Disney Plans Life After Pixar With Sequel Unit

As Robert Iger, the newly named chief executive of Walt Disney Co., seeks to repair the company’s fractured relationship with Pixar Animation Studios, he faces a big obstacle: Pixaren’t.

That’s what animators have dubbed a nondescript white warehouse in Glendale that Disney recently transformed into a factory to produce sequels to Pixar movies, including “Toy Story,” “Finding Nemo” and “Monsters, Inc.”

Under the companies’ existing partnership, which is set to expire with the release of “Cars” in 2006, Disney has a right to make sequels to all the Pixar movies. Still, Disney’s decision to exercise that right is controversial.

As the Burbank entertainment giant quietly ramps up its new Pixar-sequel division, which is already planning for “Toy Story 3,” some believe it could hinder Iger’s efforts to make peace with Pixar chief Steve Jobs.

“It does muddy the waters for creating some sort of deal,” said Tom Sito, president emeritus of Hollywood’s local animation guild and a former Disney animator. “Pixar has very jealously guarded the integrity of their creative properties and are loath to trust them to others who are more economy-minded. It’s like somebody else taking your children to school.”

Jobs abruptly ended talks to renew Pixar’s distribution deal with Disney more than a year ago, when the two sides couldn’t agree on financial terms. He has repeatedly said that despite the huge success of “Toy Story 2,” his company -- which just had its sixth consecutive hit with “The Incredibles” -- shuns sequels in favor of making original stories.

“We have made the decision to not actively participate in creating sequels to our films co-financed by Disney,” Jobs told analysts last month.

But unless Pixar re-teams with Disney and opts to make the sequels itself, Disney can move forward alone -- although it must pay Pixar royalties on any project it undertakes.

Executives from both Disney and Pixar declined to comment. But according to sources close to Jobs and Pixar creative guru John Lasseter, the two men are deeply unhappy about Disney’s new venture, which could eventually employ as many as 250 people for “Toy Story 3” alone.

In animation circles, meanwhile, the Pixar sequel unit is being seen by some as an affront to the creative process.

Chris Wedge, director of the new hit animated movie “Robots,” who has known Lasseter for more than 20 years, called Disney’s move to piggyback on Pixar’s creativity “misguided and depressing.”

One former Disney animator said that within the creative ranks there, some people felt uneasy. “Artists are upset,” the animator said, because Disney “is doing something for flat-out commerce.”

Currently, about 40 people are at work on “Toy Story 3.” Disney has a script it likes and is in talks with a director and a producer: Bradley Raymond, who directed Disney’s direct-to-video “Lion King 1 1/2,” and Roy Conli, who produced “Treasure Planet” and “The Hunchback of Notre Dame.”

One thing Disney doesn’t have -- at least not yet -- is a commitment from Tom Hanks and Tim Allen to reprise their voice-over roles as Woody and Buzz Lightyear. Disney has yet to approach the pair.

Production of “Toy Story 3,” which follows the adventures of Buzz after he is recalled to the factory in Taiwan where he was built, is expected to begin next year for release in spring 2008.

Apparently, that will be just the beginning. Another script that was in contention for “Toy Story 3” was so good, according to someone with knowledge of the operation, that Disney is considering making it “Toy Story 4.” In the last month, this person added, about 40 screenwriters have pitched Disney executives with sequel ideas for “Finding Nemo” and “Monsters, Inc.”

Although other Hollywood studios have courted Pixar to become its future distribution partner, Jobs has not entered into serious negotiations with any of them. He has indicated that he could be enticed to reopen talks with Disney once Michael Eisner, the current CEO with whom he has clashed publicly, steps down. This week, Disney announced that Eisner would turn over the reins to Iger on Sept. 30, and Iger has said he plans to reach out to Jobs.

Some speculate that the formation of the Pixar-sequel unit was designed in part to give Disney more leverage by sending a blunt message: We can do it without you.

But sources close to the studio say this is not solely a negotiating ploy. Instead, they say, Disney executives are planning for a post-Pixar future. Making sequels to such enormously popular movies simply makes good business sense.

Disney may not need extra leverage. Jobs has made no secret of his affection for Disney Studios Chairman Dick Cook and his marketing and distribution team. Jobs and Cook even sat next to each other at this year’s Academy Awards, where “The Incredibles” was named best animated film.

Industry experts say that if terms can be reached, there is no better fit for Pixar than the family-friendly Disney.

The new Pixar-sequel unit, housed next door to rival DreamWorks Animation SKG Inc. and just minutes from Disney’s main studio lot in Burbank, intends to make one sequel a year, each costing less than $100 million, sources said. It is headed by Andrew Millstein, who once ran Disney’s now-defunct Florida animation studio.

Already, Millstein has hired a creative affairs executive, Allison Lyon Segan, a producer on DreamWorks’ recent release “Shark Tale,” and has begun making offers to animators to put them on the payroll in 2006. Next month, the unit, which is being kept separate from Disney’s main feature animation division, plans to hold an open house to recruit artists.

The new Pixar-sequel operation is part of a broader strategy at Disney to make its mark in the burgeoning field of computer animation. The push comes as the company is trying to reestablish itself in a business it once dominated with such traditional animated hits as “The Lion King” and “Beauty and the Beast.” Beyond the planned Pixar sequels, Disney has several digitally rendered projects in the works, including the upcoming “Chicken Little.”

Disney animation chief David Stainton, to whom the sequels unit reports, declined to comment on its plans. He spoke instead of Disney’s core animation unit, which is bouncing back from such costly flops as “Treasure Planet” and “Home on the Range” as well as wrenching salary and staff cuts.

“The energy of the place has really improved,” Stainton said.

Cook, the studio chief, sounded the same note. “Our momentum is back,” he said. “There’s enthusiasm and commitment to regain our rightful place as the leader in animation.”

To get back on top, Disney will have to best a growing field of tough competitors. The major studios are in the midst of an animation renaissance reminiscent of a similar surge in the mid-1990s, when many jumped into the fray. Some suffered huge losses.

DreamWorks, which successfully spun off its animation unit and took it public this year, will release “Madagascar” in May and has two more “Shrek” sequels on deck. News Corp.’s Twentieth Century Fox/Blue Sky Studios scored big with “Robots,” which took in $36 million in its opening weekend. Meanwhile, the studio is readying a sequel to its 2002 hit “Ice Age.”

Sony Corp.’s Sony Pictures Animation, the newest player on the block, is working on a dozen projects and will release its first, “Open Season,” next year.

Still, if Iger and Jobs cannot come to terms, Disney’s fiercest competitor come 2007 will surely be Pixar. Some say that by trying to essentially out-Pixar Pixar with the sequels, Disney may be setting itself up to fail.

“Pixar has been so wildly successful that if for some reason ‘Toy Story 3’ is not successful, you would have a certain amount of egg on your face,” said Anthony Valencia, an analyst with TCW.

But Stainton doesn’t seem worried about any competition.

“We’re not chasing DreamWorks, we’re not chasing Sony, we’re not chasing Pixar,” he said. “We’re doing it our way, bringing that great tradition of storytelling that we developed over 70 years into the digital world.”