[Chapter 627: The Psychological Shadow Area]
Eric glanced at his female assistant, and after receiving a knowing look in return, he continued, "The revenue forms related to animation mainly include toy production, character licensing, theme parks, original soundtracks, and stage plays. Thanks to the inherent advantages of 3D technology, both the variety and popularity of 3D animation far exceed those of 2D animation.
You can see these figures in the handout you're all looking at. Take Toy Story for example; it had over 100 types of toy merchandise, and the character licensing for it reached over 300 options. In contrast, the combined toy offerings for Beauty and the Beast and Aladdin barely totaled over 60, and their sales figures could not compete with those of 3D animations. The same goes for other merchandise types; according to the data, 3D animation's peripheral revenue essentially surpassed that of 2D animation. The only area where 2D animation led 3D was in the box office of stage plays adapted from these animations. This was mainly due to the fact that the storylines of 2D animations are easier to adapt into live-action formats, but this revenue was negligible compared to other merchandise."
In conclusion, Eric summarized, "So, given that the 2D animation department lacks any advantages in terms of cost, box office, or merchandise, I can't see any reason to continue sustaining it."
Noticing the three older men nodding in understanding, Eric smiled slightly but didn't plan on stopping. He turned the page and said, "Now, let's discuss the difference in production cycles between the two types of animated films."
Ignoring the bitter smiles that suddenly appeared on the faces of the three men, Eric continued, "During the Disney era, from when Michael Eisner took the helm in 1984 and restructured the animation department until the release of the hugely successful The Little Mermaid, a total of five years passed. The subsequent films like Beauty and the Beast and Aladdin also largely started their production during those initial years of Eisner's tenure.
I conducted a simple analysis, and the average production cycle for hand-drawn animation films is about five years. This is largely due to the significant disadvantage hand-drawn animation faces compared to computer animation. Once characters are modeled in 3D using computer technology, a lot of the assets can be reused, saving substantial manpower and time. Hence, Pixar took only a little over two years to produce Toy Story and A Bug's Life.
Conversely, in hand-drawn animation, each frame must be hand-drawn by an animator, and to avoid unnecessary efforts during production, a long incubation period is necessary before starting a project. This is to ensure every detail of the animated film is confirmed, which significantly delays the production timeline for hand-drawn animated films."
Noticing that David West's mouth twitched slightly, Eric laughed and said, "I bet you're wondering why we don't just hire more people, huh?"
"Alright," David West shrugged helplessly, imitating Eric's tone, "Why don't we just hire more people?"
Light laughter erupted from the others in the room, and Eric explained, "That brings us back to my earlier point. In 3D animation, once characters are modeled, their designs are fixed, allowing many animators to work on the same project without compromising quality -- though of course, that number can't expand infinitely.
But hand-drawn animation is different. Each animator has their own unique style. Keeping the number of animators within a certain range helps maintain stylistic consistency throughout the project. If too many animators are involved, unless the producer and director possess extraordinary organizational skills, it's possible for viewers to notice inconsistencies in the film's style or character designs. I think anyone would feel disappointed if they encountered such discrepancies while watching a movie, wouldn't they?"
After David and the others were again "forced" to nod in agreement, Eric added, "In fact, extended production cycles aren't too much of an issue as long as they yield excellent works and substantial profits. The real problem lies here: compared to 3D animation, 2D animation not only has a long production cycle but also suffers from another very significant drawback. Do you know what that is?"
Buffett shook his head with a smile, while David West and Tom Murphy didn't hesitate to flip to the next page of their materials.
Kelly Haynes, sitting next to Eric, knew the answer well but didn't intend to answer his question. Instead, she smiled at her younger boss, not realizing she was unintentionally resting her chin in admiration.
Once the three men had turned the page in their materials, Eric continued, "As you all know, Hollywood sequels are often the most stable and profitable films. However, hand-drawn animated films like The Little Mermaid, Aladdin, and Beauty and the Beast have not publicly released sequels; instead, they planned direct video releases. The main reason for this is that the production cycle of 2D hand-drawn animated films is simply too long. If there are delays in the script for sequels, it could easily stretch beyond the average five-year mark, reaching six or seven years, or even longer.
I've also mentioned that the young audience for 2D animation refreshes every seven years. By the time a sequel is finally produced, the original audience, which accounted for over 40% of viewership, might have grown up and lost interest in 2D animation, thus leaving the sequel with little fanfare in a brand-new young audience segment.
Therefore, after a hit hand-drawn animation, Disney's usual strategy has been to produce sequels meant for video release. Such works target the small screen, without high demands for plot or image quality, enabling quick production and low costs. For example, the movie version of Aladdin had production costs over $20 million and took four and a half years to make, while the direct-to-video sequel had a budget of just $5 million, taking only two years to produce. Although it generated huge profits, these hastily made video projects solely aimed at maximizing profits are also a form of excessive consumption of the Disney brand.
In this regard, 3D animated films hold absolute advantages in both audience age demographics and production cycles. As long as a 3D animated project is popular enough, sequels can be made every two to three years. Even after seven years or more, there's a potential audience spanning all age groups that would justify producing a sequel."
At this point, the three older men had lost interest in flipping through the remaining materials. Buffett was the first to express, "Eric, if you need my support, I could publish it in the newspaper tomorrow. I think Tom and David wouldn't mind doing the same. But I have one last question; you can choose not to answer, and I won't alter my decision."
Eric nodded appreciatively.
Buffett asked, "Given Firefly's current strength, maintaining Disney's hand-drawn animation department for a few more years in a gentler transition wouldn't be a problem at all. I believe in the short term this department will still generate sufficient profit for Disney. In light of The Lion King's skyrocketing box office, why are you so insistent on these drastic measures?"
Eric replied, "This reminds me of a little story from an article that introduced your life story."
Buffett chuckled, encouraging Eric to continue, while Tom Murphy and the others expressed curiosity.
Eric explained, "I recall the article discussing the Berkshire Hathaway textile factory. In 1985, the factory was completely shut down, and all the equipment inside was auctioned off for merely $160,000 as scrap metal. The article specifically mentioned that in 1981, the factory replaced 200 textile machines at a cost of $5,000 each, yet just four years later, those machines could barely be valued at $16 each. If you had chosen to close the textile operation while it was still making a profit in 1981, you could have avoided over a million dollars in losses and sold the business, bringing in millions more in extra revenue. But just four years later, the value had plummeted to $160,000."
Buffett honestly nodded without dispute, admitting, "That was indeed a management mistake I made. The factory manager, Ken Chace, advised me to sell off the textile business, but I didn't do it."
Eric steered the topic back to Buffett's earlier question. "The measures I'm taking aren't as drastic as they seem. Two years ago, I already hinted at transitioning the animation department to 3D production. However, most people seemed to take it too lightly; they might have thought that hand-drawn animation was essential for Disney. Six months ago, I officially informed the Disney animation department of the detailed reform plans, but that still didn't garner enough attention, and now..."
Eric shrugged. "Perhaps even the members of the Disney animation department who initially supported the digitization reforms have changed their minds. There are over 700 animators in Disney's hand-drawn animation department, and when including other support staff, the number exceeds 1,000. For both social responsibility and labor law reasons, I never considered throwing these people out of work. I gave them ample time to adjust, but they seem to take it for granted.
This situation presents a perfect opportunity; given the impact of The Lion King, I reckon that even if they leave Disney, they won't face unemployment risks. So, this is the best time to shed this burden. If 2D animation declines, it won't be Firefly that has to worry about their livelihoods."
Buffett listened intently and asked, "Are you suggesting that you plan to sell the entire hand-drawn animation department?"
"My first choice is still a digitization transition for the hand-drawn animation department. Disney's hand-drawn team has excellent filmmakers and directors. If we can successfully transition to 3D animation production, Disney wouldn't have to start from scratch," Eric said, shaking his head regretfully. "But now, it seems that possibility is quite low. If both sides ultimately can't reach an agreement, I would consider selling the entire hand-drawn animation department off."
"That strategy might not work," Tom Murphy said. "The most valuable assets in the animation department are the hand-drawn animators, not things like real estate, patents, or copyrights. If the talks fail, I don't think they would allow themselves to be used as leverage in negotiations."
"It all comes down to benefits," Eric replied. "As long as they agree, Firefly can offer some of the funds from the sale of the animation department as compensation to them. Furthermore, I'm sure the buyer would prefer to acquire a complete animation production department. Firefly could also offer up some 2D animation film rights to increase the chances of a successful transaction. Meanwhile, if the department is sold all at once, the staff can band together and negotiate for higher salaries from the buyer. With all sides' interests aligned, I can't think of any reason they would refuse."
David West couldn't help but say, "Eric, I really want to know if there's anything you haven't thought of."
Before Eric could respond, Buffett interjected, "There's also the matter of the long-term bonds currently being issued. Eric, before coming here, I looked into the situation of the bond issuances. Morgan Stanley and Deutsche Bank have cumulatively sold $4.9 billion worth of Firefly's long-term bonds, with another $3.1 billion remaining. If you insist on shutting down the hand-drawn animation department, it will surely affect Firefly's current bond issuances. Have you thought of that?"
"Of course," Eric nodded. "Currently, Firefly has already divested its print media assets and is likely to sell off the hand-drawn animation department, which together could provide Firefly with at least $2 billion in free cash flow. This amount should be sufficient to offset any potential downside risks from the bond issuance. Moreover, after the financial report for the first half of the year is released in July, the chances of bond sales encountering problems will be virtually zero. If investors aren't foolish, they'll recognize that a hand-drawn animation department won't significantly impact Firefly Group's profitability."
"Then I have no issues here," Buffett concluded. "Eric, if you need our assistance with this matter, just let us know."
Eric tapped on the documents in front of him and said, "I'd like to keep the contents of these documents confidential. Once leaked, those potential buyers will definitely change their minds."
Buffett had already memorized the entire document with his extraordinary memory. Although he had initially hoped to keep it for further reflection, after Eric's request, he decided to show sincerity by passing the materials back, saying with a smile, "In that case, it might be safer if you take these documents back."
Tom Murphy and David West followed suit, returning their documents to Eric.
Eric accepted them without hesitation, stowing the documents away. He added, "Additionally, regarding this situation, as long as everyone can cooperate, help persuade the other shareholders to remain silent, and patiently await the final outcome, we should be good."
Buffett said, "No problem. After dinner, I'll make a few calls."
Tom Murphy and David West made the same promise. All three represented a portion of the original ABC shareholders' interests, so their outreach would surely prevent any internal issues at Firefly.
Once the disagreements were resolved, the dinner ahead felt much more pleasant. Buffett and the others were seasoned elites in the business world, and despite Eric seeming overly young in their eyes, his complete memory from his previous life ensured he could keep up with any conversation the three older gentlemen initiated. This further impressed Buffett and his colleagues.
Dinner wrapped up around eleven o'clock at night. Being a casual restaurant, the total bill for the five of them was merely $220. Buffett extended the invitation, so the chaotic scene of people competing to pay the check, which Eric remembered from the past, never materialized.
However, when Buffett seriously tallied the 33-dollar tip and handed it to the waiter -- who had been waiting all night -- everyone except Tom Murphy, an old friend of Buffett's, had the impulse to pretend they were passing by.
...
As they saw Buffett and the others off in their car, Eric could sense his female assistant suppressing some unfounded emotions.
Eric finally let the laughter he had been holding back escape, turning to Kelly and saying, "Were you calculating that waiter's psychological shadow area?"
Kelly Haynes paused for a moment at the unfamiliar phrase "psychological shadow area," processing the humor and teasing embedded in it, her restrained smile blooming instantly. "I think after this, that waiter will absolutely never have any expectations of billionaires again."
Engaging in casual conversation, the two walked toward the nearby parking lot, where the driver was already waiting.
The Italian restaurant they just dined at happened to share a parking lot with a nearby cinema. Coincidentally, a movie was just finishing, and the audience spilled out, moving towards Eric and Kelly. Given the late hour, there were few adults and children; instead, most of the crowd consisted of teenagers enjoying the night, including a number of couples.
To avoid being recognized, Eric pulled out his sunglasses, and noticing his assistant's gaze lingering on a couple almost glued together, he joked, "I have some free arms for rent, you know. It's complimentary."
Kelly's heart skipped a beat, but she maintained a calm demeanor, shooting Eric a warning look. "Boss, that's genuinely harassment."
Thinking she was genuinely upset, Eric was about to apologize when they collided with the flowing crowd. In the brush, Kelly instinctively reached for the man's arm next to her, causing both their steps to falter.
Eric looked at his assistant, who had her gaze lowered. Though the sunglasses shaded his vision, he could perceive a flush creeping onto her normally pale cheeks.
After intersecting with the crowd, the two quickly veered towards the parking lot. Realizing she hadn't released his arm, Eric tentatively wrapped an arm around her waist, carrying her along as they moved toward the parking area.
...
Carter Moen saw them approaching, quietly opening the car door in an indifferent manner, having grown familiar with such situations by now.
But Kelly felt almost shy enough to escape, a whirlwind of thoughts rushing through her mind: What's come over me? I definitely didn't mean to... I'm ten years older than him; what would he think... He seems to like mature women... Yikes! What am I even thinking; it's so shameless... He's my boss... Will he think I'm easy... No, I have to let him go... But he's holding me; how can I let go... Oh no, I'm going to lose my job for this...
Eric gently let Kelly into the car and slid in himself. Carter Moen joined them, sitting silently, waiting for the boss's orders. Based on experience, it likely wouldn't involve returning to Liberty City Manor.
After several minutes of silence, Eric glanced at his somewhat out-of-it assistant and thought back to the cinema. "How about we catch a midnight movie together?"
Kelly finally snapped out of her daze, shaking her head rapidly, "It's getting late. I've got to work tomorrow."
Eric tried to ease the atmosphere with a joke, saying, "Don't forget, your boss is right here."
"But Mr. Katzenberg isn't exactly easy to deal with. If I'm late to the morning meeting tomorrow, he... he'll definitely be furious."
Eric wouldn't let trivial matters interfere with the authority of management. "Then I'll drive you home; where do you live?"
Upon hearing the question, Kelly's heart raced again, but she managed to share her address.
Eric signaled to Carter Moen, who soon got the car moving.
...
Forty minutes later, the luxury sedan stopped outside a villa in the affluent district in North Santa Monica.
Due to the earlier awkwardness, the two spent the ride nearly silent. After getting out, Eric felt it'd be polite to exit alongside Kelly.
"See you tomorrow," Eric said, sensing the atmosphere was a bit peculiar. He instinctively wanted to shove his hands into his pockets, but wearing a suit instead of casual attire made that gesture appear odd; he ultimately refrained.
Kelly softly replied "uh-huh," still hesitant to meet Eric's eyes. "Good night, Mr.... Boss."
Eric sensed her careful attempt to distance herself with formal language. He echoed gently, "Good night, Ms. Haynes."
Earlier, she had mindlessly used "boss" to remind herself of their roles, but struck by Eric's equally distant address, she began to feel nervous. After a moment's pause, she asked, "How about coming in for a cup of coffee?"
Eric always felt he was someone who cherished women. Sensing her insecurity, he felt irritated over the sudden pressure, losing patience. He turned and knocked on the adjacent car window; when Carter Moen rolled it down, Eric said, "I'm going to Kelly's for some coffee. Pick me up tomorrow morning."
Carter nodded readily and drove off into the night.
Kelly stood speechless, her face once again turning beet red. "I--I didn't mean anything by it. I was just... just wanting to invite you for coffee..."
By the time she finished her sentence, her voice had dropped to a barely audible whisper. She realized how late it was; drinking coffee at this hour was absurd.
Eric brazenly pulled the alluring secretary into an embrace, and amid her weak protests, he said, "I had no other intention either. It's been a while since I ran a marathon; a cup of coffee will perk me up, then I'll run back to Malibu. I'll be home before dawn."
Kelly burst into laughter, all traces of her earlier conflict dissipating. She said softly, "You're quite the scoundrel."
With that, she made no further attempts to resist, and they both entered the villa together. Without even switching the lights on, their figures merged in the dimness, embracing and kissing for a long while. Just as Eric's advances grew bolder, a confused voice rang out, "Ms. Haynes, is that you?"
Instantly, Kelly recoiled from Eric, trembling as she answered, "Jenny, it's me. You... you can continue sleeping."
The voice paused but quickly responded, "Alright, Ms. Haynes."
After listening for a moment and confirming that the person had no intention of exiting the room, Kelly let out a sigh of relief. Feeling Eric's presence wrap around her again, she quickly pushed him away and whispered, "I'm going to check on Nina."
Eric replied with an "uh-huh," noticing the woman making her way towards a side room and instinctively followed along.
When they reached the door, Kelly suddenly realized Eric was behind her. Thinking of what was about to happen, she felt a wave of embarrassment and sternly stated, "You can't come in."
Assuming she was heading to her daughter's room, Eric respectfully halted his steps.
A few minutes later, the assistant awkwardly emerged from the room. Unable to hold back any longer, Eric abruptly swept her into his arms, rasping, "Where's the bedroom?"
The woman, trembling slightly, pointed in a direction, and soon both figures vanished into a room.
Unbeknownst to them, a woman named Jennifer stood with wide eyes behind a slightly ajar door in the nanny's quarters, covering her mouth with one hand in shock, left dazed for several minutes, losing sleep over the chaotic thoughts that invaded her mind.
Recalling the Hollywood figure she had inadvertently recognized due to her curiosity, her mind spiraled into disarray throughout the night.
*****
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