Case Coy Story

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© 2003, DOW JONES & COMPANY, INC. ALL RIGHTS RESERVED www.barrons.com MONDAY, OCTOBER 13, 2003 Coy Story Will Steve Jobs jilt Disney? No matter what happens, Pixar stock seems overvalued TINY PIXAR IS THE HOTTEST TICKET in Hollywood. Fresh off the huge success of its latest animated movie, "Finding Nemo," an emboldened Pixar is bargaining hard over a new film-distribution agreement with its partner, Disney, while weighing offers from other studios. "Finding Nemo" is the highestgrossing movie in the U.S. this year, with projected domestic box-office revenue of more than $335 million. "Nemo" is expected to generate over $1 billion of revenue after international distribution and video sales, netting about $500 million in total profits.…show more content…
On Pixar' s August earnings conference call, Jobs said Pixar would "prefer to continue our relationship with Disney" but that there are other studios "anxious" to align with it. A confident Jobs said that "the right deal is more important than the quick deal." Yet Disney, too, has leverage because of its marketing clout, born of its position as the world' s top producer of family entertainment. Disney' s bargaining position is enhanced because it' s entitled to half the profits on the next two Pixar movies, including DVD and video rights. Disney also can use Pixar characters for theme parks and other entertainment. While Disney and Pixar co-own the five films covered under the current agreement, Disney has more clout when it comes to any sequels. According to Pixar' s 2002 10-K report, "Disney' s decision governs" if there are disagreements between Disney and Pixar about whether to proceed with a sequel, except in very limited circumstances. ANIMATED ARGUMENT If Pixar dumps Disney for Warner Brothers, Sony or another Hollywood studio, Disney probably will force Pixar to abide by the 50-50 profit split on the next two films called for in the existing contract. That would delay a marked upturn in Pixar' s profits until 2007, the year after
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