Introduction
In 1995, Pixar Animation Studios released its first feature-length film, Toy Story. It was an instant hit, captivating audiences worldwide and launching Pixar's reputation as a powerhouse of magical and inspiring entertainment. Since then, Pixar has continued to produce one blockbuster after another, generating over $14 billion in global box office sales.
But rewind to 1994, and Pixar's future success seemed impossible. The company was hemorrhaging money, surviving only on monthly checks from Steve Jobs' personal account. It had already cost him $50 million with no end in sight. Enter Lawrence Levy, a Silicon Valley executive who received an unexpected phone call from Jobs that would change both of their lives.
"To Pixar and Beyond" is Levy's firsthand account of how he and Jobs developed and implemented the strategy that would turn Pixar around, transforming it from a struggling tech company into an entertainment juggernaut. This book takes readers on a thrilling journey through the early days of Pixar, revealing the challenges, risks, and triumphs that shaped its remarkable success story.
The Call That Changed Everything
In November 1994, Lawrence Levy was working as the CFO of a desktop publishing start-up called Electronics for Imaging when he received a life-changing phone call. Steve Jobs, the legendary co-founder of Apple, was on the line. Despite having left Apple a decade earlier, Jobs was still a prominent figure in Silicon Valley, and a call from him was no small matter.
Jobs wanted to discuss Pixar, a small imaging computer and software company he owned. He was looking for someone to help run the company, develop its strategy, and eventually take it public. Levy had experience in guiding Silicon Valley start-ups through this process, making him an ideal candidate in Jobs' eyes.
However, there was a significant catch: Pixar was struggling financially. The company's future looked bleak, and Levy was concerned about risking his career by joining such a troubled venture. Despite these reservations, the opportunity was intriguing enough for Levy to consider it seriously.
A Glimpse into Pixar's Magic
To get a better understanding of what he might be getting into, Levy decided to visit Pixar's facilities. This tour would prove to be a turning point in his decision-making process.
During his visit, Levy met Ed Catmull, Pixar's co-founder, who showed him a scene from an upcoming film project called Toy Story. Levy was immediately blown away. Toy Story was set to become the world's first feature-length computer-animated film, but it wasn't just the technical achievement that impressed Levy. The storytelling was so captivating that he found himself empathizing with the animated toys on the screen.
Levy also got a behind-the-scenes look at how the film was being created. He met John Lasseter, Pixar's creative lead, and saw some of the company's innovative tools. These included a hand-built machine for transferring computer images onto film, thousands of meticulously detailed storyboards, and powerful computers that produced each frame of the movie.
Everything Levy saw during this visit convinced him that Catmull and Lasseter were destined for success. The creativity, passion, and technical prowess on display were truly inspiring. Levy felt that it would be an honor to work alongside such talented individuals.
Weighing the Risks and Opportunities
Despite the impressive tour and the potential he saw in Pixar's work, Levy still had doubts about joining the company. The main concern was how to make Pixar financially viable. Additionally, while he had connected well with Jobs during their initial interactions, Levy was wary of Jobs' reputation for being a difficult person to work with.
Ultimately, the opportunity was too intriguing to pass up. The chance to be part of something potentially groundbreaking, combined with the inspirational environment he had witnessed, outweighed the risks in Levy's mind. He decided to accept the role of executive vice president and chief financial officer at Pixar.
A Rocky Start
When Levy joined Pixar in February 1995, he quickly realized that the transition wouldn't be smooth sailing. The existing employees were polite but kept their distance, and there was an underlying tension in the air.
Levy soon discovered the reason for this cool reception. Pixar's employees weren't fond of Steve Jobs. They viewed him as an outsider who didn't understand their culture and feared he would disrupt it. Moreover, Jobs had failed to deliver on a promise to give them stock options, which had further eroded trust. Since Levy had been hired by Jobs, he inherited some of this distrust by association.
Rather than letting this unexpected welcome discourage him, Levy decided to use it to his advantage. If people weren't going to invite him to meetings or social events, he would have more time to dive deep into Pixar's work and figure out how to make the company profitable.
Assessing Pixar's Projects
Levy's first task was to familiarize himself with all of Pixar's major projects and assess their potential for generating revenue. Unfortunately, none of the projects looked particularly promising at first glance.
RenderMan: This software program created photo-realistic computer images. While impressive, the market for such technology wasn't large enough to generate substantial profits. However, Levy did see an opportunity in RenderMan's motion blur feature, which made computer images look more like live-action film. Pixar owned the patent for this technology, which made it difficult for competitors to create similar rendering software legally. Levy capitalized on this by signing licensing agreements with Microsoft and Silicon Graphics, bringing in a few million dollars for Pixar.
Animated Commercials: Pixar produced high-quality animated commercials, but the process was expensive and labor-intensive. While these projects showcased Pixar's capabilities, they weren't cost-effective enough to sustain the company.
Short Films: Pixar's short films were groundbreaking and critically acclaimed, but they were far from profitable. These were primarily made as passion projects or to test and demonstrate Pixar's technical abilities.
Toy Story: This feature-length film was part of a production agreement with Disney. Under this deal, Pixar would make three movies that Disney would fund and market. However, even if these films performed as well as some of Disney's biggest blockbusters, the terms of the contract would limit Pixar's share of annual profits to around $4 million – hardly enough to sustain and grow the company.
Moreover, the Disney agreement prevented Pixar from making films with any other studio until the three-movie deal was fulfilled, which would take nearly a decade. Given these constraints, Levy found it difficult to see how Pixar could generate the money it desperately needed to survive and thrive.
A Glimmer of Hope: The Home Video Market
Despite the seemingly bleak financial outlook, Levy continued his research, determined to find a way to make Pixar profitable. His persistence paid off when he stumbled upon a promising avenue: the home video market.
Levy's research revealed that most of Disney's profits from hit animated films like The Lion King and Aladdin came from home video sales. This insight highlighted a crucial fact: families around the world had a strong desire to watch great animated films at home. The home entertainment market was booming, and Levy saw an opportunity for Pixar to carve out its niche by becoming a dedicated animated film studio.
The Risks of Focusing on Entertainment
While the prospect of Pixar becoming an entertainment company was exciting, it came with its own set of challenges. Levy's research into the industry revealed that even Disney, the undisputed leader in animation, had struggled financially in its early years. Disney had managed to stay afloat by diversifying its business into areas like film distribution, theme parks, and live-action films.
This historical context indicated that focusing solely on animation was a significant gamble. Unlike Disney, Pixar didn't have billions of dollars to fall back on or the ability to quickly diversify into other entertainment sectors. There would be no theme parks, distribution deals, or live-action films to save the day if things went south.
Another major hurdle was the prospect of taking Pixar public through an Initial Public Offering (IPO). This was high on Levy's list of priorities and represented Pixar's best hope for raising substantial funds. However, IPOs were notoriously difficult for entertainment companies. At the time, no modern animation company had successfully gone public.
The unpredictable nature of the film industry was a significant factor in this difficulty. According to Levy's research, only two out of ten films were typically profitable. Such statistics were unlikely to encourage Wall Street investors to buy stock in Pixar, and without investor interest, there could be no successful IPO.
Even if Pixar could overcome these hurdles and produce hit films, Levy realized that generating the kind of consistent profit growth that investors preferred would be challenging. The long production cycles of animated films and the unpredictability of box office success made it difficult to project steady financial growth.
Developing a Solid Business Plan
Given these challenges, it became clear that if Pixar was going to stand a chance as an animation-focused entertainment company, it needed a rock-solid business plan. Levy, along with Jobs and Catmull, spent the summer of 1995 developing a strategy that would give Pixar the best chance of success.
Their efforts resulted in a four-pillar business plan that would serve as the foundation for Pixar's future:
Increasing Pixar's Share of Film Profits: Under the existing agreement with Disney, Pixar would receive less than 10 percent of the profits from each film. The team determined that this needed to increase to at least 50 percent for Pixar to be viable.
Raising Funds Through an IPO: To have leverage in negotiations with Disney and to fund its growth, Pixar needed to raise significant capital. The team estimated that they needed at least $75 million – enough to contribute to the production costs of two films.
Increasing Film Production: Pixar was currently making just one film at a time, which meant it could only release a new movie every four or five years. To be successful, the company needed to grow to the point where it could develop multiple films simultaneously, aiming for an annual release schedule.
Establishing the Pixar Brand: Under the current agreement, Disney got the credit for Pixar's productions. For Pixar to establish itself as a premier animation company, it needed its name prominently featured on its films.
This four-pillar strategy provided a clear roadmap for Pixar's future. It addressed the key challenges the company faced and set ambitious but necessary goals. With this plan in place, Levy and the team now had a framework to guide their decisions and actions as they worked to transform Pixar into a successful entertainment company.
The IPO Journey
In mid-1995, Levy and the Pixar team turned their attention to one of the most critical pillars of their business plan: raising money through an Initial Public Offering (IPO). To enter the IPO game, Pixar needed investment banks to connect them with potential investors interested in buying stock in the company.
Steve Jobs initially wanted to work with industry leaders Goldman Sachs and Morgan Stanley. However, both banks declined, citing concerns about the unpredictability of the film business and the uncertainty surrounding Pixar's future deal with Disney.
Undeterred by these setbacks, Levy devised a new strategy. He decided to approach two types of investment banks: one familiar with the tech industry and another with credibility in Hollywood. This approach, he believed, would give Pixar the best chance of success.
Levy first approached Robertson Stephens, a well-respected Silicon Valley investment bank. To his surprise and delight, they agreed to come on board. Next, he secured the support of Cowen and Company, a boutique bank with a strong understanding of the entertainment industry. Cowen even had a prominent entertainment analyst, Hal Vogel, on their team.
As a bonus, Pixar also managed to bring Hambrecht and Quist on board, an investment bank that had worked on Apple's IPO. This connection to Jobs' past success added further credibility to Pixar's offering.
In a matter of weeks, Pixar had gone from having no investment bank support to having three strong backers. This was a significant victory and a crucial step towards realizing their IPO ambitions.
The Importance of Timing
The timing of Pixar's IPO push was critical. With Toy Story set for release at the end of 1995, there was building momentum and excitement around the company. Levy recognized that this was the ideal moment to bring investment banks on board and push for an IPO. The next window of opportunity wouldn't come until another film was completed – potentially years down the line.
Valuation Expectations
As Pixar moved forward with its IPO plans, the question of the company's valuation became paramount. The investment banks predicted that Pixar would be valued at around $700 million on the stock market. Steve Jobs, however, had much grander ambitions, hoping for a valuation of $2 billion.
The success of the IPO would largely depend on two factors: the predicted valuation and the performance of Toy Story at the box office. Levy and Jobs speculated that the film might make $100 million, but this would require opening weekend sales of at least $15 million – three times the average for animated feature films at the time.
Toy Story's Triumph and Pixar's IPO Success
In November 1995, Toy Story was released, and the results exceeded all expectations. The film's opening weekend box office sales hit almost $30 million, double what Levy and Jobs had hoped for. Toy Story went on to bring in over $190 million in total, cementing its status as a blockbuster hit.
Riding on the wave of Toy Story's success, Pixar's IPO was a resounding triumph. On the day of its public offering, Pixar's valuation skyrocketed to $1.5 billion. While this fell short of Jobs' ambitious $2 billion target, it was still more than double the initial predictions of the investment banks. This valuation instantly made Steve Jobs a billionaire and provided Pixar with the capital it needed to fuel its growth and negotiate better terms with Disney.
Building on Success: The Challenge of Creating More Hits
With Pixar's successful IPO raising $140 million for the company, the team now faced a new challenge: how to use this capital to create more hit movies. Making another blockbuster was, as Levy described it, like attempting to clone Mozart – a daunting task that required a delicate balance of creativity, technical skill, and business acumen.
Moreover, Pixar didn't just need more great movies; it needed to produce them more frequently. This was in line with one of the key pillars of their business strategy. However, increasing production while maintaining quality presented its own set of challenges.
Expanding and Nurturing the Story Team
At the heart of Pixar's success was its story team, a group of just five people responsible for creating the narratives that would captivate audiences. To meet the goal of more frequent releases, this team needed to grow significantly – ideally to three or four times its current size.
However, simply hiring more people wasn't enough. Pixar needed to recruit the most talented artists and technical wizards available, and then train them to hit the ground running. To achieve this, Ed Catmull created Pixar University, an in-house school dedicated to training employees, developing their skills, and fostering their creativity.
To lead the expanded production staff, Pixar hired Sarah McArthur, a former Disney executive who had worked on successful movies like The Lion King. Her experience in managing large-scale animation projects would be crucial as Pixar ramped up its production schedule.
Balancing Creativity and Control
As Pixar grew, an important question arose: who would make the final creative decisions? Someone had to approve story pitches, storyboards, dialogue, character designs, voice casting, and even the length of each movie. A wrong decision in any of these areas could easily cost tens of millions of dollars or lead to a box office flop.
Levy, Jobs, and Catmull were initially tempted to retain final say on creative issues. However, an impassioned plea from John Lasseter, Pixar's creative lead, changed their minds. Lasseter argued that giving the story team full creative control was the only way to make heartfelt movies that would truly connect with audiences.
This decision to trust the creative team was a pivotal moment for Pixar. It demonstrated a commitment to prioritizing artistic integrity over short-term financial considerations, a philosophy that would become a hallmark of Pixar's approach to filmmaking.
Negotiating a Better Deal with Disney
By the end of 1996, Pixar had raised more money than anyone had anticipated and was well on its way to producing more great animated films. This left two pillars of the original business strategy to address: increasing Pixar's share of film profits and establishing the Pixar brand.
Both of these goals were tied to Pixar's three-film agreement with Disney. Levy and Jobs faced a crucial decision: should they try to renegotiate the terms immediately, or wait years for a potentially better deal?
They decided to renegotiate right away. Toy Story's massive success and Pixar's newly acquired financial strength put the company in a much better bargaining position. Levy and Jobs carefully crafted their list of demands:
- Increase Pixar's share of profits to 50 percent
- Ensure all films carried Pixar's branding
- Allow Pixar's story team to work without interference from Disney
- Secure prime release dates (summer and holiday seasons) for Pixar's movies
These demands were non-negotiable; Pixar was prepared to walk away from the table if Disney didn't agree to all of them.
A Challenging Negotiation
The negotiations with Disney proved to be challenging. Six months into the talks, discussions broke down over the issue of branding. Disney CEO Michael Eisner was unwilling to give Pixar equal billing on the films. For Pixar, this wasn't just a business issue but a matter of principle. They viewed their creations as their "children" and felt it was wrong for another company's name to take precedence.
However, the story didn't end there. Months later, Eisner approached Jobs and Levy with a new proposal. Disney would give Pixar equal billing in exchange for the right to buy Pixar stock. This would allow Disney to benefit financially from promoting the Pixar brand. As long as Disney couldn't gain control of Pixar through this stock purchase, Levy and Jobs were amenable to the arrangement.
Sealing the Deal
With this breakthrough, negotiations resumed. Over the course of a few intense weeks, the two companies hashed out the terms of the new deal. On February 24, 1997, they signed an agreement that gave Pixar everything it had asked for: an equal share of the profits, credit for its work, creative freedom, and favorable release dates.
This new deal marked the completion of Pixar's four-pillar business strategy. It was a testament to the company's growing influence in the entertainment industry and set the stage for years of continued success.
Pixar's Continued Success
The new deal with Disney kicked off an incredible period of success for Pixar. Over the next several years, the company released five award-winning blockbusters plus a hugely popular Toy Story sequel. On average, each of these films made more than $250 million at the box office.
By 2005, Pixar's winning streak had pushed its stock market value to an impressive $6 billion. However, this success also brought new concerns. Levy and Jobs worried that even a slight slowdown in Pixar's growth could cause its stock value to plummet. To mitigate this risk, they made the decision to sell Pixar to Disney in a massive $7.4 billion deal.
Personal Growth and Lessons Learned
The journey with Pixar was not just about business success for Levy and Jobs; it was also a period of significant personal growth and learning.
For Steve Jobs, Pixar provided invaluable lessons about the entertainment industry and how to balance creativity with practical business decisions. This knowledge, combined with Jobs' innate sense of aesthetics and product expertise, would later prove crucial in his return to Apple and his subsequent transformation of that company.
As for Lawrence Levy, the lessons from his time at Pixar became clearer as he explored various philosophies of human experience after leaving the company. He discovered parallels between Pixar's journey and the Buddhist concept of the Middle Way, which teaches the importance of balancing structure and fluidity.
Levy came to see Pixar as a metaphor for this philosophy. The decision to focus the company on animation entertainment provided much-needed direction, while the four-pillar business strategy offered a practical means to achieve this goal. When creative freedom was added to this mix, Pixar found its sweet spot and became the successful company we know today.
The Middle Way in Business and Life
Levy's exploration of the Middle Way led him to reflect on how this philosophy applies not just to businesses like Pixar, but also to individuals. He posits that there are two sides to every person: an artist who values creativity and adventure, and a bureaucrat concerned with practical matters like paying bills. For a person to thrive, these two sides must be in harmony.
The same principle, Levy realized, applied to Pixar's success. The company had found a balance between creative ambition and business pragmatism. It had nurtured its artistic side by giving creative teams the freedom to pursue their visions, while also implementing a solid business strategy to ensure financial viability.
This balance allowed Pixar to take creative risks while maintaining a stable foundation. It enabled the company to produce innovative, emotionally resonant films that pushed the boundaries of animation, all while building a sustainable business model that could weather the unpredictable nature of the entertainment industry.
The Legacy of Pixar's Journey
The story of Pixar's transformation from a struggling tech company to an entertainment powerhouse is more than just a tale of business success. It's a testament to the power of vision, perseverance, and the ability to balance seemingly opposing forces.
Pixar's journey demonstrates that creativity and commerce need not be at odds. With the right approach, they can actually enhance each other. The company's commitment to storytelling excellence, combined with smart business strategies, created a virtuous cycle. Great stories led to financial success, which in turn provided the resources and freedom to create even better stories.
Moreover, Pixar's success challenged conventional wisdom in both the tech and entertainment industries. It showed that a small, specialized company could compete with established giants. It proved that computer animation could be more than just a technical novelty – it could be a powerful medium for storytelling that resonates with audiences of all ages.
Final Thoughts
"To Pixar and Beyond" offers readers a unique insider's perspective on one of the most remarkable business transformations in recent history. Lawrence Levy's account provides valuable insights into the challenges of innovating in a rapidly changing industry, the importance of balancing creativity with sound business practices, and the power of believing in a vision even when the odds seem insurmountable.
The book serves as an inspiration for entrepreneurs, creatives, and business leaders alike. It demonstrates that with the right combination of talent, strategy, and perseverance, it's possible to achieve the seemingly impossible. Pixar's story reminds us that sometimes the most unlikely journeys can lead to the most extraordinary destinations.
As we reflect on Pixar's journey, we're reminded of the magic that can happen when technology and creativity intersect, when business acumen meets artistic vision, and when a group of passionate individuals come together to pursue a shared dream. The legacy of Pixar extends far beyond its box office successes or technological innovations. It lies in the countless lives touched by its stories, the boundaries it has pushed in the world of animation, and the lessons it offers about pursuing excellence in both art and business.
In the end, the story of Pixar is a testament to the power of imagination, not just in creating fantastical worlds on screen, but in reimagining what's possible in the real world. It's a reminder that with courage, creativity, and the right balance, we can all strive to go "to infinity and beyond" in our own endeavors.