To Pixar and Beyond - Book Summary

Get acquainted with Pixar's incredible journey to triumph.

Back in 1995, a revolutionary film named "Toy Story" hit the big screen, catapulting a previously unknown studio named Pixar into the limelight. The phenomenal success of this film marked the commencement of Pixar's legacy, which continues to unfurl magical and inspiring tales, amassing a staggering $14 billion in global box office receipts.

However, the rosy picture of Pixar's success might cause you to overlook its tumultuous past. When Lawrence Levy became a part of Pixar in 1994, the idea of such success seemed like a far-fetched dream. Steve Jobs had already pumped in and lost $50 million in this venture, with Pixar surviving barely on the thread of Jobs's personal investments. It's against this backdrop that we dive into the journey of Pixar, exploring how Levy and Jobs charted the path to Pixar's turnaround in spite of towering challenges.

Stay with us as we uncover:

- The reason behind Lawrence Levy's initial skepticism about Pixar

- The intriguing commonality between Mozart and blockbuster movies

- The unexpected connection between Pixar's journey and Buddhist teachings.

Lawrence Levy's fascination with Pixar's creative ethos enticed him to join the company.

In November of 1994, Lawrence Levy received a phone call that marked a turning point in his career. Levy, then serving as the Chief Financial Officer at a desktop publishing start-up named Electronics for Imaging, was informed that he had a call from Steve Jobs. Even a decade after leaving Apple, Jobs remained a celebrated figure in the Silicon Valley. So, a call from him was undeniably significant.

Jobs wanted to discuss Pixar, a struggling imaging computer and software company that he owned. His vision was for Levy to help manage Pixar, shape its strategy, and eventually steer it towards an initial public offering (IPO). Given Levy's success in doing exactly this for several Silicon Valley start-ups, he seemed the ideal candidate.

The problem was that Pixar was in a precarious state. However, Levy was irresistibly drawn to the fascinating opportunity it presented.

Intrigued by what could lie ahead, Levy undertook a thorough investigation of Pixar. The financial viability of the company puzzled everyone he questioned. Eventually, he discovered that Jobs was personally financing the company, having already invested a whopping $50 million to keep it afloat.

With such a bleak outlook, joining Pixar seemed like a career gamble to Levy. However, a detailed tour of Pixar's facilities made him rethink his apprehensions.

His visit included a meeting with Pixar's co-founder, Ed Catmull, who introduced him to an exciting new project: Toy Story. Levy was nothing short of astounded. Not only was Toy Story set to be the world's first full-length computer-animated film, but its captivating storytelling also deeply touched Levy, making him empathize with the toy characters on screen!

The tour also offered Levy insights into the creative process behind the film. Meeting John Lasseter, Pixar's creative mastermind, witnessing a custom-built machine that transferred computer images onto film, exploring thousands of meticulously designed storyboards, and examining the computers used to render each frame, Levy was captivated. He felt that Catmull and Lasseter were destined for greatness, and he wanted to be part of it.

Despite the allure, Levy still harbored reservations about committing to Pixar. The uncertainty of the company's future weighed heavily on his decision. He also was aware of Jobs' infamous reputation for being challenging to work with. In the end, though, the opportunity was just too alluring to ignore. So, Levy accepted his role as Executive Vice President and Chief Financial Officer at Pixar.

Upon joining Pixar, Lawrence Levy faced an uphill struggle with projects that were not financially promising.

When Lawrence Levy began his journey at Pixar in February 1995, the atmosphere at the company was polite, yet strangely distant. It didn't take long for him to realize why.

Jobs, the man who had hired Levy, was not particularly well-received among Pixar's employees. They felt he was an outsider who could potentially disrupt the company's culture. Moreover, Jobs had reneged on his promise to provide them with stock options, causing further strain. As a result, Levy, having been hired by Jobs, found himself facing the brunt of the employees' resentment.

Despite this less than warm welcome, Levy chose to focus on the task at hand — understanding Pixar's operations and finding ways to make the company profitable. However, it turned out to be a challenge.

Initially, Levy set out to familiarize himself with the significant projects at Pixar. The first on his list was a software called RenderMan that was capable of creating lifelike computer images. While the market for such a product was relatively small, Levy spotted an opportunity in one of RenderMan's prominent features: motion blur. This feature allowed computer images to mimic live-action films.

Pixar held the patent for motion blur, giving it an exclusive right to this groundbreaking technology. Leveraging this, Pixar inked licensing deals with Microsoft and Silicon Graphics, bringing a few million dollars into the company's coffers.

While the influx of cash was an encouraging short-term win, other projects did not offer such encouraging prospects. For instance, Pixar's animated commercials and short films, though of high quality, were costly and labor-intensive. They were made more out of passion and to display Pixar's capabilities rather than being cost-effective ventures.

This left Levy with one significant project to bank on: Toy Story. This full-length feature film was part of a production agreement with Disney. According to the agreement, Pixar was to produce three movies, which Disney would finance and market. However, even if these films matched the success of Disney's biggest hits, Pixar's share of annual profits would be limited to around $4 million due to the contract terms — a far cry from the revenue needed to expand a company.

Furthermore, until Pixar fulfilled its agreement with Disney, it couldn't collaborate with any other companies — a restriction that would last nearly a decade. With such constraints, Levy found himself confronted with an overwhelming challenge of securing the much-needed revenue for Pixar.

Embracing the entertainment industry was Pixar's potential path to profitability, despite the inherent risks.

Sometimes when you hit a wall, the only way to move forward is to climb over it. Levy found himself in a similar situation at Pixar, where despite the grim financial picture, he continued to explore avenues for profitability. In his investigation, he discovered an interesting prospect in home video.

It turned out that most of Disney's profits from blockbuster movies like "The Lion King" and "Aladdin" were generated through home video sales. Families worldwide desired to watch top-notch animated films in the comfort of their homes. This insight highlighted the potential for Pixar to tap into the home entertainment sector by focusing on becoming a dedicated animation studio.

However, venturing fully into the entertainment industry came with its set of risks. As Levy delved deeper, he discovered that even the "undisputed king of animation" — Disney — had initially struggled to stay financially viable. Disney survived its early turbulence by diversifying into areas such as film distribution, theme parks, and even live-action movies like "Mary Poppins". This indicated to Levy that putting all eggs in the animation basket was quite a gamble. More so for Pixar, which unlike Disney, lacked a safety net of billions of dollars and other ventures to fall back on.

Besides, Levy had another significant challenge — preparing Pixar for an Initial Public Offering (IPO). This was a crucial priority on his list and seemed like the only viable way to generate funds. However, pulling off successful IPOs for entertainment companies was notoriously difficult. No modern animation company had managed a successful IPO until that time.

Levy's research revealed that only two out of ten movies managed to turn a profit. This fact wouldn't exactly entice Wall Street investors to buy Pixar's stock, thereby jeopardizing the prospects of an IPO. This left Levy grappling with the question of how Pixar's films would generate profits. When he eventually devised a financial model, he realized that achieving the kind of profit growth that investors found attractive would be a daunting task.

However, if Pixar intended to thrive as a dedicated animation studio, it needed a well-structured business plan. The creation of such a blueprint was Levy's next challenge.

Four strategic pillars underpinned Pixar's plan for sustainable success.

They say a solid foundation is critical, regardless of whether you're building a house, nurturing a relationship, or growing a business. In Pixar's case, this couldn't be more accurate.

By mid-1995, the trio of Lawrence Levy, Steve Jobs, and Ed Catmull realized that carving a niche in the domain of animated feature films was going to be a tough row to hoe. Yet, it seemed like Pixar's only viable pathway to success. To enhance their chances, they devised a robust business plan based on four key pillars.

The crux of the matter here is: Four strategic pillars underpinned Pixar's plan for sustainable success.

These pillars signified the steps Pixar had to take to transform into a viable enterprise. The first step was to ensure Pixar received a larger chunk of its film profits. The current Disney agreement entitled Pixar to less than 10 percent of each film's profits. After careful number-crunching, the team deduced that they needed to bump this number up to at least 50 percent.

However, merely asking Disney for better terms wouldn't cut it. In Hollywood, two factors influenced negotiation power: clout and capital. The second pillar was to amass sufficient funds via an IPO. Having a substantial war chest would allow Pixar to shoulder some of its production costs, paving the way for negotiations with Disney regarding larger profit shares. Levy and Jobs pegged this magic number at $75 million, a sum sufficient to finance two films.

Their calculations also dictated the third pillar. Currently, Pixar was making one film at a time, translating into a release schedule of a new film every four or five years. This was nowhere near the annual film release rate Pixar needed to maintain. The solution? Expand the company to the point where it could simultaneously develop multiple films.

The fourth and final pillar asserted that these films must bear the Pixar brand. As per the existing agreement, Disney took credit for Pixar's productions. For instance, the posters of Toy Story promoted the film as "Disney's Toy Story," not Pixar's. For Pixar to be recognized as a reputed animation studio, it was crucial for audiences to associate Pixar with its films.

The journey to Pixar’s IPO concluded with a billion-dollar company valuation, all thanks to a powerhouse team of investment banks.

In 1995, Lawrence Levy, along with his team, zeroed in on the most crucial of Pixar's four pillars — raising capital through an Initial Public Offering (IPO). For an IPO to see the light of day, Pixar needed the backing of investment banks that could link it to prospective investors willing to buy shares in the company. Despite Steve Jobs’ desire to collaborate with industry heavyweights Goldman Sachs and Morgan Stanley, both banks passed on the opportunity. The uncertainty of the film industry and the prospect of waiting several years for a more favorable deal with Disney didn't resonate with their ethos.

But, this wasn't the final act in the play.

So, here’s the key point: The journey to Pixar’s IPO concluded with a billion-dollar company valuation, all thanks to a powerhouse team of investment banks.

With the release of Toy Story slated for late 1995, Pixar was on an upward trajectory. This offered the perfect opportunity to bring investment banks on board, considering the next opportune moment wouldn't arise until the completion of another film several years down the line.

Though it seemed like a long shot, Levy believed that enlisting the support of two investment banks — one steeped in the tech industry and another with credibility in the Hollywood world — was the way to go. Consequently, he reached out to Robertson Stephens, a reputable Silicon Valley investment bank. To Levy's surprise, the bank agreed to back Pixar.

Following suit was Cowen and Company, a boutique bank with a strong foothold in the entertainment industry and a respected entertainment analyst, Hal Vogel, in its ranks. As a cherry on top, Pixar secured the endorsement of Hambrecht and Quist, an investment bank that had previously handled Apple's IPO.

In a stunning turn of events, Pixar went from having zero investment bank support to having three! From there on, Pixar's destiny hinged on its IPO valuation — and Toy Story's opening weekend.

The investment banks projected Pixar's valuation on the stock market at $700 million. However, Jobs had his sights set on a $2 billion valuation. As for Toy Story, Levy and Jobs surmised that the film could rake in $100 million, but that necessitated an opening weekend sales figure of at least $15 million — thrice the average for animated feature films.

When the film finally hit theaters in November 1995, the results surpassed expectations. Toy Story's opening weekend amassed almost $30 million in ticket sales, ultimately raking in over $190 million! On the day of its IPO, Pixar's valuation catapulted to $1.5 billion. Though this figure fell short of Jobs's projected valuation, it undoubtedly elevated him to billionaire status.

For Pixar to churn out more successful films, investment in and reliance on the story team became paramount.

Even after the euphoria of Pixar's billion-dollar IPO and the roaring success of Toy Story at the box office, there was still a lot to be done. The IPO had raised a whopping $140 million for reinvestment in the business. The mission now was to capitalize on this financial windfall to create a streak of blockbuster movies.

However, producing another hit movie, as Levy put it, was akin to replicating Mozart's genius. Furthermore, according to one of the business's foundational pillars, Pixar needed to produce these successful movies more frequently. This presented a fresh challenge, with the story team finding themselves at the heart of it.

Here's the crucial takeaway: For Pixar to churn out more successful films, investment in and reliance on the story team became paramount.

Producing more films was not a straightforward task for Pixar, given the relatively small size of their story team. Ideally, the company wanted to release at least one film annually. Yet, considering the story team was composed of merely five individuals, producing a film every year would be an enormous undertaking, likely jeopardizing the films' quality. To strike a balance, they decided to space out the releases by 18 months. This strategy was not without risks, however. To ensure financial sustainability, each film had to be a resounding success.

Despite the elongated release timeframe, Pixar needed to enlarge its story team — about three to four times its existing size. The company had to attract the brightest talents, including phenomenal artists and tech savvies, and adequately equip them to hit the ground running. As a solution, Ed Catmull established Pixar University — an institution focused on honing employees' skills and nurturing their creativity. To head the production team, Pixar enlisted the services of Sarah McArthur, a former Disney executive who had worked on films like The Lion King.

While having a robust recruitment and training system was vital, another element was equally critical: deciding who should wield the power to make creative decisions.

Approvals had to be given for story pitches, storyboards, dialogues, character designs, voice casting, and even movie durations. Any wrong decision on these elements could result in multi-million dollar losses or a film failure. Understandably, the thought of giving the story team excessive creative freedom was worrisome.

Levy, Jobs, and Catmull considered retaining the final say on creative matters, but a compelling argument from John Lasseter, Pixar's creative lead, swayed their decision. Lasseter insisted that unfettered creative control for him and his story team was the only path to crafting heartfelt movies that truly resonated with audiences.

Pixar's successful run empowered them to demand favorable terms in their renewed partnership with Disney.

By the end of 1996, Pixar had raked in more money than expected and was en route to producing more captivating animated films. This pointed to the achievement of two of their business strategy's pillars — creating successful films regularly and securing funding. The remaining two pillars to accomplish were amplifying Pixar’s portion of movie profits and establishing the brand. Both of these aspects were covered in Pixar’s three-film deal with Disney. Pixar was at a crossroads — they could either attempt to negotiate better terms promptly or wait out years in hopes of a more beneficial agreement.

Without hesitation, Levy and Jobs chose to renegotiate, empowered by Toy Story's resounding success and Pixar’s newfound financial robustness. For the first time, Pixar was negotiating from a position of power.

The core takeaway here is this: Pixar's successful run empowered them to demand favorable terms in their renewed partnership with Disney.

Equipped with their newfound success, Levy and Jobs knew they were in a strong position to negotiate. Keeping their remaining business pillars in mind, they compiled a list of essential requirements. Firstly, Pixar’s slice of the profits needed to be bumped up to 50 percent, and each movie had to bear Pixar’s branding. They also insisted that Pixar's story team should work without any interference from Disney. Lastly, Pixar sought summer and holiday release dates to enhance their chances of box office success. Should Disney refuse even a single demand, Pixar was ready to walk away from the deal.

Six months into the negotiation, that’s exactly what transpired.

Disney CEO Michael Eisner was reluctant to grant Pixar equal branding rights. For Pixar, it wasn't just a business issue; it was a matter of principle. Pixar viewed their creations as their children, and putting another company’s name on them felt fundamentally wrong.

However, the story didn't end there. After some time, Eisner approached Jobs and Levy with a proposition. Disney would grant Pixar equal branding rights in return for the opportunity to purchase Pixar stocks. This arrangement would allow Disney to reap financial gains from promoting the Pixar brand. As long as Disney could not dictate terms at Pixar through its acquired stocks, Levy and Jobs were satisfied with the deal.

And just like that, negotiation talks resumed. Over a few weeks, the two companies settled the terms of the renewed agreement. On February 24, 1997, they put pen to paper on a deal that secured everything Pixar had asked for — an equal share of profits and due recognition for their work. This marked the fulfillment of all four pillars of Pixar's business strategy.

Levy and Jobs gained profound life lessons from their tenure at Pixar.

February 1997 marked a monumental period for Pixar. It was the month when they inked the game-changing deal with Disney, a move that ushered in an era of unprecedented success for the company. Pixar proceeded to release five blockbuster hits and a successful sequel to Toy Story, with each film raking in more than $250 million at the box office on average. By 2005, Pixar's consistent winning streak had escalated its stock market value to an astonishing $6 billion! Despite this impressive feat, Levy and Jobs were mindful of the potential risks associated with a possible downturn in Pixar's growth. To mitigate this risk, they sold Pixar to Disney in a whopping $7.4 billion agreement.

February 1997 was equally significant for Steve Jobs on a personal note. In that month, Apple acquired NeXT Computer from Jobs and, within a matter of months, Jobs found himself back at Apple.

The core lesson here is this: Levy and Jobs gained profound life lessons from their tenure at Pixar.

According to Levy, Jobs derived invaluable insights from his stint at Pixar — insights that would later form the bedrock of his legendary success at Apple. Much later, after Pixar was sold to Disney, Levy realized that his journey with Pixar had been equally illuminating.

Levy asserts that Pixar was the crucible where Jobs learned the nuances of the entertainment industry, balancing the interplay of creativity and strategic business decisions. Coupled with Jobs's keen eye for aesthetics and product acumen, this understanding empowered him to unleash his creative prowess at Apple.

For Levy, the realizations from his Pixar journey manifested during his exploration of human experience philosophies.

He found resonance with the Middle Way, a Buddhist philosophy emphasizing the critical balance between structure and fluidity. This philosophy imagines an individual's existence as a duality — one half as an artist, passionate about creativity and adventure, and the other half as a bureaucrat, preoccupied with practical matters like bill payments. The individual thrives when these halves exist in harmony.

Levy perceived Pixar as a metaphor for the Middle Way. Steering Pixar towards animated entertainment offered much-needed focus, while the four-pillar strategy served as the vehicle to reach their goal. When creative liberty was weaved into this balanced framework, Pixar found its groove and morphed into the triumph that it is today.

The Final Digest

Key takeaway from this narrative:

Carving a path to success was by no means a cakewalk for Pixar. The company was grappling with financial losses and lacked a strategic roadmap. Despite the odds stacked against them, pivoting towards the entertainment business seemed like the only feasible solution. To accomplish this, Pixar zeroed in on four critical pillars: securing a larger share of profits from its films, raising capital through an initial public offering, producing more movies, and establishing a recognizable brand. Amidst uncertainties, setbacks, and appeasing the creative team's requirements, Pixar managed to pull off the improbable. This journey imparted invaluable life lessons to the author, lessons that were transformational in nature.