“Why must you always be so negative when you write about Pixar?”

Jim Hill

17 years ago

As a direct result of some of the “Ratatouille” -related pieces that I’ve posted on JHM over the past few weeks, I have received a number of … er … colorful messages from Pixar fans recently. Here’s one of the more family-friendly examples. Which came from Patty T. of Haines City, FL:

Why must you always be so negative when you write about Pixar? Don’t you realize that, no matter how much that animation studio cost, acquiring Pixar was still the smartest thing Bob Iger ever did? It’s time to face the simple truth, Jim. Disney will be making money off of this deal for decades yet to come.

To be honest, the way I see this story, Patty, nothing about this acquisition is simple.

Take — for example — the real reason that Bob Iger made that deal with Steve Jobs to acquire Pixar Animation Studios. I mean, sure. Money was a factor. But not the main factor.

No, Iger had to make this deal. Otherwise … Well, that’s how Wall Street would have defined Disney’s new CEO. As the guy who let Pixar get away.

And Jobs knew this. Which is why he really put the screws to Iger. Extracting a fee for that Emeryville, CA. -based animation studio that still sets tongues wagging whenever the topic of Pixar’s acquisition price comes up in investment circles.

Let’s face it, folks. $7.4 billion isn’t exactly chump change. When Cerebus Capital Management paid out $7.4 billion to DaimlerChrysler back in May, they got an 80% stake in that company’s North American Chrysler group. Which gave them control over 3,750 sales outlets and nearly 100,000 employees. Whereas Disney — when it paid out the exact same amount — got a single animation studio with 600+ employees that has (to date) only produced 8 motion pictures & 11 shorts.

And — yes — I know. The Walt Disney Company didn’t actually plunk down $7.4 billion when it acquired Pixar Animation Studios. Whenever I bring up this topic on JHM, I’m immediately bombarded with e-mails & phone calls from senior Mouse House officials. Who quickly remind me that this acquisition was strictly a stock swap. With 2.3 shares of Disney stock being issued for every Pixar share. So no money actually changed hands.

Then these execs remind me of the billion dollars in cash that the Mouse got when they bought Pixar (Which then lowers that animation studio’s true acquisition price down to $6.4 billion).

They then direct my attention to the $2.7 billion that Mickey made in February of 2006 by selling off his radio stations to Citadel Broadcasting Corp. If you apply that amount toward Pixar’s acquisition costs (Because, you see, Disney was deliberately selling off its old media holdings so that it could then aggressively re-invest in new media), you’re now down to $3.7 billion.

Then when you factor in the $700 million that the Mouse will no longer have to pay out to Pixar for their share of past co-productions as well as future DVD, pay-per-view and television sales, the price drops to a mere $3 billion.

Seriously, folks. This is actually how people talk at the highest-most levels of the Walt Disney Company. “A mere $3 billion dollars.”

Anyway … Over the past month, I’ve begun hearing a revised version of this spiel. Which takes into account the $2 billion that Disney reportedly made last year off of the sales of “Cars” merchandise. Now — if you actually buy into this sort of slip’n’slide math — that then lowers the cost of acquiring Pixar to just a billion dollars.

Well, I don’t know about you folks … But whenever I hear this carefully crafted explanation, it becomes clear to me that Disney Company officials are still incredibly sensitive when it comes to talking about Pixar’s price tag. They’ve obviously grown tired of having that Emeryville-based animation studio’s name automatically linked to the phrase ” … which the Mouse just paid $7.4 billion for.”

“And why is that?,” you ask. That’s because Mickey understands that there are only two things that actually move Wall Street: emotion and numbers. And given that the investment community was still pretty happy that Iger didn’t allowed Pixar to get away, the numbers side of this equation didn’t really factor into things until just recently.

And — no — I’m not referring to how “Cars” failed to meet its financial projections during its initial domestic run and/or how “Ratatouille” didn’t make as much as had been expected over its opening weekend. I’m talking about other numbers now. Like the tens of millions of dollars that Walt Disney Animation Studios blew through late last year as they rushed to fix “Meet the Robinsons.” All because John Lasseter & Ed Catmull insisted that 60% of that Steve Anderson film had to be re-animated so that moviegoers could then find it easier to embrace this story of a time-traveling orphan.

Back when “Meet the Robinsons” was released to theaters in March of this year, the financial community hoped that all of this additional production time & expense would eventually translate into a bigger box office take for that Walt Disney Pictures release. But — as it turns out — this Steve Anderson film wound up earning almost $40 million less domestically than the WDAS production that proceeded it, “Chicken Little.”

Then there was John & Ed’s decision to significantly cut back on the number of projects that DisneyToon Studios had in its development pipeline. Last year, thanks to Lasseter & Catmull’s direct interference, there wasn’t a single new home premiere greenlit for production. Which is going to have a significant negative impact on Buena Vista Home Entertainment (soon-to-be Walt Disney Studios Home Entertainment)’s bottom line over the next 24 months.

These are the sorts of numbers that Wall Street is now paying attention to. Sure, the investment community understands that John & Ed are making these sorts of decisions only because they genuinely want what’s best for the Walt Disney Company in the long run. And that — three or four years down the line — Mickey’s adoption of Pixar’s “Quality is a great business plan” mantra will hopefully begin to pay off big-time.

But in spite of all this talk of the Mouse House having a “Great Big Beautiful Tomorrow” … It’s also important to understand that Wall Street has a very short attention span. Which is why it obsesses with things like “How did your studio’s movie do over its opening weekend?” and/or “What price was your company’s stock selling at when the markets closed this afternoon?”

So while investment analysts may pay lip service to the idea that “Iger, Lasseter, Catmull & Dick Cook are basically reinventing the Walt Disney Company. In 10 years, you won’t be able to recognize the place !” … They’ll also be looking for significant short term gains along the way. Which is why these folks aren’t all that pleased to hear that “Ratatouille” is really struggling nowadays to earn as much as “Cars” did last summer during its initial domestic run.

I know, I know. There are those of you who say “Why should I be worried about what Wall Street thinks? What kind of impact could a bunch of suits who just read spread sheets possibly have on the Mouse House?”

Well, let’s remember that Michael Eisner is no longer the head of the Walt Disney Company. And that change came about not so much because of the “Save Disney” movement and/or anything that the fan community did. But — rather — because the investment community lost confidence in Eisner’s ability to effectively lead the Disney corporation. They wanted Uncle Michael gone … And so he was gone.

And let’s remember that Iger was the one in the passenger seat when all that happened. Observing first hand what happens when you fall from favor with Wall Street. So this is a man who is now keenly aware of the importance of keeping all of those movers & shakers happy. Which is why Bob — more than anybody else at the Mouse House — really wants this $7.4 billion Pixar acquisition deal to begin paying off … but fast.

So there you have it, Patty T. … Where you see a “simple truth,” I see a very complex situation. One where Disney’s long-term hopes & future plans are constantly being tripped up by the company’s short-term needs & financial expectations. Will all this extra effort & expense ultimately pay off in the end? I’m afraid that we won’t really have a definitive answer to that question until four or five years down the line.

And until we get that answer … I’ll continue to report on what I’ve hearing from my friends who work inside of the Walt Disney Company. Both the good AND the bad stuff.

And if that type of coverage still manages to upset a few of you Pixar fans … Well, there are lots of other websites out there that only publish positive pieces about the Mouse House. And I’m sure that any one of those sites would genuinely welcome your patronage.

Your thoughts?