To Pixar and Beyond

by Lawrence Levy

  “Looked good to me,” said Steve. “Though it doesn’t really matter what I think.”

  “It does matter,” John insisted.

  “No. You guys decide,” Steve said. “I trust you.”

  “But we want to know what you think,” John said emphatically.

  It was a small moment, one that I doubt registered with anyone. For me it signaled something that I had never seen before at Pixar. The creative team, the team to whom we had long ago ceded all creative responsibility, cared about what Steve thought. In the world of Pixar, there was no greater accolade. It implied the highest level of respect. In fact, throughout Pixar there were no lingering traces of animosity toward Steve. He had come through for the company and was now seen not as feared owner but as trusted protector. We never discussed the subject, but subconsciously I feel certain it mattered to him a lot.

  In fact, looking back, I believe that this and other experiences Steve had at Pixar brought about changes in him that were vital for what was about to occur.

  One such change was that Steve now understood the entertainment industry. He was no longer just a high-tech CEO but also an entertainment industry CEO. Very few executives could lay claim to being comfortable in both worlds, a qualification that would become essential as Steve steered Apple through the complex thickets of music and entertainment.

  I also feel the process through which Steve and I deliberated Pixar’s business and strategic challenges had an impact on him. His commercial failures at Apple, NeXT, and the early years at Pixar had occurred in large measure because he had ignored business realities. The Lisa, the original Macintosh, the NeXT Computer, and the Pixar Image Computer had all missed the mark because they were overpriced or ignored important market considerations. At Pixar, melding business realities with creative priorities was always integral to our collaboration.

  Finally, of course, Steve had now regained the mantle of success. He had joined the ranks of billionaires. Nothing that happened at Apple would take that away from him. Even if Apple flamed out, his comeback would still be intact.

  When you added it up, there were many aspects of Pixar that had a big influence on Steve: becoming a billionaire, experiencing a stellar comeback in the eyes of the public, learning the ins and outs of the entertainment industry, enjoying a transformed relationship with Pixar, and bringing both business and creative imperatives into harmony. Combined with Steve’s aesthetic genius and product vision, these influences made for a very potent force as he jumped into the vortex at Apple. Indeed, Pixar may have been an interlude in Steve’s journey—one that remains the source of most of his wealth—but without Pixar one could make a case that the revolution ushered in by Steve’s second act at Apple might never have occurred.

  As Steve and I were wrapping up our discussion about his possible return to Apple, I was moved to share one more thought with him.

  “I know you’re itching to get back to Apple,” I said, “but you’re in a different place now than you were a couple of years ago. You have a chance to take care of other aspects of life too. Time for yourself, family, friends, developing in other ways. Don’t forget about those.”

  Steve didn’t respond to this. I meant it as a hint about aspects of his life I thought could use attention. When I joined Pixar, I was acutely aware of Steve’s reputation for harsh behavior—he was legendary for it—although I had never experienced it in our personal relationship. From the moment we met, our collaboration was always constructive and respectful, even when we didn’t see eye to eye. I could not recall an angry word between us. This did not mean I never witnessed Steve being ill mannered or dismissive of others. He could be unforgiving, with little tolerance for mistakes.

  At Pixar, however, this type of occurrence was rare. It helped that we aired everything together and that, unlike at Apple and NeXT, Steve was not Pixar’s product maker. He didn’t make the films. For Pixar to really take off, he had to rely on others to a degree he had perhaps not done before. I now felt that same spirit of trust and collaboration we had enjoyed at Pixar might benefit Steve in other ways.

  When Steve rejoined Apple in July of 1997, I couldn’t help but feel a little empty. It spelled a change in the journey we had taken together these past few years. We had walked, talked, debated, plotted, laughed, shared, and worried our way to take Pixar where it needed to go. Steve was moving on to a new world now, one into which I was not going. My job was at Pixar: to see through the implementation of the new agreement with Disney, to keep a steady hand on the business direction, to work with Wall Street and our investors, to keep an eye out for Pixar’s well-being.

  Over the next ten years my relationship with Steve would continue to evolve in ways I could never have predicted. He was diagnosed with cancer in 2003 and underwent a series of treatments over the ensuing years. I spent much time as bedside companion while he fought the challenges of the disease and its treatments. I would visit him at home often, slipping inside to see if he was there. On many of those visits no words were spoken. We’d just watch an episode of one of his favorite TV shows.

  On the best days, Steve would eagerly show me the products he was working on at Apple. I first listened on an iPod, talked on an iPhone, and played on an iPad in Steve’s office at his home. He invited me to all of Apple’s big product announcements where I sat quietly at the Moscone Convention Center in San Francisco as he mesmerized the world year after year. I even saw the stunning designs of a yacht that Steve dreamed about building. Steve’s aesthetic genius extended far beyond the domain of technology.

  But there were also parts of Steve’s life he didn’t share. Steve had a way of separating the different aspects of his life, he alone holding the keys to every compartment. If you were in one compartment, you had little access to the others. As Steve’s celebrity status skyrocketed and he went on to meet leaders and celebrities from every corner of the world, I felt my own role in his life recede. But so long as his health was good enough, he would often meander over to my house to go for a walk or sit together. And I remained welcome to slip into the kitchen door of his house and walk to his room for a visit until the very end.

  In times of illness and hardship, it is hard to know if one is saying the right thing, or is doing the right thing. There is no guidebook, no formula for getting it right. At the end of the day, perhaps, Steve was born more for action, less for being gentled by others, for taking stock, for being worn down by illness. I was often left wondering if there was more that I could do. It was impossible to know. During this time, Steve showed much gratitude for our friendship. I felt happy to know it. And I certainly felt the same way.

  It is not for me to take the measure of a person. I feel sure, however, that my work with Steve at Pixar was important for both of us. I was very fortunate to work with Steve—he was a magnificent sparring partner. And I remain more grateful than I can express that back in late 1994, he picked up the phone to call me.

  During the time of Steve’s illness, while he was still at the helm of Apple, we were to have one more adventure, one more time when we had to navigate a new course. This would be our last time working together, and it would bring our Pixar journey to a fitting finale.

  24

  Just Keep Swimming

  On October 21, 2005, in a USA Today column called “Managing Your Money,” Matt Krantz wrote:

  Pixar’s stock had been a big star, too. The past five years, shares have gained 171%—that’s 22% compound annual average growth. That truly is incredible, if you consider that the broad Standard & Poor’s 500 stock index is down the past five years.

  But the stock had trouble squeezing into its superhero tights in the second half of 2005.11

  Pixar’s stock had indeed been a star. Over the previous five years, the value of Pixar had crept up from $1.5 billion to $3 billion to almost $6 billion. With Steve still owning the vast majority of it, he had now gone from billionaire to multibillionaire. More importantly, the run-up in Pixar’s stock reflected an u
nprecedented run in Pixar’s films. The five original films under the new agreement with Disney had been A Bug’s Life, Monsters, Inc., Finding Nemo, The Incredibles, and the soon-to-be-released Cars. Toy Story 2 had ultimately been released as a theatrical animated feature film sequel but did not count toward the five original films required by the agreement. Collectively, these films had an average domestic box office exceeding $250 million. They also won a slew of awards.

  A Bug’s Life won a Grammy for Best Instrumental Composition. Toy Story 2 won a Golden Globe for Best Picture—Musical or Comedy, and a Grammy for best song written for a motion picture. Monsters, Inc. received four Academy Award nominations and won an Academy Award and a Grammy for best original song. Finding Nemo won an Academy Award for Best Animated Feature Film. The Incredibles was nominated for four Academy Awards and won two of them, for Best Animated Feature Film and Best Sound Editing. Ten years earlier, had I told Wall Street that Pixar’s films would perform this way, both in terms of box office performance and in accolades, I am quite sure I would have been laughed out of town.

  I had left my day-to-day role as Pixar’s CFO in April 1999. I took a sabbatical to pursue a series of personal interests that eventually led me in some new directions. At that time Steve asked me to join Pixar’s board of directors. As a director, it was my job to look out for Pixar strategically, similarly to the way I had always done. Consistent with the USA Today column, and despite Pixar’s unprecedented success, in 2005 I found myself once again worrying.

  The laws of physics suggest we cannot go in one direction forever. Sooner or later, something will slow us down. Whether it be stocks, housing prices, economies, or entire civilizations, even the biggest booms stall. We build castles, churches, and monuments believing they will last forever; our perception of solidity often belies an underlying movement that is difficult to perceive. Sometimes we can see the wave of change coming. But more often we are swept along in it. In my mind, Pixar was facing such a wave.

  When a company’s stock price goes up and up on the strength of its business growth, the first sign that its rate of growth is slowing can create enormous downward pressure on its stock price. Pixar’s last two films, The Incredibles, released at the end of 2004, and Finding Nemo, released in the summer of 2003, had been Pixar’s biggest films to date. Finding Nemo had taken in almost $1 billion worldwide. These films had enjoyed heights of success so dizzying that I feared the slightest hint of a slowdown would send Pixar’s stock tumbling.

  As the USA Today article had described, this had already happened on the news that DVD sales might be slowing down. The stock had recovered, but the evidence was strong that it was in rarefied air, made even thinner by Pixar’s continued dependence on blockbusters. One small slip and the danger of a big fall was high. This would hurt not just Pixar’s stockholders but the company as a whole. Shareholder cries for change can create enormous pressure on a corporation. It was better to be on top of it.

  The solution was to find a way to diminish the risk that a small disappointment might cause the stock to plummet. There were two ways to do this. One was to use Pixar’s highly valued stock to purchase other companies. The effect of purchasing other companies would be to diversify from animation so that if animation experienced a downturn, it would not have as devastating an impact on the company. Diversification had been Walt Disney’s strategy all those many years earlier.

  The other way to diminish the risk was to seek a buyer for Pixar. If a large corporate conglomerate were to buy Pixar, Pixar’s stockholders would exchange their Pixar stock at its present soaring value for the stock of the larger corporation where they would enjoy much greater diversification. Over the years, Steve and I had speculated occasionally on how Pixar might ultimately end up being purchased by Disney, but we had never taken this on as a serious possibility.

  But by October 2005, I was convinced that Pixar had to at least explore one of these two directions. The financial pressures to produce blockbuster after blockbuster were enormous, and it would not take much to burst Pixar’s balloon. On one of our weekend walks, I broached the issue with Steve.

  “I’d like to talk about Pixar’s stock price,” I said.

  “What’s on your mind?” Steve asked.

  “I think Pixar’s at a crossroads,” I said. “Its valuation is too high to stay still. If we have any miss, any miss at all, even a small one, Pixar’s value could be cut in half overnight, and half of your wealth will go with it.” I paused, and then added, “We’re flying too close to the sun.”

  “We’ve had an incredible run,” I went on. “Ten years of blockbusters. But I think it’s time that either Pixar uses its sky-high valuation to diversify into other businesses, just like Disney did, or . . .”

  “Or we sell to Disney,” Steve finished my sentence.

  “Yes, or we sell to Disney, or anyone else that offers the same opportunity for diversifying and protecting Pixar as Disney does.”

  We discussed the first of these options, Pixar diversifying into other businesses.

  “To diversify would require expanding Pixar’s management team,” I said. “Pixar’s current management team is tuned for animation. It doesn’t have the bandwidth or the experience to investigate and acquire other businesses. We would need executives who know how to do that, and as CEO you would have to find them. Between your Apple responsibilities and your health, I’m not sure it’s feasible.”

  Steve clearly did not have the bandwidth for this option. Although there was plenty of reason for hope with his health, he needed to take care of himself. He was still fully immersed at Apple; there was no way he could take on anything else. The combined effect of Steve’s health and the animation focus of Pixar’s management team led us to option two: finding a buyer for Pixar, the most obvious one being Disney.

  “Let me give it some thought,” he said. “I hear what you’re saying. Maybe we should talk to Larry.”

  I agreed. Larry Sonsini was still on Pixar’s board of directors. He would help evaluate what to do. Steve and I paid a visit to Larry a few days later in his Palo Alto office. He liked the idea a lot. He agreed that Pixar’s value as a company had reached stratospheric heights that would be hard to sustain. He suggested a meeting with Disney to test the waters.

  One never knows if an event that appears detrimental is in fact part of a larger pattern that we cannot see. A year and a half earlier, in early 2004, as the co-production agreement that I negotiated long ago with Rob Moore was coming to an end, Steve called off talks with Disney to extend the agreement. The New York Times reported, “The residue of several years of testy relations, and Mr. Jobs’s distaste for the way Mr. Eisner conducted business with Pixar, may have amplified the typical problems of partnerships into irreconcilable differences.”12

  Eisner responded by saying that the terms Pixar demanded were simply more than Disney could bear. Ten years of unprecedented success had, perhaps surprisingly, done very little to bring Steve and Eisner close enough to find a way to continue the relationship between Pixar and Disney.

  Even more, Eisner’s failure to find a way to extend Disney’s agreement with Pixar added dramatically to mounting pressures on him. Roy Disney, nephew of Walt Disney, resigned from Disney’s board of directors in 2003 and had been waging a “Save Disney” campaign that criticized Eisner’s management style and leadership and called for his resignation. Breaking off the Pixar relationship added much fuel to the fire.

  Roy Disney was insistent that without being a leader in animation, Disney would lose its creative soul. Eisner had been unable to withstand the pressure, and on September 9, 2004, he announced he would step down when his contract ended in two years. A few months later, in March 2005, Eisner’s successor was announced: Bob Iger, who joined Disney as president of ABC Television after Disney acquired ABC in 1996. At the end of October 2005, Eisner abruptly resigned from Disney, both as CEO and as a board member, leaving Iger for the first time in complete control. This was the exact mome
nt we began to contemplate the possibility of selling Pixar to Disney.

  If there was any time to discuss an acquisition, or any other kind of relationship, this was it. The big question was: How important was animation to Iger? Disney had thriving businesses in television, theme parks, and live-action motion pictures. Iger had risen through the ranks at ABC and was more steeped in the world of television than the world of animated feature films. It was not clear if he would see animation as a relic of Disney’s past or an essential part of its future.

  To find out the answer to this question, we arranged a meeting with Iger and Dick Cook, then chairman of Walt Disney Studios. Steve had already had some dealings with Iger over launching Disney content on Apple’s soon-to-be-announced video iPod. Steve, Larry, Ed, and I attended on behalf of Pixar. We gathered in a conference room at Apple’s offices in Cupertino, California.

  From the moment the meeting began, the tune of Pixar’s relationship with Disney changed. Gone were the second-guessing and posturing that had characterized Steve’s relationship with Eisner. With Iger there were no games, no politics, no posturing. He was smart, straightforward, and up-front. It was the most positive meeting between the two companies at that level in a decade.

  Steve took an immediate liking to Iger, which would blossom into a close collaboration and friendship. Moreover, Iger made it clear that animation was very important to him, and to Disney. He said it was the heart and soul of the company and bringing it back was central to his vision for Disney. Iger did not have to be so forthcoming with us about this. The more he claimed Disney needed animation, the more leverage Pixar might have. But that was his style. With Steve, it worked like magic.

  “I like him a lot,” Steve said after the meeting. “What do you guys think?”

  “Iger gets Pixar,” Larry said, “and he wants to use Pixar to redesign Disney. This is fantastic.”