Sunday, January 25, 2015

This Day in Pixar History: Toy Story Revenue and Profits

If you've followed my blog for a while, you probably know I have an ongoing series of posts looking at Pixar's earnings from when they were a standalone public company. I started with their first quarter after their IPO (January - March, 1996), and am now up to the last quarter of 1998 (which I hope to post in a few weeks). Pixar's earnings during this period of time was primarily driven by Toy Story - its theatrical release in November, 1995, the home video release in late 1996 and related merchandise sales.

By the end of 1998, Disney and Pixar had received the majority of revenue that would be generated by Toy Story. Sure, there would be continuing revenue from merchandise sales and television syndication fees. But this would be minimal, especially compared to the imminent release of A Bug's Life. So I thought it would be fun to take a look at the revenue and profit Pixar made from Toy Story's original theatrical debut, home video release and merchandise.

Below is a table of revenue, gross profit and gross profit margins Pixar had for the years 1996 through the first quarter of 1999:

Quarter Film Revenue
Film Gross Profit
Film Gross
Profit Margin
1st Quarter, 1996 $76 $67 88.2%
2nd Quarter, 1996 $5,000 $4,586 91.7%
3rd Quarter, 1996 $11,146 $10,224 91.7%
4th Quarter, 1996 $2,625 $2,419 92.2%
1st Quarter, 1997 $6,301 $5,743 91.1%
2nd Quarter, 1997 $11,596 $10,827 93.4%
3rd Quarter, 1997 $3,509 $3,424 97.6%
4th Quarter, 1997 $5,508 $5,436 98.7%
1st Quarter, 1998 $4,036 $4,036 100%
2nd Quarter, 1998 $2,912 $2,912 100%
3rd Quarter, 1998 $1,260 $1,260 100%
4th Quarter, 1998 $1,551 $1,551 100%
1st Quarter, 1999 $559 $559 100%
Total $56,079 $53,044 94.6%

There are a few significant points I'd like to point out regarding this table:
  • Gross profit margin - Wow! The reason it is so high is because of how the Feature Film Agreement was written. Disney reimbursed all production costs that Pixar incurred except for any budget overages. These payments were not treated as revenue but as cost reimbursements, which lowered cost of revenue to almost nothing.
  • Notice how the profit margin started increasing in mid 1997 until it reached 100%. This was due to how much better Toy Story performed than expected, causing all production costs to be fully reimbursed sooner than Disney had expected. Once all the costs had been reimbursed, all revenue received by Pixar was pure profit.
  • While Pixar had huge profit margins, the actual amount they made from Toy Story isn't very much. To put it into perspective, let's look at the revenues through 1996 which came from the theatrical release of the film. Toy Story made over $361 million worldwide but Pixar's revenues were not even $19 million, equating to only 5%. This was a big reason for Steve Jobs pushing for the Co-Production Agreement, which became effective with A Bug's Life and would give Pixar 50% of all revenue.
Looking ahead to A Bug's Life, the new agreement would mean Pixar receiving half of all film and merchandise revenue, and in exchange would be responsible for half of all film production costs. Without spoiling future earnings report posts, it's easy to expect that while revenues will be significantly higher, we won't see profit margins of 90%! But I think it's safe to say the new Co-Production Agreement works out well for Pixar. Just as a tease, if we look at only a single quarter, the 3rd quarter of 1999, Pixar reported $77 million in film revenue and $55.8 million in profits. Those numbers for that single quarter are higher than the total that Pixar made from Toy Story!

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