Pixar Dropping Disney as Distributor

Updated from Jan. 29

The cloud of uncertainty hovering over Disney (DIS Quote) thickened Thursday afternoon as Pixar (PIXR Quote) closed the door on their distribution arrangement.

The companies shares went their separate ways Friday after Pixar, the movie-animation studio led by top Apple (AAPL Quote) exec Steve Jobs, ended talks over extending its collaboration with Burbank, Calif.-based Disney. Pixar said it will instead retain full ownership of movies made after 2005. On Friday, Pixar surged $3.58, or 5.6%, to $67.78, while Disney sagged 60 cents to $23.85.

"After 10 months of trying to strike a deal with Disney, we're moving on," Jobs said. "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."

For its part, Disney criticized what it called Pixar's "final offer." Disney said a deal 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."

"We have had a fantastic partnership with Pixar and wish Steve Jobs and the wonderfully creative team there, led by John Lasseter, much success in the future," said CEO Michael Eisner. "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."

The status of Disney's lucrative relationship with Pixar has been a matter of some vexation among Wall Street analysts, given how well movies like Finding Nemo have done. Analysts have been been asking about the progress of negotiations between the two companies at virtually every public forum in which Eisner has taken questions.

The split also offers a further hurdle for Eisner as he tries to steer his struggling media conglomerate into a full turnaround. Eisner is already dealing with uncertain economics in the TV and theme parks businesses, along with a pair of dissident shareholders seeking to portray the executive as overpaid and unresponsive to shareholder needs.

Disney will retain the rights to distribute Pixar's first seven films, with Pixar continuing to receive its current share of the profits in perpetuity. Disney will have the rights to solely finance and produce sequels to the films if Pixar declines to co-finance and produce them under the terms of the current agreement, Pixar says.

Asked earlier this month about negotiations with Pixar, Eisner was highly complimentary of the Pixar organization, particularly creative executive Lasseter. Eisner also made reference to Disney's in-house development of computer animation technology -- behind the forthcoming all-computer-animated Chicken Little -- though he mentioned a need for having "clones of John Lasseter."