Drawing the battle lines in animation

WHEN Finding Nemo is proclaimed Best Animated Feature at the Oscars ceremony on Sunday - it is the biggest shoo-in of all time - it will be a bittersweet occasion for the embattled Walt Disney Company.

The film's co-production company, Pixar Animation Studios, said last month that it would not be renewing its creative partnership with the Mouse House when it expires in 2005, thereby ending a relationship that has yielded five of the 10 biggest-ever grossing animated films.

These include Toy Story, Toy Story 2, A Bug's Life and Monsters Inc, winner of the inaugural Best Animated Feature Oscar. Finding Nemo, the most commercially successful animated film of all time, is in part responsible for increasing Disney's earnings by 8% in 2003.

Investment bank Lehman Brothers estimates that Pixar will have accounted for 45%, or $1.1bn (£588m), of Disney's entire operating income from 2000 to 2005.

This will be weighing on the shoulders of Disney shareholders, who are digesting the implications of Comcast's $60bn takeover bid, especially when they consider that some of Disney's recent in-house animated film projects have flopped while others have been yanked from production schedules.

Under the terms of the deal with Pixar, the San Francisco-based company pays for the movies' production costs and Disney pays $100m to market and distribute each title. Once Disney has recouped a distribution fee, both companies share equally in the profits.

However, Pixar chairman Steve Jobs believes his company, which is worth an estimated $4bn, is now a bigger animation force than Disney. He wanted to hire Disney's marketing and distribution structure in the way that George Lucas hires 20th Century Fox to release his Star Wars films. When Disney would not play ball, Apple Computer co-founder Jobs told chief executive Michael Eisner that he would have no trouble finding someone else who would.

But Pixar is not the only studio to have scented Disney's blood in the animation arena. Ever since Toy Story's release in 1995 proved that computer animation could produce blockbusters relatively cheaply and quickly, every Hollywood mogul has been in a frenzy to create his own digital magic kingdom.

Sony Pictures Entertainment quietly opened its own computer-animation unit last year to create movies in collaboration with Imageworks, its digital effects unit. Fox has created an arm called Blue Sky to make computer-animated fare such as the well-received Ice Age while Warner Bros has beefed up its computer animation division to cash in on its own rich heritage, such as Scooby-Doo.

But, the company really hoping to hurt Disney is DreamWorks, founded in 1994 by Steven Spielberg, David Geffen and former Disney studio chief Jeffrey Katzenberg.

Since DreamWorks' creation, Katzenberg has been eager to get his own back on his old chief executive Mike Eisner whom he believes sidelined him even after he had delivered The Lion King. Audaciously, DreamWorks' smash computer-animated film Shrek made several jokes at Disney's expense.

Industry insiders say DreamWorks is plotting a stock market listing for its animation division in the autumn to coincide with the release of Shark Tale, which features the voices of Will Smith, Robert De Niro and Angelina Jolie.

Representatives of investment banks JP Morgan and Goldman Sachs have reportedly been retained to make presentations on the proposal. This activity signals an attempt to rouse potential investors and to assess the likely level of support before the studio principals make their final decision on whether to proceed with the float.

In any event, DreamWorks' reputation as a major animation powerhouse will at least be enhanced this spring with the release of Shrek 2 and start of production of Shrek 3.

Some now believe it is possible that DreamWorks and Pixar - in tandem with whichever new distribution partner it eventually hooks up with - might redraw Hollywood's animation map so it features a much smaller Magic Kingdom.

But there is still one other major force to be reckoned with. Remember how in George Lucas's Star Wars movies, Darth Vader sires Luke Skywalker and abandons him, only to discover years later that Luke has grown into a powerful adversary? Life is about to mirror art in Hollywood. Steve Jobs renamed as Pixar Animation Studios the fledgling computer-effects division he bought from Lucas's Lucasfilm for $10m in 1986 as little more than a hobbyist's indulgence. Now, it seems, Lucas is preparing to take on his progeny.

Lucasfilm last year formed Lucasfilm Animation, a new division that has been gearing up to produce state-of-the-art computer-animated features. Like Pixar, Lucasfilm has already tried co-producing computer animated features with a major studio.

Lucasfilm's effects unit, Industrial Light & Magic, collaborated with Universal Studios in the late 1990s to develop computeranimated versions of Frankenstein and Curious George until Universal pulled the plug on both projects.

Now Lucas looks likely to go it alone, possibly distributing the eventual films through Fox. Lucasfilm politely says it is far too early to discuss the new animation company, let alone whether it has any projects in development.

However, it is looking to fill at least 75 positions ranging from computer animators to motion-capture technicians, indicating that it is building a new Californian studio that could rival Pixar in scale. When that is up and running, the battle lines will really be drawn.