Back in 1923, two brothers named Roy and Walt embarked on building a cartoon studio (originally named Disney Brothers Cartoon Studio).
After several years of so-so results, Walt had the idea for a mouse character named Mickey. The mouse’s success began to take off with the animated short film Steamboat Willie. That is, until it was slowed by a black swan event that struck only a few months later – the Great Depression. Disney would recover.
Fast forward to the early 1940s. Disney was on a roll, launching animated masterpieces such as Pinocchio (1940) and Dumbo (1941). Then the attack on Pearl Harbor happened. Many of Disney’s animators, the lifeblood of the company, were drafted into the World War 2 fight.
Fast forward to 2019. Disney was on another tear, launching its first digital content streaming service, acquiring millions of users in record time. Then the coronavirus crisis struck, essentially shutting down its entire Parks business (which makes up 40% of the company’s profits).
Quite a journey, no? In isolation, each of these events appears brutal, but when viewed together, they write a story of resilience. When a company approaches 100 years in age, if you look closely enough, you’ll find the battle scars.
The key to understanding how an investment like Disney can consistently power through the black swan events is understanding its paradigm: why its business has century-long staying power.
“Disney is the equivalent of an oil company that can put the oil back in the ground after it is done drilling so it can drill it again.” – Charlie Munger
Disney’s oil is its generationally loved characters. But unlike a monopolistic oil company — take John D. Rockefeller’s Standard Oil in the late 1800s — Disney’s intellectual property is not a finite resource held captive by mother nature. The Lion King will probably be reproduced several more times in our lifetime.
And unlike other studios, Disney can monetize its content beyond just the TV. Take theme parks, for example. HBO would have a hard time creating a Game of Thrones roller coaster. Outwardly, this strategic advantage is precisely what’s hurting Disney right now. The physical limb of its monetization, the Parks business, has taken a blow (albeit a temporary one, in our view).
Nevertheless, we’re betting that we’re all going to need an extra dose of Disney’s oil when this crisis has passed. It’s the existential desire for entertainment and happiness that we believe will allow Disney to steamboat through this black swan just like the others.
Weekend reads
How to Answer an Unanswerable Question (5 min read). Some tips for fielding tough questions.
It’s Time to Build (5 min read). Famed Silicon Valley investor Marc Andreessen’s critique on the response to COVID-19.
Pitch on Carta (15 min read). Here’s Tribe Capital’s thesis on Carta. Interesting frameworks like “atomic unit.”
A detour
“I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”
– Michael Jordan
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