Pixar Takes a Pass

In a surprising move, Pixar (Nasdaq: PIXR  ) has given Disney (NYSE: DIS  ) the kiss-off. That's right, the two heavyweights, which had been best buds in the animated world since 1995's Toy Story, will go their separate ways come 2006.

According to Steve Jobs, CEO of Pixar and Apple Computer (Nasdaq: AAPL  ) , the companies had been negotiating an extension to the existing deal since last spring. It was clear that Pixar had outgrown a partnership that had the maturing Pixar doling out half of its movie profits to Disney.

Disney apparently thought it had a stronger hand. CEO Michael Eisner's move to shutter Disney's Florida animation studio seemed to hint that a deal was in the bag. While Disney can point to Pixar's extravagant demands and its pipeline of animated projects, cutting ties with the creator of the past decade's highest-grossing animated features can't be easy.

Since Disney's 1999 release of Tarzan, only Lilo & Stitch has broken the $100 million mark at the domestic box office, while Pixar's five titles have averaged $239 million in stateside receipts.

One has to think that even a deal giving Disney little more than a token distribution fee -- the kind of arrangement that Pixar is likely to secure from someone like Time Warner (NYSE: TWX  ) , Sony (NYSE: SNE  ) , or Viacom's (NYSE: VIA  ) Paramount -- would have been preferable to Pixar's parting after The Incredibles this year and Cars in 2005.

Instead, Disney is working on its own hand-drawn and computer-generated features as well as teaming up with upstart tech-savvy outfits, as it did with Pixar before the apprentice mastered the master. Disney is also taking up its contractual right to make Toy Story 3, even if it means that it might be more like Godfather 3, absent the storytelling and rendering talent of Pixar's crack crew.

Pixar's enviable track record, which prompted David Gardner to recommend the stock in Motley Fool Stock Advisor, will be greatly missed by Eisner. Somewhere, Roy Disney Jr.'s podium inched a few inches higher and his megaphone a few decibels louder.

Rick Munarriz is a fan of both Disney and Pixar -- and owns shares in both companies.Do you think Pixar is doing the right thing by moving on? Are negotiations dead or is there a chance that this could simply be Pixar calling Disney's bluff? All this and more -- in the Pixar discussion board. Only on Fool.com.


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