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Pixar, Disney deal could change digital landscape

Posted by iNext - 2006-01-21

A possible merger of the Walt Disney Co. and Pixar Animation Studios Inc. , if successful, could give Pixar chief Steve Jobs the power to break down barriers that have long existed between online content, computer hardware and digital distribution.
The Wall Street Journal reported on Thursday that Disney was in talks to buy Pixar for $6.7 billion in stock, making Jobs -- who is chief of both Apple Computer Inc. and Pixar -- Disney's largest individual shareholder and possibly winning him a place on its board of directors.

Jobs could conceivably exert his new-found influence at one of America's biggest content companies, which is home to ESPN, ABC-TV and Walt Disney Studios, to feed Apple's digital music and video download service iTunes.

Media companies have been wary about Internet-based delivery of content because of problems with piracy, while personal computer makers have been eager to obtain more content to spur their own sales.

Analysts were divided over whether a close association with Apple and its cutting-edge digital delivery system would juice up the value of Disney's extensive film and television library.

Prudential Equity Group analyst Katherine Styponias said the convergence of content and technology posed by the Jobs' addition to the Disney board was crucial to Disney's growth.

"We believe it is critical that media companies gain a greater understanding of technology and the impact it may have on their businesses," Styponias wrote in a note on Thursday.

"In our view, no company understands both technology and the consumer better than Apple."

Analyst Jeff Logsdon of Harris Nesbitt said: "There's lots of reasons (a merger) makes lots of sense."

But he added that the market for online downloads has not developed enough to show how a Disney-Apple content partnership would play out.

"If the speculation is accurate that Steve Jobs would go on the (Disney) board, that certainly brings one of our generation's more innovative applied technologists into their umbrella," Logsdon said.

"I think there are emerging (distribution technologies) that can conceivably generate significant consumer interest and spending.."

In October, Disney Chief Executive Robert Iger cut a deal with Apple to offer a number of ABC-TV shows, including "Desperate Housewives" and "Lost" for download on iTunes.

The deal has aroused particular interest among television networks and, in December, General Electric Co.'s NBC Universal also struck a non-exclusive deal to offer content on iTunes.

Jobs said at the Macworld conference in San Francisco last week that the iTunes Music Store has sold 8 million videos since the program launched in October.

And on Thursday, Nielsen//NetRatings said traffic to Apple's iTunes Web site and use of its iTunes application has risen 241 percent over the past year to 20.7 million users, or nearly 14 percent, of the active Internet users.

Jupiter Research analyst David Card liked the idea of a Disney-Pixar tie-up, but said Disney does not need to buy Pixar to continue to expand its online relationship with Apple.

"It's not as if Iger and Jobs don't return each other's calls now," Card said. "Jobs would bring a great addition to the Disney board that is not very tech savvy ... but the Disney guys are thinking about this (digital distribution) already."

Pixar shares closed up 2.8 percent, at $58.87 in Thursday trading on Nasdaq. Disney shares closed up 4 percent at $26.24 on Thursday on the New York Stock Exchange.

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