Pixar - the Future of the Disney Alliance

Pixar 2001

The Future of the Disney Alliance

I. Introduction

It was Monday morning, November 5, 2001. Steve Jobs, CEO of Pixar Animation Studios, had just finished reviewing the opening weekend box office receipts for Monsters, Inc., the latest theatrical release produced by the partnership between Pixar and Disney. He sat back and pondered the future of his company and its relationship with Disney.

Jobs needed to consider the brand equity that Pixar had established through its recent successes, primarily through its alliance with Disney. He needed to take the company’s financial status into consideration, along with the recent and future activities of its competitors, and an honest assessment of the company’s competitive advantage in the realm of digitally animated film product. Was it their technology? Was it their creativity and story-telling ability? Was it their ability to meld these elements together in an effective, box-office-friendly manner? Or, was it something else altogether?

Jobs thought about Pixar’s alliance with Disney, and wondered whether or not his company had reached a point where it was time to move beyond this lucrative but evolved partnership. He asked himself several questions. What is the value of Pixar’s alliance with Disney? How has that value changed over the last few years since the company restructured its agreement in 1997? Would Disney’s complementary assets retain the same value for Pixar in the future? Such questions led Jobs to wonder whether it was high time for Pixar to consider breaking away from Disney. If so, how should they go forward? Should Pixar court the potential suitors who had taken notice of its success? Or, perhaps, was it time to grow Pixar as an independent player in the field of digitally animated films?

This case was written by MBA candidates Chad Brown, William Colon, Adam Glaser and Gabrielle Wesley under the supervision of Dr. Allan Afuah, Assistant Professor of Corporate Strategy at the University of Michigan Business School. The case is intended as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situations.

II. Company History

Pixar founder, executive vice-president and chief technical officer, Ed Catmull got his start back in 1970 when he joined the computer science program at the University of Utah, a program recognized as the world’s leading research center for computer graphics. At the time, major advancements were made in 3D computer graphics that allowed a computer to draw a representation of a 3D object by determining which surfaces were behind the object and needed to be hidden when the computer created a “rendered” image making it more realistic. Catmull was actively involved in research in this area as part of his 1974 doctoral thesis. Later that same year, Alexander Schure, founder of the New York Institute of Technology (NYIT) became very interested in computer-generated graphics and established the Computer Graphics Lab, which was modeled after the facilities at the University of Utah. He recruited Ed Catmull to be the director of the Lab. The Computer Graphics Lab of the New York Institute of Technology eventually grew to more than 60 employees, many of whom were recruited by Catmull from the University of Utah. While there, they focused on 2D animation tools that allowed pencil-drawn artwork to be scanned and painted. This tool eventually evolved into Disney’s Computer Animation Production System (CAPS). Subsequently, the NYIT group began working on 3D computer graphics for motion picture production, but struggled to complete their motion picture project due to lack of expertise in this area.

While Catmull’s group at NYIT struggled, Hollywood took notice of advances in computer graphics and the benefits they provided for production due to George Lucas’ stunning special effects achievement Star Wars. After proving that photo realistic computer imagery was possible, Lucas assembled his own computer graphics division within his special effects company, Lucasfilm. In 1979, Lucas extended an offer to Ed Catmull and his team at NYIT to work as part of his company. Catmull was named Vice President and over the next six years assembled one of the most talented teams of artists and programmers in the industry. One of these programmers was responsible for developing the first renderer for Lucasfilm, called REYES (Renders Everything You Ever Saw), which would eventually become Pixar’s RenderMan rendering tool.

As artists and programmers continued to innovate