Episode 1: Pixar
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Get true. get. Easy you, easy you with you, sit me down, say.

Welcome to the first episode of acquired and then gilbert .

David isn't .

all and wear your hosts. We've recorded a pilot before this, but i'm not sure i'm comfortable letting that see the light of day. Um so this is our our our first real episode for the world to here we're going to start with a little background ourselves will talk about what the point of this podcast is and then we will get into the nuts symbol of the first episode. Um so I guess i'll start i'm then i'm the cofounder of piner square labs here in seattle where we come up with companies and start them for the time and see if they .

work and spend about i'm David um I am a principal here at madrona venture group in early stage venture capital firm in seattle. We invest in technology startups s that hopefully one day go on to be an acquire .

or be an inquiry. Yeah so funny. This is this is podcast was uh something David I were we're thinking up well um we're out drinking and has all good .

protests though .

and we can't came to the conclusion of like let's try make a list of companies that have been acquired where IT was actually beneficial for the acquired. And I I think that there is um so many examples of of the opposite of life. Boy, that was a huge right down that was embarrassing or uh, my god, that was an interesting valuation for someone that had no revenue. Will see if I ever plans out. And I think that it's worth going back and highlight ating really interesting tech companies that were required and ended up being kind of a one plus one equal three situation where um IT was IT was actually a good investment in the future.

agree. And also interesting perhaps what could companies Operating either as startups or independently take from why or why not those companies worked with that. So we happened to our first death.

So I think we should. So the company that we have chosen as the the acquire is pixar and the company that that obviously quite pixar with disney in two thousand and six. And this is an a typical um you know straight obvious technology acquisition there. There's a lot more to this, the story telling aspect and the entertainment media production is really not a streight tech company when you look at IT. Um and I think that kind of what's going to make this a really interesting first .

episode totally. And then and never talked about this before we started recording. All of that is true.

And yet I think you could view pixar as like the first example of software eats the world. So we'll get more and do IT. So we break this this episode and potentially all future episodes into a couple section.

So first, we're going to talk about the acquisition history in the facts. Um then then and I it's going to put uh the acquisition into a category. Um what do we think was kind of the the key piece of IT and why the rationale behind why the acquiring company purchased the this this acquisition target.

And we're going to talk about what might have happened had history been different, what if this acquisition hadn't gone through? And finally, we're going to assign each acquisition agreed. So let's start with the history in the fact.

So january two thousand, six pigs are as a publicly traded company. Disney announced that they are requiring IT for seven point four billion dollars, estimated roughly forty five times estimated pics. Our earnings for that year. And disney and obviously picks her change forever since and .

and famously, that is the day that Steve jobs became the largest single shareholder of of disney stock, which were in pobs still still holds as part of the estate .

LED to a long relationship between disney content and apple technology product. Yeah, super interesting.

That's probably outside the bound this episode. But one thing we are planning for the support. So we didn't think about this kind of ancillary benefits there of CoOperation between apple and disney revenue created for .

both companies totally. And so as we we are researching canada background and history here, one one sad that jumped out to me that I thought was just so cool, especially since we're focusing on technology acquisitions in this podcast. Pigs are A I P O in one thousand ninety five, also I P O in one thousand ninety five. Nets, cape, which do you think was the bigger IPO?

Well, you you're posted the question something go nescafe.

you would be wrong really. Pixar was the largest IPO of one thousand hundred and ninety five.

bigger than netscape. wow. That's not one that the history books often refer to.

And I think if i'm getting of my memories, rape also ended up being the larger acquisition. Then nescafe x are being seven point four billion. And I think nescafe was I could be wrong here, but around three billion ish. Well, I think so in the future.

when there's actually people listen this podcast, we could totally have a chat room and they could be correcting us in real time. This could be great, but since David, I both holding microphones and I have an order stands yet will leave the googling to our fair readers.

But I thought that was just totally cool. Alright, like here's this technology company being bought by a media company much like, much like nescafe was bought by aol, which was then merged with time Warner and and and here is this technology company that ends up being both the largest IPO in this banner year and one of the most important acquisitions .

of all time.

Um so uh after the acquisition in two thousand and six, disney and pixar. Disney pixar, as IT was rebranded, has since then released several films I believe let's see the list is cars later in two thousand and six ratio de while up toy story three cars to brave monsters university and inside out just going on box office stats alone.

So if you'd take worldwide box office for those films and tracked out production budgets for those films, now is not the total story on profits. You know, of course, there is both on the revenue side, additional revenue from merchant days, from DVD sales from streaming and especially as part of disney park parks um and then there's additional costs both in in the cogs for those items but also in the marketing costs for the film and otherwise. But just going with the numbers that we have publicly available, those films 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. So ten years later, here we are, four and a half billion dollars of profit based on a seven point four billion dollar acquisition Price. It's kind of interesting.

I mean, there is tons and tones of other answer later, benefits aside. But um you know we could have a fifteen th Epace o f t heir p rofits p er f ilm i s a cceleration. We could have a fifteen year payback period on the on the acquisition. And I think you know what I get in to this little bit more, but just kind of looking at the spot the disney was in, the spot the pixar was in, if you could go to uh, you know does not exact at the time and say it's going to be fifteen years before you really started seeing no profits on top of this acquisition. But look at look at what disney has been historically the powerhouse of incredible animation and sort that the source of magic for children and adults like. And kind of what happened to that since toy story one, I mean to pixar had the monopoly on magic and and for creating the most successful incredible films in in animation and I think that is disney sort of requiring its roots and and to me um you know that the fifteen year Price tag for that, this isn't too bad .

totally and and I think this would this a great segan to the next section of our episodes? Know how would you categorize this acquisition? You and some of the categories that we identified this about people, is this about technology, this product that the acquire is buying a business line or is there something else?

Yeah, it's funny. IT would there certainly a people element, but it's not like they were repurposing these people on something I think people acquisition you typically talk about. You know they wanted the really smart people to go to work on existing products with existing customers.

That certainly the case um except with one and one specific person we can call out and probably other people we don't know about the uranium technology, there's something there. But you know pigs are pigs are started by being the pure technology company, are not having any any um animated films out there. They were just producing the pixar computer with render man software on IT to the ability for for the lucas film and then for for others to do three the animation. And and I think this is .

before we render judgment on what category we'd put this acquisition into. I think that's a really important point that it's worth discussing. Like pixar easy technology company. And you know IT was created as a division within luis film that there's a long history even going back private luis film. But but IT really came together as an organization there to solve problems you know within lucas film and be a technology enabled for George lucas. And what's interesting is that like a lot of technology companies that was then spun out by Steve jobs and sold by by luis film to Steve jobs um and like a lot of technology companies that started really small with what I could do with computer animation ort films, IT was trying to push its technology to other film companies totally.

I mean, even before they are making short films, they were purely that that render man software on pixar animation computer. And to your point, and starting small, like the ability for hardware to do this sort of a thing at the time, if you if you go back and watch the locks junior or the rotating hand and the really old pixar animation stuff, it's so limited and you can .

totally even toy story.

oh yeah. And the new faces in toy story, there's no human faces because I was too sophisticated at .

big technology companies starting as toys. I mean, literally picks. I didn't start with toy story.

but their first big hit was toys. Yeah, the thing actually is there for the is this just classic low end disruption to play? I mean, they're the kind of famous story about john last is that he came to pixar into a cat mall was sort of this this love for creating animation and and not the technology of IT, but the art of what kind of story telling you could do with IT.

And I think I error at this time, he was actually hired a camel, believed in everybody wasn't like to hire animals, who's hired with the the title of interface designer. And no one questioned cattles decision. But what john was doing was kind of on the side expLoring the possibility of doing real storytelling in this incredibly limited medium total.

And and and I think also i'm getting my history right later started his career isn't me. Incredibly passionate disney employee. It's all he ever wanted to do was being an animator there. And he was fired because he was espousing this new technology. This is computer animation um which people didn't believe would be capable of being part of the disney way.

It's so interesting to think about thinking about what we look at today that we laugh off as like that will never be good enough. That tech isn't I mean, that's that's laugh. How could you ever take that rotini hand and rival the power of beauty in the beast with that actually beating of these same thing is out.

Yeah but you know no White or anything like that. You can totally see how how IT just gets incrementally Better and get Better every time. And it's one of those things where you have to check yourself when you're thinking, well, that can't possibly be the future.

Like look at VR today, the door affect the leg. The Price that like everything about you are like that is impossible. There is no way that ever reaches mass. And like no, some of these things don the vine, but really um if you're going to win at some of these things, you get in early and it's a matter of time and you grow with the medium and with technology.

And and I think the other point, as I was thinking about this and picks up as a technology company, is even with the short films, but especially with toy story, they embraced the limitations of the medium and yet delivered a full solution with, you know, they didn't camp on emotional connections within their movies and even when the technology was arguably inferior to both live action and traditional animation, um they were able deliver incredible emotional experiences. And I think those are just homeworks of all technology companies that are Operating in new spaces and at the .

bleeding edge, it's cool of thing about the things that they intentionally did because they would fit well into that medium. I mean, you look at that toy story here looks so junior measuring her basic shapes, a ball where you could easily map IT a pattern onto IT that's rolling in the lamp jumps on is because so easy under a fear and it's you look at brave, I mean, took them twenty five, thirty years to do something really like brave, where they had to do this fears, incredible hair or cars, when they had, you know, thousands, tens of thousands, hundred of thousands of of vehicles flying around in the background. All is crazy stuff. They just, they knew that or maybe john know the team that was there early knew that the important thing was really communicate in that story and picking whatever kind of visual representation they needed to fit the medium to still deliver that complete solution as you put IT.

So that would argue that the technology clearly a critical part of pixar.

critical but you know that pixar was kicking the crap at dreamworks. I think that the um computer animation hadn't become commoditized persave, but they want be only once with IT.

So in terms of categorizing this acquisition, so I think you for me, as I was thinking about this, I would actually put characterised pics our best as a business line acquisition for disney. And the reason I say that is two fold one um it's interesting what disney did with pigs are and and looking that almost as a blue print with things like what facebook done with instagram, with what's happened with oculus. They kept IT completely separate.

And this was for the most part driven by driven by the pixar side of the house. But the studios are in separate location is the animation is in southern california, in northern california, in the bay area. Um the teams are completely separate. There is no cross pollination on products, on projects, the Price of the leadership, which we can get to in a second um but really pixar has remained its own brand and and its own business line quote and quite today. So that's that reason one reason number too, I was I was reading about the acquisition. There's this great story I read that's supposedly is true that a bob iger er uh C E O of disney realized ed the new C E O of disney when he acquired when the company acquired pixar, realized that he needed to buy pixar with which they had a film distribution deal in the past 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. All or almost all of them were pixar characters and that's when he realized pigs are needs to be an official whole holy .

owned part disney yeah IT IT is interesting to think about the the thing that made pigs are special is this really incredible studio thing that they had going, that no one else had in the ability to produce movies. IT wasn't when they talk about the big studios there's hitting, and this big blockbusters hits that they put lots, lot of money into and they just miss.

And the things that that pixar has put out, you know, with the exception of cars two, which is not necessarily critically claim, ed, like every single one, is a box office hit and nothing picks, does seize the light of day unless it's wonderful. I mean, there's this emotional connection for kids and adults to like. And it's something where, you know, they have this really intense internal process, where I think three or four directors over the course, their history been fired in the middle projects.

They have this really incredible review of of know the kind of picks our brain trust sitting around reviewing milestones and watching early, early screenings. They have talent development where if there's a Young, promising director coming up, they do a short first and they kind of prove themselves. And the super signature, sure to the pigs are does.

And it's it's this process where, you know you think I think it's I don't know, it's Christian center. There's there's a very business school theory of of the fact that what a business really is is people, processes and priorities. And there's very, very clear at pixar. And I think that the processes and the priorities had had just as much to do with the acquisition of the .

people did in this this case, I absolutely. And down later and a cat mall, a principles at pigs are, aside from Steve jobs, went on to assume control of all of animation and disney um .

yeah you look at I mean that what does needed to learn to do was not ship crap. We truly like only put out really wonderful films and know they're not to a xr level yet when things that picks are near on and it's a different level quality. But frozen wasn't pixar. That was disney I that was disney learning from last year pixar, the process that they had there and what, you know, computer animated .

joy look like and how we want name named here. Well, not even going go to being in seattle, but how much does that sound like technology companies, right? Don't shift crap.

yeah. And when technology company is get wrong, let's use apple as a non controversial example. There were a number of years in the in the wilderness when when apple .

was shipping crap yeah yeah I am .

sure have many .

more epo des about apple. But obviously the Steve jobs thread runs deep in both .

of these companies. yep. So then category for you ah it's .

a business line. I mean it's it's processes, but it's it's a business line there. You know this is this is not something that they're kind of like co marketing to the same customer segment.

This is not a thing where they're having the pixar people at large. We're gone disney products. This is something where they have incredible respect for the existing pixar business, and we're keeping IT separate.

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Let's move on to um I think a very interesting segment of our show, which is what would you happen otherwise let's say disney didn't buy pixar. Where would we be standing today or where would they be standing today? I really still be ready and see.

I wouldn't be worried about pixar, but I I wouldn't be worried about disney. I think that you know pic s are probably wouldn't have grown like IT IT has having a distribution in the disney team parks and um a much more significant marketing budget behind IT. But um you know they had a they had a passionate, passionate following and that wasn't there was no small following and they were growing over hundred million dollars each film.

well over hundred. And yeah actually I think I think we received .

four hundred million dollars and inside out most recent was was a well await profit over grows inside out um had revenues I think eight hundred.

eight hundred and inside which I tried to watch at this weekend on my apple TV and I couldn't. So it's not on streams .

that weird that is a weird period. So there's like this this time we're no one's lot to watch .

on anything you total aside here x number years from now with x being like, well, less than ten going .

to laugh at that.

Be ridiculous like I starting with my wife about this other day, like you know when we don't have kids yet, but some day hopefully work of kids and you know they'll become culturally aware at some point hopefully and you one day work, Jenny are going to be talking about television and our kids are gonna look at us and say, what's television yeah total side wild um so inside out um which is still not run its course, has a growth in worldwide box office over eight hundred million dollars had one hundred and seventy five million dollar production budget so over six hundred million dollars .

in profit wow yeah I mean so there's DIY magic there that um you know we can say that all pics 2 really I think 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 .

worry about this so what I say about this um I two things I think on the pigs are side this really is a good example of um you know the actually working in practice, the rational that a lot of a leadership teams of acquired companies will say which often sounds hello, which is that going with the acquire will give you the scale to have an impact at the level much faster and much bigger at the level that you .

couldn't do.

Stand alone that in the point. But here I think it's really works. You know I mean cars, land cars, I don't know, but if you've been a demus and recently i've been twice, I think in the past couple of years, all you guys out there, if you haven't been to carsley the disney land and L A.

you got to go, it's amazing. Come back in tickets.

And and disney spent a billion dollars, over a billion dollars creating cars, sand. None of that. What had happened if pixi weren't part of disney. So that then I think on the disney side, what super interesting is that this kicked off really not just a transformation of disney animation, but a whole transformation of how they thought about their IP and their their entire film business. So since pigs are in two thousand six, they didn't acquired marvel in two thousand nine.

Ah and you only need look at the avengers and iron man and captain in amErica and all those movies and the arguably superhero fat that we've been in recently, but they've made a torn of money from that. But then lucas film um a couple years ago and have I ever but I decided excited about this december. I'm not booming take is yet. It's interesting .

that they really have put together a playbook for how to take a hugely successful franchise with a big following and and people that grew up on something and just has a special place in people's hearts. And really just turn me into a machine. I mean, you look at the amount of star wars. I mean, there obviously seventy nine, but is other films that are coming out. There's new video. I mean, you've totally reinvent, ate the franchise and taking the love that fan base and turned IT into something that you know is is some like a uniquely disney asset as their ability to amplify a franchise and and what they have done with both marvel and star wars, I think that that disney learned a lot from buying .

fix are and not I don't know how not safe for work do you want to make these podcast? But no.

I think I think we can't swear otherwise we will get .

the itunes explicit tag will not f bombing up the creative process in you in the process of doing this. And I think that's that's something would that have happened without pixar, right? Like you know, marvel fans, i'm sure they're planning out there who would argue that it's become too commercial and its lost whatever, but but that would be a small mini.

I mean the the the marvel comic book franchise now and movies are at such a Better point, I I would argue then they were before the acquisition and we'll see what happens to a star wars this december. But like what if what if disney had the card, pixar hadn't gone through that experience? Would they be equipped to digest marvel and lucas film in the same way?

Yeah interesting. I mean that that yeah it's not an asset that pigs are had, but disney trains institutional muscle in learning how to do that successfully. And that's I mean, that's how you get these sort of one plus one equals three things where IT wasn't an asset that either company have had that the process of the acquisition itself forced them to get good at the thing that would determine their future success.

Alright, I feel like it's time we strap up overall grade. We're gone with a three of here. Disney pigs are what you verdict.

David, with our choice of picking any single acquisition in history, in history technology to do this. So you know like looking for reasons not to give you an a, but there's kind of a reason we picked up for our first episode. So thank you for the softness ball i'm going .

to go with.

say i'm i'm gona disagree little bit. So and I think this illustrates just how hard ema is um overall, you know it's been ten years since this. The acquire pix are, of course, for all those reasons, they were just talking about incredibly successful, has transformed disney in many ways.

Um no brainer that this was a great acquisition by disney. On the other hand, you look at this financially, they spent seven and a half billion dollars for IT. Now they've probably when you account for everything, which only the internal teams in disney can even then probably not falling.

They've probably made that back, but it's been ten years. So financially, you know I I contrast that within two thousand, six. Facebook was two years old at that point.

Now what's facebook market cap? I don't know. well. So every .

acquisition is unsuccessful because IT does not match the growth of one of the greatest technology companies of all time.

Let's track the public market.

says as A I mean.

i'm self justifying myself here why I why am more excited about being adventure then about being working for a mina team in public companies? Nothing wrong with working in eminent team in public companies. So but I I guess where i'm going is I would hope that to get an a, this would have to be something would have to be just such a grand slam on all levels that everybody can retire and the career making.

And what interesting is that even this, which is we picked IT as the first, the first acquisition of our show, you know this is hard to get much Better than this on all levels. And yet it's not totally clear that this has just turned into an incredible you know cat flow decision. As opposed to a you know investment in facebook in two thousand and six.

You give IT a great. Then I make a point.

I'm going to give them to be plus, maybe a minus.

have plus and minus .

as guys before .

slat a my mic. The thing that I think you're not taking into account, and you know i'll all of knowing my own bias here of being just absolutely and lamar red, with pixar toy story defining my childhood, that was my a while. Screen name was B J. Light year my go on.

dear. Yes.

pixar has a very, very good place in my heart. All that said, I think the thing that, that is not factored into the financial decision and actually, we don't really ever know what I would look like otherwise. But the long term success in health at disney, what would that look like without pix? r? What does disney look like twenty years from now without pixar?

When here's question, which we answered in the what would have had to advise, but is their pigs are land. There's not disney picks are .

get cat on the phone.

All right. With that, thanks for you. And in we'll see next time.

I I guess.

the.

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