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Michael eisner drives away pixar { January 30 2004 }

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   http://www.nytimes.com/2004/01/30/business/media/30DISN.html

http://www.nytimes.com/2004/01/30/business/media/30DISN.html

January 30, 2004
Pixar Sees End to Its Disney Partnership
By LAURA M. HOLSON

LOS ANGELES, Jan. 29 — Pixar Animation Studios, which produced last summer's popular "Finding Nemo," said on Thursday that it was ending talks on continuing its 12-year partnership with the Walt Disney Company and would seek another studio to distribute its films, beginning in 2006.

The announcement surprised both Hollywood and Wall Street because many people expected that Steven P. Jobs, the mercurial chief executive of Pixar, and Disney's chief executive, Michael D. Eisner, would resolve their personal and professional differences to continue what has been a lucrative partnership for both companies.

Under their current arrangement, Disney distributes all of Pixar's films in exchange for 12.5 percent of the box-office revenue, and the two companies split the profits. In addition, Disney owns the rights to all movies made by Pixar, which lacks its own distribution arm. As part of that deal, Disney will distribute Pixar's two coming films "The Incredibles," scheduled to be released later this year, and "Cars," due out next year.

"After 10 months of trying to strike a deal with Disney, we're moving on," Mr. 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 success."

Since the release of the Academy Award-winning "Toy Story," Pixar films have earned more than $2.5 billion at the worldwide box office and sold more than 150 million DVD's and videos, making it one of the most successful animation companies today. Just this week, "Finding Nemo," which has earned $340 million in the United States, was nominated for an Academy Award for best animated feature. But over the years, Mr. Jobs and Mr. Eisner have sparred publicly over how much control and money Pixar was allowed in the partnership. Pixar's animation has been a boon both financially and creatively to Disney, something Mr. Jobs has said Mr. Eisner did not appreciate enough.

The timing of Pixar's announcement creates a public relations nightmare for Mr. Eisner, who has been under pressure to turn around Disney's fortunes. This week, two former directors — Stanley Gold and Roy Disney, the nephew of the company's co-founder — called on shareholders to oust Mr. Eisner at Disney's annual meeting in March. Mr. Gold and Mr. Disney have complained that Disney's formerly renowned animation division has faltered under Mr. Eisner. They released a statement on Thursday saying that Mr. Eisner had mismanaged the relationship with Pixar.

Already the news of the failed talks created a flurry of interest from competitors including Warner Brothers Studios, which said it would be interested in distributing Pixar films.

Robert A. Iger, the president of Disney, said that Pixar's latest offer would have cost Disney hundreds of millions of dollars that the company was already entitled to under the existing agreement and that the terms sought by Mr. Jobs for future projects did not justify a deal.

"The debate we had was how much value could we afford to give up," he said in an interview. "At some point we had to say it was not good for shareholders."

Two people involved in the talks, which had been going on for months, said no single issue led to the breakdown. Two weeks ago, Disney executives submitted a proposal to Pixar in which several issues were discussed, including how long Disney would hold the rights to future movies produced by Pixar, whether Pixar would have the rights to any sequels to movies made previously with Disney and which company would retain television rights for Pixar movies under a new deal. Mr. Jobs wanted to own all future movies outright and wanted a stake in past films, too.

Mr. Jobs rejected Disney's proposal, one of the people said. But as recently as two days ago, Disney executives were told by Pixar's legal counsel that the talks were continuing.

"It was never you do this and it's not a deal," said a person involved in the negotiations. Disney "expected an ongoing dialogue," the person said. "We knew this was not the agreement."

To be sure Disney studio executives were surprised by the failed talks. Richard Cook, the chairman of Walt Disney Studios, who has been negotiating directly with Mr. Jobs, received a call from Mr. Jobs while he was out for lunch, according to a person involved in the negotiations. When he returned and called Mr. Jobs, the person said, he was told the talks were off.

The talks had been tenuous at times. Last September, Mr. Jobs nearly ended discussions with Disney over what seemed to be a deal breaker, whether Pixar would own a stake in "The Incredibles" and "Cars." Talks resumed in October after Disney seemed willing to compromise and offered Pixar a stake in the two films in exchange for a distribution fee greater than its current 12.5 percent. At the time, representatives for both Disney and Pixar were hopeful, even encouraged, that a deal could be concluded by the end of 2003.

Several theories emerged rapidly about why Mr. Jobs, who did not return three phone calls seeking comment, sought to terminate the partnership now. Perhaps, said one of the people involved, Mr. Jobs "made the announcement thinking Disney would come back on its knees."

Wall Street analysts are set to meet with Disney executives in Florida in two weeks, when Mr. Eisner will face tough questions about Disney's future in animation. Its own films have not had nearly the success of those produced by Pixar and Disney has effectively closed its Florida film animation operations.

One film executive suggested that Mr. Jobs could now be considered a candidate to run Disney if indeed Mr. Eisner ever left.

The collapsed talks will probably put pressure on Mr. Eisner to shore up his relationships with other partners, including cable companies that are warring with Disney over rates charged for its programming and with Harvey Weinstein, co-founder of Miramax Films, who has been dueling with Mr. Eisner over his division's profits.

"It is impossible to know how bad this is for Disney," said Richard Greenfield, a managing director at Fulcrum Global Partners, which has a sell recommendation on Disney stock. But given Pixar's success, it will hurt Disney, he said. "You have to venture a guess from a creative standpoint the company is at risk," he said.

But Disney can begin creating sequels to all of Pixar's films, something it could not do under its current arrangement and is almost certain to exploit.



Copyright 2004 The New York Times Company


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