ANIMATED AGREEMENT : DISNEY TO CO-PRODUCE FIVE COMPUTER-CREATED MOVIES WITH COMPANY INVOLVED IN `TOY STORY'.

Byline: Dave McNary Daily News Staff Writer

Walt Disney Co., underscoring its commitment to its flagship business of making animated films, announced Monday it will co-produce five computer-animated movies over the next decade with Pixar Animation Studios, its partner on ``Toy Story.''

Chairman Michael Eisner, in a news conference at Disney's animation headquarters in Burbank, called the coming projects ``the essence of our company.''

``It all starts here,'' he said. ``If it doesn't work here, everything else we do does not matter.''

Disney also agreed to spend up to $48.75 million for a 5 percent stake in Pixar, headed for the past decade by personal computer pioneer Steve Jobs. That led to a run-up of Pixar stock, which rose $6.875 to $21, while Disney was up 25 cents to $75.625.

``Toy Story,'' the first computer-animated feature film, was a stunning success at the box office with more than $350 million in worldwide ticket sales. Industry trackers have estimated that home videos, computer games and other merchandise will lead to an eventual profit of $400 million.

Eisner said Disney and Pixar will share in the profits from the next five movies, the first of which is tentatively titled ``Bugs'' for release late next year, once it recovers its costs. Pixar's profits under its 1991 agreement with Disney, which covered ``Toy Story,'' ``Bugs'' and one other unnamed project, were believed by analysts to be in the 10 percent to 15 percent range.

Jobs, who recently agreed to sell his Next Inc. software company to Apple Computer and take on an advisory role at his one-time employer, had been expected to renegotiate the partnership with Disney.

Animated films have been Disney's strongest movie operation over the past decade, highlighted by ``Beauty and the Beast,'' ``Aladdin'' and ``The Lion King.'' Analyst Linda Bannister of brokerage Edward Jones & Co. said the deal made sense for both companies, particularly at a time when rival studios such as DreamWorks SKG, Warner Bros., 20th Century Fox and Universal are boosting animation production in order to approach Disney's record.

``It's a win-win deal,'' she said. ``Disney will now have a whole group of animators who produce work that has a different feel from the traditional Disney animation, and Pixar will have strong backing.''

Bannister noted that Disney continues to carry a major advantage over rivals because of its strong brand identity as the leader in animation, going back to 1937's ``Snow White and the Seven Dwarfs.'' Warner, which saw solid but not blockbuster results from ``Space Jam,'' falls well short of Disney's public recognition in the business, she added.

Eisner and Jobs stressed that Disney and Pixar will be partners not just in films but also in related products, such as home videos and merchandise - the most profitable area of Disney operations.

``I think that this arrangement with Pixar demonstrates Disney's interest in being on the cutting edge of technology,'' Eisner said. He added that the deal makes Disney Pixar's exclusive partner in filmmaking.

Eisner said characters from ``Bugs,'' based loosely on the ``Aesop's Fables'' story about ants and grasshoppers, will be part of the ``Tree of Life'' attraction at Disney's Animal Kingdom when it opens next year in Florida. John Lasseter, director of ``Bugs,'' said the story involves an ant colony which hires a flea circus to defend itself against food-stealing grasshoppers.

As part of the deal, Disney will buy 1 million shares of Pixar stock at $15 a share and receive warrants to buy 750,000 shares at $20 a share and another 750,000 shares at $25 a share over the next five years. Pixar went public in late 1995 and traded at $39 on its first day but has slumped since then.

Jobs, the co-founder of Apple Computer and Pixar's chief executive officer, admitted that he had been approached by other studios about a partnership, but declined to elaborate.

``The collaboration we had on `Toy Story' was magical,'' he said. ``The thought of working with someone else - we just couldn't imagine it would be as good.''

He said Disney and Pixar, which employs 300 people and is based in Richmond, Calif., completed the pact over the weekend.

Jobs and Eisner also emphasized that the storytelling and character development will be the key elements in the new movies.

``My 5-year-old son loves `Snow White,' a movie that's 60 years old,'' Jobs said. ``We want to create characters that my son's grandchildren will love as much.''

Eisner said the investment is a good use for Disney's excess cash flow and added that Disney will not buy more than 5 percent of Pixar unless Jobs asks them to do so.

The news came a day before Disney's annual shareholders meeting, which is likely to include complaints about Eisner's new contract worth more than $200 million over 10 years, and the $100 million severance package awarded Michael Ovitz for 14 months as Disney's president. Eisner refused to comment on those issues.

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Photo: (Color) Disney Chairman Michael Eisner, right, and Steve Jobs of Pixar Animation Studios discuss their deal.

Associated Press