Talks have ended between Pixar and Disney regarding their distribution deal:

Pixar Animation Studios Inc. said Thursday it ended talks with Walt Disney Co. to extend a five-picture deal for Disney to distribute Pixar films.

Pixar, the computer animation pioneer founded by Apple Computer Inc.'s Steve Jobs, said it would begin talks with other companies to distribute its films starting in 2006.

"After ten months of trying to strike a deal with Disney, we're moving on," Pixar CEO Steve Jobs said in a statement. "We've had a great run together — one of the most successful in Hollywood history — and it's a shame that Disney won't be participating in Pixar's future successes."

The move was a clear setback to Disney, which reaped a financial and critical bonanza from the partnership and has struggled with its own strategy for animation.

Disney said Pixar's final offer would have cost Disney hundreds of millions of dollars from the existing distribution deal and was not sweet enough going forward.

....Pixar said its five films so far — including "Toy Story", "Monsters Inc." and "Finding Nemo" — have taken in $2.5 billion at the worldwide box office and sold more than 150 million DVDs and videos. "Finding Nemo" was the highest grossing animated film of all time.

Pixar had complained that the terms of the distribution deal were tilted too heavily in Disney's favor. Under the deal, Pixar was responsible for content, while Disney handled distribution and marketing.

In exchange, Pixar has split profits with Disney and pays the studio a distribution fee of between 10 percent to 15 percent of revenue. Based on its blockbuster success, Pixar has argued that it should keep the profit itself and cut the fees its studio partner charges.

...."It makes it look like Eisner did something wrong again, but we shouldn't jump to conclusions. This could be a negotiating tactic by Pixar as well," Patrick McKeigue, an analyst at Independence Investment, which holds Disney shares, told Reuters.

Roy Disney and ally Stanley Gold, who both resigned from the Disney board late last year and called for Eisner to step down, placed the blame squarely on the Disney CEO.

"More than a year ago, we warned the Disney board that we believed Michael Eisner was mismanaging the Pixar partnership and expressed our concern that the relationship was in jeopardy," they said in a statement issued late Thursday.

Disney noted in its statement that it owns rights to all the Pixar movies, as well as two more animated features yet to be delivered — "The Incredibles" due this year and "Cars", expected in 2005. [CNN/Money]

Either way, Pixar has the content and knows it - they hold the cards.