Carly (artemis_archer) wrote in ohnotheydidnt,

Disney and Pixar: The Power of the Prenup

IN April, the Walt Disney Company summoned movie theater executives for a rare audience before its reigning king of animation, John Lasseter. A co-founder of Pixar and director of “Toy Story,” Mr. Lasseter was unveiling the roster of films that an aligned Pixar and Walt Disney Animation Studios planned to release over the next four years.

Walking onstage wearing one of his trademark Hawaiian shirts — this one with yellow and green palm trees — Mr. Lasseter was greeted by giggles and pointing from a smattering of audience members.

“What did you think I’d wear?” he asked amid the titters. A business suit and a pair of mouse ears, most likely.

When Disney bought its rival, Pixar, in 2006 for $7.4 billion, many people assumed the deal would play out like most big media takeovers: abysmally. The worries were twofold: that either Disney would trample Pixar’s esprit de corps (turning Mr. Lasseter into a drone, chanting “Hi Ho” en route to Mickey’s animation mines) or that Pixar animators would act like spoiled brats and rebuke their new owner.

Both companies had a history of acrimony, and Robert A. Iger, the new chief executive of Disney, was a mystery. Could he manage the megawatt personalities Pixar would bring into Disney’s fold? Some analysts, investors and media pundits also questioned the hefty price Disney paid for a small studio that released only one movie a year.

But two years into the integration of Pixar — and as the company rolls out “Wall-E,” a risky love story about robots that is estimated to cost at least $180 million — the merger is notable for how well it’s faring. Indeed, in an industry where corporate marriages often create internal warfare (Paramount and DreamWorks SKG are the most prominent example) Disney and Pixar have found a way to make it work. 

“Most acquisitions, particularly in media, are value-destroying as opposed to value-creating, and that certainly has not turned out to be the case here,” said David A. Price, author of a newly published book from Knopf, “The Pixar Touch: The Making of a Company.”

The smooth ride — so far, at least — also seems to be pleasing Wall Street, where grumbling about Pixar’s price tag has died down. Disney’s stock has climbed 28 percent since its 52-week low on Jan. 22, in large part because of investor confidence that the company can overcome a difficult economy by leveraging Pixar’s computer-generated characters across its vast empire. In recent months, Disney’s shares have significantly outperformed those of most of its competitors.

“Cars” tells the story. The film was regarded by some critics as one of Pixar’s weaker storytelling efforts, and it generated soft foreign sales when compared with hits like “Finding Nemo.” But “Cars” has pumped billions in profit into Disney via a wide range of ancillary businesses.

The film racked up over $460 million in global ticket sales and has sold 27 million DVDs. Related retail products have generated $5 billion in sales. A “Cars” virtual world is opening on the Internet, a “Cars” ice-skating show will begin touring the nation in September, and work is under way to bring an entire “Cars” experience to the Disneyland Resort in California.

“You can accomplish a lot more as one company than you can as part of a joint venture,” Mr. Iger said in an interview. “It makes a big difference when everyone is working for the same set of shareholders.”

IN a subtle but important shift, Pixar has matured, allowing its strategic thinking to evolve inside a sprawling corporation. For instance, some of the studio’s executives once resisted sequels and direct-to-DVD efforts, arguing that quality and the brand could suffer. While sequels were not out of the question, they said Pixar’s hot streak hinged on pushing boundaries with original material.

But at Mr. Lasseter’s presentation in April, Disney’s first such event in 10 years, he announced “Cars 2,” a 2012 sequel that will take Lightning McQueen and his pals on a tour of foreign countries. Also in the works are four direct-to-DVD movies built around Tinker Bell.

“We are definitely planning on doing more sequels, just as we are more originals,” Mr. Lasseter said in an interview. “We talk with Bob Iger about which ones make sense to do from a business perspective. But each movie has to be absolutely great or you will snuff out a franchise.”

And the Pixar team, which also has oversight of Walt Disney Animation Studios and the DVD-focused DisneyToon Studios, decided that it was O.K. to outsource some direct-to-DVD animation to an Indian company, a departure from its rigid stance that outside animators could not deliver the necessary quality. (Mr. Lasseter will still closely monitor the efforts, however.)

For the first time, Pixar is also scheduled to deliver two movies in a single year: “Newt,” the story of a salamander’s search for love, and “The Bear and the Bow,” an action-adventure starring an imperious Scottish princess; both films will arrive in multiplexes in 2011.

How Disney and Pixar are making the integration work holds lessons for other executives faced with the delicate task of uniting two cultures. Tactics that have served the companies well include the obvious, like effectively communicating changes to employees. Other decisions, including drawing up an explicit map of what elements of Pixar would not change, have been more unusual.

“None of this has been easy,” said Richard Cook, chairman of Walt Disney Studios, “but it helps when everyone has tremendous respect both professionally and personally for one another.”

Mutual respect was scarce at the two companies just three years ago.

Pixar, based in Emeryville, Calif., and Disney, with its headquarters in Burbank, Calif., had a notoriously strained relationship. Pixar’s chairman and chief executive, Steven P. Jobs, abruptly called off talks to continue a lucrative partnership with Disney, which had helped to finance and distributed such Pixar films as “Monsters, Inc.”

Mr. Jobs, also the chief executive of Apple, had bitterly clashed with Michael D. Eisner, who was then running Disney. The rift encompassed many issues, not the least of which was basic trust. In one incident, Mr. Eisner disparaged an Apple advertising slogan before a Congressional committee and then claimed that he hadn’t — even though his testimony had been transcribed.

The end result was that Mr. Jobs and others at Pixar didn’t place much faith in what their Disney counterparts told them.

After Mr. Iger took the reins at Disney, he restarted acquisition talks and won some early support at Pixar by talking candidly and clearly about the lessons he learned when his previous employer, the ABC television network, endured two takeovers. Pixar executives recall Mr. Iger joking that if he ever decided to write a book, it would be titled “I’ve Been Bought,” because the two merger experiences were so formative for him.

Edwin Catmull, the president of Pixar who was also put in charge of Walt Disney Animation Studios, said, “It became very clear to us that Bob Iger had been through mergers before, both positive and negative.”

Mr. Iger also agreed to an explicit list of guidelines for protecting Pixar’s creative culture. For instance, Pixar employees were able to keep their relatively plentiful health benefits and weren’t forced to sign employment contracts. Mr. Iger even stipulated that the sign on Pixar’s front gate would remain unchanged.

Still, Mr. Catmull concedes that trust didn’t come easily, especially in an age when some companies promise one thing before a merger and then seem to do another once the deal is done.

“It took about a year before there was a collective letting down the guard,” he said. “Initially people were thinking, ‘Is something going to happen?’ ”

Regarding Disney’s list of promises, Mr. Catmull said: “We’ve never had to go back and look at it. Everything they’ve said they would do they have lived up to.”

Mr. Jobs, who became Disney’s largest shareholder and a board member as a result of the transaction, did not respond to interview requests.

In most acquisitions, the conqueror typically reigns supreme. When NBC bought Universal Studios, executives at the movie studio in Los Angeles were — overnight — required to start commuting to New York for grueling financial planning meetings at the behest of NBC’s owner, General Electric.  

Employees were also startled to wake up on the morning after the acquisition announcement to find that their e-mail addresses had already been altered to “nbcuni.”

An NBC Universal spokeswoman declined to comment. Although analysts generally think that Universal Pictures has been well served by the G.E. takeover, they cited the company’s aggressive handling of the merger as one reason the studio’s respected chairwoman, Stacey Snider, quit the company.

But in the Pixar acquisition, Disney, despite its legendary corporate identity and strong will, held back. Pixar kept its e-mail system. Nobody was shipped to Walt Disney World in Florida to work a shift, part of the initiation that other executives must endure. No switchboard operators at Pixar were asked to end telephone calls with the words “Have a magical day,” as they do elsewhere in the company.

And, of course, Mr. Lasseter continued to wear whatever he wanted, Hawaiian shirts and all.

In fact, a deep Disney “introduction and visit” didn’t come until this spring, when a random selection of 200 of Pixar’s 800 employees spent the day in Burbank touring the live-action studio and consumer products division.

“There is an assumption in the corporate world that you need to integrate swiftly,” Mr. Iger said. “My philosophy is exactly the opposite. You need to be respectful and patient.”

Key to the successful integration, analysts say, has been Mr. Iger’s decision to give incoming talent added duties. Instead of just buying Pixar and moving on, Mr. Iger understood what made the acquisition valuable, said Mr. Price, the author. “If you are acquiring expertise,” he said, “then dispatch your newly purchased experts into other parts of the company and let them stretch their muscles.”

In Disney’s case, Pixar was assigned the difficult task of turning around a storied animation department that had fallen into disrepair as it struggled to find its footing in a new world of computer-generated pictures. At a low point, the 2002 film “Treasure Planet” flopped so badly that Disney was forced to take a $98 million write-down.

A window into how the rebuilding effort is going will come on Nov. 26, with the release of “Bolt,” the tale of a Hollywood dog star who becomes lost in New York and has to make his way back to California. Mr. Lasseter and his team have heavily reworked the project, including playing up a wickedly funny side character, a hamster.

Although some bloodletting has been involved in Pixar’s efforts to rebuild the studio — the original director of “Bolt” was replaced, resulting in some hurt feelings — Mr. Lasseter said he was pleased with the way the transformation was progressing. “We were very nervous coming in, but to see the change has been amazing,” he said. “Disney has become a filmmaker-led studio and not an executive-led studio. We are very proud of that.”

The relationship could still sour, of course, and big tests loom.

Still very much a work in progress is the turnaround of Walt Disney Animation Studios, where it has taken Mr. Catmull and Mr. Lasseter longer than investors anticipated to sort through the pipeline of existing projects and begin green-lighting new ones.

Disney’s plans for hand-drawn animation are unclear, with only one project currently announced: “The Princess and the Frog,” a musical set in New Orleans that is scheduled to have its premiere in December 2009. A Disney spokeswoman said animators were deeply immersed in marrying older hand-drawn techniques with new technology for future movies, adding that plans for a new headquarters for Disney’s Burbank animators were slowly progressing.

PIXAR’S list of coming movies includes some with unusual concepts that might not lend themselves to the kind of merchandising tie-ins that have made “Cars” a juggernaut. “Up,” the next big Pixar film after “Wall-E,” is a comedy about a cranky, cane-wielding 78-year-old who transports his home to exotic locales by attaching hundreds of helium-filled balloons.

With the exception of “Up,” which is being directed by Pete Docter (“Monsters, Inc.”), Pixar is placing some of its biggest new projects in relatively untested hands. Brenda Chapman, the director of Pixar’s first fairy tale, “The Bear and the Bow,” served as a story supervisor on modern classics like “The Lion King” but has only one previous directing job under her belt, for “The Prince of Egypt.”

Of course, Mr. Lasseter will be helping to guide the way, but he must cope with extreme demands for his time. Aside from overseeing an ambitious slate of movies, Mr. Lasseter, who now shuttles between Burbank, near Los Angeles, and Emeryville, outside San Francisco, is involved in everything from approving special effects for the coming “Cars” ice tour to helping design theme-park attractions.

He also has new corporate responsibilities, from schmoozing with important investors to helping to push Disney’s efforts with high-definition Blu-ray DVDs. All of this juggling, some people say, has made him somewhat inaccessible. One Pixar insider, who requested anonymity because he was not authorized by the company to speak, joked that scheduling a meeting with Mr. Lasseter has become harder than “lining up a chat with the pope.”

Mr. Lasseter, speaking by cellphone during a commute home, said: “The toughest part of my job is probably just managing my schedule. But I think everything is going pretty well.” He added that there have been times in the past — such as when he was directing “Cars” — that his walk — around time at Pixar was limited. “It ebbs and flows,” he said.

FOR now, attention is focused on “Wall-E.” Directed and written by Andrew Stanton, the creative force behind “Finding Nemo,” the picture tells the story of a cuddly trash-compacting robot who lives on an abandoned, heavily polluted Earth 700 years in the future. His sidekick is a perky cockroach named Hal.

“Wall-E,” which features long sequences without dialogue, is under extra pressure to perform at the box office because of soft initial receipts for a recent Disney film, “The Chronicles of Narnia: Prince Caspian.” Adding to the weight are Pixar’s last three films; though all were blockbusters, they have gradually trended downward at the domestic box office. A reversal would quiet critics who say the studio’s best days are behind it. (Disney notes that an increase in foreign box office sales has offset the slide.)

As with “Cars,” Disney is counting on “Wall-E,” set for release on June 27, to take off with a tough crowd: little boys. It has prepared a collection of 300 robot-themed consumer products that will arrive on store shelves over the next month.

“There are some great toys, and we are working on a variety of potential applications for our parks,” said Mr. Iger in a conference call with analysts on May 6. “So we are poised to take advantage of broad and deep success when it comes.”

(He added that he has particularly high hopes for a “Wall-E” remote-controlled robot. “Having played with it, I think it’s going to be a hot seller for Christmas,” he said.)

Wall Street, which closely monitors major animated movies because of their huge cost, is not yet sold on the robot, which was been criticized by some as looking too much like the star of the corny 1986 film “Short Circuit.”

“I can see how it could work and be huge and I can see how it could not,” said Richard Greenfield, an analyst at Pali Research.

By contrast, the competing DreamWorks Animation has received applause for its coming “Kung Fu Panda,” featuring the vocal talents of Jack Black and Angelina Jolie. Ingrid Chung, a media analyst at Goldman Sachs , said recently that she found the film’s concept and execution “strong enough to create a franchise.” When it came to Pixar, Ms. Chung declined to comment.

Detractors might recall that Road Runner and Wile E. Coyote, two of the most beloved cartoon characters of all time, never uttered a word to each other. And movie theater executives, typically tough to please, reacted with robust laughter and applause during a 30-minute peek at “Wall-E” in April.

“It’s some of the best work I’ve ever seen,” said Mr. Catmull, standing in the aisle of the theater afterward as confetti sprinkled from the ceiling. “I am confident it will be the next success story for Disney and Pixar.” 

Princess Tiana in “The Princess and the Frog,” an animated musical to be released next year by Disney. Pixar is trying to revive Disney’s animation and make it more contemporary.


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