Disney-Apple deal stokes hopes for Pixar tie-up

[speck76]

UPDATE 1-Disney-Apple deal stokes hopes for Pixar tie-up
Wed Oct 12, 2005 06:32 PM ET
(Recasts first paragraph; adds byline, comments from analyst, Jobs, Disney, byline)

By Gina Keating

LOS ANGELES, Oct 12 (Reuters) - A television distribution deal between Apple Computer Inc. and Walt Disney Co. that brought together CEOs Steve Jobs and Bob Iger on Wednesday stoked expectations that a separate agreement between Disney and Jobs's Pixar Animation Studios Inc. is at hand.

Pixar (PIXR.O: Quote, Profile, Research) shares rose as much as 3.7 percent, rebounding from a sell-off in the media sector, after Iger and Jobs appeared on stage together to announce that Disney (DIS.N: Quote, Profile, Research) unit ABC would sell TV programs through Apple's (AAPL.O: Quote, Profile, Research) iTunes Web site for viewing on computers and its new video iPod device.

"I know these guys," Jobs joked just before Iger strode on stage to join him at the Apple event. Iger, the new technology-focused chief of Disney, and Jobs both called it a watershed event bringing TV to the Web and said they expected more cooperation between their companies.

Their appearance also led many to guess that a new deal was in store between Pixar, which Jobs also heads, and Disney, that would extend their partnership for Disney to continue marketing and distributing Pixar's lucrative animated films.

A Disney spokeswoman had no comment on Pixar.

Jobs also declined on Wednesday to comment on Pixar-Disney talks. But he did say: "I've enjoyed working with Disney for about 20 years now ... I've gotten to know Disney's CEO Bob Iger really well over the last few months."

Sanders Morris Harris analyst David Miller said there had been a flare of speculation about a new deal.

"This just proves that -- Pixar being down and now up -- the Street doesn't care about economic terms. They only care about another deal," Miller said.

"If they (both) land a deal they can't lose and both stocks should go higher," Miller said. "If they permanently divorce Disney ... (Pixar's) net income would essentially double. We just don't think Pixar can lose."

The two companies have long been engaged in on-again, off-again talks over a potential new distribution agreement that would extend their partnership, and they reentered talks as Iger prepared to assume the Disney CEO job from Michael Eisner, who had a rocky relationship with Jobs.

Disney previously had rejected Pixar offers as bad deals for the bigger media firm, but investors punished Disney for failing to make a deal with the studio that has created a string of computer-animated hits from "Toy Story" to "Finding Nemo" and "The Incredibles."

Disney's current agreement with Pixar expires next summer with the release of "Cars." Analysts expect Pixar to push for a distribution deal similar to "Star Wars" director George Lucas' agreement with Fox, in which case Pixar would pay a percentage of film revenue as a distribution fee and keep ownership of films and characters.

Under the current agreement, Disney co-owns the films, and splits the profits with Pixar. Disney also effectively has sequel rights to the characters in the current deal.

Pixar fell as low as $46.75, before rising to a high of $48.88 and closing up $1.19, or 2.5 percent, at $48.31 on Nasdaq. Disney edged down 42 cents, or 1.8 percent, to $23.35 on the NYSE.

 

[mkt]

I feel warm and fuzzy now

 

[MickeyTigg]

This does sound like promising news.

 

[rmforney]

Despite the problems I've had with my iPod, this is looks pretty neat. I'm not sure if the vids will play on the older iPods or not... :lookaroun

 

[MickeyTigg]

In a Related Story....

Launch of Video iPod Shines Light on Jobs, Disney Drama

Downloads will include ABC shows. The pact is a sign that the rift with Pixar may be mending.

By Kim Christensen and Terril Yue Jones
Los Angeles Times

October 13, 2005

SAN JOSE -- Before he took over this month as Walt Disney Co.'s chief executive, Robert Iger made clear that he wanted two things: to explore new ways to distribute the media giant's entertainment content and to thaw his company's icy relationship with Steve Jobs.

Iger moved forward on both fronts Wednesday when he and Jobs, the co-founder of Apple Computer Inc., announced that Disney-owned ABC would offer some of its most popular television shows for download at iTunes Music Store.

Appearing together here to introduce Apple's much-anticipated video iPod, both executives stressed that the agreement was between Disney and Apple — and not with another Jobs company, Pixar Animation Studios, which last year said it would not renew the distribution deal it signed with the Burbank company in 1991.

But the broader implication seemed obvious: Iger and Jobs have forged a good working relationship that bodes well for renewing the agreement, which is due to expire next year with the release of "Cars."

The two have been talking for months about extending the relationship through which Disney has released such Pixar hits as "Toy Story," "Finding Nemo" and "The Incredibles."

"We think it is imminent that you will get a new Pixar-Disney deal," said Laura Martin, senior media analyst at Soleil-Media Metrics.

She predicted that the two sides would announce a pact within a month and credited Iger's "people skills" for patching things up with Jobs.

"This is an example of his excellent management of Steve Jobs, and finding common ground between Disney's objectives and Jobs' objectives," Martin said.

Under the partnership unveiled Wednesday, consumers will be able to download episodes of ABC's most popular shows as well as some Disney Channel programs. For $1.99 a pop, the downloads, which also will include some Pixar short films, can be played back on personal computers as well as the new video iPods.

The offerings include ABC's "Desperate Housewives," "Lost" and "Night Stalker," as well as Disney Channel's "That's So Raven" and "The Suite Life of Zack and Cody." Current episodes of the ABC shows will be available the day after broadcast, while past shows can be downloaded anytime.

"We think this is a real breakthrough," Jobs said. "It's never before been done, where you can buy hit prime-time TV shows the day after they're broadcast."

Iger said the Apple arrangement "offers great opportunities for consumers to stay connected to their favorite shows," or watch them again whenever they wish.

"This is the first giant step in terms of making content available to more people in more places," he said. "This is just the beginning of what we believe will be a long and prosperous relationship between Apple and Disney."

Whether that translates into a renewed bond between Pixar and Disney is an open question. Some analysts were wary of predicting a quick resolution to the rift, which opened after Jobs clashed with Iger's predecessor, Michael Eisner. But they said Wednesday's announcement was an encouraging sign.

"There was a lot of bad blood in the past between Disney and Jobs," Anthony Valencia of TCW Group said. "The fact that Disney is the first network to step up and offer its content on the Apple device is very interesting, at the least."

Iger and Jobs certainly looked to be on good terms Wednesday, shaking hands on stage at the California Theatre and jokingly alluding to the Disney-Pixar agreement.

Jobs, by way of acknowledging that ABC is owned by Disney, got a laugh when he said, "I know these guys."

Iger also took a stab at humor.

"We've enjoyed a great relationship with Steve through Pixar and it's great to announce an extension through Apple — not Pixar," he said. "That'll be for another time."

Industry and Wall Street analysts had expressed skepticism that consumers would go for a video iPod. But on Wednesday, some described Apple's agreement with Disney as a coup for both companies.

Lowell Singer, media analyst at SG Cowen & Co., said Iger's interest in new technology had put Disney "a little bit ahead of his competitors" in finding new revenue channels.

"Disney has been a little more aggressive, up to this time, talking about and exploiting new distribution for their content," he said.

Van Baker, a media analyst with Gartner Inc., a technology market researcher, said Pixar benefited as well.

"The fact that they're able to pull off a deal with Disney and ABC, to download shows a day after they've aired, is astounding," he said. "I didn't think they'd be able to line up the content, and without the content, they're useless."

The latest version of the iPod sports a larger, 2.5-inch diagonal screen that plays videos in crisp color. The 30-gigabyte version, which can hold 7,500 songs, 25,000 photos or 75 hours of video, will cost $299 and a 60-gigabyte model will be $399 when they go on sale in about a week.

Both are thinner than the 20-gigabyte model they replace, and both will be available in traditional white or all-black versions.

The screen is still too small for people to watch comfortably for more than an hour, said Ben Bajarin, a digital media analyst with Creative Strategies, a consulting firm in Campbell, Calif.

"The hardware is not there yet for full-length movies," Bajarin said. "But the X and Y Generations are going to eat this up. They're used to consuming media on small screens," such as hand-held gaming devices and mobile phones.

Although Microsoft Corp. has launched its own music download service, Apple's iTunes Music Store is the overwhelmingly dominant player, with an 84% share of the legal music download market in the U.S., according to Nielsen SoundScan.

With its Disney deal, Apple has positioned itself as "a digital distribution pioneer for content providers to make money where they've never made money before," Bajarin said.

"Obviously other networks are going to watch very closely whether people will buy videos under this model," he said.