Disney Pixar Case

Topics: Pixar, The Walt Disney Company, Animation Pages: 7 (2058 words) Published: March 18, 2013
Date: October 24, 2012
Re: The Walt Disney Company & Pixar, Inc. – To Acquire or Not to Acquire?

For more than a decade, Disney and Pixar have enjoyed a very profitable and productive partnership. Disney provided rich resources and entertainment business insight, including marketing and distribution acumen, which allowed Pixar to grow far beyond a software producer to the leader in computer-generated animated movies. Conversely, Pixar revitalized creativity into Disney’s output and delivered a stream of successful movies and characters. However, significant disputes formed between the partners in spite of production successes, and the leverage power surrounding negotiations between the companies shifted. Pixar demanded a larger stake in the profits and ownership of the movie rights. Disney wanted to maintain its exclusivity rights and position as a final decision-making authority. The inability to reach an agreement left the two to make decisions that could alter the course of each company’s longevity. Pixar was left to decide whether it should proceed with the re-negotiation process and remain Disney’s partner, or establish a new distribution deal with another studio and introduce a new set of transaction costs. Disney could potentially sever the relationship, spend increasing time and resources on re-negotiation, or explore the acquisition of Pixar. Walt Disney Feature Animation began in 1934 with the production of Snow White and the Seven Dwarfs. The movie quickly became a trademark of Disney’s strategy to create major motion picture films that would fuel the production and sales of character and story inspired memorabilia. After the death of Walt Disney in 1966 the animation division struggled, but was revitalized under the new leadership of CEO Michael Eisner and chairman Jeffrey Katzenberg in 1984. During this time Disney produced hit films such as The Little Mermaid and Beauty and the Beast. Katzenberg left Disney in 1994, and after the production of The Lion King, every Disney-produced film yielded a substandard performance. Joe Roth stepped in as chairman following Katzenberg’s departure and focused on the product of live action films for the next six years. In 2000, Roth left and Peter Schneider, former head of Disney Animation took over and focused on delivering emotional, thematic stories. In the years to come, Disney would test production of 2-D and 3-D films under various cost-cutting strategies until finally setting up its own computer-generated animation department in 2003, in which it relied on characters and revenue produced by Pixar. (Exhibit A) Pixar, then named Lucasfilm, was formed by Edwin Catmull and Alexander Schure in the early 70’s and grew as producer George Lucas and animator John Lasseter joined in 1979 and 1984, respectively. In 1986, Steve Jobs bought Pixar. He intended for the company to operate as a hardware and software producer of three proprietary technologies: RenderMan, Marionette and Ringmaster. Pixar sold RenderMan to Disney, Lucasfilm, Sony and Dreamworks. However, Jobs, Catmull and Lasseter desired to make an animated feature film. After many of the short film developed by Pixar began winning academy awards, Steve Jobs was convinced that the company should produce animated movies. In 1991, Lasseter pitched an hour-long, made-for-TV movie to Disney’s Katzenberg, who returned with an offer to produce a full-length movie. (Exhibit B) In 1991, the Disney-Pixar partnership began with a Feature Film Agreement to produce the first of three full-length 3D CG animated movies. Disney would own all movie rights and control film release dates, but would fully fund all production costs. Pixar would receive a participation fee and fund production cost overages. The deal resulted in the production of Toy Story in 1995, and while the movie garnered more than $350, Pixar only earned $56 million in revenue through 2008. (Exhibit C) Just...
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