Wednesday, May 24, 2017
It's been a long time since I've written a "Pixar News Article" post, but with the Cars 3 marketing machine fully ramped up, there have been a number of excellent behind-the-scenes articles and interviews.
Jay Ward, the Cars creative director and franchise guardian, shared this article regarding how Pixar brings Cars to life, with a focus on authenticity. And this Sahm Reviews article discusses story aspects and some of the challenges that Cars 3 presented with Bob Peterson, Scott Morse, Kiel Murray and Mike Rich.
The Pixar Post released a new podcast episode with the first in their series of interviews they had during the Cars 3 blogger press day a few weeks ago. This interview was with Production Designer Jay Shuster, Character Supervisor Michael Comet and Directing Animator Jude Brownbill, and covered the design, rigging and animation of the multitude of characters in the film.
There was some non-Cars 3 news too. In this Digital Arts article, Pixar's Matthew Luhn talks about the impact storytelling can have on people. Luhn also shares his opinions on how virtual reality is changing and how storytelling can work within that medium.
The next few months should be exciting, with more articles and interviews on Cars 3, and then we should immediately start seeing a lot more Coco news!
Sunday, May 21, 2017
To be clear, nothing in this post should be construed as stock advice or a recommendation to buy or sell any stock. One of the first rules of investing is to do your own due diligence. The point of this post is to highlight some of the numbers and factors one might look at when analyzing a company, using Pixar's 1999 annual report as a concrete example.
|A Thinking Machines CM-5 Supercomputer|
While at the Supercomputer Center, I also had the opportunity to hear Pete Docter speak at a conference I was attending. I believe it was his talk that introduced me to Pixar.
From the $121M in revenue, Pixar deducted $46.5M in film development costs and other expenses such as research and development, sales and marketing, and general administrative costs. In addition, they paid almost $33M in income taxes and made about $7.5M in interest on their cash and investments. In the end, this gave Pixar a little over $49M in net income.
How did these results compare to previous years? Well, since Pixar hadn't released a film since Toy Story in 1995, they compared extremely well! For 1998, Pixar only had $14.3M in revenue and almost $8M in net income, while in 1997 the did a little better with $34.7M in revenue and $22.2M in net income.
Not only did revenue and profits jump dramatically in 1999, but their balance sheet was strong. The balance sheet shows how much assets (cash, bonds, property, equipment, etc) and liabilities (salaries to be paid, debt, upcoming income taxes, money owed to Disney, etc) the company has. At the end of 1999, Pixar had about $195M in cash and investments, plus other assets of $180M for total assets of almost $375M, while they had no debt and only owed $30.5M, giving them a net worth of over $344M. And the balance sheet was getting stronger - from the $121M in total revenue for the year, over $109M of that ended up as cash the company could use for buying more computers, developing films and putting in the bank. I think it's clear that A Bug's Life was very profitable for the studio!
So going back to the questions I asked earlier, in regards to sales growth, I think it's clear that Pixar had this covered! As for the second question, whether the growth was sustainable, I think this is where it helps to really understand the company. What I mean is that while 1999 was a banner year compared to 1998, revenue and income in 1998 dropped from 1997, when Pixar was receiving more income from the international and home video releases of Toy Story. Up to this point one could say Pixar's profits were lumpy and not consistent, rising when a new film was released and falling just as dramatically the year after. This "lumpiness" might scare off investors who didn't look deeper at the company and the film production agreement Pixar had with Disney.
But I think there were strong signs as to why Pixar could continue growing their revenue and net income.
First was the new Co-Production Agreement with Disney. As I mentioned earlier, Pixar received half of all the profits from A Bug's Life and any of their other future films. The impact the new agreement would have was already clear. I wrote a post about how much money Pixar made from Toy Story. That film was produced under Pixar's original agreement with Disney, where they received a much smaller percentage (closer to 10% - 15%) of the film's profits. While I don't have the exact numbers, in the 3 year period after Toy Story was released, I estimate Pixar received about $56M. Compare that to just one year of revenue from A Bug's Life where they made $110M, or almost double all their revenue from Toy Story!
I also think it was clear their growing film library would continue delivering results long after the films had left the theater. I wish I could say I had the foresight to see all the ways Pixar could have a positive impact on the Disney corporation. I'm not sure I envisioned theme park lands being devoted to one of their films, or that sections of resorts would be named after other films, or that Disney theme parks would dedicate entire weekends exploring the development of their films or celebrating the studio's 30th anniversary. But I do think it was obvious Disney was making good use of their partner. Pixar characters were showing up in parades at the Disney theme parks, and Buzz Lightyear had his own attraction at Disney World's Magic Kingdom (which opened in late 1998), all of which would help keep the films and its iconic characters in people's minds, helping drive additional merchandise sales beyond the ebb and flow of their film releases.
All of these factors pointed to the strong possibility of continued growth for the company. Were these factors reflected in Pixar's stock price? Well, the price stayed between $15 and $25 from 1999 through 2001 (note, all prices are adjusted for the 2-for-1 stock split the company declared in early 2005). Even into the beginning of 2002 one could buy their stock for around $15. But then in 2002 it began a steady climb for the next few years, going over $50 before the company announced its merger with Disney at a price of almost $60 in early 2006. For that period, from early 2002 to early 2006, Pixar's stock price returned over 30%/year, compared to the average annual return of 8% - 10% for the overall market! We will never know, but I think Pixar would have continued to be an exciting company for shareholders if they hadn't merged with Disney.
Thursday, May 4, 2017
Five years ago today, on May 4, 2012, Ed Catmull, president of Pixar Animation and Disney Animation, gave the commencement address at the University of Utah. Catmull studied at the University of Utah, earning bachelor degrees in physics and computer science plus a Ph.D. in computer science in the mid 1970s. One of his goals after graduating was to make the first computer animated film, which he succeeded at with the release of Toy Story two decades later.
Catmull gave an inspirational speech that included a number of references to both Pixar and Disney films, and the cultures of the 2 companies. Much of his speech spoke about the importance of accepting change and planning for unforeseen events rather than trying to prevent them. The University of Utah has a video of the commencement. You'll need to forward to the 98 minute mark to get to his speech.
April 13th episode of the Motley Fool Money podcast. This is a repeat episode where Chris Hill interviewed Ed shortly after the release of his book, Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration. In addition to some of the points he made in the commencement address, he talks about how most Pixar films are bad at the beginning of development, and the importance of protecting the team during those early phases.