Pixar Splits with Disney

The completion of two more films will close the books on a long-running partnership between Pixar Animation Studios and Walt Disney Company. On Thursday, January 29 Pixar announced that it had abruptly ended discussions with Disney and would not renew its distribution agreement when it expires in 2005.

The two partners, whose string of computer-animated hits includes Toy Story, Toy Story II, A Bug's Life, Monsters, Inc., and Finding Nemo, had been negotiating a new deal for the past ten months. Released through Disney's Buena Vista distribution arm, Finding Nemo was 2003's highest-grossing film, pulling in $340 million in the US market alone. Last August, Pixar/Apple Computer CEO Steve Jobs stated that Pixar films co-produced with and released through Disney had grossed more than $2.1 billion worldwide, not counting video sales and rentals.

Ostensibly equal partners, Disney had actually taken the lion's share of profits on the five films, thanks to a 12.5% distribution fee. Pixar had been seeking more favorable terms in a new contract, including retaining control over sequels and spin-off products. Pixar reportedly pushed for a deal that would have reduced Disney's 50% ownership of Pixar films to a simple 10% distribution fee, a potentiality that Disney negotiators rejected because it would have "transferred millions of dollars from Disney shareholders to Pixar shareholders," according to the financial press. The announcement of the impending breakup sent Disney stock tumbling, closing down 1.8% at $24/share on Friday January 30. Pixar's stock, by contrast, was up 3.4%, closing at $66.39/share on the Nasdaq. Pixar stock reached a peak of $69 that day.

The loss of the Pixar contract may fuel further dissatisfaction among Disney's directors over the performance of Chairman/CEO Michael Eisner. Three board members are said to favor his removal, and two recently resigned in protest over his continuing tenure—Walt Disney's nephew Roy E. Disney and his ally Stanley Gold. On Thursday January 29, the two issued a statement expressing their dismay at the end of the partnership and criticizing Eisner for what they termed his "inability to manage and nurture crucial creative relationships like the one Disney had with Pixar." Over the past nine years, the film partners had achieved "five grand slams in five times at bat," Disney and Gold stated. It's a record that the Disney studio acting alone probably won't equal.

Under the present contract, signed in 1997, Disney retains the rights to develop sequels based on previous Pixar hits, as well as theme park rides and spin-off products, with 8% of gross to be paid to Pixar. Jobs had toured other studios and discussed production and distribution deals prior to entering negotiations with Disney. All major Hollywood distributors are said to be eager to partner with the animation studio. Perhaps foremost among them is 20th Century Fox, which has worked with George Lucas' Lucasfilm. Lucas' Industrial Light and Magic also works closely with Pixar, and provided sound effects for Finding Nemo.

Pixar/Disney joint productions still to come are The Incredibles, to be released next November, and Cars, coming in 2005. Disney recently expanded its digital animation capabilities and has announced plans to go ahead with Toy Story III without Pixar participation. Disney also plans to release its own digitally animated feature, Chicken Little, in 2005.