The
Hollywood Economist
The
numbers behind the industry.
Why
Disney Can't Leave Pixar
Pixar vs.Pixar
Hollywood's
El Dorado is a concept or character that can be spun into
sequels—or, as in the case of Star Wars, prequels—and
serve as an expanding platform for DVDs, television, games,
and other licensing rights. Although successful franchises,
such as MGM/UA's James Bond, Sony's Spider-Man, Warner Bros.'
Harry Potter, Paramount's Star Trek, New Line's Lord of
the Rings, DreamWorks' Shrek, and Universal's Jurassic Park,
are few and far between, Steve Jobs, as head of Pixar Animation
Studios, has handed Disney four of the potentially richest
mother lodes in the history of filmdom. Namely, the sequel
rights to Toy Story; Finding Nemo; Monsters, Inc.;
and The Incredibles. These franchises are particularly
lucrative because they have no stars, directors, or other
gross players entitled to a share of the take. Disney also
has the exclusive rights to use all of the Pixar characters
in its theme parks.
How
did Disney wind up with four Pixar-created franchises? After
Steve Jobs bought George Lucas' computer-animation division
in 1986, he needed the muscle of a Hollywood studio to get
this new form of 3-D animation into theaters worldwide.
Disney, with its Disney Channel, theme parks, and family-friendly
Walt Disney brand, was a natural ally. So, in 1991, Jobs
entered into a deal with Michael Eisner to co-produce its
first animated feature, Toy Story. Disney agreed to finance
the movie completely, while Pixar's creative guru John Lasseter
would develop and direct. Disney would then get the lion's
share of the proceeds—87 percent, including its distributing
fee. Though it took almost three years to complete, Toy
Story proved to be not only an immense box office success,
but the most lucrative toy-licensing platform in Disney's
history.
Jobs negotiated a better deal in 1997 with Eisner for five
more animated features. Pixar again assumed full creative
control of the movies while Disney was in charge of the
distribution, marketing, exploitation, and licensing. In
this deal, Pixar paid half the cost of developing and producing
the movies and shared 50-50 the money that flowed in from
all sources, after Disney deducted its advertising, print,
and out-of-pocket expenses and took its 12.5 percent distribution
fee. The only revenue Pixar was not entitled to was that
which was earned from Disney's theme parks. When it came
to the sequels, Eisner insisted that Disney have the rights
to make an unlimited number of sequels with the characters
and computerized algorithms from the originals. Pixar had
the option to buy into the sequels by putting up half the
financing, but it would get only 35 percent of the proceeds
that remained after Disney repaid itself its expenses and
took its 12.5 percent fee. Since this was a deal-breaker,
Jobs handed over the sequel rights, but he was not happy
about it.
After
fruitlessly attempting to renegotiate the sequel option
with Eisner in 2003, Jobs announced in January 2004 that
after Pixar completed its contract by delivering its fifth
and final movie, Cars, it would terminate its arrangement
with Disney and not participate in any of the sequels, leaving
Disney with four franchises. All that Pixar would get would
be a small royalty (3.5 percent of the proceeds until each
movie reaches cash break-even and 7.5 percent afterward).
Even
with Pixar's incredible track record, Jobs has found that
getting a new partner is easier said than done. Since Universal
and Paramount have decided to disband their international
distribution arm, UIP, Jobs has only three choices if he
wants a distributor with the global clout that comes close
to Disney's—Sony Pictures, 20th Century Fox, and Warner
Bros. But in the 20 months that have elapsed since he fired
his parting shot at Eisner, Jobs has not been able to make
a suitable deal with any of these studios. The reason is
not that the studios lack appreciation for the creative
genius of Pixar and its pioneering work in computer graphics,
but that any new Pixar films would face a potentially awesome
competitor: Pixar sequels. For example, a new Pixar film
might find itself competing for summer play dates with The
Incredibles 2, backed by a Disney juggernaut of merchandising
tie-ins with fast-food restaurants, toy licenses, informational
shows on the Disney Channel and overseas channels, and its
proven Pied Piper effectiveness in recruiting children's
audiences.
Simply
put, it would be Pixar vs. Pixar. Ironically, the only studio
that can release a Pixar movie without the threat of such
competition is Disney. Just as second chances with happy
endings are a formula for success in children's movies,
Jobs may prudently decide, especially now that Eisner is
gone, that breaking up with Disney is not worth the effort.
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