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3 O'Clock High: The Media Circle of Life


"Gimme 1 Billion and I'll throw in a little 'reality movie' I made with the Cow!"

Minyan C "Thomas Howell" Rafool writes:

I would appreciate your comments regarding Disney's (DIS) purchase of PIXAR (PIXR). My concern is that this purchase of PIXAR is at too high a price for the long-term benefits that might come along. I keep thinking back to Eisner's purchase of ABC and how if there was no ESPN component the transaction would have been a disaster. I mean couldn't Disney replicate PIXAR for say half the $7 billion price tag or does PIXAR have some lock on a technology that will never fade and makes their replication too daunting a hurdle. My guess is that Disney is paying a premium price for some addition to their story short term that will only be a cost to shareholders later on in write offs.

Am I wrong in thinking this might be Time Warner and AOL/Eisner purchase of ABC?

Thanks for you insight.

Minyan C. Rafool


Though Pixar claims patents on some technology the truth, as you suggest, is Disney's looking to bring in some outsourced Movie Magic by purchasing Pixar. In seeking the purchase, Disney is conceding their own inability to produce said magic themselves and, in effect, pink-slipping the entire existing Disney animation division.

In terms of assets, Pixar has a bunch of computers, a decent catalogue of characters and some weird movie about talking Cars that's gotten delayed once already (and which I would go on record as predicting to be a flop had Todd-O not already done so last year).

So, in terms of cash on cash return for their $7 billion, no, the shareholders of Disney do not figure to get a bang for their buck.

I think Disney is more or less locked into Conglomerate Thinking in regards to Pixar. Conglomerates react to threatening new ideas in entirely predictable ways:

  1. Rip off the good parts of the idea. "The kids like buddy pictures with Big Name stars like Tom Hanks and Tim Allen? Let's give them Brad Pitt! As Sinbad! In Space!"
  2. Rip off everything you can identify about the idea. "Ok... it wasn't the stars... it was the computers! Let's do Chicken Little! With Computers!"
  3. Buy the idea (then plug it into your conglomerate and ruin it).

Disney is at step 3. I doubt they are even sure what they are buying when making a run at Pixar. But I think if Disney knew what they had been doing wrong for the last decade in animation they would fix it themselves.

Seven Billion is an absurd amount of money to pay for something as fuzzy as "Good ideas" but Disney is desperate. They should have bought Pixar after Toy Story but they were too proud. They had animators on the payroll and the memories of hits like "Beauty and the Beast" was still too fresh.

So now they feel forced to chase Pixar and pay up. As you say, doing so gives them to chance to demonstrably be "Doing Something" in terms of the creative drive at Dis, which is an improvement over the money they've been dumping into animated flop after animated flop. Pixar can't save Disney but they can take some of the heat off long enough to allow Disney to either figure out their problems for themselves or hand off the whole mess to the next generation of management.

Which brings us to the next phase of our Conglomerate Lifecycle: The Meaningless Spinoff to "Unlock Shareholder Value!". But that's another note.
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