Luca may be going to Disney+, but the future for Pixar is on the big screen – CNBC

Along the crisp white beaches and cerulean waters of the Italian Riviera, an unlikely friendship grows between two young sea monsters disguised as humans.

That’s the premise of Pixar’s latest feature-length film, “Luca,” which debuts Friday on Disney+.

Since 1995, Pixar has released 23 other titles, setting the standard for animated movies. Its films have earned nearly two dozen Academy Awards, including 10 for best picture, and tallied more than $14.5 billion at the global box office.

“It’s difficult to imagine [it’s been] 26 years since Pixar first opened its animated toy box to the world,” said Paul Dergarabedian, senior media analyst at Comscore. “From the first ‘Toy Story’ movie to ‘Luca,’ Pixar has left an indelible creative mark on the art of animation, built a reputation for storytelling brilliance, and in the process, has generated a global box office fortune.”

Over the course of nearly three decades, Pixar has fundamentally changed the animation industry. It released the first completely computer-generated feature-length film in 1995 and revolutionized how animated movies were made. Its stories were designed to entertain children and adults alike.

Disney acquired the studio in 2006, funneling millions into the brand’s coffers to produce and release more films. Pixar became the darling of the Disney company, revitalizing its animation pipeline, which had stalled at the box office.

But, nearly two decades later, Pixar animators are reported to be questioning their role in the ever-expanding Walt Disney Company. They may not need to worry, analysts said. Animated films have had a strong track record at the global box office, which should persuade studios to continue to release these features on the big screen.

The coronavirus pandemic fast-tracked streaming ambitions for studios, altering how certain films arrive on the market. Disney sidestepped movie theaters in December to release Pixar’s “Soul” on Disney+ for free, a move that staffers at its prestigious animation branch hoped would be a one-off.

However, in March, the company said its upcoming “Luca” would skip theaters and head straight to streaming as well. Once again, Disney didn’t place the $30 premiere access price tag on the film —something it had done for the release of “Mulan” and “Raya and the Last Dragon” as well as part of the theatrical release of “Cruella” and the upcoming “Black Widow.”

The strategy for “Luca” was crafted when studios were very concerned about theatrical exhibition. It’s only in the last month that the box office has shown signs of revival. The push also comes as Disney has reorganized its media and entertainment divisions to focus more heavily on digital offerings.

Disney+ was always going to be home to television series based on Pixar and Disney Animation properties such as “Monsters Inc.” and “Big Hero Six.” The strategy has been employed for both its Star Wars and Marvel franchises, too.

For the most part, studios have held off on releasing animated films until movie theaters have reopened. Universal-owned animation studio Illumination, for example, delayed “Minions: The Rise of Gru” until 2022 to ensure it could be released to as many theaters as possible. After all, animated features can bring in hundreds of millions of dollars at the global box office and even break the $1 billion mark.

“I would think a lot of people involved in feature film development are not happy about the direct-to-streaming approach,” said Eric Handler, media and entertainment analyst at MKM Partners. “If your compensation structure is dependent upon the financial success of a film, then cutting out the first, and largest, window likely means lower profit. In addition, how do you define profit for a film which is part of a subscription driven platform?”

Representatives for Disney did not respond to CNBC’s request for comment.

In recent years, streaming players such as Netflix have looked toward animation as a way to lure new subscribers, particularly parents of young children. That could change the dynamic a bit as streaming services look to keep subscribers satisfied.

While Disney was forced to place “Soul” and “Luca” on Disney+ due to the pandemic, these films could easily have made hundreds of millions of dollars at the box office for the company. Disney diverted these films to its streaming platform predominantly because the coronavirus outbreak interrupted the development pipeline and it needed fresh content for its digital consumers.

“Throughout the pandemic, the major media conglomerates have prioritized their streaming platforms as the key (top priority) growth driver of the future,” said Handler, explaining the films became a tool to accelerate subscriber growth.

Disney+ has certainly benefited from this. In May, the company said it had 103.6 million paid subscribers at the end of its fiscal second quarter. This was a feather in Disney’s cap, considering the platform had only launched 16 months earlier. The company expects to see between 230 million and 260 million subscribers on Disney+ by 2024.

Still, the sizable budgets for films such as “Soul” and “Luca” mean this digital release strategy isn’t sustainable. While shows such as “WandaVision,” “Loki” and “Monsters at Work” were budgeted to debut on streaming, these Pixar features were created with the expectation that they would hit the big screen first.

“Given that not all theaters are open yet, capacity restrictions are still in place and not all age demographics are comfortable returning to theaters just yet, studios have to be flexible with their films — especially given there are not many theatrical release slots available to push out films into 2022 anymore,” said Eric Wold, senior analyst at B. Riley Securities.

As global markets continue to reopen and seating restrictions loosen, there is an expectation that attendance will return to normal levels. Handler and Wold foresee Pixar releases returning to theaters, as well.

When it comes to the box office, Pixar has become one of the most consistent studios in the industry.

Since its first film, “Toy Story,” was released in 1995, its films have averaged $650 million at the global box office and four of its films have garnered more than $1 billion in ticket sales.

And the critical reception for its films has been equally consistent.

The animation company has long been lauded for its heartwarming, and sometimes heartbreaking, storytelling. Its films feature complex characters and rich universes. The studio has answered timeless questions that inhabit children’s minds, such as: What happens to your toys when you leave the room? What if the monsters in your closet weren’t all bad? Where do our emotions come from?

Only seven of its 23 releases have earned less than a 90% score on Rotten Tomatoes, and only one film, “Cars 2,” is considered “rotten” on the site, with a score of less than 60%.

“The emergence of Pixar on the Hollywood scene was an inflection point if there’s ever been one,” said Shawn Robbins, chief analyst at Boxoffice.com. “Not only did ‘Toy Story’ and those early films shepherd a new era focused on [computer-generated] animation, effectively retiring the traditional style, they proved that Disney’s in-house animators weren’t the only creative teams capable of making timeless animated classics.”

In fact, Pixar’s early success from films such as “Toy Story,” “Monsters Inc.,” “Finding Nemo” and “The Incredibles,” which were co-produced with funding and distribution from Disney, led then-CEO Bob Iger to purchase the company for $7.4 billion in 2006.

Pixar’s use of computer animation changed the game. This new method of filmmaking essentially bypassed the need for hundreds of illustrators and significantly cut down the amount of time it took to make an animated film.

“It took hundreds and hundreds of people — highly trained people — to make one piece,” said Frank Gladstone, executive director of ASIFA, an international animation film association. “In the traditional way of drawing and making the painting and photographing and all that, it took a long time and it took a lot of people. There were other animated features, but for all intents and purposes for the big markets, it was Disney.”

In the decades before the release of “Toy Story,” the box office saw only a handful of animated film releases each year, and the dominant distributor of those films was Disney. Now, there are dozens of animated films from a number of different studios every year.

And as more content flooded the market, the Academy of Motion Picture Arts and Sciences took notice. It added a category to its annual Oscar ceremony just for animated features. Alongside the prestige came massive box-office gains, inspiring studios to continue to invest heavily in these projects.

In the years leading up to Pixar’s entrance into the industry, animated movies were averaging only around $250 million to $350 million in ticket sales globally. Since 1995, nine animated features have surpassed $1 billion at the global box office and the average box-office haul is around $740 million worldwide.

This box-office success is hard for studios to ignore and is one reason that analysts are convinced animated films will continue to debut on the big screen.

“It has been clear that most of the studios have been using some key titles to launch their streaming platforms — and that is likely to no longer be a priority heading into 2022 and beyond,” Wold said.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal owns Illumination, Dreamworks and Rotten Tomatoes.