The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire? Harvard Case Solution & Analysis

History and Background

Walt Disney is one of the leading media conglomerates in the world. Walt Disney and Roy Disney were the founders of Walt Disney Company, which was established in 1931 when Walt Disney marked a contract with M.J Winkler. In 1928, Steamboat Willis introduced the iconic character, Mickey. The company released its first movie in 1937 by the name of Snow White and the Seven Dwarfs as well as it released its first live action movie Treasury Island in 1950. Moreover, the company’s founder, Walt Disney, passed away in 1966 which affected the performance of the enterprise. However, after the death of the founder, the company came up with the new idea of an opening resort, which revitalized Disney’s enthusiasm in 1971.

In contrast, Pixar is one of the largest digital animation studios, which creates animated feature film and similar goods. The company was established in 1986 by the name of Lucas Film computer division. After the acquisition, the company was renamed to  Pixar. Moreover, in 2006, Disney acquired this company with $7.5 billion. The technological products of the company gained the attention of Steve Jobs, who also found potential in the technology and decided to purchase the company in $ 10 million as well as he renamed the company as "Pixar." After the acquisition, the company released its all-time favorite movie film ‘Toy Story 3’, which got high rating in the market and through this film, the company became successful.

PREVIOUS COLLABORATIONS

In 1991, both the companies, Disney and Pixar, decided to produce three CG animated movies together. The companies also signed the agreement and according to this agreement, both companies performed their duties effectively and efficiently. According to the agreement, Disney funded the production cost of movie rights and Pixar paid the participation fees. Moreover, Pixar received only $56 million in return. The first movie, Toy Story 3, achieved high success in the market and became the most popular film in the year. 1n 1997, the company renegotiated the deal and stated that the projected cost of the two movies was $120, which was distributed among two companies. On the other hand, Disney also kept the right of distribution to make sequels. In 2002, Steve Jobs tried to renegotiate the exclusive contract for Pixar. However, Disney remained stuck with the original contract which was good for the business. Therefore, Disney controlled the distribution right over five years and after that, these rights would be given to Pixar and Disney surrender the tenure of the film.

DISNEY AND PIXAR INDUSTRY ANALYSIS

This session provides the industry analysis of the companies as it is associated with numerous industries, however, in this case, we will discuss film distribution industry of Disney and Pixar. In this session,  Porter’s five forces have been performed which is discussed below:

POWER OF BUYERS:

DISNEY: The theaters and retailers are those individuals that bring movies in the course of Blue-ray, DVD, and showings, and etc. The decision of buying the movies was based on the willingness of the theaters and retailers. Moreover, before making the decision of purchases, they first evaluate the distribution size, customer loyalty, and brand name reorganization. In this case, the bargaining power of the theaters and retailers is fair. In addition to this, consumers’ readiness to pay out on films and inventories is high, which also facilitates the distributors’ bargaining power.

PIXAR: The distributors are the real buyers of the filmmaker industry. In this industry, the power of buyers is high due to the availability of an enormous number of movies for the distributors. Moreover, it is tough for the filmmakers to achieve success in the market. Therefore, the company maintained its distribution and marketing strategies effectively to achieve success in the market. In the film industry, the filmmakers maintain strong relationship with the distributors to provide exposure to the films in the market. In this industry, the cost for the buyers is zero as distributors would decide between movies and filmmakers to collaborate with at their spare time.

POWER OF SUPPLIERS

DISNEY: The film creators are the vendors who expect to distribute movies. The power of supplier is low as the company requires high capital supports from distributors. Moreover, the distribution and marketing strategies play a vital role in the success of the film industries. Therefore, the company maintained a strong relationship with the distributors to promote its film in the market. Hence, gaining support and joint venture from leading distributors is very imperative to film creators.

PIXAR: Suppliers are also considered as the most valuable resource which the filmmakers need to create a movie. Moreover, the filmmakers also require artistic talents, technology vendors and equipment manufacturer. In addition to this, the CG outsourcing also increases the needs of suppliers. In this case, the power of these suppliers is moderate as recruiting the best resources is a challenging task for the distributors. Furthermore, in this case, the filmmakers have many options available to choose.

THREAT OF NEW ENTRANTS

DISNEY: Due to high entry barriers, the threat of new entrants is low in the film distribution industry. The film distribution industry requires enormous amount of capital investment to enter the market, which is far difficult for anyone to manage. The success of these industries entirely depends on the partnership of the distributors and channel members, which are easily available in the well-recognized brand.

PIXAR: In the filmmaker industry, the barrier to entry is low, however the threat of new entrants IS higher due to the advancement of technologies. Every new company comes up with new ideas and talents that create differentiation among the industries. These new companies come up with the hope of providing innovative and novelist storylines to the customers, which are probably aggressive for all the players in the market.

THREAT OF SUBSTITUES

DISNEY: The threat of the substitutes is moderate in film distribution industry. The main alternatives for the distribution industry involve theater, YOUTUBE, television. These all medium gets high popularity in the industry, and customers also paid more attention to these channels.

PIXAR: In the filmmaking industry, the threats of the substitutes is moderate. The main alternatives to this industry are comedy and action and etc. These activities have a huge impact in the market and as well as they attract the attention of customers all over the world.

RIVALRY

DISNEY: The competition in the distribution industry is moderate due to the involvement of other companies that exist in the market and provide valuable services to the customers.

PIXAR: In the filmmaking industry, the rivalry is high due to intense competition from well-developed companies as well as startup companies. The latest technologies also play a vital role in increasing competition. Therefore, due to the intense competition from both small and large businesses, the rivalry is growing and high.

SWOT ANALYSIS OF DISNEY ACQUIRING PIXAR

DISNEY ANALYSIS 

The core capabilities of Disney are its partnership and distribution channels. It also involves numerous options such as DVD, Television, and films. Disney has active human resources process in the organization, and it also has significant resources to invest in the latest project, which improves its efficiency and reliability of the products. Moreover, Disney generates majority of its revenue from its successful project that is the theme park and merchandising. It also has a vast knowledge of the film industry. In addition, the company also gets full support from its fans and loyal customers. The weaknesses of Disney comprise of sensitive CG technologies, large scale and heightened tension and depressed moral. The company has tremendous opportunities for growth in the market. It could be said that the company may face intense competition from its competitors.

PIXAR ANALYSIS 

The main strength of Pixar is its technological successes and its 3D leadership in PC animations. The company also has numerous software and programs which assist it to achieve success in the market. The company also gets the benefit from its fast production process. The management team of Pixar is skillful and has great knowledge about the technological products. The core capability of Pixar is its culture, which is efficient and unique as compared to Disney. Moreover, Pixar provides a wide range of services to the customers, which improves the service level of the company as well as provide benefit to the enterprise. The company faces economic challenges due to lack of financial resources and uncertain economy. On the other hand, the main weakness of the business is that it is still in the developing stage and does not have enough resources to maintain its standard. The company has tremendous opportunities for growth in the market. However, the company may face intense competition from its competitors, which give tough challenge to the company

ACQUISITION

The main purpose of the acquisition of Pixar is that Disney wants to maintain its level of technological products however, Pixar has a large variety of goods that are available in the market for the customers. Moreover, the company has also been highly successful in its business computer division. This acquisition process would Disney to acquire Pixar. Due to this, Disney would attract the large segments of customers and also improve the level of products by providing innovative and creative products. This decision would also enhance the revenue of Disney as well as enable the company to maintain high market share in the film distribution industry. Moreover, the benchmark of competition also decreases in the market due to this acquisition process. (Juan Alcacer, 2010)

On the other hand, the acquisition somehow affects the cultural norms of the market due to the change in the organizational process, structure and accountabilities. Pixar’s employees also have the fear of losing independency due this acquisition.

Financial aspects Disney & Pixar

SYNERGIES

The amalgamation would allow Disney and Pixar to develop mutually financial and managerial synergies. From the financial point of view, amalgamation would enlarge the stock price of Disney's. Moreover, it would eradicate the difficulty of impending to contracts about creation and circulation cost. Due to this decision, the financial performance of the company would progress and also determine the growth rate of Pixar, which is (39%). The company would also be able to produce new improved films in the market, which would increase the revenue of the company as well as improved the distribution and marketing process. From the perspective of the company’s synergies, the acquisition would permit Disney and Pixar to focus on individual strengths, which will turn into amplified efficiency and make additional revenues. As compared to Pixar, Disney has strong distribution channels, good stories, and high knowledge of the merchandising industry whereas, Pixar has the machinery and originality. Both the companies are required to market their production process together as it would help the companies to achieve maximum benefit from the resources and achieve high growth rate.

ALTERNATIVES (NO ACQUISITION)

Firstly, the company should maintain its relationship with Pixar, as well as it should prolong its work along with Pixar through renegotiating the deals as this decision is less expensive as compared to the acquisition. In the past, when both the companies started working together to achieve the same objective, during that time the company was able to gain success in the market. It is beneficial for Disney to begin its work with Pixar as it requires minimum investment and in return the company will be able to perform better as well as the competition would also reduce in the market.

The second option for the companies is to go for strategic alliance with other firms, which includes MGM, Dream Works, Warner Brother, Paramount, and Fox. If the enterprise maintains the strategic alliance with these companies, then it would provide higher financial resources to the company rather than partnership with Pixar. Therefore, the company should maintain strategic alliances with other studios. However, it is far difficult to keep a relationship with new businesses and also focus on the distribution channel factors.

Thirdly, Disney should outsource the technologies. As compared to Pixar, Disney does not have high level of technologies, therefore it is necessary for the company to improve its technology system and enhanced the quality of the services. Moreover, Disney also needs to buy equipment and hire new employees in the organization as it would help the company in improving the financial recourses of the enterprise. The primary cause of this alternative is that by acquiring this option, Disney will lose its exclusivity in the movie industry as other competitors would utilize similar resources.

RECOMMANDATION

It is recommended that the company should go for full acquisition of Pixar. It is recommended that Disney should maintain a strong relationship with Pixar as this merger would provide positive benefits to the company as well as the company would be able to generate more revenue. Moreover, the company should follow Disney’s culture and Pixar’s culture as it would help the organization in understanding the structure and process of both the organization.

As per the analysis of the both the companies, it is evaluated that the decision of Disney regarding the acquisition is the right decision as it would hlep the company to maintain its position in the market as well provide more opportunities for the company to grow.

Bibliography

Juan Alcacer. (2010). The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire? Harvard Business School , 1-28.

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