Pixar Angling to Take Bite Out of Disney’s Share in Deal, Sources Say

On her new CNBC talk show, Tina Brown grilled Walt Disney Co. honcho Michael Eisner two weeks ago about prospects for a continuing partnership with Steve Jobs and his Pixar Animation Studios.

Staring into the camera, Eisner said: “If he’s listening, Steve, let’s make a deal.”

The Disney chief will soon get his shot to do that -- but it probably won’t be fun.

Riding high on the firms’ latest success, “Finding Nemo,” Jobs is preparing to present Eisner with an unusually tough proposal within the next few weeks, according to sources familiar with the matter.

Its terms would sharply reduce Disney’s take from future Pixar films, and even require that pictures still owed Disney under an existing contract be folded into the new, more Pixar-friendly deal, the sources said.

When that proposal shows up, the Disney chairman, one of the show business world’s wilier negotiators, will face an uneasy choice: give in to Jobs or watch a supplier that has provided Disney with a string of five hits walk into the arms of waiting competitors.

Either way, the Burbank firm is headed for some pain.

The sources said the contract Pixar wants closely mirrors a deal director George Lucas -- from whom Jobs bought Pixar 17 years ago -- has with 20th Century Fox on his “Star Wars” franchise. In that arrangement, Lucas retains the rights and profit from his “Star Wars” films, including lucrative licensing and merchandising sales, and pays Fox a flat fee to distribute them.

If Pixar makes a similar agreement with Disney, the studio probably will get “between $50 to $100 million a movie from fees” versus several times that under the current deal, said Jeffrey Logsdon, a media analyst with Gerard Klauer Mattison.

A Pixar executive said Jobs was unavailable to comment for this story.

Disney Studios Chairman Dick Cook said he was unaware that Pixar planned to present its proposal in the coming weeks, though he said he fully expected to open negotiations before the end of the summer.

“We never put a deadline or a crunch on it,” Cook said. “But, we’re certainly looking forward to talking to them about it.”

According to people familiar with Pixar’s thinking, the Emeryville, Calif.-based company’s nearly completed proposal reflects Jobs’ long-felt desire to gain significant advantage in his next Hollywood arrangement.

Under the companies’ existing deal -- which yielded two “Toy Story” pictures, “Monsters, Inc.” and “A Bug’s Life,” in addition to “Nemo” -- Disney and Pixar split production and marketing costs and share profit. Disney takes home more than a 50% share because it also receives from Pixar a 12.5% distribution fee for releasing the movies in theaters and on video and DVD.

The proposal would allow Pixar to retain ownership of its films, while paying Disney a distribution fee of less than 10%.

Jobs also is seeking to have the new contract apply to a pair of forthcoming Pixar movies, “The Incredibles” and “Cars,” that still are owed Disney under the current deal, sources said.

One source said the proposed pact consists of “many moving parts,” presumably including a provision on controlling sequel rights.

Currently, Disney holds sequel rights to the Pixar hits. A major source of tension between Eisner and Jobs over the years has been the making of “Toy Story 3”: Jobs has long sought to change a clause in the Pixar-Disney contract stipulating that sequels don’t count toward the movies Pixar owes Disney.

It’s no secret that Pixar has a number of suitors waiting in the wings, including News Corp.’s Fox, AOL Time Warner Inc.’s Warner Bros. and Sony Corp.’s Sony Pictures.

Yet Pixar and Disney have powerful incentives -- including a mutual interest in making sequels to their hits -- to extend what has clearly been a complementary relationship.

Over the last decade, Pixar’s computer animations have yielded more than $1 billion in profit for the two companies. From 1998 to 2001, Pixar films accounted for an estimated 45% of Disney Studios’ operating income.

“Wall Street would love it if Disney could keep this deal,” said Logsdon, and Pixar “would rather do a deal with Disney than anyone else.”

Jobs is coming to the table with extraordinary leverage: With five consecutive hits, Pixar appears to be the only entertainment company in its league that can claim a perfect track record.

“Finding Nemo,” which has grossed $230 million since its May 30 release, is expected to top $300 million in U.S. ticket sales and may well become the year’s highest-grossing film. It is expected to easily supplant DreamWorks SKG’s “Shrek,” which had $267.6 million in U.S. ticket sales, as the most successful computer-animated movie of all time

At its current pace, “Nemo” may even surpass the $313-million box-office take from Disney’s 1994 blockbuster, “The Lion King,” to become the most successful animated movie of all time.

In his June 12 interview on Brown’s talk show, “Topic A,” however, Eisner pointed out that Disney has leverage of its own, including “ownership,” in his word, of every Pixar film, from “Toy Story” through “Cars,” which is expected to debut in November 2005.

With that, he offered Jobs a pitch of his own.

“We’re Martin and Lewis. We’re Abbott and Costello,” said Eisner. “We are a good team. We’re a better team together than separate. I know it. I hope he knows it.”