Disney, Plus

The Flywheel is strong with this one. We dive deep into the origins of one of the boldest business strategy decisions of our time: Disney CEO Bob Iger’s attempt to buck the Innovator’s Dilemma - and forego billions of dollars in cashflow from Netflix and pay TV providers - in order to establish a direct distribution relationship with its customers for the first time in the company’s history. Is this the force awakening within the house that Walt built, or a phantom menace that will drag Disney to the dark side of unprofitability? Tune in to find out! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Links: https://www.thewaltdisneycompany.com/wp-content/uploads/2019/01/2018-Annual-Report.pdfhttps://www.thewaltdisneycompany.com/wp-content/uploads/q4-fy17-earnings-transcript.pdfhttps://www.thewaltdisneycompany.com/wp-content/uploads/2019/11/q4-fy19-earnings.pdfThe Disney flywheel: https://kottke.org/15/06/walt-disneys-corporate-strategy-chart Sources: The Ride of a Lifetime by Bob Iger: https://www.amazon.com/Ride-Lifetime-Lessons-Learned-Company-ebook/dp/B07PF6XTD8https://www.nytimes.com/2019/09/22/style/disney-bob-iger-book.htmlhttps://en.wikipedia.org/wiki/Bob_Igerhttps://www.hollywoodreporter.com/features/bob-iger-bets-company-hollywood-s-future-streaming-1247663 https://www.wsj.com/articles/can-kevin-mayer-deliver-the-future-of-disney-11573272027 https://www.bloomberg.com/news/features/2019-11-07/inside-disney-bob-iger-on-star-wars-pixar-and-more https://podcasts.apple.com/us/podcast/bob-iger-the-ride-of-a-lifetime/id1264843400?i=1000451721143 Carveouts: David: The Ride of a LifetimeBen: The Imagineering Story on Disney+: https://www.disneyplus.com/series/the-imagineering-story/6ryoXv1e1rWW

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  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.

• 0:20David Rosenthal?

  Yeah, isn't trying to hide the ball.

• 0:22Ben Gilbert?

  Yeah. All right. Let's do it.

• 0:25David Rosenthal?

  Let's do it.

• 0:37Ben Gilbert?

  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.

• 0:51David Rosenthal?

  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.

• 0:59Ben Gilbert?

  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, NBC Universal, 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 Plus, where Disney will try to attempt the multi-year

• 1:43Ben Gilbert?

  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.

• 2:27David Rosenthal?

  Are we ever? I have one question for you, though, Ben. Have you watched The Mandalorian yet?

• 2:32Ben Gilbert?

  I have.

• 2:33David Rosenthal?

  What are your thoughts?

• 2:35Ben Gilbert?

  No spoilers, and I do think-

• 2:36David Rosenthal?

  No, no, no spoilers.

• 2:39Ben Gilbert?

  I'm a huge fan. I think Jon Favreau is so far proving to be an amazing steward of that franchise.

• 2:47David Rosenthal?

  Yeah, yeah. I haven't, 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.

• 2:54Ben Gilbert?

  Well, that's research.

• 2:55David Rosenthal?

  That is, that's true. That is research. I'll have to tell you any of that.

• 3:00Ben Gilbert?

  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. It used to be that you proved that you were secure once a year on audit or a static PDF. Then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 3:19David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 3:40Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes and cuts the time that you'd spend on vendor assessments in half.

• 4:02David Rosenthal?

  In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 4:20Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. 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. And now, on to Disney+

• 4:50David Rosenthal?

  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

• 5:28David Rosenthal?

  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.

• 5:44Ben Gilbert?

  We also didn't know Infinity War was going to do what it did at the box office.

• 5:47David Rosenthal?

  Yeah, incredible.

• 5:48Ben Gilbert?

  I mean, and everything before that in the franchise.

• 5:50David Rosenthal?

  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.

• 6:13Ben Gilbert?

  The day before, right? It was like a Sunday when they called it off, and on the Monday, they were going to announce it.

• 6:18David Rosenthal?

  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 BAMTech, which has aged really well. Really encourage listeners to go back and listen to our BAMTech episode. They acquired first a minority stake for $1 billion, and then they acquired a majority stake in 2017. In total, they spent $2.6 billion on BAMTech. 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 30- 3% of Hulu that it does not own, they will spend at least $6 billion on that and that

• 7:03David Rosenthal?

  will close within the next five years. Disney and their legendary strat planning M and A team is the masters at setting these like deals of investments with options to acquire and over time and they've done really well. So, okay, that's to set the stage. Keep all that in mind.

• 7:20Ben Gilbert?

  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.

• 7:33David Rosenthal?

  Oh my God. That's the best analogy ever. Also because like Bob Iger and Thanos could not be more polar opposite.

• 7:44David Rosenthal?

  Well, that is the perfect tee up to the history and 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.

• 8:05Ben Gilbert?

  Completely agree. When you say he didn't intend it this way, are you referring to like timing it with the Disney plus launch?

• 8:10David Rosenthal?

  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, 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

• 8:55David Rosenthal?

  has worked for the Walt Disney Company in one form or another for the same company. 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. It's all, when you look at him, he looks like, he looks like a 50 year old. I mean, he's a 70 year old. He's, 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.

• 9:36David Rosenthal?

  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, he was madman. He was Don Draper. The parallels are so apt. He, and 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 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

• 10:21David Rosenthal?

  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. But

• 10:56Ben Gilbert?

  We all have strengths and weaknesses.

• 10:57David Rosenthal?

  We all have strengths and weaknesses. Fortunately, though, it 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 a, 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.

• 11:34Ben Gilbert?

  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.

• 11:48David Rosenthal?

  They kind of, 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 him 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.

• 12:32David Rosenthal?

  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. I mean, television was different back in those days. So he, 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, "Oh, great job." And he gives him a hundred dollar bill.

• 13:16Ben Gilbert?

  I did not know that he was the chairman. Like, I didn't know that was a nickname. And I'm reading the, the book and I was like, like the chairman of ABC, like, who's this chairman that he's meeting? And I'm like, I'm an idiot.

• 13:26David Rosenthal?

  The legend, Blue Eyes, the chairman.

• 13:29Ben Gilbert?

  Yep.

• 13:30David Rosenthal?

  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, you know, 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 realizes he's about to get fired.

• 14:14David Rosenthal?

  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 US every year. And what Rune had realized and kind of built within ABC that would then get taken over to ESPN

• 14:57David Rosenthal?

  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 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?

• 15:25David Rosenthal?

  And so all of that, that was really pioneered by ABC Sports and by by Rune.

• 15:31Ben Gilbert?

  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 cash flow 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'd obviously work on a lot of pitch decks and it, the 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 the next several years that this is the way to build enduring fanhood.

• 16:16David Rosenthal?

  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're not going to raise money."

• 16:43Ben Gilbert?

  I love the way you phrase that, like, "Listeners, David gave us homework, so I hope we went and watched our YouTube videos."

• 16:50David Rosenthal?

  Only because it's Don Valentine. 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 70s. So technology within media 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 new camera technology, graphics overlays, graphic overlays on live content, new camera angles, satellite feeds to be able to take content from the wide world of sports in the Olympics from all over the world, get it instantaneously broadcast back to the US

• 17:33David Rosenthal?

  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 innovate or die mindset of Rune, really, really rub off on Bob in the early days.

• 18:02Ben Gilbert?

  You know, Bob gives all the credit to Rune for teaching him this innovate or 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-

• 18:25David Rosenthal?

  Yeah, it was technology.

• 18:27Ben Gilbert?

  Totally. The start of Disneyland, the whole Imagineering Department, creating animatronics. Like Disney 2 was built on this foundation of, of innovate or die and use technology to tell stories.

• 18:38David Rosenthal?

  Yeah. I mean, it's, again, such a thread unacquired. It's, you know, it's Steve Jobs who's going to come in here in a minute. It's technology and 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, at ABC Sports. He becomes a VP. And then in 1985, when he's just, just a little over 10 years, 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 backwater-

• 19:14Ben Gilbert?

  Scrappy, penny pinching, backwater. Yeah.

• 19:18David Rosenthal?

  Broadcasting, you know, company in the Northeast acquires ABC. And, and literally that was the headline in, 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, you know, Warren Buffett, I wouldn't even say disciples, but contemporaries, you know, Sympatico, 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 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

• 20:01David Rosenthal?

  of bridging this gap. And they get to know Tom and Dan, and they actually realize they're cut from the same cloth. And Tom Murphy, in particular, comes to really trust Bob, 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 so much of what we'll get into a minute, that when Dan Burke, so Tom was 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.

• 20:45David Rosenthal?

  That's how, that's how much he's, like we said, cut from the cloth of this Tom Murphy, Dan Burke, Warren Buffett, you know, style of management. So Bob keeps rising. First, he gets promoted to run ABC Entertainment, 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, 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

• 21:28David Rosenthal?

  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, with Frank Sinatra.

• 21:36Ben Gilbert?

  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 do in business in New York, but he also has no idea how you're supposed to do business in Hollywood.

• 21:47David Rosenthal?

  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, he really leans on the people around him to help him learn the business and he has a very low ego about it, which is one of his hallmarks, but he has a pretty good run. So he greenlights Doogie Howser, which is a massive success for the network. Twin Peaks, which ends up being quite controversial 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.

• 22:31Ben Gilbert?

  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? Green light, 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.

• 23:01David Rosenthal?

  Yeah. Well, I think 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 would be controversy

• 23:45David Rosenthal?

  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 gotta 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

• 24:29David Rosenthal?

  of billions of dollars business in the future. So enter Disney.

• 24:35David Rosenthal?

  Right after Bob becomes COO of Capital Cities.

• 24:39Ben Gilbert?

  And take us through, this is 95?

• 24:41David Rosenthal?

  We're at 1995 right now. It's 94 when Bob becomes COO. At the Sun Valley Conference, the Allen and Company, famous Sun Valley Conference in Idaho. Michael Eisner, the, 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.

• 25:21David Rosenthal?

  This was his capstone, was unfortunately Eisner stuck around a little bit too long after the capstone, as we'll see.

• 25:28Ben Gilbert?

  His first 10 years were incredible.

• 25:30David Rosenthal?

  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.

• 26:08Ben Gilbert?

  Yeah, and to contextualize that for, 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 2X-ing 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.

• 26:41David Rosenthal?

  Yeah, and contrast that with $6.99 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.

• 26:56David Rosenthal?

  Yep. Yeah. Wild. Okay. So this deal happens, $19 billion, Disney acquires the company. And actually, a super key part of the deal, like 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

• 27:36David Rosenthal?

  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.

• 28:06Ben Gilbert?

  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,

• 28:20David Rosenthal?

  And the parks too, which are incredibly innovative.

• 28:23Ben Gilbert?

  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, the early 80s for Disney, I guess, I think that's this, right? Is, is pretty akin to like the early 80s for music. Like it's kind of best forgotten.

• 28:42David Rosenthal?

  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

• 28:57David Rosenthal?

  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

• 29:20Ben Gilbert?

  Hit after hit after hit.

• 29:22David Rosenthal?

  Katzenberg 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.

• 29:52Ben Gilbert?

  Pull it out of the Disney Vault.

• 29:53David Rosenthal?

  VHS, pull it out of the vault, you know? I haven't done enough research to really know, but I think they probably, and 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.

• 30:20Ben Gilbert?

  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!"

• 30:30David Rosenthal?

  Yes.

• 30:31Ben Gilbert?

  It's definitely worth looking up.

• 30:32David Rosenthal?

  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

• 31:16David Rosenthal?

  time. And so Eisner's 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, 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. Michael Eisner was thinking about bringing on a number two, but it was not Bob. So this is like a WeWork type situation.

• 32:00David Rosenthal?

  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.

• 32:17Ben Gilbert?

  A clear, 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.

• 32:29David Rosenthal?

  Yeah. Never managed people is a founder too. Like Michael Ovitz is like, was incredible. I mean, he started CAA, Creative Artists Agency.

• 32:38Ben Gilbert?

  Greatest agent of all time.

• 32:39David Rosenthal?

  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. Uh, 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.

• 33:23David Rosenthal?

  It is not an agency.

• 33:25Ben Gilbert?

  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 cities 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 no notion of that.

• 34:01David Rosenthal?

  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.

• 34:42David Rosenthal?

  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 Newman 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 Katzenberg, The Lion King, Aladdin, you know, all these great movies to this Disney is the laughing stock of, you know, the business world at this point in time. Heisner goes back after this, you know,

• 35:23David Rosenthal?

  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, and this actually becomes really prescient, he assigns Bob to what seems like a, I was gonna use Siberian Outpost, actually is a Siberian outpost, to 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, 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 European parents want wine at lunch to deal with their toddlers running around.

• 36:07David Rosenthal?

  And I think that that turned it around. Different countries are different. I think American parents probably also want wine at lunch to be able to deal with their kids.

• 36:15Ben Gilbert?

  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.

• 36:24David Rosenthal?

  And there's a bar in.

• 36:26Ben Gilbert?

  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, some experience with that going poorly in Disneyland.

• 36:50David Rosenthal?

  Interesting, interesting.

• 36:53Ben Gilbert?

  But importantly, running international here was the very beginning of Shanghai Disney.

• 36:59David Rosenthal?

  Yeah, which would become one of Bob's, we're not gonna 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.

• 37:17Ben Gilbert?

  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.

• 37:23David Rosenthal?

  In the late 90s.

• 37:24Ben Gilbert?

  It opened in the last few years.

• 37:26David Rosenthal?

  Yeah. Was it 2018?

• 37:28Ben Gilbert?

  2017, somewhere in there, yeah.

• 37:30David Rosenthal?

  2017 or 2018 when 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.

• 37:50Ben Gilbert?

  It's been this sort of like, keeping him at arm's length. You're sort of my number two, but you're not actually my number two.

• 37:56David Rosenthal?

  And the board is really, starting to get really upset with Michael at this point in time, after all these.

• 38:00Ben Gilbert?

  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.

• 38:09David Rosenthal?

  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 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.

• 38:49Ben Gilbert?

  Touchstone pictures.

• 38:51David Rosenthal?

  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. 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.

• 39:34David Rosenthal?

  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, and but without the life cycle of constantly inventing new and refreshing old IP, that all starts to break down.

• 39:56Ben Gilbert?

  David 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 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,

• 40:37Ben Gilbert?

  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 that seed that they've planted with the audience of, hey, you should you should engage with us in these other ways.

• 41:06David Rosenthal?

  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. Tarzan, Dinosaur, Atlantis, Treasure Planet. Remember Treasure Planet?

• 41:48Ben Gilbert?

  Oh, yeah.

• 41:49David Rosenthal?

  No. Yeah. Or yeah.

• 41:51Ben Gilbert?

  I mean, I remember hearing of Treasure Planet, like that these were. Yeah.

• 41:54David Rosenthal?

  Brother Bear.

• 41:56Ben Gilbert?

  Is this the Emperor's new groove?

• 41:58David Rosenthal?

  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. 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.

• 42:32Ben Gilbert?

  It's about a sentence.

• 42:33David Rosenthal?

  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.

• 43:04Ben Gilbert?

  The very first one was Toy Story.

• 43:06David Rosenthal?

  The very first one was Toy Story. Toy Story, Toy Story 2, A Bug's Life, Monsters, Inc., The Incredibles. Compare that to Tarzan. And so this was, this was really keeping the Disney flywheel afloat was this second party IP that was flowing through it from Pixar.

• 43:22Ben Gilbert?

  Even Finding Nemo was pre-acquisition.

• 43:25David Rosenthal?

  I don't remember. I don't recall if it was or wasn't. Yeah, okay, okay. Yeah, then it definitely was pre-acquisition.

• 43:30Ben Gilbert?

  Yeah.

• 43:31David Rosenthal?

  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-ascendancy, you know, the iPad, the iMac, the iPod have happened. He is incredibly well-respected businessperson. And remember, the narrative around Disney has been, this is, this is WeWork, and he calls Disney completely mismanaged and like, you know, basically a

• 44:16David Rosenthal?

  dead company. The really interesting thing here, though, to come back to technology, and this'll, 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.

• 44:42Ben Gilbert?

  Yeah. And 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, what was it? Ninety?

• 44:53David Rosenthal?

  Ninety-five.

• 44:53Ben Gilbert?

  Five. I mean, by no means the photorealistic stuff that it is today, or the water, or the sky, or this, you know, but it is absolutely pioneering and, and so unlike anything that anybody else in the industry was doing.

• 45:07David Rosenthal?

  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.

• 45:17Ben Gilbert?

  My family had a Power Mac 8500. It was the Motorola, the like Motorola chip that, that Macs ran on for a while. Like I, I don't, I don't know how to like compare that in megahertz or anything, but.

• 45:30David Rosenthal?

  Yeah.

• 45:30Ben Gilbert?

  It was.

• 45:31David Rosenthal?

  And here's, and here's Pixar making Toy Story, you know? So incredible with the render farm and.

• 45:36Ben Gilbert?

  As Nolan Bushnell told us, he, he figured out how to do render farms with, with gigantic server rooms of, of parallel computing. Yeah.

• 45:45David Rosenthal?

  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 resigned from the board and they launch.

• 46:10Ben Gilbert?

  Save Disney.

• 46:12David Rosenthal?

  The Save Disney campaign. It's so bad. So here you have Disney family members, former board members campaigning, and the, the goal of the Save Disney campaign is oust Michael Eisner as CEO.

• 46:25Ben Gilbert?

  Yeah. Let's not mince words about what Save Disney means.

• 46:28David Rosenthal?

  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 the, 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.

• 47:12David Rosenthal?

  Like they are, 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.

• 47:19Ben Gilbert?

  And they're nowhere near hated as badly as they are today. The internet hasn't launched, you can't see any tweets.

• 47:25David Rosenthal?

  Yeah, totally. I mean, they're still hated. It's just, everybody thinks they're the only person who hates them.

• 47:31Ben Gilbert?

  Yeah.

• 47:33David Rosenthal?

  They launched a hostile takeover bid for Disney. They offer $64 billion in Comcast stock to take over the company. Cause 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.

• 48:07Ben Gilbert?

  For 50 or for 64 billion.

• 48:09David Rosenthal?

  Yeah, pretty good that didn't happen.

• 48:11Ben Gilbert?

  In a sneaky move too, like right, you know, that night before the earnings call.

• 48:15David Rosenthal?

  Yeah, yeah. Well, and while this saved 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's 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's stock runs up in price on the announcement of this takeover bid and Comcast just can't afford it, even with a, even with a share deal.

• 48:59Ben Gilbert?

  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, a small sort of like glimmer of hope in this otherwise pretty destitute time that made the stock pop and, and made this bid impossible to go through.

• 49:20David Rosenthal?

  Yeah, I mean, it really was, I haven't said this in a while. It was history turning on a knife point.

• 49:25David Rosenthal?

  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 this shareholder meeting. Like, that's insane. That never, never happens.

• 49:43Ben Gilbert?

  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.

• 49:48David Rosenthal?

  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, uh, which expires in 2006. He would end up leaving earlier, but it's really a sad, kind of ignominious, um, 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, 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.

• 50:31David Rosenthal?

  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 frontrunner external candidate is Meg Whitman, who started her career within Disney.

• 50:49Ben Gilbert?

  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?

• 50:58David Rosenthal?

  She was CEO of HP. Now she's CEO of Quibi, bringing it all full circle.

• 51:03Ben Gilbert?

  Yeah, but she started her freaking career in Disney's strategic planning.

• 51:07David Rosenthal?

  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 has 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.

• 51:33Ben Gilbert?

  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. Like, why are you CEO of this company?

• 51:42David Rosenthal?

  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.

• 52:27David Rosenthal?

  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.

• 52:54Ben Gilbert?

  And importantly, branded content, content that we own, that can be enduring franchises that will enable the rest of the Disney flywheel to spin.

• 53:02David Rosenthal?

  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, "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

• 53:44David Rosenthal?

  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.

• 53:59Ben Gilbert?

  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."

• 54:37David Rosenthal?

  Yeah, 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.

• 54:57Ben Gilbert?

  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.

• 55:13David Rosenthal?

  Yeah, yeah.

• 55:15Ben Gilbert?

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• 55:29David Rosenthal?

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• 55:43Ben Gilbert?

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• 55:53David Rosenthal?

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• 56:11Ben Gilbert?

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• 56:27David Rosenthal?

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• 56:44Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 56:53David Rosenthal?

  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/acquired and 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 it being in 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 of the movie studios are worried about, like, the same thing's gonna happen with video that happened to music, and YouTube's gonna kill us, and like, there's all this pirated content, and like, it's all just crap, and we hate these people.

• 57:36David Rosenthal?

  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?

• 58:20David Rosenthal?

  Like, Eisner-era Disney was all about protecting the content, limiting consumers' access, only, you know, opening the vault at very, you know, 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 Bob is espousing. He's saying like, nope, we're eventually gonna get rid of all that.

• 58:45Ben Gilbert?

  Yeah, and he didn't say it in so many words until, like, August of 2017. You know, there was definitely this work in the 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.

• 59:11David Rosenthal?

  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

• 59:51David Rosenthal?

  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.

• 1:00:01Ben Gilbert?

  And like, and it 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 Americanism.

• 1:00:17David Rosenthal?

  Main Street, USA and all that. 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

• 1:00:34Ben Gilbert?

  Oh, and by the way, that it's an emerging middle class in huge countries elsewhere.

• 1:00:39David Rosenthal?

  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 in the book, he had breakfast with Jeffrey Katzenberg during this process and Katzenberg told him, he's like, dude, your career is done.

• 1:01:03Ben Gilbert?

  He basically tells him to write up a resume.

• 1:01:05David Rosenthal?

  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, oof. 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.

• 1:01:24Ben Gilbert?

  There's one management lesson in here. I know we're, 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.

• 1:02:05Ben Gilbert?

  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.

• 1:02:17David Rosenthal?

  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.

• 1:02:25Ben Gilbert?

  He's a tremendous diplomat.

• 1:02:27David Rosenthal?

  Yeah. So.

• 1:02:29Ben Gilbert?

  By the way, I did, I did look up the, the reason why the Comcast bid failed and Disney's 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, the stock to change.

• 1:02:49David Rosenthal?

  Man, Finding Nemo, Pixar. Pirates, the first Pirates of the Caribbean was so good.

• 1:02:54Ben Gilbert?

  So good.

• 1:02:54David Rosenthal?

  Just went so far downhill.

• 1:02:57Ben Gilbert?

  Well, yeah. It's kind of like Star Wars. Like, I don't remember there being other prequels.

• 1:03:05David Rosenthal?

  Anyway, okay. So the board makes its decision. Bob is CEO. Well, 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, he calls Tom Murphy, I believe. But that night he calls Steve Jobs. This is like such an amazing olive branch. And I think also just talks to like Bob as diplomat, 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.

• 1:03:45Ben Gilbert?

  Okay. Yeah. You can come and fly, I guess.

• 1:03:48David Rosenthal?

  Sure, I guess. 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.

• 1:04:04Ben Gilbert?

  And it sets the stage so much for why the position, why Disney's in the position they are today.

• 1:04:09David Rosenthal?

  Yeah, this is really, this is the first step to, you know, first reconciliation with, with such an important partner and piece of the business. And then acquisition, 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. We have our movies and our television shows here at Disney. And, you know, you guys, Apple, you make such incredible technology and like the, this is the heyday of the iPod. 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.

• 1:04:55David Rosenthal?

  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 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. But it was a huge deal.

• 1:05:32Ben Gilbert?

  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 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, because it was like, really? I'm going to watch movies on this thing that's like less than half this.

• 1:05:55David Rosenthal?

  Posted stamp.

• 1:05:56Ben Gilbert?

  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.

• 1:06:05David Rosenthal?

  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, Warren, 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.

• 1:06:28Ben Gilbert?

  Let's get all of our finance teams involved and our lawyers involved. 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.

• 1:06:47David Rosenthal?

  So when Steve at the Apple keynote that summer, I believe, with 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 Michael leaves and he officially is installed as CEO. It's about six months. In his first board meeting, immediately after he's officially CEO, Bob asks then CFO, Tom Staggs and the head of strap planning, Kevin

• 1:07:32David Rosenthal?

  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 commissioned brand research. To ask parents in the US what entertainment brands they think are best for their kids. And this is like Disney has always been the number one in this.

• 1:08:17David Rosenthal?

  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. 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. He's like, or three, we can buy Pixar. And he writes about this in the book. The boardroom just like erupts in chaos.

• 1:09:00David Rosenthal?

  And like, this is a, you know, a crazy idea. Board members are shouting, you know, people are like, the Disney family members are offended. 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, hey, I have a crazy idea. Can I come see you about it? I just love this. Yeah. He writes in the book, he says, I didn't yet fully appreciate just how much Steve liked radical ideas. Tell me now, he said.

• 1:09:45David Rosenthal?

  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 company's futures and um, What do you think about Disney buying Pixar? Steve 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, 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?

• 1:10:29David Rosenthal?

  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.

• 1:10:43Ben Gilbert?

  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.

• 1:11:26Ben Gilbert?

  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. Cause Lucasfilm didn't have any of that.

• 1:11:37David Rosenthal?

  DreamWorks Animation, if they considered that, or you know, bringing Jeffrey Katzenberg back. And I was like, yeah, Pixar was a machine. They had their own process.

• 1:11:45Ben Gilbert?

  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.

• 1:12:02David Rosenthal?

  Yeah.

• 1:12:03Ben Gilbert?

  You have Iger having to come back to him and saying, well, 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-

• 1:12:18David Rosenthal?

  Or the technology or-

• 1:12:20Ben Gilbert?

  Yeah.

• 1:12:20David Rosenthal?

  Yeah.

• 1:12:21Ben Gilbert?

  Well, there's ILM, which is pretty amazing, but-

• 1:12:23David Rosenthal?

  Well, yes, but not, not anywhere near as valuable to Disney as Pixar's animation technology was. Bob and his team at Disney make the case to Steve and to Ed Catmull and John Wessiter 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 100 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.

• 1:13:07David Rosenthal?

  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?

• 1:13:39Ben Gilbert?

  Yeah. And anybody'd be happy to have them, but it would have been someone.

• 1:13:44David Rosenthal?

  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, 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 a 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.

• 1:14:25Ben Gilbert?

  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 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 business that was not homespun in Disney, but was this enormous part of Disney's revenue now with ESPN. You can kind of see why he had the conviction that, hey, this could work and it's going

• 1:15:10Ben Gilbert?

  to change who we are as a company in some ways, but it could be really powerful for us.

• 1:15:14David Rosenthal?

  Yeah, so this becomes, you know, the blueprint in so many ways for the next series of acquisitions that we'll, 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, four billion for Marvel, which goodness,

• 1:15:58David Rosenthal?

  again, like, forget Disney Plus, forget everything, that was like the purchase of the century, given 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.

• 1:16:16Ben Gilbert?

  Which the reason it was for was because the Marvel price was the floor that George Lucas was willing to accept.

• 1:16:23David Rosenthal?

  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, 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. And he was like, $4 billion for a comic book company? Like, good luck with that.

• 1:16:46Ben Gilbert?

  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 elsewhere.

• 1:16:55David Rosenthal?

  Yep, as were X-Men and...

• 1:16:57Ben Gilbert?

  It's kind of crazy that like, in this world where sort of like, rich, potentially valuable IP had sort of laid fallow 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 Bob's strategy here of, what are the most unique and iconic pieces of intellectual property and worlds and, you know, mythologies that we can really amplify?

• 1:17:43David Rosenthal?

  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 Lucasfilm acquisition, where Bob and team, 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.

• 1:18:22David Rosenthal?

  They lose quite a number of subscribers, cable subscribers, and this is like, the first in terms of, you know, actual numbers in Chink in the Armor of this colossus that is ESPN and really the entire previous way of business for cable networks. And... Cutting of the cord for consumers. So in this late 2015 earnings call, they announced that ESPN subscribers are down and Bob and the team talked pretty honestly about like the existential risk from disruption in cord cutting to their business.

• 1:18:56Ben Gilbert?

  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, I don't watch that much sports. And so like, even though ESPN would probably, live sports in general, would probably keep people, what is the strongest tie to keep people on those cable networks, for the people who were subscribing for the non-sports things that are mostly available on these streaming services now, they're the first to leave.

• 1:19:38David Rosenthal?

  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 like, this is a big wake up call to Bob and the team. They realize like, we've spent the last several years fixing the content side of the house and getting part one of the strategy in place. We now need to 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, they

• 1:20:20David Rosenthal?

  come close to a deal to acquire Twitter. And interestingly, 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.

• 1:20:37Ben Gilbert?

  Well, it's exactly how a media company would think about buying a technology company. First, they're like, well, who's got the best technology? And they're like, Apple and Google. And they're like, no, no, they're too big. They're too big. Okay, next rung down, Twitter. It's a very blunt way to look at, we need technology.

• 1:20:53David Rosenthal?

  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 BAMTech episode, makes so much more sense, is they invest in and then they acquire BAMTech, 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, you know, entertainment content services like Netflix, like Disney Plus, like all these into the company.

• 1:21:32Ben Gilbert?

  Yeah. And in Twitter, I mean, 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 BAMTech, 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

• 1:22:17Ben Gilbert?

  capacity of distributing their content on their channel with Disney Plus, with ESPN+ Plus, with now Hulu, like, it's not creating conflict.

• 1:22:25David Rosenthal?

  Yeah, totally. So, in 2017, they complete a majority purchase of BAMTech. They own 75% of BAMTech. I believe the other 25% is probably employee equity and Major League Baseball.

• 1:22:39Ben Gilbert?

  And the NHL owns a bit.

• 1:22:40David Rosenthal?

  Oh, yes. And the NHL, because they did a streaming rights deal with the NHL.

• 1:22:44Ben Gilbert?

  And interestingly enough, this initial BAMTech deal was done to power ESPN Plus. They, they were like, ESPN needs a streaming service and hadn't yet conceptualized of Disney Plus.

• 1:22:54David Rosenthal?

  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 after it that they are launching ESPN, this is 2017, they're launching ESPN Plus with leveraging BAM technology the next year in 2018. And they are going to launch a, as yet unnamed, Disney content streaming service to compete with Netflix.

• 1:23:15Ben Gilbert?

  We're alleging ESPN plus and we're launching a Disney thing that's very similar, but we haven't named it.

• 1:23:20David Rosenthal?

  Yeah.

• 1:23:21Ben Gilbert?

  It's a very coy guy.

• 1:23:22David Rosenthal?

  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.

• 1:23:29Ben Gilbert?

  That's true.

• 1:23:29David Rosenthal?

  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.

• 1:23:37Ben Gilbert?

  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.

• 1:23:55David Rosenthal?

  Yeah, yeah. And it was, I mean, this was huge. Bob writes about the book, 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 rah rah 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, the cable companies and the satellite companies that Disney's basically saying like, hey, in the future, we're going to end around you guys.

• 1:24:38David Rosenthal?

  And like, y'all sort of like knew it was coming, but like, nope, it's happening, you know?

• 1:24:42Ben Gilbert?

  Yeah. You're, 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.

• 1:24:49David Rosenthal?

  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.

• 1:24:59Ben Gilbert?

  Hundreds of millions of dollars.

• 1:25:01David Rosenthal?

  Hundreds of millions of dollars a year. That is pure marginal profit to Disney. Like it doesn't cost them anything. They have already produced this content. They are just leveraging that content through an additional distribution channel. They're just getting pure cash flow margin from Netflix and they're cutting that off to instead go spend $2.5 billion to buy BamTech and invest many, many billions of dollars over the coming years to build up their own streaming service.

• 1:25:27Ben Gilbert?

  Yeah. It's interesting to think about, one of the reasons why the innovator's dilemma is so, is typically so unavoidable is because.

• 1:25:37Ben Gilbert?

  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 is 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

• 1:26:01David Rosenthal?

  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.

• 1:26:11Ben Gilbert?

  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? Typically, an executive wouldn't. I think it, it takes someone who's earned the trust like Bob had.

• 1:26:32David Rosenthal?

  Contrast this decision to the end of Eisner's time at Disney. You know, 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 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.

• 1:27:00David Rosenthal?

  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, many, many times more than all of these other incredible acquisitions all combined. Like, this is a, literally betting the farm.

• 1:27:31David Rosenthal?

  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.

• 1:28:05Ben Gilbert?

  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 a major reminder, 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.

• 1:28:22David Rosenthal?

  Yeah. No way. I never realized that, but you're so right. It's the same key.

• 1:28:28Ben Gilbert?

  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.

• 1:28:39David Rosenthal?

  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.

• 1:28:45Ben Gilbert?

  Uh, I don't think so, but.

• 1:28:47David Rosenthal?

  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.

• 1:29:11Ben Gilbert?

  Seasons of this unreal.

• 1:29:12David Rosenthal?

  Incredible. And then to the third goal, uh, third part of-

• 1:29:16Ben Gilbert?

  And National Geographic.

• 1:29:18David Rosenthal?

  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-

• 1:29:41David Rosenthal?

  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 love watching it.

• 1:30:01Ben Gilbert?

  Do you have a Hotstar subscription?

• 1:30:03David Rosenthal?

  No, but maybe with Disney Plus I might now. They're getting a lot here, but 71.3 billion dollars is a huge, huge price tag. And that

• 1:30:13Ben Gilbert?

  That was bid up from like 58, right?

• 1:30:15David Rosenthal?

  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, but 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.

• 1:30:53Ben Gilbert?

  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.

• 1:31:08David Rosenthal?

  Well, I think there's, so here's my, my bull and bear case. I'll just pull it forward quickly. The bull case is they're launching Disney Plus. And Bob talks about them. This is, 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?

• 1:31:43Ben Gilbert?

  Yeah, actually, you're, you're right. If I, I should walk back my, it's mostly distribution thing. I, I think you're right. Cause one of the things I've been struggling with actually about Disney Plus is, on, on December 27th, the last episode of season one of The Mandalorian is going to end. Will people stay subscribed? Like, are they gonna, 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.

• 1:32:22David Rosenthal?

  That's the stated reason for doing this. I think the scary thing, though, is like, is this Bob and Disney falling victim to some of the things that brought down Michael of Empire Building?

• 1:32:36Ben Gilbert?

  The overreach in the Greek tragedy.

• 1:32:39David Rosenthal?

  The overreach, yeah. Like, 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. And Bob talks about in the book, 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? Did they really pay the right price for this? You know, so.

• 1:33:05Ben Gilbert?

  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.

• 1:33:24David Rosenthal?

  And the teams and talent to continue to keep that content fresh. 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 I think it's an open question.

• 1:33:43Ben Gilbert?

  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.

• 1:33:49David Rosenthal?

  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.

• 1:33:55Ben Gilbert?

  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 like, global Fortune 50 CEO, that like, this is not in their workflow at all. But I was like, whoa, that's a long time before, whiteboarding something out. And it's very different than my day to day. And so he talks about how

• 1:34:39Ben Gilbert?

  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 TikTok, or what's old is new again. There's lots of aphorisms for it that all mean slightly different things.

• 1:35:24Ben Gilbert?

  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.

• 1:35:40David Rosenthal?

  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 BAMTech, is a distribution rails technology, not a consumer facing like, content and technology married together.

• 1:36:03David Rosenthal?

  So Disney Plus, April 2019 of this year, they do a big Investor Day to announce Disney Plus. Kevin Mayer, the longtime head of strap planning, is now put in charge operationally of running Disney Plus, running this new segment that is the future of the company.

• 1:36:19Ben Gilbert?

  Important to know, like, head of strap 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.

• 1:36:29David Rosenthal?

  Yeah, so this is his, this is his big test. And a lot of people think this is his test, that if he passes it, will be, 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 $1,299 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

• 1:37:09David Rosenthal?

  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.

• 1:37:41Ben Gilbert?

  Happy birthday. Watch the second episode?

• 1:37:44David Rosenthal?

  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.

• 1:37:52Ben Gilbert?

  First 48 hours.

• 1:37:53David Rosenthal?

  First 48 hours. Yeah, yeah, yeah.

• 1:37:55Ben Gilbert?

  Do we want to talk about all the caveats right here?

• 1:37:59David Rosenthal?

  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.

• 1:38:36Ben Gilbert?

  Best I can tell right now, I think ESPN cable affiliate fees are responsible for somewhere around 25% of Disney's revenue.

• 1:38:44David Rosenthal?

  Yeah.

• 1:38:44Ben Gilbert?

  So it's still a material amount in the old world, even as we talk about bedding 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.

• 1:39:02David Rosenthal?

  It's seriously handicapped.

• 1:39:04Ben Gilbert?

  Yeah.

• 1:39:04David Rosenthal?

  Seriously handicapped.

• 1:39:05Ben Gilbert?

  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 they used to be.

• 1:39:15David Rosenthal?

  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 innovator's dilemma. I mean, they're really hamstrung here, but like, the current ESPN Plus offering is just not compelling.

• 1:40:00David Rosenthal?

  It contains no major sports content.

• 1:40:04Ben Gilbert?

  I think they're slow roll on that one more than they are 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, or 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 gonna see them throwing, you know, their, you know, SportsCenter on there.

• 1:40:26David Rosenthal?

  Football and NBA and NFL and SportsCenter on there. True, but it is set up to do that. Once that threshold gets crossed, they have the technology and 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 of.

• 1:40:42Ben Gilbert?

  So yeah, 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. So I think it's like, if we could all play it all back, I'm not sure that they would get into that.

• 1:40:56David Rosenthal?

  But I have to, I gotta imagine, you know, they've already introduced the Disney bundle of all three of those services for, I think, $18 or $19 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're like, wow, well, Netflix has a lot of stuff, but they don't have sports. They have a dwindling amount of stuff.

• 1:41:25Ben Gilbert?

  And honestly, if that's what 18, 19 bucks, that's not that much more than where Netflix has raised their prices to for HD indefinitely. When you compare it to their 4K offering.

• 1:41:34David Rosenthal?

  Yeah, exactly. So, you know, it's promising, I think. But as always, there are a bunch of nuances to tease out here.

• 1:41:43Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:41:56David Rosenthal?

  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. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:42:13Ben Gilbert?

  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.

• 1:42:28David Rosenthal?

  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. Logora'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.

• 1:42:52Ben Gilbert?

  And they recently launched Logora 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.

• 1:43:11David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora 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.

• 1:43:41Ben Gilbert?

  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 logora.com/acquired and just tell them that Ben and David sent you.

• 1:44:06David Rosenthal?

  So let's see, where should we, where should we start? I, why don't we go with, we've, I think, rather than acquisition category, because there's so many of them, what if we do bull and bear narratives here?

• 1:44:15Ben Gilbert?

  Um, 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.

• 1:44:32David Rosenthal?

  What you always say, pull the e-brake, you know, spin around as you're about to drive off the cliff.

• 1:44:35Ben Gilbert?

  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

• 1:45:20Ben Gilbert?

  houses are very different than the 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 BAMTech, but they bought that for exactly the right reason. They do nothing more than the scope of-

• 1:45:36David Rosenthal?

  Pure distribution technology.

• 1:45:37Ben Gilbert?

  Exactly.

• 1:45:38David Rosenthal?

  It wasn't, which AOL was not.

• 1:45:40Ben Gilbert?

  And actually, it wasn't distribution. You're right, it's distribution technology. It's not like BAMTech already has all these relationships with consumers that Disney is just going to flow through to.

• 1:45:48David Rosenthal?

  Yeah, I mean, Disney Twitter, I think there's a really good chance that could have been AOL Time Warner.

• 1:45:53Ben Gilbert?

  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, that's my bull case.

• 1:46:07David Rosenthal?

  That's the bull case. Well, and I think the, 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, you know,

• 1:46:52David Rosenthal?

  small media companies that are, that are on there as well. Thirty 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?

• 1:47:14Ben Gilbert?

  Hmm. Probably.

• 1:47:18David Rosenthal?

  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 a hundred bucks a month. And so now you're getting it on any device, anywhere, wherever you are for 30 bucks a month.

• 1:47:34Ben Gilbert?

  So the fascinating thing is, yeah, that Disney may be able to rebundle and actually own all the content. Like, that is the, that is the mega, mega bull cases. Like, 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.

• 1:47:53David Rosenthal?

  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 US. Now with direct, they're in every country in the world. They're in India, they're in China, they're in Europe.

• 1:48:15Ben Gilbert?

  True access to global markets.

• 1:48:16David Rosenthal?

  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 a hundred bucks a month. But their addressable market went from 300 million to, you know, 3 billion.

• 1:48:30Ben Gilbert?

  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,

• 1:49:15Ben Gilbert?

  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've sort of planted some seed in their head that you love Mickey Mouse.

• 1:49:28David Rosenthal?

  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 US, 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, you know, like, you can start to see this, like, really starting to make sense.

• 1:49:57Ben Gilbert?

  Yep.

• 1:49:57David Rosenthal?

  Okay, so that's the bull. What's the bear?

• 1:50:00Ben Gilbert?

  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's something like 25 to 30% in most businesses, but Media Networks made $7.5 billion, Parks made $7 billion, Studio made $3 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 Moffett Nathanson that expects the three streaming services to lose a combined $11 billion. Over the next four years and and finally turn it to profit in 2024. So a lot can change in

• 1:50:45Ben Gilbert?

  five years, both internally Disney and externally in global markets. Like, let's hope they keep the 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 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,

• 1:51:27Ben Gilbert?

  I think there's been major discounts given or or free trials given to people who are 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.

• 1:51:44David Rosenthal?

  Yeah. Now, 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.

• 1:52:15Ben Gilbert?

  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 of all these really storied franchises. But am I gonna pay $7 a month to keep an option available to go and watch those things? No, like, that's, if I ever want to re-watch a Star Wars movie, I'll just, you know, reactivate my subscription at any given time. So they're, 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.

• 1:53:00Ben Gilbert?

  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?

• 1:53:12David Rosenthal?

  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.

• 1:53:43Ben Gilbert?

  Well put. Do you want to go into, into what would have happened otherwise?

• 1:53:48David Rosenthal?

  I feel like we covered a lot of stuff along the way with Twitter and whatnot. Let's, uh,

• 1:53:53Ben Gilbert?

  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 then 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,

• 1:54:35Ben Gilbert?

  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, 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.

• 1:55:18David Rosenthal?

  Yeah, yeah, totally agree. I mean, I think that's why they they had to do this.

• 1:55:25Ben Gilbert?

  Yep. And it 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 makes twice as much money for them as as actual studio revenue.

• 1:55:39David Rosenthal?

  Yeah, yeah, that's their moat. That that is, 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 from those properties.

• 1:55:57Ben Gilbert?

  All right. What do you got for playbook?

• 1:55:59David Rosenthal?

  All right, play. I mean, number one for me is the, you know, innovate or die philosophy, you know, from Rune Arledge through ESPN, through Disney, and, you know, really has been Bob's story here. We'll see how this goes, but I'm quite, I'm, you know, we'll get the grading again. I'm optimistic. It takes like courage back to what was the Apple? What was the Phil Schiller courage?

• 1:56:26Ben Gilbert?

  Courage.

• 1:56:26David Rosenthal?

  About? Oh, the headphone jack.

• 1:56:28Ben Gilbert?

  The dongle.

• 1:56:29David Rosenthal?

  Yeah. Yeah. Courage to remove the headphone jack, which is laughable, but like this takes real courage. Like,

• 1:56:33Ben Gilbert?

  For sure.

• 1:56:34David Rosenthal?

  You're telling your most important partners, we're gonna 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 but very well thought out, and I think the right one. So, so I think that's that's my biggest theme.

• 1:56:53Ben Gilbert?

  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 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, the table with much

• 1:57:34Ben Gilbert?

  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 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.

• 1:58:06David Rosenthal?

  Yeah. I mean, this was, you know, Kevin Mayer is such a important executive and has been under Iger, 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.

• 1:58:27Ben Gilbert?

  Yeah. Yeah. They went from like the, if you think about it, and like, if you're getting acquired, they went from both the deal sponsor and corp dev to kind of just being corp dev.

• 1:58:36David Rosenthal?

  Yeah. Yeah.

• 1:58:38Ben Gilbert?

  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, 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 Doctor Strange in the multiverse of madness. And I think this is so-

• 1:59:02David Rosenthal?

  I really like the Doctor Strange movie, by the way. I think-

• 1:59:04Ben Gilbert?

  Oh, it's so good.

• 1:59:05David Rosenthal?

  MCU entry.

• 1:59:07Ben Gilbert?

  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. Disney's taking it even to the next level where they're saying, look, 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 Disney Plus will. So it's like, they're not putting too big of teeth into it where it's like, the movie trails off before the climactic event and says, catch the rest on Disney Plus. Like,

• 1:59:49Ben Gilbert?

  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 really do actually need to be a Disney Plus subscriber.

• 2:00:07David Rosenthal?

  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's 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.

• 2:00:22Ben Gilbert?

  I have like a whole, the whole routine. I go to IMDb, I read all the trivia, I read the whole Wikipedia page. If there's a fandom thing, I'll like, you know, the Star Wars one, like Wookiee Pedia 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.

• 2:00:41David Rosenthal?

  Yeah, totally.

• 2:00:44Ben Gilbert?

  The last one that I wanted to bring up is, 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 want to sell to you guys. So why do you think that's so important right now?

• 2:01:19David Rosenthal?

  Well, I have a bold and bare case here. So the bold 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's 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. They'll pay 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 Rupert saying like, yeah, I mean, Fox, like, we wouldn't know, like Avatar, who's going to pay 13 bucks a month for Avatar, you know? My bare case here, though, is like, I mean, I used to work for Rupert

• 2:02:01David Rosenthal?

  Murdoch. Like, he's crafty. He's wily 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.

• 2:02:34Ben Gilbert?

  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

• 2:03:11Ben Gilbert?

  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 the, why Netflix wins versus anybody that's trying to be like Netflix. Obviously, Disney Plus is Different strategies, they 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?

• 2:03:43David Rosenthal?

  Amortize over.

• 2:03:44Ben Gilbert?

  And that that plays a big role in this, too.

• 2:03:46David Rosenthal?

  Yeah, it is. It's an amazing example of scale economies applied to technology as well in their 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 go read Ride of a Lifetime. It's 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

• 2:04:30David Rosenthal?

  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 it's just such an inspiring way to go about things.

• 2:04:44Ben Gilbert?

  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 of 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, um, yeah, it's it's really, it's really cool.

• 2:05:26Ben Gilbert?

  If you're into this episode and you read that book, like it's the next logical thing to go and do.

• 2:05:30David Rosenthal?

  All right. Disney's got me. I'm going to pay at the end of the trial with this. We got to grade it though, before we before we go.

• 2:05:38Ben Gilbert?

  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+ would be and how that could happen and why that would happen. And then, 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+ 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 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.

• 2:06:23Ben Gilbert?

  Because, you know, now with a great 4K TV at home, if they're gonna, 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.

• 2:06:34David Rosenthal?

  Well, they put the live action Lady and the Tramp on Disney Plus.

• 2:06:37Ben Gilbert?

  Totally.

• 2:06:38David Rosenthal?

  Yeah.

• 2:06:38Ben Gilbert?

  So, you know, you think about it, you got, 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 $100 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.

• 2:07:05David Rosenthal?

  Yeah. The only thing I'd add is my take this to an A+. I think that's, that's like a, a take this to an A+ is, is, is international too. Like, uh, that, that is not only, just like Netflix, that becomes not only true in the US, but they go to every country in the world too, and massively increase their TAM for this.

• 2:07:27Ben Gilbert?

  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, that may have just been a complete and total anomaly.

• 2:07:54David Rosenthal?

  Yeah. George Bodenheimer.

• 2:07:57Ben Gilbert?

  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 like that. 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 bare case for doing Disney Plus?

• 2:08:22David Rosenthal?

  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.

• 2:08:40Ben Gilbert?

  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 licensing. But I don't think that's gonna happen.

• 2:08:56David Rosenthal?

  That seems so far-fetched. Yeah. Can't wait to go to Star Wars Land.

• 2:08:59Ben Gilbert?

  This is Disney.

• 2:09:00David Rosenthal?

  We're planning a trip for next year.

• 2:09:02Ben Gilbert?

  Oh, nice.

• 2:09:03David Rosenthal?

  Yeah.

• 2:09:03Ben Gilbert?

  I think my next step is I haven't 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-

• 2:09:26David Rosenthal?

  And ESPN.

• 2:09:27Ben Gilbert?

  And ESPN, that's right. And thank you for being with us on this, 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 Chathin Putigunta, a general partner at Benchmark, and Tracy Lawrence, the founder and CEO of Choose. 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/acquired. And all new listeners get a seven day free trial.

• 2:10:10Ben Gilbert?

  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.

• 2:10:34David Rosenthal?

  All right, listeners, now is a great time to talk about one of our favorite companies, Statsig.

• 2:10:41Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 2:10:51David Rosenthal?

  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.

• 2:11:12Ben Gilbert?

  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.

• 2:11:24David Rosenthal?

  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/acquired to get started.

• 2:11:35Ben Gilbert?

  You know, our main show with acquired is about these big splashy exits that you've 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 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.

• 2:12:16Ben Gilbert?

  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 US. 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.

• 2:12:53Speaker 02

  For sure. Yeah, let's talk about love.

• 2:12:55David Rosenthal?

  Yeah. This is gonna be a first for acquired, I think. Yeah, this is great.

• 2:13:02Ben Gilbert?

  So, I just threw out some numbers and sort of like eight years ago, 2011, raised over 30 million. So, how do you describe Choose? And can you tell us about the business today?

• 2:13:11Speaker 02

  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 twenties 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 twenties and we don't start families till our thirties and work takes the brunt of it.

• 2:13:40David Rosenthal?

  Yeah, especially here in San Francisco.

• 2:13:42Speaker 02

  Yeah.

• 2:13:42David Rosenthal?

  I think San Francisco is, certainly in the US, maybe in the world, the city with the oldest average age of mothers when they give birth.

• 2:13:51Speaker 02

  I think it's San Francisco as well as DC.

• 2:13:53David Rosenthal?

  Wow, that makes sense.

• 2:13:55Speaker 02

  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. Over 500 companies across the US that are 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.

• 2:14:40Speaker 02

  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.

• 2:14:56Ben Gilbert?

  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?

• 2:15:07Speaker 02

  Yeah.

• 2:15:09Speaker 02

  Oh, well, loving 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 times 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, 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.

• 2:15:52Speaker 02

  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 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. It's not really outcome based. And so we started to talk pretty deeply about our childhoods, our paths, our motivations.

• 2:16:37Speaker 02

  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 had never put the past together with the present. I realized that I started to choose from a place of like,

• 2:17:18Speaker 02

  deep love for that younger version of myself and a deep desire for people to connect together.

• 2:17:24Ben Gilbert?

  All right, listeners. With that, thanks again, and we will see you next time.