Even though The Walt Disney Company was established already in 1923, many of the franchises and brands have been acquired during the last couple of decades. The acquisition strategy has been instrumental in cementing Disney's status as a world-leading entertainment powerhouse. In this article, we list and visualize Disney's most notable acquisitions year by year since its inception, and delve into the ongoing stream war against Netflix.
From its beginnings as an animation studio in 1923, Disney has evolved into one of the world's leading companies within media and entertainment. The company's M&A strategy has been instrumental in this transformation, with key acquisitions including ABC Television in 1996, Pixar Animation Studios in 2006, Marvel Entertainment in 2009, and Lucasfilm in 2012. Of particular note is the landmark acquisition of 21st Century Fox in 2019, which remains the second largest media acquisition in history, second only to AT&T's $85 billion acquisition of Time Warner in 2018.
Disney's acquisition of 21st Century Fox, announced on December 14, 2017, and completed on March 20, 2019, was the largest in the company's history. Initially valued at $52.4 billion, the deal's value was later revised to $71.3 billion following a bidding war with Comcast . It included key assets such as the 20th Century Fox film and television studios, U.S. cable channels like FX and Fox Networks Group, a 73% stake in National Geographic Partners, Indian television broadcaster Star India, and a 30% stake in Hulu. Prior to the acquisition, 21st Century Fox spun off several assets into the newly formed Fox Corporation, including the Fox Broadcasting Company and Fox News Channel. Other assets like the Fox Sports Networks and Sky were sold to third parties.
Disney's CEO Bob Iger highlighted that the acquisition was driven by Disney's anticipation to develop its own streaming service, Disney+, which launched in November 2019. The deal was less about Fox's production capacities and more focused on acquiring Fox's film and television libraries to expand Disney+'s offerings. This acquisition included film rights to third-party franchises such as Avatar, X-Men, Deadpool, and Fantastic Four, along with distribution rights to Star Wars. It also consolidated ownership of other franchises like Home Alone and gave Disney access to adult animation with shows like The Simpsons and Family Guy.
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The United States Department of Justice approved the acquisition under the condition that Disney sold Fox's 22 regional sports channels within 90 days of closing. Despite a lawsuit filed by a Fox shareholder to stop the acquisition, citing the absence of financial projections for Hulu, and Comcast's continued interest in acquiring Fox's Regional Sports Networks, Disney and Fox shareholders approved the merger on July 27, 2018. The approval from Mexico's telecom regulator, the Federal Telecommunications Institute, on March 11, 2019, cleared the last major holdout on the deal. As part of the acquisition's completion, Disney announced the integration of top 21st Century Fox television executives into the company, including Peter Rice as Chairman of Walt Disney Television.
Even though the acquisition of 21st Century Fox is one of the largest ever in the media and entertainment industry, it represents just one among many for Disney, underscoring the company's dominant market position. In the visual below, we have included every notable acquisition since 1990.
1990's.
Miramax (1993)
Capital Cities/ABC Inc. (1995)
ESPN Inc. (1995)
Infoseek (1998)
Starwave (1998)
Fox Family Worldwide (2001)
The Muppets and Bear (2004)
Avalanche Software (2005)
Pixar (2006)
Climax Racing (September 2006)
Club Penguin (2007)
Junction Point Studios (2007)
Ideal Bite (2008)
Kerpoof (2009)
Hulu (2009)
Wideload Games (2009)
Marvel Entertainment (2009)
Tapulous (2010)
Playdom (2010)
Rocket Pack (2011)
UTV Software Communications (2012)
Maker Studios (2014)
Lucasfilm (2015)
BAMTech (2017)
Euro Disney SCA (2017)
21st Century Fox (2019)
Hulu (remaining 33%, 2023)
As of the third quarter of 2022, Disney had officially overtaken Netflix in total paying subscribers, marking a significant milestone given Netflix's long-standing dominance in the video streaming sector. However, Netflix has since reclaimed its leading position. Below, we present a visualization of the ongoing streaming war.
Another important aspect to consider is profitability. Disney has aggressively marketed Disney+ at a much lower price point compared to competitors such as Netflix. Consequently, analyzing the profitability comparison between Netflix and Disney's Direct-to-Consumer (DTC) segment becomes an intriguing study.
Netflix has been a dominant player in the SVOD (Subscription Video on Demand) domain and pioneered the concept of video streaming back in 2007, which is an important factor to consider. However, it remains to be seen whether Disney can transform its SVOD segment into a profit-generating business. The vast IP portfolio that Disney has acquired over several decades could prove to be a significant advantage in this endeavor.
Since its establishment in 1923, The Walt Disney Company has significantly expanded and strengthened its position as a leading entertainment powerhouse through a series of strategic acquisitions. The journey, as vividly captured in this article, highlights key milestones in Disney's evolution from an animation studio to a dominant force in the media and entertainment industry. Notable acquisitions include ABC Television, Pixar, Marvel, Lucasfilm, and notably the landmark purchase of 21st Century Fox. This latter acquisition, one of the largest in the industry, was instrumental for the development of Disney+ and significantly expanded Disney’s content library.
The list of acquisitions, extending from Miramax in the 1990s to acquiring the remaining stake in Hulu in 2023, illustrates Disney's aggressive strategy in expansion and diversification. Each acquisition has not only augmented Disney's portfolio but also bolstered its market dominance, marking its evolution into a global entertainment conglomerate. Although Disney's streaming services still face challenges, the company serves as a prime example of how mergers and acquisitions can be leveraged as core pillars of value creation.
With a broad global customer base spanning from equity analysts, portfolio managers, to IR departments, the reasons naturally vary, but here are four that we often hear:
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This article is written by Riya Dubey, a student pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho .
Table of Contents
Walt Disney is a media and entertainment company founded in 1923 by Walt Disney and Roy Disney. Pixar was found in 1986 by Steve Jobs and is the pioneer in animation. In 2006, Pixar was acquired by Walt Disney. So, here we going to discuss the reasons why the merger was the best option and what are the reasons behind the successful merger of Walt Disney and Pixar even after so many years.
The list of movies they produced under this contract includes:
In a vertical merger, the merger takes place between two or more companies that operate for the specified finished product at different stages in the production process. This usually takes place so that there can be an increase in synergies created by the merging of companies. Vertical merging can be cost-efficient, increase profits, helps in diversification, and expands the market.
And when it comes to the merger of Walt Disney and Pixar it was a vertical merger because Pixar has specialization in animations and whereas Disney’s main focus is on creating animated movies. Both companies were in the same field and were operating at different stages of production. Their synergy has resulted in the production of smashing hits worldwide.
The merger of Disney and Pixar was made on two alliances:
Internal Development:
The following benefits were available to Disney:
Strategic Alliance:
Merger & Acquisition:
Pixar | Walt Disney | |
Area | Short movies, ad commercials | Animated movies |
Animation technology | 3D animation | 2D |
Software | None | |
Skill | It had employees have technical knowledge (PhDs). | Lack of computer graphic artist. |
Assets | Experience in the know-how of the movie industry. | |
Distribution channel | None | |
Corporate culture | ||
Operation cost | While creating the Toy Story there was a staff of only 110. | The larger staff of 125,000 employees and a large budget. |
Pixar had have been great in creating the latest technology for animating short movies and Disney was not having that technology. So, by acquiring Pixar, Disney would have got the latest technology to stand in the market. Disney and Pixar both have talented teams of scriptwriters and animators. While acquiring Pixar, Disney knew that in the US, scriptwriters are unionized and in past, they have gone to strikes and it has resulted in the loss of hundreds millions of dollars to the studios. Disney was clear that employees of Pixar cannot be taken for granted.
Both Disney and Pixar had a great place in the market. All the movies produced by Pixar then were spinners for whoever was associated with it. Disney had considerable clout in bargaining for contracts.
In this deal, Bobs knew that acquisition of Pixar can turn Disney around therefore to reduce the fear of oppression he assured that the corporate culture of Pixar will be kept untouched. We can therefore say that here Disney was having low bargaining power.
Merging of corporate culture:.
Certain things in the change management process have to be right for getting benefits from the merger of the corporate culture of two companies. And Disney and Pixar were able to manage this without any glitch:
Iger in this deal was ready to accept the relaxed atmosphere of Pixar. In most cases, we see the dominant force in mergers but Disney accepted the t-shirt and slacks approach of Pixar as its strength.
Disney accepted the old employment agreement of Pixar and its employees were not forced to sign s new employment agreement. A whole ream of promises was made by Disney. After the year executives of Pixar reviewed the list of promises and found that each and every promise was kept. This confirmed the trust and Pixar become more comfortable in doing things in Disney’s way.
The deal between Disney and Pixar allowed Pixar’s employees to use the same email id as before. It didn’t consume the advantages of Pixar. Pixar’s identity was not taken away. And in return, Disney encouraged Pixar to produce more than one movie in a year.
It’s obvious for the employees of the company that is getting acquired, to get nervous as in most of the mergers there is a vast change in the working environment.
But the merger of Disney and Pixar was unique in itself, here Disney asked Pixar for how things should be done. Iger asked Senior Pixar employees “how to improvement can be done in underperforming divisions of Disney?” and made the best use of them. Pixar has to focus on the improvement to be made in an animation department and computer-generated animations.
The foremost reason behind the success of the Disney and Pixar merger is that investors were able to see the potential of Disney to leverage the computer-animated character of Pixar to be used in Disney’s vast network market. We can see the example of “Cars”, the revenue generated by it was around $5 million. Pixar developed movies as well as the sequels of original movies. Of course, the experience of Iger in merging the companies helped a lot.
The revenue generated after the merger speaks for itself, indicating that this is one of the most successful mergers at present. The projects like Incredibles 2, Toy Story4 have surpassed the revenue of $1 billion.
The list below provides the revenue generated by the movies after the merger of the two companies:
|
|
|
|
March 6, 2020 | Onward | $200,000,000 | $127,912,438 |
June 21, 2019 | Toy Story 4 | $200,000,000 | $1,073,080,329 |
June 15, 2018 | Incredibles 2 | $200,000,000 | $1,242,805,359 |
November 22, 2017 | Coco | $175,000,000 | $798,237,597 |
June 16, 2017 | Cars 3 | $175,000,000 | $383,541,369 |
June 17, 2016 | Finding Dory | $200,000,000 | $1,025,006,125 |
November 25, 2015 | The Good Dinosaur | $187,500,000 | $333,771,037 |
June 19, 2015 | Inside Out | $175,000,000 | $855,038,387 |
June 21, 2013 | Monsters University | $200,000,000 | $743,455,810 |
June 22, 2012 | Brave | $185,000,000 | $554,606,532 |
June 24, 2011 | Cars 2 | $200,000,000 | $560,155,383 |
June 18, 2010 | Toy Story 3 | $200,000,000 | $1,068,879,522 |
May 29, 2009 | UP | $175,000,000 | $731,463,377 |
June 27, 2008 | Wall-e | $180,000,000 | $532,508,025 |
June 29, 2007 | Ratatouille | $150,000,000 | $626,549,695 |
June 9, 2006 | Cars | $70,000,000 | $461,630,558 |
Source: The number
The merger of Walt Disney and Pixar is one of the most successful corporate mergers in these years. This acquisition was of benefit for both companies. For Disney, it was of benefit because of innovative ideas in the animation studio and the technology Pixar had. This merger had given many blockbuster movies till now. The main reason for the success of the merger was the negotiations done by both companies.
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Disney acquired Pixar for $ 7.4 billion, which obviously is a whopping sum. Purchase at such a high price reveals Disney’s eagerness to gain Pixar’s animation capabilities, talent and the creativity culture that are the latter’s unique features. Disney, however, will have to confront several risks in achieving the goals of this acquisition.
Disney’s acquisition of Pixar was of utmost importance to Disney because the acquisition provided Disney the world’s most famous computer animation studio along with its human talent. The benefits for Pixar in such an acquisition were that Pixar could access Disney’s marketing and distribution capabilities. On the basis of such an agreement Disney acquired Pixar during January 2006.
Disney’s acquisition of Pixar had always proved to be fruitful and had resulted in the production of several blockbusters. This acquisition had also helped Disney to establish a close rapport to Apple and its chief Steve Jobs who was a genius besides being a visionary. With his participation Disney could increase the digital content through Apple. Steve Jobs, the then CEO of Apple had assisted Disney in availing better technological advice and this had enabled Disney to enhance their creative capabilities and innovativeness.
Thus, the benefits for Disney due the takeover of Pixar were tremendous. However, on the flipside, there were several risks also. These mainly concerned with the return on investment. Since the value that Disney paid for the acquisition was far too higher than the actual worth, it would take Disney a much longer period to recover any return on the investment, though they can rest assured of appropriate returns.
There were, however, no technological risks. Another risk was that paying such a premium price for this acquisition deal would bring in financial losses for the firm due the return on investment period being too long. This, albeit temporarily, would reflect as loss in the company’s accounts, which may reflect adversely on their stock prices.
Another risk that Disney faced during the acquisition period was the entry of Steve Jobs into the directorial board in the newly merged firm. Being a popular icon in the business world, he could easily surpass Disney’s CEO, Robert Iger.
This could result in the business being dominated and spearheaded by Steve Jobs and Robert Iger being sidelined. This was one of the fears shared by Disney team during the acquisition process, who thought that the merger instead of partnership with Pixar, “might make Iger second to the powerful and experienced Jobs” (Disney’s Acquisition of Pixar par. 4).
Pixar’s teams had extraordinary creative talent pool which would force Disney to become highly dependent on Pixar’s employees and this allowed Pixar the power to negotiate at a very high price for Disney. Thus, Disney had no option other than to pay the premium price because otherwise Disney would be losing its business.
Disney also had to compromise on other grounds. For example, Iger agreed to a long list of guidelines which protected Pixar’s creative culture even though the two firms were merged and known as one firm. It was quite understood by the CEO, Robert Iger that Disney could not stand alone and compete in the market without the merger with Pixar.
This allowed Pixar to raise its acquisition price because their stocks were, doing pretty well in the market. On the other hand, Disney sustained several flops in its creative films which had very severely impacted the prices of its share in the market.
Therefore, even though Disney was the acquirer firm yet they had been forced to compromise on several aspects because they considered this acquisition to be crucial for their survival and thus agreed to pay a premium price.
Disney’s Acquisition of Pixar . ICMR: IBS Center for Management Research. 2006. Web.
IvyPanda. (2018, October 31). Risks to Disney Consequent on Acquiring Pixar. https://ivypanda.com/essays/risks-to-disney-consequent-on-acquiring-pixar/
"Risks to Disney Consequent on Acquiring Pixar." IvyPanda , 31 Oct. 2018, ivypanda.com/essays/risks-to-disney-consequent-on-acquiring-pixar/.
IvyPanda . (2018) 'Risks to Disney Consequent on Acquiring Pixar'. 31 October.
IvyPanda . 2018. "Risks to Disney Consequent on Acquiring Pixar." October 31, 2018. https://ivypanda.com/essays/risks-to-disney-consequent-on-acquiring-pixar/.
1. IvyPanda . "Risks to Disney Consequent on Acquiring Pixar." October 31, 2018. https://ivypanda.com/essays/risks-to-disney-consequent-on-acquiring-pixar/.
Bibliography
IvyPanda . "Risks to Disney Consequent on Acquiring Pixar." October 31, 2018. https://ivypanda.com/essays/risks-to-disney-consequent-on-acquiring-pixar/.
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Home >> Harvard Case Study Analysis Solutions >> Walt Disney and Pixar
Walt Disney intends to acquire Pixar as itwants to know the value of Pixar and itsown so that itcan understand that either the acquisition will destroy itscurrent value or not. By analyzing the value of Walt Disney and Pixar we can conclude either the acquisition is suitable for Walt Disney or not.After this calculation we can also estimate the value which should be paid to acquire Pixar. Furthermore, by combining the results of two companies we can estimate the future position of bothcompanies.
Pixar Valuation
We can evaluate the performance of Pixar by forecasting the income statement of the company for next 10 years and by calculating Free Cash Flow method we can estimate the fair value of the company.
Projected Income Statement:
There was an agreement being considered in which the operational activities and their financing would be done by Disney as currently under the fixed term agreementPixar is not involved in animated films.
Pixar will receive its share of revenues after the process of distribution and participation charges are made to Disney. This will give some income to Pixar but this option is not considered to be feasible as Pixar would not be involved in the operations.
Walt Disney and Pixar Harvard Case Solution & Analysis
FCF valuation of Pixar:
Due to no involvement of Pixar in the operations, its free cash flows are not of huge amounts and are not significant as they should have been. The total value of Pixar using the free cash flow method through the multiple of EBITDA will be approximately $5819.
Walt Disney Valuation
Projected Income statement of Disney:
The financial performance of Disney is better if compared to Pixar because Disney had the control of operation and was also responsible for the financing of the project.
FCF valuation of Disney:
Disney is better than Pixar because as the company is receiving a greater sum of revenue than its costs and that’s the reason why Disney will be more profitable than Pixar.
Valuation of both Pixar and Disney:
The valuation of Disney company is $163091 and the valuation of Pixar is $5819.It is evident from the values that the valueof Disney is higher than the value of Pixar and this shows that Disney is progressing better than Pixar and this huge value being placed upon Disney could be due to the project which was being operated and controlled by Disney.
How toget Risk-Free rate, Beta and WACC without Bloomberg terminal
The beta equity of the company measures the risk of the company.If the beta equity is above 1 then the company has more risk attached to it than the market and the shareholders will demand return accordingly. If the beta of the company is below 1 then it is less risky than the market and if the beta equity of the company is equal to 1 then the risk of the company is same as market risk.If the asset beta of the industry is adjusted for the company’s beta equity by incorporating the capital structure of the company to the beta asset, then it will generate beta equity.
Risk free rate:
The risk free rate is the yield on the 10-year government bond which is considered to be risk free. Similarly, rf is used in the calculation of the cost of equity using the CAPM formula.
The WACC of the company is calculated by multiplying the cost of equity with the equity weight and multiplying the cost of debt with the debt weight assuming that the company raises funds from debt and equity only. If there are more sources, then the WACC will incorporate those costs too.
If Pixar is expensive or not:
The value through free cash flow method of Disney is $163091 and after acquiring Pixar it will be $172770. Disney would have avalue of $172770 which is not considered to be a good value addition as the company has current valuation of $163091 and approximately $9000 will be added to the value of the company.So, Pixar is considered to be too expensive to be bought by Disney.
Both companies have different operations as one company i.e. Disney is involved in the production of animated films whereas Pixar is involved in adult fiction films. The companies have different cultures too.
If Disney gives some control to Pixar, then Pixar will be more inclined to take effective decisions in the company and this will in turn increase the valuation and revenue of the company.................
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Introduction: This case study analyses and differentiates the merger and acquisition strategy for the companies of Disney and Pixar, In the first section, you will find the brief analysis of the ...
Over the course of 18 years, these Disney Pixar films have grossed over $7,244,256,747 worldwide. With a gross profit of $5,893,256,747. The merger of Disney and Pixar has resulted in greater creative output. Since the acquisition, Disney-Pixar has plans to release movies twice a year as Pixar has the technology to help do so.
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Soon after Robert Iger took over as CEO of the Walt Disney Company in late 2005, he turned his attention toward Pixar, the animation studio with which Disney had worked since 1991 and was responsible for producing hits such as Toy Story and Finding Nemo. Disney's own animated film business had been in decline since Jeffrey Katzenberg left to ...
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The Disney-Pixar Case Study. Given our belief that Third Space skills map to creative industries, a good case study of how firms have used Third Space skills to manage these skills is the Walt Disney acquisition of Pixar in 2006 for $7.3 billion. The relationship between Disney and Pixar, which started under the auspices of CEO Michael Eisner ...
Within two months of that call, he announced that Disney would acquire Pixar Animation Studios for $7.4 billion. Looking back, Iger — who stepped down from the top executive seat in 2020 ...
The Rationale. Analysts said this deal was more important to Disney than to Pixar. For Disney, the acquisition gave it ownership of the world's most famous computer animation studio and its talent, with whom it had teamed up to create block busters since the 1990s. The timing was also perfect as its own animation films had failed one after another.
Whatsapp Channel. Disney paid $7.4 billion in stock to acquire Pixar in 2006. Through the acquisition, Disney was able to increase its market reach by utilising Pixar's cutting-edge animation technology. Disney's funding and distribution resources were available to Pixar. Along with new characters, the acquisition gave Disney access to new ...
Disney and Pixar Merger. This Case Study discusses the case of successful acquisition of Pixar by Disney. It is concerning Corporate Level Strategy. In 2006, The Walt Disney Company bought Pixar at a value of $7.4 billion, which was one of the biggest transactions made in the animation industry. The Walt Disney Company was founded in 1923 by ...
The journey, as vividly captured in this article, highlights key milestones in Disney's evolution from an animation studio to a dominant force in the media and entertainment industry. Notable acquisitions include ABC Television, Pixar, Marvel, Lucasfilm, and notably the landmark purchase of 21st Century Fox. This latter acquisition, one of the ...
The merger of Walt Disney and Pixar is one of the most successful corporate mergers in these years. This acquisition was of benefit for both companies. For Disney, it was of benefit because of innovative ideas in the animation studio and the technology Pixar had. This merger had given many blockbuster movies till now.
Disney acquired Pixar for $ 7.4 billion, which obviously is a whopping sum. Purchase at such a high price reveals Disney's eagerness to gain Pixar's animation capabilities, talent and the creativity culture that are the latter's unique features. Disney, however, will have to confront several risks in achieving the goals of this acquisition.
Walt Disney and Pixar Case Study Solution. Overview. Walt Disney intends to acquire Pixar as itwants to know the value of Pixar and itsown so that itcan understand that either the acquisition will destroy itscurrent value or not. By analyzing the value of Walt Disney and Pixar we can conclude either the acquisition is suitable for Walt Disney or not.After this calculation we can also estimate ...