Jobs-Eisner feud may have caused Pixar-Disney split

Former reportedly chafed at being treated in paternalistic fashion

February 03, 2004|By Richard Verrier and Claudia Eller | Richard Verrier and Claudia Eller,LOS ANGELES TIMES

HOLLYWOOD, Calif. -Steve Jobs, chief executive of Pixar Animation Studios, stunned the Walt Disney Co. and Wall Street last week by abruptly ending negotiations with the Burbank, Calif., entertainment giant to extend one of Hollywood's richest relationships, one that has produced five straight hit films.

Disney executives and many independent financial analysts said Pixar was demanding too much, including sole ownership of the films the two had made under the existing pact, such as the Toy Story series and Monsters, Inc.

But sources close to Eisner and Apple Computer Inc. founder Jobs said the stunning split was less about the math of the deal than about the personalties involved. Associates say the strong-willed executives let their differences cloud their objectivity in a partnership in which the spoils were evenly split.

Jobs, feeling perpetually slighted, crafted an offer that was so one-sided that some thought it appeared designed to infuriate Eisner.

"Pixar put a deal on the table that was almost insulting to Disney," said Jordan Rohan, media analyst for Schwab Soundview Capital Markets. "It seemed like Steve Jobs wanted to part ways with Disney."

"The relationship went sour when Michael didn't treat Jobs and the Pixar machine as a giant creative engine, he treated them as second-class citizens," said former Disney board member Stanley Gold, who resigned last year with fellow director Roy Disney in a dispute with Eisner.

Disney officials contend that personal feelings played no role in the divorce of the two companies.

Both men are used to getting their way, though their styles differ. They are also both survivors.

Eisner has been at the helm of Disney for 20 years. He has weathered a number of storms, including the poor performance of its stock; deteriorating ratings of its ABC television network; weak sales at its retail stores; and the defection of high-level executives.

The Disney chairman is widely known as someone who will not give an inch in his business dealings.

The similarly tough-minded Jobs also has survived setbacks. In 1985, the Silicon Valley entrepreneur left Apple Computer, the company he had co-founded, amid a power struggle over its direction. As is Eisner, he is guarded and intensely protective of his company's brand name.

The pairing of two men with such combustible personalities might have been destined for a blowup. The companies joined in 1991, when Pixar was not an equal partner. The upstart animation company was paid a fee to create digitally animated movies that Disney would market and release. After the surprise success of Toy Story in 1995, Jobs insisted on changing the financial balance of the relationship. He demanded that Pixar receive half of the profits from the films it created wholly for Disney. When Eisner balked, Jobs nearly walked.

Still, according to sources who know both men, Eisner continued to treat Jobs - known to have a disdain for authority - in a paternalistic fashion. "Steve viewed it as a partnership, and he thought Eisner treated him like a hired hand," one of the sources said.

Many say the turning point in the unraveling of the relationship was when Jobs and Eisner collided over the fate of Toy Story 3 and how sequels figured into their new five-picture deal.

Under the terms of the agreement, sequels would not be counted as part of the five. At the time, Disney was trying to save money and time by making direct-to-video animated sequels. That's how Toy Story 2 was initially envisioned. But as production proceeded, Jobs could see the financial and creative potential of turning it into major movie that would be released in theaters.

Although Eisner resisted, Jobs would not give up, according to sources familiar with the dispute. In the end, Jobs' persistence paid off for Pixar and Disney. Toy Story 2 made more money than the original, raking in a stunning $245 million domestically in 1999.

But, because the movie was a sequel, it was not counted as part of the multipicture deal. Jobs accepted that without raising a ruckus. He was not as conciliatory when Toy Story 3 was planned.

This time, Jobs was adamant that the sequel be counted as one of the films Pixar owed under the Disney contract. Jobs' view was that Toy Story 2 was a giant "freebie" for Disney and that Pixar should not be forced to provide another one.

Despite a collaboration that unexpectedly enriched Disney, Eisner insisted on sticking to the letter of the contract. He refused to compromise and publicly bragged about the leverage he had over Pixar.

Jobs was livid, according to a source. That anger deepened when Eisner testified before Congress on digital piracy in February 2002. The Disney chief criticized technology companies for resisting standards that could help thwart digital piracy. He singled out Apple's slogan: "Rip, Mix, Burn."

"That cut deep," a source close to Jobs said. "He just thought it was offensive."

Los Angeles Times staff writer Jon Healey contributed to this article. The Los Angeles Times is a Tribune Publishing newspaper.

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