Pixar's progress: To Disney, and beyond

The man who created the iPod may be on the verge of a deal that would net him $3.5bn, reports David Usborne
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Spare your tears of sympathy, however. Mr Jobs, who dresses in a casually hip uniform of all-black almost whenever you see him, even now that he has turned 50, derives decent enough wealth from the shares he holds in Apple, which celebrates its 30th anniversary in April. He takes cash if it earns a profit, which, thanks to a music downloading gizmo called the iPod, it has had no difficulty doing of late.

You may have forgotten, however, that Jobs has interests beyond Apple. Pixar is the name of the computer-generated animation film studio that he bought from the Star Wars producer George Lucas in 1986. In the past decade it has been a mighty money-spinner too, delivering six of the most successful box-office hits of modern times, including Toy Story, Finding Nemo, Monsters Inc, and, in 2004, The Incredibles.

But here comes the best part. If the Wall Street rumours are true, a deal is likely to be announced as early as this morning for the sale of Pixar to the Walt Disney Company for as much as $7bn (£4bn). With just more than half Pixar's shares held in his name, Mr Jobs could go to sleep tonight $3.5bn richer.

Not bad for someone who dropped out of college bored with his classes and decided instead to crash evening lectures on emerging computer technology at a local firm called Hewlett-Packard. You know the rest of the legend - Jobs and another techie-nerd pal called Stephen Wozniak commandeered his family's Silicon Valley garage and began tinkering with making computers. And so Apple was born.

Long before today, the story of Jobs and his fluctuating fortunes was arguably the most gripping of any captain of American industry, and certainly of anyone among his peers in Silicon Valley. Scores of books have been written on him, including a recent unauthorised biography which spurred Apple to ban any other titles issued by the same publisher from being sold in its worldwide chain of stores.

Apple famously ousted Jobs in 1985, when the job of CEO went to a former Pepsi-Cola boss, John Sculley, and then begged him to come back 10 years later when the Cupertino-based company was on its knees, close to oblivion. Then there is the turnaround that Jobs has engineered at the company in the years since.

If Jobs has always portrayed himself as an outsider in the club of Silicon Valley chief executives, that is because that is what Apple has always been. Even today, its computer platforms are a mere speck on the universe of computerdom beneath the Windows platform of Bill Gates' Microsoft.

Yet Jobs managed to bring Apple back from the brink, as a first step introducing the popular iMac series of computers. He persuaded his creative department to make his computers look cool. Graphic designers liked the translucent boxes and then the space-age white curves and flat screens of his machines. So did anyone else who wanted to "Think Different", or just be different, like Apple.

Without question, however, it has been the iPod and its successors, the Mini- and Nano-iPods, that have turned Apple into a juggernaut of profit-creation. More than the little machines themselves, it has been the genius of Jobs in understanding the power available to consumers to download content - music primarily, but increasingly video also - from the internet.

The centrepiece of the strategy has been Apple's iTunes software that makes the downloading possible. While many established record companies were fighting the concept of feeding music to consumers from the Web, Jobs was busy pushing and exploiting it. He has humiliated such titans as Sony BMG and Warner Music, who for too long obsessed about dropping CD sales. Sony, inventor of the WalkMan, made the double mistake of not coming out with its own iPod style player until it was much too late seriously to challenge Apple.

In the Christmas financial quarter just reported, a profit-bloated Apple sold 14 million iPods worldwide, worth more than $5bn. Meanwhile iTunes, according to figures released last week, has reached 14 per cent of all regular users of the internet.

Yet entire new books will be written if the Disney deal goes through. Not only will Jobs become the single largest private shareholder of Disney, he is likely also to get a seat on the board. There are even mutterings in Mickey Mouse Land that when the chairman of the company, the former US senator and Northern Ireland peace mediator George Mitchell, steps down next year, it will be Jobs that takes over.

Pixar and Disney are far from strangers. Since before the release of its first mega-hit a decade ago, Toy Story, Pixar has been partially in bed with the Mouse. Under the deal between them, Disney provided half the financing for Pixar's projects and agreed to promote and distribute them. It was a partnership that worked well. No studio has more reach into the market than Disney, especially where young audiences are concerned. Disney got to exploit the film's characters with merchandise and theme park attractions - the Buzz Lightyear rides are still among its most popular - and take a share of the profits.

And Pixar's takings have not been puny. Over the 10 years, it has been a computer-generated hit factory, its six films taking in gross revenues worldwide of $3.2bn. In fact, it has put Disney's legendary animation studios in the shade. The last animated hit Disney can count was Tarzan back in 1999. Its first serious attempt at computer-animation, Chicken Little, was considered a disappointment.

The impending nuptials have in fact been born of two years of squabbling. After the relationship between Jobs and the former Disney CEO Michael Eisner began suddenly to unravel, Pixar broke off talks last summer about renewing the deal between the two companies which is due to expire with the release of its next feature, Cars, this June. Eisner left Disney last autumn, however, and the new Disney chief, Robert Iger, apparently made repairing ties with Pixar his first priority.

By all accounts, Iger has done more than just repair the romance. A first hint of things to come surfaced earlier this month at an Apple convention when Iger appeared on stage with Jobs to announce a deal whereby television programming from another of Disney's companies - the ABC network, which also includes the cable sports outlets ESPN - would be made available as downloadable content on Apple iPods. (Get ready for dazed commuters on the underground catching up with the latest episodes of Desperate Housewives on the way to work.) Clearly, the two men had something going again.

If the marriage is announced this morning, the only question remaining will be whom will it benefit most, Jobs or Iger?

Navigating the changing landscape of technology, broadcasting and entertainment takes more than Mickey's smile and a sprinkling of pixie-dust. By recruiting Jobs on to his board, Disney will have in its midst the man who more than any other seems to understand the changing digital DNA of the industry.

"For a number of years, people have talked about the convergence of media and technology and it's never quite really intersected to the degree that people thought it would," said the analyst Anthony Valencia of Los Angeles-based TCW Group, which is Pixar's second-largest shareholder. He contends that Jobs is "a visionary. He is somebody who is uniquely able to meld the two camps."

By swallowing Pixar, Disney may also be acquiring new blood for its animation department, which by almost any outside reckoning has been losing altitude for years. To some, it is even an admission by Disney that despite its venerable history of animation - going all the way back to Mickey, Minnie, Pluto and Bambi - it hasn't been able to keep up in-house. It has been shown up not just by Pixar but also by the animation successes of Dreamworks SKG, creator of the Shrek franchise. (And Dreamworks was itself just recently gobbled up, by the Viacom-owned Paramount Studios.)

"Disney is perhaps revealing a slight lack of confidence to want to mimic Pixar's success internally," noted Anant Sundaram, a professor at Dartmouth College's Tuck School of Business. "If that assessment is true, then it is a somewhat unfortunate admission from a once-great company that fundamentally created, and defined this space."

In Jobs, Disney will have a new voice that is unlikely to be faint or gentle. His entry into the fold may quickly shake up its strategy. "Jobs is a maverick guy who's not afraid to speak his mind," said Joe Bonner, an analyst at Argus Research in New York. "He's outspoken. He would not be a quiet little boy on Disney's board."

He has made several public criticisms of Disney in recent years, ridiculing it for over-exploiting its past successes such as Lion King, calling some of its sequels of past films just "embarrassing".

Jobs himself, meanwhile, will find himself catapulted into a position of putative Hollywood media mogul. This may make sense to some. As chief of Pixar, even though it may only be a boutique studio, he has long had more than half a toe in the content side of the entertainment industry. The revolution created by the iPod and all that it can deliver to consumers has made that ever more so.

Yet those who know him may find the title "mogul" perplexing. At the end of the day, if Jobs has genuine genius it lies in the sphere of technology - pushing out the boundaries of where it can take us and harnessing it in products that sell. A few fans of Pixar worry additionally that the creative flair its animators have exhibited could become smothered once they become part of the sprawling Disney family.

Whatever potholes may lurk, this is likely to be a sweet day for all those diehard fans of Jobs and of his Apple creations who for years and years endured the mockery of the Microsoft crowd.

Jobs is an odd cheese. But now the cheese is about to own a part of Mickey Mouse. Not bad at all.