Mr Jobs Goes To Disneyland

Disney Snags Pixar for $7.4B, from RedHerring.com

January 24, 2006

In a deal that bespeaks the growing interdependence of Hollywood and Silicon Valley, the Walt Disney Company said Tuesday it will acquire Steve Jobs’ Pixar Animation Studios for $7.4 billion in stock.

The deal will make Mr. Jobs the majority shareholder in Disney and give him a seat on the board. But it also raised questions about whether the strong-willed entrepreneur can change the entrenched thinking at one of the entertainment world’s largest conglomerates.

“It appears that Steve Jobs and Pixar’s public shareholders are going to be richly rewarded for Pixar’s six blockbuster films (and hopefully many more to come),” wrote Banc of America Securities analyst Michael L. Savner in a research note published just before the long-rumored deal was confirmed.

The Disney board approved the takeover offer on Monday, and the Pixar board was expected to bless the union on Tuesday. Disney will issue 2.3 shares for each Pixar share, a value of about $58.70 per share. After the deal was announced, Pixar shares climbed $1.53 to $59.10 in after-hours trading.

Collaboration Without Barriers

“Disney and Pixar can now collaborate without the barriers that come from two different companies with two different sets of shareholders,” said Mr. Jobs. “Now everyone can focus on what is most important: creating innovative stories, characters, and films that delight millions of people around the world.”

John Lasseter, a former Disney exec who directed Pixar’s Toy Story and its upcoming animated flick Cars, as well as spearheaded many of the company’s other hits, would become chief creative officer for animation at Disney. He would also help design theme park attractions as principal creative advisor of Walt Disney Imagineering.

Pixar President Ed Catmull would become president of the combined Disney and Pixar animation studios. Pixar will preserve its current operations and locations. The deal is expected to be completed this summer. The Disney board has also approved the buyback of up to 225 million shares.

“With this transaction, we welcome and embrace Pixar’s unique culture, which for two decades has fostered some of the most innovative and successful films in history,” said Disney CEO Robert Iger.

Shares of Pixar, which traded in the 40s during September, have spiked about $5.00 since rumors began circulating at the beginning of the month about a possible sale (see Steve Jobs in Disney Talks).

Disney has plenty of cash. Its balance sheet shows its cash on hand as of October 2005 totaled $1.72 billion. Pixar had $1.04 billion in cash as of October 1.

Pixar is also a maverick in the tech and animation industries with Mr. Jobs, who is also CEO of Apple Computer. As an Apple co-founder, Mr. Jobs has revolutionized computing with the Macintosh, iMac, and PowerBook. Meanwhile, Apple’s ubiquitous iPod digital music player has upended the music industry.

Redefining the Art

Pixar essentially redefined the genre of animated films that Disney pioneered under the guidance of founder Walt Disney. Pixar produced a string of hits, including Toy Story, Finding Nemo, and The Incredibles.

Disney has shared in the wealth since the two companies struck a partnership deal about 12 years ago. The deal soured, however, after clashes between Mr. Jobs and Disney’s former CEO Michael Eisner.

Mr. Jobs said during 2004 that he planned to terminate Disney’s distribution deal when it expires at the end of this year. But after Mr. Eisner stepped down from Disney last year, his successor, Mr. Eiger, began wooing Mr. Jobs so Disney could work more closely with both Pixar and Apple.

Last October, Cupertino, California-based Apple struck a deal with Burbank, California-based Disney to feature downloads of shows from Disney’s ABC TV network, such as Desperate Housewives and Lost, from Apple’s iTunes service when Apple introduced the video version of its popular iPod (see Apple Up 9% on Video iPod).

Disney can afford to pay a premium for Pixar, since it’s already funneling a lot of cash back to Pixar through its distribution deals and already has to bear the costs of producing its own films. Disney’s own animation efforts have not been faring nearly as well as Pixar’s lately, and have included some notable flops, such as Brother Bear in 2003.

And Pixar brings a lot of innovation to Disney, especially in the area of computer animation.

Pixar began when Mr. Jobs bought the computer graphics animation division of Star Wars filmmaker George Lucas’s Lucasfilm during 1986 for $10 million. He named the company Pixar and paid to produce some of its first short films out of his own funds.

Mr. Jobs holds 60 million shares of Pixar, with 50.6 percent of the shares, which will, in turn, make him the majority shareholder in Disney. Meanwhile, the TCW Group in Los Angeles holds 16 percent of outstanding shares with 19.7 million shares, followed by Wellington Management with 8 million. Mr. Lasseter has 446,000 shares.

Culture Clash

Mr. Lasseter left Disney back in the days when Disney resisted moving toward computer animation techniques, and he may still clash with the corporate culture there.

Mr. Jobs may clash even more. His hard-driving style as a Silicon Valley entrepreneur has helped Pixar to make animated films in a way that sets it apart and that has positioned it above Disney, which has struggled in recent years to regain the creative instincts that made it a household name.

Mr. Jobs may be able to bring a creative spark to Disney without a major disruption to the mouse house, but he is also famously strong-willed. That may or may not mesh with the egos of the entertainment giant, which has already disgorged a similarly strong-willed leader when Mr. Eisner was pressured to resign last year.

The union of the two companies comes at a time when the long-awaited convergence of the computer and entertainment worlds seems imminent, with entertainment programming being delivered through the Internet and a widening array of devices that bring computers into the living room.

Mr. Jobs isn’t alone in moving from one world to the other. Former ABC Entertainment Chairman Lloyd Braun joined Yahoo last year, setting up an entertainment division in Santa Monica, just west of Los Angeles. And Barry Diller moved from the movie industry and Paramount Studios to lead an Internet company, IAC/InterActive (see Diller Builds Online Empire).

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Hardware is back, but where's Dell?

John Markoff in the New York Times:

In 1997, shortly after Mr. Jobs returned to Apple, the company he helped start in 1976, Dell's founder and chairman, Michael S. Dell, was asked at a technology conference what might be done to fix Apple, then deeply troubled financially.

"What would I do?" Mr. Dell said to an audience of several thousand information technology managers. "I'd shut it down and give the money back to the shareholders."

On Friday, apparently savoring the moment, Mr. Jobs sent a brief e-mail message to Apple employees, which read: "Team, it turned out that Michael Dell wasn't perfect at predicting the future. Based on today's stock market close, Apple is worth more than Dell. Stocks go up and down, and things may be different tomorrow, but I thought it was worth a moment of reflection today. Steve."

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Markoff makes an interesting point about Apple's market capitalization pushing past Dell at $72.13 billion against $71.97 billion.

Apple sold a record 14 million iPod music players in the past quarter, according to Jobs, an astounding figure by any measure.

It sold 1.25 million computer and server systems in the last quarter of 2005, marking a 19.5 per cent increase over the same period last year.

For fiscal 2005, Apple generated revenue of $13.93 billion, a figure that will definitely be surpassed on the strength of its last two quarters.

By comparison Dell has warned it will fail to meet its goal of $60 billion in revenue for its 2006 fiscal year, which ends in February, after missing revenue targets in both its second and third quarters this year.

Interestingly, Microsoft sold 600,000 Xbox 360s since November, according to analyst group NDP but is expected to fall short of its 4.5 million to 5.5 million target by June this year.

Without an iPod/iTunes killer or an XBox killer in its product range, one wonders what Dell will conjure up this year to make the brand more sexy. We all know that the limited edition, high-priced products are not the answer.

Perhaps, a hit on Markoff may be on the cards.

Amazing instrument

Toshio Iwai unveils the Tenori-On at Artfutura05

90percent of world's engineers will be in Asia by 2010

from Control Engineering January 4, 2006

In a speech to San Jose State University’s College of Engineering, James W. Bagley, chairman of Lam Research Corp. addressed the U.S.’ diminishing capability to maintain competitive manufacturing leadership and parity.

....when mobilized, the U.S. can accomplish near miracles. The solution is simple: convincing political leaders that the results of the U.S.’ degenerating, competitiveness problem can be far greater than the national disasters—such as have been recently experienced. And it’s probably a greater threat to the country than some of the ideologies that the U.S. is currently confronting.

He focused on China, which now is becoming competitive in manufacturing technology, software and engineering capability across the spectrum, physics, chemistry, and biotechnology. Whether through design or luck, China has co-opted the largest retail organization—WalMart—into being its worldwide distribution system. The result of this distribution capability has been a disruptive transformation in balances of trade virtually across the globe and has allowed China to become a country with substantial foreign currency reserves. As anyone in business knows, market access is an imperative and is usually achieved through substantial investment and hard work. China got their warehousing, distribution, and retail outlets at no cost.

During these 20 years, what was happening in the U.S.? It has promoted fair trade, open-market access, lower duties, and so on. U.S. motivations were positively based, expecting open trade improvements to the economies of most of the third-world countries, allowing them to be markets for U.S. life-enriching products based on U.S.-developed intellectual property and value-added services which would in turn improve the standard of living of U.S. citizens. The result has been somewhat different from what was envisioned 20 years ago.

The U.S. is outsourcing manufacturing at an alarming rate. China is creating manufacturing jobs at a rate equivalent to the entire U.S. manufacturing workforce each year. The U.S. is facilitating that growth rate by outsourcing its manufacturing jobs to China in order to compete with Chinese goods derived from U.S.-created intellectual property.

Examples from Lam Research and the semiconductor industry:

• Approximately 80% of (Lam Research’s) advanced etcher systems are sold and installed in Asia.
  
• Three companies in Taiwan are building more leading-edge 300mm plants than are being built in the United States. The vast majority of the leading-edge 300mm facilities being built in the world are being built in Asia.
  
• (The U.S. has) gone from the largest market for semiconductors and the largest producer of semiconductors to a deteriorating second place when compared to Asia.

Some recent eye-opening information from Jay Pinson, dean emeritus of San Jose State was:

• Today the U.S. graduates about 55,000 engineers a year—with the rate declining for the last 20 years;
  
• Both law and business students graduate at about three times this rate (about 330,000 in the aggregate);
  
• India graduates 300,000 engineers annually;
  
• China mints 350,000 new engineers each year; and
  
• Aggravating the situation is the fact that, of the U.S.’ 55,000 graduates, a meaningful percentage are foreign nationals who may or may not stay in the United States.

The U.S. cannot compete with India and China on a raw-numbers basis, nor should it—look at a combined 650,000 engineering graduates as opposed to its 55,000—because India and China are competitors. What the U.S. should focus on is dramatically increasing the number of its engineering and science graduates in those areas where it can develop and maintain a competitive advantage.

Projected over time, the engineering graduate gap, by 2010, will result in over 90% of the world’s engineers living in India, China, and the rest of Asia. This is underscored by the large number of U.S. engineering graduates now retiring, who were motivated to engineering careers due to the space race that began with the 1958 launching of Sputnik....

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Blue screen reveals subliminal message

Notwithstanding his charitable side, Bill Gates' true self briefly flashed on screen when his CES keynote bluescreened revealing a subliminal message and a possible sequel to his book.

How to make a million dollars online

Alex Tew, a 21-year-old student from a small town in England, is about to make a million dollars online.

He's already racked up US$999,000 in four short months all from the simple idea of selling advertising space a pixel at a time on his site milliondollarhomepage.com

And we thought all the ways for making a fast buck on the Internet were dead.

Read his story or view his blog.

2006 resolutions for newspaper dinosaurs

Online media purveyor Steve Outing sets out some resolutions that newspapers need to consider:

1. "I will discuss more, talk less."

Outing: What's the Internet all about? Is it just another publishing medium for top-down content? Of course not, and 2005 made that abundantly clear. A real opportunity in 2006 will be in supporting the global conversation that is the Internet. It's about allowing groups of people with shared interests to find each other, gab, and play and work with each other.

Comment: In other words the web is a dialogue not monologue. Or haven't you figured that out already? Outing was spot-on in pointing out how Murdoch bought MySpace.com for US$580m to get in on the conversation of 40 million users. Less ambitious papers can look into sites like Bakotopia and Northwest Voice

I must add Lawrence Journal's edgy Lawrence.com.

Also view: Lessons of Lawrence.

2. "I will dare to wiki."

Outing: Avoid turning to wikis for topics like politics; focus on content that is factual and mostly without competing factions who will war with each other over the content, and then you may have something good. Create a local trails database and allow citizens to post descriptions, photos, maps, and their reviews. You've got yourself a living reference Web site to serve your community. Create a wiki-based site that profiles all schools in your coverage area. Encourage parents, teachers and students to participate.

3. "I will be more interactive."

Comment: A terribly overused word. But it is still surprising how many newspapers do not have any form of easy way to post feedback.

4. "I will seek out 'citizen advertisers.'

Outing: The core of newspaper advertising is the sales representative, whether it be selling display ads or recruiting and taking calls for classifieds. But as Google so aptly demonstrates, the real future is in automating the advertising marketplace.

Comment: Yes, small businesses find it too costly to advertise in newspapers with no guarantee of returns. But most such businesses thrive on relationships and word-of-mouth. Those that have websites, don't need the news site. They only need to find creative ways to get into newspaper's website for free. Those that aren't computer savvy, will never try this. I see them bypassing online media altogether in favour of text-messaging.

5. "I will learn to turn free classifieds into money."

Outing: I think that 2006 will be the year when we begin to see a wholesale change begin in the newspaper classifieds business. The big threats to the traditional classifieds model are lined up to give classified managers some sleepless nights. Craigslist is becoming a significant threat in more metro markets, obliterating revenues that newspapers used to take in from people paying for ads. Google has launched a service called Base that anyone can use to sell merchandise, a car, a house, or post a job opening. And Microsoft in 2006 will debut its free-classifieds service (thought by analysts to be a counter to Craigslist). In 2005 we saw the beginning of the newspaper industry's reaction: Knight Ridder lifted fees for placing ads in its online classifieds for merchandise-category goods in 22 of its 27 markets. The San Diego Union-Tribune started offering free three-line ads online and in the print edition for goods valued at under $5,000. We'll see more of this within the newspaper industry in 2006.

Comment: Newspapers will probably lead the way in automating classifieds for sophisticated users. Making money from free classifieds? It will never catch on.

6. "I will publish where the young people are."

Outing: Young people aren't picking up the habit of print readership, because they're too distracted by the Internet, cell phones, Playstations and whatnot. So let's resolve to reach them where they are: on the Web, on instant messenger services, on cell phones, on Playstation consoles, etc.

News organizations have been grappling with the concept of convergence for many years. But in 2005, a clear trend emerged: Some newspaper companies have begun to incorporate online and print operations into one, breaking down the walls that have existed between print (old) and online (new) for the last decade-plus.

The New York Times provided the classic example. Its newsroom initiative introduced in 2005 went far toward the vision of the Times becoming a news company that publishes cross-platform; its reporters work with the goal in mind of feeding multiple channels, where everyone works on it all. Times publisher Arthur Sulzberger Jr. described the newsroom initiative in a speech last October: "This eliminates the distinction between newspaper and Web journalists and thereby creates a new environment that integrates Times tradition with the most innovative online practices."

Comments: Good point. Reaching the young is an imperative. Cellphones are the key.

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