October 31, 2005
For Disney and Pixar, a Deal Is a Game of 'Chicken'
By LAURA M. HOLSON
LOS ANGELES, Oct. 30 - On Friday, the Walt Disney Company will release "Chicken Little," its first animated film since revamping its animation studio. The company is hoping the movie will return Disney to the glory of its past in animation.
Another company that also has a lot riding on "Chicken Little" is Pixar, the Emeryville, Calif., studio that has a joint venture with Disney to make and market animated films through 2006.
Steven P. Jobs, Pixar's chairman, and Robert A. Iger, Disney's newly named chief executive, have been in talks since early summer to extend an agreement for Disney to continue distributing Pixar films. But according to two people with knowledge of the talks, serious negotiations have not begun, as both sides wait to see how "Chicken Little" performs in movie theaters.
Disney will get some of its pride back if "Chicken Little" is a hit, analysts say. But more important, a hit movie would show Wall Street and Mr. Jobs that Disney need not depend on Pixar for creation of new animated movie characters that could be adapted for theme park rides, consumer products and television. If the movie is not well received by critics or moviegoers - something that looks increasingly less likely given the favorable early word - Mr. Jobs will gain leverage, because Disney would be seen as needing Pixar to help create new stories to refresh its creative arsenal.
A Disney spokeswoman, Zenia Mucha, declined to comment except to say that talks were continuing. Mr. Jobs did not return calls seeking comment.
Detailed negotiations between Disney and Pixar are likely to begin in mid-November and could be wrapped up by late December or early January, said one of the people. The studios have several issues to grapple with, including who would have creative oversight over new Pixar characters at Disney theme parks and how revenue from rides and other attractions would be divvied up.
Both sides have time constraints, which make a decision near the end of the year likely. If Pixar does not reach a deal with Disney, Mr. Jobs will need time to find a new distribution partner. Disney executives, meanwhile, are eager to begin production on "Toy Story 3," a sequel to "Toy Story" from Pixar.
At least one Wall Street research firm has suggested that an acquisition of Pixar by Disney makes sense. But according to the two people with knowledge of the talks, who asked not to be identified because of the sensitive nature of those negotiations, Mr. Iger has not made an offer to buy Pixar. They added, though, that Mr. Jobs would consider a sale at the right price. Pixar's market value is about $5.9 billion, a price that would make an acquisition - by Disney or another media company - expensive, given the price per share that most media stocks are trading at these days.
Most people in the entertainment business, including executives at Disney and Pixar, agree the two studios are natural partners. But investors and analysts are cautious.
"Wall Street's mentality is that they don't expect much from 'Chicken Little,' " said Michael Nathanson, an analyst at Sanford C. Bernstein & Company. If the movie performs poorly, he said, "investors might want to see a Pixar deal right behind it." Still, he added, "it's all about numbers, and both sides - Disney and Pixar - are looking for leverage."
Pixar, so far, has been a stellar performer in computer-animated movies, creating hits like "Toy Story," "Monsters, Inc." and "The Incredibles." But it is facing more competition than ever, not only from Disney, but also from DreamWorks Animation and others who are having success working in a genre that Pixar pioneered.
There has been some speculation that Disney's announcement that it would deliver television shows, like "Desperate Housewives" from ABC, over the video-capable Apple made a distribution deal with Pixar more likely. (Mr. Jobs is chief executive of Apple.) But the two people cautioned that Mr. Jobs would evaluate any Pixar partnership based on where he could get the best deal for the studio, not on his developing friendship with Mr. Iger. Mr. Jobs often sparred with Mr. Iger's predecessor, Michael D. Eisner, but has struck a more conciliatory note with Disney's new chief executive.
In the past, Mr. Jobs has proved to be a shrewd negotiator, particularly in 2003, when he negotiated with music companies to license their songs for distribution over the Apple iPod. The troubled music industry looked to Mr. Jobs as something of a savior then, even hoping that Apple would be interested in acquiring a music company. That has not happened, and now some music companies are at odds with Mr. Jobs, fearing he has become a formidable competitor.
For Disney and Pixar, a Deal Is a Game of 'Chicken'
By LAURA M. HOLSON
LOS ANGELES, Oct. 30 - On Friday, the Walt Disney Company will release "Chicken Little," its first animated film since revamping its animation studio. The company is hoping the movie will return Disney to the glory of its past in animation.
Another company that also has a lot riding on "Chicken Little" is Pixar, the Emeryville, Calif., studio that has a joint venture with Disney to make and market animated films through 2006.
Steven P. Jobs, Pixar's chairman, and Robert A. Iger, Disney's newly named chief executive, have been in talks since early summer to extend an agreement for Disney to continue distributing Pixar films. But according to two people with knowledge of the talks, serious negotiations have not begun, as both sides wait to see how "Chicken Little" performs in movie theaters.
Disney will get some of its pride back if "Chicken Little" is a hit, analysts say. But more important, a hit movie would show Wall Street and Mr. Jobs that Disney need not depend on Pixar for creation of new animated movie characters that could be adapted for theme park rides, consumer products and television. If the movie is not well received by critics or moviegoers - something that looks increasingly less likely given the favorable early word - Mr. Jobs will gain leverage, because Disney would be seen as needing Pixar to help create new stories to refresh its creative arsenal.
A Disney spokeswoman, Zenia Mucha, declined to comment except to say that talks were continuing. Mr. Jobs did not return calls seeking comment.
Detailed negotiations between Disney and Pixar are likely to begin in mid-November and could be wrapped up by late December or early January, said one of the people. The studios have several issues to grapple with, including who would have creative oversight over new Pixar characters at Disney theme parks and how revenue from rides and other attractions would be divvied up.
Both sides have time constraints, which make a decision near the end of the year likely. If Pixar does not reach a deal with Disney, Mr. Jobs will need time to find a new distribution partner. Disney executives, meanwhile, are eager to begin production on "Toy Story 3," a sequel to "Toy Story" from Pixar.
At least one Wall Street research firm has suggested that an acquisition of Pixar by Disney makes sense. But according to the two people with knowledge of the talks, who asked not to be identified because of the sensitive nature of those negotiations, Mr. Iger has not made an offer to buy Pixar. They added, though, that Mr. Jobs would consider a sale at the right price. Pixar's market value is about $5.9 billion, a price that would make an acquisition - by Disney or another media company - expensive, given the price per share that most media stocks are trading at these days.
Most people in the entertainment business, including executives at Disney and Pixar, agree the two studios are natural partners. But investors and analysts are cautious.
"Wall Street's mentality is that they don't expect much from 'Chicken Little,' " said Michael Nathanson, an analyst at Sanford C. Bernstein & Company. If the movie performs poorly, he said, "investors might want to see a Pixar deal right behind it." Still, he added, "it's all about numbers, and both sides - Disney and Pixar - are looking for leverage."
Pixar, so far, has been a stellar performer in computer-animated movies, creating hits like "Toy Story," "Monsters, Inc." and "The Incredibles." But it is facing more competition than ever, not only from Disney, but also from DreamWorks Animation and others who are having success working in a genre that Pixar pioneered.
There has been some speculation that Disney's announcement that it would deliver television shows, like "Desperate Housewives" from ABC, over the video-capable Apple made a distribution deal with Pixar more likely. (Mr. Jobs is chief executive of Apple.) But the two people cautioned that Mr. Jobs would evaluate any Pixar partnership based on where he could get the best deal for the studio, not on his developing friendship with Mr. Iger. Mr. Jobs often sparred with Mr. Iger's predecessor, Michael D. Eisner, but has struck a more conciliatory note with Disney's new chief executive.
In the past, Mr. Jobs has proved to be a shrewd negotiator, particularly in 2003, when he negotiated with music companies to license their songs for distribution over the Apple iPod. The troubled music industry looked to Mr. Jobs as something of a savior then, even hoping that Apple would be interested in acquiring a music company. That has not happened, and now some music companies are at odds with Mr. Jobs, fearing he has become a formidable competitor.
