Case Report: Pixar
Case Report: Pixar
Animated movies or as popularly known as “cartoons” had been around for a century and had been as popular and profitable as traditional films and full-length movies. Animated films were usually based on classic fairy tales or those cartoon characters created by various artists from comic books. Generally, story lines were based on the original comics’ series and it was done in the same way as the comics were, drawn by hand and frame by frame so that the characters would appear to move. The nature of animated films made it labor intensive and costly to do which is why not many ventured into animated film making.
The leader in this industry was Walt Disney, who was responsible for bringing out the classic Cinderella, Snow White, Sleeping Beauty to the more popular Mickey and Friends and after decades of making animated films they came out with non-traditional films like Lilo and Stitch, Treasure Planet and Chicken Little. With the advent of technology and computer programs, making animated films have become more sophisticated, more life-like and more endearing across ages that although the films had been marketed for children, adult viewers were also drawn to it.
In the years that computer animation was in its infancy, a group of creative artists and computer wizards dreamt of producing their own full-length computer animated films and become the pioneer in the industry to use such technological tools. The team leader of this small group of like-minded individuals was Edwin Catmull who first recruited his team members from a vocational school in New York. As early as 1975, Catmull had been training students in the art of computer animated filmmaking and in 1979, Catmull teamed up with George Lucas Jr. o provide the special effect needs of the director in his films but the partnership ended before the team could make any profits.
In 1985, Catmull convinced Steve Jobs to invest in the company and to fully pursue the dream of making full length computer animated films. Jobs took on the leadership of the team, changed its name to Pixar and started to market the team’s expertise to bigger production companies. Jobs was able to strike a deal with Disney for a five movie contract. From this partnership, Pixar became a household name as the prime animation studio and have been able to come out with top grossing films one after the other.
With this new found financial stability and dynamic team, Pixar had announced that after they make their last film with Disney, they will be ending the contract. The decision to end their relationship with Disney according to Jobs stemmed from the refusal of Disney to change the conditions of their agreement (Johnson, Scholes & Whittington, 2006). At present, Disney gives Pixar half of the sales made from merchandising, ticket sales and video sales. However, Pixar shares in the costs of marketing and producing the films, and yet Disney still charges them a distribution fee of 12. % as well as retaining all the rights to the characters developed by Pixar. Jobs have announced that they have all the intent to make their own films and market it on their own. At the time of this case report, Pixar still has to make two films with Disney before they severe their ties with Disney. Problems Pixar’s need to develop and market their own films is the company’s long term goal and although they have come up with five films, they had not been able to fully own the rights to the characters and the film because of the conditions of their partnership with Disney.
With financial capabilities and the perfect team of experts in the technical and creative departments, Pixar’s top management feels that it is high time to pursue that long term goal. However, in a relatively new industry, Pixar faces a number of problems before they can actually make their goal a reality at the same time maintaining their leadership in animation industry and generating profits (Thompson & Martin, 2005). One of the most obvious problems that Pixar has to face is the financial costs of developing, producing and marketing their films (Ofori-Dankwa & Julian, 2005).
Jobs contend that with their earnings from their previous films, they are more than capable to fund their own projects, however, computer animation is a lengthy process and it would take on average 3 years to complete a full-length film. The creative writers develop the story line and have to refine and improve it before it could actually be laid out on paper and even before the technology comes into play. Developing a story line and bringing characters to life is one of the most crucial elements of any film, and it is more so when it is animated since viewers ultimately have to suspend their realities to be able to appreciate the movie.
Even if the movie would be marketed for kids, the success of the previous hits of the company was that adults also patronized it thereby increasing ticket sales (Fifeld, 2007). The time spent in creating a movie would mean that Pixar has to spend for the production costs without generating any revenues (Allen, Doherty & Mansfield, 2005). Jobs may contend that they would still be receiving profits from the sales of their previous movies but this could be risky considering that they would only start making new money when they finish their own project.
Another problem that they have to face is that they want to be able to produce one film a year and have now increased their manpower size; this meant more people to pay, more benefits and more workers to manage (Ambosini, 2006). Pixar however says that they have built a unique organizational structure and culture which supports creativity and technical expertise. Jobs had been able to lead the company to what it is today with a curious mix of artists and computer geeks.
A third concern for the company is that technology is dynamic and the supply of workers who shares their vision and goals may not be plenty and they have to prevent their talents from leaving the company. Furthermore, the technical skills and knowledge of the workers have to be in keeping with the latest advancements in the field (Lynch, 2006). Pixar have countered that their Pixar University, a training facility have helped them train employees in the art of computer animation and have greatly contributed in the organizational socialization of the new employees (Becker & Huselind, 2006).
Lastly, Pixar have now to market and distribute their own films and characters which is a tough job considering that they have relied on Disney’s extensive marketing reach to make their earlier characters a sure hit with the consumers (Fifield, 2006). Marketing and distribution is a tricky business and Pixar is inexperienced in this area. However, like any young and ambitious person, Pixar will probably come up with a different strategy in their marketing efforts. Industry Report
Based on the financial reports of Pixar, they have a net tangible assets of US$940,510 on January 2004, which was a 50% growth from their December 2002 figures. The company is said to be the fastest growing independent animation studio and they continue to be the leader in the industry. However, when we look closely at the presented figures, total liabilities for January 2004 were US$60,444 from a mere US$19,004 in December 2002. This was a 200% increase in liabilities and is a reality that the company had to face.
On the other hand, Pixar with its small roster of films, 5 to be exact have done very well since all of which have landed in the top 10 animated films in the whole world based on gross sales of tickets. Finding Nemo is top 2 with 740 million revenues followed by Monsters Inc. in third place with 523 million. Toy Story 2 was fifth place, Toy Story 1 in eight places and A Bug’s Life in the ninth place. This track record have actually made Pixar known for its family friendly, technologically advanced and creative films for which they have become the closest competition of Disney.
After a rocky negotiation, in 2006 Disney decided to buy Pixar at 7. 4 billion wherein Jobs will be entitled to a seat in the board of Disney. Following the resignation of Eisner from Disney as CEO, Jobs was in a wait and see mode although the company had been releasing DVD’s of their previous films without including Disney in it as a strategy to initiate the marketing of Pixar’s films. Iger replaced Eisner in the helm of Disney and the talks with Pixar had continued and the culmination of which resulted to the buy-out of Pixar by Disney.
However, the conditions of the sale included that Pixar will be the in-house animation unit of Disney and the previous managers of Pixar will continue to head the team. Jobs announced that they could have moved on and made a partnership with other studios but Disney provided the history and the dedication to animation that fitted Pixar’s needs. Pixar’s Management Strategies Pixar’s management issues had to deal with making a more profitable and stronger position for the company in their partnership with Disney.
From their old arrangement, Disney retains all the rights to the characters developed by Pixar as well as charging the company with a distribution fee of 12. 5% and giving only 50% of the gross income from sales and distribution. When Pixar’s Toy Story became a huge hit, Jobs as CEO of the company was quick to make the company stocks public as well as strike a new deal with Disney in which Jobs offered a distribution fee of 7 to 10% and to retain the rights to the characters as well as keep 100% of the revenues.
Eisner refused the offer since it was not profitable for Disney and Jobs felt it was not giving Pixar what was rightfully theirs (Olson, Parayitam, & Bao, 2007). Jobs strategy was to walk out from the negotiation and announced to the public that they were in the lookout for a new studio that would be amenable to their terms or if not, then they would produce and market their own films. From a management strategy perspective, Jobs employed a design and positioning strategy (Arendt, Priem & Achidi Ndofor, 2005).
Design school of strategy says that an organization’s management strategy is based on the fit of the organization’s internal and external capabilities. Jobs was well aware of the risks of striking out on their own but he also had faith in the capabilities of Pixar and that he was sure that they would stand to deliver the same quality and dedication to their craft. These internal capabilities had to be rewarded and therefore Jobs sought to match their internal capabilities to what the industry had to offer them (Lengnick-Hall & Beck, 2005).
But since this strategy did not work, Jobs resorted to another strategy. Jobs used the positioning school of strategy after the talk with Eisner fell apart. Jobs made the position of Pixar known in the industry by continuing to market their previous films (Brookey & Westerfelhaus, 2005), they also continued to produce short animated films which had been reaping awards from various award giving bodies. Pixar’s performance in the industry was also hailed as the fastest growing as it continued to generate sales, thereby attesting to the position of the company in the market.
This strategy seemed to work well for the company since Disney was having its own issues and poor performance in the box office had industry analysts predicting that Pixar’s break from Disney would be more disastrous for Disney than it would be for Pixar. When Disney hired Iger as its new CEO, Pixar renewed talks with Disney possibly with the same conditions as before. However, as Pixar would have it, Disney opt to buy Pixar and integrate it as Disney’s team for its animation needs (La Monica, 2006).
Iger also employed a different strategy, he used the environment school of management in which the organization’s management strategy has to be rooted in the environmental factors present in the industry and how Disney should react to it (Hutzschenreuter & Kleindienst, 2006). Clearly, Disney needed Pixar’s expertise and it could not possibly give Pixar the opportunity to become its stiffest competitor when it could be their ally (Hanson, Dowling, Hitt, Ireland & Hoskisson, 2005). Thus, it made the strategy to buy Pixar, Pixar agreed because it would also be advantageous for them.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 22 November 2016
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