What is the deal with all you Disney/Pixar Naysayers?

[KNWVIKING]

Larry, you've got WAYYYYY too much time on your hands

Good post.

 

[HB2K]

I remember a while ago critical threads here when Eisner was holding Pixar's feet to the fire to fulfill their contractual obligations, when Pixar was asserting that Toy Story 2 should count toward their multi-picture obligation (even though the contract says sequels don't count). Some here seemed to think that Disney should just give up on the profits from the last potentially multi-hundred-million-dollar film just to get Pixar's goodwill. It didn't seem to me that Pixar was offering anything in return, and Eisner was making the right decision at that time, as well. I think that decision has also been vindicated, as it doesn't appear that Eisner's position at that time will materially affect the negotiations on whether to renegotiate and extend the current relationship.

Maybe, just maybe if Ei$ner hadn't played heavy handed....he could have avoided this whole mess. Pixar was not flying as high back during the Toy Story Era (I didn't see the mainstream press jump over them until after Monsters). If Ei$ner said "You know what, you guys did a fantastic Job. Let's tear up the old deal and work out something long term."

Instead he used his superpowers (tunnel vision) and said "NOPE! YOU OWE ME!"

Brilliant strategy....all part of that poker hand right?

 

[DancingBear]

Job$ was the one being heavy-handed. He wanted Toy Story 3 (I think it was 3 and not 2 that started the dispute) to count toward Pixar's commitment to Disney, so he could get out of the commitment earlier and cheaper---does that sound like someone who would have wanted to negotiate a new long-term deal with Disney? And, as I said, my recollection is that Pixar wasn't offering any quid pro quo for this concession.

And, as I also said, I don't see any evidence that Disney's current negotiations with Pixar are greatly affected by this 2 year-old dispute. Pixar will sign with whomever they think is best.

 

[CasualObserver]

Dancing Bear,

The problem was that sequels were to go Direct To Video and the agreement was for the theatrical releases. Then TS2 came along that was way better than expected so they released it to theaters. It became a gray area - Pixar sequels were to be direct-to-video and the contract was for 5 original theatrical releases. TS2 muddied the waters. Pixar feels like they got taken by Disney into creating something that didn't count toward fulfilling the contract, but then got released as if it were part of the contract.

That is why there is no TS3, Pixar wants to finish this contract ASAP and they aren't about to spend the time on something that won't go towards that.

I think Disney is on the right side of this - technically - because it is clear that sequels don't count. They just screwed Pixar into adding another picture onto the contract. That behavior is what has traditionally driven companies away from Disney. They have been heavy-handed for a long time. Disney readily tries to get something for nothing with the "We're Disney, don't you want to be a part of this great legacy?" speech.

If I were Pixar, I would be acting the same way, "Fool me once, shame on you. Fool me twice, shame on me". As The Who said: "Don't get fooled again!".

Pixar needs Disney far less than Disney needs Pixar and Ei$ner knows it. Since Wells and Katzenburg left the number of big, animated, hits, solely created by Disney has dwindled to 1 (Lilo & Stitch). Tarzan was the last before that.

My art director got job offers from Disney and Fox when he left art school. He called some of his animator friends at Disney who warned him against going there. They were not being treated well and bad winds were blowing. They, along with countless others have been given their walking papers.

What's the word on the street about working at Pixar? Nothing but good stuff is what I'm hearing.

So, if you were talented, where would you want to go - where you were treated poorly, or where you were treated well?

It would be nice for Disney to return to it's roots. I don't think that's in the cards anytime soon. It takes a huge rudder and a long time to turn around a ship the size of the SS BloatedEntertainmentEmpire. It also takes the will to do so. In my studies of Eisner, I don't see him as the type who will admit the ship needs turning. He was at the helm and to admit a change in direction means to admit he made wrong decisions. Eisner isn't the type to admit any mistakes.

So, if Pixar makes a deal with Disney, it will be stunning. Disney's history is to walk away from anything that is anywhere close to equitable. They tend to wait until the other party is desperate and then get it at firesale prices.

I don't smell smoke at Pixar.

 

[DisneyKidds]

If Ei$ner said "You know what, you guys did a fantastic Job. Let's tear up the old deal and work out something long term."

Now HB, I often flip you a break because you do have some good, if critical, points. However, I gotta ask, did you actually believe this as you were writing it? Really, what in heavens makes you think that Pixar would have scrapped the old deal and signed a new long term one at that point? Fault Ei$ner for many things, but don't hang the man for not making something happen that never had a snowball's chance in hell of happening. As DB points out, Pixar was looking for ways to expedite the end of the contract, not give Ei$ner a longer term strangle hold. Even in the Toy Story era Pixar knew they had the goods.

 

[DancingBear]

Originally posted by CasualObserver
It became a gray area - Pixar sequels were to be direct-to-video and the contract was for 5 original theatrical releases. TS2 muddied the waters. Pixar feels like they got taken by Disney into creating something that didn't count toward fulfilling the contract, but then got released as if it were part of the contract.
...........................
I think Disney is on the right side of this - technically - because it is clear that sequels don't count. They just screwed Pixar into adding another picture onto the contract. That behavior is what has traditionally driven companies away from Disney.

Pixar got "taken" because TS2 was released in the theaters (thereby making Pixar many millions more dollars), rather than just on video? And Pixar's business people and high-priced attorneys couldn't conceive, when the contract was drafted, that a sequel might ever actually be released into theaters?

Would Job$ have taken the same position if TS, TS2 and Bug's Life hadn't all been home runs? No--he was trying to press his advantage, and Ei$ner didn't back down.

 

[airlarry!]

DB and DK:

You all make great points.

If we were talking about making widgets.

But what Pixar produces is not something you can get from Latin America at rock bottom prices. It's not something you can get the State of Mississippi to build you a giant plant and brand new interstates to move your business.

It's art. It's story. It's sweat, blood, and, well you know.

You think that Ei$ner would have been foolish to tear up the contract and renegotiate a better deal for Lassiter et al way back when, instead of holding their feet to the fire? You say that Pixar should have stuck to their handshake and not tried to renegotiate in the middle of the deal?

You're probably right. And you'll still be right when this contract ends.

But, if or when Disney loses Pixars valuable resources in producing what I believe, and most agree, are movies that are today's examples of the creativity and heart that Walt shepharded in the golden days and the films under Wells & katz's leadership.

So you'll be right. And Disney won't have Pixar.

Gee, ain't it great to be right, Mr. Ei$ner? Like the driver who sees the car turning left right in front of him and doesn't slow down, Ei$ner will be dead right.

 

[Peter Pirate]

...Eisner may be dead right.

Maybe Mr. Air. It appears Pixar is on the right track. But in Hollywood does anything stay that way? Is there a sure thing? Is it an absolute certainty that Pixar flicks will continue to be great?

We know that quality alone is a tough task, for the entire project must be encompassed and even then you're dealing with a fickle public...

Pixar/Disney has had 5 VERY succesful films over how many years? It should be noted that the kids growing up on these films (which make the largest demographic) are also literally growing up. Is it safe to assume that a bunch of successful grownups in California can automatically predict what type of story/animation/content/style that will continue to excite the new kids of tomorrow? I think this too is a risky assumption.

These negotiations are tricky on all fronts. I believe Disney/Pixar will probably continue but I agree with earlier posters that said the bottom line WILL BE the bottom line. Pixar will do what is economically best for them irregardless of ego & personality.

 

[DancingBear]

airlarry, you completely misrepresent what we've said.

First, the point wasn't that simply that Eisner "would have been foolish to tear up the contract and renegotiate a better deal for Lassiter et al way back when", but that THAT WASN'T AN OPTION!! Job$ was trying to figure out how to conclude the existing contract with Pixar sooner and cheaper. He wasn't offering anything in exchange. So, instead of getting a second sequel to Toy Story, Eisner gets a brand new Cars. Tell me, again, how that decision was flawed?

Second, my point was that I see no evidence that that dispute two years ago will affect whether Pixar re-ups with Disney one way or the other now.

Lastly, the entertainment business IS A BUSINESS. Creativity is bought and sold. And since the studio system is dead, this means doing deals with all sorts of independent contractors. If Disney doesn't get Pixar, maybe they'll try to hire away Lasseter.

So if that happens, do you tell Steve Jobs, "Pay Lasseter whatever he asks for?" Just how much do you think Eisner should have rolled over for Job$?

 

[CasualObserver]

My point had nothing to do with the box office of TS2. It had everything to do with Pixar wanting to finish the contract as soon as possible. That's it. The development time is huge for their projects (I could make the case that they could make them cheaper, but that's not the point). They spent the time making a sequel and which ended up in the previously discussed gray area.

That's it. Did they make a bundle of money on TS2? You bet. Was it my point? Nope.

I think the question that hasn't been answered is: "Who put TS2 into motion, Disney's request, or Pixar?" I think that is the key question in this discussion of the TS2 gray area. If Pixar started the ball rolling, then it's all their own fault. If Disney started it, then Pixar used valuable time and resources and got hoodwinked by Disney into extending the contract.

Basically, Pixar was unsure of what they had. Disney figured they could make some decent money with less risk. Then Pixar realized what they had and regretted making such a long-term deal. So they want to finish it as soon as possible and TS2 just extended the term.. However, they are abiding by the deal and I give them credit for that. You will, however, never see a TS3 produced by Pixar.

 

[DancingBear]

Originally posted by CasualObserver
I think the question that hasn't been answered is: "Who put TS2 into motion, Disney's request, or Pixar?" I think that is the key question in this discussion of the TS2 gray area. If Pixar started the ball rolling, then it's all their own fault. If Disney started it, then Pixar used valuable time and resources and got hoodwinked by Disney into extending the contract.

Why are these the only choices? How about this--Disney and Pixar had a contract for splitting costs and profits for producing movies. The minimum commitment under this was X new movies. Sequels might be made under the contract, but didn't count toward the minimum commitment.

Toy Story comes out and is wildly successful. Pixar and Disney (both operated by very successful and savvy business people) decide to make a sequel, which is released into the theaters and makes tons of money for both parties.

Just how has Pixar been "hoodwinked"? I guess they're just poor little naive creative types who don't know what their contracts mean.

And just why do they get credit for just abiding by their deal? I suppose the Toronto Blue Jays' Carlos Delgado should get credit for abiding by his contract, although he's having a monster year and could have tried to renegotiate his deal in mid-season.

And I wouldn't be so sure there will never be a TS3 produced by Pixar. I'd say that the ability to participate in that sure-fire money-maker would be one factor on the "re-up with Disney" side of the decision-making ledger.

 

[CasualObserver]

Pixar stands to make much more money with a new distributor deal than they make now. Disney effectively got an additional theatrical release that was supposed to go direct-to-video which kept Pixar under the contract for an additional 18 months.

I never said Pixar was naive. Did they act that way in this case, though? Absolutely.

Like I've said time and time again - by releasing TS2 as a theatrical release, it muddied the waters. One could make the case that Disney violated the terms of the contract by releasing a sequel theatrically - but that's another can of worms.

 

[DancingBear]

From Pixar's 10-K filed 3/31/98--

In February 1998, pursuant to the Co-Production Agreement, Pixar and Disney agreed to co-finance and Pixar agreed to produce a theatrical motion picture sequel to Toy Story (with the working title, Toy Story Sequel), in lieu of the Toy Story made-for-home video sequel. Because Toy Story Sequel is a derivative work of the original Toy Story, it will not be counted toward the five Pictures to be produced under the Co-Production Agreement. However, for all other purposes, Toy Story Sequel will be treated as a "Picture" under the Co-Production Agreement. Accordingly, Toy Story Sequel has been added to the definition of Pictures produced and financed under the Co-Production Agreement and all the provisions applicable to the other five Pictures apply. Specifically, Pixar and Disney will co-own and co-brand Toy Story Sequel (with Disney having exclusive distribution and exploitation rights) and will share equally in the profits of Toy Story Sequel and any related merchandise and other ancillary products, after recovery of all marketing and distribution costs (which will be financed by Disney), a distribution fee paid to Disney and any other fees or costs, including any participations provided to talent and the like.

Since 1996, Pixar has been in the process of producing Toy Story Sequel for the less expensive made-for-home video format. Therefore, Pixar will necessarily spend substantially more production time and incur substantially higher production costs to convert Toy Story Sequel into a feature-length and feature-quality motion picture. As a result, Toy Story Sequel will not be
released until late in 1999 at the earliest. Pixar does not expect to recognize any revenue from Toy Story Sequel until six to twelve months after the theatrical release (i.e. until the second half of 2000 at the earliest). The budget for Toy Story Sequel will also be much greater than the original Toy Story film because,
among other things, compensation rates for personnel have escalated and, unlike Toy Story, significant upfront and participation costs for key voice talent will be incurred.

Hmmmmm. Doesn't sound like Disney muddied any waters. Sounds like two savvy business partners agreed on making TS2 a theatrical release, and incorporated that into the Co-Production Agreement.

 

[HB2K]

Originally posted by DisneyKidds
Now HB, I often flip you a break because you do have some good, if critical, points. However, I gotta ask, did you actually believe this as you were writing it? Really, what in heavens makes you think that Pixar would have scrapped the old deal and signed a new long term one at that point? Fault Ei$ner for many things, but don't hang the man for not making something happen that never had a snowball's chance in hell of happening. As DB points out, Pixar was looking for ways to expedite the end of the contract, not give Ei$ner a longer term strangle hold. Even in the Toy Story era Pixar knew they had the goods.

I honestly do believe it.

Would Ei$ner have been able to extend the deal at it's current lucrative terms had he torn up the original and renegotiated? No...

But........

Would he have gotten better terms by renegotiating early vs. waiting until Pixar are in their "walk year".

Probably.

 

[DisneyKidds]

Would he have gotten better terms by renegotiating early vs. waiting until Pixar are in their "walk year".

Probably.

Renegotiating contracts can be a tricky thing...............and it is not a unilateral process. Really, who knows what might have happened? You are operating under the assumption that Pixar was willing to renegotiate at the time. What makes you think they were? No, I think Pixar was looking forward to their free agent status......................hence the desire to have more films count toward fulfilling the existing contractual requirement.

 

[HB2K]

While I agree there's no way to be sure, I see Pixar looking forward to Free Agent status because they outgrew the original deal rather quickly and wanted a larger slice of the pie....at that point I don't recall reading anything about Pixar being unhappy with Disney....it seemed to be a money play.

I also seem to recall Steve Jobs saying publicly that he was open to working something out with regard to the sequels (I won't be able to find the original article).

Now the relationship appears to have become so acrimonious that it's no longer just about money....and that's not a good thing for Disney.

 

[CasualObserver]

it also sounds, from the 10-K, that one would expect the conversion of TS2 to theatrical release would include it in the theatrical release package of films per the contract.

Pixar was developing a low-cost, DTV sequel and it was switched to theatrical release with increased costs. It was included in the agreement for the financing,profits and distribution fee end.

The trouble began when Pixar thought that since it was included in the theatrical agreement, it was included 100% in the agreement. It wasn't and that is Pixar's fault for not being on the ball and dotting every "i" and crossing every "t". Disney's lawyers won, Pixar's lost.

The 10-K also states that the release was pushed back to accomodate the increased production time to switch from DTV to theatrical. That increased time is the sticking point in all of this. Pixar spent valuable time working on something that basically didn't get them one step closer to getting out of their contract. It did put money in their pocket, but it could have put much more in their pocket if it was done under a new agreement. That new agreement didn't move one inch closer because of TS2, in fact, it went the other way.

 

[DancingBear]

Originally posted by CasualObserver
it also sounds, from the 10-K, that one would expect the conversion of TS2 to theatrical release would include it in the theatrical release package of films per the contract.....The trouble began when Pixar thought that since it was included in the theatrical agreement, it was included 100% in the agreement.

Are we reading the same language? The 10-K says:

Because Toy Story Sequel is a derivative work of the original Toy Story, it will not be counted toward the five Pictures to be produced under the Co-Production Agreement.

No confusion there--IT DIDN'T COUNT. EVERYONE KNEW IT DIDN'T COUNT (and that TS3 wouldn't count, either). Pixar did it because it made sense for them to do it on its own (and make multi-millions), and not because they thought it counted toward the 5-picture commitment.

The EDGAR filings available through the SEC site don't go back to the 1997 10-K, to which the contract was attached, but if you read the summaries in the subsequent 10-Ks, the treatment of direct-to-video sequels (like TS3) is very clearly described. Disney owns the rights, and Pixar gets the first right to co-produce them (but has no obligation to do so). They are derivative works and don't count toward any multi-picture deal.

 

[CasualObserver]

Bear,

I overlooked that line in your 10-K quote. My mistake.

It still doesn't change the root of the issue - Pixar wanted it to count (regardless of the 10-K statement) and Disney didn't. Perhaps Pixar thought they could continue to negotiate the issue and simply had no position. Perhaps Pixar simply decided that they really could stand on their own after TS2 and wanted it to count in order to wrap up the contract sooner. Those are issues that will not show up in any SEC filings. However, I concede that obviously Pixar knew what they were agreeing to.

I would say that this whole issue started with Pixar not having confidence in their product and made a contract with too long of a term. They want it to end, as soon as possible.

Personally, between the two, Disney's history doesn't put me on their side in this.

 

[DisneyKidds]

they outgrew the original deal rather quickly and wanted a larger slice of the pie....at that point I don't recall reading anything about Pixar being unhappy with Disney....it seemed to be a money play.

Precisely what free agency is all about. You prove yourself and put yourself in position for the big payday. Many free agents stay with their teams as they may have been happy with them................it just becomes a money thing.

I honestly belive that that is what this Disney/Pixar thing will boil down to as well.......................all about the money.