Correction to This Article
A Jan. 20 article on a possible merger between Pixar Animation Studios and Walt Disney Co. misstated the date of the creation of Apple Computer. The company was launched in 1976, not in the early 1980s.

Will Pixar Move In With the Mouse?

Steve Jobs, left, head of Apple Computer and Pixar Animation Studios, and Walt Disney chief Robert A. Iger at the October introduction of a video iPod. Pixar and Disney are said to be in merger talks.
Steve Jobs, left, head of Apple Computer and Pixar Animation Studios, and Walt Disney chief Robert A. Iger at the October introduction of a video iPod. Pixar and Disney are said to be in merger talks. (By Paul Sakuma -- Associated Press)
By Steven Levingston and Mike Musgrove
Washington Post Staff Writers
Friday, January 20, 2006

He created a hip alternative to the once-mighty IBM desktop. He launched a pocket digital music phenomenon. He set the standard for computer-generated animated films.

Now Steve Jobs may be poised to bring his tech savvy to the Magic Kingdom.

Jobs's filmmaking company, Pixar Animation Studios, is discussing a possible merger with Walt Disney Co., according to a source with knowledge of the talks who spoke on condition of anonymity because the negotiations are confidential. A deal, which could energize Disney's animation unit, would underscore the importance of new digital technologies in a rapidly changing media landscape. It also would inject Jobs's vision into the Disney animation empire.

A charismatic leader renowned for big risks and big stumbles, Jobs is on the rise again. His Apple Computer Inc. reported record revenue in the latest quarter as sales of Mac computers rose and, more importantly, consumers snatched up 14 million iPods over the three months. Jobs's innovative digital music player expanded into video last year, helping spur a surge in mobile viewing, and customers have begun ordering the first Apple computers with Intel chips. All of Pixar's films -- including "Toy Story," "Finding Nemo," "The Incredibles" and "Monsters, Inc." -- were monster hits, making the studio the undisputed leader in cutting-edge animation.

"To me, the deal has the smell of inevitability to it," said Paul Saffo, an analyst with the Silicon Valley think tank Institute for the Future. "If it doesn't happen, for whatever reason, it would be a lost opportunity for both companies. The long-term trajectory of both these companies without each other is downwards."

The discussions, reported yesterday by the Wall Street Journal, became serious only after a leadership change at Disney last year that lifted Robert A. Iger to chief executive. Pixar has had a partnership with Disney under which the media giant distributed and helped finance Pixar's films. With the arrangement scheduled to end this year, Jobs had signaled that he would look elsewhere for a distributor, driven in part by an unsatisfactory relationship with Michael D. Eisner, the previous Disney chief executive.

"Even a cursory examination shows that the change in leadership at Disney has made a significant difference in the relationship between Pixar and Disney," said Josh Bernoff, an entertainment and television analyst at Forrester Research Inc. "I doubt that Jobs would have been happy as an element of an Eisner-run corporation. It would have been pretty difficult."

A Disney-Pixar deal is far from assured: Any number of hurdles could derail the discussions. Other suitors could emerge, and a run-up in Pixar's stock could price the company out of reach. Officials at both companies declined to comment.

Some analysts believe that both sides are closely watching the stock prices to gauge investors' sentiment toward a deal. Prudential Equity Group LLC predicted that a merger could drag on Disney stock in the short term but ultimately benefit the company.

"Strategically, we think the deal would make sense since Disney views animation as a key core competency and vital to its future," Katherine Styponias, a Prudential analyst, wrote in a report yesterday. "We believe that Pixar's track record suggests that it has arguably become the pre-eminent name in animation."

Disney's share price rose 4 percent, while Pixar was up 2.8 percent yesterday.

Grabbing a position of prominence at an iconic company like Disney would be a resounding triumph for Jobs, a prickly character whose fortunes have soared and crashed. After creating Apple in the early 1980s, he was booted from the company in 1985 in a board upheaval. He then created another computer company called Next, an ill-fated venture.

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