Pixar innovation case study

For the exclusive use of m. alabdalwahab, 2019. 9-709-462 REV: JANUARY 15, 2010 JUAN ALCÁCER DAVID COLLIS MARY FUREY The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire? In November 2005, Robert Iger, the newly appointed CEO of the Walt Disney Company, eagerly awaited the box office results of Chicken Little, the company’s second computer-generated (CG) feature film. He knew that, for Disney as a whole to be successful, he had to get the animation business right, particularly the new CG technology that was rapidly supplanting hand-drawn animation.1 Yet the company had been reliant on a contract with animation studio Pixar, which had produced hits such as Toy Story and Finding Nemo, for most of its recent animated film revenue. And the co-production agreement, brokered during the tenure of his predecessor, Michael Eisner, was set to expire in 2006 after the release of Cars, the fifth movie in the five-picture deal. Unfortunately, contract renewal negotiations between Steve Jobs, CEO of Pixar, and Eisner had broken down in 2004 amid reports of personal conflict. When he assumed his new role, Iger reopened the lines of communication between the companies. In fact, he had just struck a deal with Jobs to sell Disneyowned, ABC-produced television shows—such as “Desperate Housewives”—through Apple’s iTunes Music Store.2 Iger knew that a deal with Pixar was possible; it was just a question of what that deal would look like. Did it make the most sense for Disney to simply buy Pixar? Walt Disney Feature Animation Walt Disney Feature Animation began with the production of Snow White and the Seven Dwarfs in 1934. Toys and memorabilia based on the movie’s characters were stocked in stores such as Woolworth’s around the film’s release, a move that became a trademark of Disney’s strategy. After many early successes, the animation division struggled for decades after Walt Disney’s death but was rejuvenated with the arrival of Michael Eisner, as well as Jeffrey Katzenberg as chairman of Walt Disney Studios, in 1984. Under them, the studio produced a string of hit films that included The Little Mermaid and Beauty and the Beast, up to the enormous success of 1994’s The Lion King, which alone generated over $1 billion in net income for the company. Disney’s Feature Animation unit was described as an open, collaborative environment. So open, in fact, that leadership relied on all employees to generate story ideas. Three times a year, Michael Eisner, Roy Disney, and two other Disney executives would host a “Gong Show” during which all employees had the opportunity to present their story ideas. The executives would cull the best ones and ultimately choose the winner. “It’s a very collective approach to our work. We spend a lot of time ________________________________________________________________________________________________________________ Professors Juan Alcácer and David Collis and Research Associate Mary Furey prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2009, 2010 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. This document is authorized for use only by modi alabdalwahab in Strategic Management Spring 2019 taught by NANDINI LAHIRI, American University from Jan 2019 to Jul 2019. For the exclusive use of m. alabdalwahab, 2019. 709-462 The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire? in meetings arguing, discussing, and trying to come to a consensus,”3 as one commented. Most of Disney’s animated story lines came out of these meetings. The winner was remunerated for his or her contribution and, while figures were not made publicly available, some said winners earned up to $20,000.4 Disney animators were compensated, in part, based on the success of the film, which made it difficult for other studios to lure talent away.5 Eisner believed in making clear who was good at their job, and who was not so good, and wanted to give control to leaders who had a sense of judgment about creativity and business. Seventy-five percent of the time, he was able to find a director who had these skills and wanted to work on a particular movie; the rest of the time directors would be told to “just do it.”6 Katzenberg, who was known for his grueling work ethic and passion for animation, made it his personal mission to bring the studio back to its former glory. He supervised every aspect of the studio’s films. According to one former Disney executive, “Jeffrey is the sheep dog and the wolf. He’s the sheep dog guarding us, and the wolf hunting us.”7 Katzenberg was credited with hammering out the storytelling of each film and ensuring that each film had a moral resonance. He also brought on external talent to each movie,