The Steve Jobs Pixar relationship: how the animation company almost bankrupt him

Bernardo Montes de Oca
November 27, 2021

It's 2006, and Steve Jobs is about to close the deal that will send Pixar to Disney for $7.4 billion. Of course, we can't read his mind, but we're sure he's ecstatic and relieved. You see, this sale marks the end of a journey so challenging, it almost sent Steve jobs into bankruptcy. But, how?

How Pixar was born: the origins of the famous company

Back in the '70s, designers had one obsession: creating the first-ever computer-animated feature film. The challenge was so clear that they called it simply "The Movie." The idea was ludicrous. Animators needed computing power that was impossible to get. Still, they believed that, in the future, they would be able to do so. Why were they so sure? Because of Moore's Law.

In short, this law states that, on average, every two years, the number of transistors doubles. So, in time, computer power will increase. All they had to do was wait. Ed Catmull, Malcolm Blanchard, David DiFrancesco, and Alvy Ray Smith were some of these visionaries. They joined the New York Technical Institute in 1975 with that goal, and they had some results.

Image for Steve Jobs Pixar article: the logo of pixar studios at the entrance of the building, against a clear blue sky

They came up with a short called Sunstone, which is creepy. But, creepy or not, it drew the attention of George Lucas. He stole the animators from the NYIT and got them to work for LucasFilm in 1980.

Their division would be the Computer Graphics Group or CGG. The CGG would work in design, editing, special effects, and three-dimensional animations. But, they also worked on a little bit of hardware called the Pixar Image Computer, and this is essential for how Steve Jobs got involved. This device would be four times as fast as other computers in processing pixels. But, not yet. You see, this team was working for the future, not the now. So, patience was vital.

The first computer-animated films

The CGG did make some animations. For example, one of their first experiences with computer animation in major films was in Star Trek, the Wrath of Kahn. For a 1982 animation, it looks impressive. Then, in 1983, they animated the Death Star hologram in the Return of the Jedi. 1983 was also a big year because John Lasseter joined the team. An animator, Lasseter exuded talent and had the creative vision to propel the CGG. His first projects included The Adventures of André and Wally B, an animated short that was revolutionary at the time.

But, even with these successes, there was a big problem. The CGG was still trying to resolve its identity. Not even George Lucas understood the entirety of the concept. It’s fascinating how Pixar went from this idea that was barely alive to chaning the life of Steve Jobs and many others. Now, you might be wondering why that's important. Well, it turns out that George and his wife, Marcia Lucas, had had it. The couple divorced and split everything evenly, which included money, properties, and companies. In the following years, LucasArts went through a tremendous change and, by 1985, all that remained of the computer department was the CGG.

LucasArts was essential for Pixar’s survival

Catmull, Smith, Blanchard, and DiFrancesco wanted the company to survive. They were sure that, in no time, they'd have the ax as well. The problem was they had no idea how to run a business. Their idea made some sense. Pixar would attract investors with their computers and finance the animators. The plan was to do this for five years to make "The Movie," once technology made it possible.

Again, Pixar relied entirely on the future. But, nobody wanted to invest in them. Smith and Catmull went to 35 venture capitalists, and they all said no. The idea was too abstract. They had one possible deal with GM, but that fell through due to politics. So, Catmull and Smith had no other plans. Unless, unless, how about calling Steve Jobs? Steve Jobs, Pixar, in the same sentence? That's right.

How did Steve Jobs get into Pixar?

Months before the deal with GM fell through, Jobs had met with the four to buy CGG. He cared about the computers, not the animation. But, the four said no. Now, with their tail between their legs, he was their only chance.

Steve Jobs said he'd finance the company at about half of the GM deal. Lucasfilms was desperate for money, so they took the offer. With a $10 million check, Jobs finalized the deal. He capitalized on the CGG, controlling 70% and the employees 30%. The spinout covered everything, including the Pixar Computer.

And so, Pixar officially came to life in 1986 as a computer manufacturer and an animation company. It produced shorts like Luxo Jr., an Oscar nominee, and Tin Toy, an Oscar winner. Other shorts included Red's Dream and Knick Knack. All these were massive hits. In the meantime, they were also implementing breakthrough technologies to animation, like RenderMan, which would become vital for Hollywood.

But, that didn't mean that the company had it easy. You see, on one side, the Pixar software was excellent. But, on the other, the Pixar computer sucked. Plus, it was too expensive.

Pixar sold expensive computers that nobody wanted

The first Pixar computer sold for $135,000. In 1986. Also, you needed $35,000 worth of software from SunSystems. That’s not cheap even for today’s standards. Even Moore's Law couldn't help them. Though the 1987 model was worthless, it still was $35,000 in 1987. So, by 1990, it's estimated that Pixar only managed to sell less than 300 units and Steve Jobs was pissed.

Smith recalls in an article that Jobs would trash the managers at Pixar. But then he would write another check worth millions. From the outside, it made no sense. The company was hemorrhaging money and had a product that didn't work. So, why write another check? Because Steve Jobs couldn’t fail again. So, he'd write one check after another. Steve Jobs made $100 million from Apple, give or take. In Pixar alone, he had poured $60 million of cold hard cash.

Knowing he could very well end up in bankruptcy, Jobs took action. In mid-1990, he sold the hardware division for a paltry $2 million. He was sick and tired of the Pixar Computer.

The Steve Jobs Whiteboard Incident: Corporate Fighting 101

Still, tensions were high within Pixar, especially between Steve Jobs and the other directors. If you don't know, there's the famous "Whiteboard" incident. You see, Steve Jobs loved having control of his whiteboard; no one else could touch it.

In one meeting, Jobs was berating the Pixar executives for a delay in production. However, Smith pointed out that NeXT, Jobs' other company, was also delayed, so Jobs should better back off. Jobs exploded. In seconds, Smith and Jobs were screaming at each other. Finally, Smith went over to the whiteboard and started writing on it in a fit of rage. Then, Jobs shouted: "You can't do that!"

Smith replied: "I can't write on your whiteboard? Bullshit." Friendly times. What followed were even more drastic measures. Finally, in 1991, he bought the company altogether. Now, all Jobs needed was for the future to arrive.

How Moore’s Law saved Pixar

For years, the company aimed to create "The Movie." And, by 1990, it seemed that, even in rocky times, they had all the factors. They had John Lasseter, good software, and ties with Disney. Plus, technology was catching up. So, after decades, it's time to create a full-length computer-animated movie. In 1991, Ed Catmull negotiated and closed the deal with Disney for not one but three movies.

The deal left Catmull and Smith in awe. They figured that "the movie" would take five years. Still, Disney believed in the enough to pay for three films. But then there was the issue of Steve Jobs. Jobs' presence created tension during the negotiations with Disney. You see, John Katzenberg, the head of Disney's film division, already knew Jobs, who had tried to sell him a NeXT computers division and failed.

Pixar’s future depended on Steve Jobs

Logically, Catmull and Smith were scared that the two wouldn't get along. And, for a moment, it seemed it would be so. Disney offered a small percentage of the box office earnings, plus compensation for the work in the movie. But, Jobs wanted more. He wanted a bigger percentage on box office sales. Plus, a cut of video earnings and unlimited software rights.

Katzenberg countered. He increased the percentage but didn't yield any rights. The news was great for Pixar. But, tension was still running high. Smith was close to having enough. The insults, the whiteboards, and negotiations, it all had been too much.

So, he left. That's how much he hated working with Jobs. Alvy Ray Smith was willing to part with his dream of decades. He was ready to ditch The Movie because he was sick and tired of Jobs. And, yes, spoiler alert: that first Pixar movie was Toy Story. It would be a hit. But making it wouldn't be easy.

The film that saved Pixar: Toy Story

There's a reason why Toy Story is about toys. At the time, animating skin and human features was still a challenge. The final result left a plastic-like skin. So, humans were hard to illustrate. But, toys? They were great.

Image for Steve Jobs Pixar story: A motionless Woody looks at the screen, showing the quality of animation of the time.

So, on that front, Pixar had hit it big. When Lassetter showed Disney executives a sample, they loved it. Plus, the voice cast was impressive. It was the plot that was problematic. Lasseter had written Woody as a mean character to counter Buzz Lightyear's personality. Disney hated this idea, and the company paused production and went a step above.

Disney sent Lasseter to screenwriting classes for months. That's one of the reasons why Toy Story took four and a half years to come to fruition. Also, Pixar's fate was riding on this. Even Disney as well. If this first movie didn't pan out, the other two most likely wouldn't enter production. After months of guidance, Lasseter turned Woody into the character that we all know and love. Then, Disney even announced a launch date: Thanksgiving, 1995.

Steve Jobs loved Toy Story, so did everyone

When the screenings came along, critics loved the Toy Story, and so did Steve Jobs. Well, he loved the financial potential of it. Because, just months after the showings, Steve Jobs took over as president of Pixar. He was sure Toy Story would be a hit. And, spoiler alert: it was. In the first weekend alone, Toy Story earned $39.1 million. The film would rack up $200 million throughout its theatrical release.

Toy Story had been The Movie. And it had cost everyone involved more than they could have ever predicted. But, the story doesn't end there. It gets more interesting. Just one week after Toy Story, On November 29, 1995, Pixar had its IPO. The narrative persists: Pixar had one feature film. That was the only selling point, but the promise was that movies would get better, which sounded crazy. Still, Jobs went through with the IPO, and it was a hit.

It was the biggest IPO of the year. Pixar then produced A Bug's Life in 1998, Toy Story 2 in 1999, and Monsters, Inc in 2001. The three were enormous critical and financial hits. So, it's a fairytale ending, right? Well, no. Because one side of the story is about animated films, and the other is about money. The relationship with Disney, who was the distributor, had reached a boiling point.

So, by 2004, Steve Jobs had hinted that, in 2006, Pixar would stop working with Disney. The news shocked the world since Pixar had proved its worth and Disney could reap huge benefits. But Steve Jobs and CEO Michael Eisner were tough negotiators, as we've seen. Plus, they didn't like each other.

How Steve Jobs sold Pixar to Disney

But, after pressure from the Board, Eisner resigned and Bob Iger came in. As soon as he took on the role of CEO, he wanted to buy Pixar. By then, the movies had garnered more than $2 billion, so the potential was there for a lot more. But, he knew Jobs had a reputation. So, he called Steve Jobs with the offer to buy Pixar. He expected a rant, and instead, he got a: "That's not such a crazy idea."

But when the two met, things were different. First of all, Jobs pulled out the whiteboards. He listed the pros and cons, and we have to give it to Jobs; some of these were valid. Jobs believed that Pixar's culture was too valuable. Disney could kill it and destroy the essence that made it great. So, if he was to sell Pixar, Jobs needed a guarantee that the vision would survive.

Steve Jobs makes history at Disney

What he did was leverage enough to become a majority shareholder. And that's the story a lot of people know. So, when Pixar announced the sale, the world said that Steve Jobs had revolutionized animation. And, yes, he did to a degree, he wasn't alone. For a decade, before he arrived, visionaries were looking for "The Movie." So, we can't say that Steve Jobs changed the company entirely. What we can say is that, most likely, Pixar changed him.

It's June 2006. Disney announced that it would buy Pixar for $7.4 billion. With this purchase, Disney hopes to revamp its animation division. Pixar will continue to create groundbreaking films. And, as for Jobs, he gets the last laugh. He's not only billions richer, but he's also a majority owner in Disney.

Bernardo Montes de Oca
Content creator in love with writing in all its forms, from scripts to short stories to investigative journalism, and about almost every topic imaginable. From start-ups to nature, from literature to aviation. Hearing impaired, so let’s talk loud and clear.
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