My Favorite Pixar Interviews and Podcasts, 2017 Edition

It's that time of year again! I listen to a lot of podcasts. I have my regular half-dozen or so but I always discover a few new ones during the year. At the end of the year I like to go back and highlight a few. Saying that these are my "favorites" is a bit of a misnomer; I'm not ranking them. It's just a sampling of some that stood out and caught my attention. As you'll notice, most aren't Pixar or even animation-focused. I think that's great, as it demonstrates the great number of sources for finding Pixar-related interviews and content.

• The Pixar Post - OK, this is not a new one, LOL. If you're a Pixar fan then I'm sure you're already listening to TJ and Julie's podcasts and reading all the Pixar news on their site. There's no better site for your Pixar news fix. A number of their podcasts this year were interviews they did with Pixar artists during the Cars 3 and Coco press events. The one I linked to above was one of my Cars 3 favorites with directing animator Jude Brownbill, characters supervisor Michael Comet and production designer Jay Shuster discussing the challenges of creating and designing the characters of the film.


• Market Foolery interviews Steve May - This one also isn't new, but I love when one of my regular, "non-Pixar" podcasts talks Pixar. Market Foolery is a daily podcast from the Motley Fool that covers business and investment news. It's rare to have an interview (interviews are usually done in their weekly Motley Fool Money podcast) but this was a special episode recorded live at SXSW, where host Chris Hill interviewed Pixar CTO Steve May. They covered Steve's early career at Pixar (he started during production of A Bug's Life), plus talked about how technology has changed over the past 2 decades, and how virtual reality is playing a role in film-making, whether for marketing, as a development tool or as a storytelling mechanism. For a bonus episode, Motley Fool Money reran an interview Chris did with Disney Animation and Pixar president Ed Catmull shortly after his book, Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration, was published. I've raved about this book in previous posts, and I really enjoyed listening to Catmull discuss some of the reasons he wrote the book, plus other topics like his animation "origin" story and road to Pixar.



• Stories Unbound interviews Mike Sundy - Sundy, whose credits includes Toy Story 3 and Inside Out, is now a children's book author. His books include the Pancho Bandito series and Part of My Heart. In this episode, host Shawna J.C. Tenney and Mike compare indie/self publishing versus traditional publishing. If you've ever thought about becoming a self published writer, you definitely should listen to it. You should also check out Mike's blog, where he's written about some of the lessons he learned while at Pixar, plus his inspiration for Part of My Heart and the process he used for publishing the book.


•  The Bancroft Brothers interview the del Carmen brothers - I hope you're familiar with the Bancroft brothers. Tom and Tony are veterans of the animation industry, both having worked many years at Disney Animation. Tom did character animation on films such as The Lion King and Aladdin, and Tony was co-director of Mulan. Their podcast made my list last year when they interviewed Andrew Stanton. This year they're here with with one of the most fun and inspiring episodes I listened to, as they interviewed the del Carmen brothers live at the CTN Animation Expo. I'm sure you're familiar with long time Pixar story artist and director Ronnie del Carmen, the oldest brother. But his 2 brothers are also well-known story artists: Louie has worked at Dreamworks, Sony Pictures Animation and Disney Animation, while youngest brother Rick has worked on a number of television shows including Family Guy. Their interview goes into what it was like growing up in a small town in the Philippines and how they made the move to the United States.



• The Animated Journey interviews Pixar story artist Louise Smythe - This is an in-depth interview that actually spans 2 episodes. Host Angela Entzminger and Louise Smythe go all the way back to Louise's childhood, her college life and how she got to Pixar. They also get into a great discussion on their favorite movies when they were growing up. I really enjoy interviews like this; I wasn't familiar with Louise until I heard it, which caused me to go look for some of her art in The Art of The Good Dinosaur and her website, but I'd love to see more!


• Bullseye interview with Lee Unkrich - Of course there would have to be some Coco-related interviews this year, and one of the best was Jesse Thorn's interview with director Lee Unkrich. It starts with the quote from Jesse, “Congratulations on making another children’s movie about death” which leads into a discussion about love and death, the importance of family in Coco and how he got interested in Dia de los Muertos. I’ll admit I knew very little about Dia de los Muertos, but after listening to this interview and seeing the film, it has really opened up my eyes to the beauty and importance of the traditions of this holiday, and it’s made me want to incorporate some of them with my own family. On a side note, I’d like to give a shout out to the Pixar sound effects artists. It’s easy for me to get caught up in the beauty of all the visuals but it was a lot of fun listening to the clips Jesse played during the interview - you could really hear the details that go into the sound design. Some of the early Pixar DVDs had a sound effects track, with no dialogue or music, and I loved watching the film with only those sounds.


• Squared Co review of Coco - I just discovered Squared Co a few months ago. The podcast is hosted by Mark Morris and Jerrod Maruyama, one of my favorite artists - if you not familiar with his website you should definitely check it out. In this episode, they review Coco along with Dan the Pixar Fan and Gavin Otteson. Many of you are familiar with Dan's daily posts of his amazing collection of Pixar memorabilia. And Gavin is also an artist and has his own animation podcast. I haven't had time yet to listen to it but I have it queued up. Maybe it'll be on my list next year!


• Nickelodeon Animation interviews Pete Docter - This was also a new podcast for me, and I really enjoyed it. Hector Navarro interviewed Docter and they talked about Pete's early days at Pixar - getting hired and his first projects with the studio, which were television commercials.  They discussed the importance of constraints, how it impacted the development of their early films, and how the collaborative nature of Pixar can be traced back to the making of Toy Story. One of my favorite quotes from the interview is when Pete recommends not playing Pictionary against any of the Pixar story artists!



• Crew Call interviews Michael Giacchino - This last one barely made the cut as I only listened to it a couple weeks ago, but it's a great one! I love film soundtracks. Listening to a great score, like Lord of the Rings, Star Wars or just about any Pixar film, takes me back into the film and lets me relive all of those emotions again. Michael Giacchino has composed many of those soundtracks - you can often find me listening to one of his scores while I'm working. I'm even watching Lost primarily just to hear his score. In this interview with Anthony D'Alessandro, they spend a lot of time talking about his music writing process and how he came up with the score and main themes for Coco. Michael also talked about his excitement of getting to work with director Lee Unkrich. After listening to this interview, it really intensified my desire for a complete soundtrack release for Coco!

That's the list for this year! I'd love to know if you've found any great podcasts over the past year. Happy listening and have a great new year!

Pixar Topiaries at the Epcot 2017 Flower and Garden Festival

The annual Flower and Garden Festival is one of my favorite events at Epcot. Epcot is my favorite park at Disney World and is bright and colorful all year long, but come every spring it takes a giant leap up with the festival.

Start with the beautiful and elaborate topiaries, add over 70,000 flower beds and 220 floating pots, include the Garden Rocks concerts and the Outdoor Kitchens, and it's really giving the Food & Wine Festival a run for its money as the holder of my favorite event!

Pixar characters have been a part of the festival for many years. In the past, there's been Mike and Sulley topiaries from Monsters University, and there was the Inside Out Emotion Garden in 2015.

This year was no exception. As has been the case for the past few years, Woody from Toy Story could be found in the American Adventure pavilion in World Showcase.

His friend Buzz Lightyear was in his usual location right outside of the Mission: Space attraction in Future World.

In addition, Lightning McQueen from Cars returned to his same location on the walkway between the Mouse Gear store and Test Track.

In previous years, Tow Mater joined Lightning, but this year Mater was replaced with Cruz Ramirez from Cars 3!

The area where Lightning and Cruz were positioned was themed as the Road to the Florida 500, which highlighted plants and flowers that thrive in warm weather climates and is home for an outdoor playground. Epcot is always educating, and it was fun to read about how plants like the Spanish Bayonet, Silver Buttonwood and Sea Oats survive in hot weather.

Sadly, the Flower and Garden Festival ends today, Monday, May 29, but will return next year!

This Day in Pixar History: Pixar's 1999 Annual Report

I've written a number of posts on the earning reports Pixar released when they were a public company. I began with their first report as a public company, the 1996 annual report, and now am reviewing the 1999 annual report. But I thought it would be fun to look at their earnings as someone considering buying Pixar stock.

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

In addition to doing due diligence, an important investing rule (at least for me) is to be interested in the company. I know from my own experience, when I'm interested in the company I'll spend the time to research it, keep up with their press releases, read their quarterly and annual reports, etc. Fortunately, I was very interested in the company. I was an early investor in Pixar, with my first stock purchase in 1997. I wish I had kept a diary so I could better remember my thought process in why I bought the stock. Obviously I loved Toy Story and saw the potential in computer generated animation. Even prior to the release of Toy Story I was aware of the company. In the early 1990s I was working at the Minnesota Supercomputer Center, doing system administration and system programming for their Thinking Machine supercomputers. A number of folks on our team were involved with computer graphics and were aware of the work Pixar was doing in the field. Plus, during a conversation with Pixar's Bill Reeves, I learned Pixar had used one of our Cray supercomputers to render one of their early short films.

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.

Getting back to Pixar's 1999 annual report, what can we learn? A couple of questions investors usually ask about a company is, is the revenue or sales of the company growing, and is that sales growth sustainable? Sales growth is what propels a company's stock price higher. From those sales we hope it covers all the expenses of the company and ends up on the "bottom line", which is more commonly referred to as net income. Sales, expenses and net income can be found on the income statement. For Pixar, their revenue is pretty straight forward, primarily coming from making their films - theater ticket sales, home videos and merchandise. If you've read my article on the film production agreements Pixar had with Disney, you may recall that Pixar and Disney split all profits 50/50 as well as the expenses to develop the films. In 1999, Pixar's revenue was $121 million. Even though Toy Story 2 had just been released in November of 1999, Pixar made no money from it during 1999 - that money would be earned in 2000 and later. In 1999, over $110M of their revenue came from A Bug's Life, which was released in November of 1998. This amount included theatrical, home video and merchandise sales. They also made $4.1M from Toy Story merchandise, television royalties and home video sales. The rest of their sales came from $5.7M of RenderMan sales and less than $1M of animation services.

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!

Second, Pixar had a set a goal of delivering a new film every year. They weren't there yet - Toy Story came out at the end of 1995, and it was 3 years before A Bug's Life was released. But Toy Story 2 came out 1 year later, and Monsters, Inc. would be released 2 years later (with Finding Nemo about 18 months after that). One could see that Pixar received significant revenue from Toy Story for over 3 years. So even if their next films weren't as successful as Toy Story, I think it was clear their earnings "lumpiness" would smooth out as they approached delivering a film every year.

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.

This Day in Pixar History: Pixar's 1998 Annual Report

As I am fond of doing, let's step back about 17 years to early 1999, when Pixar released their 1998 annual report. 1998 was an exciting year for Pixar. Early in the year it won an Academy Award for its short film Geri's Game, and in November they had released their second feature length film, A Bug's Life. The film was an immediate success, opening at #1 in late November with over $33 million and going on to be the 4th highest grossing film of 1998 with over $363 million worldwide. But looking at the annual report you might not believe it - revenues declined almost 59% to $14.3 million from $34.7 million in 1997, and net income dropped over 64% from $22.2 million to $7.8 million. This was because Pixar hadn't received any revenue yet from A Bug's Life, and according to the Co-Production Agreement with Disney, Disney was allowed to recover all marketing and distribution costs before any remaining revenue was shared equally between the two. Pixar didn't expect to start receiving money from A Bug's Life until the second half of 1999.

Annual reports are full of lots of interesting details. Here are a just a few in Pixar's 1998 report:

•  As of January 2, 1999 Pixar had a total of 427 employees.
•  As of March 19, 1999, Steve Jobs owned 30,000,001 shares, or 65.8% of all outstanding shares of Pixar. John Lasseter, the Executive Vice President of Creative Development owned a little over 1 million shares (2.3% of shares outstanding) and Chief Technical Officer Ed Catmull almost 613,000 shares, or 1.3%.
• Pixar was busy working on its new Emeryville headquarters. The company had spent $21.2 million through 1998 on the new studio and expected to spend another $38 million in 1999 and $19 million in 2000.

The annual report also gave a nice summary of Pixar's filmmaking process, stating the process was very iterative and required continued re-working of each film. The report stated the process was divided in 4 stages: Creative Development, Pre-Production, Production and Post-Production. It also discussed their digital backlot, which they equated to a traditional movie studio backlot. For Pixar, it encompassed a database of their digital models that Pixar stated could be used multiple times in future films and other animated products. They also went into their core technology components, consisting of:

• Marionette - The in-house developed system used for modeling, animating and lighting. Also known as Menv, Marionette was replaced by Presto, which was first used on Brave.
• Ringmaster - A complex, distributed system used for scheduling and tracking their animation projects. A key piece of functionality in Ringmaster was its ability to coordinate and schedule the processors in Pixar's render farm.
• RenderMan - The company's award-winning rendering system. Not only does Pixar continue using RenderMan, Pixar licenses it to other studios and third parties, and it has become the de facto industry standard for rendering. RenderMan licensing generated revenues of approximately $3.8 million in 1998.

If you've never read an annual report, companies always include a section on the risks involved with their business. Pixar was no exception, and the report detailed how difficult it was to be successful in creating animated films:

It is rare for animated feature films to achieve extraordinary box office success. We believe, based on available information, that there is a reasonable basis to conclude that of the more than 40 animated feature films introduced since 1990, only two films generated domestic box office revenues greater than A Bug's Life and Toy Story, and both of those films were produced and distributed solely by Disney.

I actually found 3 Disney films that had been released in the 1990s and had done better than A Bug's Life and Toy Story - Aladdin ($217 million), Beauty and the Beast ($219 million) and The Lion King ($423 million).

While also demonstrating the risks involved, this next quote shows just how powerful the Disney and Pixar films were in regards to their competition:

During at least the last five years, we believe The Rugrats Movie is the only fully-animated feature film (other than Toy Story and A Bug's Life) produced or developed by a studio other than Disney that has achieved more than $100 million in domestic box office revenues.

The Prince of Egypt also was released in 1998 and went over the $100 million threshold, making a little over $101 million. The report pointed out though that the animated world was changing and competition was intensifying:

While the release of A Bug's Life was extremely successful, achieving domestic box office revenues over $160 million as of March 28, 1999, Antz, The Rugrats Movie and Prince of Egypt achieved domestic box office revenues of over $91 million, $100 million and $99 million, respectively. These three films were released during or near the 1998 holiday season and directly competed with A Bug's Life. Each of these films was more successful than any preceding animated feature film not released by Disney or Disney and Pixar.

Another section of risks covered availability of key personnel and the possible impact to the schedule of upcoming films:

In addition, John Lasseter, who, while directing A Bug's Life, was providing creative oversight for Toy Story 2 in his role as Executive Vice President, Creative, has now transitioned to the role of Director of Toy Story 2. Using the personnel of future films to meet the immediate deadlines of films nearing release, as we have for both A Bug's Life and Toy Story 2, may have the long term impact of pushing out the targeted release dates of future films, increasing film budgets, and adversely impacting our ability to generate creative concepts for subsequent films on a timely basis. [. . . ] Although we cannot provide any assurances that Toy Story 2 or Film Four will be released on schedule, the targeted release timing of mid 2001 for Film Four is particularly uncertain.

Film Four referred to Monsters, Inc., whose name had not yet been officially announced, and it in fact did end up getting delayed until November 2, 2001.

In all, Pixar spent 14 of their 71 page report discussing all sorts of risk factors in investing in the company. And this is for a company I consider fairly straight-forward to understand and analyze! I love a company with a simple-to-understand balance sheet that actually has a significant amount of cash, not one with millions of dollars of goodwill or intangibles. A company with a straight-forward cash flow statement where cash from operations exceeds net income. Granted, there were risks in investing in Pixar, but to me, the largest of those risks was easy to understand - Pixar revenue was driven by film releases, and since they weren't releasing films on a consistent basis it led to very lumpy earnings. I could look at the income statement and immediately understand why revenues in 1998 dropped 59% from 1997 - the majority of film, video and merchandise revenue from Toy Story has been collected, and revenues for A Bug's Life hadn't started flowing in. So while this "lumpy" behavior might scare off analysts and people looking for consistency, to me it made sense. With their sizable stockpile of cash, there was little risk of going bankrupt. It was just as unlikely that people would all of a sudden stop wanting to see family friendly films. To me, the only question was, would their future films continue to be successful? From what I had experienced, read and heard, that question was easy to answer. I had confidence Pixar would continue to generate excellent films, I just had to be patient. And in the periods between films, if the stock price began rising too much, like it did in the summer prior to the release of A Bug's Life, I could take some profit. Or, if the price dropped like Pixar would never create another film again, like it did immediately before the release of A Bug's Life, I could buy more shares. Pixar was not a company for investors looking for consistency but one for the patient investor. It was one of my most enjoyable investments, and actually still is as I continue to own the Disney stock I received when Pixar was bought out by them.

One of the best parts of being a Pixar investor in the early years was the cool merchandise the company sent with the annual report. As I mentioned in my post for the 1997 annual report, I received a VHS copy of the short Geri's Game. For 1998, I received 2 posters, one celebrating the release of A Bug's Life with Flik floating on a dandelion (shown at the top of this article), and the second teasing their next film, Toy Story 2 (shown below). These posters were large and beautiful, I think 16" x 40". Even after only 2 films, I had become accustom to the extras Pixar put in their works, such as the bloopers at the end of A Bug's Life. So as I analyzed the poster trying to figure out the roles of the new characters (remember, back in the late 90s, in-depth coverage and fan sites weren't as common as they are now!), I noticed tiny Flik waving from the grill of RC!

Toy Story Theatrical Release, Pixar's IPO and the Brilliance of Steve Jobs

In honor of the 20th anniversary of the theatrical release of Toy Story (which occurred exactly 20 years ago today), I want to do some historical looks at Pixar and its employees back around the time of Toy Story's release. This post is one I've wanted to write for quite a while.

I don't think there's any argument that Steve Jobs was a marketing genius. I think on his return to Apple in 1996, he had a well thought out strategy for the company and its products and services. To me it's clear he knew exactly where he wanted the company to be in the future and he laid it out perfectly.

But his genius went beyond marketing, which he demonstrated at Pixar. Perhaps his most brilliant and boldest move was taking the company public only a week after the release of their first feature film, Toy Story. To understand, companies usually don't try to access the public markets until they are on firm ground and have a history demonstrating that their business plan is working. Without this confidence, investors will not give the company a high valuation and likely shy away from investing.

Pixar's situation in late 1995 couldn't be farther from solid ground. This was a company that had already lost approximately $50 million. They were going to release their first ever film, never having made anything longer than commercials and some short films. In addition, they were using this new technology called computer generated animation. Everything screamed "Stay Away!"

But Jobs had reasons for his timing, much of which was explained in Ed Catmull's excellent book, Creativity, Inc. To take a step back, Jobs wanted to turn Pixar into a world-class studio. To do this would require a lot of money, more than the 10%-15% of profits they were receiving under the current Feature Film Agreement with Disney. He knew they would need a new agreement with Disney that evenly shared profits between the 2 partners. But he also knew that Disney wasn't going to just hand Pixar such generous terms - Jobs needed the financial footing necessary so that they could leave Disney and go it alone if the 2 companies couldn't come to agreement.

Jobs knew he had the best artists and computer animation engineers assembled at Pixar. He'd also seen how strong of a story John Lasseter and the creative team had constructed.  Then, in the spring of 1995, Jobs saw the power of Disney marketing with the release of Pocahontas. With that knowledge, all the pieces were in place to give him confidence that Toy Story would be a success.

He knew if Toy Story was as big of a success as he expected, Michael Eisner would immediately want to extend their agreement rather than risk Pixar going independent and becoming a formidable competitor. With the film's success he knew an IPO would also be a success, giving him the financial footing he could utilize in his negotiations with Eisner. In his mind, Jobs knew Eisner would have no choice but to agree to his terms.

The Pixar management team in 1995: Lawrence Levy, CFO; Ed Catmull, CTO; Steve Jobs, CEO;
John Lasseter, VP of Creative; Sarah McArthur, VP of Production

By the fall of 1995 the board was set and the game played out exactly as Jobs envisioned. Toy Story was the #1 film its opening weekend and for the year, going on to make almost $362 million worldwide and garnering a 100% score on Rotten Tomatoes. A week after its release, Pixar went public in a very successful IPO, raising almost $140 million for the company and valuing Pixar at close to $1.5 billion. Within weeks, Eisner called to renegotiate their agreement, which led to Disney and Pixar signing the Co-Production Agreement, a 10 year, 5 film agreement entitling Pixar to 50% of all theatrical and merchandise revenue.


I marvel at how Steve Jobs was able to so clearly see the future and predict how Michael Eisner would respond. This demonstrates a deep insight not only in business logic but also human behavior, something I don't think Jobs gets enough credit for. Because of his vision, he was able to put Pixar on the path of stability and accomplish his goal of creating a world-class animation studio.

Toy Story: The Art and Making of the Animated Film

Living in Minnesota, our family has a tendency to want to get away to someplace warm. That usually consists of going to either Disney World or Sanibel Island. My wife and I made our first trip to Sanibel about 20 years ago and since then we've returned a number of times. I can remember on our first trip bringing the book Disney's Art of Animation by Bob Thomas. I was mesmerized by this book and loved learning about the process of making animated films. I especially enjoyed the second part of the book that focused on Beauty and the Beast. It's how I began learning about the current generation of Disney artists like Chris Sanders, Kirk Wise, Gary Trousdale, Glen Keane, Brenda Chapman, James Baxter, and Lisa Keene. That first trip started a tradition of bringing an Art of book whenever we go to Sanibel. I find it very relaxing to sit on the patio or lanai, listening to the waves and reading some sort of Art of or Making of animation book.

We just returned from Sanibel where we were celebrating my wife's birthday. On this trip I brought Toy Story: The Art and Making of the Animated Film by John Lasseter and Steve Daly. It felt right to bring this book as this month is the 20th anniversary of the release of Toy Story.

Toy Story: The Art and Making of the Animated Film is a gorgeous book and is so fun to look at, starting with the lenticular cover. If you're familiar with other Pixar Art of books, this one is somewhat different. True, it is full of pre-production artwork. There is plenty of beautiful color script and lighting art from artists like Ralph Eggleston and Tia Kratter, plus character concept and story art by Bud Luckey, Jeff Pidgeon, Andrew Stanton and Joe Ranft. But the book also has gorgeous fully rendered images from the film to complement the artwork. It's cool to see the storyboards side-by-side with their rendered versions.

Also, where there is usually limited text in the Art of books, this one provides great, in-depth discussions of Pixar's film-making process. There are detailed descriptions of character development and the voice actors, with extra time spent on the main characters including Woody, Buzz, Sid, Rex, Slinky, Mr. Potato Head, Hamm and Bo Peep. In addition, there are separate sections for story, modeling, layout, sets, animation, lighting, rendering, music and sound effects. I also enjoyed that the book talks about some of the tools used, such as the animation software. There are also a number of great stories, such as Black Friday, the story session that led to the green aliens and "the claw", and the evolution of the Pizza Planet restaurant.

All in all, this is a great book and addition to the rest of the Art of collection. I highly recommend picking up a copy!

Pixar News Articles for May 17, 2015

I know I've said it before, but this is such an exciting year for Pixar fans! Yes, the excitement always builds as we approach a new theatrical release. But this year we have not one but two releases, and both are looking to be amazing. Plus, not only are we looking to the future with these new films, but we can look back to the studio's first feature length film, as this year marks the 20th anniversary of Toy Story. Here are a couple news stories surrounding Toy Story. The first is a story that KTLA aired, going into how dependent Pixar was on the success of their first film. I love hearing from some of the long-time employees like Bill Reeves and Tom Porter, and hopefully with more attention being paid to Toy Story we'll be seeing and hearing from more of these artists who really created the computer animation industry.

Twitter user e_pixar retweeted a Variety article which recapped a recent speech John Lasseter gave at the Academy of Motion Picture Arts and Sciences. He began by talking about technology and the part technology plays in film grammar. Then he went on to talk about the importance of learning the fundamentals and continuous learning, the importance of showing your work often, and surrounding yourself with people you trust, who will give you honest and candid feedback. I love these themes of learning and trusted mentors, and how they permeate the Pixar culture. I mentioned this in a post earlier this year where I highlighted some of my favorite Pixar interviews from 2014, and how often these topics came up in those interviews. I strongly recommend listening to the speech; if you want to hear it, head over to the Pixar Post and grab episode 38 of their podcast where they have a recording of it.

As I started writing this article, I noticed I had started another article a few weeks ago that I never finished. That post contained links regarding Brent Schlender and Rick Tetzeli's new book Becoming Steve Jobs: The Evolution of a Reckless Upstart Into a Visionary Leader. The first link was to a great BusinessWeek cover story written back on November 23, 1998, just days before A Bug's Life was released. Titled Steve Jobs, Movie Mogul, the in-depth article covered the beginnings of Pixar back at the New York Institute of Technology, through Job's purchase of the company from Lucasfilm, their film agreements with Disney and even hinted at a future where Disney might buy out Pixar. One quote I enjoyed was from Ed Catmull, who stated "We're not jumping on the bandwagon, we're making it." In addition to the cover story, the BusinessWeek site has links to other related information such as how the company brings a character like Flik to life and some estimates of how much profit Pixar could make from A Bug's Life. I will have to dig deeper into that last one and see how it compares to reality.

Another article related to Becoming Steve Jobs came from Business Insider and talks about how Jobs split his time between Pixar and Apple, and how he was more hands off, and therefore more relaxed, when he was at Pixar. The article states that Apple employees would try to meet with Jobs on Fridays when he was at Pixar as he was less likely to get upset.

A fun factoid, I found these last 2 articles through tweets from long-time Pixar employee AJ Riebli. If you read the BusinessWeek story, you'll recognize that it was Riebli who won the 1998 Halloween contest mentioned in the first paragraph of the article!

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 (Thousands)	Film Gross Profit (Thousands)	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!

Pixar News Articles for January 13, 2015

I'm thinking of starting a new series of posts to highlight cool and interesting Pixar-related news articles, interviews and other events. There's so much going on with Pixar, I'm hoping these posts will capture a good portion of the interviews and technology events that are occurring. If this works out I hope to have a post every week or two.

To start with, Fortune has had a couple of excellent posts recently. As part of their recent cover story on The Walt Disney Company, they interviewed Disney and Pixar president Ed Catmull, which covered Pixar's spin-out from Lucasfilm, their merger with Disney and the use of technology in animated films. They also did an in-depth piece on Disney CEO Bob Iger and his role as CTO, which not only covered Pixar but Marvel, Star Wars and technological changes in their theme parks.

Pixarian Colin Levy tweeted a link to an article on short films that launched the careers of famous directors. The article included John Lasseter for the short film Luxo, Jr., which was released in 1986, the year Pixar spun out of Lucasfilm and became a standalone company. The article itself linked to an interview Entertainment Weekly did with Lasseter which went into more detail of the making of Luxo, Jr. and other early short films like Red's Dream and The Adventures of André and Wally B.


Did you see the pre-production artwork for the Toy Story 3 film that never got made? Former Disney artist Jim Martin has released a number of pieces of concept art from when he was at Circle 7 working on the sequel. This was back before Disney bought Pixar and there was a lot of animosity between the 2 CEOs. Fortunately Bob Iger became CEO, purchased Pixar, and put Lasseter and Catmull in charge of animation of both companies. The new leaders immediately put a halt to the sequel and closed down the division.

There have been a couple of recent videos demonstrating the story process at Pixar. First, CGMeetUp posted a video of Monsters University Head of Story Kelsey Mann showing how to pitch a movie scene. The post contains a number of links to other behind-the-scenes clips from Monsters University.

Second, Story Supervisor Matthew Luhn posted an old video of Andrew Stanton and the late Joe Ranft demonstrating the pitch process, with Ranft pitching an entire scene from Toy Story. Note how Joe is pitching the "old fashion" way, standing up at a board with story cards pinned to it, while Mann does his pitch digitally using a computer.

Although Luhn has only been on Twitter for a short time, he has quickly become one of my favorite people to follow. Many of his tweets contain great behind-the-scenes videos and helpful tips. I highly recommend following him!

There are a couple of cool auctions going on at the moment. The first, which I wrote about this weekend, is the Art to Heart fundraiser to raise money for helping those impacted in the Philippines by Typhoon Haiyan. Many of the original art pieces were created by past and current Pixarians such as Ronnie del Carmen, Ricky Nierva, Matt Jones, Dice Tsutsumi, Robert Kondo, Chris Sasaki, John Hoffman and others. This is beautiful artwork and it's going for a great cause.

The second isn't Pixar related but is still wonderful. Cartoon Brew recently posted about an auction that the stop-motion studio Laika is holding on February 12. It doesn't sound like this is an online auction but will include puppets and props from all 3 of their films - Coraline, ParaNorman and The Boxtrolls. A portion of the proceeds will go to The Art of Elysium organization.

And for something fun to end on, David Lally tweeted some simulation bloopers from the making of Brave!

If you come across any Pixar-related interviews or news articles, please send them my way and I'll include them in a future post.

This Day in Pixar History: Pixar Earnings Report, 3rd Quarter 1998

Welcome back to another look at Pixar's earnings reports from when the studio was a standalone company. Today I am looking back at their 3rd quarter 1998 results.

©Disney/Pixar

As had been the case for a few quarters, revenues for Pixar had been dropping as Toy Story revenue was drying up, and their next film, A Bug's Life, wouldn't be released until later in 1998. Total revenues for the quarter were $2.5 million, down over 50% from $5.3 million in the 3rd quarter of 1997. This was due to a 63% drop in film revenue, from over $3.5 million to $1.3 million, but that's not the full story. As part of the Feature Film Agreement between Disney and Pixar, once Disney recovered all their marketing and production costs, Pixar was eligible to receive a higher percentage of the revenue. Disney ended up recovering all their costs earlier than expected, so in the 3rd quarter of 1997, Disney paid Pixar an additional $1.8 million to catch up for the higher percentage. Removing this one-time item, film revenue only dropped $400,000. There was also no animation service or patent licensing revenue in 1998, compared to almost $1 million in 1997. There was an uptick in software revenue, growing from $900,000 to $1.2 million, which I think can be mostly attributed to their purchase of PEI which had occurred in June of 1998.

Not surprisingly, gross profits for the quarter also dropped to $2.2 million from $4.7 million in the 3rd quarter of 1997. There was a large increase in software cost of revenues due to the PEI acquisition. As discussed in the quarterly report, Pixar was amortizing a large portion ($2.7 million) of the purchase price for PEI over the next 3 years. Basically, Pixar would match amortized expenses against any related revenue so there would be no gross profit until the $2.7 million had been accounted for.

Even though software cost of revenues increased dramatically, gross margins stayed the same at 88% year-over-year. This was due to the high cost of animation services that was recorded in 1997 - $534,000 in costs against $896,000 in revenue for a gross margin of only 40%. While 40% gross margins would be good in many businesses, that was less than half of what Pixar was generating with their film and software businesses, and I'm sure had a large influence on the company deciding to exit that business segment.

©Disney/Pixar

Expenses for the quarter were $3 million, up from only $658,000 in 1997. But I should point out that 1997 had an extraordinary event which I discussed in my post of that quarterly report: due to Disney and Pixar signing the new Co-Production Agreement in early 1997, Disney was responsible for paying half of all the costs Pixar incurred in developing films. At the time of signing the agreement, both A Bug's Life and Toy Story 2 had been in production since 1996, so Disney was responsible for paying half of those expenses, resulting in a $2.2 million reimbursement.

In the end, net income for the quarter was $867,000 (net profit margin of 35%)  or $0.02/share versus $3.6 million (68%) or $0.08/share in 1997, but given the 2 extraordinary revenue and expense reimbursements that occurred in 1997, it's not an apples-to-apples comparison.

Pixar also continued to burn through cash, although fortunately they still had a large amount of cash from their IPO. Cash and short-term investments were $153.2 million at the end of the 3rd quarter of 1998, down from $176.0 million at the beginning of the year. Much of the cash burn was due to development and production costs for A Bug's Life, Toy Story 2 and Film Four (the title for Monsters, Inc. before it was green-lit), which totaled almost $24 million for the first 3 quarters of 1998. Another $8.8 million had been spent for new computers and other equipment.

Pixar's stock had a wild ride during the quarter. Whereas the first half of the year was good for shareholders, with the stock tripling from around $20 to the mid-$60s by July, the stock dropped over 50% to below $28 by the end of August. It recovered somewhat and ended the quarter around $40. While I was a long-term buy-and-hold Pixar investor (making my first purchase in early 1997 and holding on through the merger with Disney), the stock's volatility made it possible to do some "stock trading". Pixar's stock seemed to often follow the "buy on rumor, sell on fact" axiom. In early July, 1998, with the price over $60, there was a lot of optimism about the company with A Bug's Life soon to be released and Toy Story 2 being upgraded to a full theatrical sequel. But it seemed premature for the stock price to be increasing so rapidly since it would be close to a year before any income from A Bug's Life would be recognized. I sold about half my holdings in early July, and would buy back all that and more in the spring of 1999 at a 30% discount.

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.

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.

Creativity Inc and Software Dev: Story is King

In this post of my continuing series on how the principles Pixar uses to develop films can be applied to building software, I am focusing on two quotes (hey, a 2-for-1!):

For all the care you put into artistry, visual polish frequently doesn't matter if you are getting the story right.

The first principle was "Story is King."

(Excerpt From: Ed Catmull with Amy Wallace. Creativity, Inc., Chapter 2, P. 61, Chapter 4, P. 98.)

We've all heard John Lasseter and other Pixarians state "Story is King." A story at Pixar doesn't get green-lit until the plot is solid, containing the right amount of humor and emotion. Yes, the marketability of the film matters, but it is secondary to getting the story right. How many strands of Sulley's fur that were rendered or how realistic the lighting and reflections are in a scene won't matter if the story doesn't leave an impact.

After Toy Story was released, I was surprised when pundits and other movie studios started to proclaim that traditional 2D animated films were dead and that the future was CGI. So, because Toy Story was a hit and was computer generated, then to make an animated hit it was necessary to do it with CGI???? Wasn't it obvious that Toy Story and Pixar's other films have been successful because of the story?

In the same way, software can (and should) also tell a "story". The story for software is solving the needs of the users. As developers we need to work on that story, simplify it and build our software so the story makes sense for our users. How many websites or other apps have you used where it's obvious usability was not a critical element? I wonder how many developers and business owners use the applications they build?

I often think it's easy for developers, including myself, to get caught up in the latest technologies and wanting to use it in our projects. But we need to keep our focus on the story. Do these new technologies improve the usability or stability? Returning to the first quote above and flipping it, we can build the most stunning looking website with the latest toolkits, but if users find it hard to navigate our system, or if it's unreliable or slow, it won't matter.

We also need to consider the impact on maintenance and reliability of the technologies we are using. As a consultant, I'm usually only with my client for a short period of time. If I bring in technologies that the rest of the staff isn't familiar with, what will happen to the maintainability of the system after I'm gone? As a specific case, I'm building a system for my current client with Grails 2.3. The client has a number of applications at 2.1.5 but has just started using 2.3. I began with 2.3.5 but ran into some issues. We've been unsure of the exact cause of the issues (mostly dealing with continuous integration and deploying to Tomcat) so I upgraded to 2.3.7. Things have settled down but we're still struggling with a couple of issues. We've had a number of discussions, and given the client's expertise with Grails they are comfortable staying with 2.3.7, but it's important to keep the suitability of our tools and frameworks for a production environment in mind when determining which tools to utilize.