Pixar Profits Up, Jobs Down on Eisner

During a conference call Wednesday evening, Pixar CEO Steve Jobs reported that Pixar has had its most profitable quarter and full year in the company’s history. He also took the opportunity to address questions about Pixar’s decision to end talks with Disney and expressed his disappointment with its outgoing partner.

For the fourth quarter of 2003, Pixar earned $83.9 million, a $66.9 million increase over the same quarter of 2002. The tremendous worldwide box office and home video success of Finding Nemo also gave the studio a boost for the fiscal year with earnings of $124.8 million compared to $90 million for 2002. The rise in stock prices will no doubt serve as a bargaining chip as Pixar seeks out a new distribution deal among leading Hollywood studios.

Addressing reasons for the Disney split, Jobs quoted an L.A. Times article form earlier this week, which states, "Several weeks before the release of last summer’s Finding Nemo, Walt Disney Co. Chairman Michael Eisner told his board not to expect a blockbuster and suggested that such a fate might not be all that bad. Although Pixar Animation Studios was high on its film, Eisner said he was not impressed with early cuts he had seen, according to people familiar with the matter. "Should the movie falter," Eisner said, "Disney could gain negotiating leverage to extend its partnership with the high-flying animation company." "Pixar," Eisner concluded, "may be headed for a reality check."

"We’ve been told the same story by several folks at Disney," Jobs continued. "As you know, things turned out a little different and Finding Nemo would soon make more at the box office than any animated film in history. We finally began negotiations with Disney on a third deal almost a year ago. We had done our homework. We talked with some of the other major studios and we had a pretty clear idea of the deal we could get from them. We offered a deal to Disney that was less favorable to us than we could get from several other studios, for example, with much higher distribution fees, a much longer term commitment and free use of our characters in their theme parks. But we held firm that the last two pictures in our current deal, The Incredibles and Cars, be folded into this new deal with its more favorable terms, just as we have done before and just as almost any other studio in town would agree to if they were in Disney’s shoes. In the end, Disney chose not to agree to this. So, after 10 frustrating months, we ended our talks with Disney. It is not without some regret. We will truly miss working with Dick Cook and his terrific distribution and marketing teams, and you would be hard-pressed to find anyone who loves the original spirit of Disney more than John Lasseter, Ed Catmul or myself. But almost after a year, it’s time to move on. Since announcing this, we have been fortunate to receive calls from the heads of every major studio in Hollywood. It is clear that we are wanted by others and we will begin discussions with these studios in March, with a goal of striking a new deal with one of them by this fall. We think there are at least four other studios that will do a great job marketing and distributing our films."

Disney retains rights to produce sequels to the first seven features produced under its partnership with Pixar, should Pixar decide not to make them themselves. During the call, Jobs commented, "It is likely that we won’t want to make sequels to any of them ourselves, but we haven’t decided that yet. Our filmmakers are more interested in telling new, original stories and we have demonstrated that our original films like Monsters, Inc. and Finding Nemo can be even more successful than our sequels, like Toy Story 2." He went on to say, "And Though Disney has publicly said that they own our films, this is not true. Although Disney does own the original Toy Story because it is covered under our first deal with them, Pixar will continue to own 50% of A Bug’s Life, Toy Story 2, Monsters, Inc., Finding Nemo, The Incredibles and Cars, and will continue to earn its current share of the profits from these films and their videos, merchandise, etc. in perpetuity."

While Pixar isn’t very interested in adding roman numerals to its movies, Jobs remarked, "We feel sick about Disney doing sequels because if you look at the quality of their sequels like The Lion King 1-1/2 and their Peter Pan sequels and stuff, it’s pretty embarrassing."

Jobs also asserted that Pixar will not lose anything in the way of a creative alliance when it moves on from Disney. "The truth is that there has been little creative collaboration with Disney for years," he said. "Pixar creates the original stories, then creates and produces the films with very little creative input from Disney. You can compare the creative quality of Pixar’s last three films, for example, with the creative quality of Disney’s last three animated films and gauge each company’s creative abilities for yourself. The collaboration we do have with Disney is centered around the marketing of the films, not the making of them. Marketing is important … but no amount of marketing will turn a dud into a hit. Not even Disney’s marketing and brand could turn Disney’s last two animated films, Treasure Planet and Brother Bear, into successes. Both bombed at the box office."

Neither will Pixar suffer from a loss of the Disney brand, according to Jobs. "Beginning with Monsters, Inc. the results of Disney’s own exit poll research showed that the Pixar brand had become more important than the Disney Brand to draw moviegoers to see our films, both for parents with children and adults without children," he remarked. "We think the Pixar brand is now the most powerful and trusted brand in animation, and it gets even stronger with every successful film we release."

Under the current contract, Disney and Pixar split the cost of film production. However, beyond the holiday 2005 release, Cars, Pixar plans to completely finance its own films. "Fortunately, we can easily do this," said Jobs. "Pixar had over $520 million in cash in the bank at the end of 2003 and we expect to have over $650 million of cash in the bank by this summer. If our next two films do as well at the box office as we hope, we project that Pixar will have between $800 million and $1 billion of cash in the bank in 2006." He noted that the studio’s 2006 film in production and hopes to greenlight its 2007 film before the end of this year. The Incredibles is slated for release Nov. 5, 2004.