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Pixar Posts Profit as Disney Deal Ends

5 Feb, 2004 By: Erik Gruenwedel

Citing the home video release of Finding Nemo -- which Pixar Animation Studios' CEO Steve Jobs hailed as the “No. 1-selling animated DVD of all time” -- Pixar posted a near-500 percent increase in net income for the fourth quarter ended Jan. 3, 2004, and the best fiscal year in its history.

The financials came on the heels of Pixar's surprise announcement that it would end its 13-year partnership with The Walt Disney Co. During a conference call with investors, Jobs indicated the split would preclude future co-productions on sequels.

Pixar titles have been a good chunk of Buena Vista Home Entertainment revenue, but the potential video fallout from Pixar's announcement that it would begin looking for another studio partner in March may not be as dire for Disney as some may think, according to industry observers.

Five Pixar-created releases have contributed to the coffers of Buena Vista. 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.

The divorce does not affect the 50/50 split in costs and potential profits on remaining projects The Incredibles, set to bow 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.

Jobs appeared to dismiss the possibility of any future co-produced sequels, citing quality concerns and creative differences. “We have demonstrated that our original films like Monsters, Inc. and Nemo can be even more successful than our sequels like Toy Story 2,” Jobs said.

Disney, however, can do sequels on its own.

“We feel sick about Disney doing sequels, because if you look at the quality of their sequels like The Lion King 1-1/2, Peter Pan and stuff, it's pretty embarrassing,” Jobs said, adding that not having the Pixar production team and name behind future sequels will hurt.

Analysts nevertheless think sequels are likely. “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 Disney will move quickly to establish an in-house computer-generated 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.

The Emeryville, Calif.-based Pixar posted net income of $83.9 million on revenue of $164.8 million in the fourth quarter, compared to $17 million on revenue of $39.4 million during the same period last year. Of the quarterly revenue, $147.8 million came from Nemo home video and foreign box office revenue, according to company executives. For the fiscal year, Nemo tallied 24.8 million in unit sales, including 19.2 DVD and 5.6 million VHS, the company reported.

For the full year, Pixar posted net income of $124.8 million on revenue of $262.5 million, compared to $90 million on revenue of $201.7 million the year before.

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