Analysts: Pixar Loss a Blow, But Not Dire for Buena Vista30 Jan, 2004 By: Erik G., Melinda S.
Pixar titles have been a good chunk of home video revenue for The Walt Disney Co., but the potential home entertainment fallout from Pixar's announcement that it would look for another partner may not be as dire as some may think, according to industry observers.
During the 13-year agreement, five Pixar-created releases have contributed to the coffers of Disney's Buena Vista Home Entertainment. Toy Story, Toy Story 2, A Bug's Life, Monsters, Inc. and Finding Nemo have collectively sold more than 100 million DVD/VHS units. Sales and rental revenue from these five hits have generated an estimated $2.23 billion in revenue, according to Video Store Magazine Market Research.
In 2003, sales and rental revenue from BVHE product including Pixar registered $4.39 billion -- giving BVHE 19.6 percent of the $22.4 billion home entertainment market, according to VSM Market Research.
In 2003 Pixar product accounted for roughly 11 percent of BVHE's total sales and rental revenue. The total effect on BVHE if Pixar product were removed from the mix would have decreased BVHE's market share by approximately 2 percentage points, according to VSM Market Research estimates.
Termination of a future agreement between Disney and Pixar does not effect the 50/50 split in costs and potential profits on remaining projects The Incredibles, set to release this year, and Cars, in 2005.
Disney owns all rights to the titles in the agreement, including sequels and derivative works, but Pixar could retain its 50 percent stake on those titles. However, analysts believe Pixar would rather opt for an estimated 8 percent of the gross revenue from theatrical, home video, merchandise and TV of the titles.
“We believe Disney will aggressively seek to exploit Disney/Pixar franchise movies early and often, particularly in direct-to-home videos, TV and theme parks,” said Merrill Lynch analyst Jessica Reif Cohen in a report.
Tom Adams, president of Adams Media Research, doubts the split caught Disney by surprise and assumes it will move quickly to establish an in-house computer generated (CG) animation unit.
“They'll step up their efforts to fill that once a year spot on the slate [in 2006], and likely for a cheaper rate than what Pixar may have been demanding,” Adams said.In the interim, however, not much should change.
“It is business as usual for Pixar and Disney over the next few years,” Cohen said. “Disney has been extremely successful in direct-to-home video releases, and we would anticipate aggressive efforts on this front going forward.”