Picking on Pixar
November 25, 1998
Pixar Bull's Pen
by Rick Munarriz ([email protected])
Purity pays. Here we have tiny Pixar teaming up with $60 billion market cap Disney (NYSE: DIS) to put out quality animated films. Think about it. Here is a company ultimately splitting profits 50-50 with the leader of family entertainment selling for less than three cents on the Disney dollar.
What do you get for those three pennies? Well you get the Disney merchandising magic as a theatrical release becomes a video release sensation complete with playthings, theme park promotion and, of course, seven years or so later, it starts all over again in Disney's way of rereleasing classics to a new generation. Sure, those other 97 cents could have gone to buy what's left -- a struggling ABC and a ton of Goofy debt -- but let's take a closer look at A Pixar's Life...
Today A Bug's Life is born. Theatrically at least. That Disney-Pixar magic has been working well before today's birthday. Since last April, Flik and Hopper, the two stars of the film, have been the feature attraction at Disney's largest theme park, Animal Kingdom in Walt Disney World, Florida. They host a great 3-D attraction that, in two years, will be ported over to Disneyland's second park as well.
Leading toymaker Mattel (NYSE: MAT) has been selling movie toys for over a month now. This Friday McDonald's (NYSE: MCD) will roll out a promotion for the Flik flick that will feature character Happy Meal premiums -- at least 65 million of them -- as well as clip-on watches, which will be served until Christmas.
Why all this commotion? Disney feels the Pixar power. Since the blockbuster success of 1995's Toy Story, none of the three in-house Disney animated features have come close to topping Woody and Buzz's $350 million worldwide take at the box office. That is why Disney has in essence handed over the crucial holiday family feature slot to Pixar for the next few years as it sticks to summer releases for its own animated projects. Disney's expectations run so high that it has even bumped up the live-action I'll Be Home for Christmas out of a seasonal release date to make sure it does not get in the way of A Bug's Life.
I am sure Bill will note that Viacom (Amex: VIA), Universal Studios and Dreamworks all have family features lined up for the holidays, but, let's get real, are any of these going to displace Disney as the leader in family entertainment any time soon?
In the long run the tally at the multiplex will be small potatoes compared to the perpetual royalties that will be derived from video sales and theatrical re-releases coupled with Disney's merchandising savvy. That is why Toy Story, three years later, is still leaving Pixar as a profitable company. Three years! Can you imagine how Pixar's income statements will look three years from now when A Bug's Life, Toy Story 2 and a yet to be announced Y2K release kick in, in unison?
That's right, Toy Story 2. Disney is so high on Pixar that it is attempting what it has yet to try with its own classic features -- a sequel that goes beyond direct-to-video and onto the big screen. Then again, Toy Story is special in many ways. Just last month Disney unveiled Buzz Lightyear's Space Ranger Spin at the Magic Kingdom. This is the first post-Walt feature to be transformed into its own ride. Disney's movie studio theme park houses a Pizza Planet. The new DisneyQuest, the company's newest expansion vehicle, has Buzz Lightyear remote-controlled bumper cars. In January, the newest Walt Disney World resort, All Star Movies, opens -- complete with a Toy Story themed wing.
Disney knows that moviegoers have tired of the rehashed formulaic fare it is producing and is moving towards the jawdropping computer animation and clever storytelling that has won Pixar critical praise. That is why last year it reworked the deal to make sure that profits get split evenly after Disney recoups some initial marketing expenses.
Why would Disney concede so much just to extend the exclusive deal to encompass five films, more than quadrupling the payout to Pixar in the process and giving them equal billing? Pixar works. Since being purchased in 1986 by Steven Jobs (from George Lucas) the company has filled its mantel with Oscars and Gold Clio advertising awards. Pixar was the leader in computer animation long before it teamed up with Disney. It is light years from the competition and should remain so in the future. But why computers? Purists might cringe, but computer animation is substantially cheaper than traditional animation. Costing 30-40% less initially, it becomes even more of a bargain when the time for a sequel or computer game comes around; most of the character mannerisms, expressions, and motions have already been programmed.
But Disney is not low-tech. It has a computer animation department, and even without that, surely it could have found another fledgling studio willing to work for less. Here is where a little Disney history is in order. The company has traditionally burned bridges to its greatest minds. It happened with Walt's original animator, Ub Iwerks (who first drew Mickey Mouse). Post-Walt, the three brightest visionaries the company has had, Jeffrey Katzenberg, John Lasseter, and Tim Burton, have bolted. While the company eventually made nice with Burton, the olive branch, A Nightmare Before Christmas, was a masterpiece too dark for Disney. Katzenberg is gone and the bad blood will make reconciliation difficult. That leaves Lasseter, who directed Toy Story, and heads up Pixar's creative ranks.
Disney has done well transforming proven classic tales into animated wonderment, but Pixar is the pure purveyor of original animated content. Will Disney want to let this think tank get away? Ever? I doubt Disney would empower a company like this, to incorporate the very characters into the fabric of its theme park attractions, dining and lodging, only to walk away. And, if Disney does, fine. Buzz, how long will Pixar be around to collect the royalties that come around with every merchandise sale and Disney re-release? "To infinity and beyond!"
So Pixar can't lose. Buzz just told you why. It now has a cozy deal with Disney, yet it is Pixar with the upper hand. After all, would Disney want to mess up the chemistry and bid good-bye? With the inventive storylines that Big Brother Disney always tends to borrow? With the notion that Disney would fear having Lasseter and Pixar as a competitor the way it now has Katzenberg over at Dreamworks? With the thought that the next Woody and Buzz would go completely into Pixar's coffers? With Bill Barker now ready to bash something so pure with pellets so hollow?
Next: The Bear Argument