security boundary? Vercel does exactly that.
- BGBen Gilbert
Vercel's your one-stop shop for the agentic era. Tools, frameworks, infrastructure, all engineered to work together and built for enterprises. And one last cool thing, their Ship conference is hitting more cities worldwide, so you can find out more at vercel.com/acquired. That's V-E-R-C-E-L .com/acquired, and just tell them that Ben and David sent you. All right. So David, before we tell the story of how Snow White came to be, we gotta tell the nickname of Snow White, the project, that was going around Hollywood. Do you know what that was?
- DRDavid Rosenthal
[laughs] Disney's Folly. [laughs]
- BGBen Gilbert
Yes. Yes. I think it was maybe Walt's Folly, but either way, it's the exact same thing that people said about Trip Hawkins when he was working on Madden, about Jack Bogle with Bogle's Folly with creating the Vanguard index funds. We gotta, like, start a, a folly tracker here-
- DRDavid Rosenthal
Yeah, folly tracker
- BGBen Gilbert
... on Acquired. [laughs]
- DRDavid Rosenthal
But yeah, I mean, even for Walt Disney, as successful as he and the studio had become, the idea of a feature-length animated film was crazy in 1930s Hollywood.
- BGBen Gilbert
And it had never been tried before.
- 1:52:01 – 2:04:28
The Burbank Studio, Debt & Strike (1938-1941)
- DRDavid Rosenthal
So all of this enables Walt to pursue his next dream, which is that he wants to build a brand-new, state-of-the-art animator's paradise. Ben, as you alluded to, the new Disney Burbank animation studio, still the, uh, corporate headquarters of the company to this very day.
- BGBen Gilbert
Right. He basically sees the success of Snow White and thinks, "Oh, yeah, we're, we're gonna do a lot, lot more of this."
- DRDavid Rosenthal
Lot more of these. [laughs]
- BGBen Gilbert
Let's, let's build all the infrastructure to, like, really do that right.
- DRDavid Rosenthal
Yes. So Walt's goal with the new Burbank studio was to be able to house 1,200-plus animators and staff up from, call it 300 before Snow White, and then, Ben, what did you say, 750 that-
- BGBen Gilbert
Yeah
- DRDavid Rosenthal
... the ranks had swelled to during Snow White.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
And he thinks that with this new campus, everything that they're gonna install there, and all the additional staff, that Disney will now be able to produce two new feature animated releases every single year, plus shorts. So, like, it took three years [laughs] to make Snow White. With all the learning from that, all the innovations of the new campus, all the new staff, he thinks they're now gonna be able to pump out great new feature films every six months. [laughs]
- BGBen Gilbert
Which it was a complete pipe dream, and they never-
- DRDavid Rosenthal
Totally
- BGBen Gilbert
... were able to do. [laughs]
- DRDavid Rosenthal
Walt also, in his mind, I think comes to see this Burbank campus as really a utopian-like place, kinda almost like a college campus. I mean, Walt didn't even graduate high school, let alone go to college. But he intentionally places it in Burbank, which back then was, like, the sticks outside of LA.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
He wanted the Disney lot, the Disney Studio, to be this special place, kind of away from all these other studios controlled by their distributor bosses back in New York. And he kinda, I think, really wanted to create this band of merry men and women type feeling, where they could achieve the impossible, like producing two feature animated films a year.
- BGBen Gilbert
Well, the thing he f- sort of didn't factor in is that you might be able to make Snow White faster in the future, but every idea that you have is gonna be a different new idea that's gonna be more ambitious and have more cost and require more people. And so this Burbank studio was necessary even to keep-
- DRDavid Rosenthal
The same pace
- BGBen Gilbert
... producing films every three years.
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
But the s- the, the lot itself is unbelievable. It's 51 acres. There are sports fields, a cafeteria. There's art classes. There's massages available. There's sunbathing in the penthouse club. In many ways, this is like the Googleplex before the Googleplex.
- DRDavid Rosenthal
Yeah, this is 1940 when they open this.
- BGBen Gilbert
Yes. And you're right. It's, it's kinda designed to keep you there. Why would you need to go anywhere else? And really, there's nowhere else to go around here.
- DRDavid Rosenthal
Right, [laughs] in Burbank at the time.
- BGBen Gilbert
It kind of... It reminds me a little bit of, uh, Epic Systems too.
- DRDavid Rosenthal
Yeah. Yeah, yeah. Yeah, very similar. Very similar.
- BGBen Gilbert
So here's an example of the lengths that they went to on this campus. So I was looking at Google Maps, planning our visit, David, and it looks weird. It's, it's offset from the Burbank street grid at an angle. And we asked the person who were showing David and I around, listeners, uh, w- why this is. And he said that it was Walt's priority when they were building it to offer the exact perfect conditions for lighting to animators, which of course, David, you know the, the spoiler here.
- DRDavid Rosenthal
Yes, to have offices that face north because northern light is true light.
- BGBen Gilbert
Do you know why northern light is preferable?
- DRDavid Rosenthal
No, I just know that that's what our-
- BGBen Gilbert
[laughs]
- 2:04:28 – 2:15:43
The Animators' Strike & Walt's Disillusionment (1941)
- BGBen Gilbert
again.
- DRDavid Rosenthal
Yep. This is the downside of Walt's, uh, always go for broke and shoot the works philosophy.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
And it leads probably to the darkest moment of Walt's life.
- BGBen Gilbert
That would change his relationship with the company forever.
- DRDavid Rosenthal
Forever, and irreparably his relationship with Disney Animation. The strike. So on May 29th, 1941, the Screen Cartoonists Guild, which is a union that had unionized every other major animation studio in Hollywood and New York over the couple years leading up to this-
- BGBen Gilbert
Which there were several of-
- DRDavid Rosenthal
Yep
- BGBen Gilbert
... at this point in time.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
We've been sort of very Disney centric, but there is an industry around this.
- DRDavid Rosenthal
Yep. Decides finally to target Disney employees. Now, there's a reason why the Screen Cartoonists Guild had stayed away from Disney, despite it obviously being the leader in animation up until this point, which is, I think Walt's utopian dream more or less was true, or at least true enough. Like, he established the bonus pool for animation. He constructed this campus, everything you were talking about earlier, Ben. But here with the cash crunch, that all comes crashing down.
- BGBen Gilbert
Yeah. There's a great excerpt from the book The Animated Man by Michael Barrier. "In the spring of 1941, under pressure from the Bank of America and holders of preferred stock, Walt Disney Productions agreed to scale back its production cost to about $15,000 a week. According to Walt Disney himself, that meant he had to hold the negative cost of new features to about $700,000, or one-third the cost of Pinocchio or Fantasia-"
- DRDavid Rosenthal
Oof
- BGBen Gilbert
... which was also in development at the time. Since labor costs made up 85 to 90% of Disney's total costs, implementing such severe economies would mean laying off more than half the staff."
- DRDavid Rosenthal
Oof.
- BGBen Gilbert
So you've got cost reduction in some of the people sticking around, and you've got big layoffs 'cause Pinocchio didn't pay back.
- DRDavid Rosenthal
Yep. Well, layoffs coming. They haven't happened yet.
- BGBen Gilbert
Mm.
- DRDavid Rosenthal
And this is part of why the organization and the strike happens. So hundreds of employees end up striking. They picket the Burbank campus. They march all day. They carry signs with slogans like, "Snow White and the 700 Dwarves," or, uh-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... what is a, a drawing of Pinocchio with the caption, "No Strings on Me." The strike lasts for three and a half months, and it's a completely shattering event for Walt personally and for the company. As the union is organizing the employee base in the days and weeks leading up to the strike, Walt decides that he's gonna make a speech and address the entire company, which he thinks, well, he will explain his position and the challenging state that the company's in, and it will resolve everything, and the employees will rally around him and the company. Unfortunately, it has the opposite effect. It is a complete disaster. He lectures the entire company for nearly three hours. Some of his lines from the speech, which he had written out ahead of time, so it's preserved, are, "My first recommendation to the lot of you is this: Put your own house in order. You can't accomplish a damn thing by sitting around and waiting to be told everything. If you're not progressing as you should, instead of grumbling and growling, do something about it." And then-
- BGBen Gilbert
Ooh
- DRDavid Rosenthal
... "Don't forget this. It's the law of the universe that the strong shall survive and the weak must fall by the way. And I don't give a damn what idealistic plan is cooked up. Nothing can change that." Uh, probably not what you wanna tell your employee base after you just slashed their salaries.
- BGBen Gilbert
Yeah.
- DRDavid Rosenthal
Yeah, a labor magazine would write afterwards, "Walt Disney's speech recruited more members for the Screen Cartoonists Guild than a year of campaigning." Ugh.
- BGBen Gilbert
Yeah. A- a- about the worst reaction that you could possibly have. And Walt, I don't know if you found this in your research, but it seems like he's kinda deluded here into thinking, "Well, it's not actually my employees that are doing this. It's these communist, very few communist agitators-"
- DRDavid Rosenthal
Yeah
- BGBen Gilbert
... "who have undercover become my employees, and they're riling up the rest of them." And Walt's, like, kind of removed himself, and he's in denial that this is actually what his workforce wants. The, the, the family atmosphere that we had at Hyperion is now a, like, real corporate, you know, have and have-nots here-
- DRDavid Rosenthal
Enterprise, yeah
- 2:15:43 – 2:24:27
WWII, The Vault & Creative Slump (1941-1950)
- BGBen Gilbert
And now a hard cut over to World War II.
- DRDavid Rosenthal
[laughs] Yeah, right. Yeah, yeah, yeah. Okay, so back to 1941. No sooner does Roy settle the strike than Pearl Harbor happens, and the US now enters World War II. And unlike many of the other great American companies of that era that we've covered on this show before, where World War II was great for their business, like Coca-Cola or Mars or Lockheed, World War II is a disaster for Disney. Nothing of value gets built for Disney during the war. It basically breaks every single node in the flywheel. And on top of the strike, it just completely grinds to a halt all new core IP production for the studio.
- BGBen Gilbert
Yeah, so the first thing that happens is within hours and then days of Pearl Harbor getting bombed, the US military moves into the studio.
- DRDavid Rosenthal
Yes, yes.
- BGBen Gilbert
They look at Burbank and they think, "This is a great asset." And so-
- DRDavid Rosenthal
Do you know why?
- BGBen Gilbert
... there are hundreds of troops, there are two reasons, that set up shop using the sound stages to work on all the optical systems for anti-aircraft. Sound systems are awesome. There's no windows. It's a giant room. The... I mean, like, it's, it's the, the thing you would want for stuff like this. The second reason that I suspect you're-
- DRDavid Rosenthal
Okay
- BGBen Gilbert
... hinting at, David, is it is real close to Lockheed.
- DRDavid Rosenthal
Yes, real close specifically to Lockheed's Skunk Works department-
- BGBen Gilbert
Oh
- DRDavid Rosenthal
... which is in Burbank. The secret Lockheed Skunk Works airplane hangars and, and department was in Burbank because Burbank was the sticks back then.
- BGBen Gilbert
Oh.
- DRDavid Rosenthal
And Disney is right next door. So that's probably the bigger reason why the military requisitions the Disney lot is to protect Skunk Works.
- BGBen Gilbert
Fascinating.
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
So you've got that happening. You've got a whole bunch of the animators getting drafted.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
I mean, so you're, you're, you're down manpower. You're just coming out of the strike. You have these huge failures in Pinocchio, Fantasia, and also Bambi. Again, you've lost European distribution.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
And so the appetite for making more things like those three movies drops to, like, zero.
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
I mean, at this point, there's a financial reality that Disney owes a dividend to these, uh, shareholders, which interestingly enough, it actually suspended. In 1942, they actually didn't pay out the dividend.
- DRDavid Rosenthal
Mm-hmm.
- BGBen Gilbert
But they do have to pay Bank of America.
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
The films aren't gonna be the thing doing it. And conveniently, they've got the US government saying, "Can you help us with some propaganda films?"
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
"Can you help us encourage people to pay their taxes and buy war bonds and support the troops?" And so Disney kinda looks at everything, how it's all playing out, and says, "Yeah, that's what we're gonna be doing for the war."
- DRDavid Rosenthal
So all of the studio production work during the US' time as an active participant in World War II, yeah, basically just gets repurposed to propaganda and training materials for the government.
- 2:24:27 – 2:33:48
Post-War Slump to Cinderella's Comeback (1945-1950)
- DRDavid Rosenthal
So despite this genuine innovation of adding the vault concept to the flywheel, by the time the war ends in 1945, Disney is not in a good place. The flywheel is basically completely broken. There hasn't been any compelling IP generated for the past several years. And worst of all, Walt himself is disengaged and disillusioned.
- BGBen Gilbert
Yeah. But clearly something happened-
- DRDavid Rosenthal
[laughs]
- BGBen Gilbert
... because the Disney we know today is quite successful.
- DRDavid Rosenthal
Yes, but before we continue the story...
- BGBen Gilbert
Yes, listeners, this is a great time to thank our friends at ServiceNow, longtime friends of the show. So if you are managing a large enterprise today, you've got AI everywhere. You've got copilots and models and agents all running across every team.
- DRDavid Rosenthal
And the promise was simple, add AI and the results will follow. But enterprises are now realizing that the hard part was never adding AI, it's making it work.
- BGBen Gilbert
Right. It's gotta have the right context and connect to the workflows that matter. Plus, it's gotta be secure, stay governable, and still be able to take real actions. You get all that working together, and that's when magic happens.
- DRDavid Rosenthal
Yes, and for those, like, two of you out there who've never been to Disneyland-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... the magic isn't just from one great ride. It's from the whole experience being seamless, the daily parades, the sight lines, the characters appearing exactly at the right moment. It looks effortless, but behind the scenes, thousands of moving parts are being coordinated in real time from a control center that nobody ever sees.
- BGBen Gilbert
And that's what ServiceNow has been building for over 20 years, the foundation AI needs to succeed. And they've done it at scale, over 100 billion workflows, trillions of transactions, and the operational knowledge of how work actually gets done. That's why more than 85% of the Fortune 500 work with ServiceNow.
- DRDavid Rosenthal
And as the AI control tower, they're giving companies a single place to manage all of it, not just agents, but every AI system across your business.
- BGBen Gilbert
So listeners, if you are wrangling AI across your company, go check out servicenow.com/acquired, and just tell them that Ben and David sent you. All right. So we're coming out of the war. There's sort of a [laughs] a few moving parts here at Disney right now. So the revenue from the government has dried up, so the, the thing that was putting them on sound financial footing is not there for the sort of quick revenue hits. Th- The long-term stuff, other than the re-releases, they haven't stoked the fire in a while.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
So the strategy over these next few years is to sort of kickstart, to try to do stuff that doesn't cost a lot of money but might have a lot of return.
- DRDavid Rosenthal
And so they try a bunch of stuff. On the animation side, they do packages where they take a bunch of shorts, and they package them together as feature films.
- BGBen Gilbert
Mm.
- DRDavid Rosenthal
These are movies that you almost assuredly have never seen called, like, Make Mine Music or Fun and Fancy Free, not big successes. The other thing they try in animation is to go back to the original Alice's idea of combining animation and live action. The result of that is the movie Song of the South.
- BGBen Gilbert
Oof.
- DRDavid Rosenthal
Yeah. Which historians look back on as racist and deeply problematic, and, uh, Disney has never released on home video or streaming. So, uh, not a big success for the flywheel there either. And for the first time in animation, there's now actually real competition in the marketplace. So before the war, Warner Brothers had started Looney Tunes, you know, with, like, Daffy Duck and Porky Pig-
- BGBen Gilbert
Mm-hmm
- DRDavid Rosenthal
... and then Elmer Fudd, and of course, Bugs Bunny. Ironically, it's a former Disney story department employee, Charles Thorson, that does the initial designs for Bugs Bunny.
- BGBen Gilbert
Oh, wow.
- DRDavid Rosenthal
And then in 1940, you know, same year it all started to fall apart for Disney, Joseph Barbera and William Hanna start working together. They produce Tom and Jerry for MGM. So the other major studios-
- BGBen Gilbert
And The Flintstones.
- DRDavid Rosenthal
Yeah, The Flintstones, of course, yeah. The other major studios are starting to creep in on the animation game. And so by this post-war period, these other studios had grown in popularity and were really starting to rival Disney. Meanwhile, Disney, they go the other way, and they get into live action.
- BGBen Gilbert
Yeah, they somehow had a bunch of cash tied up in Europe that they couldn't repatriate, so they needed to spend it in London. So they went and shot a live action film, Treasure Island, in London, which did well for them. Live action is far less expensive to create. You can do it fast, and they needed to do something with this cash. But, you know, you're not buying a lot of Treasure Island merch today. It's not-
- DRDavid Rosenthal
Yeah
- BGBen Gilbert
... durable like the, the animated stuff.
- 2:33:48 – 2:38:44
Walt's Obsession: Model Trains to Disneyland (1950-1952)
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
All right. So we've talked about Walt being disengaged here. What is he doing? [laughs]
- BGBen Gilbert
So Walt is playing with trains.
- DRDavid Rosenthal
[laughs]
- BGBen Gilbert
I mean, I-
- DRDavid Rosenthal
Yes, he is.
- BGBen Gilbert
That's about the best way that I can frame this, is he's getting really into trains and really into miniatures.
- DRDavid Rosenthal
Yes. Trains, specifically model trains, and miniatures, like miniature furniture and, like, rooms in homes in miniatures. [laughs]
- BGBen Gilbert
Yeah. I mean, gosh, I said we weren't gonna dive into Walt's psyche on this episode, but I kinda think about this, this is me editorializing, as this, like, soul-searching half decade where he's just looking for what is he gonna get passionate about next, 'cause he's sort of bored. Like, animation isn't doing it for him the way that it used to, and he's, like, reaching back into his childhood for inspiration.
- DRDavid Rosenthal
And the way Walt would frame this is that he was developing these hobbies to keep his mind off of the problems at the studio. That's what he would always say.
- BGBen Gilbert
Right, that these were nice things to do after a hard day at work.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
But they became obsessions.
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
When I said reaching back into his childhood, there was a train that ran through Marceline, which is why Marceline existed, and there's this, like, deep-seated psyche around trains and small-town America. He and some of the other senior animators developed this interest in large-scale model trains, which are one-eighth the scale of an actual railroad train. So, like, big, like, ones you could ride around sitting on top of.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
There's amazing old footage of, of Walt, like, riding around on these, these one-eighth scale trains.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
So Walt took this extremely seriously. He ends up traveling to the 1948 and 1949 Chicago Train Fair, and he kinda dove into this community of fellow train enthusiasts. I was thinking this was strange. Like, I kept reading about this, and I was like, "This is n- wild." There were six million train enthusiasts, like, model train enthusiasts at the time. This was actually, like, a pretty big thing.
- DRDavid Rosenthal
Yeah, this isn't like billionaire hobbies today. This is like a... Walt is hanging out with other enthusiasts, kinda man of the people style.
- BGBen Gilbert
Yes, and it was something that was really tangible for him to do with his hands. I mean, he was building some of the train cars himself. He, he actually had a workspace in the machine shop in Burbank where he was building with the machine shop staff. There was a, a guy, Roger Broggie, who sorta led the machine shop team, who would go on to build a serious, serious model train for Walt. Roger would also become, just to foreshadow here, the first Imagineer.
- DRDavid Rosenthal
Yes. Yes, yes. Well, just to foreshadow even more, all of this-
- BGBen Gilbert
[laughs]
- DRDavid Rosenthal
... would lead to Imagineering.
- BGBen Gilbert
Yes. So this team in the machine shop, uh, and Walt end up building this train. And, and David, you were saying, like, man of the people style. In a very not man of the people style thing, he ends up sinking $50,000, which is, like, a giant amount of money at the time, and a huge amount of his personal liquidity in 1950, into building a train in his backyard. There was a half mile of track that went through a tunnel. That tunnel, which, which he dug under his wife's garden, on its own was 90 feet long.
- DRDavid Rosenthal
Yes. When Walt gets obsessed with something, he, he goes to un- unreasonable extremes. [laughs]
- BGBen Gilbert
When he and his wife were looking at houses to figure out where... what property they were gonna buy and then build a house on, a major consideration was, "Is there room for a giant train l- to be laid out?" He ends up... It's on Carolwood Avenue, I believe, Carolwood Street.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
And he ends up naming it the Carolwood Pacific. The, uh, steam engine is named the Lilly Belle after his wife. It, it, it's a whole thing.
- DRDavid Rosenthal
Yep. And if you go to Disneyland or Disney World today, most of the steam engines of the railroads are named in callbacks to this period-
- 2:38:44 – 3:17:05
Financing Disneyland: ABC, SRI & Davy Crockett (1953-1955)
- BGBen Gilbert
Yes. So out of this stew comes Disneyland.
- DRDavid Rosenthal
Yes. Which is so funny, because Walt would insist in interviews until his dying day that, quote, "The idea for Disneyland came about when my daughters were very young, and as I'd sit there while they rode the merry-go-round, I felt that there should be something built where parents and children could have fun together. So that's how Disneyland started. It all started from a daddy with two daughters, wondering where he could take them where he could have a little fun with them, too." [laughs]
- BGBen Gilbert
[laughs] It's also that.
- DRDavid Rosenthal
You know, I'm sure that's part of it.
- BGBen Gilbert
Yeah.
- DRDavid Rosenthal
Some of both, but really the trains.
- BGBen Gilbert
[laughs] Okay, so how did Disneyland happen? Well, the initial thing was actually pretty small.
- DRDavid Rosenthal
Yep, the initial idea.
- BGBen Gilbert
Yes. There was a name floated, Mickey Mouse Village, that sorta quickly changed to Disneyland since, uh, it was much more about his new passions, trains, Americana, and miniatures, than it was about Mickey Mouse. And he started working with artists to sketch out what it would be. And the constraint that he had was, "We've got this 16-acre plot of land that's adjacent to the Burbank Studio lot between that and the river. So that's sort of what we're working with here."
- DRDavid Rosenthal
Yeah. And that's the natural place you would put this.
- BGBen Gilbert
Of course, of course. So in March of 1952, Walt announces it, Disneyland, to be constructed on that little strip of land-
- DRDavid Rosenthal
[laughs]
- BGBen Gilbert
... for a cost of $1.5 million.
- DRDavid Rosenthal
A Snow White.
- BGBen Gilbert
A Snow White. Yeah, we should speak-
- DRDavid Rosenthal
If you will
- BGBen Gilbert
... in units of Snow White.
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
It's actually cheaper than a Snow White, given the, uh, inflation since-
- DRDavid Rosenthal
Yeah, right, right, right. Much cheaper than a Snow White.
- BGBen Gilbert
It's now been, uh, 15 years. So he decides, "I'd actually like to spend some money on a, a larger study for this because I've got a couple of, like, artist renderings here that include cool little river and a train that runs on this, and we're gonna figure out, you know, attractions that, that go in this thing. But, uh, we really gotta jam a lot in here, so I'd like more money."
- DRDavid Rosenthal
Roy and the board are none too enthused about this.
- BGBen Gilbert
Yeah. Think about everything that we have said over the last, I don't know, hour about the state of the company, and Walt is saying, "Hey, I found a thing I'm interested in. Can I have some money to explore building this kinda like inarticulable idea, yeah, right next to the studio lot?"
- DRDavid Rosenthal
Yeah. Kinda goes over like a lead balloon.
- BGBen Gilbert
Yes. So The Walt Disney Company, at this time called Walt Disney Productions, does not free up the purse strings for this. So what does Walt do? He kinda talks to Roy about it, and they, they, they figure out a path forward. He's gonna start his own company that would get formalized later in the year, in 1952, that ends up being called WED Enterprises, W-E-D, Walter Elias Disney.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
His personal company that he can do weird personal stuff with.
- DRDavid Rosenthal
[laughs] Yes.
- BGBen Gilbert
So over the course of 1952, Walt starts poaching people-
- DRDavid Rosenthal
Yes
Episode duration: 4:31:28
Install uListen for AI-powered chat & search across the full episode — Get Full Transcript
Transcript of episode 7EUVr0-V6DA
