A Clash of CEO Egos Gets Blame in Disney-Pixar Split

Times Staff Writers

Several months before last summer's release of "Finding Nemo," the chairman of Walt Disney Co., Michael Eisner, told his board not to expect a blockbuster and suggested that such a fate might not be all that bad.

Eisner said that although Pixar Animation Studios was excited about its film, he was not impressed by early cuts he'd seen, according to people familiar with the matter. Should the movie falter, Eisner said, Disney could gain negotiating leverage in contentious talks to extend its partnership with the highflying animation company.

Pixar, Eisner concluded, may be headed for "a reality check."

The computer-animated film would, in fact, prove to be a reality check -- for Eisner. The critically acclaimed "Finding Nemo" would soon make more money than any animated film in history. Advantage: Pixar.

Last week, Pixar Chief Executive Steve Jobs stunned Disney and Wall Street by abruptly ending negotiations with the Burbank entertainment giant to extend one of Hollywood's richest relationships, one that has produced five straight hits.

Disney executives and many independent financial analysts said Pixar simply was demanding too much, including sole ownership of the films the two had made under the existing pact, such as the "Toy Story" series and "Monsters, Inc."

But sources close to Eisner and Apple Computer Inc. founder Jobs said the stunning split was less about the math of the deal than the equation of the personalties. Associates say the two corporate titans, both famously strong-willed, let their personal differences cloud their objectivity in a partnership in which the spoils were evenly split.

Jobs, feeling perpetually slighted, crafted an offer that was so one-sided that some thought it appeared designed to infuriate Eisner.

"Pixar put a deal on the table that was almost insulting to Disney," said Jordan Rohan, media analyst for Schwab Soundview Capital Markets. "It seemed like Steve Jobs wanted to part ways with Disney."

As for Eisner, a person close to the chairman said he was pleased with the final version of "Nemo." His disparaging views of early cuts of the movie suggested to some in his own company that he did not value the enormous contributions of his longtime partner.

"The relationship went sour when Michael didn't treat Jobs and the Pixar machine as a giant creative engine, he treated them as second-class citizens," said former Disney board member Stanley Gold, who resigned last year with fellow director Roy E. Disney in a dispute with Eisner.

For the record, Disney officials contend that personal feelings played no role in the divorce between the two companies.

"No Disney executive allows personality to get in the way of doing what's right for shareholders," Disney spokeswoman Zenia Mucha said. "The breakup came down to differences in financial terms of the partnership and nothing else."

Officials at Pixar declined to comment.

Whatever the reason behind the breakup, Disney's brass seems to be shedding few tears -- at least in front of its employees, many of whom treasured the relationship with Pixar.

In an e-mail, Disney's new animation chief, David Stainton, picked by Eisner last year, had this to say to his troops:

"Given Pixar's demands, this is good news for the company. It is also a great vote of confidence for feature animation -- confidence in our talent, our slate, and our future. You all are awesome and ready for your close-up!"

Many inside and outside the two companies believe the partnership could have been salvaged had the two moguls checked their egos at the door.

Both men are used to getting their way, though their styles may differ. They also share another trait: Both are survivors.

Eisner has been at the helm of Disney for 20 years. He has weathered a number of storms, including poor performance of its stock, deteriorating ratings of its ABC television network, weak sales at its retail stores, and the defection of high-level executives who have found success elsewhere.

The Disney chairman is widely known as someone who will not give an inch in his business dealings, whether it's litigating over merchandising royalties for Winnie the Pooh or forcing cable operators to pay escalating fees to air Disney's ESPN network.

The equally tough-minded Jobs has survived his own share of setbacks. In 1985, the legendary Silicon Valley entrepreneur left Apple Computer, the company he co-founded in his father's garage, amid a power struggle over its direction. Like Eisner, he is guarded and intensely protective of his company's brand name.

Jobs recently demonstrated his maverick vision and shrewd negotiating skills in persuading executives at Universal Music Group and other labels to sell songs online with few restrictions through Apple's iTunes Music Store. Associates say he wins some battles sheerly on the force of personality.

"He is the best salesman in the technology industry, bar none," one Silicon Valley analyst said of Jobs.

The pairing of two men with such combustible personalities may have been destined for a blowup.

The companies first joined in 1991. Back then, Pixar was not an equal partner. The upstart animation company was paid a fee to create digitally animated movies that Disney would market and release.

But after the surprise success of "Toy Story" in 1995, Jobs insisted on changing the financial balance of the relationship. He demanded that Pixar be paid half the profits on the films it wholly created for Disney. When Eisner balked, Jobs nearly walked.

Still, according to sources who know both men, Eisner continued to treat Jobs -- known to have a disdain for authority -- in a paternalistic fashion. "Steve viewed it as a partnership and he thought Eisner treated him like a hired hand," one source said.

Many say the turning point in the unraveling of their relationship came when Jobs and Eisner collided over the fate of "Toy Story 3" and how sequels figured into their new five-picture deal.

Under the terms of the agreement, sequels would not be counted as part of the five. At the time, Disney was trying to save money and time by making direct-to-video animated sequels. That's how "Toy Story 2" was initially envisioned. But as production proceeded, Jobs could see the financial and creative potential of turning it into a major movie that would be released in theaters.

Although Eisner resisted, Jobs would not give up, according to sources familiar with the dispute. In the end, Jobs' persistence paid off for Pixar and Disney. "Toy Story 2" made more money than the original, raking in a stunning $245 million domestically in 1999.

But because the movie was a sequel, it was not counted under the multipicture deal -- a fact that Jobs accepted without making a ruckus. He was not so amenable when it came to plans to make "Toy Story 3."

This time, Jobs was adamant that the sequel be counted as one of the films Pixar owed under the Disney contract. Jobs' view was that "Toy Story 2" was a giant "freebie" for Disney and that Pixar should not be forced to provide another one.

Despite a collaboration that unexpectedly enriched Disney, Eisner insisted on sticking to the letter of the contract. He refused to compromise and publicly bragged about the leverage he had over Pixar.

Jobs was livid, according to a source close to the executive.

That anger deepened when Eisner testified before Congress on digital piracy in February 2002. The Disney chief criticized technology companies for resisting standards that could help thwart digital piracy. He singled out Apple's slogan -- "Rip, Mix, Burn."

"That cut deep," a source close to Jobs said. "He just thought it was offensive."

Eisner later extended an olive branch, telling analysts in an earnings conference call that he loved his Apple iPod. But the damage was done.

At one point, Jobs sought the counsel of Roy Disney, who was then on the board, expressing his frustration at what he perceived as Eisner's high-handed attitude.

Disney, the nephew of company namesake Walt Disney and chairman of animation at the company, believed close relations with Pixar were essential. When he planned to fly to Pixar's headquarters in Emeryville, Calif., to screen his pet project "Destino," an animated short originated by Salvador Dali and Walt Disney, Eisner intervened.

"I was expressly forbidden by e-mail to go," Disney said. He said Eisner didn't want his executives mingling with those at Pixar during sensitive contract negotiations.

It was only three years ago that Disney and Eisner were both at Pixar, celebrating a symbol of the company's success: the unveiling of its state-of-the-art animation campus.

They were among other luminaries invited to autograph a wall in a cozy, hidden room that was made from a crawlspace. It was dubbed the "Love Lounge."

The question now being asked in Hollywood: Where did the love go?

Times staff writer Jon Healey contributed to this report.

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