- NEW YORK (Dow Jones)--Pixar
on Thursday ended discussions with Walt Disney Co. (NYSE:DIS - News) about
continuing their partnership, and now it can work out a lucrative deal
with a new movie studio.
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- Time Warner Inc. (NYSE:TWX - News) , riding high with
the hit "The Lord of the Rings" films from its New Line subsidiary,
and Fox Entertainment Group Inc. (NYSE:FOX - News) would be likely new
partners based on their domestic and international film-distribution strengths,
analysts said.
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- "After 10 months of trying to strike a deal with
Disney, we're moving on," said Pixar Chief Executive Steve Jobs (news
- web sites) in a press release Thursday. He said last year that once talks
were over with Disney they wouldn't be revived and Pixar would seek a deal
with another movie studio.
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- Disney Chief Financial Officer Tom Staggs said in a release
that Disney's management couldn't accept Pixar's final offer because it
"would have cost Disney hundreds of million of dollars it already
is entitled to under the existing agreement."
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- Pixar and Disney were co-producers of such films as "Toy
Story" and its sequel, "Toy Story 2." They also co-produced
"Monsters Inc." and "A Bug's Life," and most recently
"Finding Nemo," which was a large contributor to third-quarter
results for Pixar with a box-office gross of $424 million for that period.
Disney said in November that it sold 20 million home video units of the
film in the first 14 days of its release.
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- Pixar has two more films left under its deal with Disney
- " The Incredibles" this year and "Cars" in 2005 -
and it has started work on a movie for tentative release in 2006.
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- When the two started their relationship back in 1995,
Pixar needed a co- production partner with a strong brand name and distribution
power. But now Pixar is profitable enough to bankroll its own movies and
successful enough that it can wrangle a distribution deal from a movie
studio, according to Federated Investors analyst Angela Kohler, whose firm
holds about 2 million Disney shares.
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- The two companies share production costs and profits
under the current deal, with Disney distributing the films, recouping marketing
costs and retaining sequel rights to the movies. Disney also has the rights
to make theme-park attractions, toys and other consumer products based
on the films.
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- Pixar has said that it was looking for a deal that would
give Disney a distribution fee - analysts suggested that it was 10% to
20% - with Pixar retaining all rights to the films.
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- If Pixar should strike a distribution deal with Time
Warner, that giant entertainment company might try to strike a deal with
Disney to buy the two movies left under the deal, Kohler said.
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- "Time Warner has the cash to pull it off after reducing
their debt by about $ 20 million last year," Kohler said. She added
that Time Warner might also try to negotiate for the sequel and other rights
that Disney holds to the films.
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- Like Disney, Warner Bros. Pictures has a worldwide brand,
a family-friendly image and tremendous film prowess, said Fulcrum Global
Partners analyst Richard Greenfield. And after all the troubles it has
had with its ailing America Online unit, gaining Pixar would be a feather
in Time Warner's hat.
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- "Gaining Pixar would be psychologically positive
for Time Warner," Greenfield said.
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- However, losing Pixar will probably weigh heavy on the
minds of Disney shareholders. The financial impact is a couple of years
away, since Pixar does owe two more movies, said analyst Paul Kim of Tradition
Asiel Securities Inc. He added that Disney has its own computer-animated
film, "Chicken Little," set for 2005 release.
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- While Disney might have the technology to make a computer-animated
film, it doesn't have the staff of Pixar, which includes Academy Award-winning
director John Lasseter, the creative head of Pixar, analysts said.
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- Warner Bros. Pictures has had informal meeting with Pixar
management, but not formal talks or negotiations, said spokeswoman Barbara
Brogliatti.
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- "We would love to be in business with Pixar,"
she said, declining to discuss what kind of deal might be reached.
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- Kim doesn't cover Pixar and has a sell rating on Disney
and a hold on Time Warner. He doesn't own shares of the companies and Tradition
Asiel Securities Inc. doesn't have an investment-banking relationship with
the companies.
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- Greenfield doesn't cover Pixar; he has a sell rating
on Disney and a buy rating on Time Warner. He doesn't own the shares and
Fulcrum doesn't have an investment-banking relationship with the companies.
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