Will Pixar's Magic Dust Pay Off for Disney?
by Marc Gunther

(FORTUNE Magazine) - What exactly did the Walt Disney Co. buy when it agreed to acquire Pixar for $7.4 billion? Disney gets a library of six hit Pixar movies, among them Toy Story, Monsters Inc., and The Incredibles. It gets Pixar's future releases, including Cars (due in June). And it gets Pixar's $1 billion in cash.

On the surface, that doesn't add up to $7.4 billion of assets. Viacom just bought DreamWorks SKG, which has a library of 59 films, including Gladiator, as well as the services of Steven Spielberg, for $1.6 billion. The market values DreamWorks Animation, a public company that made Shrek and Shrek 2 (the latter of which is the top-grossing animated movie ever), at $2.8 billion. By other metrics also, $7.4 billion seems pricey: Pixar has reported total revenues of $1.4 billion and net income of $699 million since 1995.

What Disney is really buying is the hope that John Lasseter, 49, Pixar's legendary animation chief, will sprinkle a little Pixar magic on Disney's struggling animation shop. That's vital, because popular characters can drive TV shows, theme park rides, and consumer products. Strategically the deal makes perfect sense, or at least investors seemed to think so: Disney's stock held steady in the aftermath of the deal's announcement. It's probably too much to hope that Pixar will reanimate all of Disney. But a couple of Pixar-sized hits would make CEO Robert Iger feel incredible. Top of page

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