One of the most lucrative marriages in movie history apparently ended Thursday as Pixar Animation Studios abruptly halted talks to extend its nearly 13-year partnership with Walt Disney Co.
"After 10 months of trying to strike a deal with Disney, we're moving on," said Pixar Chief Executive Steve Jobs. "We've had a great run together ... and it's a shame that Disney won't be participating in Pixar's future successes."
Pixar's move stunned Disney executives and Wall Street analysts who believed a deal eventually would be hammered out. The collapse of the talks came as particularly bad news for Disney Chairman Michael Eisner. He has been under intense pressure from investors to shore up Disney's fortunes and continue the partnership with the animation company behind last year's biggest hit, "Finding Nemo."
The breakup also is certain to fuel the feud between Eisner and former Disney board member Roy Disney, who resigned last month and called for the chairman's ouster. Among other things, Disney said Eisner was bungling the Pixar negotiations. Industry insiders said Eisner was turning them into a war of egos with Pixar's equally strong-willed CEO.
During the talks, the Burbank-based company rebuffed Pixar's final offer and recently countered with one of its own. Frustrated by the protracted negotiations, Jobs decided to pull the plug. Disney said Pixar's proposal would have cost the company "hundreds of millions" in potential profits from upcoming movies.
"Although we would have enjoyed continuing our successful collaboration under mutually acceptable terms," Disney said in a statement, "Pixar understandably has chosen to go its own way to grow as an independent company."
Neither Eisner nor Jobs was available for comment.
During the last decade, Disney and Pixar have had a perfect track record with a string of revolutionary computer-animated hits, including "Finding Nemo," the most successful animated movie of all time, as well as "Toy Story," "Toy Story 2," "A Bug's Life" and "Monsters, Inc."
Pixar's creative and financial contributions have propped up Disney's own bedrock animation business, which has stumbled with such box-office misses as "Treasure Planet" and "Atlantis: The Lost Empire."
Pixar films have accounted for as much as half of the studio's operating income in recent years. "Nemo," which amassed more than $800 million in worldwide ticket sales, is expected to net a profit of more than half a billion dollars, according to industry analysts.
Under the current contract, Pixar has two remaining films with Disney. The first of those, "The Incredibles" is due in theaters this fall. The second, "Cars," is set for release in 2005.
At the heart of the negotiations was Pixar's demand for a vastly bigger cut of the profits now that it has become an established entertainment power in its own right. Under the existing deal, reached in 1997, Pixar and Disney split profits and costs evenly, with Disney taking an additional fee to distribute the films. Jobs wanted a deal that would give Pixar all profits and pay Disney a distribution fee of about 10%.
The parting of the companies could have far-reaching consequences for both sides.
Despite the hardball negotiations, most media analysts thought Disney would find a way to compromise with its longtime partner. "Now everything is up for grabs," said John Tinker, research analyst for Blaylock & Partners.
Disney management concluded that Pixar's proposed deal would ultimately be bad for shareholders.
Pixar was insisting that both "Incredibles" and "Cars" would be folded into the new deal, thereby undercutting Disney's potential profit.
"By giving up ownership of those two films, we were going to reduce our operating income dramatically," Disney President Bob Iger said. "We were perilously close to a situation where we'd be giving up more value in the long run than what we would gain."
For Pixar, leaving Disney would give the Northern California company an opportunity to capitalize on its own name, which has become synonymous with family entertainment. Pixar is prepared to fund its own movies and collect all the benefits.
But there are risks. Pixar would be giving up a partner with a legendary reputation, huge global marketing expertise and distribution clout. Disney, an industry leader in animation for decades, has the ability to cross-promote family movies across its theme parks, retail stores and television outlets.
What's more, Pixar would face a formidable rival. "If Disney is not a partner, then Disney is the competition," said analyst Jordan Rohan at Schwab Soundview Capital Markets. There are six major studios and plenty of distribution, but there is only one Disney."
And Disney would have a fight on its hands too.
One key battleground between the two would be in determining release dates for their movies. In the past, Disney decided when Pixar movies would be shown in theaters so as not to undercut the audience for its own family fare. All that would change with the breakup.
