It seemed like a good idea at the time. Joe Roth, who was then the new Disney studio chairman, took his brainstorm to his boss, Walt Disney Corp. chairman Michael Eisner. Pixar’s first animated feature for Disney, Toy Story, had outgrossed every Disney-made movie but Aladdin and the mighty Lion King, and director John Lasseter had been hailed as the genius behind a new era in 3-D computer-generated animation. It was early 1997, and the stink of ex–CAA chief Mike Ovitz’s exit from the studio was still on the Burbank lot. Eisner needed a No. 2, and Disney’s own animation division was stuck in a post–Jeffrey Katzenberg rut. Roth said he had the perfect fix: Buy Pixar, put Lasseter in charge of revitalizing the Disney brand, and bring in Pixar chief Steve Jobs, the innovative marketing whiz who co-founded Apple Computer, as Ovitz’s replacement.
Eisner threw Roth out of his office.
Funny how things turn out. Over the past six years, Eisner has struggled, under steady fire from Wall Street and his board, to keep the massive Disney train on track. While Disney live-action has flourished since Roth ducked out three years ago to start Revolution Studios and join Pixar’s six-man board, Disney animation has not. Eisner’s handpicked deputy, the hapless Robert Iger, is marked for sacrifice if he fails to turn ABC around. And Pixar has become the dominant force in animation today. While Disney’s Pirates of the Caribbean and Freaky Friday are welcome summer hits, it is Pixar’s No. 1 triumph, the $335 million blockbuster Finding Nemo, that delivered Disney the season’s box-office crown.
Finding Nemo’s success is a mixed blessing for Disney. Eisner would prefer the studio’s biggest hits to be home-grown, not imported from Pixar’s $88 million Bay Area headquarters. At last year’s Academy Awards, he was rooting for the animation Oscar to go to Disney’s own Lilo + Stitch, not Lasseter’s sound mix of Hayao Miyazaki’s Spirited Away (which won anyway). Over the past two years, as Eisner and Jobs have danced around the terms of a new Pixar-Disney deal, their relationship has not improved. They’re the same personality type: stubborn, proud, competitive egomaniac. Crowing publicly about Pixar’s success, Jobs has openly been shopping for a new deal at rival studios. But Eisner gives as good as he gets, praising Lasseter to the skies while saying he hopes to inject some “Disney blood” into Jobs. The more the industry drumbeat sounds off about how much Disney needs Pixar, the more Eisner seems to dig in his heels. He might have been able to buy Pixar six years ago, but he certainly can’t do it today.
A genial leader beloved by his troops, John Lasseteris a true Hollywood visionary—a creator with brilliant story sense, irresistible comic timing, and sound commercial instincts—not unlike Walt Disney, or Steven Spielberg. His Pixar record is an unbelievable five for five. Finding Nemo has broken The Lion King’s record as the highest-grossing animated movie of all time, having crossed over from kids and families to single adults. Boomers loved it.
In a very short time, Pixar has emerged as the new Disney—it’s an identifiable brand—which makes Disney the right partner and yet enrages Eisner, who is well aware that his own animation division needs serious retooling under studio chairman Dick Cook and animation czar David Stainton. (The upcoming 2-D Brother Bear looks woeful.)
“Pixar has carved out an identity, which is no small achievement,” says DreamWorks marketing chief Terry Press. “Each movie functions as its own original sequel: ‘From the makers of Monsters, Inc.’ They get the best of both worlds. It doesn’t get any better.” Yet unlike Disney, Pixar has no interest in building its own distribution infrastructure. Jobs and Lasseter are free to do what they do best: focus on creating one great original movie every two years with the most advanced software available. They don’t have to mess around with slates of pictures and marketing strategies. “Pixar has the best combination of creative and technological expertise,” says Cook, whose strong relationship with Jobs and Lasseter is Disney’s best hope for landing the Pixar deal. “They’re the gold standard—right brain and left brain.”
Eisner and Jobs dislike each other so much that despite the obvious pluses in the Disney alliance, Jobs is threatening to walk away and start afresh after he delivers the last two movies on his 1997 Disney deal, The Incredibles (’04) and Cars (’05). The top studio contenders are Warner Bros., which is polishing its Looney Toons brand, and Twentieth Century Fox, which owns Ice Age creator Blue Sky. But while Warners has powerful global distribution, it would be wrong to underestimate the value of Disney’s worldwide marketing reach across movies, television, cable, home video, DVDs, licensing, and merchandising in the service of an instantly identifiable, G-rated brand.
Cook could make the deal with Pixar tomorrow; his problem is persuading his boss to make it. “There’s no acrimony,” Cook insists. “There’s bound to be this kind of tension. We’re talking about the future and a lot of movies.”
Disney’s 1997 contract with Pixar covers five movies. But Eisner has played hardball, demanding five originals plus Toy Story 3, under the same contract. This infuriates Jobs, who now wants a George Lucas–style deal, returning all creative and financial control to Pixar, which would simply pay Disney to distribute its movies around the world.
Eisner has two choices. He can continue to insist that all sequels fall under the terms of the old deal and let Jobs walk. Disney would then release the last two Pixar movies and retain the right to make all the sequels (as made-for-video movies, though Tom Hanks and Tim Allen are unlikely to return to a non-Pixar Toy Story 3). And Pixar would take up with another studio. Eisner would come out ahead in the short term but would lose something vital that Disney has in short supply: original characters to feed its hungry divisions. In recent years, outside of Lilo + Stitch, Disney hasn’t created any characters of its own that have made an impact in the company’s other businesses.
Or Eisner can take the last two movies and the sequels and fold them into a new deal. Insiders say Eisner worries that if he gives Jobs what he wants, he’ll be sacrificing the bottom line for Disney shareholders. But is Eisner willing to lose a raft of new Pixar characters to a rival studio? Is Jobs willing to leave behind Pixar’s sequels—and maybe $1 billion in revenues?
“There’s real need on both sides,” says ex–Fox chairman Bill Mechanic, who once ran Disney Home Video. “Arrogance generally gets put aside when it comes to pure business. Michael’s not a guy to jump out at deals. But he makes every deal he wants to make.”
And what if Eisner had seen the wisdom of Roth’s initial proposal? As wily a survivor as Eisner is, the future of the entertainment industry belongs to the visionaries who can divine the behavior of consumers armed with the latest technology. This year, Jobs and Apple came up with downloading music from iTunes for 99 cents a pop. That innovation alone is going to have more impact on the future of entertainment than anything Eisner ever dreamed up. Disney was the last studio to embrace DVDs, much less video-on-demand. Eisner’s feet are planted in the past. Jobs is looking at the future.