had leverage over talent, independent producers such as Disney and exhibitors not owned by the oligopoly.
Not only did the Big Five own theaters, but they also owned the most profitable ones, controlling most of the first-run theaters in the biggest cities, ensuring that their films were shown in the best venues. Additionally, all the players engaged in monopolistic distribution tactics, such as selling multiple movies in a single bundle and requiring a film’ s purchase without allowing exhibitors to view the product. During the Golden Age of Hollywood, the major movie studios were quite profitable, but their profitability was based on tactics deliberately designed to reduce competition. Understandably, the government was frustrated and eventually sued all eight companies within the oligopoly.
Relief finally arrived for the independents in 1948, when a landmark Supreme Court ruling resulted in each of the major studios reaching consent decrees with the Department of Justice. The agreements, known as the Paramount Consent Decrees, required the Big Five to separate distribution from exhibition. Additionally, all players were barred from using certain prohibitive distribution practices that they had previously forced upon
From 1926 to 1940, Walt Disney Studios was located at 2719 Hyperion Boulevard, pictured here in 1929.
independent theaters.
The Paramount Consent Decrees coincided with the rise of television. The percentage of US homes with a TV increased from 0.4 % in 1948 to 92.6 % in 1965. TV’ s emergence as an entertainment option delivered a devastating blow to movie attendance and box office receipts. The US box office declined by nearly 40 % from 1948 to 1965, cushioned by rising ticket prices, while attendance fell by 70 % over the same period. The demand destruction led to a decline in both the number of theaters and feature films released by the majors in the United States.
The falling number of films meant that studios had to change their strategies. One Paramount executive said,“ Today, people go to see a movie; they no longer go to the movies. We can’ t depend on habit anymore. We have to make‘ I’ ve got to see that’ pictures.” In response to the changes in consumer behavior, studios spent more per film, raising the business risk of each one. A greater percentage of films lost money, and the studios became increasingly dependent on the biggest box office hits to drive profits.
Despite all these changes, the majors— a group that continued to exclude Disney due to the low number of films it released— still dominated distribution. While independent producers increased their percentage of total films released after the Paramount consent decrees, they were still dependent on the majors to distribute the product. In addition, the independents relied upon the majors for financing, as the legacy players had the tangible assets needed to raise capital. Now down to seven after RKO failed due to Howard Hughes’ mismanagement, the majors distributed 44 of 1965’ s 50 highest grossing films.
The bottom line: The movie business was struggling in 1966, and there was no reason to believe a movie studio would fit Buffett’ s famous definition of“ a good business.” Disney was still considered a smaller player in the industry, with the majors still releasing the vast majority of box office hits. Given these concerns, how did Buffett build the comfort he needed to take such a significant stake? Well, Disney was not just any studio.
The Ascent of the House of Mouse
Walt established his first animation business in 1921, when he founded Laugh- O-Gram Studio, based in his hometown of Kansas City. The small studio produced animated and live-action cartoons but struggled financially, declaring bankruptcy two years after its inception. After Laugh-O-Gram’ s receivership, Walt moved to California and founded Disney Brothers Cartoon Studio with Roy in 1923. This entity later merged with two other predecessor companies to form the Walt Disney Productions company Buffett later invested in.
While Walt possessed remarkable creative abilities, he was at the mercy of powerful distributors, and he struggled to build a business as a small company battling against giants. Disney experienced success in the 1920s with Oswald the Lucky Rabbit and Alice’ s Wonderland short cartoons, but after a contract dispute his distributor Charles Mintz poached the company’ s animators and made Oswald cartoons himself. Walt had given up his rights to the rabbit in his distribution agreement, and he therefore had no recourse to get his character back. The young animator persevered through this setback and developed Mickey Mouse shortly after. In 1928, Mickey made his public debut in
30 FINANCIAL HISTORY | Spring 2025 | www. MoAF. org