IT takes a will of steel to hide your superhero talents from a world that still needs you — or so says the blurb for The Incredibles, the last animated film from Pixar. Fortunately Steve Jobs, Pixar’s boss, has never felt the need to hide his light.
Jobs co-founded the Apple computer company in 1976 and Pixar in 1986. Both firms have had rocky patches. But in recent years Jobs and his companies have enjoyed a record run.
Apple made computers sexy and rewrote the rules on how electronic goods should look. Apple’s iPod redefined the way the world listened to music. Pixar had one hit film after another, from Toy Story to Finding Nemo and The Incredibles. Even a brush with cancer did not hold Jobs back.
But for all his success, Jobs has remained an outsider. Apple is the underdog in a world dominated by computers running Microsoft’s programs. Pixar is a successful but tiny boutique operating outside Hollywood. Even in music, where the iPod reigns supreme, the biggest music companies are wary of Jobs.
All that could be about to change. Jobs and executives from the media giant Walt Disney, which distributes Pixar’s films and owns the rights to the characters, are reportedly spending the weekend discussing ways to cement the two companies’ relations.
Neither side is commenting but a deal would make Jobs a player at one of the biggest media companies in the world.
Under one option, Disney could pay close to $7 billion (£4 billion) to buy Pixar. The sale would make Jobs the largest private shareholder in Disney and an important force in Hollywood.
Back in 1995 Disney spent $19 billion on buying Capital Cities/ABC — a huge merger that added the ABC television network and the hugely lucrative sports network, ESPN, to the Disney fold.
Pixar’s six films have grossed more than $3 billion at the worldwide box office to date. This has been one of the most successful runs in movie history, but all good things must come to an end — $7 billion seems a high price to pay for the company.
But investors in both companies loved the rumour; both Disney’s and Pixar’s shares rallied last week. Jobs is the $7 billion man.
In a note to investors, William Drewry of Credit Suisse said: “Disney buying Pixar would be a smart strategic move that could have very positive intermediate-term (and long-term as well) financial returns for Disney. It would be a strong positive catalyst for Disney’s stock price.”
The odd thing is that Disney already owns much of Pixar.
Pixar began life as the computer-animation division of Lucasfilm, the company run by George Lucas, creator of Star Wars. Jobs bought it in 1986 for $10m and saw Disney, long the leader in animation and marketing, as the natural ally.
Toy Story, their first venture, was financed by Disney and overseen by Pixar’s creative guru, John Lasseter. In return for gambling on an untested talent, Disney negotiated 87% of the proceeds, including its distribution fee.
Toy Story proved such a financial and critical success that, ironically, it sounded the death knell for Disney’s traditional, hand-drawn cartoon features.
In 1997 Jobs and the then Disney boss Michael Eisner hammered out a deal for five more animated features.
The new agreement was a 50-50 split. Pixar paid half the cost of developing and producing the movies in return for half the cash from all sources, except theme parks, after Disney deducted its costs and took its 12.5% distribution fee.
Toy Story was followed by A Bug’s Life, Monsters Inc, Toy Story 2, Finding Nemo and The Incredibles. Each film was a global smash and created characters to rival Disney’s own parade.
But behind the scenes all was not well. Jobs had handed over the sequel rights to Pixar’s creations, an agreement that was eventually to undermine his relationship with Eisner.
As negotiations about a new deal continued, the two men clashed in private and later in public. In one of their final exchanges Eisner described The Incredibles as “pretty pathetic”. The film took $260m in America alone.
Jobs had a ready response for Eisner’s Incredibles jibe: “Our films don’t stack up to Atlantis, The Emperor’s New Groove or Treasure Planet,” he said, firing off a list of Disney flops.
In January 2004, the year that Finding Nemo became the best-selling DVD in history, Pixar announced that it would terminate its arrangement with Disney after delivering its fifth and final movie, Cars, in 2006.
Eisner has since resigned to be replaced by Bob Iger, a more politic operator. He seems determined to keep Pixar in the fold.
“But why?” said Edward Epstein, author of The Big Picture, a study of Hollywood’s often strange and torturous economics. “What are they buying? They already own six Pixar franchises.”
He said Pixar’s success was due to its undisputed talent but also to Disney’s unrivalled expertise in marketing to Pixar’s audience.
With its theme parks, television stations, magazines and merchandising, no other Hollywood studio could offer the same level of marketing to children, he said.
Jobs had two years to find another partner but failed to do so, said Epstein. “Pixar needs Disney more than Disney needs them,” he said.
He believes a more sensible deal would be for Pixar to get back its sequel rights and for Disney to take a stake in Pixar and any sequels.
“Failing that, why doesn’t Disney just give John Lasseter $100m to work for it? This would be cheaper than spending $7 billion,” he said.
Last year Paramount, the Viacom-owned studio, bought Dreamworks, the studio behind Shrek, for $774m and $840m in debt.
Dreamworks was founded by Steven Spielberg, David Geffen and Jeffrey Katzenberg, three of the smartest operators in Hollywood. They had hoped to build their own studio to compete with the likes of Disney, Fox and Sony. But despite hits such as Shrek, Saving Private Ryan and Gladiator, the studio struggled to make it on its own. Many recent movies, including The Island and Just Like Heaven, have been financial disappointments.
“Take a movie like The Island,” said Epstein. “People assume it was horrible because it did badly. But actually it’s not bad. However, the product alone is not enough to bring in an audience.”
This is a theme that Jobs must be all too familiar with. Despite getting outstanding reviews for its computers and countless awards for its designs, Apple still has a fraction of the computer market, which is dominated by computers running Microsoft’s Windows programs.
Having a big, powerful partner pays off. Jobs and Disney have ties outside Pixar. Fans of Disney’s ESPN sports coverage, ABC’s Lost and Desperate Housewives television series can watch the shows on Apple’s new video iPods. More content will come from Disney’s huge library of material for children.
Tom Skaggs, Disney’s chief financial officer, recently said Disney had so far sent 1.5m downloads to video iPods.
“While 1.5m downloads doesn’t suddenly move the needle in terms of the overall revenue picture for the company, it is something that wakes up the industry to a certain extent to these other platforms and the ability to repurchase programming to extend the platforms of programming,” he told an analysts’ conference.
This summer Pixar releases its last movie under the old Disney deal. Cars tells the story of Lightning McQueen, a champion racing car whose arrival shakes up a small town. Cinemagoers will have to wait until June to find out how it ends.
Disney and Pixar’s shareholders will be hoping for a resolution to the story of Mr Incredible long before that.
