In one sense, everyone in Hollywood and the entertainment technology industry is invited to the marriage of the Mouse and the Macintosh.
Because now that the planet’s most well-known entertainment empire, Walt Disney Co., and the digital world’s most high-profile innovator, Pixar’s and Apple Computer Inc.’s chief executive Steven Jobs, have come together, a sea change seems inevitable for the companies and their rivals.
Viewed purely as a film animation and distribution deal, Disney’s acquisition of Pixar Animation Studios for $7.4 billion in stock is a landmark transaction. The two are responsible for the past decade’s most high-profile animated hits, and Pixar has accounted for $3.2 billion at the worldwide box office. Additionally, Disney is counting on the infusion of Pixar talent to bring its storied animation unit back to the iconic status it held for decades.
The greatest impact, however, may be felt by the two industries, both financially and culturally. The deal makes Jobs, who owns more than half of Pixar’s shares and possesses huge amounts of intellectual, creative and technological capital, the single largest Disney stockholder. His presence on Disney’s board immediately positions the entertainment giant at the forefront of Hollywood’s digital transition.
Attorney Brian McCarthy was Disney’s principal counsel in the deal. The partner in Skadden, Arps, Slate, Meagher & Flom LLP, said that in terms of the company’s transition into the new media frontier, the agreement puts the Mouse House “on a whole different planet.”
The convergence of the two giants creates momentum sure to speed the acceptance of multiple digital platforms, according to Piper Jaffray analyst Gene Munster.
He said that the appearance of Disney content which includes ABC Network and ESPN offerings as well as its film fare on wireless and broadband platforms and via Apple’s iPod and iTunes, would be a watershed event for consumers and the creators and distributors of entertainment.
“It will kick over the critical mass for digital,” Munster said, “and be the spark needed to get content out across the board.”
Naysayers
Not everyone is calling the reunion of Pixar and Disney a fairy tale come true, citing the disaster that Time Warner Inc.’s 2001 merger with America Online Inc. became.
When the profitability of the online assets fell with the bursting of the dot.com bubble, the combined company, AOL Time Warner, posted a $99 billion loss in 2002. The stock dropped to depths from which it has yet to recover and the architects of the deal, AOL’s Steve Case and Time Warner’s Gerald Levin, lost their jobs.
Attorney Fred Lipman, a partner at Blank Rome LLP who specializes in large mergers, acquisitions and securities law, said if the Pixar-Disney deal sours, it likely would result from a culture clash.
Additionally, there is concern that Disney’s chief executive Robert Iger, who took over for longtime chief Michael Eisner last year, may have weakened his authority by bringing in the powerful presence of Jobs. Disney generated a reported $2.5 billion in net income for the fiscal year that ended Oct. 1 under Iger, who has a reputation as a technophile and team player. Disney is projecting double-digit earnings growth this year.
But speculation remains that there is still potential for a rocky relationship between the two firms one a dynamic poster child for media’s new age, the other the epitome of the traditional, diversified media giant.
“Why hasn’t Disney been able to attract these talented people?” Lipman asked. “It looks like it’s a culture problem.”
Lipman went on to say that he believes, “Iger’s trying to appease Jobs to make this deal work, because it means so much to Disney, but is Disney smart enough to keep their hands off something that works so well? Based on other deals in the past, it doesn’t seem likely.”
Should the relationship founder, Pixar talent could fly the coop, Lipman said. In fact, the entire company was set to walk away from a lucrative distribution deal with Disney a couple years ago when it chafed under Eisner’s direction. Some of Pixar’s executives blamed the rocky patch mainly on difficulties with Eisner and his lieutenants.
But these days, Iger and other Disney executives are saying the right things.
“We welcome and embrace Pixar’s unique culture, which for two decades has fostered some of the most innovative and successful films in history,” Iger said in the statement announcing the deal.
Advocates argue that the chances for the arrangement’s success are great because of the lessons learned from the AOL-TW deal and because of the stakes.
“The AOL Time Warner deal was just an attempt at a transforming transaction, while this is truly transforming because it solidifies the path onto a digital road,” McCarthy said.
Another sign that Hollywood is on the threshold of its digital dawn came Friday, with the release of the movie, “Bubble.”
The film, directed by A-list director Steven Soderbergh, was released by Mark Cuban and Todd Wagner’s 2929 Entertainment not only in theaters, but on pay cable networks and DVD as well.
The theory to put the film in front of as many viewers as possible as quickly as possible flies in the face of the traditional Hollywood distribution model.
Typically, films are first released in domestic theaters, then worldwide theaters. Once the film is played out in theaters, it becomes available on video or DVD. The last stages are pay cable and network TV releases.
In advocating his plan, Cuban has publicly maintained that the new model will not deter fans from heading into theaters, because people go out to the movies for the setting and to experience pictures on a big-screen.
“I can whip up a mean steak,” he wrote on his blog, “but I still like to go to restaurants, because I enjoy it. I enjoy getting out of the house with family, friends, whoever.”
Not surprisingly, many in the film industry aren’t as hungry for change.
John Fithian, president of the National Association of Theatre Owners, called the “day and date” release strategy a “death threat” to theater owners, and told USA Today that the plan was “the biggest threat to the viability of the cinema industry today.”
Fithian maintains that while the transition to digital distribution is inevitable, the strategy of a broad-as-possible simultaneous film release is not.
“The movie theater business is a marginal business, and it does not take a large percentage change (in attendance) to have a significant negative impact,” he said in a phone interview. “The shrinking schedule is the problem.”
