Episode 1 Pixar

In the inaugural episode of "Acquired," hosts Ben Gilbert and David Rosenthal delve into the strategic acquisition of Pixar by Disney in 2006. They explore how Disney, with new CEO Bob Iger at the helm, recognized the need to reinvigorate its animation dominance by purchasing Pixar for $7.4 billion. The acquisition, categorized as a business line addition, allowed Disney to leverage Pixar's stellar reputation and processes, leading to a resurgence of Disney's animation prowess. Gilbert and Rosenthal argue that the deal not only saved Disney but also set a precedent for future successful acquisitions, such as Marvel and Lucasfilm, transforming Disney into a powerhouse of beloved franchises. They conclude by grading the acquisition, with Gilbert awarding an "A" for its profound long-term impact on Disney's success and Rosenthal giving a "B+" considering the financial return over a decade.

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"Pilot both sets up and operates your company's entire financial stack." David details the extent of Pilot's services, emphasizing their role in managing the entire financial operations of a company.

• Ben Gilbert and David Rosenthal introduce themselves and the Acquired podcast.
• Ben is a co-founder of Pioneer Square Labs, and David is a principal at Madrona Venture Group.
• The podcast aims to explore acquisitions that have been beneficial to the acquirer.
• Ben and David discuss the rarity of successful acquisitions and the potential lessons for startups and independent companies.
• The focus is on tech companies that have experienced a synergistic acquisition, resulting in a "one plus one equals three" situation.

"We've recorded a pilot before this, but I'm not sure I'm comfortable letting that see the light of day. So this is our first real episode for the world to hear." Ben Gilbert acknowledges a previous recording but presents this as the official first episode that will be shared with the public.

"We're an early stage venture capital firm in Seattle. We invest in technology startups that hopefully one day go on to be an acquirer or be an acquirer." David Rosenthal describes the focus of Madrona Venture Group, highlighting their investment in startups that may become significant players in the acquisition market.

"It's worth going back and highlighting really interesting tech companies that were acquired and ended up being kind of a one plus one equals three situation where it was actually a good investment in the future." Ben Gilbert articulates the podcast's goal to analyze acquisitions that have been particularly successful and beneficial for the acquiring company.

• Disney acquired Pixar in January 2006 for $7.4 billion, which was roughly 45 times the estimated Pixar earnings for that year.
• The acquisition fundamentally changed both Disney and Pixar.
• Steve Jobs became the largest single shareholder of Disney stock as a result of the acquisition.
• The acquisition led to a long relationship between Disney content and Apple technology products.
• Pixar's IPO in 1995 was larger than Netscape's, and the acquisition by Disney was also larger than Netscape's acquisition.
• Post-acquisition, Disney Pixar released several successful films, contributing significantly to box office profits.

"Disney announces that they are acquiring it for $7.4 billion. Estimated roughly 45 times estimated Pixar earnings for that year. And Disney, and obviously Pixar changed forever since." David Rosenthal provides details on the financial aspects of the Disney-Pixar acquisition and its transformative impact.

"That is the day that Steve Jobs became the largest single shareholder of Disney stock, which Loreen Powell jobs still holds as part of the estate." Ben Gilbert highlights the significant outcome for Steve Jobs' estate following the acquisition, marking a notable shift in shareholder dynamics.

"Pixar was the largest ipo of 1995. Bigger than Netscape." David Rosenthal shares a surprising historical fact, emphasizing Pixar's significance in the IPO market of 1995, surpassing even Netscape.

"Disney Pixar, as it was rebranded, has since then released several films...just going on box office stats alone." David Rosenthal notes the continued success of Disney Pixar post-acquisition, with a list of successful films contributing to high box office revenue.

• Disney's acquisition of Pixar has generated significant revenue and profit from various sources.
• Revenue streams include merchandise, DVD sales, streaming, and theme park integrations.
• Costs associated with these revenues include the cost of goods sold (COGS) and marketing expenses.
• Publicly available numbers indicate approximately $7.5 billion in revenue and $4.5 billion in profit since the acquisition.
• The acquisition cost was $7.4 billion, and the profit generated over ten years is $4.5 billion.

"those film homes since the acquisition have made just about seven and a half billion dollars in revenue and about four and a half billion dollars of profit."

The quote outlines the financial success of the Pixar acquisition by Disney, highlighting the substantial revenue and profit figures in relation to the original acquisition cost.

• Disney's profit per film is increasing, suggesting a potential 15-year payback period for the Pixar acquisition.
• Disney's historical reputation as an animation powerhouse was bolstered by reacquiring the "magic" that Pixar brought to animated films.
• Pixar had become known for creating successful and innovative films, a trend that Disney sought to continue.

"the pace of their profits per film is accelerating."

This quote indicates that the financial benefits of Disney's acquisition of Pixar are growing over time, with profits increasing at a faster rate per film.

• The acquisition can be categorized based on different elements such as people, technology, and business lines.
• There is a people element to the acquisition, but it's not a typical people acquisition where talent is repurposed for existing products.
• Pixar began as a pure technology company, and its technological advancements in animation played a significant role in the acquisition.
• The acquisition is also seen as a business line acquisition, as Pixar operated independently with its own projects and teams.

"how would you categorize this acquisition?"

This quote introduces the discussion on how to categorize the acquisition of Pixar by Disney, considering factors such as people, technology, and product lines.

• Pixar originated within Lucasfilm as a technology company focused on solving animation problems.
• It was spun out and sold to Steve Jobs, starting with small capabilities in computer animation and gradually expanding.
• Pixar's early limitations in animation technology are evident in their initial short films and the first Toy Story movie.
• Despite technological constraints, Pixar managed to create emotionally resonant films that embraced the medium's limitations.

"Pixar is a technology company. It was created as a division within Lucasfilm."

This quote emphasizes Pixar's foundation as a technology-driven company within Lucasfilm, highlighting its origins and focus on solving animation problems through technological innovation.

• Pixar's approach to storytelling adapted to the limitations of their technology, focusing on the art and emotional connection.
• The company's success was not just due to technology but also to the creative use of that technology to tell compelling stories.
• Early Pixar employees, like John Lasseter, were instrumental in exploring storytelling possibilities within technological constraints.
• Pixar's strategy involved using simple shapes and avoiding complex animations that the technology of the time could not handle well.

"the important thing was really communicating that story and picking whatever kind of visual representation they needed to fit the medium to still deliver that complete solution."

This quote captures the essence of Pixar's strategy to focus on storytelling within the limits of their animation technology, ensuring that the narrative was effectively communicated despite technical constraints.

• The acquisition of Pixar by Disney is characterized as a business line acquisition.
• Pixar operated independently from Disney, with separate teams and studios, mirroring strategies used by other companies like Facebook with Instagram and WhatsApp.
• Leadership was the exception to this separation, with some crossover between Disney and Pixar in executive roles.

"I would actually put characterize Pixar best as a business line acquisition for Disney."

The quote concludes that the acquisition of Pixar is best viewed as a business line acquisition, given the operational independence and the strategic parallels to other acquisitions in the industry.

• Pixar has maintained a distinct brand and business line within Disney post-acquisition.
• Bob Iger, CEO of Disney, recognized the need to acquire Pixar when he noticed the prominence of Pixar characters in Disney parades.
• Pixar's characters were more prevalent than Disney's own in terms of recent developments.

"But really, Pixar has remained its own brand and its own business line, quote unquote, today." "Bob Iger, the CEO of Disney, realized that he needed to buy Pixar... when he was looking at a parade at a Disney theme park, and all the characters in the parade, and he realized that the characters that were developed in the past ten years, none of them were Disney characters. Almost all of them were Pixar characters."

These quotes highlight Pixar's distinct identity and significant cultural impact, which prompted Disney's acquisition. The observation of character popularity at Disney parades was a pivotal moment for Bob Iger's strategic decision-making.

• Pixar is known for consistently producing box office hits with an emotional connection for both children and adults.
• Pixar's internal review process is rigorous, with a "brain trust" that reviews milestones and early screenings.
• The company develops talent by allowing young directors to create shorts before moving on to larger projects.
• Pixar's success is attributed to its people, processes, and priorities, which were significant factors in the Disney acquisition.

"And nothing Pixar does sees the light of day unless it's wonderful." "They have this really intense internal process where I think three or four directors, over the course of their history, have been fired in the middle of projects." "It's a business line. I mean, it's processes, but it's a business line."

These quotes emphasize Pixar's commitment to quality and the structured processes that ensure only the best content is released. The reference to Pixar as a business line underscores the importance of maintaining its operational independence and respecting its established processes post-acquisition.

• John Lasseter and Ed Catmull of Pixar took over Disney's animation division post-acquisition.
• Disney has been learning from Pixar's processes to improve its own animation quality.
• The success of non-Pixar Disney animations like "Frozen" is partially credited to learning from Pixar's approach.

"Yeah. And you look at, I mean, what Disney needed to learn to do was not ship truly, like, only put out really wonderful." "That was Disney learning from laster, Pixar, the process that they had there and what computer animated joy looked."

These quotes discuss the transfer of knowledge and processes from Pixar to Disney, with Disney striving to reach the level of quality that Pixar is known for. The acquisition allowed Disney to learn and implement Pixar's successful production methodologies.

• The conversation draws parallels between Pixar's quality control and technology companies' product releases.
• The example of Apple is used to illustrate how even successful companies can have periods of subpar product offerings.
• The importance of not shipping low-quality products is emphasized as a shared value between Pixar and tech companies.

"Don't ship crap." "There were a number of years in the wilderness when Apple was shipping."

These quotes underline the universal business principle of prioritizing quality in product development. The comparison to Apple's history serves as a reminder that maintaining high standards is crucial for long-term success.

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• The discussion speculates on what might have happened if Disney had not acquired Pixar.
• Pixar would likely have continued to be successful due to its strong following and substantial box office revenues.
• Disney's future was more uncertain without the acquisition, as Pixar's creative processes and character popularity were seen as critical to Disney's revitalization.

"I wouldn't be worried about Pixar, but I would be worried about Disney." "I think Disney was a little bit lost, had a new CEO who had a clear vision, and I think that I'd be a lot more worried about Disney than Pixar."

These quotes reflect on the potential outcomes if Disney had not acquired Pixar, suggesting that while Pixar's success would likely have continued, Disney's revival hinged on the acquisition and the subsequent integration of Pixar's creative strengths.

• Pixar's acquisition by Disney is a prime example of how a buyout can scale an acquired company's impact.
• Being a part of Disney allowed Pixar to expand its reach and influence more rapidly than it could have on its own.
• The creation of Cars Land at Disneyland, a billion-dollar investment, was a direct result of Pixar's integration into Disney.

"None of that would have happened if Pixar weren't part of Disney."

This quote highlights the tangible outcomes, like the creation of Cars Land, that arose from Pixar's acquisition by Disney, which would not have been possible otherwise.

• Post-Pixar acquisition, Disney underwent a significant transformation, not only in animation but in their entire film and IP approach.
• Disney's acquisition strategy included Marvel in 2009 and Lucasfilm, leading to successful franchises like The Avengers and the continuation of Star Wars.
• The acquisitions led to a playbook for amplifying franchises and leveraging fan bases, which was a new institutional skill for Disney.

"That's how you get these sort of one plus one equals three things where it wasn't an asset that either company had, but the process of the acquisition itself forced them to get good at a thing that would determine their future success."

This quote emphasizes the synergy and the new capabilities Disney developed through the acquisition process, which were not inherent assets but became key to their future success.

• Disney learned from Pixar not to disrupt the creative process, which is crucial for maintaining the quality of the content.
• Despite concerns of over-commercialization, Marvel and Star Wars have seen a resurgence and financial success under Disney's stewardship.
• The acquisition process served as a learning experience for Disney in how to handle creative franchises without diminishing their value.

"Would that have happened without, you know, Marvel fans? I'm sure there are plenty out there who would argue that it's become too commercial and it's lost, whatever, but that would be a small minority."

This quote discusses the balance between commercial success and maintaining the integrity of the creative process, suggesting that most fans are satisfied with the direction of Marvel under Disney.

• Ten years after the acquisition, the financial success of Disney's purchase of Pixar is debated, with the cost being $7.5 billion.
• The return on that investment is not as clear-cut as other high-growth investments, such as early-stage Facebook.
• The discussion reflects on the nature of mergers and acquisitions and their financial impact in comparison to venture investments.

"It's been ten years. So financially, and I contrast that within 2006, Facebook was two years old at that point. And now what's Facebook market cap? I don't know."

This quote reflects on the financial aspect of the acquisition and compares it to the growth of a successful technology company like Facebook, highlighting the different scales of investment returns.

• The hosts discuss the overall grade for the Disney-Pixar acquisition, with one host leaning towards an A and the other between a B+ and A-.
• The debate centers around the acquisition's financial return and the transformative impact on Disney.
• The long-term success and health of Disney, potentially without Pixar, are considered as part of the acquisition's value.

"What does Disney look like 20 years from now without Pixar?"

This quote raises the question of Disney's long-term trajectory without the creative and brand assets that Pixar brought into the fold, emphasizing the strategic importance of the acquisition beyond immediate financial returns.

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