The Rise and Fall (and Rise) of Pixar

Revisiting the studio’s early highs (one lunch led to $6B at the box office), creative struggles (stale IP, original flops) and why "Inside Out 2" could trigger a renaissance.

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Today, we’re talking about Pixar and how the success of Inside Out 2 may kick off a new hot streak of films.

Also this week:

• Google is an “illegal monopoly”

• Is 400m the most painful track event?

• …and them fire memes (including Netflix)

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Inside Out 2 is the biggest film of 2024.

The Pixar sequel has grossed ~$1.6B globally at the box office and was the first film to break 9-figures since Barbie last summer (Deadpool & Wolverine — also from Disney — will soon top the billy mark while I topped 3-figures at the theatre concession while watching each of these films).

The animation studio really needed the win after the previous half-decade that saw commercial flops, a talent drain and the terminal decline in the theatre business.

For those that haven’t seen the first or second film, the Inside Out universe primarily takes place inside the head of a pre-teen girl named Riley. The plot revolves around animated characters based on different emotions — Joy, Anger, Disgust, Sadness, Fear — and how they guide Riley as she navigates life-changing events.

The first film shows Riley dealing with the stress of moving from Minnesota to San Francisco while the sequel is about the stress involved with puberty and entering high school (and high school sports). It’s a great high-level premise and the sequel builds on the first film’s success by integrating new emotions including Anxiety, Ennui, Embarrassment and Envy.

I enjoyed Inside Out 2. The film wasn’t as good as the first — which won an Oscar for Best Animated Feature — but was more than sufficient as summer family fare.

For Pixar, it was a much-needed shot in the arm for a studio that has dealt with recent setbacks and may now be primed for another run.

To understand why, let’s walk through:

• Pixar’s 6-year slump

• The Brain Trust and a $6B lunch

• Building on Inside Out 2’s success

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Pixar’s 6-year slump

Why were the stakes so high for Inside Out 2?

In the lead-up to the film’s release, Pixar’s parent Disney had been dealing with significant turmoil in its linear TV, streaming and parks business. Meanwhile, Pixar has been mired in creative, cultural and commercial turmoil over the past 6 years:

• 2018: The studio’s long-time creative lead John Lassetter was pushed out of the company after allegations of sexual harassment.

• 2019: A number of Pixar heavy hitters left the studio including Ed Catmull (Pixar co-founder), Lee Unkrich (Coco) and Brad Bird (The Incredibles). Pixar veteran Pete Docter (Up, Inside Out) became chief creative officer.

• 2020-2022: A string of original films (Onward, Soul, Luca, Turning Red) failed to breakthrough by Pixar standards. To be sure, COVID was an obstacle. Soul, Luca and Turning Red didn’t get traditional studio releases and all went direct to Disney Plus. Meanwhile, Lightyear was a spin-off of Pixar’s most lucrative IP (Toy Story) and still flopped…which was a pretty major red flag.

• 2023: I signed up for a free trial of Disney+ in January and watched Finding Nemo…then cancelled the trial…which meant Disney made $0 from me that month (but they did get me in subsequent months).

• Also 2023: Elemental had Pixar’s worst box-office opening before ever.

The pressure on Inside Out 2 to perform cranked up another notch when Pixar laid off 14% of its staff in May. Around that time, Bloomberg dropped a profile story that suggested Pixar was no longer prioritizing creativity and storytelling in the filmmaking process (commercial and other considerations were taking precendent).

In particular, this passage raised online heckles:

[Docter and his team] arrived at mentoring Pixar’s upcoming directors to focus less on autobiographical tales—Luca had been inspired by its director’s childhood in Italy; Turning Red, by its director’s relationship with her mother; and Elemental (which did gain some momentum overseas and online), by its director’s immigrant family. Pixar would instead develop concepts with clear mass appeal, many of which—in the case of sequels and spinoffs—had already been proven.

The studio’s movies should be less a pursuit of any director’s catharsis and instead speak to a commonality of experience, Docter says. “I don’t think we can ever let ourselves off the hook of making sure that we deliver the best possible and most relatable films.”

People went nuts at the suggestion that personal tales from a more diverse set of storytellers — as compared to the old boys club run by Lassetter since the mid-1990s — weren’t as marketable.

We’ll get to whether there is credence to this view but another criticism of the article was a line from studio President Jim Morris eager to milk existing IP. Morris wants the studio to “make three movies every two years—historically it’s been closer to one a year—with every other title a sequel or spinoff and the rest standalone concepts or potential seeds for new franchises.”

The creep of sequel-itis into creative decisions is a departure from Pixar’s glory days, which was built on original ideas.

We’ll discuss the individual names more but here is the key stat:

• 9 of the first 10 Pixar films were original ideas (90%)

• Only 9 of the 18 Pixar films since have been original ideas (50%)

In his book Creativity Inc., Pixar co-founder Catmull believed that relying on sequels was dangerous:

“With certain ideas, you can predict commercial success. So with a 'Toy Story 3' or a 'Cars 2,' you know the idea is more likely to have financial success. But if you go down that path too far, you become creatively bankrupt because you're just trying to repeat yourself.”

He understood that sequels were a cash cow that could fund other bets. However, Catmull wanted a ratio — 2 original films for every sequel — that was the reverse of the one that Morris has set.

The success of Inside Out 2 briefly validates Morris’ strategy and will create breathing room for a new slate of hits. But it’s far from guaranteed. In the Bloomberg article, Docter remarked that, “The world is more crowded. There’s just so much out there, and it’s harder and harder to surprise people.”

Contrast this environment with Pixar’s iconic start as a film studio, which can trace 6 films and $6B in box office from a single lunch in the summer of 1994.

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The Brain Trust and a $6B lunch

I’ve been working remotely for 9 years and will never go back to any office environment. I like hours of uninterrupted deep work. And by “uninterrupted deep work” I mean “I look at the X app every 15 minutes but am still able to jam words on a keyboard because no one is ‘coming by my desk’ to chat”.

Working near other people isn’t for me. But if there’s one creative story that highlights the value of physically being around others, it’s the legendary $6B Pixar lunch from the mid-1990s.

The lunch was memorialized in a 2008 teaser trailer for the film Wall-E. Andrew Stanton — one of the most prolific Pixar directors — tells the story:

“In the summer of 1994, there was a lunch. Me, John Lasseter, Pete Docter, the late Joe Ranft [who passed away in 1996] all sat down [at the Hidden City Cafe in Point Richmond, California near Pixar’s head office]. Toy Story was almost complete and we thought ‘well jeez, if we’re going to make another movie, we better get started now’. So at that lunch, we knocked around a bunch of ideas that eventually became A Bug’s Life, Monsters Inc., Finding Nemo. The last one we talked about that day was the story of a robot name Wall-E.”

The four attendees of that lunch became known as Pixar’s “Brain Trust” and were the creative engine behind Hollywood’s pre-iminent animation hit machine. This group would pick apart every frame and story beat for any film in development over the next two decades (a favourite saying of the Brain Trust remains as true as ever: “No amount of technology can turn a bad story into a good story.”)

A re-creation of the table napkin where the four jotted down ideas. (Source: YouTube / Pixar)

Steve Jobs — who acquired Pixar from George Lucas in 1985 — famously made Pixar's headquarters an open structure with an atrium area where everyone had to pass through. Why? He wanted to maximize the amount of interaction between employees from different divisions (Jobs told historian Walter Isaacson that the key to creativity was serendipity).

I think this 1994 lunch is a version of this creativity by serendipity.

The other major creative decision Jobs made was to give Lasseter the final say on story decisions, a role that Hollywood financiers usually reserve for themselves per The Ringer:

Shortly after the release of Toy Story, at the end of 1995, John Lasseter and Steve Jobs had a meeting about the destiny of Pixar. Lasseter, the director of Toy Story and the creative nexus of the company, wanted Pixar’s filmmakers to have final say on all creative decisions. Jobs, the corporate owner who was more moneyman than muse, thought a business executive might need to steer the ship, as was customary at Disney and other Hollywood movie studios.

“We don’t want to make safe films. We want to keep breaking barriers in story and animation,” Lasseter said, according to a recent memoir by Pixar’s former chief financial officer Lawrence Levy, who was also present for the meeting. “We have ideas for incredible, original stories. It’s so rare to do original work. That’s what we can do. It’s what we have to do.”

Jobs was convinced, and Lasseter ultimately led Pixar to an unprecedented string of creative and commercial triumphs

Pixar’s first film was Toy Story.

Released in November 1995, it was a smash hit. The film brought in a worldwide box office of $245m (this was Hollywood's biggest haul for the year, beating out Apollo 13 and Batman Forever).

Steve Jobs used Toy Story’s success as a launchpad for Pixar’s IPO a few weeks later.

In the following years, Pixar checked off films they ideated during that lunch:

• 1998: A Bug’s Life ($363m, directed by John Lasseter and Andrew Stanton)

• 2001: Monsters Inc. ($529m, Pete Docter)

• 2003: Finding Nemo ($871m, Andrew Stanton)

• 2006: Disney acquires Pixar for $7.4B. Jobs owned ~50% of Pixar and became Disney’s largest single shareholder, with a 7% stake. The massive pay-off was two decades in the making: in 1986, Jobs paid $5m to George Lucas for the graphics animation company that would become Pixar (and invested another $50m into the company).

• 2008: Wall-E ($521m, Andrew Stanton)

The Pixar team picked Toy Story — and then A Bug’s Life and Monsters Inc. — because it was cheaper to animate toys and animals than humans.

Each story also had a straightforward-and-unversially appealing-premise: Toy Story (“based on the belief that kids thought toys came to life when nobody was looking”), Monsters Inc. (“Docter suggested that they come up with another popular belief, that monsters were hiding in the children’s closet ready to come out and scare them”), A Bug’s Life (“build on the Aesop fable, the ant and the Grasshopper”), Finding Nemo (Stanton remembered as “a child watching the fish in the tank at the dentists office, and wondering if the fish wanted to go home”) and Wall-E (“What if mankind had to leave Earth and somebody forgot to turn off the last robot?”).

In the decade plus after Wall-E, Pixar released two sequels based on ideas from that lunch:

• 2013: Monsters University ($744m, Dan Scanlon)

• 2016: Finding Dory ($1B, Andrew Stanton)

The 6 films from that lunch have brought in a total of $6B at the box office (meanwhile, most of my lunches end with me wishing I got a Caesar Salad instead of fries).

Let’s open the aperture up for:

• Other films the Brain Trust has directed: Docter (Up, Inside Out, Soul), Lassetter (Toy Story, Toy Story 2, Cars, Cars 2)

• Brain Trust IP directed by other people: Lee Unkrich (Toy Story 3), Josh Cooley (Toy Story 4), Angus MacLane (Lightyear), Kelsey Mann (Inside Out 2), Brian Fee (Cars 3)

With those additions, the attendees of that 1994 lunch are responsible for 18 of Pixar’s 28 films (64%) and $16B of $23B total box office (70%; inflation-adjusted).

Outside of the Brain Trust, the other director with the most success based on original ideas is Brad Bird (The Incredibles, Ratatouille, The Incredibles 2).

He was able to do so largely in part because Steve Jobs personally hired him and gave him creative protection (Jobs liked Bird’s 1999 animated film The Iron Giant, which was critically acclaimed but a commercial flop).

In a 2019 interview on Adam Grant’s WorkLife podcast, Bird explained Jobs’ rationale for picking up outside talent:

[Jobs was] feeling like, "We're in danger of falling into certain habits, because we have the same group that are doing things. And we're very proud of this group, and this group is very talented. But we want to shake things up."

And they felt like whatever I was going to do, it was going to be different.

The Incredibles — inspired by Bird’s home life — did turn out to be a significant shakeup. Jobs wanted Bird and his team to complete the project with less budget and a tighter deadline than the previous projects. Another curveball was that the 6th Pixar film was built around human-characters (not toys, monsters, bugs or fish). This was a major challenge because animating human details was hugely compute intensive.

Bird & Co. pulled it off and the film was a blockbuster hit.

While Bird’s hiring is another feather in the cap of Jobs as talent manager, it was also an exception to the rule that the Brain Trust ran Pixar.

With only Docter left from this original crew, Pixar badly needs to spin up new ideas and Inside Out 2 may be the catalyst to make it happen.

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Building on Inside Out 2’s success

In 1991, Disney’s then CEO Jeffrey Katzenberg wrote a famous memo titled “The World is Changing: Some Thoughts on Our Business”.

The studio was in a bit of a slump and the economic environment was challenging (there are parallels to Pixar now with the added problem of the theatre business being in long-term decline).

“Make no mistake about it,” Katzenberg wrote. “Ours is a cyclical business and we are once again repeating the cycle. The purpose of this memo is to reaffirm our commitment to our core philosophy, because I am convinced that this is what embodies our key to success in the days ahead.”

Let’s tackle the two main ideas here: 1) film is a cyclical business; and 2) re-affirming a commitment to a core philosophy.

Prior to Inside Out 2, Pixar was clearly on the downside of a cycle with the run of Onward, Soul, Luca, Turning Red, Lightyear and Elemental. Unfortunately, none of those films reached Pixar’s heights. Again, some of this was due to COVID.

Remember how Pixar co-founder Ed Catmull hated sequels but knew that they could help fund original projects? Well, the last Pixar film to cross $1B was Toy Story 4 in 2019. That film gave breathing room for the slate that followed and it’s great Pixar took shots on originals regardless of how they panned out.

There is an important consideration looking forward: it typically takes 3-5 years to make a Pixar film. The recent slump was basically the first batch of films after the old Pixar guard (Lassetter, Catmull, Bird, Unkrich) left the studio.

Docter remained from the Brain Trust but there was a cultural sea change. Prior to his boot, Lassetter was also chief creative officer at Walt Disney Animation and helped to shepherd popular hits including Frozen, Zootopia and Moana. Jennifer Michelle Lee — the director of Frozen — took over that role after his ouster.

The post-2018 film slate just clearly has a different creative DNA and expecting a new team to deliver hit-after-hit was unreasonable.

More broadly, Disney has been criticized for going “woke” in recent years with studio execs elevating diversity concerns to the same level as storytelling. These aren’t necessarily mutually exclusive but it’s clear when the former consideration is impacting the latter. After his return as Disney CEO, even Bob Iger conceded that, “[Disney] creators lost sight of what their No. 1 objective needed to be…we have to entertain first…it’s not about messages.”

There’s no doubt “messages” have been an overriding concern for Disney products in recent years. You just know there are endless script notes being passed down from marketers, lawyers and DEI execs. It hurts the creative process and must have played a part in the post-2018 Pixar cycle. As American inventor Charles Kettering’s quipped, “If you want to kill any idea in the world, get a committee working on it.”

This takes us to the second key part of Katzenberg’s memo: re-affirming the core philosophy.

When Docter told Bloomberg that Pixar had to “deliver the best possible and most relatable films”, he’s not wrong.

Of course you can create film’s based on your experiences (think back to the $6B lunch or Bird’s inspiration for The Incredibles). But Pixar is at its best blending a unique personal story with the most universally relatable themes. 

I’ll give a simple example. Turning Red and Inside Out 2 both have storylines about pre-teen girls going through puberty. The former addresses the theme with a much more niche storyline, though: it follows a Chinese-Canadian protagonist who lives in Toronto. The latter mostly takes place inside of the brain with abstract emotions — Joy, Sadness, Anxiety — turned into characters.

Which one of these films is more relatable? Which one has the more universal setup?

I’m Asian-Canadian and can tell you that the Inside Out universe is more relatable (my favourite detail from the making of the film is that the new emotion — Anxiety — was inspired by Adam Sandler in Uncut Gems, the 2019 Safdie Brothers film about sports-betting that is probably the most anxiety-inducing 100 minutes you’ll ever watch that isn’t a horror film).

This isn’t to say that you can’t have diverse themes but Pixar’s heyday was about the most generalizable and relatable themes layered on top of children-friendly images: Toy Story (friendship), Finding Nemo (parenting), The Incredibles (conformity), Wall-E (survival).

The most successful Pixar film that celebrated a specific culture is Coco, which came out before the Brain Trust exodus (2017) and made an inflation-adjusted $1B+. Co-directed by Mexican-American Adrian Molina, the film was inspired by Mexican cultural tradition and dealt with general themes of death and the importance of family.

Pixar’s next film will actually be Molina’s first solo director project. Coming out in 2025, it’s titled Elio and is about “an eleven-year-old boy named Elio Solis, who accidentally becomes the intergalactic Ambassador of planet Earth after being beamed up to the Communiverse by aliens for making contact; Elio must form new bonds with eccentric alien lifeforms and survive a series of formidable trials.”

Whatever the film, Inside Out 2 proved that the Disney machine can still put butts in seats when activated in the post-pandemic world. There were 150m+ subscribers on Disney+ that got bombarded to see the Inside Out sequel in theatres every time they opened the app. Film trailers were rammed down our throats during every ESPN game commercial break and there were wild cross-promotions with the NBA during the Finals.

Elio will get every marketing push to succeed. After that, Pixar will release Toy Story 5 and re-load the coffers for another run at making some new magic (similarly, Marvel has been in a bit of a slump but the success of Deadpool & Wolverine will certainly give the studio some breathing room as it reboots the Avengers with Robert Downey Jr. returning in the role of Dr. Doom).

Bigger picture: Will we ever get back to Pixar from 1995 to 2009?

Probably not.

The 15-year run from 1995 to 2010 was just the right team at the right place at the right time:

• The Brain Trust spent decades working together in a highly-independent and entrepreneurial environment (Pixar under Docter just went through its first slate of films and has to deal with the politics of existing under Disney)

• Pixar had the highest density of computer animation talent in the world (the studio no longer has a monopoly on the market)

• Toy Story created and dominated a new category of films (other animation studios have since created major franchises — Dreamworks with Shrek and Illumination with Despicable Me — while the entertainment landscape in the 2020s has so many more options including social, online gaming and countless streaming options)

• Steve Jobs — a Mt. Rushmore entrepreneur — was negotiating deals, recruiting talent and evangelizing for the company (Jobs was 1 of 1)

It’s just a different ballgame now. Disney has many more business, cultural and political interests that can bleed into a Pixar project.

Having said that, Inside Out 2 buys the animation studio some time and it looks to be entering a new cycle with Docter completely in control. The studio probably has a 5-10 year window to create another smash-hit franchise…and a group of Pixar folk could be dreaming it up right now at lunch.

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Links and Memes

Google is an illegal monopoly according to a US Federal Judge. The thrust of the case — which began 4 years ago — is that Google has a monopoly in the search market (90% of US searches; 95% of mobile US searches). The judge says that Google initially created that monopoly through ingenuity, a better product and superior business skills. But it has since maintained that monopoly position with “a major, largely unseen advantage over its rivals: default distribution”.

Google does this by paying browsers (Mozilla), smartphone makers (Samsung) and telecom companies — usually through revenue share agreements — to be the default search option, which drives its massive digital ad business. These type of payments are deemed anticompetitive and now total $26B a year, with the largest chunk ($20B) going to Apple to be the default search option in the Safari browser.

What’s next?

• There won’t be a resolution for years: Google is lawyering the F up (on top of it already lawyering up) to appeal the ruling.

• No clear remedy: In Europe, browser companies were forced to give users options on the default search engine and most just ended up picking Google anyways.

• Apple is the real loser: Apple has its own monopoly on the high-end smartphone market with the iPhone. It is extracting its pound of flesh in the App Store and from Google. But the $20B payment is worth it for the search giant. In 2020, internal Google research showed that it would lose 80% of its organic search traffic from iPhones if it wasn’t the main Safari browser option (which would lead to a revenue loss of $32B). Over the past decade, Apple has made ~$100B from this arrangement with Google (see chart below) and it’s basically 100% margin, which has significantly boosted Apple’s service business line (and been important for the “Apple is a services company” narrative).

• What will be the resolution? Based on my cursory internet research, a lot of smart people believe Google will settle this for a few billion dollars and maybe just go on to business as usual. If Google isn’t allow to pay for distribution, it’s realistically going to end up being the most chosen option anyway based on muscle memory and its actual data advantage. The judge could unwittingly be saving Google a ton of money with the same end result. Apple is at risk of losing a lot ($20B of free money) and will either have build up its own search business (like how it built Apple Maps to be a credible Google Maps competitor) or find another paying partner…which may not be possible (crazily, Apple calculated that Bing would have to share more than 100% of its ad revenue as the default Safari search engine to equal Google’s deal).

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The Horny Truth About AI Chatbots: A great title and insightful read from Evan Armstrong at Every. He breaks down the market for AI chatbots. The most popular of which are used for friendship, companionship and…umm…other types of companionship. This makes sense when you consider that 60% of Americans “report feeling lonely on a regular basis”.

Armstrong estimates there are 5-10m actives users for these services including Janitor AI, Muah.AI and Character AI.

He has three overarching conclusions: 1) Chatbots provide a new, incredibly addictive form of entertainment; 2) We are still grappling with what it means to purchase emotions; and 3) The attention economy still reigns supreme.

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Is 400m the most painful track event? American sprinter Quincy Hall won the Men’s 400m Gold with an insane comeback. The evening prior to the event, I posted a clip from the Outperform YouTube channel explaining the “science of why the 400m sprint is considered the most painful track & field event” and “why no person on the planet can run the 400m all out from start to finish".

The race pushes the way the body creates energy to the limit:

• 0-50 meters: ATP-CP (energy system for very short and explosive movements; used up after 5-10 seconds)

• 50-200 meters: Anaerobic glycolysis (burns glucose without oxygen, leading to lactic acid buildup and muscle fatigue)

• 200-300 meters: Aerobic energy (uses oxygen to break down glucose, but cannot keep up with the demand)

• 300-400 meters: Anaerobic energy reserves tapped while aerobic energy is too slow to fill the gaps (lactic acid buildup is going HAM)

It went viral after American track legend Michael Johnson re-tweeted it with some follow up notes:

My mentions blew up with a lot of people agreeing that the 400m is the most painful track event. Track athletes can pace for longer distances and shorter ones are just over quicker (obvs). But people also told me I was a fool and that the 400m hurdle and the 800m sprint were more painful.

Listen, I’m not qualified to speak on this. I’m just going to roll with Michael Johnson on this one. He set the record in Atlanta 1996 at 43.49 seconds (and then lost to Canadian 100m champ Donovan Bailey in a 150m event in 1997 that I’ll never forget). The 400m record was broken by South Africa’s Wayde van Niekerk in Rio 2016 at 43.03 (Wayde wasn’t able to effectively train for the 400m in time for Paris and didn’t compete).

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…and here them fire posts:

There have been so many good Olympic memes (as I documented last week). My favourite from Week 2 was based on the Men’s 100m event, which American Noah Lyles won by 0.005 seconds. Jerry Seinfeld had an entire bit about the Olympic finish line photo and how the difference between first (“greatest guy in the world”) and last (“never heard of him”) was infinitesimal…which was perfectly captured by this meme on the Lyles victory: