Disney Tries to Keep the Animated Hits Coming

Jan. 25, 2006 — -- The old world of films, Walt Disney, has bought the new, Pixar Animations, for $7.4 billion to bolster its animation business. The union of these two huge forces represents a way for Disney to also deliver entertainment, news and sports to satisfy consumer demands.

The deal makes Pixar's CEO, Steve Jobs (who also heads Apple Computer), Disney's largest shareholder. Jobs will now be a commanding presence in the film, entertainment, technology, computer and music industry through Apple's iTunes Music Store. He has ruled out becoming Disney's chairman in the future but has not turned down a board of directors position.

The all-stock deal in which 2.3 Disney shares will be issued for each Pixar share should go through by the end of the summer.

For Disney and the relatively new CEO Robert Iger, the deal secures what has been a hugely valuable source of animated hits.

In recent years, Disney, the parent company of ABC News, has struggled to produce the types of blockbuster animated movies that the company built its reputation on. Disney hopes the deal will give it the most dominant animation-production house in the industry. In past joint productions, Disney-Pixar films have generated more than $3 billion, and include hits like the "Toy Story" series and "The Incredibles." The company hopes that purchasing Pixar will again make Disney the dominant player in the animation field.

Jobs noted that Disney's longtime devotion to animation as well as its ability to market spinoff products from animated movies played a pivotal role in the decision to make the deal.

"Disney is the only company with animation in their DNA, and the only company with this incredible set of assets like the theme parks," Jobs told analysts on a conference call announcing the deal.

Disney and Pixar have released six films together, with a seventh, "Cars," on the way this summer. But the partnership between the two companies had deteriorated in recent years when Jobs openly feuded with longtime Disney CEO Michael Eisner. Iger, who succeeded Eisner in October, made a priority of smoothing over relations with Jobs, and was in the midst of renegotiating the distribution pact, which expires in June with the release of "Cars."

In an interview with ABC News after the announcement, Jobs acknowledged Iger's role in making the agreement happen.

"What this is really about is buying into Bob Iger's vision of where Disney is going," Jobs said. "I couldn't have imagined this happening a year or two ago."

Though Jobs developed a reputation as a strong-willed leader during his time at the head of both Apple and Pixar, he said his role on Disney's board will be to support the CEO.

"My role is to help Bob in any way that he needs," Jobs said.

Iger and Jobs also discussed the role that Apple could play as a distribution arm for Disney entertainment. Disney already has an agreement that makes some of Disney's entertainment programming available for sale at Apple's iTunes music store.

"Technology is providing different ways to distribute entertainment and different ways for people to access it," Iger said. "Our deal with Apple and iTunes is a perfect example of that, and I think we'll continue to more forward."

The combined company is expected to maintain the basic working structure that Disney and Pixar relied on before, with Disney providing distribution and co-financing for Pixar's computer-animated features.

One of the questions surrounding the negotiations was what would happen to Pixar Executive Vice President John Lasseter, who has a track record of producing money-making movies. Lasseter will become the chief creative officer of the animation studios, as well as principal creative adviser at Walt Disney Imagineering.

Pixar shares have risen since late last year, as rumors of a possible merger or distribution deal with Disney attracted traders to the company's stock. Some analysts suggest that much of the "premium" Pixar shareholders could expect from a merger is already priced into the company's market capitalization.

For the Walt Disney Co., one of the major challenges facing Iger is to bolster Disney's stock price, which has stagnated in recent years. Aside from bringing together the companies' entertainment, technology and distribution capabilities, as well as adding a powerful corporate personality to the Disney environment, Iger said the main goal of the deal was to return to Disney's roots of creating popular animated characters and movies.

"This is about making great films more than anything else. This is more about a content play than anything else," he said.