Fading Magic – The Rise of Disney's Business Empire: The Legend and the Reality Dilemma

Recently, Pixar Animation's "Mind Agent Team 2" landed in theaters around the world and was a great success both in terms of reviews and box office. When it comes to Pixar, it is inseparable from the century-old alliance between Disney and Pixar, which has laid the pattern of today's English-language animated feature film market. The direct driver of the Pixar acquisition is Robert Iger, chairman and CEO of Disney Legends. Through aggressive acquisitions and rational organizational reforms, he single-handedly rebuilt Disney from a slightly old century-old factory into an enterprising company that opened up new markets and embraced new possibilities. Pixar was just the first milestone in his dazzling career at Disney. Less than three years after his retirement, Iger was reappointed as CEO by the board of directors at the end of 2022, hoping to turn the tide and save Disney from the crisis again. His name is therefore inseparable from Disney in the 21st century, and it is a rare window into the multinational cultural and entertainment giant.

Robert Iger was an ABC player in his early years. After Disney acquired ABC in 1995, he was absorbed into Disney's leadership. At that time, after the plane crash of Chairman Frank Wales in 1994, the entire Disney was under the iron fist of the new chairman Michael Eisner, and no one would have thought that this low-key, capable business expert would become Disney's savior in the new century.

Perhaps because of his outsider status, Iger was able to survive the increasingly vicious factional struggles within Disney's top brass at the time. He built his foothold within the group through his ability to handle matters and make smart contacts, and he soon rose to become the head of Disney's international affairs and chief operating officer, becoming Eisner's second-in-command. In 2004, a bitter civil war broke out on Disney's board of directors, culminating in the removal of Eisner from his chairmanship after 20 years of dominance of Disney.

During this period, Disney was in a difficult situation both internally and externally. Outside of Conquest's hostile takeover attempt, the business line shrank and chaos continued; There is a mess left behind by Eisner's departure, and the dragons are leaderless. It was in this situation that Iger was nominated by the board of directors in March 2005 as the next CEO, effectively taking over the company's operations.

Iger's first step in power was to dismantle Peter Murphy, Eisner's confidant and the company's "chief strategy officer", and dismantle the unpopular and finger-pointing "Strategic Planning Department". From then on, as long as the projects of various functional departments and creative studios were completed without exceeding budget and causing lawsuits, the company's top management would take a relatively laissez-faire attitude. This seemingly simple institutional reform is actually significant: assuming producer Kevin Feige is unable to maintain his dominance of the Marvel Studios division, it is hard to imagine that the "Marvel Miracle" that has ruled Hollywood for nearly a decade could happen.

Forge an empire

With the internal organization in order, Iger began to handle the business itself. Disney's acquisition of Pixar was the first milestone in his mythical path. In his autobiography, "The Journey of a Lifetime," Iger said that after he took the helm of Disney, the first major decision to expand profits was to revive Disney's animated film business.

At the turn of the century, Disney's animated film department did not determine the main line of product production because of the restlessness of the top management, and also missed the opportunity for the deep integration of animated film technology and digital technology. By the time Iger took over, Disney's animated films had fallen far from the glory of the days when The Little Mermaid and The Lion King were produced. After a painful review, the entire Disney upper echelons had to admit the fact that Disney's home-made animated films were completely inferior to Pixar.

If you can't win, join the other party. Iger and Pixar's largest shareholder and de facto controller, Steve Jobs, gradually formed a close personal relationship. This relationship helped Disney overcome the biggest obstacle to buying Pixar: Jobs' stubbornness. In May 2006, Disney acquired Pixar for $7.4 billion. The merger of Disney and Pixar not only ended the competition of animated films in North America, but also created a supergiant in the animation industry. With the encouragement and support of Iger, Pixar's animators, represented by John Lasseter, have injected new vitality into Disney's animation department, which has a big tail and a rigid system, and updated its technical process and creative culture.

Once the foundation was firmly established, Egger's team set their sights on expanding their business lines. Their primary goal is to expand Disney's existing copyright library qualitatively and quantitatively, and to achieve multi-category development and utilization. Lucasfilm and Marvel Entertainment fell into their sights.

At the time, Marvel didn't look like a quality asset worth betting heavily on. In the 1990s, Marvel went bankrupt due to poor management. In order to alleviate the financial pressure, they sold the film and television adaptation rights of their well-known comic character rights to film and television companies at a very low price. For example, the "Spider-Man" trilogy directed by Sam Raimi at the turn of the century grossed more than $2.5 billion worldwide, but Marvel sold it to Sony for a measly $7 million for licensing fees that year.

In order to reverse this situation of making wedding dresses for others, Marvel decided to adapt its own comics into movies. At the end of 2004, former Disney employee David Messer joined Marvel Studios and proposed the idea of a second-tier character creation series with the Avengers as the core: this was the prototype of the later famous Marvel Cinematic Universe.

In hindsight, Marvel, which was in an embarrassment at that time, was really the ideal target that any acquirer dreamed of, but only Disney really saw its value. Despite the unexpected success of Iron Man, the opening game of the "first phase" of the Marvel Cinematic Universe, Marvel Studios' bold and all-out plans are not universally favorable.

However, with Messer's matchmaking, the sharp-eyed Iger quickly recognized the value of Marvel. In order to persuade Isaac Perlmutter, the chairman of Marvel Entertainment at the time, to accept Disney's acquisition offer, he even did not hesitate to use his personal relationship with Steve Jobs to ask the latter to intercede for Disney. Although the discerning Jobs never looked down on "vulgar things" like Marvel and scoffed at "Iron Man 2", he still helped and helped Disney quickly finalize the acquisition contract. The overall value of the contract is $4 billion. At that time, in addition to doubting the value of Marvel's acquisition, more people were worried about whether the two companies with such different styles and tones could get along. Hindsight proved that the combination of the two was made in heaven.

After the completion of the acquisition in 2009, Messer left Marvel Studios, and the heavy responsibility for developing and perfecting the Marvel universe fell to the famous Kevin Feige. In Feige's vision, the works and characters of the Marvel Cinematic Universe series will be connected into a whole, and in addition to high-profile, interconnected movies, there will also be spin-offs such as TV series. Each film is no longer a single work, but a part of the plot that can support other film and television works. Die-hard fans who have "pitted" the Marvel Universe will not want to put up with the story ending there, and want to enter a virtual, ever-growing Disneyland park in which they can infinitely explore the fate of their beloved characters.

The Marvel Universe has created an astonishing user viscosity among its core consumer groups, and the market popularity and word-of-mouth publicity created by deep fans have done voluntary marketing for brand content. Through this fission-like mechanism, Disney has not only expanded the scope of light audiences, but also turned light consumers into core fans with amazing efficiency, allowing the Marvel Universe to grow exponentially at the box office and rights revenue.

From a creative perspective, the "Marvel Universe" model has also changed the structure of traditional "sci-fi" and special effects action movies. In Marvel's chain creation system, the narrative burden of a single movie has been greatly reduced. Each film no longer has to complete the character development arc and the main plot narrative related to it in 1.5-2 hours. The plot after the "easter egg" clip hinted at the end has become Marvel's marketing weapon. This is both a reward for the enthusiasm of the "fan" community and a way to arouse the curiosity of potential consumers.

In this way, Marvel can not only maximize the sales potential of each copyright character, but also be flexible in arranging the plot of the movie, so as to maximize the strengths and avoid the weaknesses. The reputation of the single movie is excellent, and it is naturally very good. If the word-of-mouth is average or poor, the public will also expect the next or phased finale movie to make up for it and greatly improve.

Of course, no marketing or concept can completely replace the importance of the content itself, otherwise the DC Universe, which replicates the concept of the Marvel Universe and has super-heavyweight copyrighted content such as "Batman" and "Superman", will not fail. Kevin Feige battled with Chairman Isaac Perlmutter on Marvel's creative committee and insisted on the creative dominance of the "Marvel Universe". In order to maintain the stability of power and the creative core and control costs, the casting of the "Marvel Universe" did not use super-first-line Hollywood stars. Robert Downey Jr., the popular "Iron Man" in the future, was still a "problem artist" with a bad resume. "Captain America" Chris Evans' only big-screen starring resume is "Fantastic Four" that can be called black history. This kind of spirit made the early "Marvel Universe" movies maintain the harmony of tonality and the coherence of cross-work narratives, while there is no lack of inspiration and brilliant performance in the form and content.

After Disney's acquisition of Marvel, Perlmutter continued to serve as chairman of Marvel Entertainment, imposing various budgetary and programmatic constraints on the California-based film and television division under Kevin Feige's leadership at its New York headquarters. The conflict between the two branches of Marvel gradually escalated, and the conflict intensified. At this time, it was Iger's timely intervention that saved the careers of Marvel Studios and Kevin Feige. In 2015, Iger reorganized Marvel, separating Marvel Studios from Marvel Entertainment and placing it directly under the leadership of Disney. Iger's move not only protects Kevin Feige and Marvel Studios, but also ensures that he has full budget freedom and creative freedom.

Of course, Iger and Disney and Marvel are mutually beneficial. Traditionally, Disney's monetization model has relied on two engines working together seamlessly: first, the content department creating lucrative hits, and then developing the subsequent value of those titles, including building new amusement park projects, selling toys and other spin-off rights. The physical department and the peripheral goods department of the park can also collect valuable user preference information and feed it back to the content department, so that the next works of the creative department can more easily grasp the pulse of the market. This mode has been rejuvenated with the blessing of the Marvel Universe.

Marvel movies have continued to add new characters and plots for more than ten years, and constantly update and maintain the popularity of existing characters, which can allow Disney to simultaneously increase new amusement park projects and new peripheral toys, and maintain consumers' enthusiasm for buying physical goods and services. The market popularity of derivative products can also help Marvel and senior management adjust the next product planning and fine-tune the development steps of the Marvel universe.

In 2012, Disney acquired Lucasfilm for $4 billion, took the rights to the "Star Wars" series, and restarted the "Star Wars" movies and TV series. Disney replicated Marvel's success in developing the Star Wars brand, and while it received mixed reviews among fans, it was unquestionably commercially successful. A glimpse of Disney's financial report data can grasp what kind of business miracle Iger's acquisition has achieved: as of March 2024, "Star Wars" and Marvel have brought Disney $11.6 billion and $13.2 billion in net earnings, respectively, far exceeding the original acquisition costs.

China Strategy

Since the beginning of the 21st century, especially since 2010, Disney's rapid development in China and the Asia-Pacific market can also be almost entirely attributed to Iger. Although the world saw opportunities in China's rapid development at that time, Disney was the only cultural capital giant that could enter the Chinese market in a timely, decisive, bold and successful manner. In terms of opening up the Chinese market, Iger not only showed a keen sense of smell, but also used his unparalleled "peopleskill" to the extreme.

The pattern that best reflects Egger's "China Strategy" is Shanghai Disney Resort. As the world's newest Disneyland by 2024, the project has reached an initial cooperation intention in early 2009 to officially opened in mid-2016, involving seven years of planning and construction, up to $5.5 billion in investment and complex supporting policies. In Shanghai Disney's governance structure, Disney owns 43% of the shares of two owner companies and 70% of the shares of one management company. With more than 13 million visitors in 2016, Shanghai Disney Park was the second-largest Disney amusement park division in all countries and regions outside North America, and the largest number of visitors in China that year. From a business point of view, Shanghai Disneyland is another huge commercial success for Iger. It broke even in the year it opened in 2016, a unique time in the history of Disneyland.

Aside from its own commercial achievements, Shanghai Disneyland is also Disney's "anchor" in Chinese mainland, a commitment to show its determination and boldness to the Chinese market. With the gradual implementation of the Shanghai Disney project, Marvel movies and derivative products have also made great progress in the Chinese mainland market, with both economic revenue and commercial reputation exploding. From 2012 to 2019, the Chinese box office of "Marvel Universe" movies has never been less than 100 million US dollars, accounting for no less than 25% of the total international box office. 2019's "Avengers: The Endgame" was Marvel's most glorious moment in the Chinese film market. In the end, the Chinese box office received 629.1 million US dollars, accounting for 32.41% of the international box office and 22.48% of the global total box office. Under Iger's leadership, Disney's share of revenue in the Asia-Pacific region has nearly doubled from 6% in 2010 to a peak of 11% in 2019. Most of this growth came from Chinese mainland. This also makes Asia-Pacific Disney's second largest "overseas" market after the European market, after the "home" market in the Americas.

Sudden change

In 2020, when he announced that he would step down as Disney CEO and would be retiring completely, Iger was already undoubtedly among the pantheons of American business. During his 15 years at the helm, Disney's market capitalization has risen from $4.8 billion to nearly $25 billion, becoming the world's undisputed entertainment hegemon across multiple fields and platforms. At that time, Disney was no longer the century-old store that was still in turmoil and foreign enemies when he took over in 2005. He not only stabilized the situation within the company, but also reshaped the culture and business landscape of the entire group.

In contrast to the turmoil of Eisner's departure 15 years ago, Iger arranged the transition of power as smoothly and smoothly as possible, and personally selected Robert Chapek, who is in charge of Disney's parks business, as his successor. Iger decided to retire in 2019 and published his autobiography "The Journey of a Lifetime" as both a reminder of his own magnificent career, but also a touch of pride and confidence in his own career: he has reason to believe that the next hundred years of Walt Disney's business empire have laid a new foundation in his hands.

Egger thought his retirement would be the starting point for Disney to reach new heights, but the company's direction seemed to plummet after reaching a parabolic high. In the less than three years since Iger's retirement and re-entry, Disney has suffered a major performance blow, the myth has faded, and the foundation is shaky. The reasons for this situation are multifold, some of which are purely unforeseen external factors, some of which have quietly planted the seeds of Egger's successes in previous years, and some of which are the inappropriate response of Egger's successors to new challenges.

In 2020, the new crown epidemic swept the world. Transportation, people, and economic activities around the world have been hit hard. This has particularly hurt Disney, which relies heavily on movie theaters and offline in-person experiences. Disney's net loss in fiscal year 2020 (September 2019 to September 2020) reached $2.864 billion. Although as the pandemic eased and economic activity resumed, Disney bottomed out in the following two fiscal years, recording profits attributable to its parent company of $1.995 billion and $3.145 billion in '21 and '22, respectively. But compared with the pre-epidemic peak of more than $11 billion in profits in 2019, Disney, which has "recovered from a serious illness", is obviously weak.

At a time when the U.S. economy is gradually emerging from the impact of the epidemic and beginning to recover in 2021, the capital market would have expected Disney to quickly find its rhythm. In March 2021, Disney's market capitalization reached an unprecedented $340 billion. But as the situation became clearer, the outside world apparently gradually realized that Disney's external injuries were easy to get rid of, and internal injuries were difficult to resolve, so its stock price plummeted all the way from its peak. By the end of 2022, when Chapek left the market at its lowest point, the Disney market was worth less than $150 billion, down more than half from its peak and down more than 40% from the beginning of 2020 before Iger's retirement.

The house leak coincided with continuous rain, and Disney's first "internal injury" was the loss of control of the streaming strategy.

The pandemic has caused significant changes in consumer consumption patterns in North America, accelerating the transition from offline to online consumption patterns. The pressing of streaming platforms has seriously eroded the territory of physical cinemas. And Disney's new CEO Chapek has adopted a transformation strategy that is fully betting on Dis-ney+ streaming. This has constituted fierce competition and resource diversion with the content planning, schedule arrangement, and sharing model that Marvel and Disney have operated for many years. Disney's different business lines are caught in internal friction and left-right struggles. Actor Scarlett Johansson, who once played the popular role "Black Widow" in the Marvel series of movies, sued Disney in the United States court in July 2021 because of the loss of box office revenue caused by the "simultaneous release" of the "Black Widow" movie on the Disney+ platform.

This radical strategy also spilled over into Pixar Animation. His new film, "Soul," released at the end of 2022, was only $120 million at the global box office, despite its generally critical acclaim, far from balancing its production costs of $150 million. The immediate cause of this was Disney's decision to let it go live on streaming platforms for three weeks before it was released in North American theaters. The film was released simultaneously with Disney+ in some overseas markets without streaming services, which means that the North American market, which is the box office stronghold, will not be able to see Pixar's new work a few weeks later than many overseas audiences.

On the other hand, Netflix, a pioneer in the streaming industry, has been cultivating this market for many years, and has built a paying subscriber base and content moat through heavy investment. Chapek's Disney and Netflix are at war head-on, which can be described as a needle-to-needle. The two launched a "money-burning race" regardless of the cost to compete for the market. The damage to Disney is also directly reflected in the financial statements: from fiscal year 2020 to fiscal year 2022, Disney's streaming business recorded operating losses of $2.806 billion, $1.679 billion, and $4.015 billion, respectively. In other words, at the time of Chapek's ouster (November 2022), his streaming war was on the verge of getting out of control and threatening to bring down the entire company.

If the streaming war is just an operational venture, the more serious "internal injury" lies in the foundation of Marvel and Disney's money-making: the content creation of the Marvel Universe movie. The first three "stages" of the "Marvel Universe" movie under the leadership of Kevin Feige ended with the fantastic commercial results of "Avengers 4: Endgame" in 2019. Marvel Studios and Disney clearly don't want this immensely successful cash cow to end there. At the same time as the official launch of the "fourth phase", Marvel has greatly expanded the scale of the "Marvel Universe" in the plan, accelerated the production speed, and tried to achieve the "double flowering" of online streaming media and offline cinemas. This will inevitably lead to the creation falling into templates, formulas, and sloppiness, which will accelerate the loss of interest in audiences who have long begun to feel aesthetic fatigue with superhero movies.

As a result, by the end of the Infinity War series, the "Marvel Universe" movie also fell into the dilemma of traditional American comics: too many characters, plots, and settings have been established for many years of serialization, which has greatly deepened the difficulty of passers-by and audiences to "enter the pit", and erected a gap between "fans" and "the public". This, of course, is not conducive to the chain reaction of expanding growth. The bloated scale of the works makes it more and more difficult to maintain the coherence of the narrative across the works, and the creative space of each work is also more and more limited. Originally, the elongation of the narrative arc of a single work was the advantage of Marvel's creative model, but after entering the fourth stage, this tendency went to the extreme, and the audience walked into the cinema not like enjoying a full movie, but tasting the last real "main course" - the "Avengers" movie - before the unskippable, but not very interesting super long trailer.

In the early years, Iger gave Marvel Studios full creative and budgetary freedom, and now it is also showing its negative effects. Due to the haste and shoddy production of the script and artistic creation, the new Marvel movie had to rely too much on the accumulation of famous actors and digital special effects. This lazy approach failed to win back the audience, but instead allowed the production cost to inflate unlimitedly. In contrast, even in the post-epidemic era, the "Marvel Universe" movie seems to have lost its magic. At the beginning of 2023, "Ant-Man and the Wasp: Quantumania" only got a global box office of $476 million with a budget of $276 million, and "Captain Marvel 2" at the end of 2023 won a box office of more than $200 million at a cost of more than $200 million, becoming the most loss-making "Marvel Universe" movie in history.

Veterans don't die?

At the end of 2022, Disney's board of directors asked Iger to return as CEO. Nearly 20 years ago, he took over a mess and quietly opened a new path for Disney in a corner that no one expected. And this comeback, his identity is not as good as it was back then, and he has already carried too many people's expectations and even a mythical aura. Countless investors and shareholders are waiting for him to continue his legend and save Disney from fire and water again. However, throughout his career at Disney, it is not difficult to conclude that he is better at spotting opportunities than actively creating them; Rather than charging into battle himself, he is more accustomed to letting go and letting his subordinates explore. This talent, combined with the special circumstances and luck of the time, combined with the creation of the Disney myth.

Messer, who first proposed the concept of the "Marvel Universe", left Marvel and devoted himself to creating the "Angry Birds" cinematic universe, but failed to replicate its success. Kevin Feige's power within Marvel Studios is becoming more and more concentrated, but it is difficult to regain the magic of "Marvel Universe" movies. Egger is now struggling to support it, and the only trick he can come up with is the tried and tested words of "reducing costs and increasing efficiency" in management. Shortly after his return, Disney began three rounds of mass layoffs, several "Marvel Universe" movies and TV series projects were canceled and postponed, and the subscription fees of the company's streaming platforms rose sharply. These seemingly unpretentious approaches worked: Disney's revenue improved significantly from the second half of fiscal 2023. In the second quarter of 2024, Disney's non-sports segment of streaming achieved an operating profit for the first time. The company's financial position as a whole is expected to continue to consolidate in fiscal 2025.

However, Disney's stock price reacted tepidly and without enthusiasm. Perhaps, in the final analysis, what the capital market is willing to believe is only the story and the magic and legend behind the story, just like Disney's housekeeping skills. When Robert Iger's mythical cloak fades, the outside world sees only an old man struggling to save his inheritance.