Pixar (PIXR – NASDAQ) has combined artistry, storytelling and cutting edge technology to create some of the most lucrative films of all time. The company had a distribution agreement with Disney for its first six films (through 2005), which it recently decided not to renew in favor of finding better financial terms elsewhere. This may prove to be an attractive entry point for investors, as uncertainty about a new distribution deal has kept a lid on the stock despite fantastic revenue and earnings figures.
Pixar is a digital animation studio that has been on the vanguard of a new generation of animated feature films. The company focuses on producing computer-animated feature films that appeal to audiences of all ages. Pixar has created five full-length animated feature films: Toy Story, A Bug’s Life, Toy Story 2, Monsters, Inc., and the Oscar-winning Finding Nemo, all of which have had extraordinary success at the box office and on home video. The company’s sixth feature film, The Incredibles, is scheduled for U.S. release this November.
Under its agreement with Disney, Pixar agreed to share the production costs of its feature films, with all profits shared 50/50. With Pixar’s track record and increased financial strength, it plans to land a new agreement with a distribution partner under which it will keep 100% of the ownership rights to its films, thereby substantially boosting its profits from successful films. This will increase the risk profile of the stock, but also provide far greater upside potential.