The Best Investment Disney Ever Made
THE SUNDAY after Thanksgiving 2003, Roy E. Disney resigned from his position as Vice Chairman of the Walt Disney company. The nephew to the company’s namesake and founder penned a scathing letter to then-CEO Michael Eisner, wherein Disney accused Eisner of driving a wedge between him and those he worked with. The letter listed management-related grievances including Eisner’s failure to take ABC’s ratings “out of the abyss,” a “consistent micromanagement,” and a “creative brain drain,” all of which, in his view, made the company appear “rapacious, soul-less [sic], and always looking for the ‘quick buck.’” The letter ended with Disney suggesting that Eisner should be the one resigning instead of him, and instructions to share the letter with investors to be in accordance with SEC requirements.¹
This kind of turmoil was unprecedented at the family entertainment company. It resulted in the “Save Disney” campaign, which ultimately convinced shareholders to deny Eisner re-election to the board. A year later, Eisner resigned as CEO, handing day-to-day operations over to Bob Iger. Eisner’s tenure was, indeed, arguably uninspiring, and one of the worst periods in the company’s history. However, Eisner unwittingly set the company up for enormous future growth.
In 1996, Eisner spearheaded the effort to buy ABC (his former employer) for $19 billion, which at the time was the second-largest corporate buyout ever.² Touting ABC’s family-friendly broadcasting and wide reach, Eisner said it would deliver broader opportunities for Disney and faster growth for both companies.
The deal would prove to be a source of infighting at the company. In the years following, board members questioned the value of the purchase and the veracity of Eisner’s claims. Roy E. Disney also became concerned that Eisner’s decisions were at odds with the creative vision of his father and uncle. The once fun and magical entertainment company was starting to look more like a stony conglomerate.
Indeed, Eisner was largely unsuccessful in making ABC flourish as a new subsidiary, essentially maintaining the status-quo at the network and failing to launch appealing primetime offerings. In 2004, the last year of Eisner’s tenure, the network’s average viewership fell in the ratings by ten points, placing it behind the three other major networks.³ At this point in time, neither ABC nor Disney seemed to be benefiting much from the deal. Yet the buyout of ABC could turn out to be the best investment Disney ever made, as it delivered the executive who would be the key to Disney’s future: Bob Iger.
Iger started out as a weatherman for a local news station in Ithaca, NY, until he got a job at ABC in 1974. His charisma and dedication allowed him to steadily ascend the company ladder, eventually becoming president of the network. A few years following Disney’s acquisition, Iger was given the role of president of Walt Disney International, Disney’s streaming and ad sales division, and in 2000 was promoted to COO and President, second in command to Eisner. As such, Iger was well-placed to replace Eisner after he stepped down in 2005.
The first thing Iger did as CEO was to reorganize the company’s Strategic Planning division in favor of allowing divisional executives to gather ideas, with a separate entity focusing on acquisitions and new technology.⁴ In 2006, in his first major public move as CEO, Iger led Disney’s acquisition of Pixar for $7.4 billion.⁵ The purchase showed that Iger was forward-thinking. He was focused on making Disney as much a part of new media as it had been of old. Mickey Mouse and Donald Duck were the iconic Disney characters of the 20th century — Woody and Buzz were the first new imaginative heroes for the 21st.
Pixar found box-office hits in the years directly following the acquisition, releasing Cars in 2006 ($384 million), Ratatouille in 2007 ($620 million), and Up in 2009 ($735 million).⁶ Disney’s renowned skill for merchandising films further multiplied Pixar’s already burgeoning revenue.
Pixar contributed to this new relationship by injecting Disney’s aging character portfolio with new life. And with recurring hits like Toy Story and Cars, Pixar essentially created billion-dollar annuities for Disney. Some franchises, like Toy Story, have fan bases that span generations, creating a new “classic” for the modern era.
As the Pixar acquisition continued to pay dividends, Iger led an effort to buy another entertainment company. This time, Disney set its sights on the comic-book behemoth Marvel Entertainment. Marvel was, without a doubt, a riskier investment than Pixar. The company had been through bankruptcy, a number of restructurings, mergers and divisions. Stan Lee, the architect of many characters in the Marvel universe, was in the process of suing the company to regain rights to his creations. Still, Iger saw the potential to add a huge cache of characters to Disney’s growing arsenal. Marvel was shifting its focus from comic books to movies, but lacked the resources of established studios. Disney could provide the resources that the character-rich franchise deserved and turn them into box-office hits.
On August 31, 2009, Disney acquired Marvel for $4.2 billion. As of this year, that investment has made the company over $18 billion.⁷
Three years after the 2009 purchase, before the resounding success of the Marvel acquisition was fully realized, Disney acquired Lucasfilm, the studio behind the hugely popular Star Wars and Indiana Jones franchises, for $4.05 billion. Disney has made nearly $5 billion at the box-office from the release of new Star Wars films, and there are more on the way.⁸ Further, Disney has monetized Star Wars content by recreating ultra-realistic scenes from the movies in the company’s Disney Land and Disney World theme parks. The Mandalorian, another Star Wars offshoot, will become one of the flagship offerings on the upcoming Disney+ streaming platform.
With an influx of multi-billion dollar acquisitions, each an established brand with a large fan base, one could argue that Iger isn’t particularly creative. Why not come up with new characters and storylines? New franchises dreamt up by talent within Disney?
Historically, that has never really been Disney’s style. Snow White was a Brother’s Grimm tale, The Jungle Book was a novel by Rudyard Kipling, Aladdin was a middle eastern folk tale. Disney’s only original idea was that there are no original ideas — and that the best stories have already been told, loved, and re-told. Disney’s specialty is the re-packaging of classic tales guaranteed to please, and it is an art they have mastered beautifully.
Iger has also realized that the only thing more important than a good storyline are great characters. Viewers bond with characters. They find characters they identify with, ones they love to love, and some they love to hate. It is the characters, not the stories, that sell merchandise: dolls, toys, backpacks, clothes. Characters span generations, telling whichever story that particular generation may need to hear.
For this reason, a great character is one of the world’s most valuable commodities. Think of all video games, books, movies, and even theme parks that are inspired by an audience’s devotion to their favorite characters. By identifying Marvel, a universe rich with superheroes and potential role models, and Pixar, a creative juggernaut excellent at spinning adventures out of thin air, Iger was able to add an entire new chapter to Disney’s portfolio, whose value would far surpass the ‘measly’ cost of acquisition.
It is these deliberate choices that have reinvented Disney for the 21st century and allowed the company to regain absolute control over the entertainment industry. Out of a mediocre investment made by a controversial CEO came a new leader able to deliver perhaps the most exciting period since the company’s beginning. Maybe Disney has written its own fairy tale after all.
- Letter of Resignation, dated 11/30/03, from Roy E. Disney to Michael D. Eisner, n.d. https://www.sec.gov/Archives/edgar/data/1001039/000119312503090215/dex991.htm.
- Fabrikant, Geraldine. “WALT DISNEY TO ACQUIRE ABC IN $19 BILLION DEAL TO BUILD A GIANT FOR ENTERTAINMENT.” The New York Times. The New York Times, August 1, 1995. https://www.nytimes.com/1995/08/01/business/media-business-merger-walt-disney-acquire-abc-19-billion-deal-build-giant-for.html.
- Douglas Banks Hindman; Kenneth Wiegand (March 2008). “The Big Three’s Prime-Time Decline: A Technological and Social Context” (PDF). Journal of Broadcasting & Electronic Media.
- “The Walt Disney Company To Reorganize Strategic Planning Division.” The Walt Disney Company, April 27, 2018. https://www.thewaltdisneycompany.com/the-walt-disney-company-to-reorganize-strategic-planning-division/.
- Laura. “Disney Agrees to Acquire Pixar in a $7.4 Billion Deal.” The New York Times. The New York Times, January 25, 2006. https://www.nytimes.com/2006/01/25/business/disney-agrees-to-acquire-pixar-in-a-74-billion-deal.html.
- Thompson, Simon. “With ‘Toy Story 4’ Out, Every Pixar Movie Box Office Opening Ranked Worst To Best.” Forbes. Forbes Magazine, June 24, 2019. https://www.forbes.com/sites/simonthompson/2019/06/24/with-toy-story-4-out-every-pixar-movie-box-office-opening-ranked-worst-to-best/#41e90b3c242e.
- Whitten, Sarah. “Disney Bought Marvel for $4 Billion in 2009: It’s Made over $18 Billion Since.” USA Today. Gannett Satellite Information Network, July 21, 2019. https://www.usatoday.com/story/money/2019/07/21/marvel-disney-18-billion-since-purchase-2009/1790878001/.
- Whitten, Sarah. “Disney Bought Lucasfilm Six Years Ago Today and Has Already Recouped Its $4 Billion Investment.” CNBC. CNBC, October 30, 2018. https://www.cnbc.com/2018/10/30/six-years-after-buying-lucasfilm-disney-has-recouped-its-investment.html.
