AllGuinness

This week Pixar decided to stop talks with Disney on the two companies’ continuing partnership. Disney has the rights to the next two Pixar films, but for films after that, Pixar has decided to look elsewhere for a distributor.

Both of these companies kind of screwed this up. Disney had a pretty lopsided original contract that called for splitting the profits of the films after a nice 12.5% distribution fee. Honestly that is just fat. At the time it was made it probably sounded like a good idea for Pixar to get in to bed with Disney. The Disney traditionally animated films at the time were strong, and there was no better family label. As soon as Toy Story came out Disney should have dropped its fee to 6% and renegotiated to double the length of the contract. They didn’t though. The Pixar films continued to have great success, while the traditionally animated fare of Disney started to go south.

So what happens now? The way I see it, there are a couple of possible directions things could go. Naturally, I look towards solutions that benefit Disney. Generally, I think the split hurts both companies, and if Disney doesn’t do something proactive about it, it will be the larger loser.

Pixar gets hurt because they lose the powerful distribution machine in Buena Vista. Disney brings instant tie ins with products and fast food, and so on. Pixar could do this with the new distribution house, but it will probably be slightly more difficult. They also lose the intangible of the Disney name. Disney is a powerful presence in the minds of people around the world. Some hate it and some love it, but when people hear “Disney” they certainly get a picture in their heads. Maybe more so than, say, Columbia.

Disney needs to do two things to make this split not cost them dearly. First they need to spend money to make money. Do what others have done to them in the past, namely steal away the animators. Disney needs to set up a large computer animated section, and they need to do it quickly. I know that they have begun down this path, but they better be ready to produce computer animation at the speed and quality of Pixar, and they need to do it before the current contract expires. If they offer good salaries, they should be able to get some of the animators away. This will also give the benefit of slowing Pixar down.

The second thing they need to do is return the traditionally animated film to its tradition. The success of Lilo and Stitch aside, what people most want in an animated film is a fairy tale. Give them princesses and talking animals. Give them musical numbers. I like the other movies too, but I think that something like Beauty and the Beast is always going to have more appeal than Brother Bear, Mulan, or Pocahontas. Treasure Island would have been a perfectly good film to make, but Treasure Planet was just stupid. What, there wasn’t enough action and excitement in the original story? Play it safe with traditional stories for a while, and start again with the more interesting ones when time are strong.

I expect Disney stock to decline on this news, but I don’t think Eisner will lose his job over it. In fact I predict a good year for Disney. They will still get good results from a Pixar film this year. Finding Nemo sales on DVD will stay strong. Park attendance will continue to rise as the economy strengthens in general. If they get a couple of good releases from their own studio, they will have a very good year indeed. I’d wait the end of March and pick up some shares at a bargain price, and coast till the end of the year.

That is my unprofessional, unlicensed opinion.