Disney Pixar and the Third

Disney Pixar

Pixar and the Third Renaissance of the Disney Animated Film

The Disney name has both enjoyed periods of immense success and widespread acclaim and has endured stretches of quality decline, reputation tarnishing and management shakeup. With respect to either of these periods in its history, Disney may always point to its leadership as a force of great influence. Indeed, it may be argued that the company's founder, original CEO and namesake, Walt Disney had inherently created an organization that would function thusly. Known for a dominant personality and an aggressive leadership style, Disney had been neither afraid to throw his weight around or to accept the burdens of responsibility which come with such a position. To this extent, the model for leadership at Disney would be given a template in a larger-than-life figure whose confidence, tenacity and vision would be manifested in the Disney's corporation's image, its products and, ultimately, in its success. Essentially, it may be said that Disney's corporate structure was intended to facilitate leadership of character and strength. Many of the qualities which made Disney a model for corporate success may be observed in Michael Eisner, who served as CEO of Disney from 1984 to 2005. Though his ouster in 2005 would expose many of the areas in which he can be criticized for failures in the leadership capacity, it is also clear that the duration through which he served is marked by a clear rebirth of the company, exponential growth in its fortunes, a distinctly positive extension of its brand image and a channeling of some of Walt Disney's determination in overcoming dissent and opposition. Today, Disney finds itself working to capitalize on the next phase of its existence, with no ambitions, no strategic orientation and new leadership. Almost simultaneous to Eisner's departure, Disney stepped into this next phase by acquiring computer animation innovator, Pixar Animation Studios. The research and discussion hereafter will consider the impact which this transformation has had on Disney's current and future prospects, with consideration to the shift in leadership, the change in strategy and the role played by such new centerpieces as Pixar.

Major Findings:

Industry:

The Disney company is a deeply diversified entity which circulates heavily in the areas of children's entertainment, family entertainment, theme parks, films, television, music, video games, merchandising and a host of other sectors and markets. With respect to its acquisition of Pixar, the studio would become a focal point for another resurgence in Disney's already illustrious list of animation accomplishments. The article by Alcacer et al. (2010) provides a useful discussion on the industry within which Disney made this critical decision to acquire Pixar as well as its decision to dismiss Eisner and bring Robert Iger aboard as the mega-companies new CEO. Though Pixar has rendered tremendous results for Disney both as an innovator in the market and as a powerhouse source for animated box office success, Disney is subject to the vagaries of the market. And at present, its lagging performance behind other gaining media/entertainment conglomerates such as Time Warner, News Corp and Viacom suggests that Disney has not been the quickest firm to adapt to changing conditions. According to an article by Szalai & Bond (2010), "the film biz tends to be so volatile that more than one year of results is needed to draw broader conclusions about studio performance. But the data for 2009 provide the most recent financial snapshot of an industry marked by such disparate trends as layoffs, the folding of specialty labels and weak DVD sales on one side and boxoffice records, enthusiasm for 3D films and growth in electronic sell-through on the other." (p. 1)

Competitor:

These trends reveal that media firms like Time Warner and News Corp, which performed most profitably in 2009, as well as fast growing groups like Viacom, are large enough in scale to compete with Disney in the areas of resource availability, capital, talent and market reputation. (Szalai & Bond, p. 1) the article by Szalai & Bond characterizes the film industry in general as 'hit and miss,' but notes that many of the firms which succeeded best in recent fiscal years have done so on consistency. Accordingly, the report that "several sector giants managed their risks so well in 2009 that they even wowed Wall Street -- a rarity given that the majority of conglom profits is typically provided by TV operations, particularly cable networks." (Szalai & Bond, p. 1) Those firms, which did not include Disney, are its greatest competitors.

Porter's 5 Forces:

Supplier Power:

With respect to its acquisition of Pixar and Pixar's role as a supplier of animated films, it is a supplier with considerable power. Though the account here will consider some of the studio's most formidable rivals, none has notched the level of success that is now connected with the Pixar name. Films such as the Toy Story franchise, Monsters, Inc. (2001), Finding Nemo (2003), the Incredibles (2004), Cars (2006), Wall-E (2008), and Up (2009) have rendered Pixar a perennial determinant of what family-film audiences want to see. (KYM, 1) the studio achieved a new level of success in this regard with a Best Picture Academy Award nomination for 2010's Toy Story 3. Pixar's power as a supplier is denoted by its commercial and critical appeal.

Threat of New Entrants:

One of the most powerful instruments that Disney has retained as a defense against the threat of new entrants into the animation sector is the combination of tremendous technological resource and a high level of employee satisfaction where their feature length cartoons are concerned. According to Alcacer et al., one executive speaking on the process of idea cultivation for new animated films, "It's a very collective approach to our work. We spend a lot of time 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. Disney animators were compensated, in part, based on the success of the film, which made it difficult for other studios to lure talent away." (p. 1-2)

Threat of Substitutes:

Though Disney would struggle in the following decade, its decision to acquire Pixar would represent its strongest opportunity to remain an industry pacesetter. According to Alcacer et al., Pixar independently performed like few other studios in existence. Accordingly, they report that beginning with Toy Story (1995), it produced only hit films, with each of its first five earning more than $350 million in box office grosses. Its role as a cutting edge firm in breaking new technological ground has made Pixar's formula, not unlike Steve Jobs' Apple Company at large, very difficult to replicate.

Buyer Power:

Even before it had established ownership of Pixar in 2006, Disney had fairly exclusive interest in the Pixar studios, teaming with them on a long list of successes that required increasingly greater investment for production and promotion. Right from the start, Pixar's box office accomplishments and Jobs' reputation for innovation made it such that only the most well-funded of studios possessed the buying power to distribute its films. Alcacer et al. report that "Pixar went public one week after the release of Toy Story in 1995, raising $140 million in the largest IPO of the year. Steve Jobs retained about 50% of the ownership of Pixar, and although he was occupied at Apple, he spent half his time at Pixar in the early years." (p. 9)

Rivalry:

The most notable of Pixar's rivals in DreamWorks, headed by former Disney Studios executive Jeffrey Katzenberg. DreamWorks has produced a number of successes in the computer generated animation feature length film competition. Particularly, the Shrek franchise has proven formidable both in the areas of box office grosses and merchandising returns.

Financial Ratios:

The visually compelling graphic offered by Know Your Money (KYM) (2010) demonstrates that Pixar actually represents a fairly unique commodity during this particularly tepid time in the motion picture market. Namely, every single film it has released has, without fail, performed successfully at the box office. The brand's particular strength in the computer animation field is demonstrated amply in the market place, where continued growth in investment per film is validated by resounding performance both in the U.S. And abroad. The graphic available at the following site (http://www.knowyourmoney.co.uk/the-financial-success-of-pixar/) demonstrates that investments in productions by Pixar consistently result in profits. For an investment of $30 million, Toy Story grossed $362 million worldwide. For $175 million invested, Up earned $731 million worldwide. And for just $95 million, Finding Nemo earned $867 billion. (KYM, p. 1) Steve Jobs purchased the firm from Lucasfilm in 1985 for $10 million, sold it to Disney in 2006 for $7.4 billion. The firm is on its way to a total global earnings on sales, grosses, merchandising and cross-marketing campaigns from Toy Story 3 alone that will net $2.4 billion.

SWOT:

Strengths:

Disney's greatest strength is its brand recognition. Perhaps more than any of the media and entertainment conglomerates with which it competes, Disney has created a prolific, colorful and always expanding universe of characters that draw immediate recognition and appeal. Today, Woody and Buzz Lightyear are as recognizable as Mickey Mouse and Donald Duck.

Weaknesses:

One of the core weaknesses revealed in the decade following Disney's early-90's animation renaissance was the lack of elasticity in its animation department. The company was unprepared for a set of lean years in which its growth had exceeded its ability to earn on its investment. According to Alcacer et al., "Some of the same features that observers credited for Disney Animations' success -- large staff, large budgets, and lots of time -- were also blamed for its demise. Disney Animation had just 275 employees in 1988; about 950 in 1994 for the release of the Lion King; and 2,200 at its peak in 1999.9 Competition for animators in the 1990s also caused salaries, which accounted for 80% of each film's cost, to balloon, with top animators' pay rising from $125,000 in 1994 to $550,000 in 1999. And these pay increases affected employees across the board." (p. 2)

Opportunities:

The acquisition of Pixar has represented the opportunity for Disney to continue to expand its brand universe, integrating characters from newly popular integrated films into its merchandising strategy, its theme parks and its copyrighted images stable.

Threats:

The greatest threat to Disney today is the nature of media sales today. With digital piracy having a significant impact on DVD sales, Disney's animated films are subject to the same declining value if not properly managed. Fortunately for Disney, this threat is pointedly limited by Disney's ability to maintain the visibility of its characters in theme parks and merchandise.