How Entertainment Became an Empire

Walt Disney (NYSE:DIS) is one of the most powerful companies, in one of the most powerful sectors of any economy: entertainment. Before it became a company with a $164 billion market cap, with interests spanning the globe, Disney was more closely associated with the vision of the man after whom it was named. It was this vision that laid the groundwork for the company to become the media giant it is today.

On March 20, 2019, Disney officially acquired all the media assets of 21st Century Fox for $71.3 billion, making it the largest media powerhouse on the planet.

Pixar, Marvel and the Star Wars empire were already a part of Disney’s stable of mega-brands, but the acquisition of 21st Century Fox brings Marvel Entertainment into the Mouse’s house along with the X-Men, Fantastic Four and Deadpool franchises. The deal also gives Disney former Fox television networks such as FX Networks and National Geographic, in addition to Fox’s 30 percent ownership of the streaming platform Hulu, which gives Disney a controlling share of 60 percent. Disney has been planning to launch its own streaming service in a blow to Netflix, which has licensed several key parts of the Disney library.

In this article, we’ll look at the rise of Walt Disney – both the man and the company – and the lessons both teach entrepreneurs today.

Like many creative talents, Walt Disney started his career working for others. In 1919, Walt was back from driving for the American Ambulance Corps in World War I and looking for work as an artist. He found it at Pesmen-Rubin Commercial Art Studio, where he met and befriended Ubbe Iwerks. Iwerks proved to be one of the most talented animators in the world and a key to Walt’s later success.

At the start of 1920, Walt and Iwerks were both out of a job, so they tried to open up their own studio. This first business promptly failed and the pair left for paying work, doing animation at Film Ad Co., where they worked on the advertising shorts that were shown before the features. Before too long, they were working together on side projects that grew into Laugh-O-Grams, a series of comedic shorts. Walt and Iwerks set forth together again and turned Laugh-O-Grams into a business. However, once again, the venture ended belly-up in 1923, after which time Walt left for Hollywood.

Perhaps Walt’s least appreciated skill was convincing others to buy into his vision. In Hollywood without Iwerks, Walt convinced his brother Roy to help him start Disney Brothers Studio, later renamed Walt Disney Studio. Sure enough, Walt soon had Iwerks convinced to come back to work with him, as well.

Walt Disney Studio was no more profitable than the previous incarnations, but it was staying afloat. The company was doing work for Universal Pictures, creating a character called Oswald the Lucky Rabbit. In 1928, Walt and Roy had the unpleasant surprise of finding out that all of their animators, with the exception of Iwerks, had been hired away by one of the people he was dealing with at Universal. To add salt to the wound, the rights to Oswald belonged to Universal.

The experience embittered Walt and made him swear to only work for himself. Walt began looking to deliver his films directly to distributors, but he needed a new character.

There is some controversy over where Mickey Mouse came from; theories range from a wastepaper basket in Kansas to Iwerks flipping through animal photos and sketching. However he originated, Mickey Mouse represents the start of Disney as we now know it.

Walt assembled a new team to work with Iwerks on this new character. The first two films were not hits, but the third, “Steamboat Willie,” was a huge success. It was also the finest early example of a film that synchronized sound and animation.

Being on the cutting edge of technology became par for the course, as the company pushed the boundaries of animation. The next decades, including the Great Depression, saw Disney create the first color cartoons, as well as the first animated feature-length film, “Snow White and The Seven Dwarfs.”

The costs of these groundbreaking films were so high, and the margins so low, that a poor box office could still sink the studio. Walt and Roy started 1940 with great films, but a lot of debt. From 1923 to 1938, the Disney Brothers partnership was actually split into four companies that were successful in varying degrees, before being absorbed into one in 1938.

The company name that lived on was Walt Disney Productions and, on April 2, 1940, Walt Disney Studios issued 155,000 shares of 6% convertible preferred stock. This issue was in the over-the-counter market and raised around $3.5 million for the company.

The brothers soon found themselves back in debt, however, as the box offices continued to be slack for films that we now consider masterpieces, namely “Bambi,” “Fantasia” and “Cinderella.” This isn’t to say they weren’t successful, they were just very expensive to make.

Instead of slowing down, Walt looked to do more. The brothers set up their own distribution company, Buena Vista, and began producing high-margin nature documentaries. Walt also began to have visions of the ultimate amusement park, but it was a gamble his company couldn’t afford.

In order to create the “happiest place on earth,” a lot of financial maneuvering needed to take place, and Walt made it happen. Even after funding a private company, using a loan from his own life insurance, Walt needed much more capital. He had himself to offer, but he was clever about it. Walt set up another private company that owned the merchandising rights to his name. Incidentally, Walt Disney Productions paid $46.2 million in shares to buy the company back, in 1981.

He then offered to create a TV series for a TV network that would invest in Disneyland; ABC jumped at the chance. Walt had his funding and ABC had one hour every Sunday that turned into a cultural phenomenon, watched by millions. Originally named Disneyland, but wearing different titles over the years, the show ran for 29 seasons.

In 1955, Disneyland finally opened and became a huge success. Over the next five years, Walt Disney Productions purchased Disneyland by buying Walt’s private company. Over these same five years, the gross income at Walt Disney Productions grew from $6 million to over $70 million.

Merchandising, branding, and expansion were all coming together for Walt Disney Productions. Sadly, though, it was destined to go on without one of its founders, as Walt died in 1966. His last feature, “Mary Poppins,” was the top earning film in 1965. His brother Roy took over.

After the death of Walt and his brother Roy, Disney struggled. The company was listed in 1957, and despite its past successes and several profitable theme parks, the rise in its stock price was nominal.

In the 1980s, the company was thought to be so undervalued in terms of brand assets, which included the film catalog and the theme parks, that hostile takeover artists began circling. The company fended off the takeovers and began to focus on profiting from its vast brand equity.

From the 1980s to the 1990s, the stock grew in leaps and bounds, making Disney the largest entertainment empire in the world. The company has continued to prosper, helped in no small part by the foundation that Walt and Roy laid for the company.

Financial history is full of outsized personalities and towering figures. Many of the richest people in history got there by building empires of fur, oil, steel, rails and, yes, software. All of these are tangible products with a simple formula: keep the costs down and sell more. Disney, the man and the company, were birds of a different feather.

Only by constantly innovating and pushing the boundaries of not just animation but also what Disney became as a business was the company able to go from a moderately successful animation studio to a complete entertainment experience – with theme parks, merchandising, cruise ships and so forth.

Walt Disney famously said, “if you can dream it, you can do it.” The story of his life and the creation of his company reminds us that once you dream it, you must continually re-dream and re-imagine it to succeed.