Disney's gambit on Pixar

"Chicken Little" and "Steve Jobs."

Those are the two simplest ways, analysts say, to explain why Walt Disney Co. acquired Pixar Animation Studios for $7.4 billion this week - the latest mega-merger in Hollywood's digital revolution.

"Chicken Little" is Disney's first fully computer-animated film, but latest box-office flop, following other duds like "The Emperor's New Groove" and "Atlantis: The Lost Empire." By buying Pixar, which has turned computer-animated movies into box-office gold with titles like "Toy Story" and "Finding Nemo," once-dominant Disney could get the creative and technological savvy it has lacked.

Steve Jobs is Pixar's current CEO, and will become Disney's single largest shareholder in the deal. By nearly all accounts, Mr. Jobs is a risk-taker and creative dynamo with a strong background and interest in technology that could give Disney a giant boost in two ways. One is by keeping the company on the cutting edge of new developments in computers that can generate new kinds of cinematic effects. The other boost could come from his role as CEO of Apple Computer. The company's iPod technology could benefit in myriad ways from being connected to the vast reservoir of Disney content.

"Steve Jobs provides all kinds of options and talents and vision and drive that Disney currently doesn't have," says William Abrams, a Los Angeles attorney who represents corporations in mergers and acquisitions. "It's a converging of media that makes perfect sense. Jobs has the technology [iPod] that clearly saved Apple and that can give Disney another way to distribute their content and promote their product."

The buyout was announced Tuesday after months of negotiations. The two companies had a falling-out last summer under Michael Eisner, then chief of Disney. But new CEO Robert Iger has been working to continue the relationship since he took Disney's helm in October.

"This is going to be wonderful opportunity for Disney, which has been calcifying under Michael Eisner for years," says Dennis Maher, a film historian who monitors the economics of the film industry. "Here is a guy [Jobs] who wants to try new and different things and has the vision to carry it out. He could return Disney to the eminent place it once held."

Other analysts say the two companies might not mesh well because of different traditions, styles, and motivations. Animation pioneer Disney has long held the reputation of "old media" conservatism, while cowboy-style entrepreneurialism has characterized the cutting-edge work of Pixar.

"Sometimes, entrepreneurial and crea- tive types have a hard time fitting into a corporate culture, especially one as traditional as Disney," says Fred Lipman of the law firm Blank Rome in Philadelphia, which practices in the area of mergers and acquisitions. He and others mention the recent unsuccessful merger of Time Warner and AOL - two very different kinds of media ventures, one traditional, the other based on the Internet.

Others worry about ego clashes. Mr. Jobs founded Apple, but was later fired from the company, which then spiraled downward in his absence. The company bounced back when Jobs returned and expanded the company's product line beyond computers to media ventures centered around the ubiquitous iPod.

"Jobs could be a handful at Disney the way Michael Ovitz was," says Mr. Lipman. One of the most powerful men in Hollywood as head of Creative Artists Agency, Mr. Ovitz was brought to Disney by Michael Eisner and the two had a collision over leadership within the first year, leading to Ovitz's expensive ouster.

Craig Elliot, a visual development artist at Disney, says he expects the best from the merger. But he gives it just a 50-50 chance.

"We've been hanging by a thread because we are coming through a period where creative ideas have been squashed, or altered, at the whim of business people who have been in control here," says Mr. Elliot, who has worked at Dreamworks and George Lucas's Industrial Light and Magic. In 2001, he says, Disney purchased the animation division of another firm and tried to meld them with the existing Disney animators. "They brought all the employees over here and in the next 18 months couldn't really figure out what to do with them so they let them all go," says Elliot. "The company had been doing fine on its own before that."

The key to success or failure, he and other say, will be the creative latitude and leadership of John Lasseter, currently the creative head of Pixar.

"To me the key to this is how much control John Lasseter will have over creative decisions," says Elliot. "We need someone creative in charge of creative decisions, not business people. If he can give some of his attention to the animation problems at Disney, that will be tremendous."

If that is Disney's view, others say that the leadership of the merged firm needs to be mindful of the current creative spirit at Pixar as well.

Would consumers benefit from the Disney-Pixar marriage?

"Only if Disney can wed the younger, fairer mate without dragging it down," says James McQuivey, an expert on communications technology at Boston University. "Pixar owns a bevy of hot properties Disney could exploit, but for the deal to make sense long term, post-acquisition Pixar would have to continue to churn out its witty and intelligent product. [Pixar employees] need to have confidence that their unique culture won't be 'Disneylanded' down or they'll bail."