Minority Report: Disney, Pixar and Apple - what happens next

Can you say Apple media centre?
Written by Seb Janacek, Contributor

Can you say Apple media centre?

With Steve Jobs now holding a seat on Disney's board, the speculation has begun about what sort of media plans the Apple chief has in store for his Cupertino company. Seb Janacek places his bets on what to expect.

Disney last week announced a $7.4bn takeover of its sometime-partner, sometime-rival Pixar in a move that is certain to be hugely significant for Apple.

On the face of it, the deal looks more like a Pixar takeover of Disney rather than the other way around, with key Pixar personnel taking over chief creative and executive roles in the new parent company.

However, the key appointment is that of Pixar (and Apple) CEO Steve Jobs to the board of Disney directors.

In addition to making Jobs considerably richer - a largely academic consideration for someone who is already a multi-billionaire - the deal also makes the Apple CEO the single largest stakeholder of the merged animation giant.

For the legions of diehard Pixar fans, the deal puts him in a strong position to maintain the quality of Pixar's creative offering, which seems to get better with every movie compared to the undeniable decline in Disney's recent output - The Incredibles versus Brother Bear? No contest.

More significantly, the move cements Jobs' position as the most influential business leader in the ongoing convergence of content and online delivery and establishes him as a major Hollywood player (to coin the industry parlance) as the film studios look to extend their digital horizons.

The prospect of Jobs joining Disney was widely tipped throughout 2005. However, rather than a Pixar buyout, many speculated Jobs was in pole position to take over from former chief executive and adversary Michael Eisner.

That speculation ended when current Disney CEO Robert Iger formally donned the Mickey Mouse ears in October 2005. Importantly, the departure of Eisner and the appointment of Iger also healed the relationship between Pixar and Disney, with the two CEOs swiftly closing the rifts that opened during the twilight of Eisner's tenure.

Perhaps a tad over-optimistically, many are already speculating that Jobs has the Disney CEO position in his sights. After all, look what happened when he sold NeXT to Apple and took on a temporary consultancy role at the company he joint-founded?

While that's unlikely, Jobs is equally unlikely to take a back seat role at Disney. Part of the package for Disney was undoubtedly his track record in guiding the iTunes Music Store to fruition as well as the creative excellence of the Pixar animation team.

Either way, Jobs is now in a key position to help guide Disney's considerable network assets down the digital delivery channel.

So what's in it for Apple? The Mac maker could stand to benefit not only from a content distribution deal with Disney's own animation studios but also from its extensive collection of broadcast networks, including ABC and ESPN. Indeed, the seeds of the close relationship between Apple and Disney have already borne fruit.

Pixar short films have been available on iTunes since video met the iPod. Disney animated shorts followed hot on the heels of the Pixar acquisition and suggested a taste of things to come.

In addition, Jobs has already forged a number of deals with Disney-owned networks to distribute programmes via the iTunes Music Store.

The Apple CEO has proved that online delivery of music can work and video-on-demand seems the most likely candidate for the full iTunes treatment.

In an interview with CNBC following the merger, Jobs stated that Disney CEO Iger was the first person he called to break the news about the video iPod and predicted that the next five years were going to be "pretty exciting".

During the same interview, Iger said Jobs would be a "big voice" inside Disney and added that the relationship with Apple has "tremendous potential", with room for growth.

In some ways the hard part is over for Jobs. Apple's emergence in recent years as a fledgling media company has been dependent on fickle third-party suppliers - the record labels and their jittery apprehension about the legal download market, for instance.

In the music marketplace, consumers don't purchase based on label - so having a large collection of downloadable music from a wide range of major and independent labels was essential for the credibility of the service.

Conversely, video-on-demand is more logically aligned according to individual channels, allowing Apple to add additional networks and franchises on an iterative basis rather than requiring a comprehensive established content offering.

With its existing content offering and the potential of access to the whole Disney catalogue of content, Apple has a chance to prove that the concept of video-on-demand can work and convince other networks to join the party.

During the CNBC interview, Jobs hinted that the existing Apple and Disney-Pixar collaboration would prove fruitful due to the nature of its content.

"You may watch your favourite live action film three, four, or five times in your life," said Jobs. "But for a great animation film, your kids may watch it a dozen or a hundred times."

Something most parents can probably relate to from painful experience.

Ultimately, if Apple tries to forge an online distribution deal with Disney, it's likely to follow the same revenue model that made its foray into online music so successful - sleek, sexy hardware.

Apple makes the vast majority of its money off the back of iPod sales and not off its revenues from iTunes music tracks where its margins are notoriously thin.

It's probable the company will launch a new device to deliver video content. The video-enabled iPod is an existing candidate and already allows users to watch videos stored on its hard drive on TVs.

However, the prospect of video-on-demand may point the way towards the long rumoured home media device or entertainment hub.

The Apple media centre recently adopted the mantle of 'most anticipated bit of new Apple kit', taking over from former incumbent the G5 PowerBook. RIP.

The inevitable emergence of such a device has long been predicted by analysts and bloggers alike.

It's believed the mythical beast will take the form of a Mac mini with 'Tivo-like' functions.

The launch of an Apple media centre has been awarded more credence recently given that Apple's other new best friend, Intel, hasn't exactly been shy in its advances to the Hollywood studio moguls about the exciting potential of digital video.

The 2005 launch of Intel's so-called EPC (Entertainment PC) digital hub didn't cause much of a stir, even if it did bear an uncanny resemblance to a Mac mini.

However, it's not hard to see what the chip maker could gain from an alignment with a company possessing Apple's marketing savvy and proven track record on selling must-have consumer products.

Intel has invested considerable research into developing companion chipsets that are tailor-made to fit into consumer digital entertainment devices. With reports circulating that the chip giant will not only provide the processors but also design the motherboard for the next-generation of PowerMac, what are the chances it could do the same for an Apple digital entertainment hub?

Meanwhile, Apple's Front Row technology, currently available on the iMac and the MacBook Pro, lets you browse media files with a diminutive remote control.

As snazzy as Front Row is, it seems far more suited to a living-room device linked to a larger screen rather than a desktop or laptop computer. The technology seems like it's a soft launch in preparation for the launch of a different kind of device.

However, the big challenge for Jobs will be how he manages his multiple pursuits and balances the best interests of the stakeholders of Disney and Apple.

It will be quite a juggling act and he needs to tread with considerable care at board level to avoid any question marks over conflicts of interests. Of which there are likely to be many.

This balancing act needs to take place long before any really interesting decisions over digital rights management are made. No doubt the legal teams at Real and Microsoft will be watching his every move with much interest.

Many have commented on the parallels between the AOL-Time Warner merger and the permutations of an Apple-Disney 'special relationship', although the Pixar merger has been forged in eminently more stable and pragmatic times with lessons learnt from the fallout of the poster-child merger of the dot-com boom.

Delivering what is undoubtedly the next evolutionary stage for the iTunes Music Store and the online delivery of content - from Disney and beyond - will prove a massive challenge, even for such an agile business leader as Jobs.

He'll need to keep a fair number of plates spinning atop a fair number of poles and draw on his sizeable resources of negotiation, acumen and, above all, persuasion.

Time to turn the Reality Distortion Field up to 11.

Editorial standards