Pixar Business Model

Assignment 3: Pixar, Nine Elements of a Business Model
By: Alec Swan
3/8/2020
Carol Wonsavage, Entertainment Business Models

Why I chose this company:
Ever since I was a kid, I grew up watching the movies of Toy Story, Monsters Inc,
and other Disney animated films. My family would visit Disney World every year and it
became something that just made me happy. Now as an adult Watching Pixar films and
visiting Disney World reminds me of family and allows me to become a kid again.
Background Information
Pixar is an animation studio owned by The Walt Disney Company based in
Emeryville, California. In 1979 George Lucas would hire Ed Catmull to lead Lucasfilm’s
computer division. Eventually in 1986 Steve Jobs would purchase this computer division
from George Lucas and would go on to establish this new group as “Pixar”. Pixar and Disney
would begin to collaborate on a revolutionary system called (CAPS) Computer Animation
Production System that would revolutionize the way animated films were created. Also, in
1986 “Luxo Jr.” is completed and would go on to become an icon for Pixar and would create
the famous Pixar intro with the lamp (Our Story).
In 1991 Disney and Pixar came to an agreement “to make and distribute at least one
computer-generated animated movie.” This first project would eventually be known as Toy
Story which was the world’s first computer animated feature film. After the huge success of
Toy Story “The Walt Disney Studios and Pixar Animation Studios form an agreement in
1977 to produce five movies over 10 years.” Pixar would eventually move to its new
building in Emeryville, California where it has been since 2000. Pixar would go on to create
iconic films such as Incredibles, Cars, Monsters Inc, Finding Nemo, and Up (Our Story).

The current valuation of Walt Disney is 238.1 billion dollars. The current estimated
valuation of Pixar is at 14 billion. “During the peak of Pixar’s power and stock price, they
eventually sold to Disney in January 2006 for $7.4 billion dollars” (Segal, 2017).
One of the key players in Pixar’s success was from a man named John Lasseter. John
was the former creative Chief of Pixar and Disney Animation. John directed Pixar’s first
ever animated feature film Toy Story and would go on to produce about every other Pixar
movie released since 2018 (Kit, 2019). Currently the president of Pixar is Jim Morris and
the Chief Creative Officer is Pete Docter (Leadership). Pixar continues to release about one
animated feature film a year and has become a staple name when it comes to animated
pictures.
Customer Segments
 Families and Kids: The main target customer for Pixar will be younger kids
who like watching animated movies. Based on a quote from Walt Disney
“Animation offers a medium of storytelling and visual entertainment which
can bring pleasure and information to people of all ages everywhere in the
world”. Walt believed that “you’re dead if you aim only for kids. Adults are
only kids but grown up” (Bolton, 2017). This mentality of appealing to kids
and the kids at heart have been a real key to the success of Pixar films.
 Animation Fans: Another customer segment includes people who love
animated features. With increasing technology animation has quickly become
one of the highest grossing mediums in entertainment. In 2016 “Three of the
ten highest grossing animated movies of all-time hit theaters.” Fans of
animated Disney and Pixar films are also widely popular overseas especially

in china. This is because it is not that difficult to “Produce Customizable
alternate language versions for a specific country that look perfectly natural.”
This is a big deal as foreign countries make up a ton of the box office revenue
for films (Pressberg, 2016).
Value Proposition
 Top Class Animation: For over 25 years Pixar has been using a rendering
technology called RenderMan. This technology has been “Completely modernized,
with a state-of-the-art ray tracing architecture that’s setting new standards for
speed and memory efficiency”. For the past 15 years “Pixar’s RenderMan has been
used in almost every Visual Effects Academy Award Winner and Nominee
(Renderman).
 Enjoyment for adults & Kids: Disney and Pixar know the formula of what it takes to
create animated films that speak to kids and adults. Pixar knows how to take an idea
that truly feels real and that resonates with people and explains and tells that story
“in a way that’s really accessible.” Research has shown “that when children between
3- and 5-years old watch movies, they come away with impressions about the
natural state of the world (Weller, 2015).”
 Merchandise: Merchandise has been a staple for how Disney and Pixar have been
able to capture and create an emotional connection with its fans. Disney and Pixar
have one of the most emotionally loyal followings and have crafted an “emotional
brand connection with its customers. “A study by CapGemni shows that 70% of
emotionally engaged customers spend at least twice the amount of money on

brands they are loyal to, compared to less than half consumers with low emotional
engagement (Ogino).”
 Prestige: When it comes to the Academy awards Pixar and Disney are known to
always be the front runner of the group. Out of 13 total nominations Pixar has won
10 of those compared its biggest competition DreamWorks who has 12 nominations
with only 1 win (Academy).
 Top Brands: Pixar and Disney have created some of the most recognizable
characters in history. From Toy story, to Monsters Inc, and Finding Nemo Pixar have
created unforgettable brands that have you emotionally connected and invested
with.
Channels of Distribution
 Theatrical: This will be the biggest area of release for Disney & Pixar. Disney and
Pixar make different deals depending on the film that the theater chains must abide
by. When Star Wars the Last Jedi released U.S., chains were required to run the
movie for four weeks without skipping a single screening. If the theater chain fails to
abide by these terms, they face a 5 percent decrease in profit which can make a
break any profit the theater might be receiving from the studio (Taylor, 2017).
 Physical Media: Physical media might be dying but Pixar & Disney are the kings at
getting people to buy their films physically and even purchase them more than once.
In 1980 Michael Eisner decided to release many of the classic Disney films on VHS
for a limited time and then they would disappear from the stores and going into the

so called “Disney Vault” (Esmaili, 2017). This marketing ploy is still being used to
with new re issues of classic Disney films releasing on Blu Ray every few years with
new exclusive packaging and sometimes new features for collectors to buy again.
 Digital: A few weeks before a Pixar movie is released on video it will release on
digital. Many places like Apple, Google Play, VUDU, and many others will have the
film available for purchase digitally. When the film then releases on Disc you will
also receive a digital code in the case of the film that can be used to watch a digital
version. In 2019 Disney launched Disney+ which includes the whole library of Pixar
films, shorts, Marvel, Disney Channel, and classics. This new streaming service costs
$6.99 a month.
Customer Relationships
 Social Media: Pixar has every social media you can think of. They are very active on
Twitter, Instagram, and Facebook. When it comes to Twitter Pixar has 11.6 million
followers and on Instagram, they have 6.6 million.
 Pixar In Concert: “in 2012 Pixar launched Pixar in concert, a compilation of imagery
from each of the studio’s feature films accompanied by musical performance from a
live orchestra”. This concert became so popular when it debuted in San Francisco
that it is now a traveled the world with the most recent films added each year
(Pixar).
 Art Exhibition: Pixar is currently celebrating 30 years of animation. Guests are able
to enjoy this inside look at the studio and how each of the Pixar films are made. This
exhibition debut at the Museum of Modern Art in New York and is now traveling
around the world (Art).

Key Partners
 Theatrical Chains: With the scope of Pixar and Disney the films that get released go
to every theater around the world that you can imagine. When frozen 2 released in
November 2019 it opened in 4,400 theaters in North America alone. Currently the
United States has 5,869 theaters putting frozen 2 at a 75% theater rate (Watson, A.,
2020). Pixar and Disney also have a pretty nasty deal over theater chains regarding
how long the film must be played for and how many screens it must play on.
Theaters are required to show certain films a required amount of times and if the
theaters don’t comply with these rules, they can face big penalties that may cost
them their break-even point (Taylor, 2017).
 Walt Disney Company: The Walt Disney Company was started on October 16, 1923
by Walt Disney and his brother Roy Disney. They started drawing cartoons for
different publications and eventually went on to create Steamboat Willie in 1929
where the world was introduced to Mickey Mouse. With the popularity of Mickey
Mouse and the previously released animation shorts Disney was convinced they
could produce a full-length feature film (Walt Disney Company). Eventually “the first
fully-animated feature film would debut in 1937 titled Snow White and the Seven
Dwarfs”. Way later on down the line in 2006 Disney would buy Pixar for $7.4 billion.
This was a huge deal at the time as Pixar had yet to have a flop with its six animated
movies (Our Business).
 Producers: You could say much of the success Pixar has had could come from the
legendary producer John Lasseter. John has been with the team at Pixar since the
beginning. He has produced 96 projects over the course of his life and practically

every animation that came out of Pixar john had a hand in making sure it came out
perfect as could be. Along with being a producer John also Directed some of Pixar’s
most recognizable films such as Toy Story, A Bug’s Life, Toy Story 2, and Cars.
Eventually in 2018 John would be ousted by Disney following sexual harassment
complaints (Statt, N. 2018).
Key Activities
 Film Production: The production of a Film includes a ton of help from a ton of
different people and departments. The director of the film will be were the basis of
the story originates from and usually guides the production of the film. The
producer of the film makes sure everyone is able to execute the vision the director
has. The producer also makes sure that the director isn’t making outrageous
requests as the producer is in charge of the financing, and schedules of the project
and the staff. The production designer is in charge of how they are going to make
everything look based on the director’s vision of the story (Contributor, Q. 2015).
 The Story artists are crucial to the film process as they develop story boards that
show a rough visualization of how the film might look. In most cases these artists
create thousands of story boards that “none of which will be seen in the final film”.
Editors are crucial to the team at Pixar. “Animated films are edited constantly
starting with the story reels and right up to the final release”. “The real actors in
Pixar Films” these people are what bring the stories to life. A tough job the
animators at Pixar have is that they must respect a rule that John Lasseter calls

“truth to materials, meaning the physics of motion need to match what the character
is made of” (Contributor, Q. 2015).
 Marketing: When it comes to marketing film studios usually create a trailer, movie
posters, and social media campaigns to attract audiences to spend money to see the
film at the theater. This is a pretty standard routine that basically every film that
gets released will follow. But sometimes studios like Pixar will go the extra mile and
create unique experiences or websites that engage the user in a more personal
experience. With the highly anticipated sequel to Monsters Inc. Pixar launched a
college look alike website that gave an extended experience and built up even more
anticipation for the new Monsters University film. This website included interactive
elements such as a map of the Monsters University Campus, what campus life is like,
and a real online store that sold Monsters University merchandise. This was an
amazing extended experience that would hopefully stick with longer with the target
audience and even drive sales of merchandise even higher (Austin, C. 2013).
 Graphics Technologies: Pixar uses three different graphic technologies: OpenSubdiv,
USD, and OpenTimelineIO. OpenSubdiv is a “set of open resource libraries that
implement high performance subdivision surface evaluation on massively parallel
CPU and GPU architectures”. This allows for “Drawing on deformed surfaces with
static topology at interactive framerates” (OpenSubDiv). Universal Scene
Description (USD) is a public software “that addresses the need to interchange and
augment 3d scenes that may be composed from many element assets” (Universal
Scene). OpenTimelineIo is a writing plug in that allows “writing adapters to convert

to existing editorial timeline formats”. This is an important tool for developing and
editing the film (Pixar Animation, 2020).
Key Resources
 Brands: Pixar has become one of the most recognizable brands around the world. A
report from Prophet a brand relevance index surveyed 13,500 consumers in the
United States to “determine which brands they simply cannot live without”. The
results showed that Disney ranked number 5 and Pixar number 9. What makes Pixar
so special is that they development brands and characters that connect with the
audience emotionally and make you happy. Characters like Sporky from Toy Story 4
or Hei Hei from Moana stick with us long after the movie has ended and often take
on a life of their own. Films like Toy Story 4 and Incredibles 2 have been able to win
over adults and kids alike as Pixar and Disney have strategically released these films
when the kids who saw the originals are now adults who want to see their favorite
childhood films again (Director Google).
 RenderMan Software: Launched in 1988 Pixar’s RenderMan is the leading VFX and
Animation rendering software used by some of the top studios today. RendeMan is
used throughout the industry for “rendering Visual Effects and animation, making
scalability and versatility one of its core strengths”. One of the main selling points
about RenderMan is that it is built for collaboration. “RenderMan ships with the
latest open source tools and comprehensive APIs so you can develop complex
collaborative environments, for maximum pipeline flexibility. RenderMan is also
available to be purchased by anyone. Currently a professional license for

RenderMan is $595, but they have a Non-Commercial application that you can
download for free on the website (Whats New?)
 Voice Talent: The way the characters look is just as important as how they sound.
The voice actors are who make these characters truly come alive. You couldn’t make
Toy Story anymore without having Tom Hanks as Woody and Tim Allen as Buzz
Lightyear. With talent like this These A-list actors can make anywhere from 10 to
70 million depending on the contract they can negotiate for the film. And with a
series as popular as Toy Story in most cases the voice actor can negotiate a pretty
great deal for themselves as they know they are irreplaceable (Bean, T. 2019).
Cost Structure
 Salaries: when it comes to the salary of an animator at Pixar you can expect to be
paid anywhere from $60K to around $140K depending on your role and years of
experience. The highest paying job at Pixar is actually the Graphic Designer (Story
Artist) who on average make $189K. For all of the voice acting required for Pixar
films the average salary is around $88k a year. If you are the director of marketing
at Pixar, you can expect to make around $175k a year. Some of the top earners like
Bog Iger, and John Lasseter have taken in millions a year and have net worth’s over
$100 million (Pixar Animation Studios).
 Marketing: When it comes to Pixar, they have a very large budget to work with. On
average you can expect Pixar to have a marketing budget anywhere from $50
million to $150million per film in just marketing alone (Disney-Pixar). In 2015

Pixar would release its latest film The Good Dinosaur and would spend $150 million
on marketing. In total the break-even point for the film was around $500 million.
The Good Dinosaur would eventually become Pixar’s first major flop as it only made
$333 million worldwide (Amidi. 2015). Other films Like the wildly successful Frozen
and frozen 2 has huge marketing budgets and strategies. Frozen two partnered with
140 different brands which is the highest ever for a Disney animated film
(Pasquarelli, A. 2019).
 Film Production Back on November 22, 1995 Pixar released its first animated film
Toy Story. It had a production budget of $30 million and made $364 million
worldwide. Over the years the success of the Pixar brand grew and as a result the
production budgets did as well. Currently the most recent Pixar film Toy Story 4 had
a production budget of $200 million. This is over 6 times the amount they spent on
production back in 1995 for the original Toy Story (Disney-Pixar).
Revenue Streams
 Box Office Sales: Pixar has figured out the formula to almost guarantee the films
they create make a huge profit. With huge series like Toy Story 4, Incredibles 2,
Finding Dory and Toy Story 3 all making over $1billion at the Worldwide Box Office.
Even with riskier films like Up, Inside out, or Ratatouille they are able to make over
$700 million with production budgets at around $175 million. People know the
Pixar name and understand that they will deliver amazing quality animation and
story (Disney-Pixar).

 Merchandise: Disney and Pixar have cracked the code when it comes to
merchandising their films. They have been able to cash in on classics like Cinderella,
Snow White, Lion King and so many others for years because of the cycle they use to
keep these series alive. Take Cinderella for example, it has been re-released four
times in the United States and accompanied by a never-ending supply of toys,
clothes, and other merchandise for kids and adults alike to purchase. The success of
Cinderella is “one of the major contributors to Disney’s 41 billion annual
merchandising revenue”. Pixar and Disney also try to make everything a sequel if
possible. Disney has dedicated two lands at their theme parks to the worlds of cars
and Toy Story and create massive profits because of that. They also partner with
outside sources like Vans to create limited time offerings that coincide with a film’s
release to create synergy around the film to sell more tickets (Fruia, J. 2016).
 Renderman Licensing: The RenderMan software created by Pixar is just another
revenue stream they are able to capitalize off of. Some of the top companies use this
software such as Microsoft, Facebook and even Apple. Currently it is reported to
have been used by 740 companies around the world. This is great for the Pixar
brand as it shows just how great the software is but also at around $600 a license,
they are making some pretty decent money from it (Pixar RenderMan).
Conclusion
Disney and Pixar have created the perfect business model to take all of our money.
The way they have incorporated all of their films into a cycle that covers all aspects of
business is quite astounding. With the acquisition of Pixar for $7.4 billion Disney has been
able to soar to new heights that wouldn’t have been possible before. The “Disney Vault” is

such a genius move by Disney and Pixar that creates never ending profit from their classic
films that can be released every four or five years. With Toy Story land and Cars Land at
Disney World and Disney Land these series will now live on forever and will continue to
bring in new generations of kids to watch the older films and continue to buy the
merchandise for years and years to come.
I honestly don’t believe Pixar or Disney have many business issues that are holding
them back. For years now Pixar has been the leader in animation when it comes to films at
the box office. The only other Animated series that has become popular outside of Pixar
would be the How to Train Your Dragon series made by DreamWorks. If you asked me who
I thought Pixar’s main competition was I would have to say Disney because no one else
really comes close.
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