|A Demure Pixar Takes No Notice of Eager Suitors|
May 24, 2004
By LAURA M. HOLSON
LOS ANGELES, May 23 - Coy is rarely a word used to describe Steven P. Jobs. So it is more than a little surprising that he seems almost uninterested in finding a new partner for his Pixar Animation Studios once its joint venture with the Walt Disney Company ends next year.
Two months ago, Mr. Jobs, who is Pixar's chief executive, was invited to visit the Culver City, Calif., headquarters of Sony Pictures Entertainment but he has yet to make the trip, said a Sony executive apprised of the invitation. Mr. Jobs regularly swaps telephone calls - but little more - with Alan Horn, the president of Warner Brothers Entertainment, which has expressed interest in distributing Pixar films. Other studio executives, including those at Metro-Goldwyn-Mayer, have asked to meet with Mr. Jobs recently and been turned down. According to one of those executives who asked not to be named, Mr. Jobs told him "he was not ready to talk."
Even Mr. Jobs conceded in an interview two weeks ago that he was moving ahead slowly with potential distributors. "We are talking," he said, "but maybe not as much as they'd like."
There are two schools of thought among analysts and Hollywood executives as to why Mr. Jobs is biding his time. Some say Mr. Jobs is holding out hope of another deal with Disney depending on what happens with Michael D. Eisner, Disney's chief executive. Dissident shareholders tried earlier this year to oust Mr. Eisner, whom Mr. Jobs has blamed for his breakup with Disney. Others say Mr. Jobs has plenty of time to find a distributor and gear up for the 2006 release of the first film that Pixar will finance on its own.
Mr. Jobs declined to further discuss any continuing talks with potential partners. But he has said he is seeking a distribution-only agreement with a studio, meaning that Pixar will fully finance its films, negotiate its own merchandising agreements and keep most of its movies' profits. Currently Mr. Jobs splits profits equally with Disney. But after five wildly successful Pixar movies tallying nearly $2.6 billion at the worldwide box office (and even more when DVD, merchandise and video game sales and rentals are added), Mr. Jobs "can do just about anything he wants," said Lowell Singer, a media analyst who follows Pixar for SG Cowen & Company in San Francisco.
Profit more than tripled in the most recent quarter with the success of "Finding Nemo," which has brought in $865 million at the worldwide box office and is outselling earlier hits like "Monsters, Inc." on DVD and home video. Pixar's next movie, "The Incredibles" is already generating good buzz in Hollywood ahead of its Nov. 5 release, as is "Cars," the final movie to be made by Pixar under its joint venture with Disney.
"No one questions Pixar's ability to produce great movies," Mr. Singer said.
Many analysts, and even some of Disney's competitors, say what Mr. Jobs wants most is to remain with Disney. Pixar's family-oriented films are a natural fit with Disney's wholesome image, and are easy to market alongside stalwart Disney characters like Cinderella. And the partnership has been profitable for both Mr. Jobs and Mr. Eisner. According to a report released earlier this year by Richard A. Bilotti, an analyst at Morgan Stanley, Disney's annual profit starting in 2007 could drop by $30 million to $40 million without an agreement with Pixar, even a distribution-only one.
"A lot of people want to see Pixar and Disney stay together," said Tom Wolzien, a media analyst at Sanford C. Bernstein & Company. Added an executive at a major studio, "Disney can offer him things that no one else can."
The problem, according to people who know both Mr. Jobs and Mr. Eisner, is whether the two can reconcile their fractured relationship. At March's annual meeting, 45 percent of Disney's shareholder votes were withheld from Mr. Eisner in his election to the board. Roy E. Disney, the nephew of Walt Disney, and Stanley P. Gold, both former board members, have said they plan to campaign against Mr. Eisner ahead of next year's election, hoping to replace him with a candidate of their own.
If that effort is successful, it could clear the way for Mr. Jobs to negotiate a new deal with Disney. According to one person close to Disney's board, some directors have not ruled out the possibility of Disney renewing talks with Pixar whether Mr. Eisner is chief executive or not. George Mitchell, the newly appointed nonexecutive chairman, said last week in a news conference that the board had discussed succession although it still backed Mr. Eisner, whose contract ends in 2006.
Nonetheless, the frost between Disney and Pixar seems to be thawing. Mr. Jobs went out of his way to praise Disney executives two weeks ago in Pixar's earnings call. "Although 'The Incredibles' and 'Cars' will likely be the last two Pixar films marketed and distributed by Disney," he said, "I want to stress that the working relationship between the two companies remains really positive and professional."
Those comments are a stark contrast to his blistering attack on Disney in February, when he called movies like "Treasure Planet" bombs and said sequels to "The Lion King" and "Peter Pan" were "embarrassing."
"It's clear we are wanted by others," Mr. Jobs said then.
Mr. Jobs's new tone has left many executives in Hollywood to speculate whether the most-talked-about Hollywood couple to break up this year might get back together or if Mr. Jobs was simply mending fences because Disney still had two Pixar movies to distribute.
Richard W. Cook, chairman of the Walt Disney Studios, declined to discuss Disney's relationship with Pixar. But according to Disney executives, Mr. Eisner would be willing to renew talks with Mr. Jobs if he could strike an equitable deal. (In their last talks Mr. Jobs wanted the rights to Pixar movies that are currently owned by Disney.) Several people who were involved in the earlier talks said a deal could have been reached if both Mr. Eisner and Mr. Jobs had been willing to compromise a little more. But, as Mr. Wolzien contends, "the closer they get to the end of the Pixar deal, the more Disney looks like any distributor."
So for now Mr. Jobs is gearing up for Pixar to go it alone. In March, Pixar hired Simon Backs, the former chief financial officer at Fox Filmed Entertainment, to become Pixar's new chief financial officer. While at Fox, Mr. Backs oversaw financial operations and strategic planning for the television and motion picture divisions and also was involved in worldwide licensing and merchandising. Many analysts agree that Mr. Backs is a compelling addition because he oversaw Fox's distribution agreement with George Lucas, the creator of the Star Wars series, which is marketed and released by Fox.
Pixar is beefing up other departments, too. According to a person apprised of the company's business plans, Pixar hired Tom Prichard, an executive from Leapfrog, a children's toy company, to develop and oversee its consumer products group. And Mr. Jobs, according to this person, has even considered expanding the company's headquarters in Emeryville, Calif., as Pixar prepares to move much of its merchandising and licensing operations in-house.
The big question is what company, other than Disney, Mr. Jobs would pay to distribute its movies. "I think Alan Horn said it before but we would like to have a close relationship," said Richard D. Parsons, chief executive of Time Warner, after the company's annual meeting last week. "But that is up to Steve Jobs, his relationship with Disney and the industry." One person who has talked to Mr. Jobs said he was less inclined to pick a company like Sony because its new music service competes directly with Apple's iTunes, which could make the relationship awkward.
Mr. Jobs doesn't have to make a decision soon, Mr. Singer, the SG Cowen analyst, said, because he needs only 12 to 18 months before the release of Pixar's first fully financed movie. That is not expected to happen until late 2006, which gives Mr. Jobs at least until early 2005, although he is likely to line up merchandising partners before the end of the year.
"A lot could happen between now and then," Mr. Singer added.