Walt Disney’s Acquisition of Pixar
Company Details: Acquirer - The Walt Disney Company
Founded: 1923
CEO: Bob Iger
Market Cap (At the time of the acquisition): $50 Billion
The Walt Disney Company was originally founded by Walt and Roy Disney in 1923 as an animation studio under the name 'Disney Brothers Cartoon Studio', which soon changed to 'Walt Disney Studio' due to Walt’s leading creative role. In 1928, Disney produced 'Steamboat Willie', which was the first cartoon to have synchronised sound and introduced audiences to the character of Mickey Mouse. This was the beginning of Disney's success, leading Disney to start making feature films such as 'Snow White and the Seven Dwarfs' (1937), 'Pinocchio'(1940), 'Bambi' (1942), and 'Cinderella' (1950). Although feature films were more profitable than series, Walt Disney recognised that he needed to diversify the Company in order for it to survive.
Over the years, the need to expand and adapt to changing demands has continued, as Disney strives to maintain its market dominance. The acquisitions of Marvel in 2009 and Lucasfilm in 2012 helped Disney to widen its content with more action-focused and edgier films, extending its reach to male audiences. This allowed Disney to monetise off characters from the Marvel Cinematic Universe and the Star Wars franchise through merchandising, video games, and theme park attractions. To transition into the streaming era, Disney launched its own streaming platform called Disney+ in 2019. After previously having exclusively licensed their content to Netflix, the market for streaming had grown immensely. Through launching a direct-to-customer service, Disney increased their share of profits and gained full control over the distribution of their content. In 2019, Disney acquired 21st Century Fox to add to the range of films and TV available on Disney+, and in 2023 Disney bought Hulu to cement its place in the streaming industry and further expand its portfolio of characters and content.
Company Details: Target - Pixar Animation Studios
Founded: 1986
Current CEO: Jim Morris
CEO (At the time of the acquisition): Steve Jobs
Market Cap (At the time of the acquisition): $6.9 Billion
Pixar began as an animation studio as a part of Lucasfilm's Computer Division, called the Graphics Group, aimed at creating computer technology for movies. This included developing the Pixar Image Computer, which had the purpose of generating high quality graphics for Lucasfilm. In 1982, the Graphics Group created an animated sequence that was used in ‘Star Trek II’, the first fully computer animated sequence ever used in a feature film. In 1986, George Lucas (founder of Lucasfilm) established the division as an independent company named Pixar, in order to streamline Lucasfilm and to relieve Lucas’ financial difficulty that he was facing after his divorce.
Having been ousted from Apple the previous year (1985), Steve Jobs recognised the potential in Pixar and bought the Company from Lucasfilm for $10 million. Although Pixar was able to produce animated sequences and high resolution 3D images, it did not yet have the ability to create a feature film. Thus, Jobs initially intended to use the Company to sell computer hardware, and for 3D animation to be merely a byproduct to showcase the computers. However, selling the Pixar Image Computer soon proved to be unsuccessful as there was little demand, since it was extremely expensive to purchase, and the technology was so new that there was no market for it at the time. As a result, Jobs decided to end that part of the business, leaving only the animation and software division. Pixar's animation studio at the time was mostly producing short films and commercials, however their potential was recognised by Disney, and in 1991 Disney and Pixar signed a co-production deal for three animated films, marking the start of Disney and Pixar's relationship.
History of Disney and Pixar’s Relationship
The first co-production deal in 1991 was proposed by Disney to Pixar due to the decreasing popularity of 2D hand-drawn animation, which was the predominant and traditional style used by Disney. From the 1970s to the late 1980s, the success of Disney's films was starting to decline with this period becoming known as ‘Disney’s Dark Age’. Despite there being a few successes, such as ‘Oliver and Company’ (1988), grossing $75 million in initial domestic box office sales, there were also a handful of movies which critics deemed to be lacking in quality, and performed poorly at the box office. This included ‘The Black Cauldron’ (1985) which grossed $21.3 million despite having a budget of $44 million, and ‘The Great Mouse Detective’ (1986) which grossed $38.7 million with a budget of $14 million. Disney also lacked the technology to produce 3D animation, a field in which Pixar excelled.
The contract between Disney and Pixar, however, heavily favoured Disney due to its extensive distribution network, marketing resources, and well-established reputation. Although Disney had to cover most of the production and marketing costs, they owned the character rights, had control over any potential sequels, and received the majority of total profits generated, with Pixar receiving under 10%. Nevertheless, the deal was still an equally valuable one for Pixar, if not more so. The studio was struggling to cover its expenses, and Jobs was personally making up the shortfall, writing checks to Pixar every month to cover the losses, which had already amounted to $50 million. This was because Pixar was dependent on profits from RenderMan software (of which there was little demand for at the time), animated commercials (which were highly costly to make and brought in little profit), and short films (which had no commercial value). Merely two months before the deal with Disney was signed, Jobs had laid off almost 50% of Pixar's employees to cut costs. The deal with Disney offered Pixar the possibility of producing its first feature film, and to have access to the funds and resources that Disney could provide.
The first film to come out of the deal was 'Toy Story' (1995), the first ever 3D animated full-length feature film, earning $373 million worldwide and becoming the highest grossing film of that year. Six days after the release of 'Toy Story', Pixar held its IPO and stock prices soared from $22 to $45 within the first thirty minutes of trading. At the end of the day, it closed at $39, becoming the biggest IPO of that year and giving Pixar a market value of close to £1.5bn. Consequently, Pixar was in a strong position to renegotiate the contract with Disney, and Steve Jobs presented various conditions that he was unwilling to compromise on in their new deal. This included increasing Pixar's profit share to 50%, removing the need for Disney to approve creative choices, favourable release windows, and equal branding on films and subsequent merchandising with Disney, since 'Toy Story' was released solely under Disney's name. Initially, Michael Eisner (the then-CEO of Disney) agreed to the first three terms, with the condition that another two films would be made as well as the originally agreed upon three. However, he refused to agree that Pixar and Disney would share equal billing, as he felt this would result in Disney building Pixar into an entertainment powerhouse, which would then become one of Disney's biggest competitors once the deal was completed. Eventually however, Eisner agreed to coequal branding with Pixar, only if Disney could have the right to buy Pixar stock. This would allow Disney to have a share in the success of Pixar if they were to help build its brand.
A new deal was made in 1997 for five films over ten years, with Disney and Pixar sharing both production costs and profits equally, and profits being shared after a distribution fee was paid to Disney. The five films that were released under the co-production deal were: 'A Bug's Life' (1998), 'Monsters, Inc' (2001), 'Finding Nemo' (2003), 'The Incredibles' (2004), and 'Cars' (2006). 'Toy Story 2' (1999) was also released during this period, however as it was a sequel, it was not counted as one of the five films to be produced under the deal. Each film was a commercial and financial hit, with ‘A Bug’s Life’ grossing $363 million worldwide at the box office, ‘Monsters Inc’ grossing $577.4 million, ‘Finding Nemo’ grossing $871 million, ‘The Incredibles’ grossing $631.4 million, and ‘Cars’ grossing $462 million. ‘Toy Story 2’ grossed $511 million.
Despite the success of the films released under the co-production deals, throughout the early 2000s the relationship between Disney and Pixar had become strained due to disagreements between Steve Jobs and Michael Eisner (the then-CEO of Disney). This was in part due to the large distribution fee Pixar was required to pay Disney. However, the primary factor behind the disintegration of the relationship was due to Jobs' dissatisfaction with the limited control Pixar had over sequels and character rights compared to Disney. Although the new 1997 deal put Pixar in a better position than before, Disney still retained licensing rights to characters and had the final say over any disagreements regarding sequels and creative differences. Jobs wanted to renegotiate the deal to reduce Disney's role solely to distributing the films, with Pixar financing their own productions and retaining 100% of the profits. Eisner refused to agree to the proposed terms. In 2004, Disney started working on 'Toy Story 3' without the input of Pixar, and in 2005 Steve Jobs announced that he would not renew Pixar's deal with Disney and would instead look for other distributors.
The Acquisition
In September 2005, Eisner stepped down as Disney's CEO and Robert Iger took his place, allowing for talks between Disney and Pixar to recommence. Iger recognised the value of Pixar and the necessity of acquiring it, as Disney's own animation studio lacked the technology and creative talent that Pixar had. Pixar's animation studio and creators excelled in storytelling and memorable characters, which Disney had been failing to create by itself during the late 1900s and early 2000s. Having Pixar's past and future productions in Disney's portfolio would allow Disney to revive its brand and generate further profit through merchandising and theme park attractions. If Pixar had chosen one of Disney's competitors as their new distributor, such as Warner Bros or Twentieth Century Fox, then Disney would have struggled to compete and may have failed to succeed in the 3D animation era.
To begin mending the relationship between Disney and Pixar, Iger had to regain Jobs' and Pixar's trust, agreeing to certain terms that Pixar proposed in order to retain its independence and creativity. One of the main concerns held by Pixar was that its 'brain trust' culture, where peer-to-peer review and creative freedom were paramount, would be diminished by Disney's top-down corporate approach. Some conditions that Iger had to agree to in order to secure the acquisition were that Pixar employees would not be forced to sign employment contracts, the name on the gate at Pixar would not change, and Pixar would continue operating out of its own headquarters in Emeryville, California. Additionally, Iger gave top creators at Pixar (John Lasseter and Ed Catmull) leading roles at Disney to ensure that they would not lose creative control.
For Pixar, merging with Disney would guarantee permanent access to Disney's monetary funds and unrivalled distribution network. Working with another distributor would have brought business uncertainties and may have resulted in disagreements regarding creative control and sharing of profits. With Disney, Pixar had been promised that their independence and creativity would not be threatened, and a long-standing, familiar relationship had already been established. Pixar also felt it needed to diversify. Although all of its feature films had so far been a success, Pixar was aware that any potential failures could result in a huge fall in stock price and the reputation of Pixar, as it was so dependent on blockbusters. Its only options were to buy other companies to diversify or to sell to Disney. As Pixar's team specialised solely in animation, they did not have the expertise to expand into or manage other fields. Steve Jobs had also returned to Apple as CEO in 1997 and whilst talks with Iger concerning the Disney-Pixar acquisition were taking place, Apple was preparing the launch of the first iPhone. Under the acquisition, Jobs was set to join Disney's board of directors, and become the highest individual shareholder of Disney, with a 7% stake, having had 49.65% of the shares in Pixar. By selling Pixar, Jobs could return his attention to Apple whilst maintaining influence over Pixar and Disney.
In January 2006, Disney announced it would acquire Pixar for $7.4 billion and the deal finalised in May that year, with Pixar shareholders receiving 2.3 Disney shares for every Pixar share.
Success of the Acquisition
The acquisition of Pixar by Disney has since been hailed as one of the most successful corporate mergers. This was due to Disney allowing Pixar to remain truly independent, with the two companies agreeing that although they could be influenced by the other's methods and techniques, neither were required to follow them. Instead of Pixar's culture being diminished by the acquisition, it was Disney who altered their approach to animation. John Lasseter (Chief Creative Officer at Pixar and at Disney post-acquisition) commented that Disney became a 'filmmaker-led studio and not an executive-led studio'. The influence of Pixar's emphasis on storytelling and character development can be seen through the successful Disney releases of 'Tangled' (2010) and 'Frozen' (2013), with Frozen becoming the highest grossing animated film at the time. As well as this, the two companies were able to collaborate effectively, producing films such as 'Ratatouille' (2007), 'Up' (2009), 'Brave' (2012), and 'Inside Out' (2015). Both Disney and Pixar have benefited from the merger, with Disney stock having grown from $28 per share in 2006 to over $100 per share in 2025.