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Walt Disney’s acquisition of Pixar signals the Magic Kingdom’s need to reinvigorate a fading animation department with the industry’s best talent. Animated characters, after all, are central to Disney’s business, leaping from the screen to its theme parks, consumer products and even a cartoon-themed cruise line.

Yet viewed through a broader lens, the deal highlights the growing importance of content in a media landscape being reshaped by digital distribution.

Bob Iger, Disney’s chief executive officer, was adamant about the significance of the Pixar deal. “The goal, above all else, is to make great animated films,” he said on Tuesday. “The rest kind of takes care of itself.”

Wall Street analysts and media barons are betting that video-on-demand, mobile phones, the iPod and other emerging digital outlets will present Disney and other content companies with the opportunity to milk new revenues from their best material.

“We continue to believe content is becoming more and more valuable as distribution outlets proliferate,” says Richard Greenfield, an analyst at Pali Research.

There are growing signs that buyers are prepared to pay a premium for good content. Paramount is in talks to sell the DreamWorks live-action film studio’s library to a private equity firm for up to $1bn – a hefty sum for a library that contains less than 60 films.

Just over a year ago, a consortium led by Sony won a fierce fight for the MGM film library, agreeing to pay $4.8bn.

And in the radio sector, Sirius has handed shock jock Howard Stern the astronomical sum of $500m over five years in an effort to lure subscribers and advertisers.

In television, the newly liberated CBS has begun to market itself to investors as a creator of premium programmes, such as Crime Scene Investigators, while playing down its distribution assets.

Meanwhile, Disney’s Pixar approach has generated talk about the future of two other mid-sized studios with a record for producing lucrative hits: DreamWorks Animation, which brought Shrek to life, and Lionsgate Entertainment, the backer of highly profitable horror films Saw and Hostel.

Both have seen their shares gain more than 5 per cent since the Pixar talks became public last week.

“These content companies go in and out of consolidation phases,” says Laura Martin, an analyst at Soleil Securities. “There are periods when they go independent, and periods where they’re acquired by bigger conglomerates. This is one of those periods.”

Soon after taking over at Disney, Robert Iger demonstrated the new ways that the company intended to take advantage of its content. In October, he announced a plan to sell ABC’s hit television programmes Desperate Housewives and Lost for download through Apple’s iTunes store. Rival networks, along with Warner Brothers, Hollywood’s biggest television studio, quickly followed suit.

At the film studio, Mr Iger has said that he would like to focus on creating franchises, such as Pirates of the Caribbean, that lend themselves to sequels, and can be exploited across the company’s businesses.

The guiding rule, it seems, is that with consumers facing more media options than ever, and the ability to record shows, quality is key.

“With more [distribution] channels, it’s important to have ‘must-have’ content and brands that cut through the clutter,” Tom Staggs, Disney’s chief financial officer, told investors last week. Pixar, with its unprecedented string of hits, from Toy Story to The Incredibles, would presumably fit the bill.

While such deals have grabbed headlines, and led to talk about revolutionising the industry’s business models, they are still more promise than profits.

Mr Staggs, for example, recently disclosed that Disney had sold more than 1.5m downloads through iTunes in little more than three months. At $1.99 per episode, that would amount to less than $3m. ABC, in contrast, reaps traditional advertising revenues of $9.9m from a single episode of Desperate Housewives, according to Nielsen Media Research.

There is also the risk that new distribution outlets such as iTunes will cannibalise existing ones – such as DVDs.

MGM may be a case in point. It has made dramatic gains since it was acquired. The studio was generating $40m a year in earnings before interest tax depreciation and amortisation as a standalone company. Under its new ownership, that figure has swollen to nearly $300m, according to estimates by Soleil’s Ms Martin.

However, much of the gains have come from cost-cutting, rather than from selling James Bond films to new distribution outlets. One could argue that Paramount paid a premium for DreamWorks and Disney is offering a high price for Pixar not because of the promise of selling films online, but because both acquirers need to shore up their own ailing studios.

And there is always the question of whether smaller, more creative companies such as Pixar can retain their magic in a larger conglomerate.

Copyright The Financial Times Limited 2017. All rights reserved.
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