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Episode
137

Disney Part II: The Business

Mar 2, 2021
-
17
minutes
Disneyland
Advertising
TV
1960s
USA
Weird history

In the second part of our three-part series we take a look at the magical business behind Disney.

From the infamous Disney flywheel to how Disney continues to make money years after a film is released, it's time to learn how Disney has turned into such an entertainment giant.

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[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English. 

[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.

[00:00:21] I'm Alastair Budge and today is part two of our three-part mini-series on Disney. 

[00:00:29] You can listen to these episodes individually if you like, but they are intended to be listened to in order, so if you haven’t yet had the chance to listen to part one, I’d recommend listening to that one first.

[00:00:42] As a quick reminder of what we talked about in part one, it was the history of Disney, how it all started with Oswald The Lucky Rabbit, why it was actually Mickey Mouse that became the main character for Disney, how the organisation developed over the years, what Walt Disney was reportedly like as a man, and what Disney is up to today.

[00:01:03] So, in part two, in today’s episode we are going to talk about some of the magic of the Disney business, and why it has become such a hugely successful enterprise

[00:01:16] We’ll first cover something called the Disney flywheel, then we’ll talk about how Disney continues to make money from films long after they are released, we’ll talk about some of the interesting ways that Disney had tried to cut out middlemen, and end by talking about one amazingly clever development that Disney is now working on.

[00:01:37] It's a super interesting topic, even for those of you that might not be particularly interested in business. 

[00:01:44] And if you are the sort of person who is interested in business type topics, well I think you will find it even more fascinating.

[00:01:51] So, let’s not waste a minute, and get started right away.

[00:01:58] The Walt Disney Company started, as we learned in Part One, with Walt Disney and his brother Roy setting up a small animation studio in California.

[00:02:08] The company is now worth over 300 billion dollars, has made–and still makes–some of the most successful films in history, and employs about a quarter of a million people.

[00:02:22] So, how did it get there, from a business point of view?

[00:02:26] Well, the easy answer might be that it created really good entertainment, from films to theme parks, people pay money to be entertained, and if you continue making things that hundreds of millions of people want for almost a hundred years then it’s completely logical that Disney became so big.

[00:02:45] But there are some really interesting aspects to how Disney works that have propelled it to its success.

[00:02:53] The first, and most famous of these is something called a Flywheel.

[00:02:59] Now, a flywheel is a small metal disc, a small metal wheel that is used to regulate and push forward a larger disc.

[00:03:09] The concept of a flywheel in business is when there are lots of smaller things happening that all support each other, that all help each other, so that the overall object, the overall business, moves faster than all of the individual objects would do if they were on their own.

[00:03:28] When it comes to Disney, there’s a now famous drawing drawn by Walt Disney himself from back in 1957 where he mapped out exactly how each part of his Disney empire helped push the other parts forward.

[00:03:44] The map that Disney drew back in 1957 would look completely different now, as the Walt Disney Company doesn’t just make films, sell licenses for products, and have theme parks, it now does everything from cruise lines to sports networks, streaming services to news channels.

[00:04:02] But the principle is the same - there are a lot of different parts to Disney, but they all work in tandem, supporting each other.

[00:04:10] In Walt Disney’s map, in the middle stood the creative talent, the characters of the films, the centre of all of the magic.

[00:04:20] This creative centre links to all the other parts of the flywheel, and is in turn linked to by other aspects of the Disney business.

[00:04:30] For example, people watch a Mickey Mouse film so they want to buy Mickey Mouse merchandise, which reminds them of the Disney brand, which might make them more likely to go to Disney world, where they might buy a Disney magazine, which in turn advertises Disney films, so someone might go to the next Disney film, discover a new character they like, they might buy the record of the music from the film, which will remind them of how much they enjoyed the film, and so on and so on.

[00:05:00] Everything is joined together, with each part linking to the next, supporting it, keeping it top of mind, and further cementing the Disney brand into that person’s life.

[00:05:12] This might sound like some business school lecture, that it’s easy to see how it all works with retrospect, but Walt Disney himself drew this all out, he knew it perfectly.

[00:05:25] He realised that at the heart of everything were the characters and the story–without magical characters and magical stories the whole thing would come crashing down–but that all these other aspects of the Disney business reinforced each other, making the whole this much greater than the sum of its parts.

[00:05:45] Since this Disney flywheel was first mapped out, back in 1957, the Walt Disney company has continued to grow by adding things to its flywheel that will increase the value of the overall pie, that all support each other.

[00:06:01] So, that’s our Disney flywheel, the mechanic that means all the different parts are supporting each other.

[00:06:09] The second, related, aspect of the business of Disney is about how good Disney is at extracting value from the centre of the flywheel, the characters and the story.

[00:06:22] As we talked about briefly in Part One, Disney films are incredibly expensive to make.

[00:06:28] Right from the early days, Disney didn’t skimp on the quality of illustration, it didn’t try to save money by getting lower quality illustrators.

[00:06:37] Anyone can see this in a Disney film, the quality of illustration is fantastic, and always has been.

[00:06:45] This means that making one always has been very expensive, and when it comes to the more recent animated films, things like Frozen and Tangled, they are incredibly expensive. 

[00:06:58] Tangled, the 2010 film about the girl with magical hair who is locked up in a tower, cost $260 million dollars to make.

[00:07:09] So, there is a very high cost-base to the creative side of Disney, just to produce one of these films is hugely expensive.

[00:07:19] Even for a company like Disney, making one of these massive films is risky. It might flop, people might not like it, and in that case Disney can lose a lot of money on a film.

[00:07:31] You might not remember a Disney film from 2011 called Mars Needs Moms, because it wasn’t very good, but it cost $150 million dollars to make, and only brought in $39 million dollars at the box office.

[00:07:48] But these box office flops, these failures, are few and far between, they don’t happen very often.

[00:07:55] Disney is evidently excellent at producing hit after hit, but what it is perhaps even better at is making as much money as possible from each and every part of the film.

[00:08:08] Disney builds brands around the main characters in the films, selling the rights to merchandise, to things like toys, duvet covers, clothes, video games, you name it

[00:08:19] Of course, you know this - you may well have bought Disney merchandise - but the way to think about this is that there is the story and the characters at the centre of everything, and of course these films often make over a billion dollars at the box office, but the way Disney continues to make money from it is through everything else that they do with the film and the characters.

[00:08:43] This isn’t a new development at all. Indeed, as we talked about in the last episode, as early as 1930 Walt Disney started merchandising Mickey Mouse, he was offered $300 to put Mickey Mouse on some pencils. 

[00:08:59] $300 in 1930 is about $5,000 in today’s money, so not a huge amount of money for the rights to use probably the world’s most famous mouse, but Walt Disney needed the cash, so he said yes.

[00:09:15] And the merchandising never stopped.

[00:09:18] But merchandising is just one way to squeeze more money out of each and every movie.

[00:09:24] Another way that Disney used to do this was through re-releasing the movie out into the cinema.

[00:09:30] Remember, the video cassette recorder didn’t come out until the late 1970s, and so before that if you wanted to watch a movie again, you had to go to the cinema again. Disney would release a film for a defined period, then wait a few years and re-release it.

[00:09:48] Of course, it’s the same film, so there are no more production costs, giving Disney the chance to make even more money, both from people who didn’t see it the first time, and people who did see it but enjoyed it so much they want to watch it again.

[00:10:03] And if you grew up in the 1990s, as I did, you probably remember a series of films that went straight to video, that didn’t come out in the cinema, and were available to buy to watch at home. 

[00:10:17] They were normally sequels of the Disney hit films, so you had Pocahontas II, The Return of Jafar, which was the sequel to Alladin, and around 25 others.

[00:10:29] Now, a lot of these were quite average quality films, and most don’t really expand on the original story. 

[00:10:37] So, if you haven’t watched them, you aren’t really missing out.

[00:10:41] The straight-to-video era for Disney didn’t continue forever, it stopped in 2008, but it was an interesting experiment with what happens when you control the distribution of everything.

[00:10:54] If you go and watch a film in a cinema, Disney has to share a percentage of the money you pay with the cinema. 

[00:11:01] But, if Disney controls everything, from the creation of the film through to how it is watched by someone like you or me, well you don’t have to share this money with anyone, or at least you share a lot less of it.

[00:11:14] And that brings us to Disney today, and probably the most revolutionary and important development for Disney, and that’s Disney Plus.

[00:11:24] Disney Plus, in case you hadn’t heard of it, is Disney’s answer to Netflix.

[00:11:31] You pay a monthly or annual fee to Disney, and you can watch any of the Disney movies, whenever you want. Disney has a direct relationship with you, you pay Disney directly, not a cinema, not a third party, not a shop that sells a video.

[00:11:48] It’s also remarkably cheap, at least when you first think about it. In Europe it’s €7 a month, or €70 a year, for the entire Disney catalogue, hundreds of hours of Disney films, available at the tap of a button. 

[00:12:05] Certainly when you compare it to buying the videos or DVDs, which could easily be €20, or going to watch it in a cinema, which is easily more than €10 nowadays, it does seem like an incredible bargain, it seems like very good value.

[00:12:22] But, when you look at it a little bit more closely, there’s another way to think about it.

[00:12:28] If you weren’t subscribing to Disney Plus, you probably wouldn’t be going to buy these films on DVDs, and you might not be that likely to go back to the cinema to watch a re-release of them.

[00:12:41] Disney owns the rights to all of the Disney films, so there isn’t much of a direct cost to it to allow you to stream a Disney film, to watch one on Disney Plus.

[00:12:53] In fact, coming back to our flywheel, Disney Plus means unlimited Disney is in your house, available 24/7, and the films are working as adverts for all of the rest of the Disney products.

[00:13:08] For Disney it’s absolutely fabulous if you - or even better, your kids - spend hours watching Disney movies, because then you’ll buy Mickey Mouse pencils, your kids might beg you to take them to a Disney theme park, you’ll be more likely to buy a t-shirt with Simba from the Lion King on it, and when there is the next big Disney release at the cinema, you’ll see trailers for it on Disney Plus, you'll see adverts all over Disney Plus.

[00:13:37] And the Disney Plus service has so far been a huge success. Within 24 hours it had 10 million subscribers, 6 months after launch it had 50 million, and it now has almost 100 million paying subscribers

[00:13:52] Of course, it’s quite nice for Disney to have 100 million people paying €7 a month, but the real advantage is the fact that Disney has a direct relationship with you, the consumer, and the more Disney you watch, the more stuff from Disney you will end up buying.

[00:14:10] I can remember, when I was about 8 years old I guess, there being an advert before the start of a Disney film, where you could write a letter and get a free short Disney video sent to you in the post.

[00:14:24] I thought, wow, a free video, and dutifully sent off a letter to get mine.

[00:14:30] A few weeks later, it arrived, and it was a video all about the magic of Disneyland Paris, and I think there were a few cartoons in it as well.

[00:14:40] I remember thinking that it was mad that I had got a video for free, but years later, I realised that it was really just an advert for Disneyland Paris.

[00:14:51] And the real sceptic might say that, with Disney Plus, Disney has actually achieved something that most companies would die for, and that’s hundreds of millions of people paying to watch adverts for their products.

[00:15:06] OK then, that is it for the part two of our mini-series on Disney, about the business of this magical corporation

[00:15:14] I hope it’s been an interesting one, that you’ve learned a little bit about some of the ways it makes money, and now you'll certainly know that there is a lot of money in magic.

[00:15:25] As always, I would love to know what you thought of this episode. Are you a Disney fan? How much money do you think you've spent in your life on Disney products?

[00:15:35] You can head right in to our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.

[00:15:44] And next up, in Part III we’ll learn about how everything fits together, and how Disney creates the recipe for all of this fantastic magic.

[00:15:54] You've been listening to English Learning for Curious Minds, by Leonardo English.

[00:15:59] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.


Continue learning

Get immediate access to a more interesting way of improving your English
Become a member
Already a member? Login

[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English. 

[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.

[00:00:21] I'm Alastair Budge and today is part two of our three-part mini-series on Disney. 

[00:00:29] You can listen to these episodes individually if you like, but they are intended to be listened to in order, so if you haven’t yet had the chance to listen to part one, I’d recommend listening to that one first.

[00:00:42] As a quick reminder of what we talked about in part one, it was the history of Disney, how it all started with Oswald The Lucky Rabbit, why it was actually Mickey Mouse that became the main character for Disney, how the organisation developed over the years, what Walt Disney was reportedly like as a man, and what Disney is up to today.

[00:01:03] So, in part two, in today’s episode we are going to talk about some of the magic of the Disney business, and why it has become such a hugely successful enterprise

[00:01:16] We’ll first cover something called the Disney flywheel, then we’ll talk about how Disney continues to make money from films long after they are released, we’ll talk about some of the interesting ways that Disney had tried to cut out middlemen, and end by talking about one amazingly clever development that Disney is now working on.

[00:01:37] It's a super interesting topic, even for those of you that might not be particularly interested in business. 

[00:01:44] And if you are the sort of person who is interested in business type topics, well I think you will find it even more fascinating.

[00:01:51] So, let’s not waste a minute, and get started right away.

[00:01:58] The Walt Disney Company started, as we learned in Part One, with Walt Disney and his brother Roy setting up a small animation studio in California.

[00:02:08] The company is now worth over 300 billion dollars, has made–and still makes–some of the most successful films in history, and employs about a quarter of a million people.

[00:02:22] So, how did it get there, from a business point of view?

[00:02:26] Well, the easy answer might be that it created really good entertainment, from films to theme parks, people pay money to be entertained, and if you continue making things that hundreds of millions of people want for almost a hundred years then it’s completely logical that Disney became so big.

[00:02:45] But there are some really interesting aspects to how Disney works that have propelled it to its success.

[00:02:53] The first, and most famous of these is something called a Flywheel.

[00:02:59] Now, a flywheel is a small metal disc, a small metal wheel that is used to regulate and push forward a larger disc.

[00:03:09] The concept of a flywheel in business is when there are lots of smaller things happening that all support each other, that all help each other, so that the overall object, the overall business, moves faster than all of the individual objects would do if they were on their own.

[00:03:28] When it comes to Disney, there’s a now famous drawing drawn by Walt Disney himself from back in 1957 where he mapped out exactly how each part of his Disney empire helped push the other parts forward.

[00:03:44] The map that Disney drew back in 1957 would look completely different now, as the Walt Disney Company doesn’t just make films, sell licenses for products, and have theme parks, it now does everything from cruise lines to sports networks, streaming services to news channels.

[00:04:02] But the principle is the same - there are a lot of different parts to Disney, but they all work in tandem, supporting each other.

[00:04:10] In Walt Disney’s map, in the middle stood the creative talent, the characters of the films, the centre of all of the magic.

[00:04:20] This creative centre links to all the other parts of the flywheel, and is in turn linked to by other aspects of the Disney business.

[00:04:30] For example, people watch a Mickey Mouse film so they want to buy Mickey Mouse merchandise, which reminds them of the Disney brand, which might make them more likely to go to Disney world, where they might buy a Disney magazine, which in turn advertises Disney films, so someone might go to the next Disney film, discover a new character they like, they might buy the record of the music from the film, which will remind them of how much they enjoyed the film, and so on and so on.

[00:05:00] Everything is joined together, with each part linking to the next, supporting it, keeping it top of mind, and further cementing the Disney brand into that person’s life.

[00:05:12] This might sound like some business school lecture, that it’s easy to see how it all works with retrospect, but Walt Disney himself drew this all out, he knew it perfectly.

[00:05:25] He realised that at the heart of everything were the characters and the story–without magical characters and magical stories the whole thing would come crashing down–but that all these other aspects of the Disney business reinforced each other, making the whole this much greater than the sum of its parts.

[00:05:45] Since this Disney flywheel was first mapped out, back in 1957, the Walt Disney company has continued to grow by adding things to its flywheel that will increase the value of the overall pie, that all support each other.

[00:06:01] So, that’s our Disney flywheel, the mechanic that means all the different parts are supporting each other.

[00:06:09] The second, related, aspect of the business of Disney is about how good Disney is at extracting value from the centre of the flywheel, the characters and the story.

[00:06:22] As we talked about briefly in Part One, Disney films are incredibly expensive to make.

[00:06:28] Right from the early days, Disney didn’t skimp on the quality of illustration, it didn’t try to save money by getting lower quality illustrators.

[00:06:37] Anyone can see this in a Disney film, the quality of illustration is fantastic, and always has been.

[00:06:45] This means that making one always has been very expensive, and when it comes to the more recent animated films, things like Frozen and Tangled, they are incredibly expensive. 

[00:06:58] Tangled, the 2010 film about the girl with magical hair who is locked up in a tower, cost $260 million dollars to make.

[00:07:09] So, there is a very high cost-base to the creative side of Disney, just to produce one of these films is hugely expensive.

[00:07:19] Even for a company like Disney, making one of these massive films is risky. It might flop, people might not like it, and in that case Disney can lose a lot of money on a film.

[00:07:31] You might not remember a Disney film from 2011 called Mars Needs Moms, because it wasn’t very good, but it cost $150 million dollars to make, and only brought in $39 million dollars at the box office.

[00:07:48] But these box office flops, these failures, are few and far between, they don’t happen very often.

[00:07:55] Disney is evidently excellent at producing hit after hit, but what it is perhaps even better at is making as much money as possible from each and every part of the film.

[00:08:08] Disney builds brands around the main characters in the films, selling the rights to merchandise, to things like toys, duvet covers, clothes, video games, you name it

[00:08:19] Of course, you know this - you may well have bought Disney merchandise - but the way to think about this is that there is the story and the characters at the centre of everything, and of course these films often make over a billion dollars at the box office, but the way Disney continues to make money from it is through everything else that they do with the film and the characters.

[00:08:43] This isn’t a new development at all. Indeed, as we talked about in the last episode, as early as 1930 Walt Disney started merchandising Mickey Mouse, he was offered $300 to put Mickey Mouse on some pencils. 

[00:08:59] $300 in 1930 is about $5,000 in today’s money, so not a huge amount of money for the rights to use probably the world’s most famous mouse, but Walt Disney needed the cash, so he said yes.

[00:09:15] And the merchandising never stopped.

[00:09:18] But merchandising is just one way to squeeze more money out of each and every movie.

[00:09:24] Another way that Disney used to do this was through re-releasing the movie out into the cinema.

[00:09:30] Remember, the video cassette recorder didn’t come out until the late 1970s, and so before that if you wanted to watch a movie again, you had to go to the cinema again. Disney would release a film for a defined period, then wait a few years and re-release it.

[00:09:48] Of course, it’s the same film, so there are no more production costs, giving Disney the chance to make even more money, both from people who didn’t see it the first time, and people who did see it but enjoyed it so much they want to watch it again.

[00:10:03] And if you grew up in the 1990s, as I did, you probably remember a series of films that went straight to video, that didn’t come out in the cinema, and were available to buy to watch at home. 

[00:10:17] They were normally sequels of the Disney hit films, so you had Pocahontas II, The Return of Jafar, which was the sequel to Alladin, and around 25 others.

[00:10:29] Now, a lot of these were quite average quality films, and most don’t really expand on the original story. 

[00:10:37] So, if you haven’t watched them, you aren’t really missing out.

[00:10:41] The straight-to-video era for Disney didn’t continue forever, it stopped in 2008, but it was an interesting experiment with what happens when you control the distribution of everything.

[00:10:54] If you go and watch a film in a cinema, Disney has to share a percentage of the money you pay with the cinema. 

[00:11:01] But, if Disney controls everything, from the creation of the film through to how it is watched by someone like you or me, well you don’t have to share this money with anyone, or at least you share a lot less of it.

[00:11:14] And that brings us to Disney today, and probably the most revolutionary and important development for Disney, and that’s Disney Plus.

[00:11:24] Disney Plus, in case you hadn’t heard of it, is Disney’s answer to Netflix.

[00:11:31] You pay a monthly or annual fee to Disney, and you can watch any of the Disney movies, whenever you want. Disney has a direct relationship with you, you pay Disney directly, not a cinema, not a third party, not a shop that sells a video.

[00:11:48] It’s also remarkably cheap, at least when you first think about it. In Europe it’s €7 a month, or €70 a year, for the entire Disney catalogue, hundreds of hours of Disney films, available at the tap of a button. 

[00:12:05] Certainly when you compare it to buying the videos or DVDs, which could easily be €20, or going to watch it in a cinema, which is easily more than €10 nowadays, it does seem like an incredible bargain, it seems like very good value.

[00:12:22] But, when you look at it a little bit more closely, there’s another way to think about it.

[00:12:28] If you weren’t subscribing to Disney Plus, you probably wouldn’t be going to buy these films on DVDs, and you might not be that likely to go back to the cinema to watch a re-release of them.

[00:12:41] Disney owns the rights to all of the Disney films, so there isn’t much of a direct cost to it to allow you to stream a Disney film, to watch one on Disney Plus.

[00:12:53] In fact, coming back to our flywheel, Disney Plus means unlimited Disney is in your house, available 24/7, and the films are working as adverts for all of the rest of the Disney products.

[00:13:08] For Disney it’s absolutely fabulous if you - or even better, your kids - spend hours watching Disney movies, because then you’ll buy Mickey Mouse pencils, your kids might beg you to take them to a Disney theme park, you’ll be more likely to buy a t-shirt with Simba from the Lion King on it, and when there is the next big Disney release at the cinema, you’ll see trailers for it on Disney Plus, you'll see adverts all over Disney Plus.

[00:13:37] And the Disney Plus service has so far been a huge success. Within 24 hours it had 10 million subscribers, 6 months after launch it had 50 million, and it now has almost 100 million paying subscribers

[00:13:52] Of course, it’s quite nice for Disney to have 100 million people paying €7 a month, but the real advantage is the fact that Disney has a direct relationship with you, the consumer, and the more Disney you watch, the more stuff from Disney you will end up buying.

[00:14:10] I can remember, when I was about 8 years old I guess, there being an advert before the start of a Disney film, where you could write a letter and get a free short Disney video sent to you in the post.

[00:14:24] I thought, wow, a free video, and dutifully sent off a letter to get mine.

[00:14:30] A few weeks later, it arrived, and it was a video all about the magic of Disneyland Paris, and I think there were a few cartoons in it as well.

[00:14:40] I remember thinking that it was mad that I had got a video for free, but years later, I realised that it was really just an advert for Disneyland Paris.

[00:14:51] And the real sceptic might say that, with Disney Plus, Disney has actually achieved something that most companies would die for, and that’s hundreds of millions of people paying to watch adverts for their products.

[00:15:06] OK then, that is it for the part two of our mini-series on Disney, about the business of this magical corporation

[00:15:14] I hope it’s been an interesting one, that you’ve learned a little bit about some of the ways it makes money, and now you'll certainly know that there is a lot of money in magic.

[00:15:25] As always, I would love to know what you thought of this episode. Are you a Disney fan? How much money do you think you've spent in your life on Disney products?

[00:15:35] You can head right in to our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.

[00:15:44] And next up, in Part III we’ll learn about how everything fits together, and how Disney creates the recipe for all of this fantastic magic.

[00:15:54] You've been listening to English Learning for Curious Minds, by Leonardo English.

[00:15:59] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.


[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English. 

[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.

[00:00:21] I'm Alastair Budge and today is part two of our three-part mini-series on Disney. 

[00:00:29] You can listen to these episodes individually if you like, but they are intended to be listened to in order, so if you haven’t yet had the chance to listen to part one, I’d recommend listening to that one first.

[00:00:42] As a quick reminder of what we talked about in part one, it was the history of Disney, how it all started with Oswald The Lucky Rabbit, why it was actually Mickey Mouse that became the main character for Disney, how the organisation developed over the years, what Walt Disney was reportedly like as a man, and what Disney is up to today.

[00:01:03] So, in part two, in today’s episode we are going to talk about some of the magic of the Disney business, and why it has become such a hugely successful enterprise

[00:01:16] We’ll first cover something called the Disney flywheel, then we’ll talk about how Disney continues to make money from films long after they are released, we’ll talk about some of the interesting ways that Disney had tried to cut out middlemen, and end by talking about one amazingly clever development that Disney is now working on.

[00:01:37] It's a super interesting topic, even for those of you that might not be particularly interested in business. 

[00:01:44] And if you are the sort of person who is interested in business type topics, well I think you will find it even more fascinating.

[00:01:51] So, let’s not waste a minute, and get started right away.

[00:01:58] The Walt Disney Company started, as we learned in Part One, with Walt Disney and his brother Roy setting up a small animation studio in California.

[00:02:08] The company is now worth over 300 billion dollars, has made–and still makes–some of the most successful films in history, and employs about a quarter of a million people.

[00:02:22] So, how did it get there, from a business point of view?

[00:02:26] Well, the easy answer might be that it created really good entertainment, from films to theme parks, people pay money to be entertained, and if you continue making things that hundreds of millions of people want for almost a hundred years then it’s completely logical that Disney became so big.

[00:02:45] But there are some really interesting aspects to how Disney works that have propelled it to its success.

[00:02:53] The first, and most famous of these is something called a Flywheel.

[00:02:59] Now, a flywheel is a small metal disc, a small metal wheel that is used to regulate and push forward a larger disc.

[00:03:09] The concept of a flywheel in business is when there are lots of smaller things happening that all support each other, that all help each other, so that the overall object, the overall business, moves faster than all of the individual objects would do if they were on their own.

[00:03:28] When it comes to Disney, there’s a now famous drawing drawn by Walt Disney himself from back in 1957 where he mapped out exactly how each part of his Disney empire helped push the other parts forward.

[00:03:44] The map that Disney drew back in 1957 would look completely different now, as the Walt Disney Company doesn’t just make films, sell licenses for products, and have theme parks, it now does everything from cruise lines to sports networks, streaming services to news channels.

[00:04:02] But the principle is the same - there are a lot of different parts to Disney, but they all work in tandem, supporting each other.

[00:04:10] In Walt Disney’s map, in the middle stood the creative talent, the characters of the films, the centre of all of the magic.

[00:04:20] This creative centre links to all the other parts of the flywheel, and is in turn linked to by other aspects of the Disney business.

[00:04:30] For example, people watch a Mickey Mouse film so they want to buy Mickey Mouse merchandise, which reminds them of the Disney brand, which might make them more likely to go to Disney world, where they might buy a Disney magazine, which in turn advertises Disney films, so someone might go to the next Disney film, discover a new character they like, they might buy the record of the music from the film, which will remind them of how much they enjoyed the film, and so on and so on.

[00:05:00] Everything is joined together, with each part linking to the next, supporting it, keeping it top of mind, and further cementing the Disney brand into that person’s life.

[00:05:12] This might sound like some business school lecture, that it’s easy to see how it all works with retrospect, but Walt Disney himself drew this all out, he knew it perfectly.

[00:05:25] He realised that at the heart of everything were the characters and the story–without magical characters and magical stories the whole thing would come crashing down–but that all these other aspects of the Disney business reinforced each other, making the whole this much greater than the sum of its parts.

[00:05:45] Since this Disney flywheel was first mapped out, back in 1957, the Walt Disney company has continued to grow by adding things to its flywheel that will increase the value of the overall pie, that all support each other.

[00:06:01] So, that’s our Disney flywheel, the mechanic that means all the different parts are supporting each other.

[00:06:09] The second, related, aspect of the business of Disney is about how good Disney is at extracting value from the centre of the flywheel, the characters and the story.

[00:06:22] As we talked about briefly in Part One, Disney films are incredibly expensive to make.

[00:06:28] Right from the early days, Disney didn’t skimp on the quality of illustration, it didn’t try to save money by getting lower quality illustrators.

[00:06:37] Anyone can see this in a Disney film, the quality of illustration is fantastic, and always has been.

[00:06:45] This means that making one always has been very expensive, and when it comes to the more recent animated films, things like Frozen and Tangled, they are incredibly expensive. 

[00:06:58] Tangled, the 2010 film about the girl with magical hair who is locked up in a tower, cost $260 million dollars to make.

[00:07:09] So, there is a very high cost-base to the creative side of Disney, just to produce one of these films is hugely expensive.

[00:07:19] Even for a company like Disney, making one of these massive films is risky. It might flop, people might not like it, and in that case Disney can lose a lot of money on a film.

[00:07:31] You might not remember a Disney film from 2011 called Mars Needs Moms, because it wasn’t very good, but it cost $150 million dollars to make, and only brought in $39 million dollars at the box office.

[00:07:48] But these box office flops, these failures, are few and far between, they don’t happen very often.

[00:07:55] Disney is evidently excellent at producing hit after hit, but what it is perhaps even better at is making as much money as possible from each and every part of the film.

[00:08:08] Disney builds brands around the main characters in the films, selling the rights to merchandise, to things like toys, duvet covers, clothes, video games, you name it

[00:08:19] Of course, you know this - you may well have bought Disney merchandise - but the way to think about this is that there is the story and the characters at the centre of everything, and of course these films often make over a billion dollars at the box office, but the way Disney continues to make money from it is through everything else that they do with the film and the characters.

[00:08:43] This isn’t a new development at all. Indeed, as we talked about in the last episode, as early as 1930 Walt Disney started merchandising Mickey Mouse, he was offered $300 to put Mickey Mouse on some pencils. 

[00:08:59] $300 in 1930 is about $5,000 in today’s money, so not a huge amount of money for the rights to use probably the world’s most famous mouse, but Walt Disney needed the cash, so he said yes.

[00:09:15] And the merchandising never stopped.

[00:09:18] But merchandising is just one way to squeeze more money out of each and every movie.

[00:09:24] Another way that Disney used to do this was through re-releasing the movie out into the cinema.

[00:09:30] Remember, the video cassette recorder didn’t come out until the late 1970s, and so before that if you wanted to watch a movie again, you had to go to the cinema again. Disney would release a film for a defined period, then wait a few years and re-release it.

[00:09:48] Of course, it’s the same film, so there are no more production costs, giving Disney the chance to make even more money, both from people who didn’t see it the first time, and people who did see it but enjoyed it so much they want to watch it again.

[00:10:03] And if you grew up in the 1990s, as I did, you probably remember a series of films that went straight to video, that didn’t come out in the cinema, and were available to buy to watch at home. 

[00:10:17] They were normally sequels of the Disney hit films, so you had Pocahontas II, The Return of Jafar, which was the sequel to Alladin, and around 25 others.

[00:10:29] Now, a lot of these were quite average quality films, and most don’t really expand on the original story. 

[00:10:37] So, if you haven’t watched them, you aren’t really missing out.

[00:10:41] The straight-to-video era for Disney didn’t continue forever, it stopped in 2008, but it was an interesting experiment with what happens when you control the distribution of everything.

[00:10:54] If you go and watch a film in a cinema, Disney has to share a percentage of the money you pay with the cinema. 

[00:11:01] But, if Disney controls everything, from the creation of the film through to how it is watched by someone like you or me, well you don’t have to share this money with anyone, or at least you share a lot less of it.

[00:11:14] And that brings us to Disney today, and probably the most revolutionary and important development for Disney, and that’s Disney Plus.

[00:11:24] Disney Plus, in case you hadn’t heard of it, is Disney’s answer to Netflix.

[00:11:31] You pay a monthly or annual fee to Disney, and you can watch any of the Disney movies, whenever you want. Disney has a direct relationship with you, you pay Disney directly, not a cinema, not a third party, not a shop that sells a video.

[00:11:48] It’s also remarkably cheap, at least when you first think about it. In Europe it’s €7 a month, or €70 a year, for the entire Disney catalogue, hundreds of hours of Disney films, available at the tap of a button. 

[00:12:05] Certainly when you compare it to buying the videos or DVDs, which could easily be €20, or going to watch it in a cinema, which is easily more than €10 nowadays, it does seem like an incredible bargain, it seems like very good value.

[00:12:22] But, when you look at it a little bit more closely, there’s another way to think about it.

[00:12:28] If you weren’t subscribing to Disney Plus, you probably wouldn’t be going to buy these films on DVDs, and you might not be that likely to go back to the cinema to watch a re-release of them.

[00:12:41] Disney owns the rights to all of the Disney films, so there isn’t much of a direct cost to it to allow you to stream a Disney film, to watch one on Disney Plus.

[00:12:53] In fact, coming back to our flywheel, Disney Plus means unlimited Disney is in your house, available 24/7, and the films are working as adverts for all of the rest of the Disney products.

[00:13:08] For Disney it’s absolutely fabulous if you - or even better, your kids - spend hours watching Disney movies, because then you’ll buy Mickey Mouse pencils, your kids might beg you to take them to a Disney theme park, you’ll be more likely to buy a t-shirt with Simba from the Lion King on it, and when there is the next big Disney release at the cinema, you’ll see trailers for it on Disney Plus, you'll see adverts all over Disney Plus.

[00:13:37] And the Disney Plus service has so far been a huge success. Within 24 hours it had 10 million subscribers, 6 months after launch it had 50 million, and it now has almost 100 million paying subscribers

[00:13:52] Of course, it’s quite nice for Disney to have 100 million people paying €7 a month, but the real advantage is the fact that Disney has a direct relationship with you, the consumer, and the more Disney you watch, the more stuff from Disney you will end up buying.

[00:14:10] I can remember, when I was about 8 years old I guess, there being an advert before the start of a Disney film, where you could write a letter and get a free short Disney video sent to you in the post.

[00:14:24] I thought, wow, a free video, and dutifully sent off a letter to get mine.

[00:14:30] A few weeks later, it arrived, and it was a video all about the magic of Disneyland Paris, and I think there were a few cartoons in it as well.

[00:14:40] I remember thinking that it was mad that I had got a video for free, but years later, I realised that it was really just an advert for Disneyland Paris.

[00:14:51] And the real sceptic might say that, with Disney Plus, Disney has actually achieved something that most companies would die for, and that’s hundreds of millions of people paying to watch adverts for their products.

[00:15:06] OK then, that is it for the part two of our mini-series on Disney, about the business of this magical corporation

[00:15:14] I hope it’s been an interesting one, that you’ve learned a little bit about some of the ways it makes money, and now you'll certainly know that there is a lot of money in magic.

[00:15:25] As always, I would love to know what you thought of this episode. Are you a Disney fan? How much money do you think you've spent in your life on Disney products?

[00:15:35] You can head right in to our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.

[00:15:44] And next up, in Part III we’ll learn about how everything fits together, and how Disney creates the recipe for all of this fantastic magic.

[00:15:54] You've been listening to English Learning for Curious Minds, by Leonardo English.

[00:15:59] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.