Pixar, The Muddle in the Middle

Published November 9, 2004

By C. W. Oberleitner

Will the Fox fanfare be the next film studio logo paired with Pixar Animation Studios bouncing Luxo lamp? According to one recently retired 20^th Century Fox executive, it should be a done deal.

Simon Says…

Pixar Animation Studios latest hit, The Incredibles, has entertainment industry analysts convinced the Emeryville, California studio can write its own ticket when it comes to finding a new partner to replace current co-production and distribution partner Disney. Pixar's success, however, is affecting far more than just the future of its relationship with The Mouse. It's impacting the search for Disney CEO Michael Eisner's replacement.

On March 23 of this year, Pixar announced that they would name Simon Bax as the company's new Executive Vice President and Chief Financial Officer in May. At that time, most of the Wall Street and entertainment industry media were busy covering the aftermath of the Walt Disney Company's annual shareholders meeting that took place March 3.

The news and analysis of Disney CEO Michael Eisner's remarkable 45% no confidence vote at the meeting, and the subsequent loss of his job as Chairman of the Disney board, was still topic A when Pixar announced Bax's appointment. Since that time, and even after Bax assumed his duties, there has been little news coverage regarding the new Pixar CFO.

With CEO Steve Jobs and writer/director Brad Bird out promoting The Incredibles, the media has had plenty of Pixar news to work with. Outside of Pixar's quarterly financial reports, why focus attention on the chief numbers guy? The answer, according to industry insiders, lies in Bax's resume.

Bax was CFO of Fox Filmed Entertainment from 1994 through August 2001, where he was responsible for financial operations, information technology, and strategic planning relating to worldwide production and distribution of all films produced by the motion picture group, as well as worldwide theatrical, video and television distribution, licensing and merchandising, and music publishing. Additionally, Bax oversaw the financial operations of Twentieth Century Fox Television, the network television Production Company, and Fox TV Studios. Total revenue for Fox Filmed Entertainment grew from less than $1.5 billion when he joined to more than $4.5 billion when he left.

Said a former Bax associate and film industry finance man:

Simon doesn't know a thing about animation. What he does know about are distribution and production deals. And who has the biggest distribution deal at Fox?

George Lucas.

And, what does Steve Jobs want more than anything else?

A deal like the one Lucas has with Fox for Pixar.

A Fox film executive about to retire from the company, who also worked with Bax, took it one step further. "It's a done deal. We're (20^th Century Fox) gonna get Pixar." When asked if he knew for a fact that Fox and Pixar were in negotiations to establish a new distribution deal, he said, "No, but what other reason would Simon have for going to Pixar?"

That Was Then, This is Now

Last Spring when that now former exec first said that Fox had a lock on a distribution deal with Pixar, it seemed like he might have been on to something. But a lot has happened since May when Bax began his new job as Pixar CFO.

In September, Michael Eisner announced that he would step down as Mouse House CEO when his contract expires in 2006. Later, the Disney board announced that they would engage an executive search firm to assist in selecting Eisner's replacement, and that they intend to consider candidates both from within the company and externally. They went on to say current Disney President Bob Iger was "the one internal candidate" for the job.

Speculation as to who would replace Eisner as Mouse House Big Cheese began immediately. And soon, it seemed everyone in entertainment and media had an opinion as to who the odds on favorite(s) would be.

While nearly a half-dozen qualified candidates, including Yahoo Chairman and CEO Terry Semel and eBay CEO Meg Whitman, have been touted by one respected publication after another, three men have emerged as the industry and media favorites. They are Bob Iger, who many analysts see as being Eisner's heir apparent; Peter Chernin, President and COO of News Corp. (parent company of Fox Filmed Entertainment); and Steve Jobs.

Regardless of their intentions or qualifications, each of these men has one huge obstacle to overcome should he wish to become Mickey's new business partner, and that would be what to do about the Pixar relationship.

The Iger Sanction
Iger made his position on Pixar clear within days of being blessed by Eisner and named by the Disney board as "the one" internal candidate for the CEO spot.

Speaking before the Royal Television Society's international conference in London, Iger told his audience that the prospect of there being any deal between Disney and Pixar was "unlikely." In a story that appeared on Reuters on September 29, Iger said:

It would be nice to continue the relationship to infinity, but yeah, I think we've outgrown one another in a sense. I'm not ruling out some sort of cooperation -- if not with Pixar, then with somebody else…

Deals like this have a certain longevity or life span. When Pixar started, it needed the might of the Walt Disney Co. in terms of marketing clout and distribution clout and money just to pay for those films. As it grew, it weaned itself from its need for Disney. It now sees itself as able to pretty much go out on its own, not needing funding or marketing support.

Iger's remarks were made before an audience composed of various U.K. broadcasting executives, including James Murdoch CEO of British Sky Broadcasting. Murdoch is the son of News Corp. Chairman and CEO, Rupert Murdoch. British Sky Broadcasting is a News Corp. company.

The Chernin Dilemma
On its business pages, The Los Angeles Times, referring to News Corp. President and COO Peter Chernin, asked if he was, "Eisner With Charm?" They went on to say, "Insiders see News Corp.'s Peter Chernin as an improved version of the man he could replace."

Chernin's current deal with News Corp. would lead many to suspect that he'll stay where he is. His new five-year contract is estimated, by financial analysts, to place his compensation in the neighborhood of $20 million a year. Under its current compensation plan, a new Disney CEO could initially expect to make less than half that.

Chernin's problem is that he has no place within News Corp. to go. News Corp. is a family-run business. Rupert Murdoch is positioning his thirty-something children to take over when he steps down. For this reason, Chernin asked for, and got, the right to leave at anytime to take the top spot at another shop, even if it's a rival media conglomerate.

Speculation in the entertainment industry runs high that if Mickey came a calling, Chernin would at least take the call.

If, however, as several of Simon Bax's former associates maintain, Fox has the inside track on a new Pixar distribution deal, it could place Chernin in a very awkward position.

"No matter what his contract says, Rupert is never going to let Peter go," said an industry analyst familiar with News Corp. operations.

"The only way Rupert would ever let him leave," he went on to say, "would be if he got Pixar for Fox."

If that's true, then Chernin could find himself walking in the door at Disney as Pixar walks out. He would begin his tenure as the man who stole one of Disney's crown jewels and then moved into the house he just burgled.

The Jobs Advantage
While Steve Jobs may have a lot to say about the success of Apple Computer's ubiquitous MP3 player, the iPod, and Pixar's outstanding performance, he is virtually mum about his own ambitions, especially as they may apply to taking over the top spot at Disney.

Mac media began touting Jobs as a leading contender to replace Eisner almost as soon as the latter announced his plans to step down.

Former Disney board member and dissident shareholder, Stanley Gold has made it known for months that he sees Jobs as a man possessing all the major qualities needed by a new Disney CEO. In entertainment circles, it has been widely rumored that the two have met several times to discuss just such a possibility.

Writing for Forbes.com, Forbes Magazine publisher Steve Forbes said:

Walt Disney is now searching for a successor to CEO Michael Eisner, and its directors couldn't do better than to go all out to tap Steve Jobs, cofounder and CEO of Apple Computer and CEO of Pixar. ... Walt Disney himself was an artistic genius. The Disney Company needs that kind of vision again. Steve Jobs can provide it.

All of which may go a long way toward explaining why, recently, Jobs has begun to sound a bit coquettish in his remarks to the press regarding Pixar's future. The Times reported that,

Jobs said that because Pixar didn't need to make a decision until next year, he'd prefer to wait and see how the "musical chairs among the studios" would play out once a successor to Disney CEO Michael Eisner was named.

Many believe that Eisner's eventual exit opens up the possibility of Pixar and Disney negotiating again.

"No conversations are taking place with Disney," Jobs said. "We're getting to know other studios but are not in negotiations with anyone…. We're taking our time."

Still, Jobs is not without his critics. "Steve Jobs doesn't want to run Disney," said one industry analyst, "he wants to become Disney."

As proof, he pointed to the fact that in the recent election Pixar had won overwhelming voter support for a plan to expand its Emeryville campus. "You have to look at those plans and ask yourself what are they going to do with all that space?" Answering his own question, he said that it only made sense that they expand into live-action features and possibly television.

An entertainment industry financial analyst familiar with Pixar CFO Simon Bax agreed:

Right now Pixar is a one-trick pony. They're making money hand over fist but… they're too heavily invested in just one thing, animated movies. Sooner or later they're going to produce a dud. And, when they do their focus will shift from making animated films to playing catch up. You can't win at that game.

Simon Bax is too smart to let them (Pixar) stay stuck in that rut. He's going to help them diversify.

Partners

One thing is very clear for whoever becomes the next CEO of the Walt Disney Company. They're going to have the opportunity to begin the next phase of their career either as the person who lost or saved the most successful partnership in movie history since Walt first shook hands with Mickey.

this business of show

Walt Disney Company President, Robert Iger.

News Corp. President and Cheif Operating Officer, Peter Chernin.

Apple Computer, Inc. and Pixar Animation Studios CEO, Steven P. Jobs.