PIXAR, DISNEY TO PART WAYS UPSTART ANIMATOR RULES BOX OFFICE.

Byline: Greg Hernandez Staff Writer

BURBANK - The Walt Disney Co. and Pixar Animation Studios Inc. stunned the entertainment industry Thursday by ending their spectacularly successful partnership that grossed a combined $2.5 billion at the box office with ``Finding Nemo'' and other blockbuster hits.

Negotiations between the two companies had been rocky for months, with Pixar seeking more favorable terms, but many believed a deal would be reached to extend the exclusive relationship beyond 2006.

The parting comes just two weeks after Disney announced that it had closed its Florida animation facility, a move seen as a further sign that the brand of hand-drawn animation Disney was built on has been eclipsed by the computer animation Pixar has revolutionized in ``Nemo,'' ``Toy Story,'' ``Monsters, Inc.'' and other films.

``I'm somewhat shocked Disney would take this risk especially given how dependent on that franchise the company has become,'' said media analyst Robert Routh of Natexis Bleichroader Inc. ``For Disney, this can potentially be devastating.''

``Nemo'' helped Disney dominate at the box office last year with a domestic gross of more than $340 million and record sales on DVD. Disney says the final offer from Pixar was unacceptable and would have come at too high a price.

Tom Staggs, Disney senior executive vice president and chief financial officer, said Pixar's final offer would have cost Disney hundreds of millions of dollars that he said the company is already entitled to under the existing agreement. He added that the proposal did not provide enough incremental returns on new collaborations to justify the changes to the existing deal.

Under the terms of the current deal, Pixar is responsible for the content of each film while Disney handles distribution and marketing.

Pixar has felt that terms of the distribution deal weigh too heavily in Disney's favor. The two companies split the profits from each film with Disney receiving 10 percent to 15 percent of the box office revenue as a distribution fee.

``After 10 months of trying to strike a deal with Disney, we're moving on,'' Pixar chief executive Steve Jobs said in a statement. ``We've had a great run together - one of the most successful in Hollywood history - and it's a shame that Disney won't be participating in Pixar's future successes.''

Disney Chairman and Chief Executive Officer Michael D. Eisner called the partnership with Pixar ``fantastic'' and wished Job and his creative team success in the future.

``Although we would have enjoyed continuing our successful collaboration under mutually acceptable terms, Pixar understandably has chosen to go its own way to grow as an independent company,'' Eisner said in a statement.

Ousted board members Roy Disney - the nephew of Walt Disney - and Stanley Gold quickly lambasted Eisner's failure to broker a deal with Pixar.

``More than a year ago, we warned the Disney board that we believed Michael Eisner was mismanaging the Pixar partnership and expressed our concern that the relationship was in jeopardy,'' they said in a statement.

``Michael Eisner's inability to manage and nurture crucial creative relationships, like the one Disney had with Pixar, is one of the main reasons we have maintained that we did not believe Disney's earnings were sustainable.''

The late-afternoon development quickly put a drag on Disney's stock. In after-hours trading, shares fell nearly 5 percent.

Pixar, meanwhile, is now certain to be courted by virtually every other major studio.

``They are in the position of (being in the) catbird seat,'' Routh said. ``Every major studio is looking to partner them or partially acquire them. So far, Pixar has batted 1,000 percent.''

Warner Bros. held informal meetings with Pixar nearly a year ago.

``We would love to be in business with Pixar. They are a great company,'' studio spokeswoman Barbara Brogliatti said.

But before any projects with new suitors are launched, Disney and Pixar still have two more collaborations to go: ``The Incredibles,'' due in theaters in November, and ``Cars,'' which will be released next year.

The current contract also gives Disney the rights to develop and produce sequels to movies produced under the current agreement, including direct-to-video projects and television.

Disney is producing its first computer-animation effort, ``Chicken Little,'' scheduled to be released in summer 2005. The company, which said it has 20 animated features in active development, also touted its relationships Thursday with ``emerging animation partners' including Vanguard Films and Complete Pandemonium.

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com