Disney's Biggest Swings and Misses, Plus Iger vs. Eisner—With the Acquired Guys

20:07You're saying... No, one single production.

20:09Ben Gilbert:One single production. Yes, the Lion King musical alone, not the movie, just the musical, has made$11 billion. Right.

20:16David Rosenthal:Which is three times as much as, like, Avengers Endgame in its full theatrical and home video and streaming revenue. The only question I have about that is I don't believe The Lion King is a massive consumer products property on the level of some of the princess stuff or cars, for instance, or some of the other ways that Disney makes money.

20:43Ben Gilbert:Yes, correct. This does not account for merchandise. But not bad. The other thing that doesn't account for is several video games are larger, but they're not static. It's like Candy Crush has made more money than the Lion King musical, but it's always changing. I wonder how much Julie Taymore made. In Broadway, when you direct the Broadway play, you get a piece of the production. So I wonder how much she has made over the years. Not insignificant sum, I'm sure. This episode is brought to you by Disney. What does it take to build a world people never want to leave? In Disney World Builders, Academy Award and Emmy-nominated filmmaker Leslie Iwerks takes audiences inside the creative journeys of some of Disney's most influential storytellers.

21:34Featuring exclusive interviews with James Cameron, Jon Favreau, Kevin Feige, and more, this documentary reveals the imagination, innovation, and storytelling that continue to inspire generations and shape entertainment. This episode is brought to you by 20th Century Studios,

21:51Ben Gilbert:The Dog Stars, now playing in theaters and IMAX. Visionary filmmaker Ridley Scott returns with a gripping post-apocalyptic thriller when a mysterious radio transmission shatters a lone pilot's isolated existence. He embarks on a dangerous journey in search of hope, starring Jacob Elordi, Josh Brolin, Margaret Qualley, Allison Janney, and Guy Pearce. The Dog Stars, now playing in theaters and IMAX. Evening. Buyer's remorse. Buy a new car? I'll be moving in. Let's get started. Sorry, I think there's been a mistake. I bought it from Carvana. You what? Yeah, great price. I even have seven days to love it or return it.

22:31So there's no...

22:32Ben Gilbert:No, no buyer's remorse. More like buyer's rejoice? I guess I'll let myself out. Congratulations. I mean it. Buyer's rejoice. Buy your car today on Carvana. Limitations and exclusions may apply. See our seven-day return policy at Carvana.com. Being on Disney Plus. Let's go back to the missteps. Are you in the camp that believes buying Fox was a misstep for Disney?

22:55David Rosenthal:Yes. I'm even in the camp of pounding the table to spin many of the Fox assets back out. Oh, wow. See, because I've been a defender of that deal. And so give me your argument why. Well, okay. So I think the inarguable thing is it's the lowest ROI of any of the acquisitions. ESPN Capital Cities, Pixar, Lucasfilm, Marvel, Fox. Also the most expensive by far. And it got run up to an astronomical price. Whatever they thought it was worth, they paid$19 billion more than that. That is the inarguable thing on the table. Right. 71, I believe, was the total. Not totally fair, because you have to back out the piece of Sky that they sold and all the regional sports networks, so it ends up being high 40s or something like that.

23:39David Rosenthal:I think it's a complete mismatch with the Disney brand. I think that the only... There are a few things like reuniting the X-Men, like Avatar that makes sense. I think it is the wrong strategy for Disney to be ever more tightly bundling Disney Plus with Hulu and family content and the whole Fox library. I think eventually where this leads, if you really are following the we need scale economies, we need to build this giant streamer, you merge those brands. Like eventually this Hulu stuff kind of goes away and the lowest friction thing is to not have a second app to put everything in Disney Plus.

24:19David Rosenthal:In most of the world, it's just Disney Plus and it's fine. And they make this argument that like, oh, people are actually totally fine with that. I think this is something that shows up as an issue on the sort of three decade timeline, not on the three year timeline. I think it's a degradation of the thing that makes Disney different than other studios and other studios. But see, I disagree there because ABC and ESPN and FX now, they're just owned and operated properties. They can, I think, coexist, even though the service is called Disney+. I think the audience is okay with that. You think the plus can do a lot of lifting there?

25:04Especially in this modern ecosystem where HBO Max does a lot with the Max. and Paramount Plus. Well, Paramount doesn't mean anything. So that's not a very good example. I hate it though. I want HBO to mean HBO.

25:19David Rosenthal:I mean, I think I'm 35 and I'm like 60. I know. In terms of my preciousness about content. I see where you're coming from. But if you want to be one of the four, five companies that makes this transition into the streaming age as a destination and a survivor and something with the scale to compete, I don't know that you can do that with just the family content. Yeah, I buy that.

25:47Ben Gilbert:My grape with the Fox acquisition is the more standard one you hear. I just don't think there was that much good stuff in there. I think they wildly, wildly overpaid for it. Avatar, great. Simpsons, great. Reuniting the MCU, great. What else you got?

26:06David Rosenthal:I mean, it's not Disney, but FX is great. Yeah, people say that, though, but then all of a sudden they pull a Devil Wears Prada 2 out of their butts or they're working on trying to do a Home Alone reboot now. And like that stuff, I think, will continue to manifest. And, you know, FX maybe doesn't quite fit because it's so edgy. but there is enough in there. I think it just gives them, especially when they were launching Disney plus, it just gives them that ammo that it is all additive. Yeah. And to your point, the more you can bundle together, the lower churn is going to be because people are going to view it as their one-stop shop and they're not going to think about it too hard.

26:48I think without it, maybe Disney's ultimate destiny would be a tile on Netflix. And I don't think they're going to be a tile on Netflix.

26:57David Rosenthal:I pine for the version of Disney that doesn't have the kitchen sink of content. But I think perhaps in my analytical mind, I'm with you, Matt. And I agree you need to in this day and age. All right. So best acquisition in the history of the Walt Disney Company. What would you rank your top three?

27:16Ben Gilbert:Oh, easy. Not even close. With all due respect to Bob Iger, it was Cap Cities and ESPN. There'll never be another acquisition like that. Can I just make the argument for Pixar? Sure. Oh, I would love to hear that argument. Well, I mean, if you look at where Disney animation was in the mid 2000s and you look at the value that they got, not just out of the Toy Story studio and having all those titles, but of the management that came with Pixar, the ability to not just reinvent computer generated animation, but also spread that across Disney animation and completely revitalize the traditional studio.

27:55is that, as you say on your show, is the heart and soul of the Disney business and its entire flywheel. And the impact of that Pixar deal is still being felt to this day.

28:10Ben Gilbert:Absolutely. We got to go to Pixar and just see the campus and talk to folks and meet everybody. It is such a special place. It really is. Although they're annoyed these days. They're annoyed by the layoffs. they're annoyed by the micromanaging from Burbank. Sure, yeah, but it's still, there's no place else like Pixar in the world. It's more than just, you know, Disney propagandizing itself in Pixar. It really is a special place. Wait till Josh Jamarro tells them to make their$200 million movies for$100 million. Which is coming. That's gonna be tough. We know that's coming. Yeah.

28:46David Rosenthal:The interesting thing about Pixar is they have continued to make films more efficiently, but the complexity of films has risen at exactly the same rate. I think their person hours on films has dramatically dropped but wage inflation basically perfectly counteracts that and the films continue to come out for the same dollars and less person hours so much more complex each time. But you can't outrun inflation. It's tough and they make them in California for lack of a better word. like not outsourcing can add to the cost.

29:26Ben Gilbert:They're the last animation studio that doesn't outsource. Yeah. I hope they figure it out.

29:30David Rosenthal:Pixar is the only other one you can argue, and it's the exact point you made. To the extent that it's true that everything good at Disney is downstream of creating beloved IP in Disney animation, then yes, it was like binary for the company long-term to have Disney animation work and Pixar characters sort of brought into that fold. but espn funded buying pixar exactly and espn funded everything like every profits made it it's so that disney could do this uh d to c transition better than anybody else there's been carnage everywhere but espn was this sort of stabilizing force that enabled disney to stay independent make decisions judiciously uh and not end up in this like let's combine things that don't make sense era.

30:17David Rosenthal:Right. So I'm going to agree with you. ESPN and CapCities ABC, that was the... $75 billion in operating profit. Come on. Yes. I'm going to agree with you. I just wanted to make the Pixar argument. And I... Yes. I'm glad you did. Let's talk about the Disney of today and where they sit. How precarious is the moment right now? Are you worried about Disney? Let's see. Let's answer this division by division. I think the giant amount of CapEx that they are funneling into experiences, into parks and cruises. Yep. 60 billion. Yeah. Safest place you can park money in the world. It's just this proven thing that people will pay ever more for with the rising global inequality and the rising amount of global wealth.

31:06David Rosenthal:There are huge amounts of dollars that you can continue to extract for decades to go to Disney parks and cruises. So I think that's a durable, smart, safe investment. I think the thing that concerns me about the core is what is the next Frozen? Because out of Disney Animation and Pixar, it's now been nine years since they had a box office smash of something that was not a sequel or not a reusing existing IP. and it's fine to not have that for two or six or maybe eight years. I think once you start going over a decade, then you start kind of wondering, okay, we need something to feed the flywheel here for decades to come.

31:53David Rosenthal:So that would probably be, if I'm in Josh's shoes, my biggest thing is... Or is that over? You know, Hopper's was pretty damn good, yet it got to about 400. It was good. that would have done six, seven in the pre-COVID era. If it was that good, and maybe if they released it in June. But maybe that era of creating new franchises in theaters for animation is over. That, I think, is terrifying if you're the Walt Disney Company. You don't get all these great downstream effects without creating that shared cultural moment. And maybe it doesn't need to exist at the box office, but I think it's really hard to make it exist on streaming in a way that, you know, we need those 1977 Star Wars moments.

32:40Yeah. I think a big test will be when they get around to doing an Encanto sequel because that movie shares the DNA of the movies that do become Disney franchises. Such a good movie. Because it's huge on home video on Disney+. It's got very popular music. It had a hit song on it. And it's something that there will ultimately be nostalgia for Encanto. So how Disney handles that and whether they can produce a sequel that continues that franchise, I think maybe they have an opportunity there.

33:18David Rosenthal:Will there be nostalgia for K-pop Demon Hunters? Yeah, I think so. That's the one Netflix movie because of the music. It took it out of the realm of something you watched on TV and brought it into your regular life. And you could not go to an elementary school without hearing that music. It took over the culture for a few months. And that's when they put it back in theaters to capture that momentum. So I do think there will be nostalgia. And when the sequel comes out, it will become a cultural moment. I believe Netflix will put it in theaters. Now, I've convinced myself that Netflix will put the Demon Hunter sequel in theaters because of that.

33:59David Rosenthal:So that is the counter argument, that this can still exist even in the streaming era. And K-pop Demon Hunter sort of proves that you can create these emotional sort of shared cultural frenzies that are around something that aren't UGC sort of creator content. That may be the exception that proves the rule. But for Disney, I do think that doing well enough in theaters with some of these and then having them explode at home, that could be the answer.

34:29Ben Gilbert:And then one more division, though, for the state of Disney. I think ESPN is actually a bit of a sleeper now within Disney. You think it's bottomed? I think it's, yeah, bottomed and coming back up. And I think it's not in as bad a place as you might necessarily think on the surface. Why is that? It's not like sports rights are going to get any less expensive. Well, I think the leagues are incentivized to keep it around as a viable bidder because they're as terrified of the tech companies when it comes down to it as the media companies are. So I think that when you saw the NFL network that they did with the NFL, that was a big moment for ESPN still maintaining relevance and for the NFL to take a 10 % stake in the network.

35:14Ben Gilbert:Yeah, ESPN essentially is taking over NFL Network. Yep, yep. And then I think you look at the standalone, over-the-top streaming services that all the leagues have, whether it's MLB TV or NFL has their own, NBA has NBA TV, etc., etc. ESPN and Disney operate hockey's NHLs themselves. They obviously used to operate baseballs because BAM Tech came from baseball. I think there might be a future where they get deeper partnerships for streaming with actual leagues themselves. Oh, that's interesting.

35:51David Rosenthal:All right. And here's the other argument why ESPN has bottomed. Today, it does somewhere on the order of three-ish billion in operating income. In their absolute heyday, 2012, 13, 14, they were doing, call it 4.7, 4.8 billion. So it had to come down. The market clearing price for what people would pay for ESPN is not as high as the incredible rents they were extracting from 100 million people paying for cable. But between the direct over-the-top service and all the bundling they're doing, it is still some very high number that people are willing to pay for ESPN. And it was just about finding what that sort of new bottom was.

36:34Listen, guys, your show is great. I love the Acquired Pod. it's a very accessible business podcast for people who are hardcore addicts like me and even casual observers of these companies it's a really great show so congratulations thanks for coming on thanks Matt appreciate it we are back with the call sheet Craig a really interesting weekend at the box office for late August this is usually dumping ground time and I guess it kind of is but we're not going to talk about the Ridley Scott movie Dog Stars um sad for Ridley Scott. He's getting dumped in late August. Why aren't we talking about it?

37:12I want to talk about the other movie, but it's at $14 million. I mean, do you care about this movie? $70 million budget. It's a Disney movie through 20th. I think it's not going to get there. I'd take the under on 14.

37:25Ben Gilbert:It's just remarkable. It's a Ridley Scott movie with Jacob Elordi, Josh Brolin, and Margaret Qualley. Wikipedia says the budget is$110. Is that not correct? That may be the gross budget. I don't know what it netted out at. but honestly, let's talk about Coyote vs. Acme. That is the interesting movie here. This is the movie that all of Hollywood is rooting for, right? This is the movie that David Zasloff, when he took over Warner Brothers, he killed it for a tax credit. It's a victim of the corporate overlords, which is funny enough, the theme of the movie, the Acme Corporation is basically Warner Brothers Discovery.

38:02And this movie was written off and then taken by Ketchup Entertainment, which is an independent distributor. They paid$50 million to get this movie, and they think they can make a profit on it. And the tracking, not super great. It's at like 15. I've seen higher. This is going to be hard because the internet wants this movie to succeed so much that it might be like tainting the tracking numbers.

38:35Ben Gilbert:So yeah, I think like the media community is so loud in support of this movie that you see so much of that support online that it's hard to tell what normal people actually think about it. Like the Rotten Tomatoes scores are outstanding, but that doesn't necessarily accurately portray whether it's good. We don't know. I know. It's so funny because the David Zaslav team, when they came in there, they were quietly whispering that these movies that they killed, like Batgirl and the Scooby-Doo movie and Coyote vs. Acme, they were actually pretty bad and we were embarrassed by them. And then here, it comes out and it has a 10 times better score than most of the Warner Brothers movies this year.

39:12What do you think David Zaslav wants this movie to open to? Zero. What will make him happy? Zero dollars.

39:18Ben Gilbert:What I'm saying, what number will piss him off? How high does it have to get where he thinks he made a mistake? 20. If it gets to 20, then it'll piss him off because that's where, you know, with a decent overseas number and a good multiple, it could approach like making its money back if they had agreed to make it, to release it. And, you know, the marketing for Warner Brothers probably would have been bigger and better than the marketing from Ketchup Entertainment. So it's not apples to apples. But if this movie gets to 20, great. I'm going to take the over on 15. I think that the groundswell online is not totally real, but it will have some impact and I think it'll get above the tracking.

39:59Ben Gilbert:This is probably the definition of an opening weekend swell that won't have a ton of legs. Also, 15, I feel like, is on the lower end of the prediction. I feel like everybody, the tracking is usually in the 15 to 22 range. So 15 does feel low if we're picking that as the number, as the line. Well, but I'm going by NRG with some influence from some of the others. I have seen as high as 20. The problem is, is like this IP is so, we don't know how much people really care about that anymore right now. like personally I do not feel compelled to go see this my 10 year old knows about looney tunes and he doesn't really he knows wile coyote does he knows them from space jam sure okay yeah he knows them from space jam and like I caught him watching on some like linear channel like the tune network or something not cartoon network there's some other tune channel on linear and he was watching old looney tunes stuff so I don't know that may be anecdotal but I agree with you It's a tougher sell.

40:50This is also not, it's like a legal drama. It's not, not a drama. It's a comedy, but it's like, it's got procedural legal elements that are not necessarily conducive to kids viewing, but whatever. I'm going to take the over. I want this movie to succeed just so David Zaslav has to send some emails saying, congratulations. And then Batgirl is next. No, they will never talk about this movie again. The Warner brothers, even if it's a big hit, they will never mention it again. So we'll see. I don't know where it'll stream. I don't know if it'll go to HBO Max, actually. I gotta check that out. All right, that's the show for today.

41:26I want to thank my guests, Ben Gilbert and David Rosenthal, producer Craig Horlbeck, artists Jesse Lopez and Stefano Sanchez. And I want to thank you. We will see you next week. This episode is brought to you by Peacock, presenting All Her Fault. Nominated for seven Emmy Awards, including Outstanding Limited Series and nominations for both Sarah Snook and Dakota Fanning, NPR praises the series' exceptional performances and The Wrap calls the series an adrenaline-filled psychological thriller full of jaw-dropping twists and turns. All Her Fault is streaming now, only on Peacock. Labor Day savings are happening now at The Home Depot

41:59Ben Gilbert:with select appliances starting at$399. Plus, save up to an extra$1 ,000 and get free delivery on appliance purchases of$998 or more. Get a Whirlpool laundry tower featuring industry-first UV clean technology designed to reduce bacteria in the wash without fading fabrics. Plus, with great prices at The Home Depot, you can save on select appliances designed to make laundry day easier. Shop Labor Day savings at The Home Depot today. Offer valid augurs 27th through September 16th. USNAC store online for details.