Attack of the Baby Pixars

This isn't the end of Hollywood, of course. IDT, for example, does its scripting and storyboarding in Los Angeles, which has an unmatched concentration of writing talent, then exports the laborious frame-by-frame execution of the animation itself. (IDT actually bought two studios in Canada, which offers big tax benefits, to fill that role.)

Vanguard Animation took a similar approach for its animated feature, Valiant, about a pigeon in World War II. Vanguard did the early creative work in L.A., then gathered 200 people from 17 countries in the UK. Wild Brain, which has a deal to produce feature films for distribution by Disney, has long tapped animators in China, India, Malaysia, and South Korea for Higglytown Heroes, its series on the Disney Channel. And Threshold's Foodfight! was created by 100 animators working in Australia, Europe, and South Korea, along with two dozen in L.A. "What do we care if a guy is in Van Nuys or India?" says Kasanoff.

"Everything in this globalized market is about finding the best place to get things done at lower costs," says Guggenheim. "I can't tell you how many people have said to me, 'We want to build the next Pixar in . . . blank.' The studios we deal with are like call centers but with very talented artists. The next Pixar isn't going to be a big building in Emeryville. It's going to be groups around the world, networked together."

Cheap software and cheap, interconnected labor make possible another radical assault on the status quo. By lowering the costs of production, they enable the little guys to hold on to their intellectual property, rather than ceding it to the studios.

For decades, Disney, Fox, Universal, and the rest have played three main roles: They financed the making of the films, got the movies into cinemas around the country, and paid to advertise and promote them. And even though they sometimes spread around pieces of the revenues, they tenaciously held on to copyright ownership. Those rights accumulated over the years into collections of intellectual property, libraries of hundreds of films, worth billions of dollars because of their licensing potential. So, essentially, the studios have served as bankers, marketers, and owners.

Then came Pixar and Steve Jobs. When Pixar made Toy Story, it received just 12.5% of the film's revenue. Emboldened by the film's success, Jobs subsequently renegotiated his deal so that Pixar and Disney would split the box-office receipts for Pixar's next five movies. But with the jaw-dropping performance of that six-film run--and now that Pixar's deal with Disney has run its course--Jobs is taking no prisoners. He has insisted that in any future deal, with Disney or any other studio, Pixar will finance the films and retain the copyright, while its partner would receive a mere single-digit percentage of revenues as a distribution fee. In other words, now Pixar will be the banker and owner; the studio, simply a marketer.

It was one thing for Jobs to demand this kind of deal. Pixar may have toiled away invisibly for nine years before producing Toy Story, but the company now arguably has the best track record in Hollywood's history, and its success allows it to underwrite a $100 million-plus production. But how can the largely unproven next generation come up with the cash required to assert similar control?

Astonishingly, the low-risk, high-reward potential of digital animation has generated tremendous interest in investors far from Hollywood. Phil Knight, cofounder of Nike, recently bought Will Vinton Studios, the animation house in Portland, Oregon, where his son worked. Knight renamed it Laika (after the 1950s Soviet cosmo-dog) and bankrolled it to make animated feature films. And "there's an enormous amount of money in Asia to produce animated motion pictures in the $25 million to $50 million range," says Ellen Goldsmith-Vein, who runs the Gotham Group, a management company for many of the top writers, directors, and producers of digital animation. Taiwan's Digimax, for example, has committed financing for her low-budget animation flicks.

So relatively low costs and potentially huge payoffs are gradually readjusting the balance of power in intellectual property--at the expense of the big studios that have always been Hollywood's power brokers.

"It's very important to us to own the negative," says Kasanoff. Threshold began financing Foodfight! with help from a South Korean investment consortium, the idea being that it would then find a Hollywood studio to serve as distributor. "Many studios wanted the movie, but they all insisted on owning it," Kasanoff says. Lions Gate ultimately signed on to distribute the film--and actually agreed to let Threshold retain the copyright. How did Kasanoff pull it off? "You make them such a good offer that they just have to do it," he says. "So much potential money to make and so little risk." For one thing, Threshold is cutting Lions Gate in on the film's merchandising deals.