Acquisition of Pixar by Disney

Presented by Team K

Adwitiya | XLRI

Disney & Pixar

Disney Overview

• Founded on Oct 16,1923 by brothers Walt and Roy Disney

• Headquartered at Burbank, California• World’s second largest broadcasting and cable company• Owner of 14 theme parks & several TV networks such

as ABC & ESPN• Walt Disney’s first original animated character –

Oswald the Lucky Rabbit

Pixar

• Began in 1979 as the Graphics Group, part of the computer division of Lucasfilm

• Spin-out as a corporation in 1986 with funding by Apple Inc. co-founder Steve Jobs

• 14 feature films and several short films• Released its first film in 1995 – Toy Story• The film grossed $362 million and became the biggest

grosser of 1995

A history of poor relations

• Both companies had a history of acrimony• Steve Jobs abruptly called off talks to continue a

lucrative partnership with Disney • Jobs had often clashed with the CEO Michael Eisner• Eisner disparaged an Apple advertising slogan before a

Congressional committee• Analysts, investors and media pundits also questioned

the hefty price Disney paid for a small studio that released only one movie a year

• In an industry where corporate marriages often create internal warfare, Disney and Pixar have found a way to make it work

• After 2 years, Disney’s stock climbed 28% since its 52-week low on Jan 22, 2008

Pixar’s Evolution• Pixar has matured, allowing its strategic thinking

to evolve inside a sprawling corporation• Some of the studio’s executives once resisted sequels

and direct-to-DVD efforts, arguing that quality and the brand could suffer

• That has changed with films such as Cars 2• 4 direct-to-DVD movies built around Tinker Bell• Pixar team has oversight of Walt Disney

Animation Studios and the DVD-focused DisneyToon Studios

• Outsourced some direct-to-DVD animation to an Indian company, a departure from its rigid stance on outside animators

How are they making it work?• Obvious tactics like effectively communicating changes

to employees• More unusual decisions on drawing up an explicit map

of what elements of Pixar would remain unchanged• Robert Iger agreed to an explicit list of guidelines for

protecting Pixar’s creative culture• Pixar employees were able to keep their relatively

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

• The sign on Pixar’s front gate would remain unchanged• Disney, despite its legendary corporate identity and

strong will, held back• Pixar kept its email system and no one was shifted to

Walt Disney World in Florida to work a shift• No Pixar telephone operators had to end with “Have a

magical day”

Key Leadership Decisions• “There is an assumption in the corporate world

that you need to integrate swiftly. My philosophy is exactly the opposite. You need to be respectful and patient.” – Robert Iger

• Giving incoming talent added duties• Pixar was assigned the difficult task of turning

around a storied animation department that had fallen into disrepair

• E.g., Pixar reworked Disney’s ‘Bolt’ • Original director of Bolt was replaced- led to some

hurt feelings• “Disney has become a filmmaker-led studio and not

an executive-led studio. We are very proud of that.” – John Lasseter

Issues to work out• Taken longer than investors anticipated to sort

through the pipeline of existing projects and begin green-lighting new ones

• Disney’s plans for hand-drawn animation are unclear

• Pixar has unusual ideas in the pipeline that may not become merchandising juggernauts like ‘Cars’

• John Lasseter is responsible for Disney and Pixar animation studios as well as other parts of the Disney empire, including consumer products and park design

• Competitors like DreamWorks have received plaudits for franchises like Kung Fu Panda

1991 1991 1993 1995 1997 1999 2001 2003 2005 2006

Acquisition consumated

5/5/2006

Walt Disney - Pixar acquisition is announced24/1/2006

Robert Iger becomes Walt Disney CEO1/9/2005

Relationship soured

1/1/2004

Disney & Pixar signed cooperative agreement for 5 movies

1/1/1991

Timeline

Rationale

Implementation framework

01/12/15 12

High Integration

Low Autonomy

High Integration

Low Autonomy

Moderate and selective integration

High autonomy

Moderate and selective integration

High autonomy

High Integration

High Autonomy desirable but limited

by need for integration

Low integration

Autonomy based on focus other than

relatedness

Low integration

Autonomy based on focus other than

relatedness

ComplementarityLow High

Similarity

Low

High

Subhashini Chandran

Frameworks

What went right?

• Leadership • Identity Crisis averted• Integration strategy

Frameworks

The Iger Era- 2005 to present

• Production, distribution deal- on the rocks• Robert A. Iger- 2005 – Chairman and CEO Disney• Felt the need to buy Pixar• John Lasseter (CCO) and Edwin Catmull (Founder

& President Pixar)- wary• Jobs lobbied for Iger – based on prior experience• Iger’s priority - Sorting out the relationship• Restarted acquisition talks, won early support at

Pixar• Talked candidly and clearly – experiences at

previous employer• Able to build trust and gain confidence at Pixar

“There is an assumption in the corporate world that you need to integrate swiftly. My philosophy is exactly the opposite. You need to be respectful and patient.”

Identity preserved

• Explicit guidelines – protect Pixar’s creative culture, promises kept even after merger

• Pixar HR policies intact -Health benefits, No employment contracts

• Pixar – separate entity, Studio remained in California with the "Pixar" sign

• Branding– Equality – "Disney•Pixar"• Studios' separate identities and

cultures (though common ownership and senior management)

• Studio “local ownership”

• Mr. Iger’s decision – give incoming talent added duties

• Process not rushed• Pixar – full autonomy• Pixar’s creative force, John Lasseter,

COO infused Disney with a fresh spark

• Edwin Catmull- retained position President Pixar also President of Disney

• Pixar’s transformational leadership adopted by Disney

Key to the

success

Edwin Catmull, Pixar, “We’ve never had to go back and look at it. Everything they’ve said they would do they have lived up to.”

• Jobs - largest individual shareholder 7% stake, seat on the Board

• For Pixar shareholders

1 Pixar share = 2.3 Disney shares

Potential Risks

Influenced by Steve Jobs

Culture of Disney and Pixar

Conflict of Cultures

Bureaucratic Hierarchical

structure of organization

Distant upper level management

Micromanagement Low Morale Brain Drain of

creative talent Productivity and

not quality, rules the day

Bureaucratic Hierarchical

structure of organization

Distant upper level management

Micromanagement Low Morale Brain Drain of

creative talent Productivity and

not quality, rules the day

Free spirited creativity

Workspace-Huts instead of cubicles

Policy against employment contracts

Egalitarian collaboration

Theme of team work Bonus structure Perfectionism

Free spirited creativity

Workspace-Huts instead of cubicles

Policy against employment contracts

Egalitarian collaboration

Theme of team work Bonus structure Perfectionism

Potential Risks

Influenced by Steve Jobs

Culture of Disney and Pixar

Influenced by Steve Jobs

• Pixar may lose rational and independent business choice

• So there was a discussion regarding if the decision was right or tight

Silo Mentality

• ‘Hard line’ between the studios• Not allowed to borrow personnel from or lend task

out to other.• Maintained local ownership• But when faced with problems asked to solve on

their own

What could have been done differently

Post integration Disney and Pixar strictly maintained separate teams and offices with no cultural integration

An integration to Death – No, Most Definitely Not!

Pixar-Organic Disney - MechanisticRelied on valuable intellectual asset that used constant infusion of better technology and maintained close eye on academic innovations

Back then in 2006, the human capital at Disney was not at par with Pixar in terms of its innovation potential - A cultural integration would have ended in Separation

Collaborative working style Team centric working culture

Disney endorsed top down managment style leading to an aggressively competitive culture where employees were evaluated on individual performance

Concept of “Creative brain Trust – Directors participated in Brainstorming but ultimate decision authority to teams

Top managment oversaw entire production process and dictated Direction

If no work needed on films, employees to work on R+D Projects . This translated into high employee loyalty at Pixar

Employees hired and Fired Based on Project Demand

What could have been done differently

Has Pixar Lost its Way?

No new ideas. Relying on cash in sequels. New projects postponed due to layoff

More Integration with Disney?

Back then Disney was not ready to match up to Pixar`s capabilities : Maintenance of separate technical teams

Growth of Disney`s Ecosystem

• Disney`s non Pixar computer animated effort Wreck-It Ralph`s by WDAS doing better

• WDAS more open to fresh talent whereas at Pixar – ideas generated in-house

Utilization of Differences to create a Learning Organization

• More consolidation for technical and support areas of Production • Efficient flow of information and Knowledge to support team learning

QUESTIONS??