Learning from Disney's Bob Iger

All industries face evolution and the inevitable change that comes with it. Its virtually unavoidable, and never more so than in recent times - technological advancements, competitive landscapes and the demands of consumers change almost daily, and only those businesses and industries that can adapt will survive. Even fewer will come out the other side stronger than when they went in, and only manage to do so because they have clarity of vision and purpose.

Intel’s Andy Grove noted that at the turn of this century, the entertainment industry was ‘facing the valley of death’; customers & distribution channels were fragmenting, customer choice was exploding, barriers to entry were collapsing, technology was filling old moats and niches were opening for new players to exploit. And the Disney Corporation was no exception.

The man tasked with navigating this new industry landscape for Disney was Bob Iger. Mr. Iger had started in the television industry in 1974 and joined Disney through their 1996 acquisition of ABC/Capital Cities, where he was CEO. Disney named Iger the president and COO in 2000, making him Disney's number two executive under chairman and CEO, Michael Eisner. He was appointed CEO of the Disney Corporation in 2005.

“Bob Iger is a home run hitter. I mean he is really, really good. And he’s a great guy on top of that.” Warren Buffett

In an industry confronting a strategic inflection point, clear and strategic direction are imperative. In his wonderful book, ‘Only the Paranoid Survive’, a journey into fundamental industry change and strategic inflection points, Intel’s Andy Grove observed:

‘It is very hard to lead an organisation out of the valley of death without a clear and strategic direction’.

Luckily for Disney, by the time he was CEO, Iger had identified some simple strategic priorities that would address the entertainment industry’s rapidly evolving landscape. Three clear priorities would guide the Disney Corporation for the next few decades; a focus on high-quality branded content; embracing technology; and becoming truly global. Combined, they would remain the cornerstone of Disney’s decision-making process throughout Iger’s tenure.

Iger wasn’t afraid to embrace change. He recognised the company’s inimitable history and scale meant Disney could leverage and monetise other high quality brands like no other. Iger sought out the pinnacle of the world’s entertainment assets; acquiring Pixar in 2006 for $7.4 billion, Marvel Entertainment in 2009 for $4 billion, Lucasfilm in 2012 for $4.06 billion, and 21st Century Fox in 2019 for $71.3 billion.

In making such bold acquisitions, once again, Andy Grove’s advice is telling: ‘when dealing with emerging trends, you may very well have to go against rational extrapolation of data and rely instead on anecdotal observations and your instincts.’ Battling internal dissent, it was Iger’s instinct that ultimately prevailed to conclude these acquisitions. And each alone was a home run.

‘Of all the changes in the forces of competition, the most difficult one to deal with is when one of the forces becomes so strong that it transforms the very essence of how business is conducted in an industry.’ Andy Grove, Ex CEO, Intel

Recognising the technological inflection point transforming the industry, Iger implemented the courageous step of disrupting his core distribution business. Despite significant upfront costs, the negative impact on near term earnings and the resultant backlash from Wall Street, Iger looked towards a future where Disney connected directly to customers and by-passed the middlemen that had exerted significant control over the industry.

‘Most managements will do too little too late and fritter away the protection that the bubble of their existing business would otherwise have provided them with.’ Andy Grove

The legendary Bob Iger’s story is told in his recent book, ‘Ride of a Lifetime - Lessons in Creative Leadership.’

I’ve included some of my favourite extracts below.

Universal Ideas

‘My experiences from day one have all been in the media and entertainment world, but these strike me as universal ideas: about fostering risk taking and creativity; about building a culture of trust; about fueling a deep and abiding curiosity in oneself and inspiring that in the people around you; about embracing change rather than living in denial of it; and about operating, always, with integrity and honesty in the world, even when that means facing things that are difficult to face.’

Education and Smarts

‘I got mostly B’s and a few A’s in high school, but academics was never my passion.’

Optimism

‘One of the most important qualities of a good leader is optimism, a pragmatic enthusiasm for what can be achieved. Even in the face of difficult choices and less than ideal outcomes, an optimistic leader does not yield to pessimism. Simply put, people are not motivated or energised by pessimists.’

‘Optimism in a leader, especially in challenging times, is so vital. Pessimism leads to paranoia, which leads to defensiveness, which leads to risk aversion. Optimism sets a different machine in motion. Especially in difficult moments, the people you lead need to feel confident in your ability to focus on what matters, and not to operate from a place of defensiveness and self-preservation.’

People

‘There’s nothing more important than the quality and integrity of your people and your product. Everything depends on upholding that principle.’

Creativity

‘However you find the time, it’s vital to create space in each day to let your thoughts wander beyond your immediate job responsibilities, to turn things over in your mind in a less pressured, more creative way than is possible once the daily triage kicks in.’

Bad News / Unexpected

‘I tend to approach bad news as a problem that can be worked through and solved, something I have control over rather than something happening to me.’

‘I sometimes chide [my team] that they don’t report bad news fast enough to me.’

‘There are always crises and failures for which you can never be fully prepared.’

Moat / Competitive Advantage

‘We manufacture fun.’

‘Shanghai Disneyland cost about $6 billion to build. It is 963 acres, about eleven times the size of Disneyland. At various stages of its construction, as many as fourteen thousand workers lived on the property. [It took] eighteen years to complete the park.’

‘It is impossible to overstate the creative and technical brilliance of Disney’s Imagineers. They are artists, engineers, architects, and technologists, and they occupy a place and fulfill a role that is unmatched anywhere else in the world.’

‘Rupert Murdoch was clearly worried about the future of 21st Century Fox. ‘We don’t have scale,’ he said several times. ‘The only company that has scale is you.’ Rupert’s decision to sell was a direct response to the same forces that led us to create an entirely new strategy for our company. It’s hard to overstate how sweeping the disruption is in our industry, but his decision - to break up a company he’d built from almost nothing - was as good a marker as any of its inevitability.’

Lollapalooza

‘[Michael Eisner] understood that ‘great’ is often a collection of very small things, and he helped me appreciate that even more deeply.’

Integrity

‘Nothing is more important than the quality and integrity of an organisation’s people and its product. A company’s success on setting high ethical standards for all things, big and small. Another way of saying this is: The way you do anything is the way you do everything.’

‘True integrity - a sense of knowing who you are and being guided by your own clear sense of right and wrong - is a kind of secret weapon.’

Strategy

‘A CEO must provide the company and its senior team with a road map… this kind of messaging is fairly simple: This is where we want to be. This is how we’re going to get there… I landed on three clear strategic priorities. They have guided the company since the moment I was named CEO:

1) We must devote most of our time and capital to the creation of high-quality branded content. In an age when more and more ‘content’ was being created and distributed, we needed to bet on the fact that quality will matter more and more. It wasn’t enough to create lots of content; and it wasn’t even enough to create lots of good content. With an explosion of choice, consumers needed an ability to make decisions about how to spend their time and money. Great brands would become even more powerful tools for guiding human behaviour.

2) We need to embrace technology to the fullest extent, first by using it to enable the creation of higher quality products, and then to reach more consumers in more modern, more relevant ways. From the earliest Disney years under Walt, technology was always viewed as a powerful storytelling tool; now it was time to double down on our commitment to doing the same.

3) We needed to become a truly global company. We were broad with our reach, doing business in numerous markets around the world, but we needed to better penetrate certain markets, particularly the world’s most populous countries, like China and India.’

‘Don’t be in the business of playing it safe. Be in the business of creating possibilities for greatness.’

Disney Corporation vs S&P500 - March 2005 to 2021 [Source: Bloomberg]

Innovate / Adapt

‘This job requires an ability to constantly adapt and re-adapt.’

‘If you want innovation, you need to grant permission to fail.’

‘I’ve thought every day about how technology is redefining the way we create, deliver, and experience media, and what it means to be both relevant to a modern audience and faithful to a nearly hundred-year-old brand.’

‘The foundation for risk-taking is courage, and in ever-changing, disrupted businesses, risk-taking is essential, innovation is vital, and true innovation occurs only when people have courage. This is true of acquisitions, investments, and capital allocations, and it applies to creative decisions. Fear of failure destroys creativity.’

‘A deep and abiding curiosity enables the discovery of new people, places, and ideas, as well as an awareness and understanding of the marketplace and its changing dynamics. The path to innovation begins with curiosity.’

‘[Roone Arledge at ABC sports] changed the way we experience televised sport. He knew, first and foremost, that we were telling stories and not just broadcasting events, and to tell great stories, you need great talent .. Athletes were characters in unfolding narratives .. He wanted to try every new gadget and break every stale format. He was always looking, always, for new ways to connect to viewers and grab their attention. Roone taught me the dictum that has guided me in every job I’ve held since: Innovate or die, and there’s no innovation if you operate out of the fear of the new or untested.’

‘I didn’t want to be in the business of playing it safe. I wanted to be in the business of creating possibilities for greatness. Of all the lessons I learned in that first year running prime time, the need to be comfortable with failure was the most profound. Not with lack of effort but with the unavoidable truth that if you want innovation - and you should, always - you need to give permission to fail.’

‘In early 2001, every media and entertainment company was feeling the ground shifting beneath it’s feet, but no-one was sure which way to run. Technology was changing so fast, and the disruptive effects were becoming more obvious and anxiety-provoking… It was an interesting time, and marked what I saw as the beginning of the end of the traditional media as we knew it. Of great interest to me was that almost every traditional media company, while trying to figure out its place in the changing world, was operating out of fear rather than courage, stubbornly trying to build a bulwark to protect old models that couldn’t possibly survive the sea change that was under way.’

‘I’ve been in the business long enough to have heard every old argument in the book, and I’ve learned that old arguments are just that: old, and out of step with where the world is and where it should be.’

‘After the dust settled on the last of our ‘big three’ acquisitions, we begun to focus even more on the dramatic changes we were experiencing in our media business and the profound disruption we were feeling. The future of those businesses had begun to seriously worry us, and we concluded it was time for us to start delivering our content in new and modern ways, and to do so without intermediaries, on our own technology platform.’

‘Did we have the stomach to start cannibalising our own still-profitable business in order to begin building a new model? Could we disrupt ourselves, and would Wall Street tolerate the losses that we would inevitably incur as we tried to modernise and transform the company?’

‘I know why companies fail to innovate. It’s tradition. Tradition generates so much friction, every step of the way. I talked about the investment community, which so often punishes established companies for reducing profits under any circumstances, which often leads businesses to play it safe and keep doing what they’ve been doing, rather than spend capital in order to generate long-term growth or adapt to change.’

‘Technological developments will eventually make older business models obsolete. You can either bemoan that and try with all your might to protect the status quo, or you can work hard to understand and embrace it with more enthusiasm and creativity than your competitors.’

Quality

‘If you’re in the business of making things, be in the business of making things great.’

‘[Roone’s] mantra was simple: ‘Do what you need to do to make it better’. Of all the things I learned from Roone, this is what shaped me the most. When I talk about this particular quality of leadership, I refer to it as ‘the relentless pursuit of perfection.’ It’s a mindset really, more than a set of rules. It’s not, at least as I have internalised it, about perfection at all costs. Instead, it’s about creating an environment in which you refuse to accept mediocrity.’

Culture

‘Strong leadership embodies the fair and decent treatment of people. Empathy is essential, as is accessibility. People committing honest mistakes deserve second chances, and judging people too harshly generates fear and anxiety, which discourage communication and innovation. Nothing is worse to an organisation than a culture of fear.’

‘A company’s culture is shaped by a lot of things, but this is one of the most important - you have to convey your priorities clearly and repeatedly. In my experience, it’s what separates great managers from the rest. If leaders don’t articulate their priorities clearly, then the people around them don’t know what their own priorities should be.’

‘‘Pixar needs to be Pixar’, I said [when acquiring the company]. ‘If we don’t protect the culture you’ve created, we’ll be destroying the thing that makes you valuable.’

‘If you trust your own instinct and treat people with respect, the company will come to represent the values you live by.’

Failure

‘I’ve never had too much fear about trying something and failing.’

Acquisitions

‘Disney had done due diligence about the assets [ABC Cities] they purchased, but there was no way they could understand all of the complexities of the company they were about to own.’

‘A little respect goes a long way, and the absence of it is often very costly. Over the next few years, as we made the major acquisitions that redefined and revitalised the company, this seemingly trite idea was as important as all of the data-crunching in the world; If you approach and engage people with respect and empathy, the seemingly impossible can become real.’

“You certainly can’t make a major acquisition without the necessary models to help you determine whether a deal is the right one, but you have to recognise that there is never 100 percent certainty. No matter how much data you’ve been given, it’s still, ultimately, a risk, and the decision to take the risk or not comes down to one person’s instinct.’

Disney acquisitions under Bob Iger

‘People sometimes shy away from taking big swings because they assess the odds and build a case against trying something before they even take the first step. One of the things I’ve always instinctively felt, is that long shots aren’t usually as long as they seem.’

‘.. a recurring theme in nearly every discussion I had about Pixar. I was told over and over it was too risky and ill-advised… It’s true on paper the deal didn’t make obvious sense. But I felt certain that this level of ingenuity was worth more than any of us understood or could calculate at the time. As with everything, the key is awareness, taking it all in and weighing every factor. Nothing is a sure thing, but you need at the very least to be willing to take big risks. You can’t have big wins without them.’

‘The buyer often destroys the culture of the company it’s buying, and that destroy value. A lot of companies acquire others without much sensitivity regarding what they’re really buying. They think they’re getting physical assets or manufacturing assets or intellectual property (in some industries, that’s more true than in others). In most cases, what they’re really acquiring is people. In a creative business, that’s where the value is.’

‘The Pixar acquisition served our urgent need to revitalise Disney Animation, but it was also the first step in our larger growth strategy: to increase the amount of high-quality branded content we created.’

‘The acquisition of Marvel has proved to be much more successful than even our most optimistic models accounted for.’

‘Looking back on the acquisitions of Pixar, Marvel and Lucasfilm, the thread that runs through all of them (other than that, taken together, they transformed Disney) is that each deal depended on building trust with a single controlling entity.’

Pricing Power

‘Michael’s [Eisner - ex CEO] biggest stroke of genius might have been his recognition that Disney was sitting on tremendously valuable assets that they hadn’t yet leveraged. One was the popularity of the parks. If they raised ticket prices even slightly, they would raise revenue significantly, without any noticeable impact on the number of visitors. Building new hotels at Walt Disney World was another untapped opportunity, and numerous hotels opened during Michael’s first decade as CEO… Then came the expansion of theme parks [Hollywood Studios & Euro Disney]. Even more promising was the trove of intellectual property - all those great classic Disney movies - just sitting there waiting to be monetised… It’s not an exaggeration to say that he taught me how to see in a way I hadn’t been able to before.’

Decentralised

‘[Tom Murphy & Dan Burke of Cap Cities/ABC] also believed in a decentralised corporate structure.. Other than a CFO and a general counsel, there was no corporate staff, no centralised bureaucracy, and very little interference with the business units.’

‘[Disney’s] centralised decision making had a demoralising effect on senior leaders of our businesses, who sensed that the power to run their divisions really resided at Strategic Planning… We had to start reconfiguring the apparatus and pushing strategic responsibility back to the businesses sooner rather than later… There were about sixty-five people in Strat Planning, and they’d taken over nearly all of the critical business decisions across the entire company. All of our senior business leaders knew that strategic decisions about the divisions they ran - Parks & Resorts, consumer products, Walt Disney Studios, and so on - weren’t actually theirs to make. Power was concentrated within this single entity at Burbank [and were] viewed more as an internal police force than our partner to our business… To my mind they were often too deliberate, pouring over every decision through their overly analytical sieve.. I wanted to drastically reduce the size of the group and begin streamlining our decision making by putting more of it in the hands of business leaders.’

Pain Today, Gain Tomorrow

‘It’s better to give up a release date and keep working to make a better movie, and we’ve always tried to put quality before everything else, even if it means taking a short-term hit to our bottom line.’

‘We were now fully committed to also becoming a distributor of our own content, straight to consumers, without intermediaries. In essence, we were now hastening the disruption of our own business, and the short term losses were going to be significant.’

‘The decision to disrupt businesses that are fundamentally working but whose future is in question - intentionally taking on short term losses in the hope of generating long-term growth - requires no small amount of courage. Routines and priorities get disrupted, jobs change, responsibility is reallocated. People can easily become unsettled as their traditional way of doing business begins to erode and a new model emerges.’

‘To often, we led from a place of fear rather than courage, stubbornly trying to build a bulwark to protect old models that can’t possibly survive the sea change that is under way. It is hard to look at your current models, sometimes even ones that are profitable in the moment, and make a decision to undermine them in order to face the change that’s coming.’

Worthwhile Markets

‘In one of our conversations about some initiative I was considering, Dan [Bourke] handed me a note that read: ‘Avoid getting into the business of manufacturing trombone oil. You may become the greatest trombone-oil manufacturer in the world, but in the end, the world only consumes a few quarts of trombone oil a year!’ He was telling me not to invest in projects that would sap the resources of my company and me and not give much back. It was such a positive way to impart that wisdom, though, and I still have that piece of paper in my desk, occasionally pulling it out when I talk to Disney executives about what projects to pursue and where to put their energy.’

Career Advice

‘Do the job you have well; be patient; look for opportunities to pitch in and expand and grow; and make yourself one of the people, through attitude and energy and focus, that your bosses feel they have to turn to when opportunity arises. Conversely, if you’re a boss, these are the people to nurture - not the ones who are clamouring for promotions and complaining about not being utilised enough but the ones who are proving themselves to be indispensable day in and day out.’

‘Surround yourself with people who are good in addition to being good at what they do.’

‘Take responsibility when you screw up. In work, in life, you’ll be more respected and trusted by people around you if you own up to your mistakes. It’s impossible to avoid them; but it is possible to acknowledge them, learn from them, and set an example that it’s okay to get things wrong sometimes.’

Humility

‘I can’t emphasise how much success is also dependent on luck, and I’ve been extraordinarily lucky along the way.’

‘To hold onto that awareness of yourself even as the world tells you how powerful and important you are. The moment you start to believe it all too much, the moment you look yourself in the mirror and see a title emblazoned on your forehead, you’ve lost your way.’

Summary

While Bob Iger stepped down from running the Disney Corporation last year, the business’ recent record share price is testament to the courage, creativity and resolve he showed in transforming this great company. For even the great Disney Corporation, with its cast of irreplaceable characters, wasn’t immune to the winds of change.

Iger fortified the business with the acquisition of Pixar, Marvel, Lucasfilm and 21st Century Fox which together provided an unprecedented stable of the world’s best entertainment product. In a bold move that was sure to hurt near term earnings, Iger developed the capability to deliver that content directly to consumers through the new Disney+, ensuring Disney controlled its destiny and longevity of success.

I hope you’ve recognised many of the characteristics common to the other great businesses we’ve studied; innovation and embracing change, tolerating mistakes, decentralisation, focus on quality, accepting pain today for gain tomorrow. Many of these are found in Tom Peter’s seminal classic, ‘In Search of Excellence,’ a book itself replete with Disney anecdotes of 40 years ago.

“A special attribute of the success-orientated, positive, and innovating environment is a substantial tolerance for failure.” Tom Peters

Every business book has its lessons, in Bob Iger’s case there’s a myriad of business, investing and life lessons. Collating the ideas into mental models to apply to investments can help identify potential opportunities and pitfalls. One mental model I particularly enjoyed was the ‘Trombone Oil Market.’ It’s a reminder to do things that are worthwhile, not to chase markets that are too small. As Linkedin’s founder Reed Hoffman noted, “If it’s the left-handed scissors market, it’s too narrow.” When it comes to investing we can seek out the same.

I’ll let Bob himself have the final say:

‘If you’re in the business of making things, be in the business of making things great.’

Source:
‘The Ride of a Lifetime’ - Bob Iger. Penguin Random House. 2019.

Further Reading:
‘Creativity - Learning from Pixar’ - Investment Masters Class. 2017.

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