DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

DISNEY AND PIXAR: DISAGREEMENT OF AN AGREEMENT

BY: NOR AZREN NATASHA BT MAHMUD MARZUKI

SCM 011259

INNOVATIVE, CREATIVE AND CRITICAL THINKING (COM 2153)

LECTURER: MRS ZARINA ZAWAWI

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

Disney PixarIntroduction:

The partnership between Pixar and Disney has deep roots, going way back to 1991. The first result

was 1995’s "Toy Story," which revolutionized the world of computer animation. Ever since, Pixar

films have been distributed by the Walt Disney Company, proudly displaying both the Pixar logo

"Luxo Jr." and the Disney castle.

Disney recently acquired Pixar Studios at a price of over $7.4 billion. The terms include giving Jobs

an estimated 7% stake in Disney and letting Pixar's top creative executive, John Lasseter, have a

key role in advising Disney in creative matters. 

Which party had more power? Disney or Pixar? 

Pixar definitely had more bargaining power while the deal was being negotiated. Though many feel

that Disney has paid a premium price for the acquisition, the reality is that Disney does stand to

gain in the long run considering the ground realities during the time the deal was struck. For

Disney, the acquisition of Pixar seems to represent a strategic "must" for the company. Some

would say that they had no choice.

Pixar created dependence for Disney, by accentuating all its strengths and thus had the power in

negotiating. Pixar understood the range of approaches available and used the most effective ones

to negotiate with Disney. 

· Pixar’s extraordinary talent pool – It was an acknowledged fact that Pixar had the best talent pool

in the animation business especially one person who was considered the “Guru” of the Industry,

John Lassiter. The creative talent at Pixar offers great potential in amplification of Disney’s product

offerings in the animation arena.   The animation unit at Disney now, after the deal, will

unquestionably be stronger with the full-time addition of Pixar's resident genius, John Lassiter.

· Best technology - Robert Iger, of Disney, wanted to adopt new technology of accelerated delivery

of entertainment over the Web and through wireless means. Pixar had all the technology and with

Jobs playing a key role...

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

Case Title: 

Disney & Pixar: On the Road to Merge

Publication Year : 2006Authors: Taranjeet Chawla, Kumar Satyaki RayIndustry: EntertainmentRegion:US

Case Code: MAA0090K

Abstract: In January 2006, various Wall Street analysts speculated that Disney, one of the largest motion picture studios in the world, was planning to acquire Pixar Animation Studios, the producer of hit animation movies, such as Toy Story, Finding Nemo, The Incredibles, etc. With its traditional hand-drawn animation business declining, Disney was looking for ways to preserve its animation business. The company had an agreement with Pixar to distribute and market animation movies produced by the latter which was scheduled to end in June 2006. As the agreement came closer to an end, Disney considered various options, including a takeover, a stake in Pixar or an extended agreement. While the first option was most likely, analysts debated whether the two should merge or not. The case study outlines a brief history of the animation industry as well as the evolution of the computer animation. It also attempts to give a short description of both the companies. Finally, it tries to give a brief account of the present situation and how a takeover would affect both the companies.

Pedagogical Objectives:

To discuss the pros and cons of a possible merger between Disney and Pixar

To get a brief idea of the history of animation

To understand the emergence of computer animation

To get a detailed account of the two companies – Walt Disney Company and Pixar Animation Studios.

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

How Pixar Fosters Collective Creativityby Ed Catmull

♦ Listen to Ed Catmull discuss managing creativity.

A few years ago, I had lunch with the head of a major motion picture studio, who declared that his

central problem was not finding good people—it was finding good ideas. Since then, when giving

talks, I’ve asked audiences whether they agree with him. Almost always there’s a 50/50 split, which

has astounded me because I couldn’t disagree more with the studio executive. His belief is rooted in a

misguided view of creativity that exaggerates the importance of the initial idea in creating an original

product. And it reflects a profound misunderstanding of how to manage the large risks inherent in

producing breakthroughs.

When it comes to producing breakthroughs, both technological and artistic, Pixar’s track record is

unique. In the early 1990s, we were known as the leading technological pioneer in the field of

computer animation. Our years of R&D culminated in the release of Toy Story in 1995, the world’s first

computer-animated feature film. In the following 13 years, we have released eight other films (A Bug’s

Life; Toy Story 2; Monsters, Inc.; Finding Nemo; The Incredibles; Cars; Ratatouille; and WALL·E),

which also have been blockbusters. Unlike most other studios, we have never bought scripts or movie

ideas from the outside. All of our stories, worlds, and characters were created internally by our

community of artists. And in making these films, we have continued to push the technological

boundaries of computer animation, securing dozens of patents in the process.

While I’m not foolish enough to predict that we will never have a flop, I don’t think our success is

largely luck. Rather, I believe our adherence to a set of principles and practices for managing creative

talent and risk is responsible. Pixar is a community in the true sense of the word. We think that lasting

relationships matter, and we share some basic beliefs: Talent is rare. Management’s job is not to

prevent risk but to build the capability to recover when failures occur. It must be safe to tell the truth.

We must constantly challenge all of our assumptions and search for the flaws that could destroy our

culture. In the last two years, we’ve had a chance to test whether our principles and practices are

transferable. After Pixar’s 2006 merger with the Walt Disney Company, its CEO, Bob Iger, asked me,

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

chief creative officer John Lasseter, and other Pixar senior managers to help him revive Disney

Animation Studios. The success of our efforts prompted me to share my thinking on how to build a

sustainable creative organization.

What Is Creativity?

People tend to think of creativity as a mysterious solo act, and they typically reduce products to a

single idea: This is a movie about toys, or dinosaurs, or love, they’ll say. However, in filmmaking and

many other kinds of complex product development, creativity involves a large number of people from

different disciplines working effectively together to solve a great many problems. The initial idea for

the movie—what people in the movie business call “the high concept”—is merely one step in a long,

arduous process that takes four to five years.

A movie contains literally tens of thousands of ideas. They’re in the form of every sentence; in the

performance of each line; in the design of characters, sets, and backgrounds; in the locations of the

camera; in the colors, the lighting, the pacing. The director and the other creative leaders of a

production do not come up with all the ideas on their own; rather, every single member of the 200- to

250-person production group makes suggestions. Creativity must be present at every level of every

artistic and technical part of the organization. The leaders sort through a mass of ideas to find the

ones that fit into a coherent whole—that support the story—which is a very difficult task. It’s like an

archaeological dig where you don’t know what you’re looking for or whether you will even find

anything. The process is downright scary.

Then again, if we aren’t always at least a little scared, we’re not doing our job. We’re in a business

whose customers want to see something new every time they go to the theater. This means we have

to put ourselves at great risk. Our most recent film, WALL·E, is a robot love story set in a post-

apocalyptic world full of trash. And our previous movie, Ratatouille, is about a French rat who aspires

to be a chef. Talk about unexpected ideas! At the outset of making these movies, we simply didn’t

know if they would work. However, since we’re supposed to offer something that isn’t obvious, we

bought into somebody’s initial vision and took a chance.

To act in this fashion, we as executives have to resist our natural tendency to avoid or minimize risks,

which, of course, is much easier said than done. In the movie business and plenty of others, this

instinct leads executives to choose to copy successes rather than try to create something brand-new.

That’s why you see so many movies that are so much alike. It also explains why a lot of films aren’t

very good. If you want to be original, you have to accept the uncertainty, even when it’s

uncomfortable, and have the capability to recover when your organization takes a big risk and fails.

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

What’s the key to being able to recover? Talented people! Contrary to what the studio head asserted

at lunch that day, such people are not so easy to find.

WALT DISNEY PRODUCTION

The Disney Brothers were founded on October 16, 1923 by Walt Elias Disney..

After he started selling Eswald the Rabbit for 2500 US dollars he combined his work

with his brother Roy Elias Disney and made the first Mickey Mouse Cartoon called

“steamboat Willie’. Mickey made his debut in merchandising, their toys, books,

apparel and etc. Then Walt decided to change the company name to Walt Disney

Production in 1929. The company established itself as a leader in American

Animation Industry before branching out into a live-action film production and

television and travel. Their first theme park ‘Disneyland’ was built in Anaheim,

California in 1955. The company established infrastructure for addressing crucial

issues related to the environment, community, work place and product development.

After 1986 the Walt Disney Company expanded into a leading diversified

international family entertainment and media enterprise. The far biggest event is in

1996 after they bought the ABC television network for 19 US billion transaction which

at that time was the second largest US history, additions to 10 TV stations, 21 radio

station, 7 daily newpapers and ownership position in the cable networks A&E,

Lifetime, History channel and ESPN.

The company’s primary financial goals are to maximize earnings and cash flow

and to allocate capital profitably toward growth initiative that will drive long term

shareholder value.

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

Disney and Pixar: The Power of the Prenup

For the first time, Pixar is also scheduled to deliver two movies in a single

year: “Newt,” the story of a salamander’s search for love, and “The Bear and

the Bow,” an action-adventure starring an imperious Scottish princess; both

films will arrive in multiplexes in 2011.How Disney and Pixar are making the

integration work holds lessons for other executives faced with the delicate

task of uniting two cultures. Tactics that have served the companies well

include the obvious, like effectively communicating changes to employees.

Other decisions, including drawing up an explicit map of what elements of

Pixar would not change, have been more unusual.

“None of this has been easy,” said Richard Cook, chairman of Walt Disney

Studios, “but it helps when everyone has tremendous respect both

professionally and personally for one another.”

Mutual respect was scarce at the two companies just three years ago.

Pixar, based in Emeryville, Calif., and Disney, with its headquarters in

Burbank, Calif., had a notoriously strained relationship. Pixar’s chairman

and chief executive, Steven P. Jobs, abruptly called off talks to continue a

lucrative partnership with Disney, which had helped to finance and

distributed such Pixar films as “Monsters, Inc.”

Mr. Jobs, also the chief executive of Apple, had bitterly clashed with Michael

D. Eisner, who was then running Disney. The rift encompassed many issues,

not the least of which was basic trust. In one incident, Mr. Eisner

disparaged an Apple advertising slogan before a Congressional committee

and then claimed that he hadn’t — even though his testimony had been

transcribed.

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

The end result was that Mr. Jobs and others at Pixar didn’t place much faith

in what their Disney counterparts told them.

After Mr. Iger took the reins at Disney, he restarted acquisition talks and

won some early support at Pixar by talking candidly and clearly about the

lessons he learned when his previous employer, the ABC television network,

endured two takeovers. Pixar executives recall Mr. Iger joking that if he

ever decided to write a book, it would be titled “I’ve Been Bought,” because

the two merger experiences were so formative for him.

Edwin Catmull, the president of Pixar who was also put in charge of Walt

Disney Animation Studios, said, “It became very clear to us that Bob Iger

had been through mergers before, both positive and negative.”

Mr. Iger also agreed to an explicit list of guidelines for protecting Pixar’s

creative culture. For instance, Pixar employees were able to keep their

relatively plentiful health benefits and weren’t forced to sign employment

contracts. Mr. Iger even stipulated that the sign on Pixar’s front gate would

remain unchanged.

Still, Mr. Catmull concedes that trust didn’t come easily, especially in an age

when some companies promise one thing before a merger and then seem to

do another once the deal is done.

“It took about a year before there was a collective letting down the guard,”

he said. “Initially people were thinking, ‘Is something going to happen?’ ”

Regarding Disney’s list of promises, Mr. Catmull said: “We’ve never had to

go back and look at it. Everything they’ve said they would do they have lived

up to.”

Mr. Jobs, who became Disney’s largest shareholder and a board member as

a result of the transaction, did not respond to interview requests.

In most acquisitions, the conqueror typically reigns supreme. When NBC

bought Universal Studios, executives at the movie studio in Los Angeles

were — overnight — required to start commuting to New York for gruelling

financial planning meetings at the behest of NBC’s owner, General Electric.

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

An NBC Universal spokeswoman declined to comment. Although analysts

generally think that Universal Pictures has been well served by the G.E.

takeover, they cited the company’s aggressive handling of the merger as one

reason the studio’s respected chairwoman, Stacey Snider, quit the company.

But in the Pixar acquisition, Disney, despite its legendary corporate identity

and strong will, held back. Pixar kept its e-mail system. Nobody was shipped

to Walt Disney World in Florida to work a shift, part of the initiation that

other executives must endure. No switchboard operators at Pixar were

asked to end telephone calls with the words “Have a magical day,” as they

do elsewhere in the company.

PIXAR ANIMATION STUDIO.

Pixar was in charge of the computer graphics lab in 1979, one third of the computer

division of Lucasfilm. After years of research they work together with Industrial Light

and Magic on special effects. They did the genesis effect in Star Trek 2:The Wrath

of Khan and Young Sherlock Holmes. Pixar was a high end computer hardware

company whose core product was the Pixar Image Computer, a system primarily

sold to government agencies and the medical community. They are also a computer

animation studio with the technical, creative and production capabilities to create a

new generation of animated feature films, merchandise and other related products.

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

THE BEGINNING

Pixar did their short film ‘Tin Toy’ and won the 1988 Academy Award for Animated

Short Film. With that they manage to gain Disney’s attention. By the summer of July

1991 Pixar and Disney sign an agreement to work on a film called ‘Toy Story’. This

would be the first three full length computer animated feature films, Pixar produced in

line with contact. They made 26,000 US dollar deal.

Pixar was responsible for creation and production while Disney handled marketing

and distribution.

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

- TOY STORY > 1995

- A BUGS LIFE > 1998

- TOY STORY 2 > 1999

THEIR DISAGREEMENT

Their disagreement started in 1991 after the production of Toy Story 2. Steve Jobs,

Pixar CEO complain that the arrangement was unfair. Originally intended as a

straight to video release however the film was upgraded to a theatrical release

during production and it is not part of Pixar’s three picture deal. Pixar demanded the

film to change as it was but Disney refused to do so. The film was collectively

grossed more than 2.5 billion US dollars, the highest per-film average gross in the

industry. Profits and production costs were split 50-50, but all story and sequel rights

and also collected a distributed fee was wholly Disney’s. It is the most difficult aspect

to Pixar and sat the stage for an arguable relationship.

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

They did try and negotiate a new deal that is Pixar wanted complete financial

freedom. They also wanted to finance their films on their own. Collect 100% on their

own profits and paying Disney only 10-15% distribution fee. Pixar demanded control

over films already in production under their old agreement including The Incredible

and Cars in 2004 but Steve Job and Michael Eisner couldn’t make a deal and they

oppose the pact.

RESOLVED BY

After Michael Eisner decide to step down and was replaced by Roy.E Disney. Disney

bought Pixar for 7.4 billion US in 2006. Following Pixar shareholder approval with an

all stock deal, the purchase was completed May 5 2006. Steve Jobs who has the

majority shareholder of Pixar with 50.1% became Disney’s largest shareholder with

7% and a new seat on its board of directors. The executive vice president of Pixar

John Lasseter became Chief Creative Officer. He has to report to the president and

CEO Robert Iger and to consult with Disney director Roy Disney. Steve Jobs’

position as Pixar’s chairman and chief executive officer was also removed and he

took a place on the Disney board of directors.

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

This did not mean that the two studios will merge; in fact additional conditions were

laid out as part of the deal to ensure that Pixar remained a separate body. The

Pixar’s HR policies would remain intact, including the lack of employment contracts.

Also Pixar can keep their name and the studio would remain in its current Emeryville,

California location with the ‘PIXAR’ sign. The entire merge branding ‘Disney-Pixar’

will begin with their movie Cars.

RATATOUILLE, 2007. WALL E, 2008. UP, 2009. TOY STORY 3, 2010.

CONCLUSION

The merger between Pixar and Disney was indeed a success for them. For the

CEO for both companies they never have been happier to work as a team. Most of

the movies they have done were always a blockbuster for the whole world to see.

Kids from all over the world love their movies they even enjoy watching it with their

whole family. It’s their fun time being together, laughing and just makes it a great

day. For the two companies that merge they are happy when their product have

been a satisfied section for their viewers. For that they work even better together.

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

For me in the future Pixar and Disney will make the best movies and who knows

maybe a new 4D version for viewers to think they can actually touch the cartoons.

MOVIE QUOTES

• I didn't come all this way just to see you quit. - Doc Hudson 

Movie: Cars (Pixar Movie)  

• Change is nature. The part we can influence. And it starts when we decide. -

Remy 

Movie: Ratatouille  

• I know I'm supposed to hate humans, but there's something about them. They

don't just survive, they discover, they create...I mean, just look at what they do

with food! - Remy 

Movie: Ratatouille  

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

UPCOMING MOVIES

MY OWN APPROACH

“He realised he didn’t know everything. He recognized that he had employees who

did. But he appreciated the importance of taking the time to learn what they know

and absorb their creative thinking. He took the time to listen to their ideas. He took

the time to think to ponder the direction of Microsoft.” BY BILL GATES

Learn what they know

: Trust them, the workers. Let the Pixar workers do their own job and give them the

freedom to let them do well. With art they have to be patient. The board of directors don’t

joint their work meetings. They have to trust the artists to do their job. Pixar designers

are efficient for their work, even when they build a layout. Learn from them and ask what

they want to do if they want to make it better.

Listen to their ideas

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

: After the merge they have to make transformational. It is necessary to create an

organization environment and culture. Encourage the development of creative

thinking and problem solving. Creative power comes from creative leadership. Put up

a website for both companies. Make them be in one. Make a forum to let their ideas

out. With the website the entire company will know what the company is working on.

What will be their next project?..

Take the time to think

: Then the company boards of directors have to explore new directions for growth

and development, how they are going to handle challenges in the future. They have

to reach for their goals and objective on why they are in the media networks. With

the new website they can start and re-create the ideas that their own workers give.

Make new opportunity to expend a fun working environment. So that it will be a fun

place for them to work and make new next great movie.

The presentation approached

From the 6 thinking hats.

WHITE HAT ~ GATHER THE INFORMATION ABOUT PIXAR AND DISNEY

PROBLEM. PIXAR WANTED THEIR SHARE TO BE EQUAL TO

THEM.

RED AND BLACK HAT ~THINK ABOUT HOW THEYRE GOING TO WORK AS

ONE.WILL THEY MAKE IT. WHAT WILL THE

DISNEY AND PIXAR : DISAGREEMENT OF AN AGREEMENT

SHAREHOLDERS THINK.THE PROFIT THEY WILL GET

WILL IT BE EQUALLY BALANCED.

YELLOW AND GREEN HAT ~STATE TOGATHER WHAT THEY WANT TO WORK

OUT. :PIXAR’S BRANDING WILL BE WRITTEN

DOWN WITH DISNEYS. SHAREHOLDERS OF

BOTH COMPANIES WILL COMBINE.

BLUE HAT ~ SET UP A GOAL. MAKE THE COMPANY INTO ONE.