Pixar, Disney break up

[kechara420]

http://online.wsj.com/article/0,,SB107541081328315628,00.html?mod=home_whats_new s_us

The End: Pixar Breaks Up
With Distribution Partner Disney

By BRUCE ORWALL and NICK WINGFIELD
Staff Reporters of THE WALL STREET JOURNAL


In an unhappy ending to what has sometimes been called the most successful partnership in Hollywood, Pixar Animation Studios delivered a stunning blow to Walt Disney Co. by ending talks to extend their lucrative and long-running distribution deal for Pixar's computer-animated films.

The move is a high-profile setback for Disney Chairman and Chief Executive Michael Eisner, whose company often has relied heavily on Pixar smashes like "Finding Nemo" to generate the profit Disney's own animated films couldn't produce in recent years.

The tense relationship between Mr. Eisner and Pixar Chief Executive Steve Jobs often has been seen as an obstacle to any continuation of the Pixar-Disney relationship. Pixar will be a Disney competitor, rather than a partner, beginning in 2006.

At the same time, Pixar's move represents an opportunity for other Hollywood studios that will now court Pixar in hopes of striking a new film-distribution deal. Among those possibly lining up at the door: Time Warner Inc.'s Warner Bros.; News Corp.'s Twentieth Century Fox; and Viacom Inc.'s Paramount Pictures, and Sony Corp.'s Sony Pictures Entertainment, and Metro-Goldwyn-Mayer Inc. Those studios may be cautious however, questioning whether Disney and Pixar have really called it quits.

Beginning with "Toy Story" in 1995, Disney has distributed and co-financed Pixar's unbroken string of blockbusters at a time when Disney's own animated films lost popularity and profitability. The companies split the profit after Disney was paid a distribution fee, and the current agreement continues through the delivery of two more Pixar films -- "The Incredibles," due later this year; and "Cars" in 2005.

Out of the blue Thursday, Mr. Jobs issued a statement indicating his frustration that 10 months of negotiations haven't produced a new film-distribution deal with Disney. For the past two years, Mr. Jobs, who also is chairman of Apple Computer Inc., has been seeking a deal under which Pixar would pay all of the production costs for its films, boosting its share of the profit and leaving Disney with just a distribution fee.

According to people close to the matter, Disney felt it already was giving up a lot in recent proposals exchanged between the companies. These people say Disney was prepared to let Pixar apply many of the parameters of the new deal to "The Incredibles" and "Cars" -- a move that probably would have shifted hundreds of millions in profit from Disney to Pixar. Because no other studio can offer Pixar that benefit, many in Hollywood will read Mr. Jobs's move as a clear signal that he no longer wishes to work with Mr. Eisner.

In a statement, Disney Chief Financial Officer Tom Staggs says: "Disney management could not accept Pixar's final offer because it would have cost Disney hundreds of millions of dollars it is already entitled to under the existing agreement."

Disney President Robert Iger says Disney "had gone very far in terms of giving up value on the near-term movies. Then we had to assess the value of what we were giving up versus what we were getting."

Still, Pixar's departure offers some pluses for Disney. Since "Toy Story 2" became a smash sequel Disney has been eager to release follow-ups -- either in theaters, or direct-to-video form -- of other Pixar hits such as "Monsters, Inc." Mr. Jobs, however, steadfastly opposed such projects, contending that Pixar wanted to move forward with original material rather than dwell on past successes.

Under the existing deal, however, Disney has the right to proceed with those sequels without Pixar's approval. It hadn't done so in the past because it was reluctant to upset Mr. Jobs, but in the wake of the current rupture, it's highly likely those projects will get the green light.

If Pixar chooses not to co-finance those sequels, as it has the right to do, Disney stands to make more money on them than the studio would have had the partnership survived. That's a mixed blessing, analysts say, noting that Disney's animation track record of late hasn't been nearly as strong as Pixar's.

For Pixar, the collapse of the Disney relationship means it can begin in earnest to hunt for a new studio partner. Analysts say that of possible candidates, at least one is likely to prove more willing to give Pixar the terms it sought from Disney. "It's disappointing for both companies in that this was a highly productive creative relationship," says Lowell Singer, an analyst at SG Cowen.

Since any deal Pixar would have struck with Disney probably would have resulted in dramatically less favorable terms for the studio, analysts said the collapse of their relationship isn't likely to result in unexpected changes to their forecasts of Disney's finances.

"It's not going to be that dramatically different in terms of dollars if they had kept Pixar," says Jeffrey Logsdon, an analyst at Harris Nesbitt Gerard. "Perceptually, I'm sure Wall Street would love to have seen Disney reach a deal to distribute Pixar's products."

The Pixar negotiation all along has represented something of a lose-lose situation for Disney. Even if it retained Pixar, it would realize far lower profit from post-2005 Pixar films than it did from the previous titles. Disney has said in recent months that its investors have cautioned the company against giving away too much in any new deal.

But losing Pixar may be even worse for Disney. For the past decade, Disney has been able to control the release dates of Pixar's films -- enabling it to slot them alongside its own movies in a complementary fashion. Now, a rival studio will be making those calls, and may do so in a way that creates competitive headaches for Disney.

At the same time, Mr. Eisner is under near constant attack from critics who say he is difficult to work with. Most recently, former board members Roy E. Disney and Stanley Gold have cited the prickly relations with Pixar as one reason Mr. Eisner should resign or be ousted.

Because of all these factors, many who have tracked the deal in recent months believed Disney wouldn't allow Pixar to walk away. Many also believed a deal would get done because Pixar's creative heart, director John Lasseter, is a former Disney artist with a strong connection to the company's heritage.

People on both sides of the deal who watched the relationship between Mr. Jobs and Mr. Eisner interpreted a dinner between the two last spring as sign of a warming trend. But others close to the situation say Mr. Jobs continually wondered out loud whether he wanted to spend another few years haggling with Disney and Mr. Eisner.

[kechara420]

http://www.hollywoodreporter.com/thr/article_display.jsp?vnu_content_id=2080314

Jan. 30, 2004


Pixar to Disney: Sea you later


By Marla Matzer Rose
Pixar Animation Studios said Thursday that it has broken off its talks with the Walt Disney Co. and will not extend its distribution agreement with the studio once it expires in 2005 after the completion of two more films.

The move could have a dramatic impact on Disney's standing as the industry's leading distributor of animated films. It is sure to set off a fierce competition among its rival studios, all eager to distribute Pixar's lucrative product. And it provides Roy E. Disney, who recently resigned as vice chairman of the Disney board of directors, with further ammunition in his campaign against Disney chairman and CEO Michael Eisner.

In announcing an end to the negotiations, Pixar chairman Steve Jobs said: "After 10 months of trying to strike a deal with Disney, we're moving on. We've had a great run together -- one of the most successful in Hollywood history -- and it's a shame that Disney won't be participating in Pixar's future successes."

In a statement, Eisner wished Jobs and John Lassiter, Pixar's creative head, "much success in the future," adding, "Although we would have enjoyed continuing our successful collaboration under mutually acceptable terms, Pixar understandably has chosen to go its own way to grow as an independent company."

Jobs, whose Emeryville, Calif.-based company has turned out movies whose creativity and financial success has far overshadowed that of Disney's homegrown product in recent years, had been attempting to strike a tough deal.

Since its first movie, 1995's "Toy Story," Pixar has continually broken new ground in the field of computer animation, creating a string of ever-bigger hits, culminating in last year's "Finding Nemo," the year's top grosser, which was released through Disney's Buena Vista Distribution, bringing in $340 million domestically.

Under its current agreement, last negotiated in 1997, Disney and Pixar had agreed to co-finance five films, sharing equally in the profits and licensing fees. But because Disney also took a distribution fee of 12.5%, it effectively took home a bigger share of the boxoffice returns from each film than did Pixar.

During the course of the negotiations, Jobs had pushed for Disney to give up its 50% ownership position in Pixar films, which would have left the studio earning a straight distribution fee -- possibly one as low as 10%.

In looking to extend their agreement, Jobs also had been seeking to renegotiate the terms of the final two films it covers: "The Incredibles," to be released in November, and "Cars," scheduled for 2005.

Speaking to analysts in October, Disney president and chief operating officer Robert Iger confirmed that "the relationship we have with them ... on the next two pictures is on the table on both sides. There is value to be gained on their side and value to be potentially given up on ours."

About two months ago, Disney offered a set of proposals that, according to sources at the studio, would have seen the Burbank studio voluntarily giving up hundreds of millions of dollars on the next two films. But when Pixar recently presented Disney with a counteroffer, Disney found it unacceptable, arguing that it would have represented a huge transfer of value from Disney shareholders to Pixar shareholders.

Although the two sides were seemingly at loggerheads, Disney had one bit of leverage in its arsenal: Under the existing agreement, it has the right to produce sequels, including direct-to-video and TV series, to the movies it has co-produced with Pixar. It had held off developing those properties, out of deference to Jobs' wishes, even as it watched its competitors develop sequels like DreamWorks' upcoming "Shrek 2."

Still, Disney, in the eyes of a number of studio insiders, faced a lose-lose situation. One insider called the talks' breakdown "disappointing but not entirely unexpected. Either you negotiate a lousy deal for your studio with Pixar, or Pixar walks. So either way you lose."

Nevertheless, Disney sources claimed to be surprised when Jobs ended the talks so abruptly.

In response to the talks' ending, Disney chief financial officer Thomas Staggs said that Disney rejected Pixar's final offer because it would have cost Disney hundreds of millions of dollars that it is entitled to under the existing agreement without offering enough compensation on further collaborations to justify changing the existing deal.

Jobs, who visited with the heads of several other studios to assess their own distribution and merchandising operations before entering into the talks with Disney, said that once Pixar completes "Incredibles" and "Cars" under the current Disney deal, it intends to retain full ownership of its future productions and will soon begin discussions with other studios about distributing its future films.

Warner Bros. Pictures, 20th Century Fox, Sony Pictures and Universal Pictures are all expected to be among Pixar's suitors.

Each is gearing up to argue its strengths: Warners has one of the largest imprints in international distribution and home video; Fox, having worked with George Lucas' Lucasfilm, whose movies it distributes for a fee, has experience servicing an independent, Northern California company; Sony, in addition to theatrical distribution, has ready access to video games and digital media; and Universal, thanks to its merger with NBC, now can offer network and cable access in addition to its theme parks.

"We would welcome the opportunity to pursue discussions with Pixar and believe we would make an excellent choice," Fox spokeswoman Flo Grace said.

Said Warners spokeswoman Barbara Brogliatti: "We would love to be in business with Pixar. They're a great company."

Job's action also comes as Roy E. Disney, the nephew of the studio's founder, ratchets up his campaign to oust Eisner. Just this week, he called on board members to vote against Eisner, and three other board members allied with him (HR 1/28).

Disney and his colleague and fellow board resignee, Stanley Gold, issued a statement Thursday decrying the end of the Disney-Pixar pact.

"As significant shareholders of the Walt Disney Co., we are extremely dismayed but not surprised by the loss of Disney's Pixar relationship," the joint statement said. The two went on to praise Pixar's "five grand-slam home runs in five times at bat for Disney" and again took Eisner to task for what they called his "inability to manage and nurture crucial creative relationships like the one Disney had with Pixar."

Pixar's announcement came after the market closed Thursday. Disney stock fell about 5% in after-hours trading, while Pixar stock was up 1.25%.

[kechara420]

http://www.nytimes.com/2004/01/30/business/media/30DISN.html

January 30, 2004
Pixar Sees End to Its Disney Partnership
By LAURA M. HOLSON

OS ANGELES, Jan. 29 — Pixar Animation Studios, which produced last summer's popular "Finding Nemo," said on Thursday that it was ending talks on continuing its 12-year partnership with the Walt Disney Company and would seek another studio to distribute its films, beginning in 2006.

The announcement surprised both Hollywood and Wall Street because many people expected that Steven P. Jobs, the mercurial chief executive of Pixar, and Disney's chief executive, Michael D. Eisner, would resolve their personal and professional differences to continue what has been a lucrative partnership for both companies.

Under their current arrangement, Disney distributes all of Pixar's films in exchange for 12.5 percent of the box-office revenue, and the two companies split the profits. In addition, Disney owns the rights to all movies made by Pixar, which lacks its own distribution arm. As part of that deal, Disney will distribute Pixar's two coming films "The Incredibles," scheduled to be released later this year, and "Cars," due out next year.

"After 10 months of trying to strike a deal with Disney, we're moving on," Mr. Jobs said in a statement. "We've had a great run together — one of the most successful in Hollywood history — and it's a shame that Disney won't be participating in Pixar's future success."

Since the release of the Academy Award-winning "Toy Story," Pixar films have earned more than $2.5 billion at the worldwide box office and sold more than 150 million DVD's and videos, making it one of the most successful animation companies today. Just this week, "Finding Nemo," which has earned $340 million in the United States, was nominated for an Academy Award for best animated feature. But over the years, Mr. Jobs and Mr. Eisner have sparred publicly over how much control and money Pixar was allowed in the partnership. Pixar's animation has been a boon both financially and creatively to Disney, something Mr. Jobs has said Mr. Eisner did not appreciate enough.

The timing of Pixar's announcement creates a public relations nightmare for Mr. Eisner, who has been under pressure to turn around Disney's fortunes. This week, two former directors — Stanley Gold and Roy Disney, the nephew of the company's co-founder — called on shareholders to oust Mr. Eisner at Disney's annual meeting in March. Mr. Gold and Mr. Disney have complained that Disney's formerly renowned animation division has faltered under Mr. Eisner. They released a statement on Thursday saying that Mr. Eisner had mismanaged the relationship with Pixar.

Already the news of the failed talks created a flurry of interest from competitors including Warner Brothers Studios, which said it would be interested in distributing Pixar films.

Robert A. Iger, the president of Disney, said that Pixar's latest offer would have cost Disney hundreds of millions of dollars that the company was already entitled to under the existing agreement and that the terms sought by Mr. Jobs for future projects did not justify a deal.

"The debate we had was how much value could we afford to give up," he said in an interview. "At some point we had to say it was not good for shareholders."

Two people involved in the talks, which had been going on for months, said no single issue led to the breakdown. Two weeks ago, Disney executives submitted a proposal to Pixar in which several issues were discussed, including how long Disney would hold the rights to future movies produced by Pixar, whether Pixar would have the rights to any sequels to movies made previously with Disney and which company would retain television rights for Pixar movies under a new deal. Mr. Jobs wanted to own all future movies outright and wanted a stake in past films, too.

Mr. Jobs rejected Disney's proposal, one of the people said. But as recently as two days ago, Disney executives were told by Pixar's legal counsel that the talks were continuing.

"It was never you do this and it's not a deal," said a person involved in the negotiations. Disney "expected an ongoing dialogue," the person said. "We knew this was not the agreement."

To be sure Disney studio executives were surprised by the failed talks. Richard Cook, the chairman of Walt Disney Studios, who has been negotiating directly with Mr. Jobs, received a call from Mr. Jobs while he was out for lunch, according to a person involved in the negotiations. When he returned and called Mr. Jobs, the person said, he was told the talks were off.

The talks had been tenuous at times. Last September, Mr. Jobs nearly ended discussions with Disney over what seemed to be a deal breaker, whether Pixar would own a stake in "The Incredibles" and "Cars." Talks resumed in October after Disney seemed willing to compromise and offered Pixar a stake in the two films in exchange for a distribution fee greater than its current 12.5 percent. At the time, representatives for both Disney and Pixar were hopeful, even encouraged, that a deal could be concluded by the end of 2003.

Several theories emerged rapidly about why Mr. Jobs, who did not return three phone calls seeking comment, sought to terminate the partnership now. Perhaps, said one of the people involved, Mr. Jobs "made the announcement thinking Disney would come back on its knees."

Wall Street analysts are set to meet with Disney executives in Florida in two weeks, when Mr. Eisner will face tough questions about Disney's future in animation. Its own films have not had nearly the success of those produced by Pixar and Disney has effectively closed its Florida film animation operations.

One film executive suggested that Mr. Jobs could now be considered a candidate to run Disney if indeed Mr. Eisner ever left.

The collapsed talks will probably put pressure on Mr. Eisner to shore up his relationships with other partners, including cable companies that are warring with Disney over rates charged for its programming and with Harvey Weinstein, co-founder of Miramax Films, who has been dueling with Mr. Eisner over his division's profits.

"It is impossible to know how bad this is for Disney," said Richard Greenfield, a managing director at Fulcrum Global Partners, which has a sell recommendation on Disney stock. But given Pixar's success, it will hurt Disney, he said. "You have to venture a guess from a creative standpoint the company is at risk," he said.

But Disney can begin creating sequels to all of Pixar's films, something it could not do under its current arrangement and is almost certain to exploit.

[kechara420]

http://www.washingtonpost.com/wp-dyn/articles/A61685-2004Jan29.html

Pixar-Disney Partnership to End
Groundbreaking Animation Studio Wanted More Out of Collaboration

By Frank Ahrens
Washington Post Staff Writer
Friday, January 30, 2004; Page E01


Pixar Animation Studios will dissolve its lengthy partnership with the Walt Disney Co. after the groundbreaking animators deliver their final film to Disney in 2005, chief executive Steve Jobs said yesterday.

Computer-animation studio Pixar, which produced 2003's top box-office hit "Finding Nemo," will seek a new partner for distributing its films, sparking what likely will be a free-agent bidding war among the major studios.

Pixar and Disney struck a deal in 1991 in which the studios split the cost of producing Pixar's films -- "Nemo," "A Bug's Life," "Monsters Inc.," "Toy Story" and its sequel -- and Disney distributed them.

The results have been staggering. All five of Pixar's feature films have been hits and have accounted for more than $2.5 billion worldwide at the box office. "Nemo," voiced by Ellen DeGeneres and Albert Brooks, has grossed more than $400 million in ticket sales domestically and nearly $500 million overseas. The film sold 20 million copies on DVD and VHS in its first two weeks of release in November.

Disney and Pixar split the profit from the films and, in addition, Pixar pays Disney a distribution fee. The two sides have been negotiating for the past 10 months in an attempt to extend the partnership, but Jobs asked for too much, Disney said.

"Although we would have enjoyed continuing our successful collaboration under mutually acceptable terms, Pixar understandably has chosen to go its own way to grow as an independent company," Disney Chairman Michael D. Eisner said in a statement.

Pixar's final offer would have cost Disney hundreds of millions of dollars it is already entitled to under the current deal, Thomas O. Staggs, Disney's chief financial officer, said in a statement yesterday. Further, Pixar was not offering a high enough revenue split on future films, he said. Pixar also sought a heftier cut of merchandise spun off of the movies.

"We've had a great run together -- one of the most successful in Hollywood history," Jobs said in a statement, "and it's a shame that Disney won't be participating in Pixar's future successes."

Disney shareholders Roy E. Disney, a nephew of the company's founder, and investment banker Stanley P. Gold, both of whom quit the Disney board last year in protest of Eisner's chairmanship, took yesterday's news as another opportunity to bash the company's boss. They have urged shareholders to vote out Eisner at March's annual shareholders meeting in Philadelphia.

"Michael Eisner's inability to manage and nurture crucial creative relationships, like the one Disney had with Pixar, is one of the main reasons we have maintained that we did not believe Disney's earnings were sustainable," Disney and Gold said in a release yesterday.

Jobs is also chief executive of Apple Computer Inc. His decision to flex his negotiating muscle follows his success with Apple's iTunes digital music store. Launched in April, iTunes accounts for 75 percent of all music purchased online. Some analysts speculate that he is interested in a similar pay-download service for his Pixar movies, meaning he would be less dependent on the Hollywood studios for theatrical release. Jobs has not commented on the possibility.

Pixar is due to deliver "The Incredibles," starring the voice of Samuel L. Jackson, for a November opening, and "Cars," voiced by Paul Newman, in 2005.

On the surface, yesterday's news looks bad for Disney.

The once-dominant animation studio has generated only one home-grown cartoon hit -- 2002's "Lilo & Stitch" -- in several years -- rough going for a studio that owned the genre up through the mid-'90s with blockbusters such as "The Lion King" and "Aladdin." Disney's last big-budget animated effort was a flop -- 2002's hand-drawn "Treasure Planet."

Disney said it will release its first computer-animated film, "Chicken Little," in 2005.

But Disney does not walk away from the partnership with nothing.

The studio owns the Disney/Pixar library, keeps the rights to produce any sequels to the films whether for theatrical, video or television release, and has use of all the characters in Disney's worldwide theme parks and in merchandising.

Further, Disney has deals with two other visual effects shops, at least partly in preparation for this eventuality. The Beverly Hills-based Vanguard Films Inc., which worked on "Shrek," has created an animation studio and is producing the upcoming "Valiant." Another shop, San Francisco's Complete Pandemonium, is making "The Wild."

[Darth Buddha]

Great Post k-420... is Eisner the reason that Disney has changed from the truly "family values" company that I knew in my yout into "The Evil Empire" tha has run ABC and ABC News in particular so very poorly?

[kechara420]

I don't know, but it sorta seems that way, doesn't it?

I know that some cable operators have issues with Disney. At work, we're producing an e-mail newsletter for one operator that features program info for all the networks it carries, on a rotating basis--except Disney and ABC Family. Apparently, the cable company is having some issues with Disney, and isn't promoting those networks until it's resolved. And this isn't the first cableco that's done something like this ...