Pixar Article

[Sarangel]

An article from the Motley Fool about Pixar and the other contenders for Feature Animation...

Sarangel

 

[crusader]

What's happening to Pixar is no stranger to Apple. Once again their business model proves how innovation doesn't sustain market share.

Disney actually looks not so bad in terms of partnering with a winner for close to a decade. Now the question will be whether they can do what the competition is and revitalize their own resources.

 

[YoHo]

I don't quite see how you can relate anything in that article to anything Apple has ever done.
Apple failed and has since struggled, because they refused to follow IBM's hardware model of an open architecture. They were unable to then create a cost effective product nore were they able to maintain as many developers.


Pixar has none of these issues. In fact the Entertainment industry doesn't have these issues. Pixar will always do well as long as the story and quality are there. Nobody enjoyed Shrek because of the quality of the Donkey animation and nobody thought wow, Monsters Inc is a great film because Scully really illustrates a gigantic leap in animating hair. Sure those things enhanced the films, but they weren't the root of what made them big draws.

Pixar will live and die with or without Disney on the quality of story and production. Apple only exists because they figured out a way to make money with online music.

 

[crusader]

You're getting too specific within the innovation concept. I'm not dissecting product mix in my analogy. I'm simply talking about the impact on industry market share.

Pixar needs more than quality to sustain themselves in this market. They need a partner. Otherwise their budget to produce these films post disney will quadruple. Not only will they have to finance production 100% - they'll have to independently market and distribute in a highly competitive environment.

 

[DancingBear]

The Fool article supports my comments in other threads that the barriers to entry which were much higher when the Pixar development deal was entered into have now largely disappeared, and it will be much easier now for Disney to compete directly with Pixar (should that be the path they choose to take).

 

[bretsyboo]

Otherwise their budget to produce these films post disney will quadruple. Not only will they have to finance production 100% - they'll have to independently market and distribute in a highly competitive environment.

Well first of all, I have no idea why you think the production would quadruple...that's a bit insane.

Second of all Finding nemo made almost 7 times the total production and marketing costs combined in the box office alone.

I think they'll be fine.

And for my two sense while I agree with yoho it's all about the story I think if Pixar wants to be successful is Diversity that counts. I also think that if anyone can do it, it's them. I just haven't heard any plans of this.

 

[Bstanley]

I think I must be too naive to get the subtle complexities of the article because the entire semantic content I got from it was that by being successful Pixar has encouraged other folks to compete with them.
...
And tomorrow morning there will be a bright orb rising to my East.
...
IMHO Pixar no more needs to invent some new Holographic version of Renderman to continue their success than Walt Disney needed to invent some new way to splash paint onto celluloid after whatever his fifth animated film was.

Yoho has hit the nail on the head. Today there is simply no one more consistent at telling enchanting, intriguing, visually beautiful stories than Pixar - PERIOD.

Other companies can also be successful - on occassion - but until Pixar forgets how to tell stories they will continue to be successful, financially as well as artistically.

 

[Bstanley]

I don't believe Pixar will have any trouble finding a partner - if they choose to find one, or in getting their future films into as many theatres as they want.

I can just see the 'Apprentice' episode now.

"Jody, you actually told Pixar that they weren't a big enough studio for us to show their film on 3,000 screens? - You're Fired!"

Walt Disney built all we know and love on the back of a single animated feature. Pixar has been much more consistent than that - who knows how far they will go.

 

[crusader]

I'm talking about the entire cost structure not just the amount to "make" it.

Even if Nemo did make 7 times that - it's not enough. Especially given the numbers from Shrek 2. There's only so much to go around in this business.

The Fool article supports my comments in other threads that the barriers to entry which were much higher when the Pixar development deal was entered into have now largely disappeared, and it will be much easier now for Disney to compete directly with Pixar (should that be the path they choose to take).

I agree. Which is why I commented on them not doing bad in that deal. Direct competition is actually where Disney needs to focus in my view.

 

[raidermatt]

7x is not enough? I know there are parts of Hollywood that are simply insane, but 7x is 7x and that's going to sustain ANY studio. Eisner made the mistake of expecting every film to do Lion King numbers, and expecting every film to do Nemo or Shrek2 numbers would be a mistake as well.

That's not to say a partnership with somebody, Disney or otherwise, is not in the offing for Pixar, but either way, if people go see your films, you will do well.

The Fool article supports my comments in other threads that the barriers to entry which were much higher when the Pixar development deal was entered into have now largely disappeared, and it will be much easier now for Disney to compete directly with Pixar (should that be the path they choose to take).

Yes, it is much easier. Which is why Disney will now be competing on level ground with every Tom, Richard and Harry who wants to make a CGI movie. Unlike the past, when they had the resources to enter (and in fact DID at one point with Dinosaur), while most others did not, and could have established themselves as a leader instead of one of the crowd.

Of course, if they don't remember how to successfully tell a story on a consistent basis, it won't matter, just as it wouldn't have mattered then.


bstanley is right... this is nothing new. Success brings imitation. Always has, always will. Those who stay on their toes and are truly committed to their mission can stay on top. Those who try to rest on their past get passed.

Which do you think Pixar is?

Which do you think Disney is?

 

[Bstanley]

I just took a walk through the latest Pixar quarterly.

Revenue was $63.7M and NET profit was $37.4M. In other words for every dollar of Revenue received Pixar was able to put 58.7 cents into the bank - Great Zot! Right off the top of my head I can't think of another company even close to that.

The largest expense was Income Taxes...don't you love capitalism?

Operating expenses were $7.8M and Cash on hand was $760M.

Reminds me of a story about the Dallas Cowboys - the owner of the Cowboys (the son of a Texas Oilman) had received $100M from a trust when he turned 21. Well that first year the Cowboys franchise lost $1M - when asked how long his son could keep it going the father replied "At the rate he's going - about another 100 years!"

Well, in Pixar's case it isn't 100 years, but 100 quarters.

 

[DancingBear]

Originally posted by raidermatt
Which is why Disney will now be competing on level ground with every Tom, Richard and Harry who wants to make a CGI movie. Unlike the past, when they had the resources to enter (and in fact DID at one point with Dinosaur), while most others did not, and could have established themselves as a leader instead of one of the crowd.

You're completely ignoring the entire point of the article, which is that the "leader" doesn't have any particular advantages at this point. Pixar was the leader, now they have to compete with everyone else. Pixar's technological advantages have been minimized, and they have to compete primarily on the basis of story (which admittedly they are quite good at also).

So, what advantage would Disney have gained by sinking significant resources into becoming a CGI leader?

 

[YoHo]

Name recognition. The preception of being a leader in the field. Garunteed better opening weekends based on past performance?

 

[crusader]

In other words for every dollar of Revenue received Pixar was able to put 58.7 cents into the bank - Great Zot! Right off the top of my head I can't think of another company even close to that.

It's an unbalanced assessment because Disney picked up the tab for all but 50% of the cost to produce the animation.

Tell me what their real profit margin would be if they were flying solo.

 

[bretsyboo]

it's also unbalanced because of the amount of profit disney got out of it.

A deal everyone acknowledges was great for Disney.

Just imagine how good the pixar only numbers would be.

 

[Bstanley]

Crusader,

I don't think it's unbalanced at all - as bretsyboo points out Pixar also missed out on the 50% of the profit $$ that Disney received.

I don't feel motivated enough to slog through the details, but just off the top of my head I think the development/marketing costs for the movies were about $100M per movie (on average), and worldwide ticket sales were about $350M (on average), and I have heard that DVD sales $$ are about the same as ticket sales typically, and merchandise sales would be?? So it would be surprising if the extra profit dollars didn't end up larger than the extra $50M - just guessing that at least 15% of all those 'extra' dollars would have ended up in Pixar's pocket.

 

[airlarry!]

The short answer, DB, is the same as it ever was.

They could have cut the deal Pixar deserved way back when.

Or.

They could have kept up the Secret Lab and brought in story people and song people and whatever people and invested blood sweat tears and time to produce the next Disney masterpiece, but only this time in CGI.

Or.

They could have closed the Secret Lab, ticked off Pixar, played hardball with Steve Job$ just cause Mikey has (gasp!) an even bigger ego than the Apple Guy, angered the founder's nephew by losing the Pixar deal, and then getting early retirement.

Hmm...maybe choice one or two wasn't so bad after all.

 

[crusader]

I don't know Bruce.

True the DVD and merchandise profit margins would tip the scales favorably but the profit margin with 100% of the production costs plus 100% marketing/distribution tips the scales in at least a 3 to 1 ratio the other way.

I can't do this exercize enough justice because even if we incorporate all this we're only at "gross profit". We now have at least double the overhead to facilitate this baby which quickly absorbs the cash.

So I'm guessing net income is going down.

 

[DancingBear]

Originally posted by airlarry!
They could have closed the Secret Lab, ticked off Pixar, played hardball with Steve Job$ just cause Mikey has (gasp!) an even bigger ego than the Apple Guy, angered the founder's nephew by losing the Pixar deal, and then getting early retirement.

Please, don't make me go back and prove again that it was Job$, not Eisner, who exhibited his greed and tried to renegotiate the contract mid-stream. Once Pixar became successful, it was already "lost" because Job$ saw more money to be made elsewhere.

Pixar existed, had Lasseter (who left Disney long before Eisner) and a tremendous technological advantage, and was going to make those great flicks somehow with or without Disney--wasn't it better that Disney was along for the ride?

 

[raidermatt]

Disney's name and assumption of some of the risk was DEFINITELY a good deal for Pixar. In fact, if Disney had used this deal as merely a supplement to their own fantastic productions, rather than a substitute, maybe things wouldn't have been so bad.

But they made one problematic production, then quit.



On the profit analysis, c'mon, lets just step back and look at the big picture for second. The deal is profitable for Disney. If its profitable for them, it means they are getting more than they put in.

Which means Disney is taking more of Pixar's potential profits than it is bearing of Pixar's costs.


Pixar needed to sign more of their potential profits away because they were an unknown, and they needed somebody to help them with brand recognition, marketing and costs.

While some of that need might still exist, its not to anywhere near the extent it did 10 years ago. THEY have the name now, they have some cash, and they have to pull to make more beneficial deals with whomever they choose to partner with, if the partner with anyone at all.

As long as they produce hits, their profits will go up no matter what the next arrangement is. They simply have the power to get better terms now.