Marriage

IM 551 IT Strategy & Management

Prof. Heeseok Lee

KAIST Strategy Consulting Group

Group members:
M&A

   

Marriage

   
Contents
1. Growing Up
- Disney History & Core
- PIXAR History & Core

2. Dating
- PIXAR & Disney

3. Before Marriage

4. After Marriage : Change

5. Happily Ever After : Synergy

Growing Up!!
Growing Up : History of Walt Disney 

•  Founded in 1923 by Walter Elias Disney, he

and his brother Roy created the short film “
Alice’s Wonderland”

•  Focus on entertainment thru experiences ba

sed on creativity and memorable storytellin
g

•  Grown to be a vital competitor in the Broad

casting & Entertainment industry

•  Unique brand

•  Entertainment giant

•  Separates business into five segments

Growing Up : Core Business

 Media Networks
ESPN ABC

 Internet/Direct Marketing

 Parks and Resorts

 The Walt Disney Studios
 Consumer Products
Toys/ Apparel/Food
/ Books and Magazines
Disneyland Resort
Walt Disney World Resort
Tokyo Disney Resort
Disneyland Resort Paris
Hong Kong Disneyland
Growing Up : Capability Bundling of Disney

Video
•  Films

•  Videos

•  Network TV

•  Cable TV

•  Hotels
•  Cruise lines Toy Story
•  Merchandise Animated Film

•  Brand licensing

•  NEW … Retail Stores

Publication Retail Store

Growing Up : CEO of Walt Disney 

In November, 2005
Rober Iger
Identified three strategic priorities:

1.  To foster an environment of creative innovation i

n all aspects of the business

2.  Global expansion, meaning to grow the business, p

articularly internationally in the growing markets
of China and India, while ensuring long-term, sus
tainable growth.

3.  A strong application of technology

Disney must remain on a platform that can meet c
hanging consumer demands in a well-priced and
well-timed manner
Pixel ar t
Growing Up : Pixar

Pixar Inc.

Industry CGI animation, motion pictures, software

Founded February 3, 1986
Headquarters Emeryville, California, U.S.
Products RenderMan, Marionette, Ringmaster
Key people Ed Catmull, Steve Jobs
Parent The Walt Disney Company
Growing Up : Pixar

1979s
Lucasfilm
Pixar Inc. history the Graphics Group
1980s
Ed Catmull met John Lasseter
1984
John Lasseter went to LucasFilm s c
omputer division

1986
Steve Jobs bought the LucasFilm computer business
then called Pixar
Toy Story (1995)
· A Bug's Life (1998)
· Toy Story 2 (1999)
Monsters, Inc. (2001) 1991
Finding Nemo (2003) Pixar made a $26 million deal with Disney  t
The Incredibles (2004) Cars (2006) o produce three computer-animated feature
Ratatouille (2007) films
WALL-E (2008)
Up (2009)
Toy Story 3 (2010)
Cars 2 (2011) 1995
The Bear and the Bow (2011) Toy Story
· Newt (2012)
Growing Up : Capabilities

People
Steve Jobs, Ed Catmull, John Lasseter

Technology
Computer animation technology
Software : RenderMan, Marionette, Ringmaster

Storytelling
Pixar made short films to develop its computer-gene
rated technology and storytelling creativity

Culture
  Everyone must have the freedom to communicat
e with anyone
  It must be safe for everyone to offer ideas
  art challenged technology, and then technology i
nspired art
Growing Up : Disney & Pixar
CAPS
Disney and Pixar collaborated on the development
of Computer Animated Production Systems in 1986

Feature film agreement

Disney and Pixar signed a deal in 1991 to produce t
he first full length 3D CG animated movie

Co-production agreement
Pixar would produce for Disney at least 5 films, with
production costs, shared equally between the two c
ompanies.

Renegotiation for distrib

ution-only deal
Two companies broke down completely in mid-2004
, with Jobs declaring that Pixar was actively seeking
partners other than Disney.
Two companies resumed following the departure of
Eisner from Disney in September 2005.
Dating!!
Dating : Disney & Pixar

2006

2002 ~

1997 Re-
Negotiation
Co- Try
Production
1991 Agreement
Feature
Film
Agreement
1986

CAPS Colla
boration
Dating : Disney & Pixar

CAPS : Computer Animated Production Systems

S/W

Year 1986
Collaboration of the development of
Relationship
CAPS
Production system used to make 2D
CAPS
cel-based animation movies
The Rescuers Down Under, The Lion
Products
King
Dating : Disney & Pixar

Feature Film Agreement

•  In 1991, Disney & Pixar signed a deal to pr
oduce the first full length 3D CG animated
movie.

•  Disney : Fund the production cost in return

for owning the movie rights and retaining co
ntrol over over scheduling

•  Pixar : Earn a participation fee based on tot

al revenue for the movie, hand had to fund t
he overage if production costs exceeded a ce
rtain pre-agreed budget

3D •  Toy Story : Earned $350M, but Pixar only ea

Animated rned $56M from 1995 to 1998
Film
Dating : Disney & Pixar

Co-Production Agreement
•  In 1997, Disney & Pixar signed a deal to pr
oduce at least 5 original full-length animate
d films for next 10 years

•  Disney : Bought 5% of Pixar paying $15M f

or $1M of its shares with warrants to buy ad
ditional shares at higher prices

•  Disney & Pixar : Share the production costs

& revenue equally. Disney will fund all mar
keting expenditures while Disney will receiv
e distribution fee of 12.5% of the earnings.

•  Disney: Retains the exclusive distribution an

Story d exploitation rights
Character
Visual •  Disney : $1.5B in operating income & $0.44 i
CG n EPS increased
Dating : Disney & Pixar

Re-Negotiation Try

Hey Disney!!

Our relationship is too unfair. I

want a new deal!!

I ll fund all the production costs.

Your job is distribution only. I ll

give you an 8% distribution fee.
- Steve Jobs
Dating : Disney & Pixar

Disney’s SWOT

STRENGTH WEAKNESS

  Brand Power & Multiple Channels   Lack of 3D CG Technology

  Experienced   Too much Dependency on Pixar
  Well Established & Financials   Too Children Related Images

  New Boom of Animation   Pixar’s New Move

  Advent of New Media   Other Competitors
  Easier to Distribute Contents   Piracy Issues

OPPORTUNITY THREAT
Dating : Disney & Pixar

Pixar’s SWOT

STRENGTH WEAKNESS

  Powerful 3D CG Technology   No Distribution Channel

  Proven Capabilities   Focused Business on Animation
  Creative & Talented People   Too much dependency on Disney

  Big Boom of 3D CG Animation   Advent of New Competitors

  New Deal from Other Company   Commoditization of 3D CG Technology
  Increased Business Opportunity   High Risk, High Risk

OPPORTUNITY THREAT
Before Marriage!!
Before Marriage
Negotiation Breaks Down!

We are ending talks

with Disney! (Jan, 20
04)

  Disney board kicks out CEO Michael Eisn

er over troubled Disney-Pixar relations
 Negotiations resumed in Sept. 2005 followi
ng departure of Eisner
Before Marriage

  Full ownership of film

  Distribution channel
  Return the rights of Pixar film after five-year
distribution

90 percent of a film’s lifetime revenue

across all methods of distribution
Before Marriage

  Pixar animation has strategic im

portance to Disney.

Animation Theme par Broadcastin

revenue k sales g sales

  Disney’s first full computer version a

nimation “Chicken Little (2005)” fared o
nly marginally well.
 Before Marriage

Acquisition VS Alliance

  Warner Brother’s Str

  Sequential Synergies
ong Interest in Buying P
ixar
  Soft Resources (creative
manpower)
  Strategic Importance
of Pixar to Disney
  Clash of Corporate Cul
ture (studio vs. corporate
y   Rickety Relationship
behemoth)
Between Pixar and Disn
ey
Marriage

Terms of the Deal (Jan., 2006)

merges wi
th

  Price tag: US$7.4 billion in all-stock deal

  Steve Jobs: Disney’s largest individual shareholder with 7 perce
nt stock, new seat on board of directors
  John Lasseter (Pixar’s co-founder): Chief Creative Officer of P
ixar and Walt Disney Animation Studios, Principal Creative Advis
er at Wal Disney Imagineering
  Ed Catmull (Pixar president): President of Pixar and Walt Disn
ey Animation Studios
After Marriage!!
After Marriage : Changes
  Discontinue making Toy Story3 : PIXAR committee thought that
the next series should have well-made story.
‒  Revision : Meet The Robinsons, American Dog.
‒  Debate : Rapunzel, Joe Jump.
‒  Cancel : Wild, Valiant

  Animation Making Tool of Disney : Disney uses Maya and Maya

based Animation tools.
‒  PIXAR uses Maya as only 3D Modeling tool. PIXAR is developing MENV30 which is
3D Animation tool.
‒  Disney will have no choice to change the tools to PIXAR s tools.

To reduce license fee

To develop more complex functions
After Marriage : Changes
 Published 3D Animation : After Acquisition, PIXAR&Disney publi
shed 4 3D animations.
‒  Cars(2006), Ratatouille(2007), WALL-E(2008), Up(2009)
Happily Ever After!!
Happily Ever After : Synergies
  Growing Up Each Capability by Each Capability

PEOPLE
BUNDLING
TECHNOLOGY
FINANCE STORY TELLING
MARKETING CULTURE

  Human Resource Management

VISION CULTURE
Happily Ever After : Synergies
  Sharing each products and channels

Disney PIXAR

  Make New product and Sell through New Channel

NEW BUSINESS CHANNEL
THANK YOU!!!