by Robert Iger;
Peter saw no problem with a system in which he and the analysts who worked for him made so many of the company’s decisions. Meanwhile, businesses around us were adapting to a world that was changing at blinding speed. We needed to change, we needed to be more nimble, and we needed to do it soon.
A week or so after that exchange about Hong Kong ticket pricing, I called Peter into my office and told him I was planning to reconstitute Strat Planning. I said I wanted to drastically reduce the size of the group and begin streamlining our decision making by putting more of it in the hands of the business leaders. We both knew that my vision for the group wouldn’t be a good fit for him and it didn’t make sense for him to stay.
Shortly after that conversation I had a press release drafted saying that Peter was leaving and that Strat Planning was being reformulated, and then I immediately began dismantling the group. I shrank Strat Planning from sixty-five people to fifteen. Tom Staggs, my CFO, had the idea to bring Kevin Mayer, who had once been with the group and left a few years earlier, back to the company to run the newly lean and repurposed team. Kevin would report to Tom, and he and his group would focus on potential acquisitions, with a clear mandate that any acquisitions be in the service of our three core priorities.
Remaking Strat Planning turned out to be the most significant accomplishment of that six-month period before I took over the company. I knew that it would have an immediate practical effect, but the announcement that they would no longer have such an iron grip on all aspects of our business had a powerful, instantaneous effect on morale. It was as if all the windows had been thrown open and fresh air was suddenly moving through. As one of our senior executives said to me at the time, “If there were church bells on the steeples throughout Disney, they would be ringing.”
CHAPTER 9
DISNEY-PIXAR AND A NEW PATH TO THE FUTURE
THOSE MONTHS SPENT talking with Steve about putting our TV shows on his new iPod began—slowly, tentatively—to open up into discussions of a possible new Disney/Pixar deal. Steve had softened, but only a little. He was willing to talk, but his version of any new agreement was still very one-sided in Pixar’s favor.
We parried a few times over what a deal might look like but got nowhere. I asked Tom Staggs to join the discussions and see if he could make progress. We also brought in a go-between from Goldman Sachs, Gene Sykes, whom we trusted and who knew Steve well. We floated a few different ideas to Steve through Gene, but Steve still didn’t budge. His resistance wasn’t complicated. Steve loved Pixar and he didn’t care about Disney, so any agreement he’d deign to consider would have huge upsides for them and come at a steep price for us.
One proposal had us ceding to Pixar the valuable sequel rights to the films we’d already released together, like Toy Story, Monsters, Inc., and The Incredibles, in exchange for a 10 percent stake in their company. We’d get board seats, the right to distribute all new Pixar films, and a big press announcement saying that Disney and Pixar would continue as partners. The financial value was weighted heavily toward Pixar, though. They’d get to make original Pixar-branded films and sequels, which they’d own forever, and our role essentially would be to serve as passive distributors. There were a few other similar proposals that I turned down. Tom and I would look at each other after each round of negotiations, and ask ourselves if we were crazy to not just make any deal with Steve, but then we’d quickly conclude that any deal we made had to have long-term value, and an announcement didn’t give us that.
The reality was, Steve had all of the leverage in the world. By then, Pixar had become the standard-bearer for inventive, sophisticated animated filmmaking, and he never seemed worried about walking away from us. Our only bargaining chip was that we currently had the rights to make sequels of those earlier films without them, and in fact we’d started to develop some under Michael when talks had broken down two years before. Steve knew we would struggle to make anything genuinely great, though, given the state of Disney Animation, and he almost dared us to try.
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ON SEPTEMBER 30, 2005, Michael spent his last day as CEO of the company he’d run for twenty-one years. It was a sad, awkward day. He was leaving with no ongoing connection to Disney—no seat on the board, no emeritus or consulting role. It was about as “cold turkey” as it gets. He was gracious with me, but I could feel the tension between us. As hard as the last few years had been, Michael didn’t want to leave, and I found myself at a loss for words.
I met briefly with Zenia Mucha and Tom Staggs and Alan Braverman, and told them that my sense was that it was “better to let him be,” so we kept a respectful distance and gave him some privacy to leave on his own terms. Michael’s wife, Jane, and one of their sons came for lunch, and later that day he drove off the lot for the last time. I can’t imagine what he must have felt. He’d come in two decades earlier and saved the company, and now he was driving away knowing that his era was over and that the place that he had turned into the largest entertainment company in the world would keep going on without him. It’s one of those moments, I imagine, when it’s hard to know who exactly you are without this attachment and title and role that has defined you for so long. I felt deeply for him, but I knew there was little I could do to make it easier for him.
Three days later, on Monday, October 3, I officially became the sixth CEO of the Walt Disney Company. For the first time in my career, I was reporting only to a board of directors, and after the long succession process and the six-month waiting period, I was about to preside over my first board meeting. In advance of most board meetings, I’ve asked all of my business heads for an update on their businesses, so that I could inform the board on business performance, important issues, and challenges and opportunities. For my first meeting, though, there was only one item on my list.
In advance of the meeting, I asked our studio head, Dick Cook, and his number two, Alan Bergman, to put together a presentation covering the last ten years of Disney Animation: every film we’d released, what they’d each earned at the box office, and so on. They were both concerned. “It’s going to be ugly,” Dick said.
“The numbers are horrible,” Alan added. “It’s probably not the best way for you to start out.”
Regardless of how dispiriting or even incendiary the presentation was going to be, I told the studio team not to worry about it. I then asked Tom Staggs and Kevin Mayer to do some research on how our most important demographic, mothers with children under age twelve, viewed Disney Animation versus our competitors. Kevin, too, said that the story wasn’t going to be a good one. “That’s fine,” I told him. “I just want a candid assessment of where we stand.”
All of this was in the service of a radical idea, which I hadn’t shared with anyone but Tom. A week earlier, I’d said to him, “What do you think about us buying Pixar?”
He thought I was joking at first. When I told him I was serious, he said, “Steve will never sell to us. Even if he would, it won’t be at a price we could support, or that the board would support.” He was probably right, but I wanted to make the case to the board anyway, and to do so I needed a blunt, detailed presentation about the current state of Disney Animation. Tom was hesitant, in part because he was protective of me and in part because, as CFO, he had a responsibility to the board and our shareholders, which meant not always going along with whatever the CEO had in mind.
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MY FIRST BOARD meeting as CEO was an evening meeting, and I and the ten other board members took our places around the long conference table in our boardroom. I could sense the anticipation in the air. For me, it was one of the most momentous meetings of my life. For them, they were hearing from a new CEO for the first time in more than two decades.
The board had been through a lot in the last decade: the painful decision to bring Michael’s tenure to an end, the ongoing fight with Roy and Stanley, the h
ostile takeover attempt by Comcast, the shareholder lawsuit over Michael Ovitz’s $100 million–plus severance deal, a legal fight with Jeffrey Katzenberg over the conditions of his exit in 1994. The list went on. They had been subjected to a lot of criticism, and along with me they’d been put under a microscope as the succession and transition unfolded. It was a highly charged environment, because they would soon be judged on their decision to give me the job, and they knew there were still plenty of skeptics. Some of them (two or three, though I’ll never be exactly sure who) had been opposed to my appointment altogether, right to the very end. So I stepped into that room knowing that even though the vote had ultimately been unanimous, there were people seated at the table who didn’t expect or want me to be there for long.
George Mitchell opened the meeting with a quick, heartfelt comment about the significance of the moment. He congratulated me for “enduring the process,” as he put it, and then turned the floor over to me. I was so filled with restless energy and a desire to get to the heart of the matter right away, that I skipped over the pleasantries and immediately said, “As you all know, Disney Animation is a real mess.”
They’d heard this before, but I knew that the reality was far worse than any of them was aware. Before presenting the financials and the brand research we’d prepared, I recalled a moment from just a few weeks earlier, at the opening of Hong Kong Disneyland. It was the last big event Michael presided over as CEO, and several of us had traveled to Hong Kong for the opening ceremonies, which took place on a blinding, 95-degree afternoon. Tom Staggs, Dick Cook, and I were standing together as the opening parade came down Main Street. Float after float passed by us. There were floats carrying characters from Walt’s legendary films: Snow White, Cinderella, Peter Pan, and so on. And others with characters from the big hits of Michael’s first decade: The Little Mermaid, Beauty and the Beast, Aladdin, and The Lion King. And there were floats with characters from the Pixar films: Toy Story and Monsters, Inc. and Finding Nemo.
I turned to Tom and Dick and asked, “Do you guys notice anything about this parade?” Nothing stood out to them. “There are barely any Disney characters from the last ten years,” I said.
We could spend months analyzing what had gone wrong, but there it was, right in front of us. The movies weren’t good, which meant the characters weren’t popular or memorable, and that had significant ramifications for our business and our brand. Disney was founded on creativity, inventive storytelling, and great animation, and very little of our recent films lived up to our storied past.
I finished describing that scene to the board and then turned down the lights. The room got quiet as we projected onto a screen the list of films put out by Disney Animation over the last decade: The Hunchback of Notre Dame, Hercules, Mulan, Tarzan, Fantasia 2000, Dinosaur, The Emperor’s New Groove, Atlantis, Lilo and Stitch, Treasure Planet, Brother Bear, and Home on the Range. Some were mild commercial successes; several were catastrophes. None had been met with any critical exuberance. Over that stretch, Animation had lost nearly $400 million. We’d spent well over a billion dollars making those films, and marketed them aggressively, and yet we had little to show for the investment.
Over that same stretch of time, Pixar had produced success after success, both creatively and commercially. Technologically, they were doing things with digital animation that we—Disney!—had only dabbled in. More profoundly, they were connecting in powerful ways to both parents and kids. After painting that bleak financial picture, I asked Tom to present the results of our brand research. Among women with children under twelve, Pixar had eclipsed Disney as a brand mothers thought of as “good for their family.” In a head-to-head comparison, Pixar was far more beloved—it wasn’t even close. I noticed a few board members murmuring to each other and sensed some anger starting to build.
The board knew Animation had been struggling, and they certainly knew Pixar was on a tear, but the reality had never been presented to them this starkly. They had no idea the numbers were this bad, and they’d never contemplated the brand research. When I was done, a couple of them pounced. Gary Wilson, who’d been my most ardent opponent during the search, said, “You were the COO for five of those years. Aren’t you accountable for this?”
There was nothing to be gained from being defensive. “Disney and Michael deserve a lot of credit for creating a relationship with Pixar in the first place,” I said. “It wasn’t always an easy collaboration, but great things came from it.” I said that after the acquisition of ABC, the company became more challenging to manage, and Animation received less attention than it should have. This problem was exacerbated by the revolving door at our studio of senior executives, none of whom had done a particularly good job running the unit. I then reiterated what I’d said many times throughout the succession process: “This can’t be about the past. There’s nothing we can do about bad creative decisions that were made and disappointing films that were released. But there’s a lot we can do to change the future, and we need to start now.”
I pointed out to the board that “as Animation goes, so goes the company.” In so many respects, Disney Animation was the brand. It was the fuel that powered many of our other businesses, including consumer products, television, and theme parks, and over the last ten years, the brand had suffered a lot. The company was much smaller then, before Pixar, Marvel, and Lucasfilm were acquired, so the pressure on Animation to perform, not only on behalf of the brand but to enhance almost all of our businesses, was far more intense. “I feel enormous pressure to figure this out,” I said. I knew that shareholders and analysts were not going to give me a grace period, and the first thing they would judge me on was my ability to turn Disney Animation around. “The drum is already beating loudly for me to solve this problem.”
I then described what I saw as three possible paths forward. The first was to stick with current management and see if they could turn things around. I quickly expressed my doubts about this option, given what they’d delivered so far. The second was to identify new talent to run the division, but in the six months since being named, I’d scoured the animation and moviemaking world looking for people who could do the job at the level we needed, and I’d come up empty. “Or,” I said, “we could buy Pixar.”
The response to the idea was so explosive that if I were holding a gavel I would have used it to bring the court to order.
“I don’t know if they’re for sale,” I said. “If they are, I’m certain they’ll be wildly expensive.” As a public company, Pixar’s market cap was somewhere above $6 billion, and Steve Jobs owned half of the company’s stock. “It’s also highly unlikely Steve would ever want to sell.” All of that seemed to bring relief to a few members, but it provoked others toward a lengthy discussion about whether there were any circumstances that would justify our spending billions of dollars to buy them.
“Buying Pixar would allow us to bring John Lasseter and Ed Catmull”—Pixar’s visionary leaders, along with Steve Jobs—“into Disney,” I said. “They could continue to run Pixar, while simultaneously revitalizing Disney Animation.”
“Why can’t we just hire them?” somebody asked.
“For one, John Lasseter is under contract at Pixar,” I said. “But they’re also wedded to Steve and to what they’ve built there. Their loyalty to Pixar, to its people and its mission, is enormous. It’s naïve to think we could hire them.” Another member suggested that we just needed to back a truck filled with money up to their doors. “These people can’t be bought that way,” I said. “They’re different.”
I immediately sought out Tom and Dick after the meeting, to get their impression of how the presentation had gone. “We didn’t think you’d get out of there with your title intact,” Tom said. He sounded as though he were kidding, but deep down I knew he wasn’t.
When I got home that night, I walked into the house and Willow asked how it went. I hadn’t told even her what
I’d been planning. “I told them I thought we should buy Pixar,” I said.
She, too, looked at me like I was crazy, and then added to the chorus, saying, “Steve will never sell to you.” But then she reminded me of something she’d told me not long after I got the job: “The average tenure for a Fortune 500 CEO is less than four years.” At the time, it was a joke between us, to make sure the expectations I set for myself were realistic. Now, though, she said it with a tone that implied I had little to lose by acting fast. “Be bold,” was the essence of her advice.
As for the board, some were vehemently against the idea and made that very clear, but enough were intrigued that they gave me what I described as a “yellow light”: go ahead, explore the idea, but proceed cautiously. Collectively, they concluded it was so unlikely to ever happen that they might as well let us amuse ourselves by exploring it.
The next morning I told Tom to start putting together a thorough analysis of the financials, though I also said there was no rush. I was planning to broach the idea with Steve later that day, and I figured there was a good chance that in a matter of hours the whole thing would be moot. I spent the morning building up the courage to make the call, and finally did so in the early afternoon. I didn’t reach him, which was a relief, but as I was driving home from the office at around six-thirty, he returned my call.
This was about a week and a half before our announcement about the video iPod, so we spent a couple of minutes talking about that before I said, “Hey, I have another crazy idea. Can I come see you in a day or two to discuss it?”