Walt Disney and Pixar

Acquire or Not to Acquire?

Instructor – Prof. Palash Deb

Group 6
ABHILASHA ACHARYA (0076/55)
PRASHANT PRIYADARSHI (0114/55)
YATIN CHOUDHARY (0303/55)
ATISHAYA JAIN (0319/55)
PRAVEEN KUMAR (0349/55)
C o r p o r a t e S t r a t e g y
 Case Setting: 2005
FUTURE DECISION STATE OF WALT DISNEY

• Disney’s demise starts after the exit of

Robert Iger, Katzenberg, who left it to start
DreamWorks in 1994
CEO
• After The Lion King in 1994, every Disney
Movie was falling short of expectations

• Disney’s success determined by Possible causes: Large Budgets, Large

successful animation movies Staff & Lots of Time

• Disney currently dependent on animation • From 2002, Disney started some

studio Pixar for animated movies aggressive cost cutting mission

• Pixar contribution to Disney (1998-2004) • Lower Budget Movies, manpower costs

10% of Revenue & 60% of Operating Income

Iger’s Dilemma
Whether Disney should acquire Pixar?
If no, redesign of contract?

C o r p o r a t e S t r a t e g y
 Changing Industry

NEED FOR CG TECHNOLOGY DISNEY’S FAILED ATTEMPTS

Disney’s response to growing popularity of

3D CG films

I. “Secret Lab” (Late 1990s-2001)

▪ Popular Projects: Dinosaur, Wildlife
World of Animation moving towards ▪ Failed to make a mark
Computer Generated (CG) from
Hand-drawn Animation II. CG Animation Department, Disney
Studios (2003)
▪ Retraining of Staff
▪ Pixar started 3D computer generated
models ▪ Huge Investment: Financial & Time
▪ Depressed Morale
▪ 2D animation based on frames, large
staffs, very high lead times
▪ Pixar used its proprietary software for
computer animation technology
✓ Reduced Lead Times
✓ Lower Costs

C o r p o r a t e S t r a t e g y
 PIXAR: CORPORATE STRATEGY
About the company Creates Values by

History • Cross Sight – Integrated technology

• Started as a computer hardware and
software company and then eventually
left with only animation division
Developed three proprietary
technologies
1. RenderMan – System that applied
texture and color to 3-D objects
2. Marionette – Designed specifically for
character animation and articulation
3. Ringmaster – Production management
system
Corporate Strategy
and animation
• Foresight – Quickly generating a
succession of box office at lower cost
• Insight – Proprietary 3D CG
animation technology
• Culture – Every person in the
company believed in the mantra that
story come first and creativity existed
at all the levels of organizations.

Developed its computer generated

technology and storytelling creativity by
incorporating short films and animations

C o r p o r a t e S t r a t e g y
 Disney-Pixar Relationship
TIMELINE CONTRACT IN DEBATE

Production system used to Renegotiation for distribution – only deal

CAPS make two – dimensional
cel-bases animated movies In 2002, Steve jobs had been trying to
1986 broker a deal with Disney whereas Pixar
would shoulder all of the film’s production
Signed a deal to produce cost in return of 100% of ownership of films
Feature Film
the first of three full length
agreement
3D- CG animated movies
In 2004, Pixar announced that it was
1991
ending its talks with Disney to renew the
Co- Following the success of
existing partnership and was looking for
production Toy story, Disney bought another partner
agreement 5% of Pixar
1997

C o r p o r a t e S t r a t e g y
 Is Exclusivity Desirable?
Values Created by Disney & Pixar
DISNEY
• Leverage brand strategy & incorporate into
different lines of brand strategy.
• Keep animation costs low by minimizing
background motion and number of characters
per screen
• Maintain large variety of own complementary
business activities.
PIXAR
• Integration of technology & animation
• Box office hit movies made at low cost
• Proprietary 3D CG animation technology & stay
close to innovations
C o r p o r a t e S t r a t e g y
Integrated Disney-Pixar
• Disney has established distribution channels &
well defined consumer base. They have brand
recognition and have economies of scale
• Hybrid character development and Pixar’s
proprietary 3D CG animation technology
• Faster animation & overall lower cost of movies.
Increased animation movies market share of
Pixar.
• Characters from movies drove Disney’s retail in
theme parks & consumer product divisions
• Vertical integration is cost
effective & synergistic
for both cos
Disney’s bottom line
costs will reduce.

Consolidation
-Reduction in costs from
secondary activities of the value
chain through sharing of these
resources and capabilities
between Disney and Pixar
Synergy Test
Customization
-More freedom with characters =
new products
-Joint resources for R&D for new
technology development
-Transfer of culture, IP and
knowledge
CHALLENGES
• Cultural difference: At Disney, it is about
profitability before quality; Pixar stands for a
collaborative culture that results in
creativity
• Multiple responsibilities on John Lasseter
causing risk of distracting his creative
powers.

• Increasing competition that is getting better

Combination
- Exclusivity of Pixar
-Lower competition between
Pixar and Disney
-Doing away with cost of
contracts and negotiations
Connection at meeting customers’ needs.
- Increased Cross-Selling of
products
• Stability issues: Retaining talent which is the
driving force in the industry.
-Linkage of content creation for
Disney and Distribution and
Marketing for Pixar
-Leveraging other sources like
licensing freely

C o r p o r a t e S t r a t e g y
 Partners for Disney & Pixar
Pixar alternatives for Disney
• Internal Development: 3D technology,
Development cost & fierce competition,
technology sector not key competency of
Disney
• Strategic Alliance with other Studios: Build
new relationships, distribution factor
problems
C o r p o r a t e S t r a t e g y
Disney alternatives for Pixar
• Disney is already a partner and have been
working with them for past one decade
• Lots of successes together with Disney
• Strategic Alliances: Need to build new
relationship with other studios
• Fox, Warner Brothers & Sony
 Managing the Combined Entity

• Disney should allow Pixar a fair deal of autonomy by treating Pixar

as a separate entity of Disney.
• The Pixar brand must be retained to protect its distinct entity and
to create a sense of association.
• Redefining organizational structure to avoid the overlap which
create unnecessary expenses.

C o r p o r a t e S t r a t e g y
 Conclusion – Acquire to Lead
• Proven success of their partnership, strong strategic fit
• Decrease competition within themselves; For Disney – CG Animation, For Pixar
– Distribution and merchandize
• Unionized Disney culture as against Pixar’s learning culture
• Future Cost of both company can be reduced by Vertical integration
• Increase diversification
• Heavy Reliance of Disney’s operating income on contribution made by Pixar
causing a huge risk if Pixar allies with other Partners

C o r p o r a t e S t r a t e g y
THANK YOU