Pirates Ransack Pixar's Profit

Pixar PIXR warned yesterday that it would miss its second-quarter estimates thanks to greater-than-expected returns of its animated hit The Incredibles, but short-term negative effects aside, a much broader issue is at play here.

The stock was tumbling Friday morning off the postclose forecast. At last glance, the studio that also gave us Monsters, Inc. and Finding Nemo was down 13% to $43.71.

"The Incredibles is the best-selling home video title of 2005 to date, and we continue to expect it to generate home video revenues similar to Monsters, Inc.," Pixar CEO Steve Jobs said Thursday. "But based on the most recent sell-through information, we have opted to be more cautious with respect to our second-quarter home video reserves."

Jobs, no fool he, decided it was better to play it safe with Wall Street and get the bad news out now, rather than face the shock and awe of investors next month when the company reports second-quarter earnings. Dreamworks Animation DWA two months ago dropped the ball and failed to give the Street a head's up with respect to DVD sales on Shrek2.

Pixar is doing the right thing by letting the market know that DVD sales on The Incredibles are off track from their and partner Disney's DIS earlier estimates.

But the issue of DVD returns has little to do with Dreamworks or Pixar specifically, other than the fact that both companies had smash animated hits -- it's reasonable to suspect that it has much more to do with piracy.

Raiders of the Lost Copywrite

Yesterday the Justice Department initiated "Operation Site Down," a multinational crackdown on Internet piracy just days after the U.S. Supreme Court ruled against file-sharing services in widely heralded decision. In the operations, the FBI and authorities from 10 countries raided piracy groups.

"Warez" groups release films, music and other copywrited material, costing entertainment companies $3.5 billion annually, not including Internet piracy, according to the Motion Picture Association of America. The MPAA, citing a Smith Barney study that includes Internet piracy, estimated that this year alone, the movie industry will lose $5.4 billion to piracy.