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Pixar Animation Studios
Annual Shareholders Meeting Notes

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By Robear1020
August 23, 2005

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This year's shareholders' meeting was fairly "uneventful". In spite of that, most investors left with a good feeling that their investment dollars are in a nice safe place that will continue to reward them year after year.

The meeting started off with "the vote" (directors, accounting firm, etc). Shareholders were invited to fill out proxies, proxies were collected, the numbers were tallied and the results were certified by KPMG. I have always enjoyed this part of the meeting. At the front of the class (on stage) sat Steve Jobs and three of his trusted admirals (Simon Bax, Edwin Catmull, Lois Scali). In attendance for this meeting were Larry Sonsini and a few other big shots. As Steve sat patiently waiting for the vote to complete he smiled (and appeared to be holding back laughter), when no one in the audience submitted a proxy the smile quickly turned into a smirk and back into a simple smile again. Watching Steve try to control his expression during a vote is like watching palace guards after someone tells a really good joke... they try to hold back their laughter yet sometimes a big smile sneaks through. FYI, Steve is pretty much the majority shareholder of Pixar. In prior meetings there was only one vote that really counted and it was his. Due to dilution it may now take two votes to have a majority... perhaps Steve and one of his executives or directors.

After the vote the formal part of the meeting was complete and shareholders were treated to a viewing of Pixar's newest short "One Man Band":

Poster
Story and Screen Shot

"One Man Band" is an extremely funny short film that will be shown in theaters with Cars.

Short history lesson 1: John Lasseter created five short films while creating the original Toy Story. Soon after that Edwin Catmull realized that the process of creating a short is very similar to that of creating a full length feature film so he came up with the idea that Pixar should create short films as an inexpensive way to test new talent and to try out new technology. Apparently, Steve loved the idea so the practice has been used ever since.

Short history lesson 2: Pixar had two major goals to strive towards during the last decade. The first goal was to create quality stories that the whole family can enjoy. The second goal was to increase output to one film per year. Their first goal is always given top priority; if the story is ever lacking then Pixar will ignore the second goal (slip the schedule) and rework the story until they have something worthy of the Pixar name (a lot of studios will hack a film in order to meet a schedule, Pixar will not).

Short history lesson 3: According to Steve, Disney and Pixar moved Cars from fall of this year to the summer of next year because statistics show that their films will perform better in the summer months due to repeat viewings. Apparently, children attend school during the winter months so they can't take in multiple viewings of a film during the weekdays. Pixar films are well suited for families and are well suited for repeat viewings so they should perform better during summer vacation. Steve was very clear that this is the only reason that Cars was slipped. Simon and Edwin supported Steve's reasoning with a few examples and personal experiences with their families.

Pixar is now able to release one Pixar Quality film per year and will begin to do so starting with the release of Cars next summer. Steve compared their schedule to a baseball game by telling investors that they would rather hit a home run than bat two doubles or even a double and a triple. Apparently, a double costs just as much to make and market as a home run. Pixar films are crafted to become part of the culture, to have a life span than endures generation after generation and to be loved by families worldwide.

Steve didn't give us a break out of which films are doubles and which are home runs. I suspect that if he gave us a breakout then Shrek 2 would be a grand slam, Nemo would be a hit out of the park, The Incredibles would be a home run, Madagascar would be a triple (a double if you just look at the domestic box office), and Sharks Tale would be a double.

The biggest disappointment of the meeting was the lack of discussion about Cars. Steve didn't say anything about Cars except that it will be delivered to Disney "soon". This is highly unusual for Steve. Usually shareholders are treated to a few minutes of their newest film, followed by several minutes of gloating, followed by details about how far they have progressed in order to create certain shots. This time we got nada, nothing, zippo... A big disappoint for me, and the many families who brought their small children hoping to catch a glimpse of Pixar's next big adventure. Steve didn't even discuss the material that will be on the Toy Story DVD.

After the short film was over, Steve took a few questions about Pixar and where they are headed.

Someone wanted to know if Pixar is going to start releasing more than one film per year (referencing Cowen's statement that they may increases film output to four films every three years). Steve then explained that it took ten years to get from one film every eighteen months to one film per year. Apparently, they want to have a solid handle on one "Pixar-Quality film per year" before they increase their output. Edwin then explained that the bottleneck isn't their equipment; the bottleneck is the talent pool. Pixar builds the best teams in the business and it takes a lot of searching to find the right people. The process is very much like searching for a needle in a haystack (how often can you find a Spielberg or a Lasseter).

Someone wanted to know about outsourcing. Apparently, Pixar can't outsource because their directors and creative staff are involved in every step of a project from the beginning to the end.

Someone wanted to know the size of their creative staff. Steve wasn't sure how to handle this question. Apparently, Pixar has over a hundred employees (and perhaps more) involved with the creative process, yet there are only a handful at the top (including John Lasseter, Andrew Stanton, Brad Bird and a few others).

Someone wanted to know about the negotiations with Disney. Steve pointed out that the current contract ends with the delivery of Cars to Disney. He went on to say that they have talked to all of the major studios, they know what each has to offer, and they know the types of deals they can make. He concluded with a statement about how great the Disney / Pixar relationship has been and how Disney would be their preferred partner... Regardless, they will have a new distribution partner before the end of the year.

Steve gave a little bit of praise for the current Disney contract. Apparently, they were given one of the best deals of that time and it has worked out extremely well for both Disney and Pixar. He also mentioned that Pixar is now at a point where they can finance 100% of their films so the next distribution deal will prove much more favorable to Pixar.

Someone wanted to know about the industry's problem with DVDs (piracy, slowing sales, etc.). Steve claimed that they aren't worried about piracy because the numbers are small, the quality isn't there and because the download times are long (and likely to get longer when HD arrives). Steve and Simon talked a little about the shelf life of Pixar products, how Pixar films are the type of film that families like to collect, about the long life expectancy of Pixar's products and they pointed out that families tend to purchase copies of Pixar's films so they can view them over and over again.

Someone wanted to know if Pixar will start delivering goodies to shareholders again. Steve mentioned the cost of doing so and the fact that the majority of reports are now being delivered via the Internet. The same person asked about a Pixar store (wanting to purchase a Cars poster) and Steve mentioned that they are considering the idea and may have something in place before the release of Cars.

Someone wanted to know if Steve Jobs got the better of George Lucas when he purchased Pixar for ten million dollars (nearly twenty years ago) and if George still talks to him. Steve called George "the proudest father in the world". Over the years, George has given a lot of help and guidance to Steve/Pixar; they have an incredible relationship. Steve then told us that he purchased a technology company from George. The dream to move it from a technology company into an animation studio came from Edwin Catmill.

Someone wanted to know where they got the name from. The Pixar name might have evolved from "Pixel Art". Edwin stated that the name was first given to a specialized computer, then became a team name, and was eventually selected for the company's name.

Steve concluded the meeting with a few nice comments about Walt Disney. Walt had a strong desire to create "entertainment for every member of the family to enjoy". This was something that worked very well for Walt and the Disney Corporation (and now it works well for Pixar too ;)

Take care,

Robert

P.S. This year I took my own advice and went to the Sony Metreon after the annual meeting. I started with a walk through the park directly across the street from the museum (past several nice fountains) and discovered that the Metreon is on the far side of the park. It has several nice places to eat lunch, a few high tech stores, and a nice movie theater.


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