Hey, folks.
Andrew Crim here. Jim brought me on board to be JHM’s professional wet blanket. The guy who gets to step in whenever Disneyana fans are throwing out phrases like “Disney magic” & “Walt would have never done it like that …” and then remind everyone that the Walt Disney Company is actually a business. And — just like every other business on the planet — the Mouse wants to make money.
Which is why I’m thinking that it may not make good business sense for Disney to renew its deal with Pixar Animation Studios.
I’ll pause here for a moment so that you can wipe up all of that coffee and/or soda that you just spit-taked all over your monitor.
“What’s that you say, Andrew? Disney shouldn’t renew its deal with Pixar?! Are you insane?”
No. Just frugal.
Let me explain: Under the terms of that revised 10-year, 5-picture-deal that Disney cut with Steve Jobs back in February of 1997 (Which replaced the three-picture-deal that these two companies originally signed back in May of 1991), Pixar Animations Studios puts up half of the production financing for each new film that the Emeryville, CA.-based studio makes. This then allows Pixar to split the profits with the Mouse … Minus the 12.5% of the box office that Mickey takes right off the top to cover each movie’s marketing, distribution and merchandising costs.
This revised co-production agreement has made both the Walt Disney Company and Pixar Animation Studios a ridiculous amount of money over the past eight years. I’ve heard talk that Disney’s take has averaged out to be about $200 million per picture.
Which appears to be a pretty sweet deal, at least from where the Walt Disney Company is standing. But not so much from Steve Jobs’ position. The way Steve sees it — given that Pixar is doing virtually all of the heavy lifting here in this relationship — that that animation studio is now entitled to virtually all of the profits.
So — when Disney & Pixar representatives met in 2003 & 2004 to try and work out an extension of the current co-production deal — Jobs kept talking about “Star Wars.” As in: Steve wanted from Disney what George Lucas got from 20th Century Fox. Back when Lucas cut that deal with Fox so that that studio could distribute the three “Star Wars” prequels.
To explain: What Job wanted — from this point forward — was to have Pixar cover the full production costs of each new animated feature. Under the terms of this proposed new arrangment, Pixar would then keep 100% of each film’s profits while paying the Walt Disney Company just a flat fee to distribute and market each movie.
And — to make matters worse (at least from the Mouse’s point of view) — Steve was supposedly suggesting that, in exchange for Pixar agreeing to produce three additional projects for Disney to distribute, that the terms of this new deal should then be applied to the two films remaining under the old co-production deal (I.E. “The Incredibles” and “Cars’).
Oh … And as a gesture of good will, Jobs also allegedly wanted the Walt Disney Company to surrender any and all sequel rights to previous Disney/Pixar co-productions (I.E. “Toy Story,” “A Bug’s Life,” “Monsters, Inc.” and “Finding Nemo”).
Now you have to look at this situation from Disney’s side of the fence, folks. Here they were, reportedly being asked to give up half of the projected profits from “The Incredibles” & “Cars” as well as the sequel rights to “Toy Story,” “A Bug’s Life,” “Monsters, Inc.” and “Finding Nemo” … All in exchange for a flat distribution fee on the next five Pixar releases. Can you understand now why it would have been financially irresponsible for Disney Company management to have accepted that deal?
I mean, sure, “The Incredibles” was a smash. And “Cars” and the next three films that Pixar produces might all be smash hits. But — then again — they might not. Look at what happened last week to the price of Pixar Animation Studios stock. All because there were whispers on Wall Street that ” … the CG bubble may be getting ready to burst.”
Michael Eisner — at the infamous 2004 Walt Disney Company shareholders meeting in Philadelphia — was quoted as saying:
“No one would have wanted to continue this relationship more than I. But the economics of the ongoing relationship were not in the best interest of our shareholers.”
Putting aside Eisner’s well-known personality conflicts with Steve Jobs, I believe that Michael may have been telling the truth here. That he really did want Disney’s deal with Pixar to continue. But not if it meant actually giving away the store in order to stay in business with Steve.
Well now we have Bob Iger. Who’s due to become Disney’s new CEO on October 1st. Who’s currently under tremendous pressure right now (from both Wall Street as well as the Disneyana community) to quickly come to some sort of arrangement with Steve Jobs. So that the Walt Disney Company and Pixar Animation Studios can then remain in business.
I just hope that Iger is strong enough & bright enough to withstand all the pressure that Wall Street is putting on him. That Bob doesn’t just rush into these negotiations with Steve and quickly agree to any deal. Rather than hold out for the right sort of deal.
For the word coming out of Emeryville these days is that Jobs knows that Iger is dealing from a position of weakness. Which is why Steve has supposedly added another term to the proposed deal.
As in: Pixar will agree to produce three more films for Disney to distribute after “Cars” IF the Walt Disney Company agrees to allow Pixar Animation Studios to buy out Disney’s share in “Toy Story,” “A Bug’s Life,” “Toy Story II,” “Monsters, Inc.,” “Finding Nemo,” “The Incredibles” and “Cars.” So that Pixar Animation Studios would then have sole ownership of its film library.
The long term ramifications of that proposed condition — which would entail Disney giving up any & all rights to these film titles as well as these sets of characters — are just mind-blowing. Which (again) is why I hope that Iger is strong enough to hold out for the right type of deal. Or even walk away from the negotiating table entirely when Steve Jobs is really asking for too much. Rather than quickly agree to the wrong sort of deal with Pixar.
That’s why I say: “Be careful what you wish for, folks.” For I know a lot of people out there are really pulling for Disney to get back in business with Pixar. But — strictly from a business point of view — it has to be the right sort of deal. Where Disney retains much of what it has now. Or — at the very least — gets something of equal value put on the negotiating table for whatever the Mouse is giving up.
Otherwise, it just makes sense that — when the current deal expires — that the Walt Disney Company and Pixar Animation Studios go their separate ways. With Disney forever retaining the right to make sequels to “Toy Story” et al. Not to mention forever sharing the profits whenever these co-productions are re-released to theaters, DVDs, etc.
Giving any of that stuff up — in exchange for staying in business with Pixar — would signal to me that (to quote that Randy Newman song from the first “Toy Story” film) “… Strange things are happening” in the Team Disney Burbank building.
Now (to quote from the boss) your thoughts? What did you think of my first “Checks & Balances” column?