Disney, Pixar Aim for New Pact

Longtime partners Walt Disney Co. and Pixar Animation Studios could stay wedded to each other after all.

After the May 30 release of their latest joint venture, “Finding Nemo,” the parties have agreed to devote the month of June to trying to renew their vows, said sources familiar with the situation.

Disney Chief Executive Michael Eisner and Pixar chief Steve Jobs -- who have had chilly corporate relations for some time -- recently dined together in the San Francisco Bay Area, where Pixar is based, and discussed hammering out a deal that would change the terms of the current partnership and extend it beyond its November 2005 expiration date.

“Right now, everyone is focused on the release of ‘Finding Nemo,’ ” said Disney Studios Chairman Dick Cook. Although there is no deadline for reaching a deal, he said, “we continue to be hopeful that Pixar and Disney will be together for many years to come.”

Jobs was unavailable for comment. But the two CEOs appear to be more optimistic than in the past about the likelihood of striking a new arrangement, the sources suggest.

Disney is said to be putting together a proposal that it hopes would appease Jobs, who has made no secret of the fact that he is seeking to dramatically alter the terms of the current arrangement. Under their existing pact, Disney and Pixar split all production and marketing costs and share the profits.

But Disney, which markets and releases the movies in theaters and on DVD that Pixar produces, winds up with more than 50% of the pie because it also collects a 12% distribution fee from Pixar.

Jobs enters negotiations with enormous leverage given Pixar’s perfect track record with the hits “Monsters, Inc.,” “A Bug’s Life” and two “Toy Story” films, which combined have generated more than $1 billion in profits.

Now, Jobs wants Pixar to retain all the profits -- including lucrative licensing and merchandising sales -- and pay Disney a distribution fee.

The arrangement mirrors the one that Jobs’ longtime friend George Lucas has with 20th Century Fox, which distributes his moneymaking “Star Wars” franchise for a fee.

The relationship between Disney and Pixar is coming to a head now because of a detail in the current contract that opens the door for a rival studio to take Disney’s place.

That clause provides that once Pixar delivers the final print of its upcoming underwater adventure, “Finding Nemo,” Jobs is allowed to strike a partnership elsewhere, even though Pixar is obligated to do two more movies for Disney.

Sources said Jobs, who also is the co-founder and chief executive of Apple Computer Inc., would seek to have the Pixar-favored terms -- which he hopes to usher in with a new contract -- apply to the movies “The Incredibles,” expected in theaters November 2004, and “Cars,” due out the following year.

In recent months, Jobs has met with top executives from Fox and other studios including Warner Bros. and Sony Pictures to pave the way for a potential partnership in case he can’t get what he wants from Disney. He gave visitors a personal tour of Pixar’s state-of-the-art computer animation headquarters in Emeryville, Calif.

So far, no substantive business conversations have come of the sessions because Jobs has maintained that, if possible, he would prefer to work out a new deal with Disney because of its strong family brand name and marketing, distribution and licensing clout.

Another factor in the coming negotiations is that Disney holds sequel rights to the Pixar hits. One of the underlying sources of tension between Pixar and Disney has been an impasse over the making of “Toy Story 3.”

Eisner has long stood behind a clause in the Pixar-Disney contract stipulating that sequels don’t count toward movies Pixar owes Disney, while Jobs has argued against that.

Today, when Pixar announces its first-quarter earnings, analysts are sure to query Jobs about the status of contract talks with Disney.

Last Thursday, in the Disney earnings conference call, Eisner faced similar questions.

“I think it is going along well,” he told analysts, “but until it is done I can’t say it is for sure. But our relationship couldn’t be better, and we have a mutual interest to come together -- not only Disney, but Pixar.

“So, I’m moderately optimistic -- I’m actually more optimistic than that, but I won’t officially say I’m more than moderately optimistic,” Eisner said. “And I think over the next six months that will become clearer.”