Disney-Pixar merger
Creative drive
June 9, 2006
Within seconds, the "Happiest Place on Earth" began to live up to its name again. Disney had acquired Pixar Animation Studios for $7.4 billion less than a week earlier, and the tiny digital animation house was wasting no time in taking over. Lasseter was given control of creative output, and Pixar president Ed Catmull took the same position at Disney. The message was clear: There were new sheriffs in town, and they were looking to play. A triumphant buzz spread immediately throughout the animation industry. "This is like seeing the Orcs being driven out of Middle-Earth -- I am overjoyed," was the word on one Internet message board from Will Finn, a former Disney animator who most recently directed the 2004 boxoffice dud "Home on the Range." A posting on Cartoonbrew.com showed an ecstatic Thumper kicking up his feet in uncontainable joy next to the headline, "And There Was Much Rejoicing." Animation-watch sites such as JimHillMedia.com and Animwatch.com were crammed with anecdotes and postings about Lasseter giving the Heisman to Disney's suits while handing key balls to the company's talented but stifled artists and creators. The reign of former Disney chairman and CEO Michael Eisner was officially over, replaced by the liberalized regime of president and CEO Robert Iger, who wasted no time in recruiting Pixar's brain trust. Through Pixar, the realms of animation, fantasy and storytelling were finally getting their childhoods back. It is no secret that during its 20 years as an independent company, Pixar enjoys a perfect record. It's also no secret that Lasseter is considered a living incarnation of Walt Disney. (Ironically, Lasseter worked at Disney from 1979-84 and by his own admission was "fired.") Pixar's six feature-film releases have cost an average of less than $100 million each to produce and have gone on to gross an average of more than $500 million apiece at the worldwide boxoffice. Disney and DreamWorks Animation SKG, by comparison, barely have been keeping up: DreamWorks has released nine films since 1998 (including partner projects and 2-D animation) that have grossed about $300 million on average, and Disney -- which was busy shuttering its Florida animation studio and scaling back the team in Burbank -- has put out 13 animated features since 1995, each grossing an average of $230 million worldwide. Animation is a business in which indulging one's inner child pays off handsomely, something weary Disney shareholders have learned the hard way. During the past 10 years, the prices of Apple and Pixar shares have seen triple-digit increases, while Disney stock has trended downward. It seems natural that Pixar would do well as the beating heart of a Disney in need of revival, but now that it has happened, the important question is how the inversion will affect both sides. What will the union mean to the future of the massive Disney animation machine, now fueled by Pixar? Once a private research-and-development engine for George Lucas and Lucasfilm, Pixar was purchased for $10 million by Apple CEO Steve Jobs in 1986. After nine years and $90 million in personal funding from Jobs, the company released its first film in 1995: the smash hit "Toy Story," which grossed $362 million worldwide. That film and each subsequent Pixar release has been distributed by Disney, the result of a deal struck in 1991. To that extent, Disney helped Pixar become the king of computer-graphic animation. But in stark contrast to the micromanagement styles of his top competitors -- Eisner and DreamWorks CEO Jeffrey Katzenberg -- Jobs funded the Pixar crew then let it run wild with its talent. Under the direction of Lasseter and Catmull, Pixar became the place to be with an eclectic campus of free-spirited artists grinding out their craft in an environment featuring open-fronted cottages, a swimming pool and individualized workplace decors that boast such extravagances as a pizza oven, a leopard-skin sofa and a Love Lounge. "Nobody could offer us what Disney could offer," says Jobs, now the largest Disney shareholder with 7% as a result of the all-stock transaction. At the time of the merger, he added: "We have seven children (films) together, and keeping the family together is also a really nice benefit of this relationship. Most of the time Bob and I have spent talking about this hasn't been about economics; it has been about preserving Pixar culture because that's the thing that's going to determine the success here in the long run." The joy was compounded when, shortly after kicking the suits out of the animation building, Lasseter made his way to the imagineering division, brushing past president Don Goodman to meet with vp Tony Baxter. There was a time when creative types like Baxter drove Disney with their whimsical stories and fanciful ideas, pushing profits by fueling boxoffice, DVD, television and store sales, as well as theme-park interest and the Disney licensing juggernaut. For the past decade-plus, Baxter and his ilk reportedly had been stifled by Eisner's micromanagement and the company's meddling strategic planning group -- and when creation faltered, so did everything depending on it. From 1999-2005, Disney's consumer-products profits dropped by 12% and its park profits by 21%. From 2003 through last year, when the Weinstein brothers left Miramax, Disney's film-studio profits fell by 67% and were buoyed mainly by two Pixar films: 2003's "Finding Nemo" and 2004's "The Incredibles." Once the envy of all other content creators, Disney had become dependent on its TV networks including ABC and ESPN, which now account for 60% of the company's profits. Baxter kept the faith, but it wasn't easy. "Disney is broken, and they don't know it," Baxter reportedly told friends even as he shunned lucrative job offers, at least one of which came from Las Vegas impresario Steve Wynn. Last year, when it was clear that Pixar was being drawn to the negotiating table with Iger, Lasseter called Baxter up to Pixar headquarters in Emeryville, Calif., and grilled him for an entire day about the Disney operation. At the end of the day, Lasseter told Baxter that he couldn't say why, but he should by all means stay put -- that someday soon, Baxter would be given more power than he had enjoyed to that point. Sure enough, once this year's deal was in place and Pixar was firmly in charge, Goodman quietly was shunted aside, as was Disney animation chief David Stainton. After years of reportedly waiting impatiently for a Pixar flop that never came, the Disney team was being told to heel. Pixar had the reins, and enthusiasm was spreading quickly: Since the acquisition was announced, Disney stock has enjoyed its first sustained boost in five years, with its share price rising by 10% since Jan. 1. "It's a strange situation when the underdog becomes the boss," says Jim Hill, a Disney historian who operates JimHillMedia.com. "That's exactly the situation we have happening now." The transition will not be without its troubles. In a similar move, when DreamWorks purchased computer-generated imagery house PDI, Pixar's former independent rival, a huge battle flared between the Burbank animators and their new siblings in Redwood City, Calif. Turf wars raged, not the least of which hinged on which software would be the basis for films being produced at the time (including 2004's "Shark Tale") and future releases. The struggle became a huge distraction for the animators and a drag on the company's operations. "The chain of command is so clear in this case that I doubt there will be the same kind of subtle behind-the-scenes jockeying and infighting at Disney," says Animation Guild president Kevin Koch, a former DreamWorks animator who worked on the current Paramount release "Over the Hedge." But Koch cites plenty of other potential land mines, including lingering resentment. Disney has been through dark times, including the Florida shutdown and the recent beefing up of a crew in Los Angeles for the Lasseter-penned planned 2008 release "Toy Story 3" -- only to lay off a few dozen riggers, modelers and other animation team members when Lasseter canned the effort and took the film back up to Emeryville. Still, there is a sense in-house that Disney animation was in the process of a turnaround and that the people who have been a part of it could be overlooked amid the love being showered on the Pixar team. The 2005 release "Chicken Little," Disney's first solo CGI film, earned a respectable $313 million in worldwide boxoffice receipts, and though one of the company's projects, the planned 2008 release "American Dog," is known to be struggling with story issues, its planned March release "Meet the Robinsons" has generated solid buzz. Another problem could be the power of Disney's expansive empire. Lasseter and Catmull have pulled off the impossible, creating a track record of blockbusters never before seen in the movie business. Now that Lasseter has so many hats to wear, though, the fear is that he could be stretched thin, lured into dabbling with theme-park rides and Epcot Center attractions and shifting his focus from the story power that was the deal's genesis. "One of the reasons Pixar has been so successful is that they have an unflinching commitment to quality," says Anthony Valencia, a media and entertainment analyst at investment house TCW Group Inc., which previously owned 10% of Pixar shares. "There was never a sense that they had to keep putting out movies on a schedule, and they would not hesitate to pull a film back after 21⁄2 years because it wasn't working. More important than having the luxury to do that, they were willing to do that." Pixar might not enjoy such luxuries when Disney's chain of stores begins to clamor for more merchandise spinoffs of its inevitable successes. There also exists a chance that Pixar's success could come back to bite the company: "Cars," set for U.S. release today, has been touted as an entertaining film, but it comes on the heels of "Hedge," which could hinder its performance. That could lead to any number of battles, including one inside Disney that could have entrenched but threatened executives -- like imagineering executive vp Tom Fitzgerald -- tugging at Iger's sleeve about the cost of the Pixar acquisition and the prudence of instilling controls. Such struggles undoubtedly will take place, but the Pixar team is likely to be given a wide berth for the next few years, especially because of its deep bench of creative talent that includes directors Brad Bird ("Incredibles") and Andrew Stanton ("Nemo") and a slew of writers, animators and storyboard artists who have been crafting Pixar gems from their own ideas (and Disney story notes) for years. Then there is Lasseter, whose contract extends through 2011. It has been said that Iger cut the Pixar deal largely to procure his services. The united Pixar/Disney possesses the potential to settle into an operation that will be the envy of the business. Lasseter and Pixar animators already are said to be retooling Disneyland's classic Submarine Voyage attraction to reopen next year as the Finding Nemo Submarine Voyage, complete with animated characters projected onto Lucite submerged in the ride's water tanks. There is no question that Disney is set to undergo profound changes through the absorption of Pixar. Circle Seven, a group set up by Disney to work on Pixar sequels, has been dismantled, and observers are monitoring the fate of Disney Toon Studios, the unit set up to make Disney Classics sequels for the video market under Sharon Morrill. But on the flip side, traditional animators who recently fled Disney are returning. Among them are Eric Goldberg, who drew the genie in 1992's "Aladdin" and directed 1995's "Pocahontas" (alongside Mike Gabriel), and Ron Clements and John Musker, directors of 1989's "The Little Mermaid." Clements and Musker were given a noisy going-away party upon leaving Disney in December but were rehired quietly in February to head the company's hand-drawn animation division. It is a clear sign that the Pixar team already is thinking outside the box, preparing for movies that do not fall within the content and style models that have been typical of Pixar. "Most mergers in media don't necessarily make sense because there is always this synergy component that has to occur, where you need this kind-of one-plus-one-equals-three kind of math," Valencia says. "But this is one of the few that really seems like a match made in heaven." |
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