Pixar’s Profit Rises, Thanks to Its Past Hits

Pixar Animation Studios, which won’t be releasing a new film this year, tapped its past hits to propel it to a 22% third-quarter profit increase that easily beat Wall Street expectations.

The Emeryville, Calif.-based company’s net income rose to $27.4 million, or 22 cents a share, in the quarter ended Oct. 1 from $22.4 million, or 19 cents, a year earlier, thanks largely to DVD, TV and consumer product sales stemming from its 2003 computer-animated blockbuster “Finding Nemo.” Also contributing was a 10th anniversary DVD release of Pixar’s first feature, “Toy Story.”

Pixar’s revenue rose 3% to $45.8 million from $44.5 million.

In a conference call with analysts Tuesday, Pixar Chief Executive Steve Jobs sounded increasingly optimistic about reaching a new distribution deal with Walt Disney Co.

“We are in deep discussions with Disney,” Jobs said. If all goes well, he added, a new agreement could be in place by year-end.

Jobs said his company’s June release of “Cars” -- the final film under Pixar’s existing partnership deal with Disney -- would be “either a triumphant cap on our successful relationship with Disney or the huge beginning of a bountiful new chapter in our relationship with them.”

Jobs and Disney Chief Executive Robert Iger have been in discussions about extending their partnership. Negotiations broke down last year when Jobs clashed with former Disney CEO Michael Eisner.

“We’ve had some very productive talks,” Jobs said. “I like Bob Iger a lot ... and if we can work out some of the issues, we’d love to continue being their partner.”

One sore spot is that Disney controls the sequel rights to all Pixar releases, which include “The Incredibles” “Monsters, Inc.,” “A Bug’s Life” and two “Toy Story” films. In fact, Disney is preparing to make a third “Toy Story” without Pixar.

Jobs said he had no interest in making any sequels that Pixar didn’t own outright.

“Since we have limited production capacity, we’d rather devote that production capacity in the future to making films which we completely own and which we keep a much higher percentage of the profits,” Jobs said.

Pixar’s only sequel, “Toy Story 2” (which will be re-released on DVD Dec. 26), was hugely successful, but Pixar had to share profit with Disney.

One scenario that has been discussed, according to a source with knowledge of the talks, is that Pixar would take control of sequel rights in exchange for giving Disney more stock in the computer animation company.

Some analysts have speculated that Disney has been holding off on entering serious negotiations with Pixar pending the opening of “Chicken Little,” its first fully computer-animated feature. Disney, they said, was hoping a big hit would give it leverage in the Pixar talks.

Although the movie’s $40-million opening last weekend surpassed low industrywide expectations, it paled next to Pixar’s recent movies, including last November’s $70.5-million opening of “The Incredibles.”

“Recent speculation is the release of ‘Chicken Little’ will impact the tone of negotiations -- an idea we find nonsensical,” Merrill Lynch’s Jessica Reif Cohen wrote in a report.

That said, the analyst also noted that she believed Disney and Pixar would come to terms on a new deal given the “improving relationship” and the “strong incentives” on both sides.

“Disney would clearly love to retain distribution rights for today’s most successful animation company and the success of ‘Chicken Little’ should not change this,” she wrote.

When asked how he liked “Chicken Little,” Jobs said, “I didn’t have a chance to go see it this opening weekend. I hope to see it the following week.”

Pixar shares fell $1.87 to $50.88 in regular trading but jumped $3.02 to $53.90 a share after hours. Pixar’s results were released after the markets closed.