Note: While reading a book whenever I come across something interesting, I highlight it on my Kindle. Later I turn those highlights into a blogpost. It is not a complete summary of the book. These are my notes which I intend to go back to later. Let’s start!

  • As I put the phone down, my first reaction was shock. A call from Steve Jobs out of the blue? That was startling. But the initial thrill faded rapidly; rudimentary research revealed that Pixar had a decidedly checkered history. Steve had acquired ownership of Pixar when George Lucas spun it off from Lucasfilm eight years earlier. He then apparently poured millions of dollars into the company in the hope of developing a high-end imaging computer and accompanying software. The result: not much. Pixar had long abandoned the quest to develop an imaging computer, and it was not clear to anyone I talked to what was sustaining Pixar now. Moreover, Steve Jobs may have been Silicon Valley’s most visible celebrity, but that made it all the more glaring that he had not had a hit in a long time—a very long time. His last two products before being stripped of all responsibilities at Apple in 1985—the Lisa and the original Macintosh computers—had both been commercial disasters, and the NeXT Computer was regarded by many observers as the triumph of hubris over practicality. It had been heralded as a technological marvel, but it had been unable to compete with the likes of Sun Microsystems and Silicon Graphics that sold less expensive, more compatible machines. More and more, Jobs was looking like yesterday’s news. When I told friends and colleagues that I was meeting Steve Jobs about Pixar, the most common response was “Why would you want to do that?” Still, I was intrigued, and there would be no harm in a meeting. I followed up by calling Steve’s office to arrange a time.

  • 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 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.

  • Pixar’s revenues from animated commercials were small, and profits almost nonexistent. The division would have to scale by a huge factor, and become much more profitable, to make a meaningful contribution to the company’s bottom line. Based on what I’d learned, this was all but impossible. Once again, Pixar was committing its talent to an endeavor that would never go anywhere. It might keep a small, talented group busy, but as a strategy for growing a company, animated commercials was another dead end. With little promise in RenderMan and animated commercials, the options for growing Pixar’s business were diminishing, and my level of worry was on the rise.

  • Animated short films had no commercial value. They were either done purely as a labor of love, or in Pixar’s case as a way to test and develop its technologies and story development process. They were shown at trade shows, film festivals, and sometimes at the beginning of feature films in movie theaters, but they didn’t make a dime. And in fact, they were very expensive to make. I didn’t even need to analyze the economics of the animated short film market. There was no market. It seemed that the more I looked for possible profit centers, the less I found. Sometimes a doctor has to give a patient a grievous diagnosis, but I didn’t think I had been hired to tell Steve Jobs that his company was a hopeless case. He wanted positive answers, and I wasn’t finding any.

  • I wanted to ask Steve why he let Pixar enter such a one-sided contract, why he didn’t tell me it was so constraining, and why he seemed so nonchalant about it. But I didn’t. As we sat there talking, I realized Steve had no interest in looking back. He didn’t defend the contract. He didn’t justify it. He listened carefully to everything I had to say about it, taking it all in. That was pretty much it. Instead of pressing Steve, I was left to draw my own conclusions. I pieced together a scenario that made sense of what had happened, at least to me. I never verified it with Steve; it was simply my own way of understanding things. I reasoned that around 1991, Steve was ready to let go of Pixar. He had never set out to build an animation company. In 1986, when he took control of Pixar, Steve dreamed of building a technology company, a graphics powerhouse that would stun the world with machines that could do computer imagery like no other. Storytelling was an afterthought, a way to demonstrate the technology. The hopes of that graphics company had rested in part on the Pixar Image Computer, which had failed. By 1991, that division of Pixar had been shut down completely. At that moment, I concluded, Steve was ready to give up on Pixar. He must have wanted out. The burden was simply too great, and the dream dashed. He was in a very tough spot, however. It was five years since his departure from Apple, and he had not had a hit since. If he couldn’t chalk Pixar up as a win, he badly wanted to avoid another highly public loss. That was the instant when the Disney opportunity came along. To Steve, the deal with Disney was a way to stop the financial bleeding. Steve’s guard was down, and in that negotiation with Disney he had been bested by Jeffrey Katzenberg, chairman of Walt Disney Studios, who handled the deal on behalf of Disney. Steve had signed up for terms the implications of which he either didn’t fully understand, or to which he had simply yielded in order to get the deal done. None of this changed our current situation, however. We had no long-range hope in RenderMan software. No hope in animated commercials. No hope in short films. No hope in animated feature films. One of the world’s richest and most powerful companies controlled our future and our fortunes. And on top of everything else, a terribly strained relationship between Pixar and its owner, Steve. That was the hand we were dealt.

  • Early in my career I had learned the wisdom of not griping over the hand I was dealt. I had a mentor who taught me lessons about business and life that served me for many years. He looked at business the way a grand master might look at a chessboard. “There’s nothing you can do about where the pieces are,” he’d say. “It’s only your next move that matters.” I had worked at training myself in this way of thinking. It was a lot more productive than getting emotional about things that were out of my control. Business can be harsh, but the stakes are rarely a matter of life and death. It was not going to help me to fret over the reasons why Pixar may or may not have entered a one-sided contract a few years earlier. I simply had to remain focused on the task at hand: find a way for Pixar to flourish. I also found one silver lining to keep me going. Somewhere out of the fog of those first two months, one more important conclusion struck me. Hillary and I discussed it as we were sitting in the living room after dinner one night. “You know,” I said, “in all my conversations with Steve these past two months, I’ve never found him defensive. I’ve critiqued and dismantled every aspect of Pixar’s business and he had every reason to justify and defend it. But he didn’t. Not once. It’s as if he’s taking this journey with me, learning it at the same time I am.” “He hasn’t given you a reason to distrust him,” Hillary said. “You two are in this together. You have to work it out together.” That’s how it felt. Whatever mess we were in, we were in it together. What mattered was our next move.

  • By the end of April 1995, I felt my honeymoon period at Pixar should be coming to an end. I had walked and talked around its hallways and offices for long enough. I wanted to move forward, to find a toehold somewhere. But I was having a hard time doing so. It felt like I was meandering around the base of the mountain instead of actually climbing it.

  • The first thing to fix was arranging an office for Steve. Steve was unaware how his frustrations with Pixar over the years, the failure to give employees stock options, not to mention his personal style, had instilled a real fear that he would ruin Pixar’s familial culture. I didn’t want to bring this up with him directly. There was no reason to be inflammatory, or even risk making relations worse, but I needed to address this issue somehow. I called him on the phone one night. “Steve, I’ll return to Pixar in a couple of days. It’s also a good time to talk about getting you situated at Pixar.” “That sounds great,” Steve said. “I’m glad to have you back. I only need an office. I plan to come up every week, or every two weeks, probably on Fridays.” “That’s no problem,” I said, “but we’ll have to make it clear just exactly what your role and purpose is.” “Why do we have to do that?” Steve asked. I could feel him getting testy. “As the owner of the company,” I went on, “everyone will want to know why you’re coming up more and what it means. It’s a change for the company—a good change, but a change nevertheless. You’re the CEO, so you hold a lot of power. People might think you want to change things, or start to do things differently.” “I don’t want to change anything,” Steve protested. “I want to hang around Pixar more. Be part of it. I also want to be closer to discussions around marketing our films. Disney does the marketing, but Pixar should have a strong say in it.” “I think it would be great to frame it just that way,” I replied. “You’re there not to change how Pixar operates but to be part of it, to be closer to it, and to be involved in the marketing aspects of the films.” I called Ed Catmull and Pam Kerwin to discuss all of this with them. If they bought into it, others would too. Ed told me that in the past he had talked to Steve about not interfering with Pixar’s story process, and that Steve was okay with that. Pam also understood that we had to make this work. “We know Steve owns the company and can be here anytime he wants,” Pam said. “We just have to control the situation, get people used to it.” “I understand,” I said. “He’s on board with how we’re going to position it. That’s all we can ask for.” “I’m not sure if going into live-action film gives us any advantages,” I said. “In animation we put all our eggs in one basket, and we watch it very closely. In live action we spread out the eggs over many baskets, hoping a few of them will hatch. Both businesses are risky. I’m not sure one balances or helps the other.” “It might even be the opposite,” Steve said. “If we have to release a slate of live-action films, what’s to stop the ones that flop from damaging our reputation in animation?” “That’s true,” I agreed. “Walt Disney only went into live-action film after he was established in animation.” “I hate the idea of Pixar releasing products that might not be great,” Steve added emphatically. I felt the same way. Silicon Valley was built around changing the world with breakthrough products. It wasn’t that releasing a slate of live-action films was a bad strategy; it just was not the way we thought about things. And besides, it looked like both animated films and live-action films were very risky businesses. One would not offset the risk of the other. From that point on, it felt like we were talking ourselves out of going into live-action film rather than evaluating it as a serious option. There was no part of Steve that bought into the idea of making products that might not all have a shot at greatness. Live-action film was quickly losing lift as the risk-reducing strategy we had hoped it would be. More and more, committing Pixar to animated entertainment alone was looming as Pixar’s only option. I’d been fighting it ever since I’d come to Pixar because every stone I had turned over revealed just how hard that path would be. I’d thought it when I’d learned how onerous the Disney agreement was, and then again when I learned the risks of releasing blockbuster films, and then again when I learned there had pretty much never been an independent, animated feature film company without other businesses to diversify the risks.

  • Sam explained that his firm’s film projection model was confidential because it helped them counsel their clients and they didn’t want others to have access to it. He also said that his model was only for live-action film and that animation would be different. “I totally understand why you don’t give out your model,” I said, almost pleading, “but I’m really hitting a wall on this one. Every place I turn all I hear is that these film models are confidential, but Pixar has to have its own in order to move forward.” “I’m sympathetic,” said Sam, “but we’ve never shared the information in our model.” But the truth was, I didn’t want that particular information for live-action films. I wanted to build a model for animation, which would be different. I just needed a start. I had an idea. “Sam, you mentioned your model is only for live action. How about if Pixar agrees to use it only for animation? We’ll evolve it. We won’t need to use your original data because we’ll tailor it to animation. Then we’ll share the results with you and in the end, you’ll have an animation model if you need it.” “Where will you get the data for animation?” Sam asked. “Disney said they would help us; they just can’t give us their model. With your model and their help, I think we can do it.” Sam thought for a moment. “You know, I can go along with that,” he said. I felt like jumping through the phone and giving him a hug. I never thought I would be so thrilled over a spreadsheet. Sam’s reticence to share the model was well founded. He had stretched himself to help us out. I felt truly grateful. Sam’s firm sent up the numbers. It was our first glimpse at the way films made money. At last, we could see how much studios kept from the box office revenues; what were reasonable assumptions for film marketing costs; when films were released in video, TV, and other markets; how much they made; the impact on profits of film production budgets and profit-sharing arrangements; as well as other details without which we’d never fully understand the business. To tailor the model to animation, we took up Disney’s offer to answer our questions about how the business of animated feature films worked. Before long we cobbled together our first model of how an animated feature film performed financially. It was rough and crude, at best. But it was ours. Over time we would learn how to perfect it. Right now, it was good enough to give us a start. Sarah and I were elated. It was one of those small, quiet victories that gave us far more satisfaction than one might expect. It may have seemed trivial to others, but it made us feel we could finally start talking the talk of the film business. There was a chance that one day we might even seem like we knew what we were doing. As the numbers crystallized, however, I began to see why Hal Vogel had characterized raising capital through the stock markets as a torturous obstacle course for a film company. It was virtually impossible to make the numbers work in a way that generated the kind of smooth, even profit growth that investors liked. Worse, the numbers had tremendous risk in them. Just a small change in box office performance could wipe out the entire profitability of a film. There was also another issue that was unique to animation, a pesky detail that went under the title of “carrying costs.” Carrying costs are the costs of paying employees when they are not working on films. When animation finished on Toy Story, for example, Pixar still had to pay its animators even if it had nothing for them to do. I was learning that carrying costs could drain a little company like Pixar of all profitability. It was a problem that had dated all the way back to the time of Walt Disney, and one of the reasons it was so difficult to go into animation. This problem did not exist in live-action film because the crew making the film, from the producer and director to the film’s stars, to the cameramen, extras, and everyone else, comes together for the sole purpose of making the film. They are paid only during the time they are involved. As soon as that ends, they all disperse and there is no further obligation to pay them. Animation studios don’t work this way. The artists and filmmakers are studio employees. They remain at the studio often for their entire careers. They are paid whether they are making a film or not. The cost of continuing to pay studio employees when the studio is not in the heat of producing a film could grow enormous. If Pixar didn’t have well-planned solutions to keeping its people productive between films, even a hit film could be drained of its profits by the overall carrying costs.

  • Besides making films that would enjoy unprecedented box office success the world over, we simply had to
    • QUADRUPLE OUR SHARE OF THE PROFITS
    • RAISE AT LEAST $75 MILLION TO PAY FOR OUR PRODUCTION COSTS
    • MAKE FILMS FAR MORE OFTEN THAN WE KNEW HOW
    • BUILD PIXAR INTO A WORLDWIDE BRAND

  • One of the lessons I learned from the IPO of my previous company, Electronics for Imaging, was that if there is anything investors prefer it is predictability and stability. They become most nervous when things appear erratic and changeable. And the truth was, nothing about our projections for Pixar had predictability or stability. It was impossible to predict the box office performance for a film, and our film release schedule was erratic to say the least. After Toy Story, it would be three years before our next film was released. Predicting Pixar’s business performance felt like little more than a guess. Investors might accept an unconventional business model, but I didn’t think it was a plus.

  • On the day I met Skip, as I walked into his office, my eye caught an embroidered pillow sitting on a small armchair. On the pillow were carefully stitched words: “No good deed goes unpunished.” Skip saw me notice it and said, “If you understand that, you understand Hollywood.” I was struck by this. The words on the pillow were so cynical. I asked him about it. “You have to understand,” Skip said, “there’s a reality in Hollywood that will hurt you if you fight it. If you give too much, too soon, you’ll end up giving a lot more. It sounds counterintuitive, but keep it in mind.”

  • We would need a slide show to tell Pixar’s story, one that wove together Pixar’s history, aspirations, business plan, and risks, together with a video showcase of our work. Together Steve and I mapped out what the slides needed to say, and then Steve went to work on them himself, requesting images, data, and numbers, and when he needed them. Then he’d ask me to take a look, and we’d make revisions. Steve paid attention to every nuance of the slides, even details that, as far as I could tell, were invisible to the naked eye, like font kerning—which is adjusting the space between letters—and font smoothing to make sure the curves on each font were perfect. He hired a presentation professional, Wayne Goodrich, to help finalize these details and to make sure that at every single stop on the road show, all the pieces were in place to show the presentation and video perfectly.

  • Neither of us was sure whether or when to approach Disney to try to change our deal. We understood that if we did it now, we might get better terms even for our next two films, but if we waited, we might get even better terms later, when we were free of that agreement. We went back and forth, often switching sides in the discussion. Making the move now made sense only if we thought we could negotiate a deal that would be strong enough to justify giving up our options in the future. But how would we know? There is no formula for easily making this type of assessment. In business relationships, or virtually in any relationships for that matter, there are two factors that determine one’s capacity to effect change: leverage and negotiation. Leverage means bargaining power. It is the muscle you have to bring about change in your favor. The more leverage, the better your chances to get what you want. In poker, leverage would be the equivalent of the actual strength of your hand. Negotiation, in contrast, describes the tactics you employ to extract the best terms you can, given your leverage. It is about how you play the hand. Courage, fear, tenacity, trustworthiness, creativity, calm, the willingness to walk away, to behave irrationally—these all play into negotiation. Leverage is an assessment of bargaining strength; negotiation is how you put that bargaining strength to work for you. A good negotiator can make more out of the same leverage than a not-so-good one. In Pixar’s first agreement with Disney, Pixar had fared poorly in terms of both leverage and negotiation. Pixar had not had much leverage because it had just closed down its hardware business, was struggling to remain afloat, and had never made a feature film. In terms of negotiation, I felt Steve had been caught in a rare weak moment. This was more than four years ago, though. Steve liked to cite the adage “Fool me once, shame on you; fool me twice, shame on me.” What had occurred four years earlier was not going to happen again. We needed to understand how much leverage we had in order to negotiate a good deal with Disney now. If we approached Disney and didn’t have the muscle to back us up, we would be politely, or maybe not so politely, dismissed out of hand.

  • One Friday in late January 1996, when Steve was at Pixar, we stepped into the small, windowless conference room near my office to discuss where we thought Pixar stood in relation to Disney. As we often did, we wrote down the main points of discussion on a whiteboard. There was one in the front of the room, with a wooden casing around it. We had discussed all of these points before, but it was helpful to see them in one place. Steve took a whiteboard pen and made two columns: Disney and Pixar. Under the Disney column, he would write the points that gave Disney leverage. Under the Pixar column, he would write the points that favored Pixar. Point one for Disney: NO OBLIGATION TO CHANGE CONTRACT “We know there’s nothing that can force Disney to negotiate with us,” Steve said. “They have a three-picture deal and they can stick to that contract simply because they want to.” “They have us tied up for two more films,” I added. “They keep most of the profits, and we can’t talk to any other studios until we’re done. It’s a great deal for them. Why would they change it?” Steve added a second point in the Disney column: CAN INVEST IN COMPUTER ANIMATION THEMSELVES

  • The impact of Toy Story had made Disney examine its own potential in computer animation. They might easily assume that they could hire the best talent they could find and build up their own capability. “If Disney makes a substantial investment in computer animation,” Steve said, “they may have no interest in extending their agreement with us.” “Disney has plenty of resources to do it,” I added. “Plus they also have time on their side. Their deal with us could buoy them for a few years while they build up their own capacity in computer animation. We’re basically giving them the lead time they need.” This was a potentially perfect strategy for Disney. They could use Pixar to tide them over until they no longer needed us, reaping most of the profits along the way. Then they’d have their own computer animation capability ready to go and could easily jettison Pixar. “Another point for the Disney column,” I added, “is that Disney will undoubtedly think it offers Pixar more than any other studio can offer, given its expertise in animated films.” Steve wrote in the Disney column: OTHER PIXAR OPTIONS INFERIOR Disney was clearly better at distributing animated feature films than anyone else. It had extraordinary merchandising capability for churning out toys, clothes, and other branded items; it had the very best theme parks for showcasing the films and their characters; and the imprint of the Disney brand on an animated film gave it a cachet that no other studio could provide. Where else could Pixar find that kind of distribution clout? Disney might well conclude that Pixar needed Disney far more than Disney needed Pixar, and they might be right. It would certainly diminish our leverage with them. Next Steve added to the Disney column: PIXAR ONLY ONE HIT “We’ve had only one hit,” Steve said. “Before we prove we can repeat it, Disney might be reluctant to change our deal.” This was the one-hit-wonder problem. One hit did not make for a track record. “Anything else in Disney’s favor?” Steve asked. “We’ve talked about this,” I said, “but maybe Eisner’s interest in animation is waning. He just bet big by buying ABC, which includes ESPN. Animation could be on its way to becoming a sideshow for him.” Michael Eisner was Disney’s CEO. He had a reputation for being mercurial and hard to read. The notion that he might not care all that much about animation seemed a bit far-fetched, but it was possible he was more interested in television and other media outlets than animation. He had just spent $19 billion to buy ABC. Maybe it spelled a new direction for Disney.

  • The Disney column now read:DISNEY
    • NO OBLIGATION TO CHANGE CONTRACT
    • CAN INVEST IN COMPUTER ANIMATION THEMSELVES
    • OTHER PIXAR OPTIONS INFERIOR
    • PIXAR ONLY ONE HIT
    • ANIMATION MIGHT BE LOSING PRIORITY

  • Any one of these factors wouldn’t bode all that well for Pixar. Collectively, they added up to a bleak outlook for Pixar’s leverage. Some might say Disney had all the bargaining power, that Pixar was just a fly on the side of the elephant. Disney could let us hang around for as long as we were useful, then swat us away in an instant. There was another column, though.

  • The first thing Steve wrote in the Pixar column was: IPO $ TO PAY FOR PRODUCTIONS “We can now pay for our own productions,” Steve said. “Disney doesn’t have to pay for all the costs.” This was why we had done the IPO. If money talked, we now had quite a bit of it. We anticipated that production costs for Pixar’s next film might approach $50 million, and production costs for future films more still. If we offered to put up half of it, this would surely get Disney’s attention. Then I added a second point: TOY STORY SUCCESS Steve wrote it in the Pixar column. “No one expected Toy Story to be so successful,” I said. “Least of all Disney.” Toy Story was still playing in theaters and had surpassed $170 million in the domestic box office, vastly exceeding Disney’s expectations. Much to their surprise, the quaint experiment in computer animation had gone mainstream. The world might not know that Pixar made the entire film, but Disney knew, and it would make it harder for them to brush off Pixar and computer animation as a sideshow. “By itself it doesn’t compel Disney to renegotiate,” I added, “but it would make them more inclined to keep Pixar happy.” Skip Brittenham, the Hollywood super-lawyer now on Pixar’s board of directors, had told us how success talks in Hollywood. If that was true, Pixar’s star was shining a lot brighter these days. That would surely give us some leverage. “There’s also the DreamWorks factor,” I added. DreamWorks was founded in 1994 after Jeffrey Katzenberg’s well-publicized resignation from the Walt Disney Company over CEO Michael Eisner’s decision not to promote him to president of the company. As chairman of the Walt Disney Studios division, Katzenberg had overseen the revival of its animation business. Together with its two other founders, Steven Spielberg and David Geffen, DreamWorks’s vision was to produce live-action films and a brand-new animation studio that would compete directly with Disney. The implications of DreamWorks for Pixar were twofold. First, DreamWorks Animation was a potential competitor to Pixar. Second, and more important to this discussion, DreamWorks’s competitive threat to Disney might make Disney less willing to alienate Pixar. Better for Disney to keep Pixar in its camp than risk not one but two serious competitors in animation when, for the preceding sixty years, it had none. “Katzenberg would like nothing more than to trump Disney in animation,” Steve said. “He’s a thorn in Disney’s side. If Eisner loses Pixar to another studio, and DreamWorks succeeds in animation, Eisner could go down as the Disney CEO who lost animation.” Steve wrote in the Pixar column: DREAMWORKS THREAT TO DISNEY Then Steve made another entry in the Pixar column: BETTER DEAL IF WAIT “If we don’t do a deal with Disney now,” Steve said, “we’ll get a better deal later when this contract is over. We’ll then have multiple studios bidding for Pixar’s business. We might even be able to keep eighty or even ninety percent of the profits, much more than we’re likely to get from Disney now.” “We can’t count on that,” I countered. “If our next films underperform, maybe we get worse terms later. This point can cut for or against us. Also, if we renegotiate with Disney now, we might get better terms right now, even for A Bug’s Life.” “But I think there’s a premium we have to pay for a partnership with Disney,” Steve added, “because of their experience in animation compared to the other major studios. If we go with another studio later, we can get even better terms.” I agreed that Pixar would pay a premium to be in business with Disney, probably in the form of Disney keeping more of the profits than we might have to relinquish to another studio. I also felt that any deal with another studio would depend on our track record then. There was no need to press the point now, though.

  • If we approached Disney to renegotiate our deal, we had to be crystal-clear about what we wanted. This was about our negotiating strategy. The natural tendency in negotiations is to engage in positional bargaining. This means taking a position knowing that it is not a final position, and holding in reserve a backup position. The danger of positional bargaining is that it forces you to think about backup positions, which weakens your conviction in your original position. It’s like negotiating against yourself. Plan A may be your optimal outcome, but inwardly you have already convinced yourself to settle on Plan B. Both Steve and I had a strong distaste for approaching negotiation this way. We preferred to develop our positions without thinking through a backup. Once Steve decided what he wanted in a negotiation, he developed something akin to a religious conviction about it. In his mind, if he didn’t get what he wanted, nothing else would take its place, so he’d walk away. This made Steve an incredibly strong negotiator. He would dig into his positions with a fierce, almost unbreakable grip. The risk, however, was in so overreaching that we would end up with nothing. If we were not going to have a backup plan, we had to be very careful about knowing what we wanted.

  • Steve changed the whiteboard pen for a new color, and in a different part of the board he wrote: NEW DEAL Below that he wrote: 1. CREATIVE CONTROL “We need control over our creative destiny,” Steve asserted. “We’ve proven we can make a great film. We can’t go on indefinitely beholden to Disney to approve our creative choices.” Unless you were Steven Spielberg, Ron Howard, or another celebrity director, it was almost unheard of for an independent production company whose films were being funded by someone else to have creative control. That usually belonged to whoever was putting up the money. We had already decided that John and his team would have creative control within Pixar. Now we wanted to diminish any outside influence over them. “It will help that we are willing to fund our films,” I added, “but Disney will be nervous about this so long as they’re putting up even some of the money.” Nevertheless, we both agreed that creative control was essential to Pixar’s future. “Another must-have is favorable release windows,” I said. It mattered a lot when films were released, especially big-budget family films. There were two optimal dates: early summer and Thanksgiving, which runs into Christmas. No other time periods came close in terms of box office opportunity. Any contract we entered, with Disney or anyone else, would have to guarantee that Pixar films enjoyed optimal film release windows. Steve wrote on the whiteboard: 2. FAVORABLE RELEASE WINDOWS “Disney has to treat Pixar film releases like its own,” Steve added to emphasize that point. Then he wrote: 3. TRUE 50/50 PROFIT SHARE This was a big one. All of our financial projections told us that we had to keep at least 50 percent of the profits from our films. “A true fifty-fifty,” Steve said. “Calculated fairly.” “Not using ancient Hollywood accounting terms that favor the studios,” I added. “That leaves the branding issue,” I went on. “Pixar’s films under Pixar’s name.” We had discussed this endlessly. Steve wrote: 4. PIXAR BRAND “We made the films,” Steve said. “The world needs to know that.” That was the fourth pillar of Pixar’s business plan. “Anything else?” Steve asked. “Of the big issues, no,” I said. “These are the ones we stick to, no matter what.”

  • We understood there would be many other issues in any renegotiation, but on these four matters our plan was to hold firm. If we gave up on any of these, Pixar’s future would be jeopardized too much. These were our deal breakers. “I think we’re ready,” I said. “I’ll call Eisner,” Steve replied. “I’ll tell him what we have in mind.” I felt sure this was the right move. It was a little scary, though. If Eisner shut the door on us because he thought we were overreaching, our chances of improving our financial situation in the near or even the medium term would evaporate. But we had thought this through every which way. It was time to set in motion a renegotiation with Disney. We could not predict what would happen next, but one thing was clear: when Steve picked up the phone to call Eisner, there was a lot at stake for Pixar.

  • Steve called Eisner in early February 1996 to open talks for a possible renegotiation with Disney. He explained that we were willing to use our newly raised funds to pay for all or part of the production costs of our films, and he summarized the four provisions that meant the most to us. Eisner responded by saying he was interested in the discussion. He said he was open to those four provisions, and that he would want to extend our existing agreement by adding more films to it, which we had expected. The conversation had gone well. Eisner said he would get back to us soon. We then organized ourselves for a negotiation with Disney. I was to oversee all the details and the contract drafting, much as I had done with Pixar’s IPO, while Steve would interface with Eisner to resolve the impasses. We assembled a team to make sure we left nothing to chance. We wanted to draft the contract ourselves, and we retained Gary Moore to do it. Gary had done work for Steve at NeXT and represented Pixar in our patent licensing deals with Microsoft and Silicon Graphics. Although, like us, Gary had no experience in entertainment law, he was a superb lawyer and an expert draftsman. For coverage on the entertainment side, we had Sam Fischer, our entertainment lawyer. Sam and I had forged a great relationship, and I saw him as a trusted partner as we navigated the world of Hollywood. We added a couple of Hollywood experts to help us with the accounting provisions we would have to draft to give us a true share of the profits. We also had Skip Brittenham, who was on Pixar’s board of directors. He would help with the big issues and could step in with Michael Eisner if we needed it. This was the A-team of Hollywood contract negotiations. We were not going to falter for lack of legal muscle. What happened next, however, surprised us. In a word, it was—nothing.

  • After Steve’s initial call with Michael Eisner, we expected some sort of rapid follow-up. Someone from Disney to call Steve, or me, to get the ball rolling. But no one did. It was as if the conversation never happened. A couple of weeks went by, and Steve placed a call to Eisner to follow up on their conversation. Eisner repeated his interest in a deal and said he would get things going. More weeks went by. Still nothing. This pattern repeated one more time, after which Steve began to feel frustrated. He felt Eisner was toying with him, saying one thing on the phone but doing nothing in actuality. We understood that for Disney, this was one deal among many, maybe not even a very important one, but that didn’t explain why Disney’s actions belied what Eisner had told Steve on the phone. Eventually, Steve began to take it personally. “Maybe Eisner just doesn’t like me,” he said one day in the spring of 1996. “He tells me one thing and never follows through. I don’t get it.” Steve’s reputation preceded him, and maybe Eisner didn’t trust him. They were both accustomed to being in control. Maybe they rubbed each other the wrong way. But I wasn’t convinced that was the reason Disney was failing to follow up. I had checked with Sam Fischer, who also reminded me that Eisner had a lot on his plate with integrating ABC into Disney. That merger, which had been completed just a couple of months earlier, had been the second-largest merger in US history, after the $25 billion acquisition of RJR Nabisco Inc. by the private equity firm Kohlberg Kravis Roberts in 1989. Sam thought it was a bit odd that nothing had come out of Eisner’s office, but he didn’t feel it was due to friction between Eisner and Jobs. “I’m not sure it’s personal,” I told Steve. “We’re asking a lot of Disney here, terms they’ve probably never given anyone. I doubt anyone’s got a fifty-fifty profit share, especially in animation, and certainly not the branding arrangement we’re asking for. There are many reasons why Eisner might be taking his time, not the least of which is the recent ABC acquisition.” I felt patience was the key. Disney hadn’t said no. But Steve was not accustomed to being brushed off, and he didn’t like it. The more time went by, the more his frustration grew. Finally, one day in exasperation, he exclaimed to me, “I don’t know if I can work like this!”

  • Steve spoke to Skip, who said he would float some feelers and see what he could learn. He wouldn’t make a call exclusively for this purpose but would wait until he had some other business at Disney that gave him a natural opening. Skip came back to us a couple of weeks later, now around May. Steve and I talked to him on a conference call. “I think they’re interested in talking,” Skip said. “They do want a partnership with Pixar. They just want to get their head around the terms. We’re asking for a lot. We just have to be patient.” Skip was right. A short while after that call we heard the first signal that Disney finally wanted to talk. Eisner called Steve and told him he wanted to move things forward. He wasn’t prepared to say he agreed with all the points Steve had asked for, but he remained open to them. Eisner proposed moving the negotiation along to see where they stood on all the details. He had assigned a young executive by the name of Rob Moore to oversee the process. Moore was executive vice president and CFO of Walt Disney Pictures and Television. But Steve remained skeptical. “Maybe we shouldn’t proceed without final agreement on the main issues,” he complained. I didn’t disagree with that. Sometimes it’s better to have clarity up-front. But I felt it was important to maintain the momentum. “Eisner knows where you stand,” I suggested. “And we’ll be sure to reiterate that with Moore. I think we should let this move forward to see where it goes.” Steve agreed but wanted to be sure we didn’t take our eyes off the main issues.

  • Emotions were really running high over this. There was no spirit of compromise in the room. “Our only move is to end the negotiation,” I said. “We’d have to walk away. No going back.” “I don’t want to force the decision,” Steve said, “but I don’t think we’ll feel good about ourselves if we yield on this. We’ll be miserable when we see Disney taking the brand credit all over again. We’ll have our self-respect if we walk away, and I think we’ll get better terms later anyway.” “I’m in too,” John said. “We’ll get through the next two films, and then we’ll have all the flexibility we want.”

  • In contract negotiations, as in many other endeavors, the last 20 percent can take 80 percent of the effort. It is in the last 20 percent that the precise details are spelled out. One challenge is the inordinate amount of time spent on drafting contingencies that will likely never occur. For example, if an earthquake strikes Point Richmond and delays Pixar’s completion of a film, should Pixar be in breach of contract for delivering a film late? To what degree should Pixar be expected to protect against the risk of an earthquake? It’s actually not an unreasonable question, especially when making a film on the edge of the infamous San Andreas Fault. Or, if Disney and Pixar share the costs for buying computers to make films under the agreement, can Pixar use those computers for other, non-Disney projects? If so, should it reimburse Disney for that usage? Because it is possible to conjure up a virtually endless list of risks and contingencies, one of the marks of a good negotiator is knowing where to draw the line so that things can move forward. In negotiation, there is a constant tension between momentum and fear. It comes down to an exercise in risk management. One illustration of this idea came early in the draft agreement in a clause called “Treatments.” This provision said, simply, that for each picture under the new agreement Pixar would submit to Disney one or more film ideas in the form of a treatment. But what would constitute a treatment? Could it be one line on an index card: “A father goes on an adventure to find his son; oh, and they’re both fish”? That probably wouldn’t make the cut. So the agreement spells out the details: a written treatment less than three pages that can be the basis for a screenplay. But Pixar often presented its treatments orally, using sketches and short storyboards. What if that was the preferred method? The agreement needed to cover that possibility too. And Disney wanted to make sure that the treatments were for original stories, not sequels or prequels, so all that had to be defined.

  • Once Pixar delivered a treatment to Disney, what happens next? Can Disney take as much time as it wants to respond? Three months (too long for Pixar); two weeks (too short for Disney)? What if Disney doesn’t respond at all? It’s off doing better things; it’s bored with Pixar films; the treatment slips to the bottom of someone’s inbox. That’s a hard one. Can Pixar just go ahead and do whatever it wants? After all, Disney had its chance to review the treatments. It’s not Pixar’s fault if Disney doesn’t respond. Then again, if Disney fails to respond and Pixar does proceed without Disney’s blessing, is it reasonable to demand that Disney will put its full brand and distribution muscle behind a film it never approved? Most of these contingencies would, of course, never happen. In the real world, the most likely scenario was that Pixar’s story team would have a collaborative working relationship with Disney and they would review and work out the proposed film treatments in a harmonious way, without once resorting to the contract. Most disputes in life don’t depend on a contract for resolution. But once you commit things to a written contract, it needs to cover the risks in a reasonable way so that if things do go wrong, you know where you stand.

  • The clauses covering treatments were just one provision. Multiply this by a hundred and you have the scope of complexity in this negotiation: What were Disney’s rights to oversee production at Pixar? How much access would Disney have to Pixar’s technology? Would Pixar have a say in the marketing of the films? How would film production budgets be set? What about approvals for budget increases? What were Disney’s rights to use characters from Pixar’s films in its theme parks? How about its new line of cruise ships? Should Pixar be paid for that? One clause dealt with a category of products called “derivative works.” These are new products based on the original movie, like sequels, prequels, TV shows, video games, ice shows, Broadway musicals, and theme park rides. Would Pixar have a right to produce those itself? If so, how would the costs and profits be shared, and what were Disney’s obligations to distribute them? If Pixar did not produce the derivative works and Disney did, should Pixar be paid? How much? As complex as all these provisions were, they paled in comparison to the provisions that spelled out how film profits would be calculated and shared. Those, literally, required a degree in accounting to understand. It fell to Rob Moore and me to wrestle each one of these provisions to the ground, and for our team of lawyers to draft and negotiate the contract language that would spell them out. Moore and I were like two sparring partners, back and forth, and back and forth again as we crafted solutions to every detail of Pixar’s future relationship with Disney. We quickly fell into a working relationship that often felt like we were on the same team, working to address a seemingly endless list of challenges. We presented solutions to Steve and Eisner, and if they didn’t like them, we went at it some more. Piece by piece the agreement finally came together. By the time we were finished, the four central issues that had been put on the table way back with Steve’s first call to Eisner were resolved. On the matter of creative control, the agreement said that in any picture directed by John Lasseter, Pixar would have final creative control; in any picture directed by someone who had previously directed or co-directed an animated feature film that did better than $100 million in the US box office, Pixar would have final creative control; and in any other circumstances, Pixar and Disney would have joint final creative control. This meant that even first-time directors, like Andrew Stanton or Pete Docter, could have creative control if they had previously directed a successful film with John Lasseter, which is exactly what was happening with Andrew on A Bug’s Life. On the matter of release windows, Disney agreed to release Pixar’s films in the optimal summer or holiday period release times and to give those films enough time to succeed. They agreed, in essence, to treat Pixar’s films like their own. With respect to dividing the profits on the films, we agreed on a true 50/50 split. After paying Disney a standard fee for use of its film distribution network, and after recovering the marketing costs for the film, profits were to be divided equally between Disney and Pixar. The agreement included detailed provisions for calculating profits; to our knowledge, that was the first time these provisions had ever been written in this way. Finally, with respect to branding, the agreement included provisions that I was also quite certain had never been done before. It stated that the Pixar brand would be established as a coequal brand in connection with the films, and that the Pixar logo would be used in a manner that was “perceptually equal” to the Disney logo. Even if the style of each logo was different, or one logo was in capital letters and the other used lower case, they still had to appear to be the same size. This also meant that from this point on, Pixar’s films would be marketed under the banner “Disney • Pixar,” not “Walt Disney Pictures presents . . .” In short, Pixar would share the brand on everything associated with our films equally with Disney. Never again would we be seen as inferior to Disney for the work that we did. “Pixar’s gonna be a brand,” Steve said to me after we had finalized the terms of this provision. “Everyone will know we made these films.” “That’s right,” I said. “All the way down to the Buzz Lightyear action figures and T-shirts. We did it.” On February 24, 1997, Rob Moore and I sat in a conference room at Walt Disney’s headquarters in Burbank. Before us were final copies of the new Co-Production Agreement between the Walt Disney Company and Pixar Animation Studios. Each of us took a pen, and Moore on behalf of Disney and I on behalf of Pixar signed the agreement. It was done. We had completed the final two pillars of Pixar’s business plan—a 50 percent share of profits on our films and Pixar’s brand recognized the world over. Of all the deals I had ever completed, I don’t think I ever felt more elated.

  • Although I found Steve to be quite a private person, when it came to the public eye, he didn’t like to share the spotlight. His ability to weave stories around big ideas was legendary, and he applied them with equal force to his own story. Working for Steve meant working in the shadows; he wasn’t terribly generous when it came to publicly sharing credit. I was okay with that. I minded more, however, when I thought the entire company had been overshadowed somewhat. This is perhaps why, when I did have a chance to shine a small spotlight on the work of others, I became more than a little passionate about it.

  • I understood immediately what that meant. Steve and Ed had already received a more than well-deserved executive producer credit on Toy Story. As executives, none of us would be included in this new credit for A Bug’s Life, however. This would leave me as the only member of Pixar’s senior executive team who would never see his name on screen. Everyone who worked for me would. I had to admit this stung a little. It would have been nice to see my name up there, even once, if only for my family. It wasn’t to be, though. But no matter. I had accomplished what I wanted. My next move was now crystal-clear. “That’s great,” I said to Steve. “We got it done. Thank you for taking this up with Disney.” The new credits were added to A Bug’s Life for the first time. At the end of all the normal credits, just when it seemed they were all over, emerging from the bottom of the screen came these words: THANKS TO EVERYONE AT PIXAR WHO SUPPORTED THIS PRODUCTION and then the names of all of Pixar’s finance, marketing, and administrative personnel appeared. Of all my moments at Pixar, seeing this for the first time stood out as among the most gratifying. It meant even more when it became an ongoing tradition for all of Pixar’s films. To this day my family knows that when we watch a Pixar film, they have to sit all the way to the very end of the credits when I will excitedly watch for the list of supporting personnel to hit the screen. I choke up every time I see it. I don’t know many of those individuals personally anymore, but I do know how hard they work, how important they were to the film, and how deserving they are, for one fleeting moment, to see their names in lights.

  • “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.

  • 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 moment 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.

  • I had always found much to enjoy in my work. As an attorney, I had prided myself on crafting complex deals and then artfully expressing them in written contracts. As an executive, I loved the creativity and finesse involved with developing and implementing a strategy, the thrill of negotiation, the opportunity to be part of a team aiming for great things. Yet something was missing. I saw the world of business and finance as a game of sorts. Although I could play that game, I felt the restrictions of corporate life. I understood it was, in the end, about products, profits, market share, and competition. These all matter a lot; I well knew that. I had made a career around all of them. I could see, however, that these priorities also generated challenges around identity and meaning. It is easy to lose ourselves in corporate imperatives, to feel we are beholden to forces that might not be aligned with our personal aspirations and priorities, or with how we wish to give expression to our lives.