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Pixar Visions at Disney, DreamWorks

Three big animation studios continue to eye one another nervously as earnings loom.
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DreamWorks Animation





may not always have a lot in common, but this week both have



on the brain.

Just days after

Pixar unleashed a blockbuster first quarter, its two animation-studio brethren are both due to post their own quarterly earnings. Wall Street expects to see good numbers from both companies, though investors will most likely be focusing on larger questions such as the fate of Pixar's relationship with Disney.

Pixar set the stage for strong numbers from the media giants last Thursday by blowing out first-quarter estimates. Tuesday, DreamWorks CEO Jeffrey Katzenberg -- who left Disney a decade ago in a spat with Michael Eisner -- will take center stage. Analysts are looking for strong box-office numbers from

A Shark's Tale

and strong international and DVD sales of

Shrek 2

to drive earnings to 60 cents per share on $175 million in revenue. Eisner's heir at Disney, Robert Iger, will follow on Wednesday, with Wall Street expecting earnings of 31 cents a share on revenue of $7.76 billion.

At DreamWorks, though, the earnings focus may be fleeting. Tuesday's report comes just ahead of the release of


and a secondary stock offering in which



co-founder Paul Allen will cash out most of his original investment. The $575 million deal should also see other early DreamWorks investors look to recoup long-term commitments.



opens May 27 will dictate the studio's fortunes for the next couple of quarters. Insiders at the Glendale, Calif., company say the buzz around the movie is that it will outpace

A Shark's Tale

but won't approach a


-sized hit. Even if


is a middling success, though, DreamWorks should see reasonable returns through the film's cycle into DVD, pay TV, international markets and TV release.

DreamWorks' Katzenberg and Pixar's Steve Jobs seem committed to a friendly rivalry. Katzenberg referred to Pixar as "the gold standard" earlier this year. Jobs replied in kind, saying that animation is "not a zero sum game" as long as DreamWorks and Pixar don't overlap release windows and cannibalize each other's fare. Despite all the goodwill and bonhomie, though, most analysts still wonder how much animated product the market can bear.

Meanwhile, Iger, Disney's newly crowned chief executive, will update investors on how things are going since it was announced that he will succeed Michael Eisner this fall. Television network ABC has been doing famously on the back of this season's hits

Desperate Housewives



. Cable network ESPN continues to distinguish itself as the premiere destination for sports viewers, while the company's theme park business has bounced back nicely. Also on the rebound are dissidents Stan Gold and Roy Disney, who

sued the company Monday over Iger's selection.

Disney's in-house animation studio is in disrepair, and its revenue-sharing deal with Pixar will expire after the release of


next June. Pixar and Disney have enjoyed a troubled relationship. Jobs felt that the terms didn't favor his company and is now looking for more independence and a different distribution model looking forward.

A reconciliation with Pixar would mark a major early victory for the new studio head. "I've had nice conversations with Bob

Iger, though we're not in negotiations," Jobs said during the Pixar call last week. Jobs indicated that he would be negotiating with studios in coming months looking to broker an arrangement by year's end. He added that it shouldn't take them long to figure out if fences could be mended.

"I think it's better for both if they do a deal," says one analyst who has followed Disney. "Pixar is the gold standard, but Disney provided good service." The analyst cites Disney's successful marketing of Pixar's films and says that, "ultimately,

Pixar has to get its product to market."

But to keep the linkup, Disney will have to give Pixar a much sweeter deal than in the past. Jobs has said that rights to produce sequels will factor into negotiations. Pixar now has the wherewithal to finance its own films, but Jobs still needs to team with a studio to distribute the films. None of the big contenders is lining up to do a deal with Pixar, and Disney holds the sequel rights to past successes. In other words, there is ample horse trading to be done.

Possible partners, other than Disney, include

Time Warner's


Warner Brothers or

News Corp.'s


20th Century Fox. If the Disney relationship were to end, it would leave both studios in murky waters, where Pixar's established hits are concerned.

Finding Nemo

garnered $865 million in worldwide box office sales and

The Incredibles

has surpassed $600 million in sales.

Iger will be hard-pressed not to capitulate to Pixar's needs, given the state of Disney's fabled animation house. But for all of its successes, Pixar will not want to leave itself vulnerable to distribution woes down the road.

On Monday, Disney rose 17 cents to $27.06, DreamWorks rose 9 cents to $38.64 and Pixar added 29 cents to $48.99.