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

After the success of toy story, Disney- Pixar had a co- production agreement in 1997

Movies were developed and directed by pixar

Pixar received compensation from distribution proceeds

Disney to Produce, Market and Distribute the movies

Disney received distribution fees and 87% of the distribution proceeds

• Production costs were co-financed by Pixar, mutual control over sequels

• Ownership of 50%, co-branding, profit sharing for picture, merchandise and ancillary products

• Pixar had the right to enter into other dist agreements after contract completion

• Five original computer animated films to be co produced and distributed by Disney, mutual control over sequels

• Ownership of 50%, distribution rights, co-branding, profit sharing for picture, merchandise and ancillary products,

• Full recovery of distribution costs and receive 12% distribution fees

Acquisition at a glance

Walt Disney

Pixar

Founded by : Walt Disney in 1927

Know How: Unparalled Portfolio in world class Family Entertainment Characters, Theme Parks and other franchisees

Co-Founded By ; Steve Jobs in 1986

Know How : creative &technological resources for computer generated animation films

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

Strengths

• Availability of latest technology lower costs

• Globalization has given rise to a Larger audience

Weakness

•Excessive Research and Development

• High Investment

• High Risk Factor

• Limited Range of Target Audience GroupOpportunities

• Increasing demand due to its applications in media, entertainment, and educational fields

• Cheaper Alternative to soft toys

• Attraction of Children to television

Threats

• Competition: Global, National and Local

• Highly Demanding in terms of Sales,Creativity and Innovation

• 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

Source: www.homepage.mac.com

Title Year of Release

US Box OfficeGross

Loss

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

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 RELEASESMovie Title Year of

ReleasesUS box office Gross (in $ mn)

Worldwide Box 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 DifferencesIntegrity of the DealPixar has the upper handPixar’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