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MONDAY, OCTOBER 13, 2003

Coy Story
Will Steve Jobs jilt Disney? No matter what happens, Pixar stock seems overvalued
TINY PIXAR IS THE HOTTEST TICKET in Hollywood. Fresh off the huge success of its latest animated movie, "Finding Nemo," an emboldened Pixar is bargaining hard over a new film-distribution agreement with its partner, Disney, while weighing offers from other studios. "Finding Nemo" is the highestgrossing movie in the U.S. this year, with projected domestic box-office revenue of more than $335 million. "Nemo" is expected to generate over $1 billion of revenue after international distribution and video sales, netting about $500 million in total profits. …show more content…

Bilotti assumes that a new distribution deal will take effect with the 2006 film, giving Pixar all of the movie profits, save for a 10% distribution fee. A less bearish Savner assumes that Pixar and Disney reach a deal in which the profit split on the next two movies goes to 70-30 in Pixar' s favor from 50-50 and that Pixar gets a new deal for its eighth movie for all the profits and a 9% distribution fee. Under this scenario, he values Pixar at $61. Savner says that to justify a stock price of $70 or more, Pixar would have to get all the profits, starting with its eighth film, with a 6% distribution fee. It would also have to churn out several big hits in a row. A 6% distribution fee is a rockbottom rate that' s reportedly paid only

by George Lucas, the creator of "Star Wars," for his movies under a deal with Fox. It appears unlikely that Jobs will get "Lucas economics" for Pixar. A distribution fee of 9% to 10% is more likely. Could Disney buy Pixar? Sure, but that' s unlikely because the price -probably $5 billion or more -- might strain Disney' s balance sheet and dilute earnings. Moreover, Jobs, who wouldn' t talk with Barron' s, seems to cherish Pixar' s