Disney to Buy Pixar Studios In Its Move to A Digital Era
Computer-Animation Firm Sells for $7.4 Billion in Stock

HOLLYWOOD (By Steven Levingston and Mike Musgrove, Washington Post) January 25, 2006 — Walt Disney Co. announced yesterday that it will acquire Steve Jobs's Pixar Animation Studios in a deal aimed at restoring the Disney magic in the age of computer-generated animation.

As audiences have cooled to hand-drawn films, Disney has been slow to embrace the newer technologies behind such Pixar-produced hits as "Toy Story" and "Finding Nemo." The media giant hopes buying one of Hollywood's hottest studios for $7.4 billion in stock will help it in the intensifying competition for the hearts of young moviegoers.

"The goal here, above all else, is to make great animated films -- the rest kind of takes care of itself," Disney's new chief executive, Robert A. Iger, said in a conference call with investors yesterday.

The deal opens the possibility of a wider partnership between Disney and Jobs, Pixar's chief executive and the head of Apple Computer Inc. Jobs, who would become a Disney director after the merger, has helped foster the cultural phenomenon of portable digital music and video with Apple's iPod. Iger and Jobs spoke enthusiastically yesterday about finding other avenues of cooperation as the new media era evolves.

Under Iger, Disney has been pushing hard to shake off an apparent weakness lingering from its days under former chief executive Michael D. Eisner, when the company had to fight off an unsolicited takeover bid by cable giant Comcast Corp. ABC, which is owned by Disney, has climbed in the ratings with hit shows such as "Desperate Housewives" and "Lost." Disney's ESPN network is a hot property on cable. But Disney's stock price has languished in recent years as the company has struggled to reassert its preeminence in animation.

The need to bolster Disney's animation division grew urgent as other studios moved aggressively into computer-generated production. The number of these types of films is growing yearly. Sony Pictures plans to release its first computer-animated movie this year, with another to follow in 2007. With Pixar's releases, Disney will likely catapult into the forefront of the field. It has its own computer-generated movies in the pipeline, including "Meet the Robinsons," scheduled for release this year, and "An American Dog" next year. But Disney's earlier computer-animated feature, "Chicken Little," did not garner the mega-sales typical of a Pixar release.

"Disney built the company on animation, and its hand went cold just as Pixar's went hot. This is big, big stuff for Disney," said Tom Adams, president of Adams Media Research, an entertainment-industry research and consulting firm.

As a result of the deal, Jobs would become one of Disney's largest shareholders. Pixar President Edwin E. Catmull would serve as president of the new Pixar and Disney animation studios. Pixar's executive vice president and powerful creative force John A. Lasseter, who once worked in animation at Disney, would become chief creative officer of the animation studios.

The deal came together only after Eisner left Disney, allowing Iger to smooth over the company's soured relations with Jobs. Eisner and Jobs had a contentious relationship, and analysts expected Pixar would look for a new distributor for its films after its arrangement with Disney expires this year.

"After a lot of soul searching and thinking and, of course, getting to know Bob, this looked to be the most exciting path for Pixar's future," Jobs said during the investor conference call with Iger.

By gobbling up a creative, intensely independent boutique studio, Disney has the challenge of encouraging new, high-quality work without stifling talent under its bureaucratic wing. It also hopes Jobs and his team will infuse other animation efforts at the company with their cutting-edge vision.

Anant Sundaram, professor at the Tuck School of Business at Dartmouth College, is skeptical that Pixar will have much influence over its huge parent. "One is hard-pressed to find where a much smaller entity comes in and changes a larger entity," he said. "What happens is the smaller entity and its modes of operating often get squelched."

Jobs discounted those concerns, saying he has grown to trust Iger. Much of the discussion leading up to the deal, Jobs said, "hasn't been about economics, it's been about preserving the Pixar culture because, as you know, that's what's going to determine the success in the long run."

Disney is buying Pixar after the small studio's remarkable run of blockbusters has translated into a lofty stock price. Under the deal, 2.3 Disney shares will be issued for each Pixar share, and Disney will pay about $59.78 a share for Pixar. That's about a 4 percent premium over Pixar's closing price yesterday of $57.57. The deal is slated to be completed by the summer.

The purchase price assumes that Pixar's successes will continue -- and will bring in a steady stream of revenue.

"Obviously, in the movie business, there's always a lot of risk," said Joseph Bonner, a media analyst at Argus Research Corp. "Pixar has an unbroken string of hits. The perceived wisdom is you do produce a flop sometime."

Iger said he recognized the risks implicit in investing in a film company. "Anytime you're putting money behind the creative process, there are risks associated with it," he said. But, he added, "Pixar has a track record that is unrivaled."

Although the deal would not officially affect Apple, speculating on possible byproducts of the agreement has become a popular pastime among Mac watchers. Some figure that becoming part of Disney will help Jobs score more content, including possibly feature-length films, for Apple's online music-and-video store, iTunes.

Others argue that Jobs's alliance with Disney would sacrifice Apple's image as a neutral dealer among TV producers looking to put their shows online. And some Mac fans worry that the company is paying less attention to its computer products as it ventures further into music and entertainment.

For Disney and fans of animation, the deal could wind up bringing more people into the theaters. Pixar's influence could help improve the story lines and characters in Disney's future films, said John Canemaker, a professor at New York University's Tisch School of the Arts, where he is director of the animation program.

"The main problem with Disney recently was not technology but that its stories and characters just haven't caught on with the public as they did in the past," he said. "Pixar has had a winner every time and has become what Disney used to be in terms of well-crafted stories, vibrant personalities, warmth and heart."