Pixar Disney M&A

Marriage

IM 551 IT Strategy & Management Prof. Heeseok Lee

KAIST Strategy Consulting Group Group members:

M&A��

Marriage��

Contents

1. Growing Up - Disney History & Core - PIXAR History & Core

2. Dating - PIXAR & Disney

3. Before Marriage

4. After Marriage : Change

5. Happily Ever After : Synergy

Growing Up!!

Growing Up : History of Walt Disney

•  Founded in 1923 by Walter Elias Disney, he and his brother Roy created the short film “Alice’s Wonderland”

•  Focus on entertainment thru experiences based on creativity and memorable storytelling

•  Grown to be a vital competitor in the Broadcasting & Entertainment industry

•  Unique brand

•  Entertainment giant

•  Separates business into five segments

Growing Up : Core Business

 Media Networks

 Consumer Products

 Parks and Resorts Disneyland Resort Walt Disney World Resort Tokyo Disney Resort Disneyland Resort Paris Hong Kong Disneyland

ABC ESPN

 Internet/Direct Marketing

 The Walt Disney Studios

Toys/ Apparel/Food / Books and Magazines

Growing Up : Capability Bundling of Disney

•  Films

•  Videos

•  Network TV

•  Cable TV

•  Hotels

•  Cruise lines

•  Merchandise

•  Brand licensing

•  NEW … Retail Stores

Toy Story Animated Film

Video

Retail Store Publication

Growing Up : CEO of Walt Disney

In November, 2005

Rober Iger

1.  To foster an environment of creative innovation in all aspects of the business

2.  Global expansion, meaning to grow the business, particularly internationally in the growing markets of China and India, while ensuring long-term, sustainable growth.

3.  A strong application of technology Disney must remain on a platform that can meet c

hanging consumer demands in a well-priced and well-timed manner

Identified three strategic priorities:

Pixel ar t

Growing Up : Pixar

Industry CGI animation, motion pictures, software

Founded February 3, 1986

Headquarters Emeryville, California, U.S.

Products RenderMan, Marionette, Ringmaster

Key people Ed Catmull, Steve Jobs Parent The Walt Disney Company

Pixar Inc.

Growing Up : Pixar

Pixar Inc. history

1979s Lucasfilm

the Graphics Group

1980s Ed Catmull met John Lasseter

1984

John Lasseter went to LucasFilm’s computer division

1986 Steve Jobs bought the LucasFilm computer business

then called Pixar Toy Story (1995)

· A Bug's Life (1998) · Toy Story 2 (1999)

Monsters, Inc. (2001) Finding Nemo (2003)

The Incredibles (2004) Cars (2006) Ratatouille (2007)

WALL-E (2008) Up (2009)

Toy Story 3 (2010) Cars 2 (2011)

The Bear and the Bow (2011) · Newt (2012)

1991 Pixar made a $26 million deal with Disney to produce three computer-animated feature

films

1995 Toy Story

Growing Up : Capabilities

People

Technology

Steve Jobs, Ed Catmull, John Lasseter

Computer animation technology Software : RenderMan, Marionette, Ringmaster

Storytelling Pixar made short films to develop its computer-generated technology and storytelling creativity

Culture   “Everyone must have the freedom to communicate with anyone”

  “It must be safe for everyone to offer ideas”   “art challenged technology, and then technology inspired art”

Growing Up : Disney & Pixar

Feature film agreement

Co-production agreement

Disney and Pixar signed a deal in 1991 to produce the first full length 3D CG animated movie

Pixar would produce for Disney at least 5 films, with production costs, shared equally between the two companies.

Renegotiation for distribution-only deal Two companies broke down completely in mid-2004, with Jobs declaring that Pixar was actively seeking partners other than Disney. Two companies resumed following the departure of Eisner from Disney in September 2005.

CAPS Disney and Pixar collaborated on the development of Computer Animated Production Systems in 1986

Dating!!

Dating : Disney & Pixar

Feature Film Agreement

Co-Production Agreement

Re-Negotiation Try

CAPS Collaboration

1986

1991

1997

2002 ~

2006


CAPS : Computer Animated Production Systems

Year 1986

Relationship Collaboration of the development of CAPS

CAPS Production system used to make 2D cel-based animation movies

Products The Rescuers Down Under, The Lion King

S/W


Feature Film Agreement

3D Animated Film

•  In 1991, Disney & Pixar signed a deal to produce the first full length 3D CG animated movie.

•  Disney : Fund the production cost in return for owning the movie rights and retaining control over over scheduling

•  Pixar : Earn a participation fee based on total revenue for the movie, hand had to fund the overage if production costs exceeded a certain pre-agreed budget

•  Toy Story : Earned $350M, but Pixar only earned $56M from 1995 to 1998


Co-Production Agreement

Story Character Visual CG

•  In 1997, Disney & Pixar signed a deal to produce at least 5 original full-length animated films for next 10 years

•  Disney : Bought 5% of Pixar paying $15M for $1M of its shares with warrants to buy additional shares at higher prices

•  Disney & Pixar : Share the production costs & revenue equally. Disney will fund all marketing expenditures while Disney will receive distribution fee of 12.5% of the earnings.

•  Disney: Retains the exclusive distribution and exploitation rights

•  Disney : $1.5B in operating income & $0.44 in EPS increased


Re-Negotiation Try

Hey Disney!!

Our relationship is too unfair. I want a new deal!!

I’ll fund all the production costs.

Your job is distribution only. I’ll give you an 8% distribution fee.

- Steve Jobs


Disney’s SWOT

STRENGTH WEAKNESS

OPPORTUNITY THREAT

  Brand Power & Multiple Channels

  Experienced

  Well Established & Financials

  New Boom of Animation

  Advent of New Media

  Easier to Distribute Contents

  Lack of 3D CG Technology

  Too much Dependency on Pixar

  Too Children Related Images

  Pixar’s New Move

  Other Competitors

  Piracy Issues


Pixar’s SWOT

STRENGTH WEAKNESS

OPPORTUNITY THREAT

  Powerful 3D CG Technology

  Proven Capabilities

  Creative & Talented People

  Big Boom of 3D CG Animation

  New Deal from Other Company

  Increased Business Opportunity

  No Distribution Channel

  Focused Business on Animation

  Too much dependency on Disney

  Advent of New Competitors

  Commoditization of 3D CG Technology

  High Risk, High Risk

Before Marriage!!

Before Marriage

We are ending talks with Disney! (Jan, 20

04)

  Disney board kicks out CEO Michael Eisner over troubled Disney-Pixar relations  Negotiations resumed in Sept. 2005 following departure of Eisner

Negotiation Breaks Down!

Before Marriage

  Full ownership of film   Distribution channel   Return the rights of Pixar film after five-year distribution

90 percent of a film’s lifetime revenue across all methods of distribution

Before Marriage

  Pixar animation has strategic importance to Disney.

Animation revenue

Theme park sales

Broadcasting sales

  Disney’s first full computer version animation “Chicken Little (2005)” fared only marginally well.

Before Marriage

Sequential Synergy

Acquisition Alliance VS

  Warner Brother’s Strong Interest in Buying Pixar

  Strategic Importance of Pixar to Disney

  Rickety Relationship Between Pixar and Disney

  Sequential Synergies

  Soft Resources (creative manpower)

  Clash of Corporate Culture (studio vs. corporate behemoth)

Marriage

Terms of the Deal (Jan., 2006)

  Price tag: US$7.4 billion in all-stock deal   Steve Jobs: Disney’s largest individual shareholder with 7 percent stock, new seat on board of directors   John Lasseter (Pixar’s co-founder): Chief Creative Officer of Pixar and Walt Disney Animation Studios, Principal Creative Adviser at Wal Disney Imagineering   Ed Catmull (Pixar president): President of Pixar and Walt Disney Animation Studios

merges with

After Marriage!!

After Marriage : Changes

  Discontinue making Toy Story3 : PIXAR committee thought that the next series should have well-made story. ‒  Revision : Meet The Robinsons, American Dog. ‒  Debate : Rapunzel, Joe Jump. ‒  Cancel : Wild, Valiant

  Animation Making Tool of Disney : Disney uses Maya and Maya based Animation tools. ‒  PIXAR uses Maya as only 3D Modeling tool. PIXAR is developing MENV30 which is 3D Animation tool. ‒  Disney will have no choice to change the tools to PIXAR’s tools. To reduce license fee To develop more complex functions

After Marriage : Changes

 Published 3D Animation : After Acquisition, PIXAR&Disney published 4 3D animations. ‒  Cars(2006), Ratatouille(2007), WALL-E(2008), Up(2009)

Happily Ever After!!

Happily Ever After : Synergies

  Growing Up Each Capability by Each Capability

PEOPLE

TECHNOLOGY STORY TELLING

CULTURE

BUNDLING

FINANCE

MARKETING

  Human Resource Management

CULTURE VISION

Happily Ever After : Synergies

  Sharing each products and channels

  Make New product and Sell through New Channel

Disney PIXAR

NEW BUSINESS CHANNEL

THANK YOU!!!

Documents

Pixar Disney M&A