Disney and Pixar: Strategic Alliances, Value Creation, and Erosion

This case study examines the strategic alliance between Disney and Pixar, focusing on the value created through their collaboration in the animation film industry. The analysis explores the benefits of their partnership, including Disney leveraging Pixar's animation technology and Pixar benefiting from Disney's brand value and market reach. It delves into the reasons behind the potential end of their partnership, highlighting the impact of differing opinions between key executives and the erosion of value for both companies. The study also discusses the implications of Pixar's potential collaborations with other studios, the importance of vertical integration, and the feasibility of renegotiating contracts. The assignment concludes by suggesting Disney should consider acquiring Pixar to maintain its high-quality film production and achieve economies of scale, emphasizing the significance of contractual relationships and equity share ratios for mutual profit. The study uses the VRIO framework to evaluate the competitive market condition and analyzes the negotiation between the two companies. References include Alcacer, Collis and Furey (2009) and Rothaermel (2015).

Running head: DISNEY AND PIXAR
Disney and Pixar
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Answer 1:
According to Alcacer, Collis and Furey (2009) collaboration between Pixar and Walt
Disney to make films created a lot of value for both companies. The case study points out that
Walt Disney collaborated to bring about strategic innovations in their films which helped Disney
attract more number of audiences which accounted for the success of their films. Pixar was the
pioneer of using three dimensional (3D) computer generated models to present characters of
films. The case study reveals that Pixar used its own patented animation system which helped it
to add authentic and high quality attributes to the films. Disney is one of the leading film
production houses in the United States of America which made animation films (pixar.com
2018). Thus, considering the business model of Disney and the 3D animation prowess of Disney,
one can infer that if the two production houses collaborate, it would create value for both.
Disney would be able to take advantage of the animation technology of Pixar and Pixar in return
would benefit from the international brand value and market of Disney. Thus, if Disney and
Pixar collaborate both would profit (waltdisneystudios.com 2018).
The case study presents a situation where Disney and Pixar end their partnership due to
differences between Jobs, the CEO of Pixar and Eisner, the CEO of Disney. One can point that
the product which Disney and Pixar made are animated films which is intangible product. Thus,
on if Disney does not work with Pixar, it would lose value. Again, from the competitive market
condition, the films (product) which production houses and studios make should quality the
VRIO framework criteria in order to earn revenue. However, if terminating the partnership,
Disney would lose out on the rare and hard to imitate animations of Pixar and Pixar would lose
out on the valuable goodwill of Disney. Hence, ending of collaboration with Pixar caused value

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erosion for Disney as it lost out the high quality animation of the former, which was one of the
unique selling propositions of the films the studio produced (Packard et al. 2016).
Pixar working with other studios was a great value erosion for Disney. Disney dominated
the animated film markets internationally owing to the high quality animation of Pixar. If Pixar
collaborates with other film producing firms, those firms would be able to take advantage of its
animation prowess, thus making films similar to Disney. Thus, collaboration of Pixar with other
firms would result in increase in competition for Disney in the international market (Gouyon
2016). The two companies can vertically integrate their chains of production by aligning their
resources and operations to become more effective in the market. This would allow the firms to
generate more revenue in the first growing international film market and increase relative market
share of both the firms. Thus, once again it can be reiterated that Pixar collaborating with other
companies is a big erosion of value.
Answer 2:
As per Alcacer, Collis and Furey (2009) from the year 2002, a deal was pending between
Disney and Pixar where the latter would get all the production cost of the film in return for total
ownership. Disney should reconsider the negotiation with Pixar instead of terminating it. This
would have several benefits. First, in comparison of procuring animation services from other
animation firms, procuring animation from Pixar would be more economic. Second, this would
allow the firm to cut its cost of film production. This would encourage innovation in films using
advanced technology. This would generate high profits for both the companies.
At this point the question arose about the feasibility of Disney to renegotiate the contract.
The answer was in negative because as per the agreement Disney got the power to produce the

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sequels of Pixar movies without their involvement in the release of those films. But Jobs, on the
other hand wanted the rights of two films which were not yet released, thus capturing the power
that they had to produce sequels for the two films of the Incredible and the Cars. Moreover
Disney got the final offer from Pixar that they could distribute each of the films for five years
only as the rights would be regained by Pixar after that. Pixar also wanted Disney to surrender
their co- ownership from the previous films. As per Rothaermel (2015) merging of Pixar with
Disney if not feasible can lead to break away of one company from the other and they could
search for other options in the animation industry. This will lead to change in the pricing strategy
and as a result of that the corporate strategy will be changed.
Even though Disney was ready to renegotiate the contract for the release of 2007 film
Ratatouille, but Pixar was reluctant to share finance and ownership rights with Disney apart from
giving them only a straight distribution fee. Therefore it can be said that to renegotiate the
contract would not be much feasible for Disney when they are considered as the guardian of
animate films. Renegotiating would give the power to Pixar to gain control over them. Disney
should use the strategy of acquiring Pixar. This would enable the company to use the resources
of Pixar and maintain the high quality of its films. Their relationship should be contractual and
based on equity share ratio. The two firms would be able to achieve economies of scale and earn
high profits.

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References
Alcacer, J., Collis, D.J. and Furey, M., 2009. The Walt Disney Company and Pixar Inc.: To
Acquire or Not to Acquire?. Harvard Business School Case, pp.709-462.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.