The impasse was ended on a Saturday night in March 2005, when Iger got a phone call from former senator George Mitchell and other Disney board members. They told him that, starting in a few months, he would replace Eisner as Disney’s CEO. When Iger got up the next morning, he called his daughters and then Steve Jobs and John Lasseter. He said, very simply and clearly, that he valued Pixar and wanted to make a deal. Jobs was thrilled. He liked Iger and even marveled at a small connection they had: his former girlfriend Jennifer Egan and Iger’s wife, Willow Bay, had been roommates at Penn.
That summer, before Iger officially took over, he and Jobs got to have a trial run at making a deal. Apple was coming out with an iPod that would play video as well as music. It needed television shows to sell, and Jobs did not want to be too public in negotiating for them because, as usual, he wanted the product to be secret until he unveiled it onstage. Iger, who had multiple iPods and used them throughout the day, from his 5 a.m. workouts to late at night, had already been envisioning what it could do for television shows. So he immediately offered ABC’s most popular shows, Desperate Housewives and Lost. “We negotiated that deal in a week, and it was complicated,” Iger said. “It was important because Steve got to see how I worked, and because it showed everyone that Disney could in fact work with Steve.”
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For the announcement of the video iPod, Jobs rented a theater in San Jose, and he invited Iger to be his surprise guest onstage. “I had never been to one of his announcements, so I had no idea what a big deal it was,” Iger recalled. “It was a real breakthrough for our relationship. He saw I was pro-technology and willing to take risks.” Jobs did his usual virtuoso performance, running through all the features of the new iPod, how it was “one of the best things we’ve ever done,” and how the iTunes Store would now be selling music videos and short films. Then, as was his habit, he ended with
“And yes, there is one more thing:” The iPod would be selling TV shows. There was huge applause. He mentioned that the two most popular shows were on ABC. “And who owns ABC? Disney! I know these guys,”
he exulted.
When Iger then came onstage, he looked as relaxed and as comfortable as Jobs. “One of the things that Steve and I are incredibly excited about is the intersection between great content and great technology,” he said. “It’s great to be here to announce an extension of our relation with Apple,” he added.
Then, after the proper pause, he said, “Not with Pixar, but with Apple.”
But it was clear from their warm embrace that a new Pixar-Disney deal was once again possible. “It signaled my way of operating, which was ‘Make love not war,’” Iger recalled. “We had been at war with Roy Disney, Comcast, Apple, and Pixar. I wanted to fix all that, Pixar most of all.”
Iger had just come back from opening the new Disneyland in Hong Kong, with Eisner at his side in his last big act as CEO. The ceremonies included the usual Disney parade down Main Street. Iger realized that the only characters in the parade that had been created in the past decade were Pixar’s. “A lightbulb went off,” he
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recalled. “I’m standing next to Michael, but I kept it completely to myself, because it was such an indictment of his stewardship of animation during that period. After ten years of The Lion King, Beauty and the Beast, and Aladdin, there were then ten years of nothing.”
Iger went back to Burbank and had some financial analysis done. He discovered that they had actually lost money on animation in the past decade and had produced little that helped ancillary products. At his first meeting as the new CEO, he presented the analysis to the board, whose members expressed some anger that they had never been told this. “As animation goes, so goes our company,” he told the board. “A hit animated film is a big wave, and the ripples go down to every part of our business—from characters in a parade, to music, to parks, to video games, TV, Internet, consumer products. If I don’t have wave makers, the company is not going to succeed.” He presented them with some choices. They could stick with the current animation management, which he didn’t think would work. They could get rid of management and find someone else, but he said he didn’t know who that would be. Or they could buy Pixar. “The problem is, I don’t know if it’s for sale, and if it is, it’s going to be a huge amount of money,” he said. The board authorized him to explore a deal.
Iger went about it in an unusual way. When he first talked to Jobs, he admitted the revelation that had occurred to him in Hong Kong and how it convinced him that Disney badly needed Pixar. “That’s why I just loved Bob Iger,” recalled Jobs. “He just blurted it out.
Now that’s the dumbest thing you can do as you enter a negotiation, at least according to the traditional rule book. He just put his cards out on the table and said,
‘We’re screwed.’ I immediately liked the guy, because that’s how I worked too. Let’s just immediately put all
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the cards on the table and see where they fall.” (In fact that was not usually Jobs’s mode of operation. He often began negotiations by proclaiming that the other company’s products or services sucked.) Jobs and Iger took a lot of walks—around the Apple campus, in Palo Alto, at the Allen and Co. retreat in Sun Valley. At first they came up with a plan for a new distribution deal: Pixar would get back all the rights to the movies and characters it had already produced in return for Disney’s getting an equity stake in Pixar, and it would pay Disney a simple fee to distribute its future movies. But Iger worried that such a deal would simply set Pixar up as a competitor to Disney, which would be bad even if Disney had an equity stake in it. So he began to hint that maybe they should actually do something bigger. “I want you to know that I am really thinking out of the box on this,” he said. Jobs seemed to encourage the advances. “It wasn’t too long before it was clear to both of us that this discussion might lead to an acquisition discussion,” Jobs recalled.
But first Jobs needed the blessing of John Lasseter and Ed Catmull, so he asked them to come over to his house. He got right to the point. “We need to get to know Bob Iger,” he told them. “We may want to throw in with him and to help him remake Disney. He’s a great guy.” They were skeptical at first. “He could tell we were pretty shocked,” Lasseter recalled.
“If you guys don’t want to do it, that’s fine, but I want you to get to know Iger before you decide,” Jobs continued. “I was feeling the same as you, but I’ve really grown to like the guy.” He explained how easy it had been to make the deal to put ABC shows on the iPod, and added, “It’s night and day different from Eisner’s Disney. He’s straightforward, and there’s no drama with him.” Lasseter remembers that he and Catmull just sat there with their mouths slightly open.
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Iger went to work. He flew from Los Angeles to Lasseter’s house for dinner, and stayed up well past midnight talking. He also took Catmull out to dinner, and then he visited Pixar Studios, alone, with no entourage and without Jobs. “I went out and met all the directors one on one, and they each pitched me their movie,” he said. Lasseter was proud of how much his team impressed Iger, which of course made him warm up to Iger. “I never had more pride in Pixar than that day,” he said. “All the teams and pitches were amazing, and Bob was blown away.”
Indeed after seeing what was coming up over the next few years— Cars, Ratatouille, WALL-E—Iger told his chief financial officer at Disney, “Oh my God, they’ve got great stuff. We’ve got to get this deal done. It’s the future of the company.” He admitted that he had no faith in the movies that Disney animation had in the works.
The deal they proposed was that Disney would purchase Pixar for $7.4 billion in stock. Jobs would thus become Disney’s largest shareholder, with approximately 7% of the company’s stock compared to 1.7% owned by Eisner and 1% by Roy Disney. Disney Animation would be put under Pixar, with Lasseter and Catmull running the combined unit. Pixar would retain its independent identity, its studio and headquarters would remain in Emeryville, and it would even keep its own email addresses.
Iger asked Jobs to bring Lasseter and Catmull to a secret meeting of the Disney board in Century City, Los Angeles, on a Sunday morning. The goal was to make them feel comfortable with what would be a radical and expensive deal. As they prepared to take the elevator from the parking garage, Lasseter said to Jobs, “If I start getting too excited or go on too long, just touch my leg.”
Jobs ended up having to do it once, but otherwise Lasseter made the perfect sales pitch. “I talked about
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how we make films, what our philosophies are, the honesty we have with each other, and how we nurture the creative talent,” he recalled. The board asked a lot of questions, and Jobs let Lasseter answer most. But Jobs did talk about how exciting it was to connect art with technology. “That’s what our culture is all about, just like at Apple,” he said.
Before the Disney board got a chance to approve the merger, however, Michael Eisner arose from the departed to try to derail it. He called Iger and said it was far too expensive. “You can fix animation yourself,”
Eisner told him. “How?” asked Iger. “I know you can,”
said Eisner. Iger got a bit annoyed. “Michael, how come you say I can fix it, when you couldn’t fix it yourself?” he asked.
Eisner said he wanted to come to a board meeting, even though he was no longer a member or an officer, and speak against the acquisition. Iger resisted, but Eisner called Warren Buffett, a big shareholder, and George Mitchell, who was the lead director. The former senator convinced Iger to let Eisner have his say. “I told the board that they didn’t need to buy Pixar because they already owned 85% of the movies Pixar had already made,” Eisner recounted. He was referring to the fact that for the movies already made, Disney was getting that percentage of the gross, plus it had the rights to make all the sequels and exploit the characters. “I made a presentation that said, here’s the 15% of Pixar that Disney does not already own. So that’s what you’re getting. The rest is a bet on future Pixar films.” Eisner admitted that Pixar had been enjoying a good run, but he said it could not continue. “I showed the history of producers and directors who had X number of hits in a row and then failed. It happened to Spielberg, Walt Disney, all of them.” To make the deal worth it, he calculated, each new Pixar movie would
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have to gross $1.3 billion. “It drove Steve crazy that I knew that,” Eisner later said.
After he left the room, Iger refuted his argument point by point. “Let me tell you what was wrong with that presentation,” he began. When the board had finished hearing them both, it approved the deal Iger proposed.
Iger flew up to Emeryville to meet Jobs and jointly announce the deal to the Pixar workers. But before they did, Jobs sat down alone with Lasseter and Catmull. “If either of you have doubts,” he said, “I will just tell them no thanks and blow off this deal.” He wasn’t totally sincere. It would have been almost impossible to do so at that point. But it was a welcome gesture. “I’m good,”
said Lasseter. “Let’s do it.” Catmull agreed. They all hugged, and Jobs wept.
Everyone then gathered in the atrium. “Disney is buying Pixar,” Jobs announced. There were a few tears, but as he explained the deal, the staffers began to realize that in some ways it was a reverse acquisition.
Catmull would be the head of Disney animation, Lasseter its chief creative officer. By the end they were cheering. Iger had been standing on the side, and Jobs invited him to center stage. As he talked about the special culture of Pixar and how badly Disney needed to nurture it and learn from it, the crowd broke into applause.
“My goal has always been not only to make great products, but to build great companies,” Jobs later said.
