DISNEY’S ACQUISITION OF PIXAR

Mandar Gadkari- 12
Omkar Gokhale-14
Rhea Mansukhani-31
Deepika Punjabi-42
Jeetu Sachdev-47
INDEX

 Pre-Acquisition Structure and Acquisition at a glance

 Company’s history, Strength, and Position (Disney and

Pixar)

 Acquisition strategy and intended benefits

 The Road Ahead

 PRE- ACQUISITION STRUCTURE
 Disney Pixar were in a partnership agreement since 1991
Movies were developed and directed Disney to Produce, Market and
by pixar Distribute the movies

Pixar received compensation from Disney received distribution fees and

distribution proceeds 87% of the distribution proceeds

 After the success of toy story, Disney- Pixar had a co- production
agreement in 1997
• Five original computer animated films to be
• Production costs were co-financed by Pixar,
co produced and distributed by Disney, mutual
mutual control over sequels
control over sequels
• Ownership of 50%, co-branding, profit
• Ownership of 50%, distribution rights, co-
sharing for picture, merchandise and ancillary
branding, profit sharing for picture,
products
merchandise and ancillary products,
• Pixar had the right to enter into other dist
• Full recovery of distribution costs and receive
agreements after contract completion
12% distribution fees
 Acquisition at a glance

Pixar
Walt Disney
Co-Founded
By ; Steve Jobs in 1986

Founded by : Walt Disney in 1927 Know How : creative &technological

resources for computer
Know How: Unparalled generated
Portfolio in world animation films
class Family
Entertainment
Characters, Theme
Parks and other
franchisees
POST ACQUISITION STRUCTURE
 Disney acquired Pixar for approximately $7.4 billion
in an all-stock deal.

 The acquisition was completed May 5, 2006

 Steve Jobs, who was the majority shareholder of

Pixar with 50.1% became Disney's largest individual
shareholder with 7%

 Conditions were laid out as part of the deal to

ensure that Pixar remained a separate entity,
Pixar name was to continue

 Branding of films made post-merger would be

"Disney-Pixar"
ACQUISITION – WHY?
The four main reasons for making an acquisition
include:

 To acquire complementary products, in order to

broaden the line

 To acquire new markets or distribution channels

 To acquire additional mass, and benefit from

economies of scale

 To acquire technology, to complement or replace the

currently used one
OVERVIEW OF ANIMATION
INDUSTRY
 Industry estimates the size of global animation industry at $50
billion

 The global animation industry largely lies in Europe, the U.S.,

Japan and South Korea.

 The U.S. is the leader of the global animation industry.

 Upcoming markets are India and China, due to low labour rates
animation content is outsourced here

 Aiming at a larger target audience

 Till date the lords of the animation field are said to be Disney,
Sony, and IMAX only
 SWOT ANALYSIS OF ANIMATION
INDUSTRY
Weakness
Strengths
•Excessive Research and Development
• Availability of latest technology
lower costs • High Investment

• Globalization has given rise to a • High Risk Factor

Larger audience
• Limited Range of Target Audience Group

Opportunities Threats

• Increasing demand due to its applications• Competition: Global, National and

in media, entertainment, and educational Local
fields
• Highly Demanding in terms of Sales,
• Cheaper Alternative to soft toys Creativity and Innovation

• Attraction of Children to television • Employee Retention

DISNEY- CREATION OF WALT
DISNEY (THE MAESTRO)
 DISNEY –
A HISTORY IN THE MAKING
 Founded in 1923 with Alice‘s Wonderland.
 Rise of Oswald The Lucky Rabbit and Break-Up with Mintz in
1927.
 Mortimer a.k.a. Mickey, birth of world famous Disney Character
which featured in first 2 unsuccessful films, Planet Crazy and
Gallopin’ Gaucho.
 Steamboat Willie (November 18, 1928) with the characters
speaking for the first time - First Step in Mickey’s Popularity.
 Soon Donald Duck, Pluto, Goofy arrived.
DISNEY’S STEPS TOWARDS SUCCESS -
AT A GLANCE
 In December 1937, Snow White( full Length animated feature film)
- Formula of Instant Success which resulted in Walt being the
successful Hollywood producer.
 After this, Employee demanding higher wages, World war II and
Political Uncertainties were the major concerns resulted in deep
debt.
 After raising US$ 3.5 million ,Animation (Cinderella), True Life
Adventures (Seal Island), Live Action (Treasure Island)were the
three categories in which Walt Disney decided to march on.
RISE OF THE DISNEYLAND
 In early 1940, Disneyland Started with the motive of entertaining
children and their parents.
 Funds raised against Life Insurance and Employees and Selling
Vacation home.
 Contract with ABC worth US$ 500,000 in cash and US$ 4.5
million in Loan.
 In July 1955, 1 million People visited the theme park which
underlined its huge success.
 Soon after, Disney lost its popularity after the death of mighty
Walt Disney in 1966.
DISNEY-REGAINING THE POPULARITY
 Released The Lion King (June 1994) which won 2
academy awards and pocahontas.
 Acquiring ABC in 1995 and launched its Internet
division, Disney Online.
 Disney.go.com and Radio Disney were next in the list.
 Acquiring Fox Family Worldwide (FFW).
 Total Revenues Rose up to US$ 32 Billion with a Net
Income of US$ 2.5 Billion
FAILURE OF DISNEY

 After Tarzan(1999) , a spate of unsuccessful films like

Treasure Planet(Nov 2002) and Brother Bear(2003).

 Internet initiatives failed to take off

 Competition with Viacom’s MTVi and GE’s NBCi, go.com

began losing money around US$ 1 Billion which affected

Disney’s other sites ABC and ESPN.

 In 2000 dotcom crashed and in 2001 disney. go.com.

 MORE AND MORE LOSS
 In 2001, A net loss of US$ 158 million and avg. share price of US$ 14 in 2002
as against US$40 in 2000.
 Disney’s Animation Film failures
Title Year of US Box Loss
Release OfficeGross
Fantasia Jan,2000 58 45
Dinosaur May 2000 137 18
The Emperor’s new groove Dec 2000 89 36
Recess: School’s Out Feb 2001 36 1
Atlantis: The Lost Empire June 2001 84 71
Treasure Planet Nov 2002 38 142
Piglet’s Big Movie Mar 2003 23 13
Brother Bear Oct 2003 85 35

 Source: www.homepage.mac.com
 POSITION AT THE TIME OF
ACQUISITION-
FIRST TO PARTNER THEN TO CONQUER

 May 1991, agreement with Pixar to develop and produce 3

animation films.
 Toy Story (Nov 1995) was a huge success and generated US$
360 million in worldwide revenue.
 In 1997, Co-production agreement stated that Pixar will be
responsible for production of the movies whereas Disney
would be responsible for marketing, Promotion, Publicity
and Advertising.
 DISNEY-PIXAR MOVIE RELEASES
Movie Title Year of Releases US box office Worldwide Box
Gross (in $ mn) Office Gross

A Bug’s Life 1998 163 363

Monster Inc. 2001 256 525

Finding Nemo 2003 340 865

The Incredibles 2005 260 631

Cars 2006 - -

According to Analysts, It was a steal deal for Disney, A

perfect Strategic Acquisition.
ABOUT PIXAR
HISTORY OF PIXAR
 Pixar Animation Studios started with John
Lasseter & George Lucas
 Pixar was initially a computer graphics division
which was of film maker George Lucas known
as Lucas film limited.
 In 1986, Steve Jobs purchased the computer
graphics division of Lucas Film Ltd. for $10
million and established it as an independent
company named Pixar co-founded with Dr.
Edwin E. Catmull.
CONT….
 Initially, Pixar was a high-end computer hardware
company whose core product was the Pixar Image
Computer.
 One of the buyers of Pixar Image Computers was Disney
Studios, which was using the device as part of their
secretive CAPS project.
 The Image Computer never sold well. In a bid to drive
sales of the system, Pixar employee John Lasseter who
had long been creating short demonstration animations,
such as Luxo Jr. to show off the device's capabilities
premiered his creations at SIGGRAPH, the computer
graphics industry's largest convention, to great fanfare.
CONT…
 Pixar’s first production was Luxo Jr., a short film in
1986 followed by Red’s Dream, Tin Toy and Knick
Knack.
 In 1980s, Pixar developed and started selling visual
effects developing software called RenderMan.
 In 1990s, Pixar created advertisements for Volkswagen
and Pillsbury.
STRENGTHS OF PIXAR
 Pixar has produced eleven feature films, beginning with
Toy Story in 1995, all of which have met with critical
and commercial success.
 Five of the seven have won the award: Finding Nemo,
The Incredibles, Ratatouille, WALL-E, and Up. Up is
also the first Pixar film to be nominated for the Academy
Award for Best Picture. Finding Nemo, The Incredibles,
Ratatouille, Up and Toy Story 3 manage to make the top
50 list of highest-grossing films of all time, with Finding
Nemo making the top 20 at #20, Up at #36, Toy Story 3
at #44, The Incredibles at #46 and Ratatouille at #48.
FACTORS LEADING TOWARDS
ACQUISITION
 Losses arising due to online ventures
 Problems with management of Disney led Pixar
to step down and also led to conflicts
 Problems due to Toy Story 2 after its

theatrical release.
 Problem related to the sequel of Toy

Story 3.
 Personal grievances between Jobs and Eisner
THE ACQUISITION
CHANGES AFTER THE RELATIONSHIP
 In march 2005, the Disney Board elected Iger as
Company’s CEO.

 Iger asked for Disney’s content to be distributed over the

internet through iTunes.

 In Oct 2005 Iger and Jobs signed a deal to sell TV shows

through iTunes.

 Started with Desperate Housewives and lost.

LOOKING BACK
 Jobs Started Renegotiating on the Disney-Pixar
agreement.

 On Jan 24,2006 Disney announced the acquisition of

Pixar.

 Catmull was named president of the new unit.

 Disney issued 2.3 shares for a single pixar share.

THE RATIONALE
DISNEY WHY?
 The acquisition gave Disney ownership of the world’s
most famous computer animation studio and its talent.

 The timing was also perfect for Disney as its own

animation films were failing.

 The deal brought the technology co. Apple closer to

Disney.
PIXAR ANGLE
 For Pixar it was a good move to face competitors like
DreamWorks & 20th century fox.

 The deal gave Apple iTunes more video content to offer.

 As of Jan 2006, Disney sold 1.5 million videos of TV

serials.
THE ROAD AHEAD
POST MERGER SYNERGIES
NEW EXECUTIVE LEADERSHIP
 Steve Jobs continues to serve as Pixar's top executive.
Single largest share holder and member of board.
 Ed Catmull serves as president of the combined Disney-
Pixar animation studios
 John Lasseter serves as the studios' Chief Creative
Officer.
 Catmull reports to Walt Disney Company President &
CEO Bob Iger as well as Walt Disney Studios chairman
Dick Cook
 Lasseter, who has greenlight authority, reports solely to
Iger.
POST MERGER FOCUS
 Disney to release film as “Disney - Pixar”
 Creating the Conditions for a Successful Merger

 Creating transformational leadership

 Developing a shared vision and goals

 Team and organizational learning

 Creating Synergies for Future Success

 Making the alliance sustainable

CHALLENGES AHEAD
Power Tussle between Steve Jobs and
Iger
Possible cultural Differences
Integrity of the Deal
Pixar has the upper hand
Pixar’s talent Retention by Disney
WHAT LIES AHEAD…..
 With technology at their fingertips
 The merged entity can implement a distribution blitz

 Of High quality animation films with eye-catching

effects

VALUE CREATION FOR THE SHAREHOLDERS

AND STAKE HOLDERS
THANK YOU