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Pixar And Disney End Talks, Seeks New Partner

TMO Reports - Pixar And Disney End Talks, Seeks New Partner

by , 6:30 PM EST, January 29th, 2004

Pixar Animation Studios has broken off talks with Walt Disney Co. to extend their movie distribution deal, and will seek to negotiate a similar deal with another studio, Pixar and Apple Chief Executive Steve Jobs said Thursday.

Pixar, which produced such blockbusters as Toy Story, Monsters Inc. and Finding Nemo, said it will look for an agreement that allows it to retain ownership of future movies. Under its current deal with Disney, Pixar gets 50% of a movie's profits after Disney recoups its marketing and distribution costs, while Disney retains the rights to sequels to movies like Toy Story and Monsters Inc.

"After 10 months of trying to strike a deal with Disney, we're moving on," Mr. Jobs said in a prepared 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 successes."

"Disney management could not accept Pixar's final offer because it would have cost Disney hundreds of millions of dollars it is already entitled to under the existing agreement, while not providing sufficient incremental returns on new collaborations to justify the changes to the existing deal," the company said in a statement. "Although we would have enjoyed continuing our successful collaboration under mutually acceptable terms, Pixar understandably has chosen to go its own way to grow as an independent company," Disney Chairman and Chief Executive Eisner said in another release.

The decision by Pixar did not come unexpected by many in the industry as talks have been going bad for some time now. Industry insiders have reported over the last few months that the major stumbling block to an agreement between the two companies centered around Pixar's insistence that it wanted a bigger piece of profits - around 70 percent - than what Disney was willing to give.

Pixar can now begin negotiating a new contract with any company it wants. Analysts believe the company is trying to land a deal similar to Lucasfilm, which keeps 100 percent of its profits and pays Twentieth Century Fox a distribution fee.

Last August, Jobs said Pixar had talked briefly with rival studios such as Warner Bros. and Fox, but would try and re-negotiate with Disney. "We have talked to many of these studios and we know we can get the deal we want," Jobs said. Jobs has a 55 percent holding in Pixar.

Disney said in the past it was willing to make a new deal with Pixar that made financial sense and the company was hopeful that talks would be fruitful for both parties. Disney Chief Executive Michael Eisner told stockholders earlier this month that, "I am hopeful that it will work out. And it will work out, but it will only work out if it makes sense economically for the bottom line of the company."

Under the terms of the existing agreement, Disney will retain the rights to distribute Pixar's first seven films, with Pixar continuing to receive its current share of the profits in perpetuity. Disney will also have the rights to solely finance and produce sequels to the films if Pixar declines to co-finance and produce them, under the terms of the current agreement.

After completing the final two films under the current agreement with Disney - The Incredibles in 2004 and Cars in 2005, Pixar intends to retain full ownership of its future productions.

To date, Pixar's five films have earned more than US$2.5 billion at the worldwide box office and sold over 150 million DVDs and videos.

The move represents a serious blow to Disney, which has reaped great financial reward from the partnership. The company has also been embroiled in a bitter executive battle recently with Roy Disney, nephew of the founder. Roy Disney , formerly group vice-chairman, and Stanley Gold, a non-executive director, both resigned in September after they criticized the management of Eisner.

Shares of Disney, which had risen 78 cents, or 3 percent, to US$24.45 at 4 p.m., fell $1.48, or 6%, in after-hours trading on the New York Stock Exchange. Shares of Pixar fell US$3.70, or 6 percent in after-hours trading on the Nasdaq Stock Market after rising $1.05 in regular trading.

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