Toy Story came out in November, and I can still remember where I saw it, the Cineplex on the Upper West side of Manhattan on Broadway and eighty four. It was thrilling cinema, not only the characters and the sweet romance between the brash buzz light Year and protective Woody the Cowboy, but the awesome technical wizardry on display by a little known studio called Pixar. Twenty one years later, it's hard to imagine a time before computer animations were
a thing. But before Toy Story, anything other than an animation drawn by hand was this futuristic, faraway dream. Studios didn't even have the tools to do it, either the software or the physical machines and so on. Top of developing this incredibly compelling story about the toys of a little boy called Andy, Pixar had to develop the cutting
edge technology to make it all possible. But behind the scenes, as they were developing this wonderful story and the technology to tell it, Pixar was actually flirting with financial ruin. The company, owned by Apple co founder Steve Jobs, was racing against time to figure out how to make enough
money to keep the lights on. Yeah, you wouldn't know it from the success that Toy Story ultimately enjoyed, But the movie was a moon shot, a gigantic all or nothing gamble on the belief that computer animated characters could be just as compelling, just as believable as the hand drawn classics from the likes of The Lion King. Pixar's
very survival hinged on Toy Stories success. Hi, I'm brad Stone and I'm Paga Cary, and this week on Decrypted will take you on Pixar's roller coaster ride those crucial final months as the company rushed to finish its first feature film while simultaneously preparing for a make or break I p O Yeah, Pixar decided it would go public
just nine days after the premiere of Toy Story. The entire future of the company was writing on the success of that film, and what picks are proved with Toy Story ultimately transformed not just the company, but also film history too. This year, out of the top five grossing films in all categories too were computer animations. Can you Name Them? I can? One was The Secret Life of Pets, and in the top spot was Finding Dory, a movie
made by Pixar. Now. To fully understand just what was at stake for Pixar at the time, we need to go back to a nadier in the career of its Maverick owner Steve Jobs. It's a chapter of his career that sometimes gets skipped over because Steve Jobs was in
between his two stints at Apple. This is the period when he started Next Computer, after he famously got fired by his own boarded Apple cast out into Silicon Valley's wilderness, and the years that followed that humiliating dismissal, but before he returned to Apple, those are the year is when Steve Jobs was the owner and CEO at Pixar, and that's one of the reasons why there was so much
pressure on Toy Story to be a hit. The reputation and credibility of Jobs was actually tied into pixar of success, right, But Pixar did not have an easy relationship with Steve Jobs. I would characterize Steve jobs relationship with Pixar at that time. So this about as like an absentee landlord, so sort of the investor or the owner that never really comes to the property. That's Lawrence Levy. He's a slight wiry man with lots of tussled sandy hair. He has a cheerful,
almost boyish air about him. Last month he came out with a memoir about his time at Pixar, and it's called To Pixar and Beyond. It was in that Steve Jobs personally recruited Lawrence to become the CFO of Pixar and essentially to guide the company through its I p O. After Apple, he had started Next as you know, and he was working full time at Next Computer and Pixar had been more of an investment on the side, and
so there was no habit of him going there. I mean maybe he went there once a month, but I doubt even that often. Uh, And so the company was very guarded about him and had a lot of fear that this kind of very delicate, creative, homeie kind of culture that they had created would be hurt or even destroyed by the stories that they had heard about Steve.
And it must have been something of a balancing act for Lawrence, lessing Pixar's creativity flourish on one hand, while building out the kind of business plan that Steve Jobs wanted.
I quickly was sort of given that Moniker if you will like yours Steve's guy, and so, you know, and so there was some fear, you know, was I going to be the person that carried into Pixar all the things that they feared about Steve, And and so that began to feel It's not really what I signed up for, because well, no, I'm not carrying any of those things.
I'm here to fix those things. But people didn't know what to make of it, and there was quite a bit of animosity between Steve and the employees that Pixar. One of the biggest bones of contention had to do with employee compensation. The backstory with pixel when it came to stock options was that effectively they didn't have a stock option plan. There were no stock options. And this has been something that Steve had promised its employees for
quite a number of years now. Because this might not be obvious to everyone, let's explain what Lawrence means here. Why why was this so important? Right? So, for a lot of people, when they join a startup, they have to accept a lower salary than what they might get if they went to work for a big, established company.
So to make up for that, startups usually give their employees the option to buy stock in the company at some point in the future at a previously agreed upon lower price, and if the company gets acquired for a lot of money or goes public, those employees stock suddenly gets very, very valuable. It's every startup employees dream. And without these stock options granted to employees and I p O would really only be a financial benefit to the owner, you know, in this case Steve Jobs and maybe a
couple of other executives with special contracts. It wasn't something that would bring shared wealth to the entire company, and Pixar at this point had a hundred and forty employees. There was an enormous amount of pent up frustration over that, because especially at Pixarur, where many of the founding employees have been there for years, you know, really giving it the best years of their life in terms of their
technological and engineering and creative capabilities. But they didn't have that currency that would reward them one day for taking those risks. And as we just heard Lawrence Levy say, it really was years of hard work. Pixar had been around as an independent company since ninety six when Jobs bought it for Lucasfilm and It took Pixar's team of animators about four years to make Toy Story, so I guess creating a stock options plan was right at the
top of Lawrence's to do list. But for the I p O to go well and for Pixar's employees to get the reward they wanted, Toy Story had to be a hit, and not just like a few media mentions. They needed to be as successful as the biggest mega hits of all time, like up there with The Lion King and Beauty and the Beast. And that's partly because computer animation was and remains such an arduous process. It takes hours and hours just to create a few seconds
of film. Think about all the salaries Pixar had to pay to keep so many employees working on a single film for years, and on top of that, the software and creating the computers needed to actually make the frames that all together would make up the movie right, and Pixar had to invent pretty much all of that process from scratch, making things even more expensive, like they couldn't just buy it off the shelf. And this was all
an experiment. It was something letely unproven because nobody had ever seen a computer animated movie before, So you know, there were questions like, will the public tolerate ninety minutes of computer animation? Right, They've never seen that before, and so would that be something that people enjoyed. At the center of Pixar's creative team was John Lasseter. He directed
Toy Story and has overseen all of Pixar's subsequent films. Today, he's the Chief Creative Officer of Pixar Animation Studios, Walt Disney Animation Studios, and Disney Tune Studios. Meanwhile, Andrew Stanton and Pete Doctor were the writers on Toy Story. But although the team was exceptionally creative, Pixar had really only ever made short movies and commercials before this. Okay, so let's walk through the actual process of making a computer
animated movie. Well, I guess like most films, it starts with developing the main characters. So in Toy Story, that's Woody and Buzz light Year. So you draw a character and then you make a clay model of it. So you take these brilliant artists and they make these unbelievable clay models of the characters, and then someone comes along and they draw a whole bunch of dots on that clay model, and then someone else uses those dots in
order to create a digital version of that model. Now it's worth noting that these digital dot drawings that Lawrence is talking about at this stage, they do not look like a real character like Woody or like nothing recognizable. Its actually a grid. It's just it's like a just a grid of dots and squares and shapes. Then within that computer model, a whole bunch of things need to happen. So first of all, that computer model has to get what they call articulation points, which are places where you
can move it. So how do you move the eyes and the mouth and all of those aspects. Pixar's animators and a lot of time thinking about how and where you can move which muscles on face, arms, legs, all to create the perception of realness. I spoke to one animator, Sean Krauss. He's still with Pixar and most recently he was the supervising animator on Inside Out and Caused Three. But his very first movie was Toy Story, and he remembers the kinds of questions the animators we're having to
ask themselves. They were analyzing how do faces really work? You know, what drives the muscle structures? How what are the basic shapes that go into an expression? You know, the question was always is it easier to animate on the computer? And it depends. Things that are are rigid, like cars, can be easier because that's very difficult to draw by hand, But things that are organic tend to be more difficult to manipulate and make feel organic with
the computer. That's one reason why Toy Story is about toys, and why that original movie you never really saw much of the human characters at the time. It was too difficult to animate an entire movie in which every character was human. And another thing that I learned about animation, it's not just human characters that are really hard to develop. The whole natural world is difficult too, So that's why most of the movie happens inside Andy's bedroom. It's because
the sky is another one of those things. It's just really hard to make it look real, so we don't think of it when we watched the film. But outdoor scenes are really complicated compared to indoor scenes. So to make an indoor scene, you basically need to create a box, which would be the equivalent of a room and make it look like a room. But for an outdoor scene, you need sky, and you need trees, and the trees need to have leaves, and if you're going to have
a street, the street has to have cars. So that final scene of the movie, when Andy's driving away from his old home, that was one of the hardest things to pull off in the whole movie. At the same time, computer animation made new things possible, things that couldn't really be achieved with hand drawn animation. His Shorn again, for instance, subtlety, just simple things like I darts gave a layer of subtlety that you that were very difficult to get with
traditional animation. With traditional animation, if you were going to do something subtle because of the inherent uh, you know, wiggliness of a hand drawn line versus the perfection of a computer you could get these little micro movements that just exploded off the screen for the first time, and Pixar's animators were having to discover these tricks as they
went along. Pis Are basically invented the software in order to do that, and so that was one of its incredible contributions is that it literally invented its own system for dealing with that kind of complexity on a computer, which has never been done before at that time. And it wasn't just the software. Pixar had to build actual machines too, for everything from rendering the scenes to transferring the digital images onto a physical reel of film. So
I remember why. It was just kind of a little room and in the middle of the room, it's kind of a dark room, and there's this big slab metallic table, and there's this odd looking microscope device sort of sitting on top of it. And I remember talking to the person running that, David Francisco, and I'm like what, I kind of even figure out what this is, and he said, well, we have to transfer these digital images to film. Eventually,
that's what goes to a movie theater is film. Now, throughout this whole process, Disney Studio Exacts and it's beancounters were lurking in the background, watching closely. After all, Disney was paying for toy stories production costs, and Pixar's relationship with Disney was complicated. We were this tiny little company
with no race sources whatsoever. Disney had been king of the animation hill for two generations and the feeling was that if they got their capability and computer animation up and running, they could just swat Pixar off the map, you know, like an elephant to a fly. So Lawrence spent the first few weeks at Pixar trying to understand the different parts of the company's business, and he wanted to figure out how Pixar was actually going to make
money from the films that they made. He wanted to build out an attractive business plan that he could show potential investors, and at the center of that was this cryptic contract that Pixar had signed with Disney several years before Lawrence even joined the company. So Lawrence he flew out to Los Angeles to meet with Pixar's entertainment lawyer. I had seen that contract, but I hadn't paid that much attention to it, and I was sort of like,
it's fine, and I'll figure it out later kind of thing. Uh. But it turned out that the contracts in the entertainment industry are written in this code that only people in the entertainment industry understand. So Lawrence is sitting there, this is his lawyer swanky corporate suite, and what Lawrence learned was pretty devastating. So it turns out that Pixar had signed a three film agreement. But think about this, It takes four years just to make one movie, so that's
twelve years of commitment to Disney right there. And then another clause said that Pixar couldn't make any films for anyone else or even pitch an idea to another studio until after its contract with Disney had ended, and that includes ideas that Disney had looked at and rejected. And finally, with Hollywood's complex accounting systems, Pixar realized it would end up getting less than ten percent of the revenue from
its movies. It just shows how little leverage Steve Jobs must have had to have been forced to sign that agreement, and in essence, Pixar needed to produce a gigantic hit to even make back a meaningful cut of the revenue, and they had to keep rolling out those mega hits for the next decade. That process of deciphering that contract was one of the most painful experiences I think I went through in business. And if you think that contract is bad enough, you have to remember that Pixar's other
business units weren't making very much money at all. This is the part of Pixar that was making commercials, and it sold a software for rendering graphics called render Man. Yeah, and Pixar wasn't making enough money from those units to
cover its overheads. So when Lawrence first joined Pixar, the company had to go through this monthly ordeal where Ed Catmill, one of the founders of Pixar, would have to tell Steve Jobs how much money the company needed just to make it to the end of the month, and Steve Jobs was having to write out personal checks just to keep the company afloat. So the odds are really stacked
against Pixar at this point. They're in this incredibly expensive thing that they've been building up to for years, and what they're trying to do is something that no one's really ever actually accomplished before. And on top of that, to make back enough money, they needed this unproven thing to be a massive success, and they were trying to prove to wall streets skeptical investors that Pixar could be a viable, independent company worthy of their money. So, in
other words, no pressure at all. The whole future of Pixar was coming down to a single number the opening weekend box office for Toy Story. The atmosphere of Pixars it tried to finish Toy Story was like pedal to the metal. There's no time for thinking, there's no we just have to go right, go, go, go right, working morning, you know, noon and night, trying to get this done. You know, I think that's true of of you know,
a lot of invention, a lot of innovation. You know, if you're trying to get something done that's never been done before, you you have to have sort of just this relentless focus on trying to finish and almost put blinders on and go for it. And that was the atmosphere within the company. You know, we're just going for it. The animators were gunning so hard to finish the film that a lot of people hadn't even seen the completed movie until the moment when the lights went down at
the preview. We all just were glowing and we had a great time just talking about the film, complimenting each other because it was the first time we had seen what the lighting department had done. It was the first time we had seen what the cloth you know, and shading departments had done in a big way. We've seen bits and pieces along the way, but we hadn't heard the music through the whole film yet. Meanwhile, Lawrence took his whole family to the premiere in Los Angeles and
his wife Hillary. She also spoke to me, and here's how she remembers the audience reaction. I was almost holding my breath throughout the entire movie, and I remember as it closed, as it ended and the credits were coming on, this just roar of applause, and I just looked around to see if people were sort of clapping just to be nice, or if they really had some excitement in their faces. And I saw the ladder. I mean, people were just flabbergasted by what they saw on the screen.
And it was pretty much at that moment that I knew that Pixar was okay, which brings us to this week's happy ending Toy. Story went on, of course, to become a blockbuster. It made twenty nine million dollars in the US on its opening weekend, and eventually it clocked up three hundred and seventy three million dollars worldwide. Pixar
went public as planned on the thirty November. Pixar's stock boomed over the next decade, and Disney ended up buying it for seven point four billion dollars in two thousand and six. We should know that before the I p O. Pixar's employees got the reward to Lawrence Levy was able to convince Steve Jobs to give employee stock options. And as for Steve Jobs, he not only recovered his reputation, but it was actually Pixars I p O that made
him a billionaire. His relationship with the company improved, and now Pixar's contribution to animation has really transformed the entire genre. It's really incredible Pia to reflect on how important to really the history of cinema that this formative time and Pixar's history was. I mean, if you look at almost all animated movies these days have an element of commuter or animation, and those early employees of Pixar have kind
of gone to populate the entire film industry right. And it's been a while since a fully hand drawn animation was released by checked in with Disney about it, and their last feature film was Winnie the Pooh back in Can I tell you I've tried to introduce my kids to too great movies, and we've sort of made our way through the whole Pixar uber and there's some of my favorite movies. I mean, we just watched Wally and Inside Out. I mean, it's like a truly remarkable body
of work. Well, the most recent animated film I was was was Frozen, and it really struck me how incredibly farther technology has come. You know, that movie has humans as all their main characters. It's got these beautiful, dramatic landscapes. And when I rewatched Toy Story when I was writing up this podcast, it struck me that, you know, it's come a really long way towards then they're they're no longer trying to hide the faces of the humans. I wonder.
I mean, the other part of this seminal moment and Pixar history is the I p O did. Did the initial public offering elevate the status of animators in Hollywood? You think, are they now seen Morris technology workers? Well, I mean, Lawrence goes into this a bit in his book, and it's interesting that Pixar was operating in this kind
of gray zone. It wasn't totally Silicon Valley, but it certainly wasn't completely Hollywood either, and um, it was a real process to try and figure out whether Pixar should be treated like an animation or an entertainment company. And I think eventually, yes, it most certainly did. It's uh, there are lines in all the books now saying that Pixar was kind of an exception to the rule as far as entertainment. I p o s go. Well, thanks Pierre, You've inspired me to go back and rewatch the original
toy story. And that's it for this week's Decrypted. Thanks for listening, and tell us what do you remember about that first time you saw a toy story. You can find me on Twitter at at brad Stone and I'm at Pa Gatkari, or you can email Pa at p g A d k A r I at Bloomberg dot net. You can find Decrypted on iTunes or wherever you get your podcasts, and be sure to subscribe and leave us a rating and a review. It helps more listeners discover the show. And one quick note before we let you go.
In our previous episode about school forty two, a study session organizer that we identified as Mason Young, his name is actually Kane York. This episode was produced by Aki Ito Magnus Hendrickson and Liz Smith, with help from Emily A. Buso. Alec McCabe is the head of Lumberg Podcast. We'll see you next week. H