Hong Kong parade clinched decision to buy Pixar

[crazy4wdw]

Hong Kong parade clinched decision to buy Pixar

By Vivek Shankar | Bloomberg News, Posted March 1, 2006

Walt Disney Co. Chief Executive Officer Robert Iger decided to buy Pixar while watching a parade at the opening of Hong Kong Disneyland, he said.

Disney, home of Mickey Mouse, Snow White and Cinderella, hadn't created any recognizable animated characters in the past decade, Iger said at a Bear Stearns & Co. media conference broadcast on the Internet. The recent animated characters in the parade were from Pixar, Steve Jobs' animation studio, which Iger agreed in January to buy for $7.4 billion.

"It really hit me hard that we had had 10 years of real failure," Iger said. "Keeping animation strong is incredibly vital."

Animation "creates more of a ripple effect" than any other business at Disney, the world's second-largest media company, Iger said Monday at the conference in Palm Beach.

Characters from Pixar's Toy Story movies create opportunities for merchandising and theme-park rides, such as the Buzz Lightyear Astro Blasters ride at the Hong Kong park, which opened in September.

Iger, 55, played an increasingly visible role at Disney before taking over as CEO in October. His predecessor, Michael Eisner, had clashed publicly with Jobs over negotiations to extend a Disney agreement to distribute Pixar films.

Iger also said he will spend more money to strengthen the Disney, ABC and ESPN brands. Disney will invest in branded content and technology, and alter existing business relationships to provide content delivery methods consumers want, he said.

Iger pointed to agreements with Jobs' Apple Computer Inc. to sell episodes of ABC television shows Desperate Housewives and Lost that can be downloaded onto the video iPod device. He wants the ESPN sports network to migrate "from a traditional network to a multidimensional experience in sports," delivering up-to-date scores to fans who may be waiting in line at a Starbucks he said.

The potential for Disney's theme-park business is "enormous" because the unit represents less than 5 percent of the family vacation market, Iger said. The company is seeking branding agreements for the parks and plans to invest more money in the business, he added.

 

[Costumesaremylife]

Interesting Article, but what about Lilo and Stitch? That wasn't a pixar movie was it? I realize it's still only one movie in ten years.

 

[YoHo]

The bit about the parade was actually in a CNN.com article right after the takeover was announced so I'm inclined to believe it. In fact, it's the first sign I've seen that Iger at least kinda sorta gets some of it maybe.


Either way, I'm just impressed that for once I was ahead of the curve on the Disney rumors.

 

[DancingBear]

I'm impressed that Iger actually referred to an entire decade of "failure." That's a strong statement. My 5yo happens to love Stitch, but the key to what Iger said is the acknowledgment of the centrality of successful feature animation to the Company as a whole.

 

[DisOrBust]

IF. and thats a big if, I remember correctly that Lilo was made pretty much under the radar of Eisner. If true he really had a decade of failure at least animation wise.

 

[Another Voice]

Of course it's also interesting that Iger's reation wasn't "I'm going to fix things - we'll get the best people, the best stories; we'll work hard and make great movies!!!!".

Instead he took the simplest, easiest way out by buying Pixar. Instead of taking the responsibility for turning around the studio, he's "outsourced" the problem. Worse still - he's exposed Disney's amazing lack of self-confidence in its ability to create anything. He's also furthered the "Disney is a distributor" business model that's been nothing but the ruin of the company.

Disney needs to make movies again.

 

[MUcrick]

Or maybe Iger realized that with 10-years of "failure" behind him he thought it would take too long to clean things up. So, buy something that is a known qualtity, enjoy some early returns from that new addition while cleaning up the mess behind the scenes. I think it makes a lot of sense fiscally and from a brand standpoint.

 

[Another Voice]

I think it makes a lot of sense fiscally and from a brand standpoint.

Except that it would take only two-three years to make a good movie - what's the payback period for the Pixar deal?

And think about how many movies I could make for $7 Billion. I could sure get a lot of talent for that.

Under the present deal, not a single frame is going to be animated for all that money, but Steve Jobs gets to play with another personel jet. Is that the best way to "fix things"?

 

[Tarken10]

DB, you know a lot more about the old Disney/Pixar contract. Do you know how the profits were split on DVd, plush, and tv royalties ?

My point is, if Disney were sharing profits with Pixar, then paying 7.4 bil isn't as costly a price as it sounds.

I agree with AV's point though. If Iger suddenly came to the conclusion that the last 10 years have been a failure, why didn't he decide to fix the problem internally for a lot less money.

Either way, I do believe Iger shows positive signs of "getting it". If Iger had come to Disney from an outside company and stated the last 10 years had been a failure, we would simply have acknowledged that the new guy see's what we've known alalong. IMO, Iger shows a huge lack of ego by making this admission because he was an insider in the Co. during this failed decade. While the majority of the failure will be attributed to ME, he had to know that some of it would stick to him.

 

[Another Voice]

My point is, if Disney were sharing profits with Pixar, then paying 7.4 bil isn't as costly a price as it sounds.

The problem is this is a stock deal - a deal for more stock than Disney itself currently owns. That means it will now have to go out and buy stock on the open market and turn around and hand it to Steve Jobs and us other Pixar stock holders: Disney will have to pay a lot of money to get the "Pixar-half" of the profits. That's a very expensive gamble, although one hear's that Eisner is willing to part with some of his stock at double the market value...

IMO, Iger shows a huge lack of ego by making this admission because he was an insider in the Co. during this failed decade.

I think that's only true if Iger admits to the failures at ABC during the ten years he was running the network. It's all too easy - and all too Hollywood - to crow about jabbing the stick in the other guy's eye. That's all Iger did.

 

[Sylvester McBean]

Iger steps to the helm and is inspired by a parade. sounds like a another 'happily ever after' disney tale.

 

[DancingBear]

DB, you know a lot more about the old Disney/Pixar contract. Do you know how the profits were split on DVd, plush, and tv royalties?

Portions of the definition of "Gross Receipts" (and the exclusions therefrom) in the Co-Production Agreement were excerpted from the SEC filing as available in EDGAR for proprietary reasons. It's possible that certain categories of items are treated differently (for example, it's been reported separately that Disney doesn't have to pay any royalties for its theme park uses of the characters); however, generally, all Gross Receipts (after payment of Disney's distribution costs and distribution fee, and recovery of Film production costs) are split 50/50.

Pixar has about $1 billion in cash, so you should take that much right off the top of the cost of the acquisition. Still something close to 40:1 P:E ratio, a pretty stiff price. It may be worth it for the Company under the circumstances they were in, but I think a good argument can be made that they never should have been in this situation. If Disney had used the term of the Pixar contract to allow the alternative technologies to catch up to Pixar (which has more or less happened), and to build in-house talent, they could have been in a position to compete directly with Pixar (or to acquire Pixar for a lower price).