Time to leave the nest.
After failing to reach an agreement to renew their lucrative movie distribution deal, which has churned out hits such as Toy Story and Finding Nemo, Pixar Animation Studios Inc., the pioneering computer animation house founded by Apple Computer Inc.’s Steve Jobs, ended negotiations Thursday with the Walt Disney Co.
Reuters reports Pixar may now be looking for another studio partner to distribute its films starting in 2006, when its current deal with Disney expires. There are many studios who are very interested in jumping on Pixar’s bandwagon, including Warner Bros., Sony Corp., 20th Century Fox and Metro-Goldwyn Mayer.
“After 10 months of trying to strike a deal with Disney, we’re moving on,” 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 successes.” Shares of both companies fell 6 percent hours after the announcement.
Observers had expected Pixar and Disney to renew their partnership, which has generated five megahits since 1995 and collected $2.5 billion at the box office, Reuter reports. The blow to Disney is severe, since Pixar product represented a large chunk of the Mouse House’s operating budget, but Disney ultimately rejected Pixar’s final offer on a renewed contract, saying it would have cost them too much money to maintain.
Disney Chief Executive Michael Eisner issued a statement wishing Pixar success. “Disney management could not accept Pixar’s final offer because it would have cost Disney hundreds of millions of dollars… under the existing agreement” without giving Disney enough return on new collaborations, the company said.
According to Reuters, a source close to Disney’s side of negotiations said that Pixar had also wanted copyright to the valuable library of previous films by the partnership. Disney now owns the copyright and can make sequels and other works based on the films in the current deal, which includes two upcoming titles–The Incredibles, set for a November release and Cars, due in 2005.
Eisner has been under fire of late, especially from Roy Disney, the former chairman of Disney’s animation department, who stepped down from the Disney board late last year and claims Eisner has mismanaged the company and sapped its creative energy. Roy Disney said that the breakup would be bad for the studio’s shareholders long-term and accused Eisner of failing to nurture the relationship with Pixar.
Other analysts and investors, however, believe Pixar may just be using this announcement as a negotiating ploy and did not rule out the possibility Pixar will resume talks with Disney.
“It makes it look like Eisner did something wrong again, but we shouldn’t jump to conclusions. This could be a negotiating tactic by Pixar as well,” Patrick McKeigue, an analyst at the company Independence Investment, which holds Disney shares told Reuters.
Bank of America Securities analyst Michael Savner told Reuters Pixar is also setting themselves up to compete at the box office with Disney’s future family-friendly offerings.
“Disney could put out its movies at the same time as Pixar,” he said. Many investors had already assumed Pixar would get a much-improved deal, including on the two pictures in production, he added.
Staffing at Disney’s animation department has shrunk by more than 70 percent since 1997, Reuters reports. Disney is set to release its first in-house computer-animated film, Chicken Little, in 2005.
