Disney's Acquisition of Pixar

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Case Details:

Case Code : BSTR203
Case Length : 13 Pages
Pages Period : 1995-2005
Organization : Walt Disney Company, Pixar
Pub Date : 2006
Teaching Note :Not Available
Countries : US
Industry : Media and Entertainment

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Disney-Pixar Partnership

In May 1991, Disney entered into an agreement with Pixar for developing and producing three computer animated feature films. According to the agreement, Disney agreed to produce movies to be developed and directed by Pixar's John Lasseter. Disney agreed to market and distribute these movies.

Pixar was to receive compensation based on the revenue obtained from distributing these films and related products. Including distribution fees, Disney was to get 87% of the distribution proceeds. Analysts felt that the agreement gave Pixar an expert partner in the film business with great marketing capabilities. The first film under the agreement was Toy Story which was released in November 1995. It was the first computer animated feature film that was of one hour and twenty one minutes duration. The film was a huge success and generated over US$ 360 million in worldwide revenues. After the release of Toy Story, Disney extended its partnership with Pixar to a co-production agreement in 1997, under which Pixar agreed to produce five original computer-animated feature films, in a span of ten years...

The Acquisition

In March 2005, the Disney Board elected Iger as the company's CEO to succeed Eisner on September 30, 2005. Iger got a call from Jobs who hinted at a possible discusion on working together again. Analysts felt that Iger would find it difficult to strike a new deal as proposed by Jobs as it was heavily loaded in favor of Pixar.

However, Iger adapted the proposal his own way. He asked for Disney's content to be distributed over the Internet through Apple's online store - iTunes. In October 2005, Iger and Jobs signed a deal to sell the past and current episodes of television shows of its ABC and Disney channels through iTunes. It started with five shows which included the popular shows Desperate Housewives and Lost. Jobs was pleased with the Iger's suggestion of linking up to offer videos through iTunes. Iger said that the deal with Apple was finalized in just three days. Meanwhile, Jobs also started re-negotiating on the Disney-Pixar agreement. With this rapprochement, there was speculation that Disney might acquire Pixar...

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