One of Disney's Core Competencies is animation. In fact, Bob Iger said that animation is the "heart, soul, and engine that drives the train called Disney". However, Disney spent $7.4 Billion on Pixar. Pixar is responsible for animated blockbusters such as Finding Nemo, The Incredibles Cars and Toy Story. Disney's cartoons are classics and consistently do well at the box office and on DVD and now on iTunes.
The article "Pixar's Magic Man" discusses the deal between Disney's Bob Iger and Apple's Steve Jobs.
In another article, John Lasseter, now the head of animation for Pixar and Disney, once fired by Disney said that "Every film that I've made is a tribute to Walt".
Why did they make this deal?
What will this do for Disney? Pixar? Apple?
Gene A. Wright
Thursday, February 08, 2007
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3 comments:
Disney was definitely in a quandary under Eisner's government. Resisting change with a majority of "yes men" on the board of directors, Disney's organization choked creativity with its bureaucracy. What notable movies and characters had it created on its own? Centralized decision-making and the strategic planning committee developed by Eisner were viewed by many as a superfluous layer of bureaucracy that stifled creativity. A widespread dissention within the organization eventually led to the resignation of two key board members, Roy E. Disney and Stanley Gold, who openly criticized the management of Eisner. James Stewart wrote of these accounts in his book, the Disney War. Roy E. Disney, in his resignation letter dated November 30, 2003 cited seven open criticisms of Eisner’s leadership:
"1. The failure to bring back ABC Prime Time from the ratings abyss it has been in for years and your inability to program successfully the ABC Family Channel. Both of these failures have had, and I believe, will continue to have, significant adverse impact on shareholder value.
2. Your consistent micro-management of everyone around you with the resulting loss of morale throughout this Company.
3. The timidity of your investments in our theme park business. At Disney's California Adventure, Paris and now in Hong Kong, you have tried to build parks "on the cheap" and they show it, and the attendance figures reflect it.
4. The perception by all of our stakeholders -- consumers, investors, employees, distributors and suppliers -- that the Company is rapacious, soul-less, and always looking for the "quick buck" rather than the long-term value which is leading to a loss of public trust.
5. The creative brain drain of the last several years, which is real and continuing, and damages our Company with the loss of every talented employee.
6. Your failure to establish and build constructive relationships with creative partners, especially Pixar, Miramax, and the cable companies distributing our products.
7. Your consistent refusal to establish a clear succession plan." [1]
Similarly, Stanley Gold stated his dismay in his resignation letter dated December 1, 2003.
"I do, however, lament that my efforts over the past three years to implement needed changes has only succeeded in creating an insular Board of Directors serving as a bulwark to shield management from criticism and accountability. At this time, I believe there is little that I can achieve by working from within to refocus the Company. I hope that my resignation will serve as a catalyst for change at Disney.
He (Roy E Disney) has served with renewed vigor during these times of malaise, disappointment and instability at the Company, trying to maintain the morale of employees, focusing on the magic that makes Disney special and attacking bonuses to the CEO and increased compensation for Board members while the Company falters and shareholder value erodes.
Within the last year this Board will have managed to cull from its ranks Andrea Van de Kamp and now Roy, two of the staunchest critics of Michael Eisner and the Company's poor performance. I cannot sit idly by as this Board continues to ignore and disenfranchise those who raise questions about the performance of management.
I focused on the failed initiatives of the Company over the past five or six years and admonished the Board for not actively engaging in serious discussions regarding the Company's flawed plans and management's unmet projections and unfulfilled promises. In particular, I have urged the Board to concentrate on the Company's "poor performance, lack of credibility and accountability and poor capital allocation." In an effort to get Directors to seriously assess management's 5-year strategic plan (a plan that is only discussed with this Board, but not submitted for Board approval), I wrote to the Board to detail the Company's unsatisfactory financial performance for the past several years and to suggest a process, a so-called Diagnostic Review, designed to give the non-management directors the tools necessary to evaluate performance and establish a comprehensive framework and baseline from which the Board could be active partners in developing plans to maximize the value of Disney's existing assets and businesses. That approach was opposed by management and then, not surprisingly, rejected by the Board. The Board and its Chairman even criticized me for putting on paper these serious questions about fundamental matters.
Continuing through March of this year I wrote to express my concerns regarding the financial performance of the Company and the repeated failures of management to achieve its forecasts. I urged this Board to feel a sense of urgency in dealing with the issues of leadership, performance, operations and accountability. Those efforts failed. Instead, Mr. Eisner was awarded a bonus of $5 million in Disney shares by the Compensation Committee despite objections by Roy and me. I believe that bonuses for senior management must be tied to performance; by that measure, no bonus was warranted.
It is clear to me that this Board is unwilling to tackle the difficult issues I believe this Company continues to face -- management failures and accountability for those failures, operational deficiencies, imprudent capital allocations, the cannibalization of certain Company icons for short-term gain, the enormous loss of creative talent over the last years, the absence of succession planning and the lack of strategic focus. Instead, the Board seems determined to devote its time and energies to adopting policies that focus not on substance, but on process and, in reality, only serve to muzzle and isolate those Directors who recognize that their role is to be active participants in shaping the Company and planning for executive succession. Further, this Board isolates those Directors who believe that Michael Eisner (when measured by the dismal results over the last 7 years) is not up to the challenge. Perhaps acting independently, from outside the Boardroom, not hamstrung by a recently enacted Board policy barring Board members from communicating with shareholders and the media, I can have greater success in shaping the policies, practices and operations of Disney than I had as a member of the Board."[2]
Bob Iger has taken it upon himself to make radical changes to the company. His long-time service with Disney awards him in house credibility, and he can use this as a catalyst to effectively motivate the organization and sell his vision for the future. Bob has rectified the adversarial relationship between the organization and Roy E. Disney and Stanley Gold. Lastly, Iger has disbanded the strategic planning committee assembled by Eisner and distributed the decision-making responsibilities to the Disney divisions.
Property-Rights: Intellectual Property
Disney lost a great deal of talent over the years. So not only is Disney acquiring the software used to create the Pixar animation films, but it is also acquiring the innovators behind the software, the stories, etc. The purchase is a move to combat the ‘brain-drain’ over the years.
Accountability, Liability and Control
The prior contractual agreement between Pixar and Disney had a finite limit. With the merger the film deliverable will be coordinated under the ‘same roof’, Disney, and the Pixar management team will lead the effort. The stock price of the company has increased nearly twenty percent, and the stock price has almost absorbed the price of the merger.
Shareholder Equity
Disney acquired Pixar for $7.4 billion; however, Pixar had one billion in cash, so the net expense was $6.4 billion.
Conclusions
The idea that Jobs will now yield his mighty sword and lead Disney onto the battlefield is a fallacy. Jobs will continue to run Apple which suits his strengths as a visionary in product offerings, but he will not be involved heavily in the creative ‘reorganization’. The author believes that the success of the Pixar / Disney merger lies with Lasseter and Catmull, since they were the principal forces behind Pixar’s success. However, that is not to say that Lasseter and Catmull will not leverage Jobs' power as a board member and principal share holder to institute the necessary changes, a stark contrast to the ‘status quo’ mentality under Eisner’s governance. Jobs, renowned for his 'straight-to-the-point' style, will not accept the Disney bureaucracy especially if his two trusted colleagues are leading the way of change. In the Eisner reign, there was little to no disagreement between the management and the board. Those that opposed the leadership were ‘muzzled’ and forced out of the decision making process. Constructive disagreement is healthy! Innovators take risks along the way to success. Can Wall Street be patient throughout this process? If the recent stock price history is any indication, I believe the shareholders are encouraged about the future of Disney.
[1] Roy Edward Disney. 30 November 2003, “Resignation Letter” Available: ADDRESS: http://en.wikisource.org/wiki/Roy_Edward_Disney_resignation_letter, [Accessed: March 15, 2006]. A copy of this file is in the student’s possession and may be consulted by contacting the student at matthew.p.kaiser@jci.com.
[2] Stanley P. Gold. 1 December 2003, “Resignation Letter” Available: ADDRESS: http://en.wikisource.org/wiki/Stanley_P._Gold_resignation_letter, [Accessed: March 15, 2006]. A copy of this file is in the student’s possession and may be consulted by contacting the student at matthew.p.kaiser@jci.com.
OKAY, if Lasseter is all about quality and not quantity, what's the deal with Cinderlla III?
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