How Pixar Saved Itself from Disney and Then Saved Disney

Lucas: So here's a number that always stops me: Pixar's first feature film, Toy Story, cost about $30 million to produce in 1995. The studio had never made a movie before. They were running out of cash. And Steve Jobs - who had already been ousted from Apple and was pouring his own money into this little graphics division he bought from George Lucas for $10 million - was basically one bad quarter away from shutting the whole thing down.

Luna: Right, and that $10 million purchase price included the hardware and the software and the talent - but no guarantee they'd ever make a film that worked. Lucas: Exactly. Jobs bought what was then the Lucasfilm Computer Division in 1986 for $10 million - $5 million in cash, $5 million as a capital investment. He renamed it Pixar.

And for the next nine years, the company lost money. They sold high-end imaging computers - the Pixar Image Computer - but that market was tiny. They did commercials. They made short films.

Nothing made enough to cover the burn. Lucas: Jobs personally funded the company. By some estimates, he put in over $50 million of his own money before Toy Story ever hit theaters. And when Disney came knocking in 1991 with a proposal to co-produce three computer-animated films, Pixar was in no position to negotiate.

Luna: That deal was famously lopsided. Disney kept the sequel rights, the merchandising, the theme park revenue - Pixar got a percentage of the box office and basically no ownership of the characters they created. Lucas: Right. The original 1991 deal gave Disney 85 percent of the profits from Toy Story.

Pixar got 12.5 percent of ticket sales - not net profits, just a distribution fee. And Disney owned every character outright. So when Toy Story grossed $373 million worldwide, Pixar walked away with maybe $12 million.

Not nothing, but certainly not what you'd expect for creating a franchise that would eventually generate billions. Luna: And Jobs hated that deal. He was furious about it for years. But he signed it because Pixar had no leverage and needed Disney's distribution machine.

Lucas: Exactly. And that's the tension that drives the whole story. Pixar's creative team - John Lasseter, Ed Catmull, the early group of animators and engineers - they were obsessed with quality. They threw out the first year of work on Toy Story.

The original script had a tin-toy salesman as the villain, and the toys were mean to each other. Disney executives hated it. Lasseter and his team essentially started over from scratch, with only about 18 months left to deliver the film. Luna: That's the famous 'story is king' philosophy.

Lasseter insisted that technology served story, not the other way around. They spent a year building a story that worked, then they animated it in six months. Lucas: And the result was a cultural phenomenon. Toy Story was the first fully computer-animated feature film.

It changed the industry. But Pixar's deal with Disney stayed terrible. So when it came time to renegotiate after three films - Toy Story, A Bug's Life, and Toy Story 2 - Jobs walked in with a very different posture. Luna: Right, by then Pixar had released three hits in a row.

They had credibility. And Jobs wanted a 50-50 partnership. Lucas: He wanted exactly that - a 50-50 split of profits, co-ownership of characters, and Pixar's brand name on the films. Disney said no.

Michael Eisner, then CEO, refused to give up any ownership. So Jobs walked away and started talking to other studios. He publicly said Pixar was looking for a new distribution partner. Lucas: And that led to a standoff that lasted two years.

Pixar and Disney had one more film under their old deal - Finding Nemo - and after that, if no new agreement was reached, Pixar would go elsewhere. The pressure was immense because Disney had built its entire animation strategy around Pixar's output. Luna: And then in 2005, Eisner was out. Bob Iger took over as CEO, and his very first move was to call Pixar and restart negotiations.

Lucas: Iger's first day as CEO was October 3, 2005. He called Steve Jobs the same day. And within three months, they had a deal: Disney would acquire Pixar for $7.4 billion in an all-stock transaction.

Jobs became Disney's largest individual shareholder, with about 7 percent of the company. Lasseter became chief creative officer of both Pixar and Disney Animation. Catmull became president of both studios. Luna: It was one of the most successful acquisitions ever.

Pixar's culture didn't just survive - it transformed Disney Animation. Movies like Tangled, Frozen, and Zootopia came out of that infusion of Pixar's creative process. Lucas: And that creative process - the Braintrust - is worth zooming in on. Ed Catmull wrote about it in his book Creativity, Inc.

The Braintrust is a group of senior directors and writers who meet every few months to review each other's work in progress. There's no hierarchy in the room. The director of the film being reviewed has no obligation to take any note. The goal is candor, not consensus.

Luna: And it's brutally honest. Catmull tells the story of the first screening of Toy Story 2, where the Braintrust basically said the entire third act didn't work. The director, not Lasseter, but a newer director, had to go back and redo months of work. But the system worked because there was no punishment, no ego - just the shared goal of making the film better.

Lucas: Exactly. And that's the leadership lesson that's been applied far beyond animation. Pixar's approach to peer review and candid feedback has been studied by companies from IDEO to Google to the military. It's a model for how to manage creative talent without crushing it.

Luna: But let's be real - it's also a model that's incredibly hard to replicate. It requires a level of psychological safety that most organizations don't have. Pixar had it because Catmull and Lasseter deliberately built it over decades. Lucas: Yeah, and they also had a huge advantage: they were a private company for most of their history, so they could ignore quarterly earnings pressure.

Steve Jobs famously told Catmull, 'Just make great movies. Don't worry about the money.' That's a luxury most CEOs don't have. Lucas: Speaking of which, if these conversations about leadership and tough decisions have moved your work forward in some small way, we want to keep them free and ad-free for everyone.

A couple of dollars a month is genuinely what keeps these going - buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: Yeah, it really does make a difference. And we appreciate every bit of support. Lucas: Back to Pixar.

One of the less told stories is how close Pixar came to dying before Toy Story. In 1994, the company had about $7 million in the bank and was losing $1 million a month. Jobs was ready to sell the hardware division and just keep the animation team as a boutique. But then Disney agreed to expand the original three-picture deal to a five-picture deal, and that gave them enough runway.

Luna: And that's the thing - the creative success we remember was built on a series of very narrow financial escapes. If Disney hadn't expanded the deal, or if Toy Story had flopped, Pixar would have been a footnote. Lucas: Absolutely. And Jobs's role in that is fascinating.

He wasn't involved day-to-day in the creative decisions. He didn't attend story meetings. But he was the financial shield. He absorbed the risk.

He told the team, 'You're not fired, you're not shutting down. Keep working.' That gave them the space to fail and recover. Luna: There's a great quote from Catmull: 'Steve didn't want us to be a successful studio.

He wanted us to be a great studio.' That's a different ambition. Lucas: And they became both. Between 1995 and 2010, Pixar released 11 feature films.

Every single one was a box office hit and critically acclaimed. That's an unprecedented run. It's only been matched by a handful of studios in history. Luna: After the Disney acquisition, there was a lot of worry that Pixar's magic would fade.

And there were some rough patches - Cars 2 was not well received, and some critics said the sequelitis had set in. Lucas: But then they came back with Inside Out in 2015, which was a masterpiece. And Coco. And Soul.

The creative engine kept running. Part of that is because Catmull and Lasseter institutionalized the culture. They didn't just rely on their own taste - they built a system that could survive them. Luna: Which is the ultimate leadership test: can the organization thrive after the founders leave?

Lucas: And Pixar is still testing that. Lasseter left in 2018 after misconduct allegations. Catmull retired in 2019. The studio now operates under Pete Docter, who directed Inside Out and Up.

And they've had hits and misses. But the Braintrust still meets. The story-first philosophy still holds. The system is more durable than any one person.

Luna: So what's the big lesson for a CEO listening to this? Is it about building a creative culture? About negotiating from strength? About knowing when to sell?

Lucas: I think the biggest lesson is about patience and protection. Pixar succeeded because Steve Jobs was willing to lose money for nine years. Most investors would have pulled the plug. Most boards would have forced a pivot.

Jobs gave the team the one thing creative work absolutely requires: time. And then he negotiated from a position of strength when they had proven the model. Lucas: The other lesson is about ownership of your IP. Pixar gave away their characters in that first deal, and it cost them billions.

When they renegotiated, they made sure they owned what they created. That's a principle that applies to any business: don't trade your long-term assets for short-term distribution. Luna: And the third lesson is the culture piece - the Braintrust, the candor, the failure tolerance. That's harder to quantify but arguably more valuable than the IP.

Lucas: Totally. And it's worth noting that Pixar's culture wasn't an accident. Catmull and Lasseter designed it deliberately. They studied what went wrong at Disney Animation in the 1980s and 1990s - the bureaucracy, the top-down decision-making - and they built a system that avoided those traps.

Luna: It's a case study in learning from competitors' failures as much as your own. Lucas: Right. And that's a good place to leave it. Pixar's story is ultimately about how to build something that lasts - a creative institution, not just a hit factory.

It's one of the great business stories of the last thirty years.