The Walt Disney Company and Pixar Inc. Essay Example for Free

The Walt Disney caller and Pixar Inc. turn let outTo Acquire or Not to Acquire?In November 2005, Robert Iger, the newly appointed CEO of the Walt Disney Company, eagerly wait the box subroutine results of Chicken Little, the companys second computer-generated (CG) feature film. He knew that, for Disney as a whole to be successful, he had to get the sprightliness business right, in p prowessicular the new CG technology that was speedily supplanting hand-drawn livelihood.1 Yet the company had been reliant on a contract with animation studio Pixar, which had produced hits oft(prenominal)(prenominal) as Toy report card and Finding Nemo, for most of its recent animated film revenue. And the co- return agreement, brokered during the tenure of his predecessor, Michael Eisner, was narrow down to expire in 2006 deeplyr on the release of Cars, the fifth ikon in the five-picture deal.Unfortunately, contract renewal negotiations surrounded by Steve Jobs, CEO of Pixar, and E isner had broken down in 2004 amid reports of personal conflict. When he assumed his new role, Iger reopened the lines of communication amongst the companies. In fact, he had just struck a deal with Jobs to sell Disneyowned, ABC-produced television showssuch as Desperate Housewivesthrough Apples iTunes Music Store.2 Iger knew that a deal with Pixar was possible it was just a question of what that deal would look desire. Did it make the most sense for Disney to simply buy Pixar?Walt Disney Feature life accountingWalt Disney Feature Animation began with the production of hoodwink White and the Seven Dwarfs in 1934. Toys and memorabilia based on the movies characters were stocked in stores such as Woolworths around the films release, a move that became a trademark of Disneys strategy. after many a(prenominal) early successes, the animation division struggled for decades after Walt Disneys death butwas rejuvenated with the arrival of Michael Eisner, as well as Jeffrey Katzenberg a s chairman of Walt Disney Studios, in 1984. Under them, the studio produced a string of hit films that included The Little Mermaid and Beauty and the Beast, up to the howling(a) success of 1994s The Lion King, which alone generated over $1 one million million million in net in do for the company.The Walt Disney Company and Pixar Inc. To Acquire or Not to Acquire?Eisner believed in making clear who was good at their job, and who was non so good, and wanted to give control to leaders who had a sense of judgment about creativeness and business. Seventy-five percent of the time, he was able to find a director who had these skills and wanted to work on a particular movie the rest of the time directors would be t grizzly to just do it.6 Katzenberg, who was know for his grueling work ethic and passion for animation, made it his personal mission to bring the studio back end to its causation glory. He supervised every aspect of the studios films. According to one reason Disney executi ve, Jeffrey is the sheep dog and the wolf. Hes the sheep dog guarding us, and the wolf hunting us.7 Katzenberg was cr skiped with hammering out the storytelling of each film and ensuring that each film had a moral resonance. He also brought on away talent to each movie, such as Elton John, who contributed songs for The Lion King.Recent Box Office PerformanceAfter The Lion King in 1994, every Disney-produced animated film fell below expectations (see Exhibit 1). When asked in 1997 about the divisions disappointing performance, Eisner replied, I dont think population kinda downstairsstand our company. We have many avenues to make money from one of our animated films. The goggle box revenues from one of our films atomic number 18 large, the consumer products huge.Some of the uniform features that observers credited for Disney Animations successlarge staff, large budgets, and lots of timewere also beatified for its demise. Disney Animation had just 275 employees in 1988 about 95 0 in 1994 for the release of The Lion King and 2,200 at its dot in 1999.9 Competition for animators in the 1990s also caused salaries, which accounted for 80% of each films cost, to balloon, with heyday animators pay rising from $125,000 in 1994 to $550,000 in 1999.10 And these pay increases affected employees across the board.In 1994, Eisner refused to promote Katzenberg to chairwoman of the company, prompting his swift departure. The absence of Katzenberg, who was generally considered to be the studios creative force, struck many as the cause of the decline. As one commentator noted, the companys once-invincible animation studio has locomote on hard times since studio chief Jeffrey Katzenberg left.11 In 1997, Katzenberg, along with Steven Spielberg and David Geffen, started rival animation studio DreamWorks. According to reports, in the historic period that followed, DreamWorks attempted to lure away some of Disneys dress hat animators.Joe Roth, former chairman of twentieth Century Fox, became chairman of Walt Disney Studios after Katzenbergs departure. In charge for sextette years, he focused the studios energy on live action films.13 Peter Schneider, former head of Disney Animation, took over in 2000 after Roth left. Schneiders goal was to deliver emotional, thematic stories.14 He worked solely with established Disney directors and producers and relied on his younger development staff to broker deals with up-and-coming filmmakers, in line of work to the hands-on deal-making style of his predecessors, Katzenberg and Roth.15 The product development group assigned directors for each animated movie. In the late 1990s, Disney set up a Secret research laboratory in an old Lockheed plant near Burbank aerodrome as a response to the growing popularity of three-dimensional (3D) CG films. The groups first CG project was the dear(p) Dinosaur, which was released in 2000 to a strong opening weekend, but which ultimately disappointed at the box site. The Lab wa s shuttered in 2001 after Roy Disney viewed and rejected the second project underway, Wildlife, which he thought was packed with bountiful themes and strayed too far from Disneys family-friendly brand offering. Disney then focused its animation efforts on traditional matt (2D) projectssuch as 2001s Atlantis The Lost Empire.16 In 2002, under new feature-animation chief Thomas Schumacher, Disney embarked on an aggressive cost-cutting mission.Lilo Stitch, the first movie made in the new environment, cost about $80 one thousand thousand to make, versus $150 million for the 1999 Tarzan. Instead of 573 animators crafting 170,000 individual drawings, a crew of 208 rendered 130,000 drawings.17 Cost-cutting efforts took Disneys animation department from its gritty to around 1,100 in 2003. At that point, as rival studios, such as News Corp.s 20th Century Fox, exited the market, salaries slid precipitously. The market rate for the animator who brought abode $550,000 in 1994 was half as mu ch by the early 2000s.18 Apart from omitting redundancies, Disney Animation kept costs down by cutting corners where it could, in ship canal that were imperceptible to audiences. For example, the group eliminated things such as the number of characters seen in each frame or the meat of motion in the background.19 The televisionanimation unit also produced very low-cost films, like The Tigger Movie, which could make money with altogether $45 million in box office receipts, since the production cost was kept down to $15 million.20 In 2003, Disney Studios finally set up its own CG animation department.However, many staff members take to be retrained in the new technology, which cost Disney money, heightened tension, and depressed morale within the studio. Disney decided to slow production on its animated films to give the staff more time to work on them and hammer out the story lines. American Dog and Rapunzel Unbraided, the second and third releases after Chicken Little, were both pushed back.21 Throughout this period, Disney came to rely on revenue and characters produced by its partner, Pixar. Between 1998 and 2004, Pixar CG movies contributed a total of more than $3.5 billion to Disney Studio revenues, and more than $1.2 billion to Disneys operating income (Exhibits 2 and 2a). Pixars contribution represented 10% of revenue and over 60% of total operating income over the period. In 2005, Disney even set up a group know as Circle 7 to produce sequels to Pixar movies. The 40-person staff working on Toy Story 3 in March 2005 grew to 160 people during the following year.Movie EconomicsWhile box office revenues from the theatrical release were the typicalmeasure of a movies success, financial success truly came from separate revenue streams generated by the movie. By 2005, such sources included home video sales (originally on cassette tapes, but increasingly on DVD) payper-view and video-on-demand on cable channels television showings, whether on free channels , such as NBC and CBS, or on cable channels merchandise sales including toys, apparel, books, etc. and video games and early(a) electronic uses of the characters (see Exhibit 3). By 2005, the largest of these revenue sources was not theatrical box office but home video.Because character-related sales had such a long tail, revenue for a hit animated movie would come in over many yearsup to decades for classic movies that were re-released theatrically and in home video form. Given the longevity of a great movie, film libraries were valuable assets. DreamWorks film library, for example, was about to be sell to Paramount for $900 million.23 Sequels to successful movies were another important source of revenue. The sequels to Toy Story, Shrek, and Ice Age, for example, generated between 30% and 90% more box office revenue than the originals. Once a character had been established, the existence of a build in audience for subsequentmovies reduced marketing costs. Successful sequels would also extend the life of the original movie, particularly for animated features that appealed to successive generations of young children.Pixar Inc.Pixar was unusual among movie studios in generating a succession of box office hits. Its first five full-length films each grossed over $350 million.24 Steve Jobs said, Everybody has tried to break into the animation market since Snow White was released in 1937. So far, only two companieshave ever produced a blockbuster production grossing more than $100 million, Disney and Pixar.25 Pixars animation broke from the traditional model because the company did not use hand drawings but rather 3D computer-generated models. In 2D traditional animation, frames comprised hand-drawn cels, which required the skills of hundreds of people working for two to three years. Traditional animation constricted artists flexibility, tooif a change needed to be made to a character or scene, all subsequent frames had to be changed. Three-dimensional CG, on the other hand, used mathematical models to redraw each cel and mimic camera angles in ways that traditional animation could not.Pixar used its own proprietary computer animation technology to generate incredibly lifelike 3D images and backgrounds, although CG still could not quite make human characters look perfectly realistic. Said Jobs, We have 10 years of proprietary software systems that you cannot buy anything close to in the marketplace. You have to build them yourself.26 Pixars technology allowed animators to manipulate hundreds of motion control points within a single character, to reuse animated images, and to edit easily.27 These technologies enabled Pixar to make animated films faster than its competitors and at a fraction of their cost. For example, the company made Toy Story with just 110 staff members, who spent the time saved on animation to focus on story and character development, as well as fine-tuning visual details.History Pixar traced its origins to the University of Utah in the 1970s, where a young Edwin Catmull studied computer science in a program renowned for creating the new region of computer graphics. Around the same time, Alexander Schure, president of New York Institute of Technology (NYIT), hired a team of animators to make a film version of Tubby the Tuba, a childrens record. Frustrated by the limitations of hand-drawn animation, Schure flew to the University of Utah, where he met and recruited Catmull to work at the Institute. Catmull and his hand-picked team spent four years at NYIT, where they made inroads into the arena despite never producing the Tubby the Tuba movie.In 1979, George Lucas approached Catmulls team with an offer to work on special effects for Lucasfilm, producer of the wildly successful Star Wars and Indiana Jones franchises. While working in that respect in the early 1980s, Catmull met John Lasseter at a computer graphics conference and the two became friends. Lasseter, a young animator from Disney, had stud ied at California Institute of the Arts with the likes of Tim Burton. Skilled in art as a young boy, Lasseter read a book on the art of animation and Disney during his crank year of high school and realized what he wanted to do with his life. After graduation, he joined the ranks at Disney and worked on Mickeys Christmas Carol.He commented, I felt that Disney was, at the time, doing the same old thing. They had reached a certain plateau technically and artistically with, I think, 101 Dalmatians, and then everything had been kind of the same ever since then, with a glimmer of characters or sequences that were special.30 In 1984, Lasseter went to Lucasfilms computer division under Catmull. In 1986, Steve Jobswho had left Apple Computer the year beforebought the Lucasfilm computer business, then called Pixar, for $10 million.31 Initially, Jobs intend Pixar to be a computer hardware and software company. He spent the next several years subsidizing the company to the tune of nearly $50 million from his personal funds.When the graphics computers did not sell, Jobs cut a third of Pixars staff in 1991 and left only the animation division.32 Jobs said, If I knew in 1986 how much it was going to cost to keep Pixar going, I doubt if I would have bought the company. The problem was, for many years the cost of the computers required to make animation we could sell was tremendously high. Only in the past hardly a(prenominal) years has the price come down to the point that it makes business sense (see Exhibits 4 and 4a).33Software Pixar ab initio developed three proprietary technologies RenderMan, Marionette, and Ringmaster. In 1989, the company released RenderMan, a software system that applied cereal and color to 3-D objects and was used for visual effects. Pixar used RenderMan itself and sold it to Disney, Lucasfilm, Sony, and DreamWorks, which used it to create effects like the dinosaurs in Jurassic Park. The program served as Pixars main source of revenue during th e companys early years. As of 2005, it had developed special effects for 100 films, and 44 of the last 47 movies that win the Oscar in visual effects had used RenderMan. In 2001, Catmull, along with two other Pixar scientists, won an Oscar for RenderMan and its advancements to the vault of heaven of motion picture rendering.Marionette, the primary software tool for Pixar animators, was designed specifically for character animation and articulation, compared with other animation software that was designed to address product design and special effects. Ringmaster was a production prudence system used to track internal projects and served as the overarching system to coordinate and sequence the animation, tracking the considerable amount of data employed in a three-dimensional animated film.