Pixar Animation Studios

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Pixar Animation Studios

1001 W. Cutting Blvd.
Richmond, California 94804
Telephone: (510) 236-4000
Fax: (510) 236-0388
Web site: http://www.pixar.com

Public Company
Employees: 430
Sales: $121 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: PIXR
NAIC: 512110 Motion Picture Production

Pixar Animation Studios burst onto the big screen with the release of Toy Story, the first ever feature-length animated film created solely through computerized graphics. Yet Pixars background is one of considerable pedigree, from roots at the University of Utah and the New York Institute of Technology before becoming part of George Lucass Lucasfilm Ltd. of San Rafael, California. Purchased in 1986 by computer wunderkind Steven P. Jobs, cofounder of Apple Computer and NeXT Inc., the newly independent company was named after its primary product, the Pixar computer. After several one-of-a-kind, award-winning computer graphics and animation software packages (including the patented RenderMan, Ringmaster, Marionette, and CAPS), Pixars creative geniuses produced some memorable television commercials before joining forces with Walt Disney to design and produce feature-length animated films. These works, Toy Story and its successor, Toy Story 2, as well as A Bugs Life, were huge hits for both Disney and Pixar, beloved by audiences and critics alike. Pixars talent lineup has been the recipient of nine Academy Awards to date.

Origin of the Species: 1970s-80s

Pixars tenuous evolution began in the 1970s when millionaire Alexander Schare, then president of the New York Institute of Technology (NYIT), was looking for someone to create an animated film from a sound recording of Tubby the Tuba. Enter a computer scientist named Ed Catmull with a Ph.D. from the University of Utah, who along with several others set up house (at Schares expense) at NYITs Long Island campus to work with computer graphics. Though Tubby the Tuba was never made, the team successfully produced video artwork. When creative mogul George Lucas proposed moving the team to the West Coast in 1979 as part of Lucasfilm Ltd., the breeding ground of the original Star Wars trilogy, Catmull and his colleagues agreed.

Over the next few years, Catmull and his ensemble created innovative graphics programs and equipment for Lucas, including an imaging computer called the Pixar. The Pixar was then used to develop high-tech graphics and animation sequences for Lucasfilm projects. Unlike other computers, Pixars software constructed high-resolution, three-dimensional color images of virtually anything, from buildings and cars to tornadoes and aliens. Remarkably, Pixar was also capable of helping medical professionals at Johns Hopkins diagnose diseases from 3D renderings of CAT-scans and x-rays; giving weather technicians new images from satellites; and even helping prospectors locate oil from enhanced seismic readingsall at a speed some 200 times faster than previous computer programs.

In 1984, John Lasseter, who had met Catmull at a computer graphics conference and was employed by Walt Disney Studios, visited Lucasfilm for a month-long stint. Lasseter, who had graduated from the California Institute of the Arts where he had won two Student Academy Awards for animated film, decided to stay. Meanwhile, after spinning off a joint venture called Droid Works, George Lucas started shopping around Pixar with hopes of a second spinoff. Pixar caught the interest of several companies, including EDS, then a division of General Motors, Philips N.V., and computer whiz-kid Steve Jobs, cofounder and chairman of Apple Computer Inc. Unable to convince Apples board of directors to invest in or purchase the fledgling graphics company, Jobs reluctantly abandoned his hopes for Pixar.

Yet circumstances changed drastically for Jobs in 1985. Stripped of his responsibilities and deposed from his Apple kingdom (at about the same time the first Pixar computer went on the market for $105,000), Jobs sold the majority of his Apple stock and started over. Plunging $12 million into a new computer enterprise named NeXT Inc., specializing in personal computers for colleges and universities, Jobs approached Lucas in 1986 and paid $10 million for the San Raphael-based Pixar and created an independent company. Though Catmull, Las-seter, and crew regarded Jobs as kin in their quest for high-tech fun and games given his laidback reputation and status as a computer wonder boythe new boss instructed them to put aside their dreams of animation and film and to instead concentrate on technical graphics they could sell.

Highs and Lows: Late 1980s to 1991

If I knew in 1986 how much it was going to cost to keep Pixar going, I doubt if I wouldve bought the company, Jobs later told Fortune magazine. The problem was, for many years the cost of the computers required to make animation we could sell was tremendously high. Luckily, Pixars crew came up with several software innovations, which they used to create a myriad of products. In 1986 came the first of many Oscar nominations from the Academy of Motion Picture Arts and Sciences for a short animated film called Luxo Jr. Next came Reds Dream in 1987, then the development of RenderMan, for which the company applied for and received a patent. A revolutionary graphics program that allowed computer artists to add color and create texture to onscreen 3D objects, RenderMan produced stunningly realistic photo images almost indistinguishable from actual photographs. RenderMans brand of images paid off when Tin Toy, written and directed by Lasseter as the first computer-generated animation, won an Academy Award as Best Animated Short Film in 1988.

As CEO of Pixar, Jobs expanded the companys leading edge graphics and animation capabilities by joining forces in July 1989 with the San Francisco-based Colossal Pictures, a live action, animation, and special effects studio, for collaboration purposes and to broker Pixar for television commercials and promotional films. With Colossals background and experience in broadcast media and Pixars unique computer capabilities, the partnership was poised for tremendous success. By 1990 when more than a dozen RenderMan products were introduced, RenderMan licensing fees finally began to pay off. Not only were many hardware and software packagers incorporating the graphics program into their products, but RenderMan was endorsed by such industry heavyweights as Digital Equipment, IBM, Intel Corporation, and Sun Microsystems. In addition, Pixar created two commercials in its association with Colossal. The second commercial, for Life Savers Holes bite-size candies (which took 12 weeks to produce using RenderMans software), aired in March and was a hit with audiences.

In April 1990 Pixar signed a letter of intent to sell its valuable yet stagnating hardware operations, including all proprietary hardware technology and imaging software, to Vicom Systems of Freemont, California. The move, which included the transfer of 18 of Pixars 100 employees, was finalized several weeks later and allowed Pixar to devote the companys full energy to further development of its rendering capabilities. Before the end of the year, Pixar moved from San Rafael to new $15 million digs in the Point Richmond Tech Center of Richmond, California, and reached revenues of just under $3.4 million, though still not reporting a profit.

While Jobss other company, NeXT Inc., seemed to prosper and was expected to reach $100 million in computer sales, Pixar still struggled to make ends meet in 1991. In February, 30 employees were laid off, including President Charles Kolstad. Jobs, sometimes criticized as a mercurial spinmeister with too little substance to back up his visions and words, was brought to task in the media for the shortcomings of both companies. Yet salvation came to Pixar in the name of Toy Story, the first full-length computer-animated feature film, as a collaboration between Pixar and Lasseters old stomping grounds, Walt Disney Studios. Signing a contract to produce quality digital entertainment, Pixar was responsible for the content and animation of three full-length films; Disney provided the funding for production and promotional costs, owning the marketing and licensing fees of the films and their characters. Though Disney retained the lions share of revenue and profit, Pixar negotiated for a slice of the gross revenues from the box office and subsequent video sales. At this juncture, neither Disney nor Pixar knew the potential of their allianceone that proved successful beyond their wildest expectations.

The Right Mix of Magic and Mastery: 1992-95

In 1992, the joint project between Pixar and Disney, called CAPS (computer animated production system) was another stellar development, winning Pixars second Academy Award (shared with Disney). The following year, Jobss NeXT Inc., like Pixar before it, was forced to lay off workers and sell its hardware division to concentrate on software development and applications. Yet 1993 was a banner year for Pixar, with RenderMan winning the companys third Academy Award and a Gold Clio (for advertising excellence) for the funky animated Listerine Arrows commercial. The next year, Pixar won its second Gold Clio for the Lifesavers Conga commercial, a colorful romp with a contagious beat. Despite such heavy accolades from critics and peers, Pixar still had not managed a profit since its spinoff in 1986, and reported a loss of $2.4 million on revenue of $5.6 million for 1994.

Company Perspectives:

Pixar is an Academy Award-winning computer animation studio with the technical, creative and production capabilities to create a new generation of animated feature films, merchandise and other related products. Pixars objective is to combine proprietary technology and world-class creative talent to develop computer-animated feature films with a new three-dimensional appearance, memorable characters and heartwarming stories that appeal to audiences of all ages.

The following year, in 1995, Pixar was wrapping up its work on Toy Story and everyone was anxious for the finished result to hit theaters in November. Tom Hanks, Tim Allen, Don Rickles, and Annie Potts had signed on to voice major characters, and Randy Newman was composing the films musical score. By the end of the third quarter with more than 100,000 copies of RenderMan sold and a huge licensing deal with Bill Gates and Microsoft, Pixar announced its first-ever profit of $3.1 million on revenues of $10.6 million.

For Pixar, 1995 was a string of accelerating successes: first came Toy Storys pre-Thanksgiving release, grossing over $40 million its first weekend, with rave reviews from critics and families alike. Leading box office receipts, both Disney and Pixar hoped Toy Story could best Pochahontass $140 million take earlier in the year. Next came Pixars IPO of 6.9 million shares in November on the NASDAQ; the market closed at $22 per share, up from its initial offering of $12 to $14 each, giving Pixar a market value of some $800 million. Jobs, who since his purchase of Pixar for $10 million had sunk an additional $50 million into the enterprise, recouped a handsome paper profit of more than $600 million for his 80 percent stake (the shares eventually hit a high of $45.50 on November 30th).

Another boon came when Toy Story garnered several award nominations, including Randy Newmans score for two Golden Globes and an Oscar; an Oscar for Catmull and Thomas Porter, director of effects animation or digital scanning technology; and an additional Special Achievement Oscar for Lasseters writing, direction, and technical wizardry for Toy Story.

Multiple Lightning Strikes: 1996-99

After the release of Toy Story while part of Pixars crew worked on a CD-ROM game of the animated film, others were busy working on several Coca-Cola commercials for the Creative Arts Agency, hired by Michael Ovitz. Pixar was also immersed in its next Disney film, A Bugs Life, which was scheduled for release in two years. By February 1996, Toy Story had grossed over $177 million at the box office and in March Lasseter attended the Academy Awards to receive his Oscar. He brought along Woody and Buzz Lightyear, who were part of several sketches and fodder for running gags during the live telecast. Pixar completed the year with a huge leap in revenues, up to $38.2 million (from 1995s $12.1 million), extraordinary net income of $25.3 million, and stock prices hitting a high of $49 per share in the fourth quarter.

Though it had been said by Bob Bennett of Autodesk, Inc., a client and competitor of Pixar, that Pixar is the best in the world at what it does, continued advances in computer and graphics technology brought considerable competition. Everyone it seemedfrom Digital Domain and Industrial Light & Magic to Microsoft and Silicon Graphicswas trying their hand at graphics software development. After the stellar success of Toy Story, all the major motion picture studios were creating computerized animation, including DreamWorks SKG, Turner Broadcasting, Warner Bros., and even Disney.

Other developments surrounded Jobs, as Apple stumbled horribly and the company came close to financial ruin. Still attached to the company he had cofounded and brought to enormous success, Jobs came to its rescue in 1997 shortly after Apple bought his NeXT Inc. Few doubted Jobss ability to juggle both Pixar and Apple, and they were right. Not only did Jobs bring Apple back to the forefront of the computer industry with the flashy iMac, but Pixar went on to rule the box office with A Bugs Life. During the magic holiday window of October, November, and December 1997, A Bugs Life was up against four animated films, including another insect-related story by Dreamworks SKG, entitled Antz. Dreamworks had also released The Prince of Egypt and Nickelodeon brought The Rugrats Movie to the big screen as well. Yet Pixar beat the pack and went on to ring up over $360 million in worldwide box office receipts, even topping Toy Story.

Once again Pixar was nominated for and won big at the Academy Awards: two separate awards for Scientific and Technical Achievement (for the Marionette 3D Animation System, and for digital painting), as well as another for Best Animated Short Film (Geris Game). Pixar also finally received a sizeable financial boost in 1997, as revenues and net income reached $34.7 million and $22.1 million, respectively. The box office and critical triumphs of both Toy Story and A Bugs Life also brought a new deal with Disney to produce an additional five pictures within the next ten years, with both companies as equal partners. The agreement eclipsed the previous deal; the formers remaining two films became the first two of the new five-picture negotiation. Lastly, Pixar would sell Disney up to five percent of its common stock at $15 per share.

Key Dates:

George Lucas brings Ed Catmull and associates from the New York Institute of Technology to the West Coast as part of Lucasfilm Ltd.
John Lasseter leaves Disney for Lucasfilm.
Lucas spins off Pixar computer graphics unit, which is bought and incorporated by Steve Jobs; first Academy Award nomination for Luxo Jr.
Company receives first Academy Award for Tin Toy.
CAPS (Computer Animated Production System) wins joint Academy Award for Pixar and Disney.
Pixar earns third Academy Award, for RenderMan.
Toy Story debuts and conquers box office; fourth Academy Award, for digital scanning technology, is received.
A Bugs Life opens at the box office; company garners two more Academy Awards for Marionette 3D Animation Systems and animated short film Geris Game.
Toy Story 2 debuts and breaks box office records; Pixar claims a ninth Academy Award for Technical Achievement.
Company moves to new headquarters in Emeryville, California.

In early 1998 A Bugs Life was released on video and DVD simultaneously and Pixars top guns worked feverishly on the sequel to Toy Story, slated for release in November. The sequel was a gamble, since only one animated feature film had ever spawned a theater-released follow-up, Disneys The Rescuers Down Under. Most sequels or prequels were released directly to video; Pixar was ready to buck the trend. Dollars from its venture with Disney continued to slowly trickle in and Pixar finished the year with $14.3 million in revenue and net earnings of $7.8 million.

The last year of the century brought more kudos for Pixar: David DiFrancesco won the companys ninth Academy Award (for Technical Achievement), Toy Story 2 opened in November to sweeping box office dominance (even higher receipts than Star Wars: The Phantom Menaces first few weeks of release the year before), and the company celebrated its fifth consecutive profitable year, with revenues of $121 million and earnings topping $50 million.

The New Century: 2000 and Beyond

Pixar was as busy as ever in the 21st century: the company was preparing to move into its new 225,000-square-foot headquarters in Emeryville, California, due for completion in mid-2000 and were hard at work on its next full-length animated film in collaboration with Disney. The new feature was scheduled for release in 2001, under the working title of Monsters, Inc. The companys fifth film was tentatively slated for release in 2002, was a top-secret project to be directed by Andrew Stanton, who had worked on both Toy Story and A Bugs Life. Despite a slow, financially difficult beginning, Pixar Animation Studios had landed on the fast track and was known throughout the world. With its technological breakthroughs and brilliantly crafted animated films, the sky was the limit in the coming decade and beyond. As stated in its 1996 annual report, Pixar succeeded because it was well aware of the pitfalls of filmmaking: Though Pixar is the pioneer of computer animation, the essence of our business is to create compelling stories and memorable characters. It is chiseled in stone at our studios that no amount of technology can turn a bad story into a good one.

Principal Competitors

DreamWorks SKG; Fox Entertainment; Lucasfilm, Ltd.; Warner Bros.

Further Reading

Baker, Molly, and Thomas R. King, Pixar Share Offering, Hyped by Toy Story, Is Looking Good, Wall Street Journal, November 29, 1995, pp. C1,C2.

Bernard, Diane, Pixar to Bring 3-D Rendering to the Macintosh, PC Week, February 12, 1990, pp. 3334.

Brown, Ivy, The Man Behind the (Computer) Mouse, Los Angeles Times, November 13, 1996, p. F1.

Carlsen, Clifford, Pixar Corp. to Sell Hardware Division to Vicom Systems, San Francisco Business Times, April 30, 1990, pp. 1,13.

Cortino, Judy, Pixar Expects Profits to Rise with Success of Graphics Program, PC Week, January 8, 1990, p. 120.

Deutschman, Alan, Into Every Life a Little Rain, Fortune, May 6, 1991, p. 111.

Gelman, Eric, et al., Showdown in Silicon Valley, Newsweek, September 30, 1985, pp. 4650.

Giles, Jeff, and Corie Brown, This Bugs for You, Newsweek, November 16, 1998, pp. 79-80.

Goldrich, Robert, Colossal, Pixar Ink Production/Sales Agreement, Backstage, July 14, 1989, pp. 1, 25.

, Pixar Produces Its First Commercial, for Life Savers Holes and FCB/Leber Katz, Backstage, March 23, 1990, pp. 6, 34.

The Great Leap of Computer Graphics, Fortune, April 27, 1987, p. 7.

Krantz, Michael, Animators, Sharpen Your Pixels, Time, November 30, 1998, pp. 109-10.

Lohr, Steve, Woody and Buzz, the Untold Story, New York Times, February 24, 1997.

Markoff, John, Apple Computer Co-Founder Strikes Gold with New Stock, New York Times, November 30, 1995, pp. A1, D7.

Patterson, William Pat, Out to Pasture at 30, Industry Week, June 24, 1985, p. 22.

Reeves, Scott, Pixars Initial Offering Gives Investors a Chance to Bet on Animated Films, Wall Street Journal, November 3, 1995, p. A9E.

Schlender, Brent, Steve Jobs Amazing Movie Adventure, Fortune, September 18, 1995, pp. 154-72.

Schlender, Brent, and Steve Jobs, The Three Faces of Steve Jobs, Fortune, November 9, 1998, p. 96.

Siwolop, Sana, Picture Perfect, FW, February 6, 1990, pp. 76-77.

Tracy, Eleanor John, Droids for Sale, Fortune, August 5, 1985, pp. 63-64.

Two Cheers for Apple, Fortune, February 17, 1986, p. 9.

Nelson Rhodes