Monster Incs: Animation war begins as 'Nemo' creator splits from Disney over enormous profits

One of the most lucrative marriages in the history of film animation was heading for a spectacular divorce yesterday.

Pixar - the company behind such groundbreaking computer-generated hits as Toy Story, Monsters Inc and Finding Nemo - has decided to end its relationship with the Walt Disney Co and shop around for another studio to market and distribute its titles.

Although both parties expressed regret and publicly wished each other well, the split was the result of an old-fashioned Hollywood power struggle over money.

It was further fuelled by the clashing egos of the two men who tried and failed for almost a year to negotiate a new deal, the Disney chairman, Michael Eisner, and the Pixar and Apple computers boss, Steve Jobs.

The first reaction of industry analysts and stock market traders was to conclude Pixar would come out of the divorce much better than Disney. Not least because rival studios including Fox, Sony and Warner Bros are likely to fall over themselves to go into business with the wizards who created Woody and Buzz Lightyear and have yet to release a film that did not reap hundreds of millions of dollars at the box office.

Disney, meanwhile, has relied on Pixar to supply as much as 50 per cent of the annual revenue of its film division - a life-saver in many of the company's alarmingly lean recent years. Although Disney's financial fortunes are now on the rebound, the Pixar divorce is fuelling perceptions that Mr Eisner's domineering personality is not conducive to holding on to Disney's business partnerships.

Walt Disney's nephew, Roy, left the board in disgust in November, in part because he foresaw the coming rift with Pixar, and is now campaigning for Mr Eisner's removal. Yesterday, he issued a statement slamming "Michael Eisner's inability to manage and nurture crucial creative relationships, like the one Disney had with Pixar" and added: "I can only say that, under other circumstances, I believe we would still be working together on some wonderful new projects."

Disney still has some aces up its sleeve. In walking away, Pixar will leave behind its library of completed films and the rights to any sequels. Disney wasted no time in announcing it would go ahead with a third film in the Toy Story series. Mr Eisner has been quietly building up his own non-Pixar computer-generated animation division, and already has three films slated to appear sometime in 2006.

In other words, divorce is likely to lead to an all-out competitive war between the two companies. Pixar can expect attempts by Disney to lure away its main animators, as well as power struggles over whose films get released on which date. Those are not minor considerations: Pixar might have the track record of producing high-quality, popular animated entertainment, but Disney is the acknowledged master when it comes to putting films in cinemas, milking audiences for all they are worth and reaping subsidiary profits through toys, games, fast-food restaurant tie-ins, and so on.

When it comes to Hollywood divorces, Bruce and Demi or Tom and Nicole might generate more ink but this one is likely to keep the lawyers far busier and really hit where it hurts - in the corporate wallet.

The split was a long time coming. When Pixar first hooked up with Disney in 1986, it came more or less cap-in-hand as an expensive but far from assured research proposition. Disney patiently bankrolled the computer software experiments and initial try-out shorts (now available as intriguing extras on DVD copies of Pixar's hits), not knowing if they would ever lead anywhere.

When Toy Story came out in 1995 and was heralded as the crest of a new wave of cinema - a perfect match of story and animation technique, with scintillatingly irreverent jokes and scarcely a nod to Disney-style sentimentality - Pixar got only a 15 per cent cut of the net profits, the rest going directly into Disney's coffers.

By 1998, when the next film, A Bug's Life, appeared, that deal had been modified to a 50-50 split. Those terms remained in place as Pixar churned out Toy Story 2, Monsters Inc and Finding Nemo amid mounting resentment. Pixar did not see why Disney deserved to earn hundreds of millions of dollars on films it did nothing to originate, and bridled at the idea that it was being squeezed to make up for the lacklustre performance of the other horses in the Disney stable - theme parks, ABC television, and so on.

Starting 10 months ago, Mr Jobs decided he would push for a similar deal to that enjoyed by George Lucas with Star Wars. Mr Lucas finances his own films, makes them entirely independently, keeps 100 per cent of the box-office profits and treats Fox, his distributor, as no more than a service company, like his caterer or his lighting equipment supplier, paying them just a flat fee for putting his films on cinema screens.

When Mr Jobs first suggested that to Mr Eisner, Mr Eisner was reported to have told him Disney was "not for rent". But then Finding Nemo hit cinemas and became the single biggest-grossing film in the United States in 2003, with more than $800m (£430m) in box-office receipts to date. In the film business, that is serious leverage. Disney conceded it could no longer claim a share of Pixar's profits but balked when Mr Jobs demanded the two remaining Pixar productions on the Disney slate - The Incredibles (due out this year) and Cars (due out next) - be folded in to the Lucas-style new deal.

As a company statement put it: "Disney management could not accept Pixar's final offer because it would have cost Disney hundreds of millions of dollars it is already entitled to under the existing agreement, while not providing sufficient incremental returns on new collaborations to justify the changes to the existing deal."

And that was the end of that. "After 10 months of trying to strike a deal with Disney we're moving on," Mr Jobs said. "We've had a great run together and it's a shame that Disney won't be participating in Pixar's future successes."

Blockbusters

FINDING NEMO (2003)

The pre-Christmas hit of last year, the movie tells the story of Marlin, a candy-orange clown fish. When his rebellious son, Nemo, is captured by a scuba-diver and placed in an aquarium the over-protective father sets out on a quest to save him. Box office takings £460m worldwide.

MONSTERS, INC (2001)

A story of two friends, Mike and Sulley (voiced by Billy Crystal and John Goodman) who are monsters. The friends' job is to scare small children by breaking into the "real world" through their victims' closets. Box office takings £260m worldwide.

TOY STORY (1995)

The first full-length animated feature generated entirely by computer, this modern-day fairytale features the voices of Tom Hanks as the battered toy cowboy, Woody, and Tim Allen as his shiny new astronaut rival, Buzz Lightyear. Global box office takings £197m.