Pixar Animation Studios

Pixar Animation Studios is a computer animation studio based in Emeryville, California best known for its CGI animated feature films.

Early history
Pixar was founded as the Graphics Group, one third of the Computer Division of Lucasfilm that was launched in 1979 with the hiring of Ed Catmull from the New York Institute of Technology. At NYIT, the researchers worked on an experimental film called The Works, though it was never released. When the group moved to Lucasfilm, the team worked on creating the precursor to RenderMan, called Motion Doctor, which allowed traditional cel animators to use computer animation with minimal training.

Eventually, the team began working on film sequences, produced by Lucasfilm, or worked collectively with Industrial Light and Magic on special effects. After years of research success, and key milestones in films such as Star Trek II: The Wrath of Khan and Young Sherlock Holmes, the group was purchased in 1986 by Steve Jobs shortly after he left Apple Computer. The newly independent company was headed by Dr. Catmull, President and CEO, and Dr. Alvy Ray Smith, Executive Vice President and Director. Jobs served as Chairman of the Board.

Initially, Pixar was a high-end computer hardware company whose core product was the Pixar Image Computer, a system primarily sold to government agencies and the medical community. The Image Computer never sold well, although one of the leading buyers of Pixar Image Computers was Disney studios. In a bid to drive sales of the system, Pixar employee John Lasseter premiered his creations at SIGGRAPH, the computer graphics industry's largest convention, to great fanfare. As poor sales of Pixar's computers threatened to put the company out of business, Lasseter's animation department began producing computer-animated commercials for outside companies. Early successes included campaigns for Tropicana, Listerine, and LifeSavers.

Disney and Pixar Feature Film Agreement
In May of 1991, after substantial layoffs in the company's computer department, Pixar signed the Feature Film Agreement with Disney to produce three computer-animated feature films through the year 2000, the first of which was Toy Story. The partnership called for Pixar to develop the films while Disney would pay all film development costs (except in some cases where the costs exceeded the budgeted amount). In addition, Disney was responsible for marketing and distributing the films. The agreement gave Pixar 15% of the gross revenue from the films and related products while Disney received the other 85%.

Just a week after Toy Story was released, Pixar went public with their IPO on November 29, 1995. They sold 6.9 million shares at $22/share. During its first day of trading, the stock price went as high as $49.50 and ended the day at $39. The IPO raised almost $140 million for Pixar, making it the largest IPO of the year (Netscape was the second largest). Steve Jobs' shares, who maintained 80% of Pixar stock, were worth over $1.1 billion after the IPO.

Disney and Pixar Co-Production Agreement
While the Feature Film Agreement was very beneficial to Pixar, the company realized changes would be necessary for them to reach their ultimate goal, which was to become a world-class studio. The first change was to receive a larger portion of the profits. The success of Toy Story plus the cash received from their IPO gave the company the confidence and financial ability to take on the additional costs of co-producing the films in return for a larger percentage of the profits. The second change was to elevate the Pixar brand. Steve Jobs's vision was to create a third "significant" brand in the film industry, the other two being Disney and Steven Spielberg. This would not be possible unless people recognized the Pixar name. Jobs felt that many people did not realize Pixar was involved in Toy Story, rather that it was a Disney-only film. In return, Jobs would offer more films to Disney.

During 1996 Disney and Pixar negotiated a new partnership, called the Co-Production Agreement. The new partnership was announced on February 24, 1997. Under the new agreement, Pixar would produce 5 feature animation films over the following 10 years. The agreement called for both companies to share equally in the production costs while Disney would pay for all marketing and distribution costs. Both companies would split 50-50 the profits from the films (after Disney recovered its marketing costs), sequels, home videos and other merchandise. In addition, Pixar would get equal branding on not only the films but all merchandise. Finally, Disney purchased 1 million shares of Pixar stock, with rights to acquire up to 5% of Pixar stock.

The films produced under the Co-Production Agreement were A Bug's Life, Monsters, Inc., Finding Nemo, The Incredibles and Cars. Toy Story 2 was produced under the Co-Production Agreement's profit sharing plan. But as a sequel to Toy Story, which was produced under the original agreement, it did not count as one of the 5 films.

The end of the partnership
Pixar's first five feature films have collectively grossed more than $2.5 billion, equivalent to the highest per-film average gross in the industry. Though profitable for both, Pixar later complained that the arrangement was not equitable. Under the Co-Production Agreement, Pixar was responsible for creation and production, while Disney handled marketing and distribution. Profits and production costs were split 50/50 but Disney exclusively owned all story and sequel rights and also collected a distribution fee. The lack of story and sequel rights were perhaps the most onerous to Pixar and set the stage for a contentious relationship.

The two companies attempted to reach a new agreement in early 2004. The new deal would be only for distribution, as Pixar intended to control production and own the resulting film properties themselves. Pixar wanted complete freedom to finance their films on independently and collect 100% of the profits, paying Disney only the 10 to 15 percent distribution fee. More importantly, as part of any distribution agreement with Disney, Pixar demanded control over films already in production under their old agreement, including The Incredibles and Cars. These conditions were unacceptable to Disney, but Pixar would not concede.

Bad blood between Steve Jobs and Disney Chairman and CEO Michael Eisner made the negotiations more difficult than they otherwise might have been. They broke down completely in mid-2004, with Jobs declaring that Pixar was actively seeking partners other than Disney. However, Pixar did not enter in negotiations with other distributors, since other partners saw Pixar's terms as too demanding. After a lengthy hiatus, negotiations between the two companies resumed following the departure of Eisner from Disney in September of 2005.

In preparation for potential fallout between Pixar and Disney, Jobs announced in late 2004 that Pixar would no longer release movies at the Disney-dictated November timeframe, but during the more lucrative early summer months. This would also allow Pixar to release DVDs for their major releases during the Christmas shopping season. An added benefit of delaying Cars was to extend the timeframe remaining on the Pixar-Disney contract to see how things would play out between the two companies.

Pending the Disney acquisition of Pixar, the two companies created a distribution deal for the intended 2007 release of Ratatouille to ensure that if for any reason the acquisition fell through this one film would still be released through Disney's distribution channels. (In contrast to the earlier Disney/Pixar deal Ratatouille was to remain a Pixar property and Disney would have received only a distribution fee.) The completion of Disney's Pixar acquisition, however, nullified this distribution arrangement.

Disney's acquisition of Pixar
On January 24, 2006, Disney announced that it had agreed to buy Pixar for approximately $7.4 billion in an all-stock deal. Following Pixar shareholder approval, the acquisition was completed on May 5, 2006. The transaction catapulted Steve Jobs, who was the majority shareholder of Pixar with 50.1%, to Disney's largest individual shareholder with 7% and a new seat on its board of directors. Jobs' new Disney holdings outpace holdings belonging to ex-CEO Eisner, the previous top shareholder who still held 1.7%, and Disney Director Emeritus Roy E. Disney who held almost 1% of the corporation's shares. Roy Disney's criticisms of Eisner included the soured Pixar relationship and accelerated Eisner's ouster.

As part of the deal, Lasseter, Pixar Executive Vice President and co-founder, became Chief Creative Officer (reporting to President and CEO Robert Iger and consulting with Disney Director Roy Disney) of both Disney and Pixar Animation Studios, as well as the Principal Creative Adviser at Walt Disney Imagineering, which designs and builds the company's theme parks. Catmull retained his position as President of Pixar, while also becoming President of Disney Studios, reporting to Bob Iger and Dick Cook, chairman of Walt Disney Studio Entertainment.

Lasseter and Catmull's oversight of both the Disney and Pixar studios did not mean that the two studios were merging, however. In fact, additional conditions were laid out as part of the deal to ensure that Pixar remains a separate entity, a concern that many analysts had about the Disney deal.

Some other points of interest concerning the deal:


 * If Pixar had pulled out of the deal, they would have been required to pay Disney a penalty of US$210 million.
 * John Lasseter has the authority to approve films for both Disney and Pixar studios, with Bob Iger and Roy Disney carrying final approving authority.
 * The deal required that Pixar's primary directors and creative executives must also join the combined company. This includes Andrew Stanton, Pete Docter, Brad Bird, Bob Peterson, Brenda Chapman, Lee Unkrich, and Gary Rydstrom.
 * There will be a steering committee that will oversee animation for both Disney and Pixar studios, with a mission to maintain and spread the Pixar culture. This committee will consist of Catmull, Lasseter, Jobs, Iger, Cook and Tom Staggs. They will meet at Pixar headquarters at least once every two months.
 * Pixar HR policies will remain intact, including the lack of employment contracts.
 * Ensures the Pixar name will continue, and that the studio will remain in its current Emeryville, California location with the "Pixar" sign.
 * Branding of films made post-merger will be "Disney•Pixar" (starting with Cars).