Saturday, November 8, 2014

This Day in Pixar History: Pixar Earnings Report, 2nd Quarter 1998

I'm back with another look at one of Pixar's quarterly earnings reports from when they were an independent public company. In this post we'll look at their second quarter (April - June) of 1998.

© Disney/Pixar
The middle of 1998 was a quiet period for Pixar, at least in terms of revenues and earnings. Revenues from the home video release of Toy Story continued to drop, and there wouldn't be an increase in revenue until the first quarter of 1999 when money from A Bug's Life began to come in. Revenue for the quarter was only $3.8 million compared to over $14 million in the second quarter of 1997. Of the $3.8 million, $2.9 million was from Toy Story film revenues and $850,000 from RenderMan sales.

While revenues were decreasing, expenses were increasing, growing from $2.8 million in 1997 to $3.2 million in 1998. Much of this was due to general and administrative expenses, which grew over 73%. Pixar had both A Bug's Life and Toy Story 2 in production, and were in the early stages of developing Film Four (Monsters, Inc.). In the report, Pixar pointed out production hadn't started yet on Monsters, Inc. as the story treatment hadn't been approved. They also stated if the story treatment and budget were approved, it was not expected to be released until late 2000 at the earliest. As we all know, it would be a year later before it hit theaters.

Net income was a little over $2 million ($0.05/share) compared to almost $9 million ($0.22/share) in the year before quarter. You might ask, if revenue was $3.8 million and $3.2 million went into expenses, how did Pixar end up with over $2 million in net income? The answer comes in the category of Other Income which totaled close to $2.2 million. This income was basically interest Pixar earned on their short-term investments - the large cash hoard Pixar still had from their IPO in 1995.

The impact of lower earnings was more apparent by looking at their cash flow statement. For the first 6 months of 1998, Pixar generated $4.4 million of cash from their operations, but they spent $5.9 million on new equipment and $15.1 million on the production of A Bug's Life, Toy Story 2 and Monsters, Inc., for a cash outflow of $16.6 million. Remember, with the Co-Production Agreement with Disney, Pixar was now responsible for financing half of their film costs. With those higher costs and no expected revenue from A Bug's Life coming until early 1999, Pixar would be burning through a significant amount of cash for the next couple of quarters. Fortunately, they had over $160 million in the bank so they were well prepared to handle these expenditures.

David Baraff
© Disney/Pixar
One item I noticed in the quarterly report was that on June 16, 1998, Pixar had purchased Physical Effects, Inc. ("PEI") for $3 million in Pixar stock (over 60,000 shares) and the assumption of $300,000 in liabilities. PEI was co-founded by David Baraff and had been working on simulation technology, which they had licensed to a third party. I'm guessing Pixar bought the company primarily in preparation for the fur and cloth simulations they would need in Monsters, Inc. In fact, Baraff is credited with creating Boo's shirt in the film, and he continued to enhance the simulation tools Pixar would use for later films like Brave and Monsters University. Baraff is now a Senior Animation Scientist at Pixar and received a Scientific and Technical Academy Award for his work on cloth simulation in 2006.

Pixar's stock had had a good run-up through the first half of 1998, going over $63/share early in July. But after these results were announced their price began to drop, going down to around $50 by months end and getting as low as $28 near the end of August, 1998. Pixar was always known to be conservative in their earnings estimates and often beat expectations, as I discussed in my post for their first quarter of 1998 earnings report. I think analysts were somehow expecting revenues and earnings would continue to grow even in the absence of a recent film release. As a long term investor I wasn't concerned with the quarterly gyrations of revenues and earnings, but most analysts are only concerned with short term results. I think this quarterly report woke those analysts up and they realized it would be months before revenues would start to grow again.



Friday, September 19, 2014

Pixarians at The Walt Disney Family Museum

I have never been to The Walt Disney Family Museum, but I think it would be well worth a trip to San Francisco just to go there! In addition to the film screenings, galleries and special programs, they have a constant flow of artists and animators coming through to give lectures and demonstrations. With Pixar right across the bay from the museum, it's not surprising that many of these talks are led by Pixarians. And it looks like there is a great slate of upcoming talks featuring some of these Pixar artists! I previously wrote about some of these events, and thought now would be a good time to refresh that list.


The first event is called Over There with Steve Pilcher, who was the production designer on Brave. Steve will read from his soon-to-be-released children's book Over There and then do a book signing. Tickets are $20 for adult non-members or $12 for members. The program takes place tomorrow, Saturday, September 20 at 2:30pm! It looks like tickets are still available!


Ronnie del Carmen

Next is a 5 part talk called Animation Basics: Breaking Down the Magic. Part 1 will focus on story, the use of storyboards and the development of the script and will be hosted by Inside Out co-director Ronnie del Carmen. This event will take place on Saturday, October 25th.


Ricky Nierva
Part 2 of the Animation Basics series is subtitled Character and is taking place Saturday, December 6th. This event will cover character development, the use of maquettes and the importance of casting and voice. It will feature a number of Pixarians, including production designer Ricky Nierva, art director Matt Nolte, character sculptor Jerome Ranft, producer and casting director Kevin Reher and casting manager Natalie Lyon!

Dates and hosts of parts 3 through 5 haven't been announced yet, so keep an eye on the museum's calendar!

The last event I want to mention is the CalArts Fall Open House, being held on Saturday, October 18th. Alumni and staff from the world-renowned school will host a reception and discussion regarding its programs and admission requirements. This is an awesome way for prospective students to meet some of the leading artists and instructors in animation. With the large number of CalArts graduates at Pixar, while I don't know for sure, I can't help but think there will some at this event. Registration for it will begin on October 1st.

Tickets for these events may run out, so if you're planning on going you should buy them sooner rather than later!

Monday, September 1, 2014

This Day in Pixar History: Pixar Earnings Report, 1st Quarter 1998


© Pixar

I'm back with another look at Pixar's earnings from when they were a standalone company. In my continuing series, this post will look at their first quarter 1998 earnings report, which was announced after the market closed on Thursday, April 23, 1998. At this time, little money was flowing in but the company was busier than ever. 3 films were in different stages of development - A Bug's Life, which would be released later in the year, Toy Story 2, which in February, 1998, had been upgraded to a theatrical release (from a direct-to-video sequel), and Monsters, Inc. (officially referred to as "Film 4") was in early development.

© Pixar
Film revenue from Toy Story home video and merchandise was $4.0 million vs. $6.3 million in the same quarter of 1997. Through the end of March, 1998, Pixar had received just shy of $50 million from Toy Story. Given that the film made $362 million worldwide plus the hundreds of millions more in home video and merchandise sales, it's obvious why Pixar pushed for the Co-Production Agreement, where Pixar and Disney would share equally in all costs and revenues (versus the approximately 10% - 15% it was receiving in accordance with the original Feature Film agreement).

Even though the Animation Services department was shut down in 1997 to reassign its artists to A Bug's Life and Toy Story 2, the segment generated $171,000 in revenue due to royalties from their Toy Story CD-ROM interactive games. Software sales of RenderMan generated another $673,000 and patent licensing brought in $117,000, to bring total quarterly revenues to just shy of $5 million versus $7.9 million in 1997. While revenue in 1998 was lower, gross margins actually improved from 92.8% in 1997 to 98.5%! This was due to the lack of any film-related expenses - all costs from the production of Toy Story had already been accounted for. In addition, Pixar was capitalizing almost all development costs for its upcoming films, so while it was showing up on the cash flow statement (in the sum of $7.5 million), it wouldn't actually impact the income statement until it could be offset against the revenue of the upcoming film releases.

Although earnings per share dropped from $0.11 in 1997 to $0.08, the stock reacted very favorably to the earnings report as analysts had expected the company to only breakeven. The stock jumped over 8.7% the day after the earnings report to $44 5/16. This was on top of the almost 6% gain the previous day when Disney announced better than expected earnings and a 3-for-1 stock split. Pixar's stock had a great run in early 1998, more than doubling since the beginning of the year.

There wasn't much else of note in the quarterly report, besides the upgrade of Toy Story 2 from direct-to-video to full theatrical release. Some other minor items included that construction of the new Emeryville headquarters would start in the second half of 1998, and the earliest discussion I recall seeing regarding the studio's Y2K planning and preparation.

I'll be back in a few weeks to discuss Pixar's 1998 second quarter results.





Friday, June 27, 2014

This Day in Pixar History: WALL•E Theatrical Release




6 years ago today on June 27, 2008, Pixar released their 9th feature film, WALL•E. A totally original film, WALL•E was a huge hit. It made over $223M domestically, making it the 5th highest grossing film of 2008 and the highest grossing animated film of the year, ahead of Kung Fu Panda, Madagascar: Escape 2 Africa and Dr. Seuss' Horton Hears a Who!. WALL•E is Pixar's 10th (out of 14) highest grossing film. It was also a critical success, garnering a 96% Rotten Tomatoes rating.

WALL•E was released with the short film Presto. Doug Sweetland made his directorial debut with the short film and to me is one of Pixar's most funny shorts.

WALL•E is one of those rare science-fiction films that is more than just amazing visuals. It has wonderful music (composed by Thomas Newman), characters we care about and an engaging story. From the 40 minute dialog-free opening to memorable scenes such as WALL•E looking over a hibernating EVE, the Define Dancing scene, and the emotional ending, it is easy to forget these characters are robots, and ranks as one of Pixar's finest films.

Some of you may not know that the origins of WALL•E began back in 1994, during a meeting at the Hidden City Cafe in Pt. Richmond, CA. WALL•E was the last film produced from the ideas that came out of that meeting, the others including A Bug's Life, Monsters, Inc. and Finding Nemo. Andrew Stanton talks about this meeting in the teaser trailer for WALL•E. Many Pixar fans, myself included, have made a trip to the Hidden City Cafe and had one of their great breakfast items like the Hidden City Scramble, or visited with owner Shellie Bourgault. Sadly the cafe closed in 2012 - I wrote about the closing which I discovered when I tried bringing my wife there while celebrating our 25th anniversary in the San Francisco area! Needless to say, my wife does not have the same, fond memories of the cafe as I do, especially when she discovered the reasons for the closing.


Sunday, June 22, 2014

Pixar In Concert

Photo from London program courtesy of my
friends Santi and Laura

There may not be a Pixar feature film this year, but for us fans there's always ways to get our Pixar fix, whether it be short films like Party Central, Car Toons episodes like The Radiator Springs 500½ or TV shows like Toy Story that Time Forgot. But for me, the most exciting Pixar-related event of 2014 is Pixar In Concert! Music from all 14 Pixar feature films and the 4 composers (Randy Newman, Thomas Newman, Michael Giacchino and Patrick Doyle) is performed by a symphony orchestra while scenes from the corresponding film are displayed on a large screen. These film scores and their composers have won 10 Grammys, 3 Academy Awards and have been nominated for an additional 10 Oscars.

For a long time, I didn't know if this concert series would come to Minnesota. It started with a few performances in California in the summer of 2012. Over time more performances, both domestic and international, were announced. Finally, performances in Minnesota were announced and I bought my tickets! My excitement only grew after my friends Santi and Laura from Spain attended a performance at London's Royal Albert Hall, and kindly sent me a copy of the program plus some other really great items like a copy of the program from the Pixar 25 Years of Animation exhibit that just closed in Madrid.

 Finally the day has arrived!! I attended the Pixar In Concert performance today at Orchestra Hall in Minneapolis, performed by the Minnesota Orchestra and conducted by Sarah Hicks (who also conducted the original performances at the Louise M. Davies Symphony Hall in San Francisco). Needless to say, the music was AMAZING! There is something special and extra-moving to hear music live, especially with a full orchestra. I think there must have been a lot of dust in the hall, I had tears in my eyes for most of the performance! I really loved all of it; I thought I could pick out a favorite piece but don't think I can. I can say I really, really enjoyed the pieces from Finding Nemo, Ratatouille, Up and The Incredibles. The pieces for Cars 2, Toy Story 3 and Brave were also wonderful. The last piece of music was from Monsters University, and the upbeat, high energy marching band music was an excellent way to end! They then did an encore performance of "You've Got a Friend in Me" to end the concert.

Yes, that's Pete Docter speaking. Sorry, it's an iPhone picture.

A huge surprise for me was that Pete Docter hosted the performances this weekend here in Minneapolis. Docter is originally from Bloomington, MN and is the creative director of the concert. Pete's parents were also in the audience, which made it even more special. Pete came out a few times during the performance to talk about the films and the music, and had some great stories to share. At one point while talking about The Incredibles and Cars 2, he actually made a FaceTime call to composer Michael Giacchino! Fortunately, Giacchino was at home "washing dishes" and "trying to keep the cat from eating the guinea pig", so he was able to share a couple of stories from both of those films (Giacchino said that during the scoring for Cars 2, director John Lasseter gave the guitarist a model of Finn McMissile and told him that he needed to become that character). I was touched that Pete made the trip to Minnesota, right in the middle of production of Inside Out. To me it's a testament of the importance of music to Pete.

If you're a fan of the music from Pixar's films, or just a fan of movie scores, I strongly recommend seeing this concert. Fortunately there are still quite a few performances scheduled, including ones in Seattle, Paris, Chicago and Denver. Plus, there will be 4 more performances held at the Davies Symphony Hall in San Francisco next month. And as a special treat, the July 17 performance will be hosted by Lee Unkrich, and John Lasseter will host the performance on July 18! There are still plenty of seats available for both of those shows. If you have attended, or are going to attend, a performance, I'd love to hear your thoughts on it - leave a comment below!


Saturday, June 21, 2014

Creativity Inc and Software Dev: Why We Iterate, Part 2: Evolve the Product

This is part 2 of my discussion on why using iterations are important to both Pixar making films and developers writing software. Part 1 covered the benefits of rapid feedback. In this post I'm going to focus on evolving the product. As a reminder, here are the quotes that inspired me for these 2 posts:
The plot would transform again and again over many months...
...we are true believers in the power of bracing, candid feedback and the iterative process—reworking, reworking, and reworking again...

(Excerpts From: Ed Catmull with Amy Wallace. Creativity, Inc., Chapter 3, P. 85, Chapter 5, P. 127.)

It should be obvious, but I think many people miss the point of iterations. They are used to iterate the product, whether it is a film or software. By iterate, I mean to evolve and improve the product. How often have we heard Pixarians like John Lasseter, Andrew Stanton or Lee Unkrich talk about how they are continuously "plussing" or improving the film. The same goes for writing software, and was made clearer to me when I read a blog post on the Simple Programmer website. As discussed in this article, the point of iterations are to gradually improve the product, not introduce and fully complete functionality. Developing a product with iterations is not meant to be a linear process. That would be like the filmmakers at Pixar saying "OK, in this iteration we are going to work on scene X - write the script, storyboard, animate and finish the scene." But that's not iterating, that's just doing many small waterfall cycles. It's about the evolution of the product, making it better with each iteration.

I'll discuss iterations more in future posts, but in the meantime here's a great article regarding iterating not just the product but project teams as well.

Monday, June 16, 2014

Creativity Inc and Software Dev: Why We Iterate, Part 1: Rapid Feedback

In this post of my continuing series on comparing the principles Pixar uses to create films to developing software, we again meet one of the key concepts in Agile development - the iteration.
The plot would transform again and again over many months...
...we are true believers in the power of bracing, candid feedback and the iterative process—reworking, reworking, and reworking again...

(Excerpts From: Ed Catmull with Amy Wallace. Creativity, Inc., Chapter 3, P. 85, Chapter 5, P. 127.)

I could talk a long time about iterations, but rather than one long and probably boring post, I will break it up into 2 shorter (but maybe still boring) posts. This first one will focus on the benefits of getting feedback early and often.

Pixar's process for developing films is very iterative. Their films don't get built in a linear "waterfall" fashion, going from writing to storyboarding to animating to lighting. Instead, it's an iterative, agile-like process (granted, their iterations are longer than the usual software sprint or iteration). Every few months, the filmmakers gather everyone at the company to view the film in its current state. Early on, the film is just in storyboard form with scratch voices and music. After eac screening, everyone is able to give notes - what's working, what's not, etc. As Ed says in the second quote above, candid and frequent feedback is critical to their process. The filmmakers take these notes and go back at it, re-working and re-boarding scenes, and slowly moving the film forward.

This is also the Agile way of building software. Rather than the traditional method of first gathering all requirements, then developing the software, then testing and finally releasing software, the system is described in stories (as described in earlier posts), and development starts almost immediately. The business owner or users decide which stories are of highest priority and the developers will work on them in an iteration usually lasting 1-3 weeks. By the end of the iteration, the stories will have been developed, tested and often times ready to be deployed. This process then repeats itself until all the stories are complete.

Why is an iterative approach a better methodology for both movies and software? In both cases, we want to get feedback early, while there's still time to make adjustments with minimal rework. When developing software, by involving the users or business owners early on, they can see and react to what we as developers are translating their requirements into. We may not have understood the user's desires or requirements. In addition, it's difficult to envision what an application is going to look like without something concrete to examine and try out. With an iterative approach and early feedback we can adjust what we're building while we have time and with less rewriting. Finally, by having the business owners involved every step of the way, they are able to pick the most important stories to be worked on each iteration, or even add new stories not envisioned when the project began. This helps us deliver a system that will meet their needs and one that adapts to the changing dynamics of the business.

Compare this with a traditional waterfall project where the users aren't able to see the final product until the end. At that point it's usually too late to make significant changes. And changes that would have been small had they been caught early become hard to implement because now their impact may ripple through much more of the system. This can lead to sub-optimal, quick fixes and technical debt.

Part 2 of this discussion on iterations will cover another benefit of iterations, which is evolving the product.