When Bob Iger became CEO of Walt Disney (NYSE:DIS) in 2005, it wasn't a sure thing that he was the best choice for the Magic Kingdom. Iger had been COO since 2000 and was already second in command to then-CEO Michael Eisner when Roy Disney launched the "Save Disney" campaign in 2003.
At the time Iger took over, there was uncertainty about the company's direction in animation, especially as Steve Jobs and Pixar feuded with Eisner, threatening Disney's distribution deal with the computer animation upstart and leaving the former animation king with few characters that resonated with customers.
Iger started his tenure with a bang by making big bets on Pixar and Marvel, bets that were widely criticized as frivolous and expensive at the time. These acquisitions would come to define his tenure. In hindsight, it's clear that Iger realized that those assets were more valuable in the hands of Disney than anyone else. That may be his true genius as an executive who we'll no doubt study for years to come.
Do what we do best
When Iger took over Walt Disney, the company's animation studio was in a funk and it was unclear how Disney would move beyond its reliance on assets like ESPN to grow earnings. But Disney's infrastructure was fundamentally different from that of its competitors, not only in the movie business but also in media networks and theme parks. At that time, no one had the kind of vertical integration from studio to distribution network to theme park like Disney did. Iger recognized those fundamental advantages and leveraged them with the three moves that would come to define his legacy.
Iger knew that to feed the beast that Disney had created, he needed characters that would attract a new generation of fans. Long gone are the days of Mickey Mouse being the major attraction at Disney World -- the kids want to see Buzz Lightyear. And that's why one of Iger's first calls was to Steve Jobs.
Buying the characters Disney needed
Iger's first major move was buying Jobs' Pixar for $7.4 billion in 2006. With this purchase, Disney acquired not only the characters that had become popular at Disney theme parks, but also John Lasseter, who would take over Disney's animation studios. Lasseter may have been as key to the turnaround at Disney as anyone else. Under his leadership, the company has gone from a has-been in animation to Frozen, the top-grossing animated movie of all time.
Iger followed up this move with the $4.2 billion acquisition of Marvel Entertainment in 2009. In 2012, Lucasfilm was added for $4.1 billion. By investing more capital into these three studios, Disney was able to increase annual production to generate more revenue. Disney has also been able to make the characters it acquired into attractions at theme parks and even characters on Disney's TV networks.
The investments in Pixar and Marvel Entertainment create a waterfall kind of effect on Disney because of the company's multiple revenue sources. Iger understood that Pixar, Marvel, and Lucasfilm were not only better fits for Disney than for any other studio, but also that the seemingly high purchase prices would be a steal long-term because they would make the entire business stronger.
Pushing boundaries at Disney
The turnaround at Disney's studios and the incredible acquisitions will be the hallmark of Iger's tenure. However, observers shouldn't overlook how Iger has positioned Disney for the future of media. He's been an early mover in streaming both with movies and with television. (For example, ESPN is available on nearly every mobile device today.)
Instead of playing from behind as consumers change how they consume media, Iger has put Disney in a position to play from ahead. That's an uncomfortable position at times, especially because "old media" drives earnings at Disney, but it'll be better for the company long term.
The Disney no one saw coming
Bob Iger's transformation of Disney is nothing short of miraculous, and it's nothing anyone saw coming. For investors, the stock is still well positioned to outperform the market, and I wouldn't be afraid to pay 21 times earnings for a company of this quality.
It's possible that Iger will go down as one of the best CEOs of his generation, which is no small feat considering the company he took over a decade ago. At the very least, we know that he's rejuvenated an iconic brand and set the company up for future success. That's all because of the genius moves he made, leveraging what Disney already had in the process.