Disney, Plus

Disney makes it very approachable, but I've just like read all their IR stuff. And like, it's not, it's not hard. Like it's, it's really cogent. I mean, it's quite refreshing moving from analyzing loss-making, fast-growing tech companies to a company like Disney that just makes it plain, makes it clear. It makes a lot of sense. Yeah. Isn't trying to hide the ball. Yeah. All right. Let's do it. Let's do it. Welcome to season five, episode seven of Acquired, the podcast about great technology companies and the stories behind them.

I'm Ben Gilbert, and I'm the co-founder of Pioneer Square Labs, a startup studio and early stage venture fund in Seattle. And I'm David Rosenthal, and I am a general partner at Wave Capital, an early stage venture firm focused on marketplaces based in San Francisco. And we are your hosts. This time it's different. These are four very dangerous words that should set off an alarm every time you hear them. Bob Iger, the CEO of Disney, is trying to achieve the pipe dream of what has failed so many times before in the media industry, combining content and distribution under one roof.

It has been tragic before, famously with AOL Time Warner, and recently being tried with Comcast, NBCUniversal, and AT&T Time Warner. But Disney has to compete against digital disruptors like Netflix, who have successfully built their own distribution and content in-house. So here we are, one week after the ambitious launch of Disney+, where Disney will try to attempt the multi-year mission to do just that, transform their business, not just to make great content and capitalize on the intellectual property through parks, licensing, and merchandise, but to be the distribution of that content as well, directly to consumers.

Or another way to frame it, Bob Iger just kicked off one of the most ambitious attempts to buck the innovator's dilemma of all time, compromising hundreds of millions of dollars in guaranteed revenue from keeping their content on Netflix and others in hopes of capturing the long-term asset of a direct connection with their fans. It is no understatement to tell you that David and I are absolutely giddy to dive into this episode and are hot off of reading Iger's fantastic book, The Ride of a Lifetime.

Are we ever. I have one question for you, though, Ben. Have you watched The Mandalorian yet? I have. What are your thoughts? No spoilers. And I do think... No, no, no, no spoilers. I'm a huge fan. I think Jon Favreau is so far proving to be an amazing steward of that franchise. Yeah, yeah. I haven't watched episode two yet. I've only watched episode one, but I was a big fan. You know, I've been doing so much research for this episode.

Well, that's research. That is, that's true. That is research. I'll have to tell Jenny that. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Legora, the agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there.

Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with.

Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months. Truly insane numbers. And that is the real test.

Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com slash acquired and just tell them that Ben and David sent you. And now, on to Disney+. All right, before we get into history and facts, I just want to set the stage for everyone so that listeners are all on the same page.

Of all of the deals and acquisitions over the last, really going back to Capital Cities, ABC, ESPN in 95, that have set the stage for this momentous launch of Disney+. We've covered most of these on their own episodes on Acquired, which we will link to in the show notes. But just as a quick recap, first, Disney acquired Capital Cities, which included ABC and ESPN, most importantly, in 1995 for $19 billion. Then in 2006, they acquired Pixar for $7.4 billion.

2009, Marvel for $4 billion, which is, oh man, going back and re-listening to that, doing research for this, we didn't grade that highly enough. That was one of the best acquisitions of all time in any industry. We also didn't know Infinity War was going to do what it did at the box office. Yeah, incredible. And everything before that in the franchise. Highest grossing movie of all time. Okay, then also in 2009, Disney invested in Hulu for a 30% stake.

We don't know how much they paid for that. 2012, they acquired Lucasfilm for $4 billion. In 2016, as we'll talk about later in this episode, this was rumored, but then Bob admitted in Ride of the Lifetime in his book, they nearly acquired Twitter in 2016 and walked away. The day before, right? It was like a Sunday when they called it off. Yeah. And on the Monday, they were going to announce it. And Jack Dorsey was on the Disney board.

So, awkward, awkward turtle. We'll get into that. In 2016, though, they did, we did our episode on BAM Tech, which has aged really well. Really encourage listeners to go back and listen to our BAM Tech episode. They acquired first a minority stake for a billion dollars, and then they acquired a majority stake in 2017. In total, they spent $2.6 billion on BAM Tech. And then the big one, Fox. 21st Century Fox, deal closed in March of this year, 2019, $71.3 billion.

And then the final piece of the puzzle is they have agreed, Disney has agreed to acquire from Comcast the remaining 33% of Hulu that it does not own. They will spend at least $6 billion on that, and that will close within the next five years. Disney and their legendary strat planning M&A team is the masters at setting these deals of investments with options to acquire and overtime, and they've done really well. So, okay, that's to set the stage.

Keep all that in mind. Thinking of Bob Iger and strat planning, I think of sort of like Thanos, like where he like after using the Infinity Stones, like goes off to the other planet to rest for a while. Like you just look at this list. It's unbelievable. Oh my God. That's the best analogy ever. Also because like Bob Iger and Thanos could not be more polar opposite. Well, that is the perfect tee up to the history of facts.

We couldn't have timed this better. Even though Bob didn't intend it this way, his book that just came out, Ride of a Lifetime, is so good. Everybody should go buy it, read it, listen to it, whatever you need to do. This is one of the best business books. It's right up there with Shoe Dog that have come out in the last 10 years. Completely agree. When you say he didn't intend it this way, are you referring to like timing it with the Disney Plus launch?

He intended to time this with his retirement from Disney. But obviously, as we will see, things did not go quite according to plan. But the story that we're going to tell here is Bob Iger's story because the story of all of these deals, the culmination of it all in Disney Plus and going direct to consumer, this is Bob's vision. It is very directly Bob's vision. And the story of how it came to be is an incredible one and one that is just unparalleled in today's business world.

So this is a man, Bob Iger, who has worked for every year of his life except one. His very first year out of college, he was a weatherman in Ithaca, New York for a local TV station. Except for that one year, he has worked for the Walt Disney Company in one form or another for the same company. For 45 years, the last 13 of which have been or 14 of which have been a CEO of the company.

He literally started at the bottom. Let's rewind all the way back. Who is Bob Iger? So he was born in 1951. When you look at him, he looks like a 50-year-old. I mean, he's 68. Yeah. Yeah. He's 68. He is in incredible shape. He was born in 1951 to a Jewish family in Brooklyn. But he spent, I believe when he was five, they moved to a working class town on Long Island called Oceanside. And Bob's father was a World War II veteran.

He had been in the Navy in World War II. And he was a mid-level ad man in New York City. Like he was madman. He was Don Draper. The parallels are so apt. Bob talks about this in the book. His father suffered from depression, which was hugely stigmatized back then for a lot of reasons. I imagine no small part of having been a sailor in the Navy, you know, during a war. And he even underwent electroshock therapy to treat it.

All that said, he did instill in Bob a love of both music and literature and a very, very strong work ethic. Bob was not a great student in high school, but he was a hard worker. And he went to Ithaca College for college. And he worked his way through school working at the local Pizza Hut. And to this day, famously, Bob does not eat any carbohydrates except for pizza. Loves pizza. But it was his dream in high school to become a network news anchorman.

He wanted to be, you know, like Dan Rather, Peter Jennings, and the like. And so when he graduated in 1973 from Ithaca with a degree in television and radio, he, as we mentioned, worked briefly as a weatherman for the local cable TV station there. He was not particularly talented on that side of the camera, unfortunately. Unfortunately, but we all have strengths and weaknesses. We all have strengths and weaknesses. Fortunately, though, does not take Bob long to figure this out.

In 1974, the next year after he graduates, he gives up on the dream of being in front of the camera, moves behind the camera. And he also moves back closer to home to New York City, where he joins ABC, which then was a independent company, just ABC, at the bottom. So he was basically a gopher on television sets for like soap operas and game shows. Like he was like cleaning the sets, fixing them up, getting there at four in the morning, getting ready for recording all of this stuff for $150 a week.

And literally, when you say gopher, like he was the guy that when they would say like, yeah, yeah, we need two hours to do this thing. Like go hang out with the talent so that we can tell you to tell him to come back when, you know, when we're ready. Like that was his job. They kind of say we're going to get into this in a sec. But, you know, literally like his big break comes when he works on a television special with Frank Sinatra.

And it's like Frank needs mouthwash. Bob, go run to the pharmacy. Go get a mouthwash. You know, that kind of stuff. In a great New York Times interview that we'll link to in our sources with Maureen Dowd, Bob says, you know, a quote here. He says, I never viewed myself as exceptional. So whenever I got a job, I was relying on hard work more than anything and a level of enthusiasm and optimism. And Bob is nothing if not an optimism.

He says, when I went to ABC, everybody there went to Stanford or Dartmouth or Columbia. I went to Ithaca College, okay? I didn't have an inferiority complex, but I knew I wasn't one of them. I didn't wear Gucci shoes. I didn't wear Brooks Brothers clothes. I couldn't afford any of that stuff. But I knew I had a work ethic that was prodigious. And what happened early on is people started relying on me because they knew if they asked me to get something done, I would get it done.

And that is what Bob does. So as we alluded to shortly after he gets there to ABC, he gets his big break where they're televising a big special from Madison Square Garden called The Main Event hosted by the chairman, Frank Sinatra. I think it's like a boxing themed musical number. I mean, television was different back in those days. So he meets Frank. He meets the chairman by getting him mouthwash. Frank says, hey, what's your name, kid?

And he says, Bob. And Frank's like, great job. He gives him a hundred dollar bill. I did not know that he was the chairman. Like, I didn't know that was a nickname. And I'm reading the book. And I was like, like the chairman of ABC. Like, who's this chairman that he's meeting? I'm like, I'm an idiot. The legend. Blue eyes. The chairman. Yep. So this special, The Main Event, quote unquote, was produced by two legends at ABC.

Jerry Weintraub and most importantly, Rune Arledge. I think Rune was involved maybe because it was like a boxing themed thing. I don't know. But Rune was legendary. So he was the head of ABC Sports. Now, Bob was working in ABC, what would become entertainment, like the television shows, soap operas, game shows that way. He wasn't working in sports. Sports was where the cool guys were at ABC. Right after this special, Bob gets into a big fight with his boss in entertainment because it turns out his boss was like embezzling from the company.

It was not good. And Bob realized that he's about to get fired. So he calls up one of the sports guys that he worked with on this event and says, hey, do you have any openings over there? Can I transfer over there? They're in a completely different building in New York. He transfers over there and he starts working again from the bottom within ABC Sports. So what was sports? I mean, they had Monday Night Football at the time.

They had the wide world of sports, which I remember was still a thing like when I was growing up, spanning the globe, like bringing all of this, you know, great content, all these stories from around the world. And most importantly, ABC at the time had the Olympics. So they showed the Olympics in the U.S. every year. And what Rune had realized and kind of built within ABC that would then get taken over to ESPN shortly and be a big part of their success was that they weren't selling, showing sports, like just televising a football game or the Olympics or some, you know, random event that they did on the wide world of sports without a story was flat.

It was boring. They were selling storytelling. They were selling entertainment. What were the narratives? Who were these people? Where did they come from? What adversity had they faced? What was the storyline of the game? Um, and so all of that, that was really pioneered by ABC sports and by, by Rune. David, we probably could have saved ourselves a lot of time if we had done this episode like three and a half years ago, because I feel like it took us like three years to figure out, oh, the reason people like acquired is not, let's do an audio discounted cashflow and figure out if that acquisition makes sense financially five years from now.

It's, it's the stories behind the deals. And I think Rune hit this thing that it's only recently occurred to me that everything is storytelling. You know, I obviously work on a lot of pitch decks and, um, human beings absorb information best through story. You know, it's, it's a multi-billion dollar realization that Rune had that would, that would sort of play out over the next several years that this is the way to build enduring fanhood. Yeah. And what's, what's super cool about this, I feel like this is one of the like, key meta themes for acquired that run across everything we look at on the show and acquired itself.

I mean, I'm thinking about Sequoia and Don Valentine. Hopefully many of you have gone and watched on YouTube, the talk he gave at Stanford. He says in there, the most important thing is storytelling. Money flows as a result of the stories. If you can't tell a story, you are not going to raise money. I love the way you phrase that. Like listeners, David gave us homework. So I hope we went and watched our YouTube videos. Only because it's Don Valentine.

Uh, anyway. Okay. So to pick the story back up, the other thing that Rune really embraced within ABC sports and pioneered was technology. So this is back in the seventies. So technology within media, you know, is not Disney plus we're a long way from that, but I think this is really where the seeds of all of this get sown. Rune embraced, you know, new camera technology, uh, graphics overlays, graphic overlays on, on live content, new camera angles, satellite feeds to be able to take content from the wide world of sports and the Olympics from all over the world, get it instantaneously broadcast back to the U S and retransmitted.

And he had kind of a mantra around this, which he called innovate or die. And unless you were pushing the envelope and using technology and using new techniques to in the service of telling better, more engaging stories, you were just going to fall behind and someone was going to surpass you. And so both of those things, both the storytelling and the innovator die mindset of Rune really, really rub off on Bob in the early days. You know, Bob gives all the credit to Rune for teaching him this innovator die lesson.

But if you look at the parallel story that was happening, you know, maybe a dozen years earlier with Walt Disney himself, you know, the, the start of Disney of Disney animation was incredible innovation, figuring out how to make these animated motion pictures, inventing new machines to do it. You look at the start of technology, totally the start of Disneyland, the whole imagineering department, creating animatronics like Disney too, was built on this foundation of, of innovator die and use technology to tell stories.

Yeah. I mean, it's again, such a thread on acquired it's, um, you know, it's Steve jobs. Who's going to come in here in a minute. It's technology in the liberal arts. You know, that's where real magic happens when the two of those things come together. So Bob rises through the ranks over the next 10 years at, uh, at ABC sports, he becomes a VP. And then in 1985, when he's just about, just a little over 10 years, uh, probably 10 years into his time at sports, famously, as we covered in our ESPN episode, the minnow eats the whale and capital cities, this, uh, backwater.

Scrappy penny pinching backwater. Yeah. Broadcasting, you know, company in the Northeast acquires ABC. And, and literally that was the headline in, uh, I think it was in the wall street journal the day it was announced was minnow eats whale. At first there was, you know, and Bob talks about this in the book, there was quite a bit of culture clash between like, you've got these scrappy penny pinching, you know, Tom Murphy and Dan Burke, uh, you know, Warren Buffett, I won't even say disciples, the contemporaries, you know, uh, simpatico kindred spirits.

And then you've got rune was many, many great things, but penny pinching was not one of them. And certainly Nora was, um, the entertainment side of ABC, you know, it was Hollywood. So there's some initial culture clash, but Bob and other folks at, at ABC really are part of kind of bridging this gap and they get to know Tom and Dan and they actually realized they're cut from the same cloth. And Tom Murphy in particular comes to really trust Bob, uh, Bob Iger as, as one of the key managers within the company that can kind of make instill this ethos of the ultimate investor mindset and really excellent business management into the creative industry that is, you know, both sports and entertainment within ABC.

And, uh, so much of what we'll get into a minute that when Dan Burke, so Tom was a CEO of capital cities, Dan was COO, but they were, they were a duo when Dan retired, Tom asked Bob to become his COO and replace Dan. Um, you know, that's how, that's how much he's, like we said, cut from the cloth of this Tom Murphy, Dan Burke, Warren Buffett, um, you know, style of management. So Bob keeps rising first.

He gets promoted to run ABC entertainment, the, where he first started out at ABC, sort of the Hollywood side of the house. So he moves out to Hollywood and entertainment had been struggling unlike sports, which was an unquestioned leader at the time. And of course then with the capital cities acquisition, uh, ESPN came into the fold and ESPN is really taking off during this time. Bob now gets tasked with make the entertainment side of the house.

Great too. And this was really key because he had to learn now how to navigate Hollywood, which is, you know, he's a, he's a Jewish kid from long Island. Like this is not what he's used to despite rubbing shoulders with, uh, with Frank Sinatra gets out there in his suit. And you know, he's, he's, he's, he knows he can't quite do business the way that he's used to doing business in New York, but he also has no idea how you're supposed to do business in Hollywood.

Yeah, totally, totally. So one of the things though, that he realizes, and I think leads to him being able to succeed is there is one commonality, which is, it's all about the stories. You know, if you tell a great story, you're probably gonna succeed. So Bob, uh, he really leans on the people around him to help him learn the business. And he has a very low ego about it, um, which is one of his hallmarks, but he has a pretty good run.

So he greenlights Doogie Howser, uh, which is a massive success, uh, for the network twin peaks, which ends up being quite controversial. And, and Bob and the company probably make the wrong decision to cancel it, but a massive risk, you know, putting a dark drama on network television. The way to think about what Bob's doing here is it's, he knows that he's put in there for a reason. He has to revamp this group a little bit.

He knows that he's not a typical Hollywood guy, so he can't just go and pretend to be one. And so what he's trying to do is basically a flank attack. Like I have to take a different approach to doing this. I have to zig when other people are zagging. And what do I do? Greenlight, very non-traditional content and sort of go with my gut and take some risks on stuff that other people probably wouldn't put on the air.

Yeah. Well, I think it's, it's a balance, right? He, it is that, it is that outsider perspective and the willingness to take risks that are going to come up again and again and again in this episode. But he also does his homework. Like he doesn't just ride in and be like, we're doing things my way. He really, really trusts the people around him and says, I'm not from this industry. I respect you all as creators. I want to learn from you.

And let's think about like, what are some like just given norms in our industry that maybe aren't right that like we should, we should consider challenging. So Twin Peaks is a great example of that. NYPD Blue, he launches. Roseanne is another great example of that. The Roseanne Show becomes very successful. There will be controversy with the reboot later, more recently. But that all goes really well. And in 1992, Bob gets promoted by Tom and Dan to become president of all of ABC.

So sports, news, entertainment, all reporting up to Bob and the rest of Capital Cities, they have their own managers for. And then, like we said, in 1994, Dan Burke retires. And Tom says, Bob, Bob had just recently, two years before become president of ABC. Bob says, I don't know that I'm ready to come in and run Capital Cities with you. And Tom says, nope, you don't have a choice. You got to come in. You're my CEO.

You're running all of Capital Cities with me. And ESPN at this point in time is, you know, again, like we covered in that episode, it's clear that this is going to be a multi, not just billion dollar business, but tens of billions of dollars business in the future. So enter Disney right after Bob becomes COO of Capital Cities. And take us through. This is 95. We're at 1995 right now. It's 94 when Bob becomes COO. So at the Sun Valley Conference, the Allen & Company famous Sun Valley Conference in Idaho, Michael Eisner, who we're going to talk a lot about, the CEO of Disney, then CEO of Disney, gets together with Tom Murphy and Warren Buffett.

And they cook up a plan for Disney to acquire Capital Cities and ABC and ESPN. This is to preview a little bit when we talk about Disney Plus and get into this. This move, Michael Eisner was an equally legendary CEO of Disney before Bob. This was his capstone was unfortunately, Eisner stuck around a little bit too long after the capstone, as we'll see. His first 10 years were incredible. His first 10 years were absolutely incredible. And then this was the capstone that ended up in really, you know, ABC, of course, super, super important, but ESPN becoming part of Disney.

And for many years, I mean, again, I remember we talked about this on the episode when I was a media investment banker right out of college in New York, you know, covering Disney, people just like basically discounted everything else within Disney, the animation, the parks, the studios, everything to basically zero. And it was just like this company is ESPN. It is that powerful. It is the most profitable by a million miles cable network and content provider in all of America.

Yeah. And to contextualize that for listeners, every single person who is paying for cable in the United States and is getting ESPN, ESPN2 and the, you know, the rest of the stuff that comes with it, the sports stuff is paying about $9 directly to ESPN of whatever the bundle price is, 40, 50 bucks. It's crazy when you think about, let's say it's 50 bucks. That's, and let's say they're making a, they're 2Xing the COGS or their cost of goods sold of the, the actual channels.

So like nine of the $25 for all of those channels are just going to ESPN. Yeah. And contrast that with 699 a month for Disney plus, right? So now Disney's going direct to consumers, seven bucks a month for all of their content versus they're getting $9 from the cable bundle just for ESPN. Yep. Yeah. Wow. Okay. So this deal happens, $19 billion. Disney acquires the company. And actually a super key part of the deal, like a, a sticking point for Disney and for Michael Eisner was he was not going to go through with the deal unless Bob committed to running ABC for at least five years after the acquisition.

He was worried about Bob leaving and it was like, it was like a non-negotiable point and actually held up the closing of the deal, which is kind of amazing. Eisner to rewind back to him a little bit. He's quite an interesting character. So he had actually started his career at ABC, but he had become CEO of Disney in 1984. And he had turned around Disney from Walt Disney had died in 1966. And for that almost 20 years before Eisner took over, Disney was completely floundering, producing no notable IP, no new movies.

I mean, they were producing new movies, but they weren't any good. They narrowly survived a series of takeover attempts. The parks were struggling. There was no vision. You know, it was, it was a really rough period. And you think about like what Disney animation was in those earlier days, it was Snow White, it was Sleeping Beauty. I mean, it was these like classic enduring, I mean, you have Mickey Mouse being, you know, created and that, that lasting the test of time.

But yeah, I mean, before Eisner came in. And the parks too, which are incredibly innovative. Yeah. You think about everything you associate with Disney. It's all sort of in this like 50s and 60s era. And then there's like very little, the early 80s for Disney, I guess I think that's, that's right, is pretty akin to like the early 80s for music. Like it's kind of best forgotten. Okay. There was like some good stuff, but no, no good stuff out of Disney.

But the Disney board had recruited Eisner and his partner really in turning around Disney, Frank Wells, who was his COO. And they did a couple really important things. Most importantly, they brought in Jeffrey Katzenberg to be head of Disney animation and head of the studio. And Jeffrey completely turned things around. So, you know, some movies that you might be familiar with, you probably are no matter where you live in the world, The Little Mermaid, Beauty and the Beast, Aladdin, The Lion King.

These are all hit after hit movies in these golden years of the late 80s through the mid 90s at Disney. The other things that Eisner and Wells do to really turn around Disney are they get big time into the VHS, the home video business, VHS and then DVDs. And they're really smart about this. They do like limited edition. I remember this growing up, like windowed releases of limited time only. You can get, you know, Snow White.

Pull it out of the Disney vault. VHS, pull it out of the vault, you know. I haven't done enough research to really know. But I think they probably in Disney at this time probably are big innovators in this concept of windowing that became so prevalent in the media industry of really milking as much profits out of a set of IP and content as possible with you've got the theatrical release, you've got the home video release, you've got the TV release, like and building excitement around all of it.

The concept of the Disney vault became so prevalent that SNL did a parody of like looking inside the Disney vault and it's all these characters like trapped in there being like, help. Yes. It's definitely worth looking up. Oh, man. Then, like we said, the capstone of all this is the Capital Cities deal where they bring ABC and ESPN into the company. Very, very sadly, though, right before the Capital Cities deal, Frank Wells is killed in a helicopter crash in 1994.

So, you know, had this not happened, I think history would have been really different for Disney, for Eisner and probably for Bob and Iger, too. And this really throws everything for a loop. So when the Capital Cities deal happens, Eisner is looking for a number two to be his partner to help run the company because this is a massive company. You know, no one person can, even Bob Iger can really run this by himself or herself at this point in time.

And so Eisner is looking for a number two. And when the deal happens, you know, Bob is so important and there's this clause in the in the acquisition that he has to stay on for five years as head of ABC, you know, people start thinking, including Bob, that, you know, maybe he's a good candidate eventually for this number two role at all of Disney. Bob writes about in the book that Tom Murphy actually told him around this time, like, hey, you know, look, you play your cards, right?

You might be CEO of this company, this whole Disney company one day. And indeed, that would be true. The path is not quite straight to get there, though. So Michael Eisner was thinking about bringing on a number two, but it was not Bob. So this is like a WeWork type situation. This is the WeWork of the mid 90s. Disney was. It honestly was. Not to just totally keep dunking on WeWork here on Acquired, but this was all over the news and all over America.

What a disaster this was. Eisner brings in super agent Michael Ovitz to become his number two. A clear COO candidate, you know, the clear choice. So what do you what do you want in a really operationally strong person to help you run a large recently combined business? Someone who's basically never managed people. Yeah. Never managed people is a founder, too. Like Michael Ovitz is like was incredible. I mean, he started CAA, Creative Artist Agency. Greatest agent of all time.

Yeah. And, you know, if you've seen the movie Jerry Maguire, you know, that's about sports agents, but like, you know, that whole world is Michael Ovitz or Entourage. The oh, shoot. The agent in Entourage. Ari Gold. Yeah. You know, that's Michael Ovitz. So he comes in into Disney and it is just just a disaster. Incredible culture clash. Bob is now under Michael Ovitz. Remember, Bob is like Warren Buffett, Tom Murphy, Dan Burke school of manager. He's now reporting to super agent Michael Ovitz.

Eisner really has a foot in both worlds here. He's an incredible guy himself. But Disney is Disney. It is not an agency. And when you say a foot in both worlds, I mean, Eisner had that creative gift that Walt had. I mean, Bob talks about how Eisner would go through parks and be able to spot issues with line of sight and things like that that are taking away from the experience being magical. You could imagine that that also leads to micromanagement, which was true.

On the other hand, you know, isn't so far from the capital city's world of figure out what's core to a business, make it really lean, make it really operationally sound. You know, I think Iger did a little bit more of that than Eisner did. But Ovitz certainly had had no notion of that. Yeah. Well, and to the foot in both worlds, you know, Eisner to maybe try and put ourselves in his mindset at this time a little bit.

Jeffrey Katzenberg, very much, you know, extremely, extremely talented, but more of the Michael Ovitz, you know, type of personality and creative, you know, genius than the, you know, Warren Buffett operational style, Eisner's gift was he recognized that talent out there and he recognized it in Katzenberg and it led to this great, great flourishing within the company. You know, and I think he probably hoped that Ovitz would be able to bring that back, bring that spirit back to Disney.

It didn't work out though. So Ovitz only lasts 14 months at the company and leaves after 14 months. This is in the late 90s, mid to late 90s, leaves with $140 million golden parachute. This is the $1.7 billion Adam Neumann payout of its day and leaves the company kind of in shambles behind him. And Eisner's reputation, having gone from turned around this iconic American company and produced, you know, with, with Katzenberg, the Lion King, Aladdin, you know, all these great movies to this Disney is the laughingstock of, you know, the business world at this point in time.

Eisner goes back after this, you know, he's wounded and in more ways than one. And he goes back to running the company solo and consolidating all authority and responsibility with himself. He assigns Bob, this actually becomes really prescient. And he assigns Bob to what seems like a, um, uh, a, I was going to use a Siberian outpost actually is a Siberian outpost, uh, to, uh, go run international for the company. And Disney was not huge internationally at this time.

And Bob actually learns a lot by going and operating Disney's business. This is when, um, you know, Euro Disney was getting set up on the theme park side, which was a disaster at first, famously until they figured out that, uh, European parents want wine at lunch to deal with their toddlers running around. Uh, and I think that, uh, that turned it around. Different countries are different. Uh, I think American parents probably also want wine at lunch to be able to deal with their kids.

One of the reasons that I've been so keyed into Disney recently is I went to Disneyland for the first time three months ago and yes, did see Galaxy's Edge. And yes, it was awesome. And there's a bar in, uh, right? There is, and it is the only place, but you have to get these reservations. It's almost impossible to get in. You have to like very pre-plan it, but it's the only place in the entire park to get alcohol.

And at least in Disneyland, I think California Adventure, you can. I think in Disneyland you used to be able to, and they took a hard pivot and got rid of it all. So it's interesting. I think they have a little bit of a, um, some experience with that going poorly at Disneyland. Interesting. Interesting. Um, but, but importantly running international here was the very beginning of Shanghai Disney. Yeah. Um, which would become a, one of Bob's, we're not going to talk about as much on this episode, but another marquee project for him over his whole career at the company and his tenure as CEO was opening up China to Disney from, you know, content obviously, but also theme parks.

Right. And the crazy thing is thinking about the timeline of that. So that started when Bob went to run international here in this timeframe we're talking about. In the late nineties. It opened in the last few years. Yeah. Was it 2018? 2017. 2017 or 2018. And Disneyland Shanghai opened an incredibly long project. So Bob does very well running international. And in addition, he's still running ABC as well. And so finally in January of 2000, Eisner does promote Bob to COO.

He kind of has to, at this point in time, uh, board is sort of like keeping him at arm's length. You're sort of my number two, but you're not actually my number two. And the board is really starting to get really upset with Michael at this point in time. Especially around succession planning. Like what's the plan, dude? Like you're not doing that great. And even if you were, it would be nice to know where we're going after you.

Yeah. Like you've been here a long time. Anyway. So Bob finally does become COO, but still all is really, really not well. And the biggest problem that's going on at Disney at this point in time, despite all this drama and personnel stuff, is animation. You know, and there's a saying within Disney that we're going to talk about a number of times over this next bit here, which I think goes all the way back to, to Walt of as animation goes.

So goes the company animation and what animation really means, you know, get to remember at this point in time, Disney doesn't have Star Wars. It doesn't have Marvel. It has, you know, some live action. One of the other really smart things. Touchstone pictures. Well, right. One of the other really smart things that Eisner and Wells did was they acquired Miramax. That gave Disney an adult film, not an adult film, a film studio capability targeted at grownups, not just kids.

Although Disney movies are for grownups too, which is the beauty of them. But anyway, animation was the core of the IP generation that flowed through Walt Disney's beautiful flywheel that we've talked about on a few episodes here. We'll link to, again, in the show notes, you know, back in the early days of the Walt Disney company, Walt illustrated this flywheel. You know, it's like an Amazon flywheel. It's the original one of how Disney's business model works.

And at the core of it all is animation. And animation means the generation of intellectual property and content characters. And that flows into movies, television, publications, theme parks, characters, visits, consumer products, all of this. But without the life cycle of constantly inventing new and refreshing old IP, that all starts to break down. Dave and I have revered the Disney flywheel diagram and talked about it, I think, at length on many episodes. And I actually looked at it the other day to prep for this and started thinking about it more.

And one thing that I thought about was, sure, the film IP powers the parks and the parks make people want to buy merch. And owning the merch makes you want to watch the movies again and go see the sequels. But, like, how does it actually shake out financially? And looking at the income statement for Disney that if you think about the year that ended this last September, this is pretty counterintuitive. So, Studio Entertainment did about $11 billion in revenue.

But parks, experiences, products, licensing, that sort of thing did over $26 billion. And that's pretty similar to what the Media Networks division did that's largely ESPN. And so, when you think about it, like, sure, the movies are a big, great business on their own. And, of course, this includes Lucasfilm and Star Wars and all that at $11 billion. But more than twice as big is how they sort of monetize in a down-funnel way of that seed that they've planted with the audience of, hey, you should engage with us in these other ways.

That is what really makes Disney special and is Disney's moat. And is the reason why we talk about it so much on this show. There are lots of other media companies out there. There's 21st Century Fox, which we'll talk about. There's Time Warner. There's, you know, plenty of others. But nobody else has this ability to take $11 billion in film revenue and add an additional $26 billion in flywheel revenue around it. To give you a sense of how bad things were.

Oh, man, I remember this. This was dark. Here's a sampling of Disney animation movies that come out during this time. You ready for this, Ben? Yeah, I'm glad you're sitting down. But Tarzan, Dinosaur, Atlantis, Treasure Planet. Remember Treasure Planet? Oh, yeah. No. Yeah. I mean, I remember hearing of Treasure Planet. Yeah. Brother Bear. Is this the Emperor's New Groove? Yeah, the Emperor's New Groove. That was probably one of the more successful ones during this time. Things are dark.

So the flywheel really starts breaking down. Like, parks are down. Like, everything's bad. But there's one saving grace, though, during this time period. And it's a big one. Which is that Disney has a very close collaboration with a little company up here in the Bay Area called Pixar. And Pixar is an independent public company. We've talked about, sadly, it was our first episode. Our history and facts on Pixar. We're going to talk about it a little more here.

It's about a sentence. It's about a sentence. And we really need to revisit the whole episode. But Pixar had done to get distribution and then additional revenue. They'd done a big deal with Disney where Disney distributed the Pixar films and co-licensed with them all their characters for theme parks and merch. And, you know, ran the Pixar characters through the Disney flywheel. And the movies and the content that Pixar, you know, has always produced but was producing during this time was, you know, Toy Story.

The very first one was Toy Story. The very first one was Toy Story. Toy Story, Toy Story 2, A Bug Slave, Monsters, Inc., The Incredibles. Compare that to Tarzan. And so this was really keeping the Disney flywheel afloat was this second party IP that was flowing through it from Pixar. I think even Finding Nemo was pre-acquisition. I don't recall if it was or wasn't. Yeah. Okay. Okay. Yeah. It definitely was pre-acquisition. Yeah. The acquisition was 2006.

So, unfortunately, and this was the last straw for Eisner. Eisner and Steve Jobs get into a very public clash and the deal goes sour. And Pixar and Steve, Steve owns 49% of Pixar at this point. And Pixar is a public company. Pixar announces that they're going to walk from the Disney deal at the end of their original three-movie contract. Steve Jobs publicly, he's already come back to Apple at this point. He started his re-ascendency, you know, the iPad, the iMac, the iPod have happened.

He is an incredibly well-respected business person. And remember, the narrative around Disney has been, this is WeWork. And he calls Disney completely mismanaged and, like, you know, basically a dead company. The really interesting thing here, though, to come back to technology, and this will, you know, to bring it back to Disney Plus, Disney, the content and the creative side of the house was a mess. But also the technology side of the house was a mess. You know, again, like, it was always new technology that was driving Disney animation.

And they had just completely stagnated. And Pixar was the one that had taken the lead here. Yeah. I mean, what they were doing was and still is so cutting edge. I mean, if you look back at Toy Story and think about the year that that was produced, it was at 95. 95. 95. I mean, by no means the photorealistic stuff that it is today or the water or the sky or the, you know, but it is absolutely pioneering.

And so unlike anything that anybody else in the industry was doing. Yeah. I mean, think about, like, I'm trying to even remember what kind of computer I had in 1995. If I even had a computer, I mean, I think my family had a computer, but I did not have my own computer. My family had a Power Mac 8500. It was the Motorola, the, like, Motorola chip that Max ran on for a while. Like, I don't know how to, like, compare that in megahertz or anything, but it was slow.

And here's Pixar making Toy Story, you know? So incredible with the render farm. As Nolan Bushnell told us, he figured out how to do render farms with gigantic server rooms of parallel computing. Yeah. So the Disney board, once the Pixar deal falls apart, they've had enough. So in late 2003, Roy Disney, who is the nephew of Walt and the sort of steward of the Disney family's involvement on the board and with the company, and longtime Disney family lawyer Stanley Gold, who's also on the board, they resign from the board.

And they launch the same day. Save Disney. The Save Disney campaign. It's so bad. So here you have Disney family members, former board members campaigning. And the goal of the Save Disney campaign is oust Michael Eisner as CEO. Yeah. Campaigning against the CEO. Let's not mince words about what Save Disney means. Yeah. Save Disney means get rid of Eisner. And so they decide that how they're going to run this campaign is they're going to wage a proxy battle for the March 2004 shareholder meeting of Disney, where they're going to encourage all the shareholders.

You know, the proxy vote is at the annual shareholder meeting of every public company. There's a vote like all the shareholders vote according to their voting rights on the board of directors and the management of the company. And they're encouraging shareholders to vote Eisner out of the company and off the board. No vote and no confidence. Very interestingly, right at this time, and I remember this happening, Comcast, which at this point in time, you know, Comcast is just a cable company.

Like they are literally just a cable distribution company. I think they own the 76ers and the Philadelphia Flyers at this point in time. They're based in Philadelphia. And they're nowhere near hated as badly as they are today. The internet hasn't launched. You can't see any tweets. Yeah, totally. I mean, they're still hated. It's just everybody thinks they're the only person who hates them. They launch a hostile takeover bid for Disney. They offer $64 billion in Comcast stock to take over the company because they see like, hey, this is damaged goods.

We want to make this play. We want to get into content and distribution. We're going to build an empire here. And it's kind of a miracle it doesn't work. Like it almost works. You know, here we are 15 years later. Comcast is a $200 billion company. They've acquired NBC Universal. So they have gotten their content side of the house. But Disney is a $250 billion standalone public company that once was almost acquired by Comcast. For $64 billion.

Yeah. Pretty good that didn't happen. In a sneaky move, too. Like right, you know, that night before the earnings call. Yeah. Yeah. Well, and while this Save Disney proxy war was going on. So interestingly, the media world is a small world, too, just as is the technology world, as we talk about on this show. Comcast number two. I don't know if his title was COO or president or just what. The CEO is Brian Roberts. The number two person is Steve Burke, son of Dan Burke, who had worked for Bob briefly at ABC before the Capital Cities merger.

So there's a lot of personal history here. Fortunately for Disney, at least, Comcast bid eventually collapses because Disney stock runs up in price on the announcement of this takeover bid. And Comcast just can't afford it, even with a share deal. And what was it that made the stock pop there? I think it was like there was a couple of movies that did well. And there was like one data point in earnings that got everyone excited. It was like a small sort of like glimmer of hope in this otherwise pretty destitute time that made the stock pop and made this bid impossible to go through.

Yeah. I mean, it really was. I haven't said this in a while. It was history turning on a knife point. The bid collapses, but the shareholder meeting still has to happen in March. And an astounding 43% of Disney shareholders vote no confidence in Eisner at the shareholder meeting. Like that's insane. That never, never happens. Yeah. Whenever I get those things in the mail, I'm always like, ha ha ha. Like I could have anything to do with this decision.

Yeah. So in the immediate aftermath, literally that night, the Disney board meets and they strip Eisner of his chairman title. So he was chairman and CEO. So he's no longer chairman of the board. And he announces that he's going to step down from the company at the end of his contract, which expires in 2006. He would end up leaving earlier. But that's really a sad kind of ignominious, you know, end for it's an example of somebody staying too long.

Again, his first 10 years within the company were amazing, but the second 10 were terrible. So the board runs a search for a new CEO and Bob Iger is the only internal candidate, but it's a super uphill battle. Like he's the COO to Michael Eisner through all of these disasters. So nobody believes he's actually going to get the job. They're looking at all sorts of external candidates. Interestingly, the front runner external candidate is Meg Whitman, who started her career within Disney.

Which is the craziest thing I learned in this research. Of course, we know Meg Whitman as Meg Whitman for America or Meg Whitman of eBay. What's she CEO of now? HP, right? She was CEO of HP. Now she's CEO of Quibi. Bring it all in the whole circle. Yeah. But she started her freaking career in Disney's strategic planning. Yep. Yep. As did so many people. Jeff Jordan, who went on to become CEO of OpenTable and now is, well, was general partner for many years.

And now is just promoted to co-managing partner of Andreessen Horowitz, board member at many great companies, including Airbnb. Michael Deering, great seed stage investor that we look up to a lot here at Wave. Many, many great folks have come out of Disney's draft planning. Crazy. All right. So you got Iger here, this guy that let all the bad things happen as COO. Come on. This was on your watch. Yeah. Like, why are you CEO of this company?

Why are you CEO material? And this is where Bob comes up with the plan. So we're now in 2004, 2005. Bob comes up with the plan that ends in Disney Plus. And he says he realizes that both to get the job as CEO, he has to distance himself from Michael. And he has to do that by making his plan about the future of Disney. Like, forget the past. Like, the past is done. We have to look to the future.

And it's also the right thing for Disney. Like, Disney, you know, it's innovate or die. Like, they have not innovated in a long time. And they are dying. Like, they need to change their approach to consumers, to the market, to technology, to everything that's happening around them. So he comes up with three key pillars of what he thinks is going to transform Disney and save it. One, make high quality content. And importantly, that's content of all types, not just animation.

But it has to be extremely high quality. And we're going to quote from him in the book on his three points here, because I think they're just super cogently and eloquently laid out. And again, remember, this is 15 years ago he laid these out. And importantly, branded content. Content that we own that can be enduring franchises that will enable the rest of the Disney flywheel to spin. Yeah. So he says, We needed to devote most of our time and capital to the creation of high quality branded content, as he said, Ben.

In an age where more and more quote unquote content was being created and distributed, we needed to bet on the fact that quality will matter more and more. It wasn't enough to create lots of content. There are lots of people creating lots of content, including like YouTube and UGC, just creating like tons and tons of content, some of which is great. It wasn't even enough to create lots of good content. With an explosion of choice, consumers needed an ability to make decisions about how to spend their time and money.

Great brands would become even more powerful tools for guiding consumer behavior, they believed. And that was just like so spot on and not obvious at the time. Like YouTube is about to get started here. You know, Web 2.0 is happening. Flickr is out there. Like UGC, everybody's like UGC, UGC, UGC. It's not obvious that the future is actually doubling down on professional, super high quality content. It's very interesting. And I think we see this trend in a lot of ways where you sort of are as the long tail starts to exist.

And actually, I think this is right around that time that the long tail book came out. There's two different strategies and two different playbooks to run. One is enable the long tail, which means that you create these smaller affinity groups around really niche things that go super deep, like the acquireds of the world and the 700,000 podcasts that are out there. And then at the head of the curve, if you're going to be one of the few that wins there, you need to run a very different strategy to say, hey, this is the pillars.

Like these are the things that America is going to galvanize around. Not just America, but the world, which we'll get into in a second. It's Avengers Endgame. I think Bob and Disney, I think they appreciate UGC and they appreciate all the technology companies and innovation and everything that's happened over the ensuing 15 years. But it's an and, you know, it's like there's YouTube and there's Netflix. Right. But they're inherently not that. Like Disney, it's partially why the Twitter deal fell apart.

I mean, I think when they really looked at it, they were like, boy, all this like user creates. Granted, there's all these risks and stuff involved in it because people are tweeting all the stuff that they're tweeting. But like, it's just not it's not actually what we do. We create content. Yeah. Yeah. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture.

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That's V-A-N-T-A dot com slash acquired for $1,000 off. And just tell them that Ben and David sent you. Okay, so number two. This is number two eventually becomes, I think, the most important of these three points is invest in technology. Rewind back to this point in time. And I remember being a media investment banker at this time. Media companies were hating on technology companies. Like we'd just come out of the Napster era and now all the movie studios are worried about like the same thing's going to happen with video that happened to music and YouTube's going to kill us.

And like there's all this pirated content and like it's all just crap and we hate these people. Bob instead says we needed to embrace technology to the fullest extent. First, by using it to enable the creation of higher quality products like Pixar and then to reach more consumers in more modern, more relevant ways. From the earliest Disney years under Walt, technology was always viewed as a powerful storytelling tool. Now it was time to double down on our commitment to doing the same thing.

It was also becoming clear that while we were still and would remain primarily a content creator, the day would come when modern distribution would be an essential means of maintaining brand relevance. Disney Plus, unless consumers had the ability to consume our content in more user friendly, more mobile, more digital ways, our relevance would be challenged. You know, again, this is such a change. Like remember the Disney vault? Like Eisner era Disney was all about protecting the content, limiting consumers access, only, you know, opening the vault at very specific moments of time.

And then ESPN back to, you know, getting $9 a month from the cable providers. This is like super revolutionary here. That's not the thing that Bob is espousing. He's saying like, nope, we're eventually going to get rid of all that. Yeah. And he didn't say it in so many words until like August of 2017. You know, there was definitely this working to use technology both for creating better content and, you know, enabling better distribution. But I think the whole industry for a while thought that meant things like when things like Netflix emerge, we will be okay putting our stuff there.

I don't think anyone thought that it meant what ultimately happened with Disney Plus. Yeah. I think publicly, yeah, I think that's true. But I think it's a little unclear from the book. But I think this was part of this original presentation to the board was he knew that like the day was coming when just like giving the, you know, Netflix didn't even exist yet. But giving the equivalent of Netflix the right, like where they had to own it themselves.

And so the mindset of starting to build towards that, you know, started with Bob becoming CEO. And then the third point was grow globally. You know, again, it's hard to like remember now. I mean, actually for our international audience, it's probably easy to remember. Disney, for all the IP of Disney and especially now Marvel and Star Wars have universal worldwide appeal in every country and culture. Disney wasn't that back then. It was an American company, you know, like they had Euro Disney.

But, you know, and like and made no more more obvious than by when you go to Disneyland and you walk around and you're like, oh, my God, I'm in like this the epicenter of Americana. Like this is like the most glorified county fair I've ever been to. It sort of exudes 1950s American. Main Street USA. Yeah. So this was the third pillar of Bob's strategy was and he'd seen this, I think, from his time running international.

Like, hey, guess what? There are a lot more people out there who don't live in America than do. And oh, and by the way, that it's an emerging middle class in huge countries elsewhere. Yeah. Yeah. So he presents this vision to the board and it's really compelling. You know, it's a brutal process. But through this vision, he's able to overcome. Honestly, there was no way he was going to get this job without without something really compelling.

And in fact, he tells talks about the book he had breakfast with Jeffrey Katzenberg during this process. And Katzenberg told him is like, dude, your career is done. He basically tells him to write up a resume. He tells him to start doing community service to rehabilitate his image. And not that even just do community service. That's good. But like, you know, it's so bad. Bob has a he has an anxiety attack during he takes his son to a Clippers game.

He thinks he's having a heart attack and he's about to die. It's just a brutal, brutal process. There's one management lesson in here. I know we're talking about the book a lot, but it obviously informs so much of this and is really tremendous. At the end of the book, he compiles a bunch of his leadership lessons learned. The one that's happening sort of in this moment is he keeps redirecting all the criticism that he's getting and all the questions from the board around like, well, it was a pretty big screw up the last five to 10 years and you were a pretty big part of that.

So why should we pick you? He keeps redirecting that as, hey, the past is the past. We can't change the past. Here is my plan. Here's why I think it's right. Here's why I'm the person to execute that plan. Let's talk about the future. And yeah, I understand where we are. And like, I'm neither going to blame that on someone else nor say that was all my fault. We're going to talk about the future. It's a pretty powerful insight on a way to sort of redirect the conversation.

I think it's one of the reasons why, you know, there's been so much talk over the years about Bob potentially running for president someday. Gosh, like that's like that's the way to handle these things. He's a tremendous diplomat. Yeah. So by the way, I did. I did look up the the reason why the Comcast bid failed and Disney stock price spiked was the tremendous success right in a row of Finding Nemo and Pirates of the Caribbean, which came out in the same quarter.

So revenue spiked 19% and caused the stock to change. Man. Finding Nemo. Pixar. The first Pirates of the Caribbean was so good. So good. It just went so far downhill. Oh, man. Well, yeah. It's kind of like Star Wars. Like, I don't remember there being other prequels. Anyway. Okay. So the board makes its decision. Bob is CEO. He does a few things when he gets the news. He calls his parents. He calls his family. He calls his mentors.

He tells them he thinks we calls Tom Murphy, I believe. But that night he calls Steve Jobs. This is like such an amazing olive branch. And I think he also just talks to like Bob as diplomat. But like Eisner and Jobs were like not on speaking terms. And on the very day that Bob gets the most momentous news of his entire career, he calls Steve Jobs. And he says, I just want to let you know, I want to come see you.

I want to come talk to you. Me. Person. In person. Face to face. And find a way to make this work. And Steve is like super skeptical. But he's like, okay. Yeah. You can come fly, I guess. Sure. I guess. Um, so that is exactly what he does. He goes up to see Steve and we'll take a minute and tell a little bit more of the history of the Pixar deal here because I think it's important and we didn't do it on our episode.

And it sets the stage so much for why the position, why Disney's in the position they are today. Yeah. This is really, this is the first step to, you know, first reconciliation with such an important partner and piece of the business and then acquisition. And, you know, and then, and then rebirth of Disney. Bob does go up to see Steve, but he doesn't start with talking about Pixar. He says, Hey, um, I have an idea unrelated to Pixar.

You know, we own ABC. We have all this content and we have our movies and our television shows here, um, at Disney. And, you know, you guys, Apple, you make such incredible technology. And like the, this is the heyday of the iPod. Uh, and he's like, I have my iPod. I love my iPod and I love, you know, what this has done for me as a consumer with my ability to consume music whenever I want. Do you think there's any way that we could do the same thing for our video content that we have, you know, within Disney and ABC?

And again, remember like all the media company executives at this point in time are like, tech is evil. They're going to pirate all our stuff. And, uh, Bob is like extending this huge olive branch to Steve and Steve's like, I have something I want to show you. And he does not show him the iPhone, which is of course already in the works at this point in time, but he shows him the video iPod. I remember when the video iPod was announced and came out and it was like, it was not that long before the iPhone.

Um, but it was a huge deal. Kind of a strange product. Like I remember being very excited for it. I had the ad pinned up on my wall of, um, it's like the, it was the first black iPod, I think. And it was shiny and that you could use, uh, there was a, um, the ad was Bono singing on it with sort of this like blue light. I was excited for it, but it was a strange product once I got it.

Cause it was like, really, I'm going to watch movies on this thing. That's like less than half this. The postage stamp. Yeah. It's this really odd, like I get it. Digital distribution of content and that's cool. I can do it anywhere, but this is like, not this is subpar. This is a halfway experience. Yeah. But it becomes such an important door opening to so much to come for, for Apple, Disney, Pixar, all of them, because Bob sees it and he says immediately, he says, we're in Steve, you have my word.

You are going to get ABC and Disney content for your launch on this device. And that's just like unheard of like that. Like you think about like the media rights and like, uh, let's get all of our finance teams involved and our lawyers involved. And, and that's what, that's what Steve was used to from Disney. He was like, cool. Doing a deal with you guys is no promises in a year of dragging this out and every SWAT team of people being involved.

And then it's Iger's signature that he knows that he needs to put on Disney to just come in guns blazing here. So when, uh, Steve at the Apple keynote that, uh, summer, I believe in 2006 announces the video iPod, Bob Iger walks out on stage and says all our Disney and ABC content, you're going to be able to purchase it. You're going to be able to download it. You're going to be able to watch it on the go on Apple products.

So this is the opening of the thawing of the relationships between Steve jobs and Disney. It takes a little bit of time after the announcement for that Bob's going to become CEO before, uh, Michael leaves and he officially is installed as CEO. It's about six months in his first board meeting immediately after, uh, he's officially CEO Bob asks then CFO, Tom Staggs and the head of strap planning, Kevin Mayer to put together an analysis of Disney animation versus Pixar to present to the board.

And Bob has an idea that he hasn't told anybody about and they put together this analysis and it's, I mean, it's brutal. Like as you would expect from what we've been talking about in the same period of time that Pixar has been operating and had their deal with Disney, Disney animation films have lost $400 million in aggregate. Meanwhile, not only has Pixar had hit after hit after hit and had made immense profits on their films. Bob has, has Kevin and Tom commission brand research to ask parents in the U S what entertainment brands they think are best for their kids.

And this is like, Disney has always been the number one in this. Disney has been unseated by Pixar. More American parents at this point in time believe that Pixar is the best entertainment brand for their kids than Disney. This is real bad. And so he presents this in his first board meeting and he reminds the board about, you know, the saying about as animation goes, so goes the company. And he proposes three options. One, we can keep the status quo.

That's not a good option. Two, we can go out and try and hire new talent to run our studios and revitalize Disney animation. And he's like, I've looked, that's going to be hard. It's going to take a while. And there's no promise of success. And he's like, or three, we can buy Pixar. And he writes about this in the book, the boardroom just like erupts in chaos. And like, this is a, you know, a crazy idea.

Board members are shouting, uh, you know, people are like the Disney family members are offended. Um, you know, this is crazy, but he methodically makes his case and says, you know, look, I don't know if it can happen. The relationship has been damaged. You know, Steve is Steve, but I think we have to try and do this. I think this can save the company. So the board does give him approval to explore it. Finally, Bob calls Steve the next day and he says, um, Hey, I have a crazy idea.

Can I come see you about it? I just love this. Uh, he writes the book. He says, I didn't yet fully appreciate just how much Steve liked radical ideas. Tell me now. He said, so Bob's like, he's driving in his car. He pulls over like into his driveway and he's like, calms himself. And he's like, Oh man, I wasn't really expecting to do this now. He's like, well, um, I've been thinking about, you know, our respective companies futures.

And, um, what do you think about, uh, Disney buying Pixar? Steve, uh, is like silent for a moment and he's like, you know, that's not the craziest idea in the world. And thus begins the negotiation, which actually goes very quickly. And within a matter of months, they've reached a deal for Disney to acquire Pixar for $7.4 billion, uh, which was a huge, huge price at the time. And still unclear, as we talked about on the episode, like financially, did that deal make sense?

You know, it's kind of been like, okay, but that deal saves Disney. And that sets them on the path to starting to revitalize the company, bring technology leadership back into the company, bring creative leadership back into the company. To the extent you believe that frozen would not have happened without revitalizing Disney animation. And that wouldn't have happened without acquiring Pixar and bringing Lassner and Catmull to run Disney animation. Then yes, it's worth it. But for the Pixar movies alone, it's sort of a, an open question.

It's interesting actually hearing the rationale for why it was 7.4 billion. The thing that made it really unique was it came with this full studio that number one had films already in pre-production. So there was like a roadmap of five years of Pixar films that were already all in development, had teams, had directors. So of course you can sort of value that asset, but then also it came with the, it was a machine that knew how to do this and it had all the people and all the creative talent to repeatedly do it over and over again, which was a really interesting thing that made it different than buying Lucasfilm because Lucasfilm didn't have any of that.

Or like DreamWorks animation, if they considered that, or, you know, bringing Jeffrey Katzenberg back and all the like, yeah, Pixar was a machine. They had their own process. Process and, and big team of people that were actively doing, doing stuff. So there's another excerpt from the book here. I just got to say that it's amazing how much people anchor on price. So this $7 billion thing for Pixar, you know, when, when they're negotiating with George Lucas and he says, I want the Pixar deal.

Yeah. You have Iger having to come back to him and saying, well, no, no, no, no. Here's actually how it's very different to like, you made these great movies a long time ago that have a really enduring universe that we think we can do something with. But like, there's not any of the infrastructure or any of the current development that, that or the technology or. Yeah. Yeah. Well, there's ILM, which is pretty amazing, but. Well, yes, but not, not anywhere near as valuable to Disney as, as Pixar's animation technology was.

Bob and his team at Disney make the case to Steve and to Ed Catmull and John Lasseter about why this makes sense. He talks about this, go read the book about it, but, you know, Steve and he whiteboard out all the pros and cons of doing this deal. And Steve, like, he gets ready, like lists like a hundred cons and then they move to the pros and there's just like just a few of them, but they're like pretty big pros.

And so the specific pros are like for Disney, Pixar and John and Ed can save Disney animation. They can bring the process, they can bring the talent, they can bring the technology, keep Pixar separate, but revitalize Disney animation. Two, Disney gets full access to the IP of all the Pixar characters and the perpetuity of all the, all the content in the pipeline. And then for Pixar, they remove this existential risk about distribution and marketing that they were always going to have as a small independent studio.

They couldn't just go off and be independent. Like they needed a distribution partner. It was going to be Disney or it was going to be somebody else, you know? And anybody would be happy to have them, but it would have been someone. Yeah. And then, and then I think this is really the, to the people aspect of this, probably the most compelling, especially to John and Ed, Bob says, you guys are going to get a much larger canvas to paint on.

And like, what better way to inspire, you know, people whose mission is, you know, bringing creative endeavors to the world than to give them that larger canvas to paint on. And Bob talks about the lesson in his, uh, in his lessons at the end of the book of, you know, sometimes, especially when you're talking about like big, bold, risky bets, there are million reasons not to do something, but like, if you have a few really, really good reasons to do them, that can outweigh any number of cons.

It's interesting to zoom out a little bit and think about what the board was thinking and what some of the Disney old timers were thinking here. Specifically, Roy Disney hated this idea of we're going to go buy new IP and new franchises and, and wanted to sort of stick to this strategy that has worked well, worked and not worked over the entire life of Disney of it's very much not invented here syndrome. Whereas you look at sort of where Bob Iger comes from being a non Disney acquiree himself coming in through sort of a, a business that was not homespun in Disney, but was this enormous part of Disney's revenue.

Now with, with ESPN, you can kind of see why he had the, the conviction that, Hey, this could work and it's going to change who we are as a company in some ways, but it could be really powerful for us. Yeah. So this becomes, you know, the blueprint in so many ways for the next series of acquisitions that will, we've already covered on the show. We'll run through quickly here, paying a very large price for a very unique asset, whether that asset is content or technology or both with the belief, which is not just blind belief, you know, they do Bob and Kevin and Tom, you know, with him.

And then the rest of the team over time do a ton of work to plan out and model the vision for what is going to become Disney plus the belief that together, all these assets can be worth a lot more. You know, they go out, they pay 7.4 billion for Pixar. And then in 2009, 4 billion for Marvel, which goodness, again, like forget Disney plus forget everything. That was like the purchase of the century given, uh, what would happen with the Marvel cinematic universe.

It is funny on our episode. Like we didn't see it yet. We didn't, we missed it. We missed it. Then they, they invest in Hulu. Then in 2012, they buy Lucasfilm for $4 billion. Um, which the reason it was for, it was because the Marvel price was the floor that, uh, George Lucas was willing to accept. Yeah. But you know, the Marvel price too, you know, Bob talks about in the book that was crazy at the time, $4 billion for Marvel.

You know, the, there was an interview. I can't remember if it was either an interview with Brian Roberts at Comcast or Bob talking directly to Brian. Uh, and he was like $4 billion for a comic book company. Like, right. And comic books were way past their heyday. They were doing some film licensing. The best characters had already been licensed out. You know, Spider-Man was, was elsewhere. Yep. As were X-Men. And it's kind of crazy that like this world where sort of like rich, potentially valuable IP had sort of laid fallow for, for many years.

We're now in this era where it's all about having the best IP in the world and being able to make huge investments in that and then get huge profits out the other side. And I think it all goes back to this thing that we were talking about before where you have to run one strategy or the other. You're in the business of the long tail or you're in the business of creating the iconic thing that the whole world cares about at once.

You know, it really manifested in, in Bob's strategy here of what are the most unique and iconic pieces of intellectual property and worlds and, you know, mythologies that, that we can really amplify. And the ability within Pixar to create new ones of those. So after those big three Pixar, Marvel, Lucasfilm content acquisitions are done, the first piece of Bob's strategy, then they start to turn to the second piece, which is technology and specifically distribution. So there's a fateful earnings call in 2015, a couple of years after the, after the Lucasfilm acquisition where Bob and team there are, you know, they're thinking about technology, you know, all the way back to his initial plan.

And they're thinking about the distribution piece of this, but ESPN starts to really show signs of weakness. They lose quite a number of subscribers, cable subscribers. And this is like the first in terms of, you know, actual numbers and chink in the armor of this Colossus that is ESPN and really the entire previous way of business for cable networks and cutting up the cord for consumers. So in this late 2015 earnings call, they announced that ESPN subscribers are down.

And Bob and the team talk pretty honestly about like the existential risk from disruption and cord cutting to, to their business. To oversimplify this sort of cord cutting thing is people are seeing Netflix and Hulu and all these things where they're like, cool, I can get access to TV shows. Is it really worth me paying 50 plus dollars a month for this cable bundle? All I really care about there is live sports and freaking ESPN knows it by their carriage fees as we see in their economics.

But people are like, eh, I don't watch that much sports. And so like, even though ESPN would probably, live sports in general, would probably keep people, or is the strongest tie to keep people on those cable networks for the people who were subscribing for the non-sports things that are, you know, mostly available in these streaming services now, they're the first to leave. Yep. And of course, because ESPN was getting the money regardless, they're losing those subscribers.

So the stock gets hammered down 10% the next day. And they realize this is a big wake up call to Bob and the team. They realize like, we've spent the last several years fixing, you know, the content side of the house and getting part one of the strategy in place. We now need to like massively accelerate part two and prepare for a world where like pay TV and the cable bundle and everything that that means, not just for ESPN, but for all of our content.

And that piece of our flywheel is going away. They start looking around for technology acquisitions that can make this happen. And as we said, you know, they come close to a deal to acquire Twitter. And interestingly, like this, this never made sense. The idea was they were going to buy Twitter for the technology and the access to consumers, and they were going to use it as like the distribution head for what would become Disney Plus. Doesn't make any sense.

So, um, well, it's exactly how a media company would think about buying a technology. Yeah. First they're like, well, who's got the best technology? And they're like Apple and Google. And they're like, no, no, no, they're too big. They're too big. Okay. Next rung down Twitter. It's, it's, it's a very blunt way to look at. We need technology. Bob talks about the deal falling apart because of the UGC content issues and the free speech issues and the hate speech on Twitter and all that.

And I'm sure that was part of it, but, but honestly, the deal just also didn't make any sense. And so what they do instead, as we talked about in our BAM tech episode makes so much more sense is they invest in, and then they acquire BAM tech, which is just a technology provider and the best in the business other than Netflix of delivering streaming content, both for live sports and for they're powering HBO now and for services like, uh, you know, entertainment content services like Netflix, like Disney plus, like, uh, all of these into the company.

Yeah. And in Twitter, I mean, well, I think this is my biggest thing that I want to talk about in playbook is, is sort of the vertical versus horizontal conflict where like, if you're buying a business that already serves a bunch of other customers and has a bunch of other stuff that they do, buying them to just do your vertical thing would be tricky. Like on Twitter, what are they going to stop it from being Twitter so that they could make it Disney's Twitter and only distribute Disney content on this?

It's just like, this is massive vertical horizontal conflict. Whereas on, in BAM tech, like sure, they get paid pretty good money to like power the tech for other people's platforms that may or may not go away over time, but it's even though they're doing a horizontal service to the industry there by Disney using them for this intensely focused, verticalized capacity of distributing their content on their channel, um, with Disney plus with ESPN plus with now Hulu, like it's not creating conflict.

Yeah, totally. So in 2017, they complete a majority purchase of BAM tech. Uh, they own 75% of BAM tech. I believe the other 25% is probably employee equity and major league baseball. And the NHL owns a bit. Oh yes. And the NHL, cause they did a, uh, streaming rights deal with the NHL. And interestingly enough, this initial BAM tech deal was done to power ESPN plus they, they were like ESPN needs a streaming service and hadn't yet conceptualized of Disney plus.

Well, they, they were starting to conceptualize of it, but it was going to take longer because they, when they do this deal, they announce on their earnings call, uh, after it, that they are launching ESP. This is 2017. They're launching ESPN plus with leveraging BAM technology the next year in 2018. And they are going to launch day as yet unnamed Disney content streaming service to compete with Netflix. We're launching ESPN plus and we're launching a Disney thing.

It's very similar, but we haven't named it. Yeah. It's a very coy, but, but they're not that coy. They also announced like, Hey, you want to know how serious we are about this? We're taking our content off of Netflix as our, as our content agreements with Netflix expire. We're taking it all off. And this is all going to only be on Disney plus. If you're bored or something like this, this is actually a, we'll link to this in the show notes.

The August, 2017 earnings call is crazy. The amount of stuff that it has. It's Hey, 25 minutes ago, we just did this spam tech thing. We're doing it for ESPN. We're launching ESPN plus. We're going to do a Disney thing and we're going to pull off of Netflix. It's like, bam, bam, bam, bam. Yeah. Yeah. And it was, I mean, this was huge. Bob writes about the book. Like this was like a major turning point for the company and their mindset.

Like they're like, no, we're, we're all in on this. The street loves it. The stock is up significantly after the earnings call. Netflix stock drops 5%. And this was, you know, like raw, raw, great. And like, you know, we'll get into Disney plus ESPN plus and Disney plus here in a sec. But, but this was a hard decision, like, you know, for a bunch of reasons, because you know, who hates this Disney's pay TV partners, like, you know, uh, the cable companies and the satellite companies that, um, Disney's basically saying like, Hey, in the future, we're going to end around you guys.

And like, you all sort of like knew it was coming, but like, Nope, it's happening. You know, you're our most important partners now, but we did just announce that we have a 20 year vision to not be, or a five year vision to not be. Yeah. Yeah. So that's number one. Number two, you know, Netflix, you know, again, Disney's a huge company, but the rights money that they're getting from Netflix, hundreds of millions of dollars, hundreds of millions of dollars a year.

That is pure marginal profit to Disney. Like it doesn't cost them anything. They've already produced this content. They're just leveraging that content through an additional distribution channel. They're just getting pure cashflow margin from Netflix and they're cutting that off to instead go spend two and a half billion dollars to buy BAM tech and invest many, many billions of dollars over the coming years to build up their own, uh, streaming service. Yeah. It's interesting to think about one of the reasons why the innovators dilemma is so is typically so unavoidable is because you can't, especially as a public company, get the leeway that you need from, from your shareholders to do something really risky.

That's going to take a really long time and it's going to cost you a ton of profit in the near term. And so this really is like hundreds of millions of dollars of pure profit that they're just like foregoing for five years, for years to, you know, to come here. And how are the next set of carriage agreements for ESPN going to go with the pay TV providers when now they know that like, they're going to be like, yeah, nine bucks.

Yeah. I don't know about that. That I'm going to pay you that anymore. A lot of what it comes down to is do you actually have a leader who's going to get that leeway and that really long-term thinking from shareholders to be able to, to sort of act like a startup while you have this business that you're trying to preserve the glide path on? And typically an executive wouldn't, I think it, it takes someone who's earned the trust like Bob had.

Contrast this decision to the end of Eisner's time at Disney. I mean, again, Eisner did many, many great things, but the Ovitz decision, the feuding with Steve Jobs that, you know, it was all about like, I'm so great and I've built this thing and it's going to be the best forever as it is. And this is, is the opposite of that. It's saying like, nope, this is precarious, innovate or die, you know, but there is one more thing.

And that one more thing I think is actually, you know, both a huge piece of this and opportunity, but also is pretty scary. And that is Fox. There's the one more acquisition of, which is by far the price that they paid to buy Fox announced at the end of 2017 and then closed in the beginning of 2019, 71.3 billion dollars, many, many times more than all of these other incredible acquisitions all combined. Like this is a literally betting the farm on bringing in Fox.

Now, so what do they get for Fox? None of the news assets. So not Fox News, not the Wall Street Journal, none of the publications. It's all the entertainment pieces of Fox. So they get the movie studio, they get studios, which have, you know, both new slates of films coming out and the library, you know, Titanic, Avatar, all the great Fox films within the library are the rights to A New Hope to the first Star Wars movie.

Because remember, Lucasfilm had Fox was the distribution partner for the first trilogy. The Star Wars fact time, the theme to Star Wars was actually composed in the key of B flat. I don't know if it's major or minor, but B flat because the Fox, 20th century Fox opener was in that key and it was meant to be the sort of like a natural lead in. Yeah. No way. I never realized that, but you're so right. It's the same key.

Yep. And actually then John Williams in Empire Strikes Back got to re-record with his orchestra the 20th century Fox intro to lead right into it. That's amazing. I wonder if now the Fox intro is going to come back to Star Wars because now it's part of Disney. Probably not. I don't think so, but... Probably not, but it could. So the other things that they get, so we mentioned a little bit of Marvel, both the X-Men and Fantastic Four movie rights were owned by Fox.

So, and those are key Marvel franchises. So that's now back in the Marvel Cinematic Universe. They get a big part of the library for Fox is television, not just film. So like the Simpsons specifically, all 30 seasons of the Simpsons. 30 seasons of this. Unreal. Yeah. Incredible. And then to the third goal, the third part of... And National Geographic. National Geographic. Yep. Yep. But to the third piece of Bob's plan, and this hasn't been talked about as much, Fox is a much more international company than any of the other US media companies were.

Fox has huge content and distribution operations all over the world. Obviously, Fox started in Australia with Rupert Murdoch, but especially in India, where Fox owns Hotstar, which is the largest streaming service in India. I believe both for entertainment content and for sports, they stream cricket, which is... Cricket in India is like, you know, the NFL and the NBA combined in the US, which by the way, total aside, Indian Premier League cricket is very compelling content. I would love watching it.

Do you have a Hotstar subscription? No, but maybe with Disney Plus, I might now. They're getting a lot here, but $71.3 billion is a huge, huge price tag. And that... And that was bid up from like 58, right? 52.4 was the initial agreement. And then Comcast, the old... I feel like Comcast and Carl Icahn need to like do something together. We need to have Brian Roberts and... Actually, we should have Steve Burke on the show. That would be amazing.

Steve, if you're listening, open invitation. Both you and Carl, we'd love to have you at any point in time. But yeah, it gets bid up to $71.3 billion. And, you know, so the thing that I wonder with that is... I'm curious what you think, Ben. Like, this actually is a kind of different thing than the marquee acquisitions that have really made Bob's career. Yeah, I don't look at this as an IP acquisition or a franchise acquisition in the way that those other big three were.

I mean, this to me is... It's kind of more distribution than it is content. Well, I think there's... So here's my bull and bear case on this to pull it forward quickly. The bull case is they're launching Disney Plus. And Bob talks about it. This is the stated strategy. And they want Disney Plus and the whole, you know, ESPN Plus and all that to be in the future a viable competitor to Netflix and ultimately dethrone Netflix.

And so like Disney has all of this great content, but it's just Disney content. Like, does Disney plus all of this Fox content, is that enough now? And they make all of that exclusive to their streaming services and not on Netflix. Is that enough to really dethrone Netflix? Yeah, actually, you're right. If I should walk back my it's mostly distribution thing. I think you're right, because one of the things I've been struggling with actually about Disney Plus is on December 27th, the last episode of season one of The Mandalorian is going to end.

Will people stay subscribed? Like, are they going to... What's next? And I think they've got plans to do 10 movies over the next two years and all these different TV shows. But like, people are hungry for lots of content. And does Disney actually have enough content and development to make this really compelling in the early days? Maybe Disney plus Fox over the next two, three years can make it something that feels really full and rich. That's the stated reason for doing this.

I think the scary thing, though, is like, is this Bob and Disney, you know, falling victim to some of the things that brought down Michael of empire building and... The overreach in the Greek tragedy. The overreach. Yeah. Like, you know, and just reflected in the deal and the purchase price, right? Like, the initial negotiated deal for $52 billion, bidding that up to $71 billion. Like, and Bob talks about in the book, like, he felt like he needed to come in with a quote unquote knockout punch to get Comcast out and get Fox.

Is that really the right thing? Do they really pay the right price for this? You know, so... Or could they have continued their march of acquiring different franchises for a billion here, a billion there and come up with enough content to... And it's not just enough content. It has to be the best content in the world that is the most celebrated and content that the world feels the most emotion around. It has to be that content.

And the teams and talent to continue to keep that content fresh. You know, they've already talked about that the state of the studio and the slate of films for Fox that they acquired is not in as good a shape as they thought it was. So, you know, I think it's an open question. My bet is it will prove to be a generally good decision, although the $71 billion will look like a too high of a price tag.

Yeah. I mean, I think that's probably fair to... Well, let's put a bow on Disney Plus and then we can come back to analysis and grading. So one thing I wanted to point out here. So there's... Well, first, I want to make this point. So Bob talks about how after the Fox deal got done, he stood in front of a whiteboard to sort of come up with a reorganization of the company. What does a modern media company look like?

From 2005 to 2018, he said, this is the only time I've stood at a whiteboard since 2005 with Steve Jobs. I don't know if that's hyperbole in the book or if I just fundamentally do not understand the job of a global Fortune 50 CEO that this is not in their workflow at all. But I was like, whoa, that's a long time before whiteboarding something out. And that's very different than my day to day. And so he talks about how he's whiteboarding out sort of this organizational structure for the combined company where you have a separation from technology from content.

And you sort of have this physical goods thing as well. But think about technology and content where technology is in charge of distribution and monetization and content is just in charge of content. And I found myself sort of like laughing while reading this because that is the traditional newspapers organizational structure from way back when. Like keep the journalists doing their journalist thing. Don't bother them with this business model thing that these ad sales guys have to do over here.

That fell apart in the era of the internet. It's just so interesting to see like call it bundling, unbundling or push and pull or tick tock or what's old is new again. There's lots of aphorisms for it that all mean slightly different things. But in this case, it is mind blowing to me. And I think it's going to work that this sort of traditional newspaper org structure of separate content from the content delivery and business model around that content delivery in different organizations.

That's how it's playing out. Yeah. It also highlights like had they bought Twitter, this would not have worked at all. Like that org structure and this whole plan only works if the technology is BAM tech, is a distribution rails technology, not a consumer facing like content and technology married together. So Disney Plus, April 2019 of this year, they do a big investor day to announce Disney Plus. Kevin Mayer, the longtime head of Strat Planning, is now put in charge operationally of running Disney Plus, running this new segment that is the future of the company.

Important to know, like head of Strat Planning. So he was a deal guy. I mean, he was an analysis guy, a hard charging leader and a deal guy, not a creative, not from the creative side of the house. Yeah. So this is his big test. And a lot of people think this is his test that if he passes it, he will be Bob's successor when Bob has announced his retirement in 2021. They announce Disney Plus, all the content on it, Mandalorian, all the Fox content that's coming on with The Simpsons, National Geographic.

And then they announce the price and the crowd goes wild. $6.99 a month compared to $12.99 a month for the basic plan of Netflix. Now, of course, right now, even with all the Fox content, you know, Disney Plus is still quite behind Netflix in terms of the amount of content that they have on there. This is a really, really bold price to go out to consumers with. And I'm sure they spent a lot of time thinking about this, but the aim is they wanted to set a price that they felt like they could get 60 to 90 million subscribers within the first five years.

Wall Street loves it. The next day, the stock is up 11%. By the end of the month, the stock is up 30% after this announcement. Then the service finally launches last week, November 12th, 2019, my birthday. It was a nice birthday present to watch The Mandalorian. Happy birthday. Thank you. Watch the second episode. I do need to watch the second episode. And they get 10 million subscribers in the first week. We'll talk about this in the analysis, but so far, so good.

First 48 hours. First 48 hours. Yeah. Yeah. Yeah. Do we want to talk about all the caveats right here? Let's save it for the analysis. So a very auspicious beginning that it is off to. Now, lots of questions still remain in the future. But here we are now at the end of 2019. And this company looks so different than it did when Bob took over as CEO. Back then it was, as animation goes, so goes Disney.

And the lion's share of the revenue and profits came from ESPN carriage and advertising affiliates, but deals, which were intermediated through pay TV providers. Best I can tell right now, I think ESPN cable affiliate fees are responsible for somewhere around 25% of Disney's revenue. Yeah. So it's still a material amount in the old world. Even as we talk about betting the farm and changing the business model, like this ESPN plus thing is not yet going well.

They only have 2 million subscribers. We're over a year in. It doesn't have the content. It's not like you stop subscribing to ESPN and start subscribing to ESPN plus. It's like sort of these. It's seriously handicapped. Yeah. Seriously. So ESPN, let's be clear on this. The affiliate fees with cable companies currently are still a juggernaut, even though they're not the entire enterprise value the way it used to be. Yeah, totally. But yeah, you look at it today and you've got revitalized animation with Pixar and Disney animation, Frozen 2 coming out in a matter of days here.

You've got the Marvel Cinematic Universe, highest grossing films of all time. You've got Lucasfilm and Star Wars and all the revitalization there. All that on the content side. Now you've got the addition of all the Fox content. And then on the distribution and technology side now, you've got not only Disney plus, of course, but you've got ESPN plus, which we should talk about a little bit, you know, is handicapped. They've this is, I think, one where they've not played the innovators dilemma.

I mean, they're really hamstrung here, but like the current ESPN plus offering is just not compelling. It contains no major sports content. I think they're slow roll in that one more than they are with with Disney plus. I bet it will continue to be hamstrung until that 25%. And again, I'm ballparking there. It's not an actual number where it's my best guess by running some numbers. Until that comes down to 15%, 10%, until like it really wanes off.

I don't think we're going to see them throwing, you know, their, you know, sports center. Football and NBA and NFL and sports center on there. True. But it is set up to do that once that threshold gets crossed. They have the technology in place to do it. And then they have Hulu, which they now, you know, own two thirds of and are obligated to by the other third. So, yeah, that's the that's a little bit of the head scratcher here.

I think that's the one where they're like, this is part of the strategy because it's also streaming. Yeah. I think it's like if we could play it all back. I'm not sure that that they they would get. But I have to I got to imagine, you know, they've already introduced the Disney bundle of all three of those services for, I think, 18 or 19 dollars a month. It's not a large leap to imagine that becoming a real bundle and all, you know, entertainment, sports and rights to non Disney properties all in one subscription that as consumers, you know, with that, you know, like, wow.

Well, Netflix has a lot of stuff, but they don't have sports. They have a dwindling amount of stuff. And honestly, if that's what 18, 19 bucks, that's not that much more than that where Netflix has raised their prices to for HD and definitely when you compare it to their 4K offering. Yeah, exactly. So, you know, it's promising, I think. But as always, there are a bunch of nuances to tease out here. All right, listeners. Now is a great time to thank our longtime friend of the show ServiceNow.

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So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out ServiceNow.com slash acquired and tell them that Ben and David sent you. So let's see, where should we start? Why don't we go with, I think rather than acquisition category, because there's so many of them, what if we do bull and bear narratives here? Yeah, that sounds great. So the bull narrative is the image that I always picture in this sort of scenario is like the hero running out of the building that is exploding behind them and managing to like just barely make it out alive.

You always say pull the e-brake, you know, spin around as you're about to drive off the cliff. Exactly, exactly. So in the beginning of this episode, I propose that combining content and distribution is a, you know, has failed before and may fail again. This has typically been for two reasons. One is both content and distribution businesses typically intend to keep horizontally operating, but realize some sort of synergies by working together, distributing the content that they own or on the pipes that they own.

You can sort of see the problems that arise here. You know, do you prioritize doing deals with yourself or not? The second one being that the clash of cultures, there's a clash of cultures and a misperception of value. And that last part we definitely saw with AOL Time Warner where, you know, creative houses are very different than these sort of low margin predictable distribution businesses. I think Disney actually has the chance to do this right. They aren't buying some other distribution company.

I mean, they did buy BAMTEC, but they bought that for exactly the right reason. They do nothing more than the scope of... Well, it was pure distribution technology. Exactly. It wasn't, which AOL was not. And actually, it wasn't distribution. You're right. It's distribution technology. It's not like BAMTEC already has all these relationships with consumers that Disney is just going to flow through to. Yeah. I mean, Disney Twitter, I think there's a really good chance that could have been AOL Time Warner.

Totally. Totally. And they also don't have a vertical horizontal conflict here. The only shows that are on Disney Plus are Disney. I think this time really may be different. So that's my bull case. That's the bull case. Well, and I think that as we were just talking about at the end of History and Facts there, like, okay, roll the clock forward a little bit. And it's 20, let's say 2024. That's the timeframe that Disney is talking about in terms of their five-year strategic plan here.

And say they put real ESPN into ESPN Plus. So the price is up and there's been inflation and whatnot. 29 bucks a month, Ben. I'm offering you all Disney content, all Fox content, all ESPN sports content, and access to everything on Hulu, which they have locked up access to at least, I believe, at least NBC content on Hulu, as well as all the other small media companies that are on there as well. So 30 bucks a month for that versus to get a similar suite of offerings at that point in time, you're probably looking at probably close to 20 bucks for Netflix.

Plus, you know, you're doing either YouTube TV or something to get sports. Like, you may not even be able to get a lot of sports any other way. Is that compelling to you? Hmm. Probably. Yeah. I mean, just think about, like, really at that point, what they're offering is a true viable alternative to an old cable subscription or a satellite subscription, which was 100 bucks a month. And so now you're getting it on any device anywhere, wherever you are, for 30 bucks a month.

So the fascinating thing is, yeah, that Disney may be able to rebundle and actually own all the content. Like, that is the mega, mega bull case. Imagine if you're Comcast, but you actually own all the content that's flowing across all the channels as well. So you don't have to pay out that COGS. Or at least the margin associated with the COGS. Now I'll take it one step further. Remember, Disney was primarily an American company before. They're doing, you know, in the pay TV bundle world, they were doing great, but they're going and doing all these carriage agreements with all these pay TV providers, primarily in the U.S.

Because now with Direct, they're in every country in the world. They're in India. They're in China. They're in Europe. True access to global markets. True access to global markets. And so, like, yeah, maybe they're only making 30 bucks a month per subscriber, which is a lot less than pay TV was making with 100 bucks a month. But their addressable market went from 300 million to, you know, 3 billion. The thing that I've been thinking a lot about is it's really the true brilliance of the Disney flywheel in action.

Like, if we were just thinking about this as a revenue transfer, where we were trying to take that money that we would make by distributing that content on someone else's platform and then figure out, are we going to make that money back by distributing it on our own? And, you know, just charging people effectively what our margin would have been or what, you know, those distributors would have paid us. That's the wrong way to think about it.

That's not the right way to sort of value this streaming offering. It's really about the direct relationship and turning Disney's hundreds of millions of sort of loosely connected, I'll call them fans, into real and actual customers with an actual defined digital relationship, with an email address, with data analytics, with a way for Disney to reach out and actually communicate with those customers whenever they want, however they want. And not just hope that they sort of planted some seed in their head that you love Mickey Mouse.

And now take it one step even farther of, you know, you are a Disney Plus subscriber or whatever this bundle is called. And, you know, you want to take your family to your local Disney park, whether that's in Shanghai or Europe or India. I'm sure they're working on something or the U.S. And you show up and they're like, Mr. Gilbert, so wonderful to see you. Thank you for being a Disney Plus subscriber for, you know, here are all the benefits that, you know, like you can start to see this like really starting to make sense.

Yep. Okay, so that's the bull. What's the bear? Well, this quarter, the direct to consumer plus international segment that is under two years old lost $740 million. It is the only unprofitable part of Disney, which if we look back, everything is crazy. It's not their operating profit margin, something like 25 to 30 percent in most businesses. But media networks made seven and a half billion. Parks made seven billion. Studio made three billion. And here you're sitting here with nothing but losses in this thing right now.

This comes from a great Bloomberg piece. But there's an analyst at Moffat Nathanson that expects the three streaming services to lose a combined 11 billion over the next four years and finally turn it to profit in 2024. So a lot can change in five years, both internally, Disney and externally in global markets. Like, let's hope they keep the leeway that they need to make this happen. I mean, Bob's leaving in 2021. So it's not like it's all going to be profitable and a clear good decision before he leaves, which I think is scary.

This is probably a good time to touch on. I don't necessarily think this this means that it isn't going well. But when Disney said we have 10 million activations in the first 48 hours, there are, what, 17 million households that use Verizon that got a first year free offer. And so however many of them converted, you know, I think there's been major discounts given or free trials given to people who are part of the Disney existing Disney fan club.

So this 10 million number is a little bit of a silly number to base anything off of. But it definitely makes everyone feel like it's going really well here in this first week. Like, yeah, no, I think this is super interesting. Like, so Jenny and I are Verizon wireless customers on an unlimited plan. And so we got a year of free Disney Plus. So, yeah, for sure. I signed up for that. Would I otherwise have paid to sign up for Disney Plus?

I don't think so. Now, the really interesting thing, though, is am I going to keep it when the year ends? I think there's actually a really good chance that I might. So I think this is actually probably a really, it's bold, but I think it's a really good marketing move by Disney. But yeah, the 10 million, it had some help along the way. One reason to doubt it, too, is I think Disney may be underestimating just how much content people need to stay satiated and new content.

It's a beautiful and amazing thing to have access to all these, this entire back catalog of all these really storied franchises. But am I going to pay $7 a month to keep an option available to go and watch those things? No. Like, that's, if I ever want to rewatch a Star Wars movie, I'll just, you know, reactivate my subscription at any given time. So they really do need to aggressively turn on a fire hose of content here.

I mean, I'm thinking about canceling my Netflix subscription. Right now I use it to watch The Office reruns. And, like, even that's going to go away. And so, you know, I think we live in this world where people are going to get more and more ruthless about, am I really willing to give you money on an ongoing basis? And are you really providing new value to me every single month to be able to do that? Yeah.

Well, and that's where for well over a decade, two decades, ESPN was the heart of Disney. And I think that actually is, that is the biggest chip that Disney has that nobody else has out there, which is ESPN and sports. Not everybody cares about sports for sure. But for people who do, that is truly unique content that, like, you cannot get except the places that have the rights to show the sports. And that is not Netflix.

And that is not YouTube. Well put. Do you want to go into what would have happened otherwise? I feel like we covered a lot of stuff along the way with Twitter and whatnot. Let's. I have one posit on that. So the other course of action here would be for if Disney doesn't do a direct consumer streaming thing. And I touched on this a little bit, but I want to, like, explore it a little more because I think it's important.

If they had said yes to everyone who wanted to distribute their content. So it starts with Netflix and who knows sort of where it goes after that. And Disney truly becomes content and really lets everyone else do distribution. Disney's business relies on the flywheel and always has. And in a pre-streaming, pre-digital world, they could have the flywheel going by going through distributors like cable channels and movie theaters. But now in this era of email address logins, on demand, using data to profile customers, Disney was for the first time facing true disintermediation if they didn't digitally own that relationship with their customers.

And if you watch a Disney movie on Netflix, you'd probably be less inclined to buy that toy or go to that theme park. So in short, I guess what I'm saying is Disney's customers, by becoming more explicitly the distributors customers, if they had gone that sort of Netflix route, could effectively leak out of the flywheel in a way that Disney didn't have to be worried about before. That's sort of the additional bull case. But I do think that what would have happened otherwise is forming digital relationships could allow for Disney to basically lose the power of their business model.

Yeah. Yeah. Totally agree. I mean, I think that's why they had to do this. Yep. And it really comes down to that. Like that thing that honestly I did not realize until starting to do this acquisition, but that parks, resorts, licensing and products makes twice as much money for them as actual studio revenue. Yeah. Yeah. That's their moat. That is. They can have Avengers Endgame, highest grossing movie of all time, but it doesn't end there. Like they get at least another trip around the bases with all the flywheel associated revenue from those properties.

All right. What do you got for playbook? All right. I mean, number one for me is the, you know, innovator die philosophy, you know, from Rune Arledge through ESPN through Disney. And, you know, really has been Bob's story here. So we'll see how this goes. But I'm quite, I'm, you know, we'll get to grading at the end. I'm optimistic. It takes like courage back to, what was the Apple, what was the Phil Schiller courage? Courage. Oh, the headphone jack.

The dongle. Yeah. Yeah. Courage to remove the headphone jack, which is laughable. But like this takes real courage. Like for sure. You're telling your most important partners, we're going to leave you, you know, within not tomorrow, but within 20 years. You're giving up hundreds of millions of 100% margin cash flow. This is like a big risk, but very well thought out. And I think the right one. So, so I think that's, that's my biggest theme. One that we didn't talk that much about on this episode that I've been noodling on is, is this idea of like who's running the show and is it creatives and visionaries and, and people who are thinking about innovation or is it people who are thinking about protecting what you have?

And I think for 97 to 2003 or so, Disney was really in this sort of like protection mode. It's like when you're playing poker and you're up and you start playing, some people play more loose when they've got a big chip stack. Other people go into, if it's a cash game rather than a tournament, go into value protection mode and, and figure out how to not leave the table with much less money than they currently have now.

And I think it was just this big mindset shift where they said, no, we, we actually need to empower the creatives to do what they do best. And, and a big part of this, and that's something we didn't talk about the narrative, but under Eisner, there was this big strat planning group that Iger basically decimated when he came in and changed what they do and, and, and said, look, you don't, you don't have all the power anymore to decide what do, what we do and what we don't do at Disney.

That's going to get deputized to, to people who are, who are running these businesses. Yeah. I mean, this was, you know, Kevin Mayer is such a important executive, uh, and has been under Iger, uh, you know, and is in many ways that, you know, seemingly air apparent to him. But his strat planning group under Iger became the deal group of making all this happen under Eisner. It was the strat planning group was running the actual businesses.

And that was, that was not good. Yeah. Yeah. They went from like the, if you think about it and like a, if you're getting acquired, they went from both the deal sponsor and corp dev to kind of just being corp dev. Yeah. Yeah. Another one that I wanted to touch on here, this is a great quote, I think from Kevin Mayer in that same Bloomberg article that I referenced, uh, where he says, if you want to understand everything in future Marvel movies, you'll probably need a Disney plus subscription because events from the new shows will factor into forthcoming films such as Dr. Strange in the multiverse of madness.

And I think this is so, I really liked the Dr. Strange movie, by the way, I think it was so good. Excited MCU, uh, entry. I think so too. I think this idea and like, obviously David and I believe it too, because we created the LP show, this notion that you can create an offering for people who want to go deeper and make that a subscription thing and make it so you can participate more in a franchise that you care about.

But Disney's taking it even to the next level where they're saying, look, if, if you really want to understand like everything about this movie, like you actually do need to be a Disney plus subscriber because the movie's not going to explain it all. And, and, and Disney plus will. So it's like, they're not putting too big of teeth into it where it's like, uh, the movie trails off before the climactic event and says, catch the rest on Disney plus.

Like they're not doing that, but they are giving it a little bit of a bite where they're saying, look, like if you got a great film, that's going to make you really entertained. And you're going to walk out excited. If you care about knowing the intimate full story, you, you really do actually need to be a Disney plus subscriber. Yeah. I mean, how many times I do this all the time. You walk out of a Marvel movie or a star Wars movie, you immediately go to Wikipedia and you're like, I want to know everything behind it.

And now Disney saying like, okay, you're still going to do that, but you want to like actually see it and experience that like come to Disney plus. I have like a whole, the whole routine. I go to IMDB. I read all the trivia. I read the whole Wikipedia page. I, if there's a, uh, fandom thing, I'll like, you know, the star Wars one, like Wikipedia or any of those. And you start dying. Like there's a whole, it's interesting actually that there's these whole content universes that exist outside of the creators of the IP that now serve some of this need.

Yeah, totally. The last one that I wanted to bring up is, um, why does scale matter so much? And why are we in this era of scale and consolidation? Because the, the comment that Rupert Murdoch made to Iger when they started the discussion was just alluding to the idea that, Hey, you have the scale to succeed and thrive in a world where you need that. And we at Fox don't, we're not set up to do that in the way that you at Disney are.

And that's sort of the way that they said, Hey, we, we, we want to sell to you guys. So why do you think that's so important right now? Well, I have a bullet and bear case here. So the bullet case is the same reason that is the stated rationale for buying Fox, which is that like the scale is if you believe there are only going to be a couple streaming services that survive in the long run, you need to have enough critical mass of content that somebody is going to be willing to pay you.

You know, right now Netflix is, you know, the only one that really has this, that standalone is people are willing to pay for it. Like, all right, there's enough content on here. I'll pay you 13 bucks a month. Disney alone, probably even with all the great franchises they have, wasn't going to have that. So I think that's, and, and Ruby was saying like, yeah, I mean, Fox, like we wouldn't like Avatar who's going to pay 13 bucks a month for Avatar.

You know, my bear case here though, is like, I mean, I used to work for Rupert Murdoch. Like he's, he's crafty. He's wildly like a Fox, especially given the bidding war and how much Disney ended up paying here. Like, was he really just trying to play into Bob's vision for the future and just like offload Fox for a boatload of money? I think both things actually may be true here. Like it may be the right thing.

It may be a good strategic decision for Disney and Rupert, you know, value maximized here, especially given, and we haven't talked about the whole family business drama and dynamic around Fox. But yeah, that's my take. I like it. The only thing I'll add to that is that we've, again, moving to my bifurcated long tail and head of the curve thing. We've moved into an era where the head of the curve productions are so expensive and they're like darn near sure things.

Like when you go and produce Infinity War, like, you know that that is going to be in the billions of dollars grossing. And so you can spend 200 plus million dollars producing it. And that's what these sorts of film, that's what this category is now. And a lot of innovation and creativity and trying new stuff has moved down to TV and these OTT services. It's like you need scale of distribution to amortize the cost of creating this content across so many people.

And this is the classic sort of Ben Thompson comment about why Netflix wins versus anybody that's trying to be like Netflix. Obviously, Disney Plus is a different strategy because they are coming from a very different place. But in order to finance the types of shows that Netflix is financing or to pay to acquire the rights of any given show, it's a pretty simple model of like, well, how many paying customers can we amortize it across? Amortize over.

And that plays a big role in this too. Yeah. It is. It's an amazing example of scale economies apply to technology as well in the right cases. Okay. I got one more real quick, which is going to double as my carve out, is everybody go read the book. Go read Right of a Lifetime. It's so good. And we haven't talked as much on this episode because this episode is about strategy and about Disney Plus. But Bob is, you know, we've alluded to him being a diplomat.

Like the way he manages, the way he leads is so inspiring. And, you know, I texted a little bit with one of my good friends, Ryan, and a friend of the show who worked in Disney strap planning for Kevin Mayer for a number of years. And I asked him, I was like, what was Bob like really? You know, and he was like, I would be in meetings with him and he would listen to me as intently as a 24 year old kid as he did to Kevin.

And he truly has like no, you know, very low ego, very low pride. He wants the best decisions and he respects everybody. And so it's such an inspiring way to go about things. It's awesome. I had a different one, but I'm going to follow your lead and do a theme appropriate carve out. So I've watched the first couple episodes of the Imagineering story on Disney Plus. It is the sort of documentary behind the scenes of creating first Disneyland and Disney World and basically like showing a lot of behind the scenes stuff in areas that have previously never been filmed or at least never had the film released.

Because a lot of it's from sort of the 50s and 60s of what it is to be a Disney Imagineer and how they built all the amazing things they did decades before other people sort of played with that type of animatronics technology or or. Yeah, it's it's it's really it's really cool. If you're into this episode and you read that book like it's the next logical thing to go and do. All right. Disney's got me. I'm going to pay at the end of trial.

We got to grade it, though, before we before we go. We do. So this is definitely one where we can't actually issue a grade now. We can only issue here's what we think an A plus would be and how that could happen and why that would happen. And, you know, here's what an F would look like. We basically painted both pictures in the bull case and the bear case. To me, the way this truly becomes an A plus is if and I hadn't realized it until you said it, David, was.

But if Disney plus and ESPN plus and Hulu replaces the full gamut of the cable bundle, which is a 70, 50 to 70 dollar a month thing, plus replacing some of the old sort of like going and buying VHS movies, plus some of going to movie theater revenue. Because, you know, now with a great 4K TV at home, if they're going to, you know, drop the next. They probably wouldn't do this for Star Wars, but you could imagine some world where they like drop a Star Wars movie and you just watch it at home.

Well, they put the live action lady in the tramp. Totally. Yeah. So, you know, you think about it, you got to call it 60 bucks from the effective replacement of the cable bundle. You've got replacing, I don't know, buying a DVD a month. So it's another 15 bucks plus going to see a movie. You're in this above a hundred dollar a month category that you're paying. And Disney owns all the margin there because they're the content producer and the distributor.

The bull case is that they actually pull that off and don't have to go to other people for the content or the distribution. Yeah. The only thing I'd add is my take this to an A plus. I think that's like a A. Take this to an A plus is international too. Like that is not only, just like Netflix, that becomes not only true in the U.S., but they go to every country in the world too and massively increase their TAM for this.

One bear case I have, and this isn't quite related to Disney Plus, it's more related to ESPN Plus, is in the same way that Apple, will probably never release a product that is more widely purchased and with a higher profit margin than the iPhone. Disney may never stumble onto a business as good as the carriage fees for ESPN to cable companies ever again. Like that may have just been a complete and total anomaly. Yeah. George Bodenheimer.

Sure. Yeah. And so, I mean, in some ways, it's like, how can we preserve what we have with ESPN now that all the cards are changing around on the table? It's like, we may not be able to. But that's not exactly grading Disney Plus and that's not exactly grading all these acquisitions, including Fox, to get us there. What's the bear case for doing Disney Plus? I think the F is that Fox becomes an albatross, starts losing a ton of money.

The studios don't pan out, can't maintain and produce new IP. As a result, Disney Plus doesn't have enough compelling content to be a compelling alternative to Netflix. Yep. The other thing that somehow could fail, I don't know how this would fail, but if they somehow, by doing this, actually decrease people's fandom to go to parks and buy goods and buy licenses. But I don't think that's going to happen. That seems so far. I mean, yeah. Can't wait to go to Star Wars Land.

This is Disney. We're planning a trip for next year. Oh, nice. Yeah. I think my next step is I've been to Disney World since I was six. And so at some point they're going to open a Star Wars themed hotel outside of Galaxy's Edge and Disney World. So that'll probably be the time to go. All right. Well, listeners, if you want to hear more required, you should go and check out the four individual episodes on Pixar, Lucasfilm, Marvel, and BamTech.

And thank you so much for- And five for NESPN. NESPN. That's right. And thank you for being with us on this journey to a galaxy far, far away. If you want to go behind the scenes on company building, you should consider becoming an acquired limited partner. Recent episodes have included Chathan Pudugunta, a general partner at Benchmark, and Tracy Lawrence, the founder and CEO of Choose. So Tracy took us into the mindset of a founder growing a 300-person company in the food industry and everything that it is to found and grow a company and frankly deal with that as a human.

So to listen, you can click the link in the show notes or go to glow.fm slash acquired and all new listeners get a seven-day free trial. And if you stick around after this, we're going to play a little excerpt from that episode here. With that, we will see you next time. Talk to you next time. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, long-time acquired partner. There is a reason why the best product teams at companies like OpenAI and Notion, Atlassian, Figma, Rippling, Brex, and more rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next. Whether it's a feature tweak, a pricing change, a performance improvement, or an AI update like a model change or prompt adjustment, they're not relying on instinct.

They're measuring what actually moved engagement, retention, and ultimately revenue. And as more teams build with AI, that learning loop becomes even more important. Building with LLMs introduces non-determinism into your product experience. The same input doesn't always produce the same output. And behavior can shift in subtle ways in real-world use. So doing offline evals will give you part of the picture, but you can really only understand the impact once your product is live with real users, and then you can measure how their behavior actually changes.

It's very different than the way that you would ship features in a pre-AI world where you knew exactly what the software was going to do in production. Yeah, exactly. So this is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. The result is a tighter feedback loop and learning that compounds over time so you don't just ship more, you ship better.

So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. You know, our main show with Acquired is about these big splashy exits that you've heard of. Slack, Shopify, ESPN, and a lot of our LP episodes, which covers the nitty-gritty of the journey along the way, have been about one of these companies too, like our product ops episode at Uber or growth at Airbnb.

And today we wanted to do an episode with a founder that is running a company that is much more emblematic of how most growth companies go most of the time, you know, getting a medium amount of press coverage, keeping extremely focused and diligent, putting in the hard work over a long period of time to build a sustainable and durable business. And so our guest today is Tracy Lawrence. Tracy is the founder and CEO of Choose, a 280-person company based in San Francisco that delivers family-style office meals from the best local restaurants to six cities in the U.S.

Tracy started Choose right out of college eight years ago in 2011. She's been named USC's Entrepreneur of the Year and raised over $30 million for Choose from venture firms like Foundry Group, which is how Tracy and I originally met at the Foundry CEO Summit a few years ago. She has a really unique way that she runs and describes her company, a love company, that I'm really excited to dive into this episode. So thank you so much for joining us, Tracy.

For sure. Yeah, let's talk about love. Yeah. This is going to be a first for Acquired, I think. Seriously. Yeah, this is great. Good. So I just threw out some numbers and sort of like eight years ago, 2011, raised over $30 million. And so how do you describe Choose and can you tell us about the business today? Our mission is really to drive authentic connection. And in the workplace, I think that's the place where people are spending the most time and where it's lacking, especially when you look at sort of people 40 years ago that were starting families, you know, in their early 20s, and now you're starting families much later.

We kind of have this gap of time where it's like we leave home, you know, we leave home for work opportunities, and then we're in our 20s and we don't start families until our 30s. And work takes the brunt of it. Yeah, especially here in San Francisco. Yeah. I think San Francisco is certainly in the U.S., maybe in the world, the city with the oldest average age of mothers when they give birth. I think it's San Francisco as well as D.C.

Wow. That makes sense. Yeah. And New York, right? So a lot of the big urban centers. So, you know, our goal is really to get people eating together. And so we're partnering with over 300 restaurants. And they're all local quality restaurants. My aunt, my grandmother, and my mom were all in the restaurant industry. And when I started the company, it was because I was an event planner, but I saw that office managers wanted access to great local food and they were sick of Subway.

So we work with offices, you know, over 500 companies across the U.S. that want to order great local food. And we actually partner with the office managers at those offices. And we build out sort of a calendar of meal programs. And so instead of them having to order for themselves and kind of pick off of a menu or call up a restaurant, like 90% of the industry is still calling up restaurants directly. We have technology that actually builds out the menus on behalf of our customers.

So, Tracy, you started a love company. What does that mean? Like you started a food delivery catering company, but you also started a love company. So where do those things meet? Yeah. Well, love and food. I think when people say that like they started the company and they knew exactly what they wanted to start, it's 95% of the time it's bull. So when I started, I, you know, as I shared, you know, I was an event planner and I saw this big opportunity and I was like, cool, there's a market opportunity.

There's a need. I think there were two underlying factors I wasn't really being conscious of, but they drive me to this day. One was a deep love for my city. I still feel a strong affinity to downtown LA and, and all of the food entrepreneurs in that city. And that scales to every market that we're in. I adore the food entrepreneurs there. The second thing I actually discovered three years into it. So oddly enough, and Ben, I don't know if you know this story, but I ended up through a series of introductions meeting Jerry Colonna of Reboot.

And, um, I got a sponsorship to go to his bootcamp. Uh, it's a CEO bootcamp. It's like three or four days out in the mountains of Colorado. It's beautiful. And 15 CEOs from pre fundraising to exit and earn out. And not one of them was happy. And, uh, you know, I'm like 24 or something and I'm like, what? You're not happy. And they're like, yeah, you know, like, and it's like, okay, wow. Um, it's not really outcome based.

And so we started to talk pretty deeply about our childhoods, our paths, our motivations. And the thing that came up for me was being bullied. I was sharing the story when I was 10 years old. I used to be bullied so badly I would eat lunch in the bathroom stall. And at that point I was feeling very emotional. I still get a little emotional talking about it. And Jerry walks over to me and he looks at me and he just says, what does your company do again?

And I said, we make sure nobody eats lunch alone. And in that moment, it felt like 30,000 volts of electricity went through my body. And I was like, oh my God. Like I never put the past together with the present. I realized that I started choose from a place of like deep love for that younger version of myself and a deep desire for people to connect together. All right, listeners. With that, thanks again. And we will see you next time.

Thanks.