Disney Case Study

1 Introduction

After a ten-year partnership and a five-movie contract, disruptions started to arise when Pixar set the possibility of joining another movie distribution giant. Disney had to figure out a solution to endure the partnership’s success, as Pixar had an incredible reputation for producing blockbusters. We will evaluate the various options Disney has in the make or buy decision it faces with Pixar. If it buys Pixar, it could either fully integrate it in its structure, without a split between both companies’ staff, or leave Pixar as an independent department. Otherwise, it could choose to not acquire; developing the animated movies on its own or through a contractual basis with Pixar, or by forming a strategic alliance or joint venture.

2 No Acquisition

2.1 Disney AS Makes All CG Features

Although Disney has produced various animation movies that are still today perceived as timeless classics, every CG movie fell short of expectations. It is apparent that Disney’s reputation and previous successes notwithstanding, the CG movie segment required other skills to be successful. This became clear with the success of all movies released during the 5 movie deal with Pixar. Pixar had advanced technologies, creative ideas and low costs. Disney was unable to develop these itself sufficiently during the 5 year contract with Pixar. Therefore, considering the high initial investment costs, time needed to develop, lack of experience, skills and creative ideas, Disney should not develop in this segment on its own.

2.2 Strategic Alliance

If a business wants to organize complex business transactions without sacrificing its autonomy, it may turn to strategic alliances. In a sense, this is already similar to Pixar’s arrangements with Disney. Alliances can either be horizontal, in which two firms from the same industry collaborate, or vertical, involving collaboration within the supply chain. Strategic alliances generally rely on trust and reciprocity rather than contracts to govern their relationship. The alliance could not survive without these components. When relations broke down between Steve Jobs and Michael Eisner, CEOs of Pixar and Disney, respectively, only the firms’ contractual agreements were maintaining their collaboration in effect. As Pixar gained more negotiating power, they were simply not getting as much as Disney was from the relationship. The reciprocity of the deal, which was favoring Disney slightly more than Pixar (60% vs. 40% of effective proceeds, as well as the rights to produce sequels without the latter’s approval), was simply not in line with what Pixar believed they brought to the table. An alliance sets terms based on negotiation rather than binding provisions, and if Disney would not be able to compromise to Pixar’s needs in the relation-