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NEW YORK (Reuters) - Shares of Pixar Animation Studios Inc. rose while those of Walt Disney Co. fell on Friday after the two failed to renew a lucrative film deal that yielded blockbuster hits for both companies.

Pixar shares rose 4 percent on the belief that it had the upper hand, as a list of suitors would likely line up to strike a deal. Disney shares fell 2 percent on concerns operating income at its filmed entertainment division could fall by 50 percent.

Talks between Pixar, which is run by Apple Computer Inc. co-founder Steve Jobs and Disney broke down on Thursday after 10 months of negotiations.

"We believe that Pixar has the upper hand relative to Disney, and it would be an attractive studio partner for all of Hollywood's major, global distributors," said Paul Kim, an analyst at Tradition Asiel. Kim said in a note Time Warner Inc.'s Warner Bros. was a potential front-runner among partners.

Kim said the split with Pixar could shave as much as 7 cents per share off Disney's estimated 2004 earnings.

But some analysts cautioned against a backlash on Disney's stock.

"We believe Disney will survive this setback, and will remain a powerhouse in animation, even after Pixar," said Jordan Rohan, an analyst at Schwab Soundview Capital Markets, in a research note. "We will only know for sure after 2006."

Pixar is still committed to deliver two more movies -- "The Incredibles" and "Cars" -- to Disney.

"We believe the economics that Pixar was seeking were not beneficial to Disney," said Mike Kupinski, an analyst at A.G. Edwards, in a note. "We would view any weakness as a buying opportunity, as we believe Disney's fundamentals are improving."

Shares of Pixar, whose films include "Finding Nemo" and "Toy Story," traded up $2.78, or 4.33 percent, at $66.98 on the Nasdaq market on heavy volume.

Disney shares lost 57 cents, or 2.33 percent, at $23.88 on the New York Stock Exchange.

Jihforce

what a shame. I think the two made such a good team too. Personally I do not see Pixar as having that big of an upper hand. They have fantastic animators there, but a lot of the reasons why they were successful was also because the stories we extremely well written.

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gear02

I'm kinda happy. I think Disney was putting too much pressure on them and potential suffocating their creative genious that made them what they are now. Plus, I don't doubt that Pixar was getting screwed with the profit taking of Disney, since Disney depends heavily on Pixar for their income. Disney recently terminated all 2-d animation so they're pretty screwed, which is fine for me since I really don't care much for Disney.

ray

This is terrible news for Disney as a huge part of their consistency in the past 5 years was due to their partnership with Pixar.

I am hoping that my employer, NBC/Universal can land some sort of distribution deal. This will further help my job security in the next 6months since we will have access to sell the Pixar product catalog. Animated films that are intended for all ages would be such an easy sell in foreign territories where subjects like war, politics and terrorism don't go well with hundreds of broadcasters.

kimchicowboy

good. i hate disney movies after beauty and the beast. pixar stuff was ok.

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johnnymk

Eisner seems like a control freak. I am glad to see that the better half went their own way.

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gear02

Speaking of control...check this article out:

http://money.cnn.com/2004/01/30/tech...ex.htm?cnn=yes

Now I know why Pixar wanted to redo the deal. They have control over the rights of all the movies made under the Disney-Pixar relationship. Heck they can make a Toy Story 3 without any input from Pixar, although they have the right of first refusal.

I will bet that Disney will strangle as much money out of these Pixar characters until they're bone dry. They've done that with their previous stuff.

bachviet

This is bad news for Disney especially Eisner since Roy Disney now has some ammo to take him down.

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