Buzz and Minnie Shouldn’t Have Married
I think Disney and Pixar should have kept dating instead of jumping into wedlock. They had a great thing going, and I’m afraid this marriage is going to screw things up.
Right up until January, 2006 when the lovebirds tied the knot, I was singing the praises of the decade-long Pixar-Disney alliance. During that time frame, Pixar created films and Disney co-financed, marketed and distributed them—and both parties split the generous proceeds. It was a great relationship, and the fact that Bob Iger replaced Michael Eisner as Disney’s CEO meant that the relationship could continue anew because Pixar CEO Steve Jobs liked Iger with the same magnitude that he loathed Eisner.
That was then. Now, of course, the $342 million Pixar is part of the $31 billion Disney empire. Conventional wisdom says this is a great deal. From Disney’s perspective, it certainly looks that way. Pixar was a very sexy prospect for any suitor. During the term of its partnership with Disney, Pixar unleashed a remarkable six-for-six streak of blockbuster films featuring dazzling animation technology and hugely memorable characters like Buzz Lightyear, Nemo, and Mr. Incredible. The $3.2 billion in worldwide box office sales alone garnered by the Pixar productions dwarfed the comparable figures from Disney’s own animation studios, which produced lackluster films like “Home On the Range,” “Brother Bear,”and “Treasure Planet.” It got to the point that the half dozen Pixar movies accounted for more than half of Disney Studio’s profits. How embarrassing for a company that had cut its teeth with animation—remember Mickey and Minnie, Goofy and Pluto, that sort of thing?
Taken as an entire company, Disney’s performance was even more depressing. From 2003 to 2005, Disney’s sales and profit growth were negligible compared to Pixar’s 50% growth rates. In fact, by 2005, pipsqueak Pixar was posting profit and operating margin percentages that were more than six times those of Disney—to the point that nearly half Pixar’s revenue was profit! The smaller company’s return on assets was double Disney’s—even though Pixar didn’t even release a new film in 2005.
You get the picture (no pun intended). Acquiring Pixar puts the shine back in Disney’s animation business—and its financials. Disney also gets Pixar’s proprietary technologies and its nice cash hoard. Presumably, it’ll get all of Pixar’s exemplary expertise and talent too. And the $7.4 billion purchase price (for a $342 million company!) was in stock rather than real money. For Disney, the deal looked like a no-brainer.
What does Pixar get in return that it couldn’t get from an alliance? I’m still trying to figure that out. Maybe Pixar gets some deep pocket protection just in case the next films (“Cars”, etc.) are bombs. Batting 6 for 6 over the last ten years is a remarkable feat, and maybe Pixar executives were afraid they couldn’t keep up the perfect streak, nor cushion a box-office failure, nor maintain killer financials in the face of a declining DVD industry. Maybe it’s that now Pixar people regain creative control over Woody and Buzz and all the other characters. Maybe it’s that Steve Jobs—who suffered a near-fatal illness last year-- got burnt out running both Pixar and Apple and finally wised up as to the meaning of life. Maybe Pixar executives Ed Catmull and John Lasseter just wanted more high-profile jobs. Who knows? Your guess is as good as mine, but in light of Pixar's exceptional independent successes over the past decade, none of these reasons is persuasive as a strategic justification for jumping into bed with Goliath.
Frankly, I think the reason that Pixar went 6 for 6 is because it wasn’t a huge, deep-pocket company. Pixar people had to rely on their talent, agility, edginess, boldness, passion, collaborative culture, proprietary technologies and constant innovation. Now the entire company will be thrown into the bear hug of a massive, often dysfunctional media conglomerate. Will the “Pixar way” survive? Will the Pixar people stay? A lot of acquisitions which look great on paper wind up looking crappy in practice.
In fact, I’m left wondering if the factors which created value in the partnership will destroy value in the marriage. As an independent company, Pixar was all about quality and imagination, technology and storytelling, delight and magical animation. Disney is about quantity, leverage, promotion, distribution, and merchandising. Pixar averaged one film every 18 months, and sometimes postponed a film’s launch until it was just right. And Pixar people loathed the notions of film sequels and they doubly loathed any exploitation of their beloved characters. Disney has the opposite perspective: Crank out more films faster, market the hell out of them, build sequel after sequel, and expose the characters to the hilt in as many products and venues as possible, all in the name of leverage. Within an alliance, these differences made synergistic sense, and offered a nice check-and-balance to both partners. Within an acquisition, these differences can create deep and fundamental conflict. Now couple these differences with the vast disparities in corporate traditions and cultures (agile, entrepreneurial, and egalitarian at Pixar vs. layered, bureaucratic, and turf-ist and Disney), and you have a potentially explosive cocktail that might skewer this deal alongside so many other disappointing ones.
I wish they had kept on dating. They were such a fun, power-couple. Now my fear is that once both parties settle into the post-wedding daily life of marriage, Disney might gradually strangle the goose that laid the golden eggs. I’m not a fan of spousal abuse.
Right up until January, 2006 when the lovebirds tied the knot, I was singing the praises of the decade-long Pixar-Disney alliance. During that time frame, Pixar created films and Disney co-financed, marketed and distributed them—and both parties split the generous proceeds. It was a great relationship, and the fact that Bob Iger replaced Michael Eisner as Disney’s CEO meant that the relationship could continue anew because Pixar CEO Steve Jobs liked Iger with the same magnitude that he loathed Eisner.
That was then. Now, of course, the $342 million Pixar is part of the $31 billion Disney empire. Conventional wisdom says this is a great deal. From Disney’s perspective, it certainly looks that way. Pixar was a very sexy prospect for any suitor. During the term of its partnership with Disney, Pixar unleashed a remarkable six-for-six streak of blockbuster films featuring dazzling animation technology and hugely memorable characters like Buzz Lightyear, Nemo, and Mr. Incredible. The $3.2 billion in worldwide box office sales alone garnered by the Pixar productions dwarfed the comparable figures from Disney’s own animation studios, which produced lackluster films like “Home On the Range,” “Brother Bear,”and “Treasure Planet.” It got to the point that the half dozen Pixar movies accounted for more than half of Disney Studio’s profits. How embarrassing for a company that had cut its teeth with animation—remember Mickey and Minnie, Goofy and Pluto, that sort of thing?
Taken as an entire company, Disney’s performance was even more depressing. From 2003 to 2005, Disney’s sales and profit growth were negligible compared to Pixar’s 50% growth rates. In fact, by 2005, pipsqueak Pixar was posting profit and operating margin percentages that were more than six times those of Disney—to the point that nearly half Pixar’s revenue was profit! The smaller company’s return on assets was double Disney’s—even though Pixar didn’t even release a new film in 2005.
You get the picture (no pun intended). Acquiring Pixar puts the shine back in Disney’s animation business—and its financials. Disney also gets Pixar’s proprietary technologies and its nice cash hoard. Presumably, it’ll get all of Pixar’s exemplary expertise and talent too. And the $7.4 billion purchase price (for a $342 million company!) was in stock rather than real money. For Disney, the deal looked like a no-brainer.
What does Pixar get in return that it couldn’t get from an alliance? I’m still trying to figure that out. Maybe Pixar gets some deep pocket protection just in case the next films (“Cars”, etc.) are bombs. Batting 6 for 6 over the last ten years is a remarkable feat, and maybe Pixar executives were afraid they couldn’t keep up the perfect streak, nor cushion a box-office failure, nor maintain killer financials in the face of a declining DVD industry. Maybe it’s that now Pixar people regain creative control over Woody and Buzz and all the other characters. Maybe it’s that Steve Jobs—who suffered a near-fatal illness last year-- got burnt out running both Pixar and Apple and finally wised up as to the meaning of life. Maybe Pixar executives Ed Catmull and John Lasseter just wanted more high-profile jobs. Who knows? Your guess is as good as mine, but in light of Pixar's exceptional independent successes over the past decade, none of these reasons is persuasive as a strategic justification for jumping into bed with Goliath.
Frankly, I think the reason that Pixar went 6 for 6 is because it wasn’t a huge, deep-pocket company. Pixar people had to rely on their talent, agility, edginess, boldness, passion, collaborative culture, proprietary technologies and constant innovation. Now the entire company will be thrown into the bear hug of a massive, often dysfunctional media conglomerate. Will the “Pixar way” survive? Will the Pixar people stay? A lot of acquisitions which look great on paper wind up looking crappy in practice.
In fact, I’m left wondering if the factors which created value in the partnership will destroy value in the marriage. As an independent company, Pixar was all about quality and imagination, technology and storytelling, delight and magical animation. Disney is about quantity, leverage, promotion, distribution, and merchandising. Pixar averaged one film every 18 months, and sometimes postponed a film’s launch until it was just right. And Pixar people loathed the notions of film sequels and they doubly loathed any exploitation of their beloved characters. Disney has the opposite perspective: Crank out more films faster, market the hell out of them, build sequel after sequel, and expose the characters to the hilt in as many products and venues as possible, all in the name of leverage. Within an alliance, these differences made synergistic sense, and offered a nice check-and-balance to both partners. Within an acquisition, these differences can create deep and fundamental conflict. Now couple these differences with the vast disparities in corporate traditions and cultures (agile, entrepreneurial, and egalitarian at Pixar vs. layered, bureaucratic, and turf-ist and Disney), and you have a potentially explosive cocktail that might skewer this deal alongside so many other disappointing ones.
I wish they had kept on dating. They were such a fun, power-couple. Now my fear is that once both parties settle into the post-wedding daily life of marriage, Disney might gradually strangle the goose that laid the golden eggs. I’m not a fan of spousal abuse.
posted by Oren Harari at 1:43 PM
1 Comments:
Hi Oren Harari, taking a little time today to see what Residual Cash Flow will send me to that is interesting. Buzz and Minnie Shouldn’t Have Married looks interesting and is a great read. Will also try Residual Cash Flow in my e-travels. Have a super day!
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