To Pixar and Beyond

by Lawrence Levy

  This was a lot to take in. It certainly explained why my arrival hadn’t been accompanied by much fanfare.

  Pam’s admonition was, if anything, understated. In my first days at Pixar I encountered animosity directed toward Steve throughout the company, especially from those who had been there since the early days. One person said to me point-blank, “Keep that man away from us.” Those words really stuck in my head. How had Steve become “that man”?

  This was an unwelcome surprise, to say the least. I began to fear that my concerns about Steve were coming true. I had accepted the job at Pixar with a considerable amount of skepticism. Although Steve and I were getting along great so far, his mercurial reputation had made most people I knew caution me against working with him. Even more problematic was the company itself. Pixar had been in business for ten years and had made almost no impact, and even worse, not even Steve could clearly articulate what he wanted the company to be—only that he didn’t want to keep underwriting the millions of dollars it lost each year.

  These were the risks I had known. Now it seemed I had the extra burden of being “Steve’s guy,” suspected of possessing some sort of hidden agenda. That wasn’t true. I didn’t have any preconceived biases at all. But that didn’t matter. I was going to be more alone than I expected. Pixar began to feel to me like it was even further away from Silicon Valley than I’d thought, more like an alien planet. While the locals were cordial, they weren’t going to treat me like I was one of them. At best I’d simply be left alone, at worst eyed with suspicion.

  After the initial shock wore off a bit, my instinct was to figure out how to try to use this to my advantage. I determined that the best way to avert the gaze of skepticism was to do nothing that validated it. If people were going to leave me alone, I’d have a window of opportunity during which no one would expect much of me. That gave me a chance to quietly explore Planet Pixar.

  I called Steve and told him I did not want to make any quick decisions, that my plan was to take a month or two to understand the company. Steve, however, didn’t want me to waste time. He was still covering Pixar’s monthly cash shortfall and he could not put an end to that soon enough.

  “I’m focused on fixing that as soon as I can,” I told him, “but I need some time to figure it out.” Somewhat impatiently, Steve went along with my plan.

  I asked each member of Pixar’s senior team if I could follow them around for a while, literally shadow them, sit in meetings without participating, and ask them questions about what they did. I also asked for their permission to talk to the various individuals on their teams. Managers generally don’t like other managers snooping around their domains; my newness absolved me from that, at least temporarily. They all went along.

  I started simply by wandering around, with no agenda. I would stop randomly and talk to people, asking what they did: software engineers, production accountants, technical directors, storyboard artists, anyone who worked at Pixar.

  It did not take long for me to observe the enormous complexity involved in computer animation. I would sit by the animators and watch the painstaking way they brought to life the inert, wireframe computer models of each character in Toy Story. It took an almost mind-numbing attention to detail for the animators to move each part of a character frame by frame, twenty-four frames per second. Imagine how many movements our own bodies have to make to walk, eat, talk, or play even for one second—each body part moving through time and space in unison. Animators have to breathe life into their characters in just this way. I watched their artistry with amazement. By adding a simple flourish to the movement of the eyes or the mouth, they could change the emotional tone of a scene entirely.

  I also sat in lots of meetings. Production meetings. Sales meetings. Technical meetings. I was the proverbial fly on the wall, except that I carried around a yellow legal pad on which I wrote down questions about the things I didn’t understand, which was a lot. The world of computer animation has its own jargon. I needed to learn it, along with Pixar’s other endeavors.

  Eventually my efforts became more systematic. Pixar had four primary areas of focus: RenderMan software, animated commercials, animated short films, and a feature film, still code-named Toy Story. Pixar also owned some patents, and it had tried but failed to launch an imaging computer, an effort it had abandoned a few years earlier, in 1991. If there was to be a commercially viable strategy for Pixar, it was going to exist in one or more of these areas. I needed to understand each one. I started with RenderMan, a software package Pixar had been selling for a number of years, and an enormous source of pride within Pixar.

  RenderMan was a software program for generating computer images that were photorealistic. It had solved one of the peskiest problems at the heart of high-quality computer animation, namely, the ability to depict color, light, and shadow in the same quality and detail as photographic or filmed images. RenderMan had earned a fantastic reputation within the industry, having been used to draw some of the most famous visual effects in modern film, including the dinosaurs in Jurassic Park, the cyborg in Terminator 2, and the special effects in Forrest Gump and many other films.

  In 1993, RenderMan had won its development team an Academy Award for Scientific and Engineering Achievement. This was one of Pixar’s proudest achievements, and the Oscar was displayed in Pixar’s lobby for all visitors to see. Ed Catmull, Loren Carpenter, Tom Porter, Tony Apodaca, and Darwyn Peachey, all members of that development team, were still at Pixar. These were luminaries in the computer graphics world, respected not just at Pixar but throughout the field.

  RenderMan had another distinction: it actually made some money. Pam Kerwin, who had earlier given me those first warnings about Steve, ran the RenderMan division.

  “It’s not a product for consumers,” Pam explained. “It’s for special effects houses, advertising agencies, production studios, and film studios, places where professionals are using computer animation to create high-end special effects.”

  “About how many customers are there?” I asked.

  “I’d say there are maybe fifty or so significant studios doing regular work at that level,” she said.

  Fifty! I was shocked by her answer. Just fifty significant customers—that made it a very small market.

  “When studios are making films with special effects, they need lots of RenderMan,” Pam explained. “Otherwise, they don’t need it at all. Some years sales are up; some down. The software is really for big-budget films and a few commercials that really want to make a statement. Otherwise they don’t use us, because of the expense.”

  “What’s the average sales price?” I asked.

  “About three thousand dollars,” she responded.

  I did some quick calculations. In a very good year, Pixar could sell a thousand copies of RenderMan. At $3,000 per copy, that was $3 million. To a company whose weekly payroll was being paid out of its owner’s pocket, that was a lot of money. But to a company with aspirations for growth and a public offering, it was insignificant. To make a difference, RenderMan’s business would not just need to grow. It would need to scale by a factor of ten.

  And that, simply put, was impossible. There were not enough customers. It’s not that Pixar hadn’t tried to expand this market; under Pam’s leadership it most certainly had. It’s just that the demand wasn’t there. At best, RenderMan looked like it would roll along at about the same rate, up a bit some years, down a bit in others. I’d seen this before. At my last company, we had launched groundbreaking, award-winning image-processing software, only to find its market much smaller than we thought. It had been my role to convince Efi, the CEO, that we had to shut it down, something it now looked like I might have to repeat at Pixar. RenderMan might be an Academy Award–winning industry leader, but from a strategic point of view, it wasn’t a business; it was a sideshow.

  This, of course, was not the conclusion I was looking for. I had been hired to stem the tide of red ink, and the first thing I’m thinking is mayb
e we should abandon the one product that was making any money. I wasn’t in a rush to tell Steve the news.

  Steve and I had gotten into a habit of regularly talking on the phone, usually every day, often several times a day; no hour was off limits. I had a dedicated line for business calls in my house, in the kitchen by the fax machine. Rarely did a night go by when it didn’t ring. Although Steve had an almost permanent intensity about him—like he was always in top gear—there was an ease and fluidity to our talks. We could easily pick up a conversation where we had left off. If one of us was busy or tied up with family, we’d just call back a bit later. Whenever we did talk, it was like shifting from zero to a hundred miles per hour in an instant.

  On the weekends, Steve would often saunter over to my house, about a five-minute walk from his. “Hey, Lawrence,” he’d say. “Have time for a walk?” Then we’d meander through the streets of Palo Alto. For a person who had the means to go anywhere, Steve seemed most content in his own neighborhood. We would stop every now and again to admire one of the grand old oak trees or the features of an old house, or Steve might question the style of a new one. Sometimes we made it as far as University Avenue and had a slice of Margherita pizza.

  The talks on these walks were more unhurried and relaxed, and not all business. We chatted about our families, politics, movies, and favorite TV shows. We could move easily from idle musing to Pixar’s vision and strategy.

  It was on one of these walks that I brought up RenderMan.

  “So what you’re saying,” Steve said, “is that we’re hooked on the small amount of money RenderMan brings in, but it’s not helping us grow.”

  “That’s exactly what I’m saying,” I replied.

  Steve wanted to know more.

  “If RenderMan is the industry leader,” he asked, “and if studios need it so badly every time they make a film, why don’t we raise the price? Instead of three thousand dollars per copy, we’ll make it six thousand, or ten thousand. If they need it, they’ll pay.”

  That might be true if the studios needed RenderMan, but the problem was that, at least for most projects, they didn’t.

  “RenderMan might be the best software of its kind,” I replied, “but there are other options. They are radically inferior, but they are still options. Production budgets for computer-animated special effects are extremely tight. Unless it’s Steven Spielberg making dinosaurs for Jurassic Park, or James Cameron making cyborgs for Terminator, producers will simply live with lower quality.”

  Steve leaped ahead.

  “Are you suggesting we stop selling RenderMan?” he asked.

  “Maybe,” I said tentatively.

  It was a big decision, and an idea I didn’t want to push too hard right now. “My fear is that it’s a distraction. We use some of our best engineers to support customers. Maybe there are better things they can be doing.”

  The idea was to keep RenderMan for Pixar’s use and to drop the considerable effort Pixar put into selling RenderMan and supporting its customers.

  “Whatever we do with RenderMan, it’s not going to be relevant in any sort of growth strategy or public offering.”

  Steve took it all in. He showed no signs of disappointment. This is a discussion we’d continue down the road. For now, it had gone well.

  During my weeks of exploration of Pixar, I frequently met with Ed. Because his office was next to mine, it was easy to talk informally, which we did often. From Ed I learned a lot about Pixar’s history, culture, and technology. In fact, through these talks and discussions with others at Pixar, I was beginning to discover that Pixar was, in actuality, a very warm and pleasant place. Ed, Pam, and the other executives had set an open and familial tone, and despite the initial leeriness over a new CFO, it was becoming much easier to talk to people.

  In one conversation with Ed, he described the patents Pixar owned that covered some of the basic features in RenderMan. RenderMan’s central breakthrough was a feature called motion blur. This gave computer-generated images the same feeling as live-action film. Without this feature, computer-generated images would look too crisp and perfect when compared to what we normally see in film. Solving this problem made it possible to blend computer graphics with live-action film, thus ushering in a new era of computer-generated special effects.

  Anyone developing rendering technology would need to implement this feature, and it was hard to do so without violating Pixar’s patent. Two companies in particular had been infringing our technology: Microsoft and Silicon Graphics, which was the leading supplier of workstations for the computer graphics industry.

  Here at last, I thought, was an opportunity to make Pixar some money. If Pixar’s patent was really fundamental, these companies might well pay significantly to license it. That would take the funding burden off Steve, at least for a while, although it wouldn’t be easy to pull off. We could not just call up Microsoft and say, “Hey, you’re infringing our patents; you owe us millions of dollars.” To begin that conversation, we had to be prepared to sue them, which meant we needed lawyers ready to make our accusation of patent infringement have teeth. It was like preparing for battle. If they didn’t see us amassing troops on the border, they’d ignore us.

  Ed and I talked over the risks of asserting patent infringement claims against Microsoft and Silicon Graphics. “We might drag Pixar and especially our engineers into a long lawsuit,” I said. “That could be a huge distraction.”

  This prospect did not discourage Ed. “They are infringing,” he said emphatically. “We invented this technology, and I see no reason why others should use it for free, especially while Pixar is struggling financially. If the lawyers think we have a good case, I’m behind it.”

  The next step was to discuss it with Steve.

  “You’re saying that Microsoft and Silicon Graphics are infringing Pixar’s patents,” he said, “and we have a solid case to demand license fees from them?”

  “Yes,” I replied. “And neither of these companies can really hurt Pixar. We do use Silicon Graphics computers, but there are alternatives. And I doubt they’ll sacrifice sales over this. The downside is the cost of preparing our lawyers and the time it will take to engage Microsoft and Silicon Graphics in a legal battle when we need our focus elsewhere.”

  Microsoft was an old nemesis of Steve, harking back to Apple days when they were fighting over dominance in the PC industry. The prospect of asserting infringement of Pixar’s patents against Microsoft seemed to fire Steve up.

  “We should go for it,” he said. “Pixar worked years to develop this technology. Why should they use it for free? We should shut down their infringing products.”

  “We’d be better off charging license fees than trying to shut them down,” I suggested. “Those products are not really threatening Pixar’s business.”

  “How much can we get from licensing?” Steve wondered. “These are huge companies and our patents are central to their graphics businesses. It’s worth fifty million at least.”

  “I don’t disagree,” I said.

  It was true; we might have been able to earn license fees of that magnitude. But my years as a lawyer told me that Microsoft and Silicon Graphics wouldn’t pay those kinds of numbers without a big court battle. That could take years and cost millions.

  “We’re better off making it easier for them to make a deal than to go to war for every penny that we think we’re entitled to,” I told Steve. “The biggest benefit to Pixar is to make this quick and to gain a cash infusion now, when we need it the most.”

  Steve didn’t like the idea of going for less than he thought we were entitled to earn. He felt this would be too much of a bargain for Microsoft and Silicon Graphics. Five million, or even $10 million, was nothing to them if they needed these patents.

  Steve wasn’t wrong; I just didn’t think going for too much was pragmatic. I was nervous about locking Pixar up in a protracted legal battle, even if we liked our chances of winning it. Patent licensing was not a business s
trategy for Pixar. It was a financing strategy, something we would do once or twice to bring in cash, but no more. It would buy Pixar time, not guarantee long-term success.

  Steve could easily have told me to ask Microsoft and Silicon Graphics for $25 million each, the amount he wanted. He didn’t. He wanted us to keep talking until we agreed. We ended up deciding to ask for an amount somewhere between what I thought and what Steve wanted.

  The strategy ended up working. It took three months to conclude the Microsoft license and about a year to conclude the Silicon Graphics license. Microsoft paid $6.5 million and Silicon Graphics a bit more, plus it gave credits for Pixar to acquire the Silicon Graphics computers it needed to make films. Pixar got just the shot of cash it needed, and Steve was happy. It meant that, for the first time, he would not have to pay Pixar’s cash shortfalls out of his own pocket for a while. It wouldn’t last forever, but it gave us room to figure out our long-term strategy.

  This was the first example of a pattern I would experience often with Steve. He would debate with intensity over any issue we were discussing, big or small. Sometimes we agreed; sometimes we didn’t. When we didn’t, I would find myself having to stand resilient, steadily holding to my position, yielding not to his intensity but to the merits of the matter. Time and again, I saw how Steve preferred that we come to a mutual resolution, marching forward together, rather than acting on an outcome that he imposed. Years later Steve told me he felt the business and strategic choices we made at Pixar were neither his nor mine but the product of just this process.

  Next I turned to Pixar’s animated commercials group, a team of half a dozen or so who occupied a small space at the end of one of Pixar’s hallways. The group enjoyed a lot of success using Pixar’s tools to make small segments of animation for commercials. They had won coveted Clio awards for computer-animated commercials for Life Savers and Listerine and had gained admiration for the dancing chocolate chip cookies in a series of Chips Ahoy commercials.