Disney-Pixar Relationship

May 20, 2020 in Economics Essays

Disney Economics Essay

  1. The Disney-Pixar relationship makes perfect sense in different aspects. This can be analyzed from both the economical and operational aspects. Pixar brings operational benefits to the partnership. It was one of the first companies to make a breakthrough in animation by moving away from the traditional animation process of 2D animation and starting to use the 3D computer-generated models. This change in operation by Pixar enabled films to be completed in a much shorter period. Additionally, it increased the flexibility of the animators, hence giving them greater creative ability. Disney brings the economic advantages into this relationship. Disney has been a major player in the animation sector since the release of Snow White and the Seven Dwarfs in 1934.The film was a huge success with high box office returns and profits from merchandising deals among others. Therefore, the Disney Company brings its experience in terms of marketing of films and distribution deals that enables maximum benefits to be reaped from the release of such films.

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  1. Since the Pixar-to-Disney relationship has been started in 1986, Pixar has created assets that are specific to their relationship. A good example is the Computer Animated Production Systems (CAPS) which was owned by Disney but used by Pixar in the making of a number of films. The next example was the deal signed between the two entities for the production of three full-length 3D CG animated movies. Pixar  paid a certain amount of participation fee dependent on the total revenue, while Disney retained the movie rights. In this arrangement, Pixar chose not to co-finance the right to produce sequels of movies and this made Disney have exclusive distribution and exploitation rights to all the films that were produced under the deal. Under these agreements, Pixar also modeled one’s business to the benefit of Disney: if the former wanted to exploit or distribute any of its films characters, the company would then have to pay a license fee to Disney.
  2. The contractual relationship between the two companies was beneficial to both parties involved but with the favor tipping to Disney. The deal that was signed in 1991 had the latter controlling the release dates of the movies and owning of the movie rights exclusively. Disney also retained the exclusive distribution and exploitation rights to all feature films produced under the joint venture. Pixar  was only paid a participation fee, based on the total revenue that would be accrued from the movie sales. In 2002, there was an attempt by Steve Jobs to  renegotiate a deal between the two firms that would involve Pixar  shouldering 100% of the production costs in return for full ownership of the films, leaving Disney with just a fixed distribution fee. The treatment of sequels was a major area of disagreement between the two firms. Under the previous agreement, Disney could produce sequels to Pixar films without one’s involvement. Pixar was afraid that such an arrangement would lead to cheaper sequels and direct to video quickies that would eventually tarnish its brand. Pixar also wanted Disney to give up its co-ownership of past films and also return the rights of two films that were yet to be released – The Incredibles and Cars.

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  1. Long-term contracts have the advantage of ensuring continuity in operation without disruptions. However, there are costs that relate to long-term contracts. A major issue is the legal fees that are associated with such contracts. To be more precise, such contracts are very complex in nature and, therefore, require heavy involvement of lawyers and other legal experts. Apart from that, they are very time-consuming and the clients may have to endure long durations of negotiations, including clauses and other matters. Overall, this circumstance has the effect of making such contracts accrue extremely large legal costs. The other cost is the time factor itself. As it has been mentioned earlier, there is a lot of time consumed by both parties in the drafting of such agreements. This is time and effort that could have been used elsewhere, in other productive activities, and thus, this factor is also a valuable cost to be considered.
  2. Disney should acquire Pixar as there are numerous benefits that would accrue from such an arrangement. The main driving reason for an acquisition was based on the premise that animation was integral to Disney’s corporate strategy because the characters from the animated films drove retail in its theme parks and consumer product divisions. The first benefit is that Disney would acquire the technological experience and expertise from the Pixar Group. The majority of the technical staff at Pixar is PhD holders, who combined technical know-how together with creativity to come up with some of the most creative and mind-blowing products of our generation. Creativity existed at all levels of the Pixar organization. The second benefit that Pixar would obtain was the corporate culture at Pixar. The company had three basic principles that led to its success. The first one was that everybody had the freedom to communicate with anyone in the organization regarding any subject matter. The second principle was that it was safe for everyone to offer ideas and stay close to innovations in the academic community. The third benefit was that Pixar’s track record for producing smash hits was unmatched, and therefore, this would give Disney an edge over the competition. However, a huge disadvantage of the deal was the cultural clash that would have occurred. This obstacle was the coming together of a small independent studio and a very large corporation. Consequently, there were many aspects to be considered, especially with relation to the running and management of the entities. Another disadvantage is that the acquisition would be excessively expensive for Disney. The process would have also created the problem of how Steve Jobs would manage simultaneous running of such large corporations as Disney and Pixar united and Apple, Inc. that was undergoing resurgence in the technological market. 

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