With Pixar Gone, How Will Eisner Fare?

When Disney shareholders get together on March 3, Michael Eisner and his team could be in for a bumpy ride. Now that Pixar has all but said good-bye, the case that Eisner critics have been making for the last year or so has been immeasurably strengthened, at least in the short-term.

For his part, Roy E. Disney, who has been increasingly critical of Eisner’s leadership said yesterday that the breakup would be bad for Disney shareholders in the long-term. He accused Eisner of failing to nurture the relationship with Pixar. Disney and business partner Stanley Gold were forced to retire from the Disney board late last year. Since then they have started up SaveDisney.com to spearhead their effort to force Eisner to retire.

While the loss of Pixar, if indeed it’s final, probably isn’t a fatal blow to Eisner and his right-hand man Robert Eiger, it will certainly increase the number of voices calling for their ouster. Eisner has made it clear he has no intention of leaving. The news of Pixar’s leave-taking comes days after Eisner was awarded a $6.2 million bonus for the Disney Co.’s improved performance last year.

It may never have been a beautiful friendship, but the partnership between the two companies has turned out to be one of the most lucrative showbiz duos in some time. Since the release of the first Toy Story in 1994, Pixar’s films have generated $2.5 billion at the box office. Add in revenues from DVD/VHS sales, toys, books and other licensed product and that number climbs into the $4- to $5 billion range.

“After 10 months of trying to strike a deal with Disney, we’re moving on,” says Steve Jobs, Pixar’s chief executive. “We’ve had a great run together–one of the most successful in Hollywood history–and it’s a shame that Disney won’t be participating in Pixar’s future successes.” Shares of both companies fell 6% in after hours trading yesterday.

One big caveat: Some stock analysts are saying that the action by Pixar could be a negotiating tactic. A kind of "Who needs you?" "Yeah, well who needs you?” tit-for-tat between two corporate leaders with legendary egos and a rocky relationship. A careful parsing of statements by both companies doesn’t rule out a return to the bargaining table at some point in the near future.

Disney Chief Executive Michael Eisner issued a statement wishing Pixar success. “Disney management could not accept Pixar’s final offer because it would have cost Disney hundreds of millions of dollars … under the existing agreement.” And, a company statement added, Pixar’s proposed future deal would not give Disney enough return on new collaborations. According to a Reuters report, a source close to Disney’s side of the negotiations said that Pixar had wanted copyright to the valuable library of previous films by the partnership.

Disney owns the copyright on the five films Pixar has produced for them so far–both Toy Story films, A Bug’s Life, Monsters Inc., and Finding Nemo, now the biggest grossing animated film in history $800 million worldwide and counting). Disney can make sequels based on those properties and owns two upcoming Pixar films The Incredibles, set for a November release and Cars, due in 2005.

Other studios that have expressed an interest in a Pixar deal include Warner Bros., Sony Pictures, 20th Century Fox and Metro-Goldwyn Mayer. Any deal with either one of them would begin in 2006 when the current Pixar/Disney deal expires.