Pixar stock takes tumble

Company's future with Mouse House questionable

Pixar shares slumped Thursday after an analyst downgraded the stock amid growing uncertainty about the animation studio’s relationship with Disney.

Pixar and Disney — which have partnered on megaprofitable movies such as “Toy Story,” “A Bug’s Life” and “Monsters, Inc.” — first struck a three-feature deal in 1991 and extended that agreement by three pics in 1997. The deal has been a great boon to both parties, but even with three more Disney-Pixar pics assured, speculation is already rampant that the parties eventually could go separate ways.

Mouse House will release their “Finding Nemo” collaboration next year, with two subsequent pics — “The Incredibles” and “Cars” — set for 2004 and 2005, respectively. However, terms of the Disney-Pixar pact allow the latter to begin looking for a new partner as soon as it delivers “Nemo,” and that could be as soon as February.

Industry eyebrows arched recently when the Mouse inked a multipic deal with Vanguard Films, a production company set up by a producer of hit DreamWorks toon “Shrek” (Daily Variety, Sept. 5). A first Disney-Vanguard project, “Valiant,” is to be followed by three more computer-generated animated films.

Drawing odds

“Before the Vanguard deal, I would have said it was at least 50-50 that Disney and Pixar would renew their agreement,” Prudential Financial analyst Katherine Styponias told Daily Variety. “Now, it’s less certain.”

Meanwhile, Pixar chief Steve Jobs recently hinted that the Richmond, Calif.-based animation house has been fielding inquiries from other studios interested in replacing Disney as its Hollywood connection. He also insisted the Mouse relationship remains smooth.

Whether smooth or not at present, the relationship has already undergone a twist or two along the way.

When Pixar secured an extension of the initial three-pic pact in 1997, it also won an even split of profits with Disney after taking a minority portion of proceeds from “Toy Story.” Now, observers believe that Pixar lusts for a majority of the income from its features.

“Pixar probably wants better economics than they’re currently getting, and Disney probably wants sequels to get done sooner,” Styponias said, noting another long-running issue.

Mouse has been pressing for a third “Toy Story.” But sequels aren’t covered in the current five-year agreement and Pixar has tended to back-burner those projects.

Keep it together

“We believe it’s in the best interest of both companies to continue their relationship,” Styponias said. “(But) if a new deal with Disney doesn’t get done, there’s a good chance that Pixar would go with another studio for distribution.”

Walt Disney Studios chairman Dick Cook characterized Mouse’s current relationship with Pixar as “great,” and said the studio looks forward to continued successful collaboration with the animator. Pixar execs weren’t immediately available for comment.

Prudential’s Styponias lowered her rating on Pixar to “hold” from “buy” on Thursday. The analyst suggested the stock appeared fully valued at current trading levels and noted her concern over the Disney relationship.

Pixar shares were hot in August, stoked by robust financial news thanks to “Monsters, Inc.” income. But investors have since shown an inclination toward profit-taking, and Styponias stipulates a target share price of only $54 — less than $3 above a recent trading high.

Pixar shares fell $2.99, 6%, to $46.48 on Thursday. Mouse shares were off 68¢, 4%, at $15.50 after a generally downbeat sesh for media stocks.

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