Constrains of Pixar However there existed multiple constrains holding back Pixar from breaking away from Disney which included the following: 1. Pixar still owed Disney three films under its present arrangement, which will run at least through 2005. 2. Disney had an extensive distribution and marketing capabilities given its status as the premier family brand, with far-reaching marketing, distribution and licensing power 3. The hold over sequels of films made by Disney-Pixar would suffer as per contractual agreement
As of November 2005, Pixar’s strategic options were as follows: 1. Being acquired by Disney Being acquired by Disney would provide Pixar with better positioning vis-a-vis their competitors like Lucasfilm, DreamWorks, MGM, Universal, Paramount etc. Disney has been one of the very few companies to have grown with the animation industry and it has a unique collection of assets like theme parks which Pixar could leverage. Also acquisition by Disney would increase the P/E ratio of Pixar which would be welcomed by the investors. Pixar shareholders will receive 2.3 Disney shares for every Pixar share they own. The most profitable company would be Apple. The deal would give Apple iTunes more video content to offer.
2. Renegotiating the previous deal with Disney Another option would be renegotiating the deal with Disney. This would reduce Disney to be just the distributor, something which Disney has already rejected. But given the success history of Pixar and Disney’s not so successful results when making films alone, Disney would want to get associated with a successful animation company like Pixar, something which Pixar would like to leverage.
3. Negotiating a new deal with a rival company of Disney/Strategic Outsourcing In that deal, Pixar would strike a deal with larger companies like Lucasfilm has with Twentieth Century Fox, in which the larger studio gets only the distribution fees. Pixar was ready to take charge of 100% production pay for only the distribution fees. Although the option is attractive for Pixar as they are in a commanding position to achieve the deal following its success history, but it would mean two different companies with two different sets of shareholders and hence, two different agendas.
4. Joint Ventures: Joint ventures would reduce cost as well as risk associated with forward vertical integration. Also this is useful for cross border reach. Though the risk of dissipating industry know how exists, given the proprietary nature and highly skilled resources of Pixar in computer generated animation, such spill over can be easily contained. If the industry in which the acquired company participates has the potential to remain profitable, then the target passes the industry attractiveness test. Disney & Pixar’s synergy has produced smashing hits in the box office. Disney has a deep pocket and Pixar has a huge talent base.
Pixar is a large player in the industry in terms of developing and producing computer animation and Disney has positioned itself strongly as a family entertainment company .The combination of these two companies will be very difficult to imitate. Thus the combination of Disney and Pixar will result in a little stabilization where competitors will not like to target them . Hence it would reduce the rivalry.
Bargaining power of the Buyer is low in this industry. Due to the advent of so many ways to watch a movie it is almost certain that the interested viewer will watch the movie. Also because of Disney theme parks etc, there will be constant exposure towards the movie. Threat of Substitutes will be low. Substitute products can be theatre or other forms of entertainment. But these forms cannot match up to the appeal it creates in the general mass. Threat of new entrant is high in animation industry due to cheaper technological products. But when the acquisition takes place finding the talent will be tough because as a strong brand, the Disney-Pixar combination will attract more talent. Hence, the merger will increase the attractiveness in the industry.