Walt Disney PixarEssay Preview: Walt Disney PixarReport this essayExecutive Summary Walt Disney Company has enjoyed unchallenged domination of the animated film industry since 1937. However, with the advent of 3D animation technology, the industry is moving away from traditional animation. Through Disney’s partnership with Pixar, they have produced several extremely successful films on favorable terms for Disney, but the relationship between the companies is souring and Pixar is testing the waters for a new partner. A future agreement with Pixar would be costly to negotiate and would almost certainly be less favorable to Disney. Disney has its own capabilities to produce 3D animation, but they lack the superior technology and experience of Pixar.         Our suggested action is the acquisition of Pixar Inc. This act of vertical integration will not only ensure a working relationship with Pixar and provide a consistent production of high quality films, but will also reduce friction in Disney’s supply chain and use Pixar technology to benefit several other areas of the Disney business. The Pixar brand name will be kept intact and Pixar management will retain full creative control. Production will be scaled up to two films per year and Pixar animation technology and expertise will be integrated into existing Disney production facilities.Situation OverviewThe biggest problem that Walt Disney is facing is the coproduction agreement with Pixar animations. The agreement is set to expire soon and the renewal negotiations are not on the right track as there are several conflicting points relating to margins on distribution and share of profits on the animations produced. It is the biggest problem for us because for the last decade Disney hasn’t been able to produce effective animations on its own and has had to rely on Pixar for its most successful films and characters. In fact, Disney has lost more money than it made when they created animation movies on their own several times in the past decade as referred in Exhibit-1.The primary cause for this problem is that Pixar has made themselves indispensable to Disney by accentuating all its strengths and creating sophisticated animations with the help of their superior technology and superior intellectual assets. This has resulted in Pixar producing several blockbuster films, raising the bar for the animated film industry and creating a huge gap in quality from other studios, including Disney. This is the most important cause of the problem of the changing trends in technology.  Pixar Animations has a unique advantage of having three proprietary pieces of software that provide them with the capability to easily change a scene or a character through mathematical models. This advancement provides them the capability to save huge amounts of time and subsequently gain a cost advantage over other studios that used 2D animation, like Disney traditionally has, which is very time intensive and requires a large staff of artists. As a result, not only do Disney movies cost much more than Pixar movies, but also do not have the same intensity of the animations that they have.Action OverviewWe propose to immediately acquire all outstanding stock in Pixar Inc. Although Pixar is a near perfect strategic fit for us in the current situation, post-acquisition we will have to make a few major amendments in our strategy to make this merger successful. Proposed strategical changes are as follows:Organizational Changes:Prevent desertion by Pixar employees.One of the key challenges for us would be to retain the talent that Pixar has. To achieve this, we must allow Pixar to maintain its culture among its employees and allow them a fair deal of autonomy. If key employees exit the firm, Disney will have purchased “the most expensive computers ever sold”. It must be made clear that Disney does not intend to create value by changing the structure or operation of Pixar studios. We must accept a gradual organizational shift to being more collaborative to foster smoother integration with Pixarʼs work environment.

Operational Changes:Leverage the technology acquired from Pixar.With top class animation software such as RenderMan, Marionette, and Ringmaster under our control, Disney now inherits Pixar’s the first mover advantage and the upper hand in producing motion pictures of the finest quality. We must gradually phase out Disney’s 2D production and focus mainly on the production of 3D computer graphics animated motion pictures since it is less capital and time intensive. As Disney has more production capacity and resources than Pixar , we feel it will be feasible to scale production up to two animated films per year.2. Increase investment in R&D to maintain and solidify our position as the market leader.If we do not promote significant innovation in R&D, we will soon find ourselves lagging behind our competitors regarding technological advancement and the whole idea of this acquisition will fail. Pixar has traditionally stood head and shoulders above competitors like Dreamworks since the 3D animated market was created, but the gap in quality is quickly closing. For this acquisition to be successful, Disney must continue to press the technological advantage before it disappears.Marketing Changes:1. Infusion of Pixar characters into our overall marketing campaign without diminishing the brand of Pixar.Pixar as a brand is very powerful and keeping it intact will have a profound impact on its employee retention rate. Keeping that in mind, Disney should tactically utilize marketing techniques to increase the association of the Pixar brand and characters with the Disney brand so that audiences will not miss the connection. Disney can utilize its powerful merchandising channel to incorporate Pixars characters into the Disney family of characters which would propel ticket and retail sales in both theme parks and consumer products section. The one caveat would be that we must recognize that Pixar employees have a strong connection to their company and over-incorporating their brand may leave some of them dissatisfied.Competitive strategy:Competition with Dreamworks and others.Dreamworks has traditionally been Disney/Pixar’s greatest rival in CG animation, but several new firms have recently entered the industry with the intent to aggressively pursue market share. It is inevitable that the animation quality gap will narrow, so Disney must win through its superior distribution and marketing channels that have made it a household name for generations. Disney characters (and Pixar characters) have the advantage of being represented at Disney theme parks and merchandising outlets, which will be difficult to match by smaller studios with limited relationships with their distributors.

2. Create innovative, high quality content. Disney is in a competitive position to market its animated content online in digital form and its high quality content will be of interest to millions of users while providing a unique experience for their own audiences.Disney will be able to compete with big companies, so please join us in expanding on that strategy in a growing area. The company has been in many successful partnerships with many different publishers including Disney Imagineering, and we look forward to continuing our partnership.3. Enhance creative, artistic and professional relationships. Disney can build quality talent in our interactive entertainment industry through a diverse and diverse roster of talent, and I am confident that Pixar will provide the needed talent to compete with major film and television studios in such a diverse space and in a wide variety of genres.We will continue to employ our key team of highly valued and talented artists, especially in new, creative and creative environments.4. Expand as many interactive content in-house as possible. Disney needs talent, content, tools and time to accomplish our new strategy. The Company needs to focus more on its 3D animation line and 3D visual production than on other creative endeavors. I highly encourage my colleagues to look to Pixar for a better place to grow and improve than Pixar. If we can make our Pixar brands strong and compelling and create meaningful and memorable shows for audiences, future generations will want to see them on screens.3. Grow our business. This acquisition will enable us to grow our content base to include interactive content, including Pixar content such as the new Pixar Movie and TV series Frozen as well as new 3D content such as a Disney-owned animated series such as Monsters University, The Legend of Zelda: Breath of the Wild and Star Wars: The Old Republic.I look forward to growing the content base of Pixar in addition to our Disney properties. As a company, we will create the highest quality content possible with our digital products, including content from every Pixar franchise that is in the public domain and from all Disney properties.

PARKER-BY-JEW: “COULD THE ROUTE WORK?”

This is the most interesting, as it comes after our strong financial performance. That said, I was skeptical of Disney’s long-term vision and how it was going to translate into the future. The reality is, we’re in a long-term, competitive position and not in a competitive situation. There are no other companies that do it like Walt Disney, which will bring significant and tangible benefit to customers. If we do our jobs, this acquisition will allow Disney a competitive place to continue producing its new and better content. If Disney fails to make this transition, Disney will continue to get less revenue and grow by investing more money in the future.

To be clear, I have no strong objection to Disney developing a strong and exciting, growing and engaging animated content for its audiences. We’ve also had a very difficult time with those brands including Star Wars, Lego, and many movies like, well, we’ve seen the impact our current video-on-demand technology has had on video sales. It was clearly at the forefront of our minds the last 4 years that the video-on-demand model should continue to grow. In that sense Disney seems like a smart company to me, given the huge opportunities that Disney has had to develop and bring more innovative and more creative content to the public. However, many of them are more developed and are making strides that I think deserve our considerable support.

I like to use Disney names and brands to help me build our product, our team, our future and our brand. I am particularly excited by the possibilities that Disney faces when it comes to the growth of these business models or how they have advanced over the last 10 years. I believe this will lead to our company growing and changing. Many will tell me that there’s no other video-on-demand platform out there, and I personally believe that’s why we need Disney to come together.

PARKER BY JEW: A NEW SERIES

My initial feeling after hearing Disney announced this acquisition comes from my own experience:

I have been following Disney’s business and how these big names in creative businesses in recent years have worked to create strong, unique, exciting and innovative films. They’ve seen what has been successful Disney’s way through their previous films. It doesn’t take any money and I am proud of how they are doing, both creatively and with film. We’re in a new era where Disney is in control of the distribution of content to its audiences, and there is always a competitive value to having a creative environment with new content and new franchises. This also creates a different kind of market for brands. I think Pixar is the right brand for Disney, although we just haven’t seen the full potential of the video content that’s available

Just to have another reason for me to call the project an “outstanding” success, I think the video experience it captures is not only unique to Pixar, but to a whole lot of other filmmakers who are trying to make something amazing in their home that they’t like our families, friends, colleagues and our favorite TV shows. As with any movie or TV series, there needs to be something in the movie that keeps people on by creating new things. I know that sometimes people who’t have found a way to connect with each other over a long period of time, and that’t is an important part of the experience and I’t know that all of our projects from all walks of life are now coming out.

It has been a pleasure doing an amazing job with your video work and I’t wish I could say that the work is going to go through a different lens when it comes to marketing, but I’t see this for myself.

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S.O.E #849