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Disney and Pixar - Team 3

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Mary Grace Stamper

on 19 March 2013

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Transcript of Disney and Pixar - Team 3

Company Overview Pixar & Disney Analysis The Latest News (cc) photo by Metro Centric on Flickr (cc) photo by Franco Folini on Flickr (cc) photo by jimmyharris on Flickr (cc) photo by Metro Centric on Flickr SWOT Analysis of Disney Acquiring Pixar What to Consider Disney Pixar THE RELATIONSHIP

"We’ve talked to many of these studios, and we know we can get the deal we want” – S. Jobs 2003

Disagreements about the production of sequels, Disney had the right to produce if Pixar did not co-finance. Disney Culture Why organizational culture matters?
Failure factors of acquisition
Ignored potential integration challenges(67%)
(Response from 250 senior executives, Harding and Rovit(2004)

85% of merger failures
Mismanagement of cultural issues Big company
♦ Multidivisional Structure
- Distant from upper management to lower management Disney Culture 3. Pixar Culture
1. Everyone must have the freedom to communicate - Creativity
♦ Campus-like environment
♦ Individually-decorated huts – Instead of offices
♦ Open spaces, lounges, and game areas
♦ Scooters, Free cereals

2. It must be safe for everyone to offer ideas – Bottom up
♦ Creative brain trust – Let the team decide what to do with advice
♦ Review process the “Dailies” – Review from entire animation crew
♦ “Plussing” philosophy – Achieved excellent quality standard

3. Stay close to innovations happening in the academic community
♦ Art challenged Technology, and Technology inspired Art
♦ Pixar University – Offer drawing, acting & motion classes Additional comparison (cc) image by rocketboom on Flickr (cc) image by quoimedia on Flickr Given the information provided through the presentation,
should Walt Disney acquire or not acquire Pixar? No Acquisition Acquisition Recommendation For Disney, the best option would be to acquire Pixar 1. Initial Due Diligence

2. Acquisition Terms

3. Formal Due Diligence
Plan to Maintain Cultures
Assess Corporate Structure
Assess Technology
Assess Pitfalls

4. Documentation

5. Close Plan of Action Team 3 Strength
- Biggest entertainment and media in the globe in terms of revenue
- Very experienced and strong brand name in the industry
- Established channels of distributions Weakness
- Weak performance of studio entertainment
- Generic Disney film formula
- Lack of CGI expertise Strength
- Strong financials
- Highly differentiated product
- 3D computer generated models
- Highly talented employees Weakness
- Long development process
- No distribution channels of their own
-Still in the learning stage (Disney University) 5 forces in movie industry To Acquire or Not to Acquire? + Overview/Strategy Lisette Johnston
Analysis Anthony Kane
Mary Grace Stamper
Options/Recommendation Andrew Coogan
Michael Lazar Threat of New Entry
- low Supplier Bargaining Power
- medium to high Rivalry Among Competitors
- medium to high Threat of Substitutes
- low Buyer Bargaining Power
- low to medium Above average profitability Cooperation (1991-2004) Risk Factors of Acquisition Pixar: Free-Spirited Creativity Emeryville location (the anti-Hollywood)
Individually decorated workspaces, huts instead of cubicles
Hawaiian shirts and scooters
Policy against employment contracts Pixar: Egalitarian Collaboration Environment invites congregation
Open spaces, lounges, game areas

Pixar University Bonus structure - Film succeeds -> everyone gets a bonus Financial Stock Dissolution Estimated value of Pixar
- 6.5 billion to 7.5 billion USD End of fiscal year2005
Disney had Net Income
2.5 billion USD Financial & Stock Dissolution What are the risky factors when Disney tries to acquire Pixar? Culture between Disney & Pixar Pixar Stock Deal Worth 1 billion USD in cash Stock worth - 6.4 billion USD
59.78 USD per Pixar share (3.8% premium over 57.75 USD for closed price)
Disney 2.3:1 Pixar @ 25.99 USD Low volumes, few switching costs, differentiation, no threat of backward integration.
Possibly medium to keep repeat customers. Industry dominated by few companies, not many substitute products, no threat of backward integration, differentiation. Large capital requirements and differentiation along with Disney’s brand loyalty. Very seldom does a competitor like Dream Works come along. Although non-animated movies and unrelated merchandise exists, this is a niche market. Very difficult to find substitutes when dealing with children and other fans. Other forces do not lead to high rivalry, but few competitors control the industry. Differentiation, marketing costs, and continuous new technology push product changes and innovation. Complements Movies and merchandise also help solidify brand loyalty and continue to attract customers to their theme parks, resorts, cruise line, and television channel. 1) Should Disney maintain a strategic alliance with Pixar or should it move away from an outsourced collaborative partnership and acquire Pixar? 2) Given the power of the Disney brand name, should they just attempt to strike a distribution deal with another studio, or re-engineer their animation department to create computer-generated movies in-house? 3) Which method would be the most beneficial/cost-effective to Disney's financial objectives? Issues Cooperation 1991 - 2004 VIRS Resource & Capabilities Temporary competitive advantage 3D computer generation (CG)

•Valuable – YES
> easily the highest average revenues for industry
•Difficult to imitate – YES
> innovation.
•Rare – YES
> CG leader, with Dream Works being only possible competition.
•Without substitutes – NO
> capable competition. VIRS Resource & Capabilities Brand Loyalty

•Valuable – YES, brand loyalty.
•Difficult to imitate – YES, brand loyalty.
•Rare – YES, driven by brand loyalty.
•Difficult to substitute – NO, capable competition. Temporary competitive advantage Valuation What is Pixar worth?

Pixar market value: $5.9 billion

Purchase Price(billions) $6.5 $7.5
Premium to market value 10% 27% Corporate Strategy Business Strategy Key elements to a Successful Diversification Strategy
•Add value to the company and shareholders
•Leverage the company’s core competencies

Disney opted for joint venture strategy to diversify its animation segment. •Disney’s attempt at 3D animation failed

•Needed boost in competitiveness

•Pixar was strategic fit “The mission of The Walt Disney Company is to be one of the world's leading producers and providers of entertainment and information. Using our portfolio of brands to differentiate our content, services and consumer products, we seek to develop the most creative, innovative and profitable entertainment experiences and related products in the world." Mission Statement: Strategic Goals Financial Goals •Maximize profits
•Increase shareholder value •Market share dominance
•Brand dominance Presentation Outline Options/Recommendations Eisner
-Give control to leaders (Top Down)
=> Executives make creative decisions
- Make clear who was good and not so good
=> Evaluate employees by performance

-Supervise every aspect of the studios’ films
=> Oversee the entire process of production

Profitability, not quality, rules the day
- Apply Generic Disney formula for animated films
- Lasseter, “I felt that Disney was doing the same old thing.”
- straight to video "cheapquels" (Princess Stories sequels
$3billion in sales) Resources & Capabilities ”We’re working with the best in the business and we’re learning a lot. We call it going to Disney
university.” – S. Jobs Market
Support the future growth with full potential
Eliminates a potential significant competitor
Expand and attract new customer segments associated with Pixar
Most cost effective option at 1 billion
Acquisition brings in talent
Gives Disney access to resources and technology
Cultural adaptation In 2006 Walt Disney acquired Pixar with promises that employees at Pixar will still enjoy the equivalent health benefits and the company name will be preserved “You can accomplish a lot more as one company than you can as part of a joint venture. It makes a big difference when everyone is working for the same set of shareholders.”
- Bob Iger, Disney CEO Introduction Disney's Business Model •Synergized products and activities to maximize profits

•Revenues generated from various sources

•Animated characters were fundamental to profit potential Disney and Pixar - $3.5 billion in revenues between 1998 and 2004 Introduction The End
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