More on Pixar/Disney dealings

[Luv2Roam]

Disney Deal Will Be No Pushover For Pixar
Penelope Patsuris, 05.12.03, 4:20 PM ET

NEW YORK - Maybe Pixar isn't in as strong a negotiating position as everyone--including founder and Chief Executive Steve Jobs--seems to think.

Wall Street and Hollywood are abuzz about the current negotiations between the highly successful digital-animation film studio Pixar (nasdaq: PIXR - news - people ) and its distributor, The Walt Disney Co. (nyse: DIS - news - people ).

Jobs wants much-improved terms for a new contract, suggesting that he finance 100% of Pixar's films and keep most of the returns, while just paying Disney a distribution fee of 7.5% of the profits. Such a deal would put Jobs on par with George Lucas, creator of the Star Wars series, since those are the terms the venerable filmmaker has with his distributor, 20th Century Fox, a News Corp. (nyse: NWS - news - people ) unit. And it would be a drastic departure from the current arrangement, whereby Pixar and Disney finance a film 50-50, giving Disney a distribution fee of about 15% of gross profits and half of earnings thereafter.

Pixar is already being declared the deal's winner by most on Wall Street and in Hollywood, with both constituencies assuming Jobs will get everything he wants.

But he may want to hold off on that victory lap, despite what all of his supporters have to say. New terms of the deal will no doubt shift in favor of Pixar. Media analyst Dennis McAlpine says he is highly doubtful that Disney will bite for an offer of just 7.5%, and analyst David Miller of Sanders Morris Harris agrees.

"For Disney, it would be a waste of time to commit to a Lucas-like deal with Pixar," says Miller. "The effort to administer the deal wouldn't be worth it, even if Disney got 9% or 10% of profits." Miller points out that Fox cleared just $25 million on the last Star Wars installment, Attack of the Clones. For a company of Fox's size, he says, "that's a rounding error."

Indeed, the current Pixar deal's advantage to Disney has been the very economic participation in a film's success that Pixar wants to nullify. Altogether, analysts estimate that Pixar has delivered about 35% of Disney's film-studio profits in the past five years. With just a 7.5% take from Pixar, this clearly would no longer continue to be the case, so would Disney bother to stick it out?

Both Disney and Pixar declined to comment on the matter.

As part of the negotiations, Pixar has made it clear that if Disney balks, it would be happy to partner instead with other distributors, such as Viacom (nyse: VIAb - news - people ), AOL Time Warner (nyse: AOL - news - people ), Sony (nyse: SNE - news - people ) or Fox. But McAlpine isn't optimistic about these alternate avenues.

"Viacom distributes low-cost animation out of MTV and Nickelodeon; [it doesn't] want to deal with a $130 million movie," he says. "Warner does cheap animation also," McAlpine notes, "and its parent is preoccupied with plenty of other problems." Fox and Sony are somewhat likelier to partner with Pixar, but not on George Lucas-style terms, he adds.

If Pixar can't get its dream deal elsewhere, it makes sense to stick with Disney. In a research note, Merrill Lynch analyst Andrew Slabin put it this way: "Although Disney's last few animated films have not been among their best in terms of box office dollars, we believe Disney is still the best global animated distributor in the industry." Disney, he notes, still possesses a number of key assets to nurture a hit film's long-term franchise value, including theme parks, theme stores, the Disney Channel and considerable expertise in licensing.

Miller, the Sanders Morris Harris analyst, points out another benefit to Pixar of sticking with its current partner: Disney controls the rights to potential Pixar sequels like Toy Story 3 or Monsters Inc. 2 or A Bug's Life 2. If it stays in the Disney fold, Pixar might be able to negotiate a better deal on the sequels than it has now.

So, despite all its posturing, in the end Pixar will likely remain with Disney and accept less-than-Lucas-like terms.

 

[Another Voice]

"Viacom distributes low-cost animation out of MTV and Nickelodeon; [it doesn't] want to deal with a $130 million movie," he says. "Warner does cheap animation also," McAlpine notes, "and its parent is preoccupied with plenty of other problems."


As if Disney is somehow in a different league with Jungle Book 2 and Piglett's Big Movie?

I guess we can take this article as a sign that Disney still can "spin" at least one reporter, but the buzz in Hollywood is that if Eisner wants Pixar than he will have to crawl in the mud. With the likely box office take from Finding Nemo and the disaster that was Treasure Planet everyone knows which company needs the other more.

 

[Tekneek]

The real shame is how mismanagement has backed Disney into this corner. Disney animators were once dominant and tearing it up. They lost their way over the years, and nobody was around that knew how to keep the ship afloat and moving in the right direction. Disney has had the potential to be the best in everything it does, but has failed to meet its potential time and time again.

I can't see how this ultimately lands at the feet of anyone other than Eisner. He was in charge and could have done something about it, if he was as good at his job as his salary would indicate.

 

[freediverdude]

I don't understand why Disney doesn't purchase Pixar and make Pixar it's digital animation department. Would this be too expensive or something? Or is Pixar privately owned and won't sell or something?