When Woody Met Mickey

Hollywood and Silicon Valley have never mixed well. You've got cinéastes vs. nerds, celluloid vs. digital, silicone vs. silicon. Then there is Pixar, the delightfully confounding combination of the two: part high-tech shop, part movie studio. Headed by Apple Computer's Steve Jobs and run by John Lasseter, an animator hailed as the next Walt Disney, Pixar has made exactly six computer-animated features in its 20-year history, from Toy Story to The Incredibles. Every one was a smash. Every one was distributed by Disney, which also shared costs and profits.

So how much is the wonderful world of Pixar worth? More than a billion dollars a picture, or $6.3 billion? That's what Disney agreed to spend last week to bring Lasseter, Jobs and the Pixar supporting cast into the Magic Kingdom. "Clearly, it's a lot of money," Walt Disney Studios chairman Dick Cook told TIME, adding that "all the different scenarios had to be presented and analyzed" before the board would sign off. But Disney CEO Robert Iger, who took over from the controversial Michael Eisner in October, was determined to revive Disney animation, which has been starved for hits since Tarzan in 1999. He could have rebuilt the animation studio gradually and perhaps poached some Pixar creatives. But he didn't have time; he did have money.

Pixar, situated in Emeryville, Calif., north of Oakland, is a thriving playground of creativity where animators customize their workspaces to resemble tiki huts and castles, relax in secret rooms like the red-velvet Love Lounge or take a dip in the company pool. Lasseter is the ringleader, a man whose imagination fills every frame and inspires the troops. "He has a posse around him constantly," says a staff member who works closely with him. Other studio bosses are in awe of Pixar's six-for-six record. "Because of the pictures Pixar has made, the bar has been set incredibly high," says Yair Landau, vice chairman of Sony Pictures Entertainment.

Iger recognized his problem at the opening of Hong Kong Disneyland last fall, as he watched old Mickey, Goofy and Donald parade by and realized that if he wanted new characters--for video games, theme-park rides, live stage plays--he needed the whiz kids in Emeryville. "Animation films are such a driving part of our company," says Cook. "We just said, 'Wow, this is where it all starts, and this is what we've got do.' It hit home for Bob."

So did the prospect of losing Pixar, whose movies have grossed more than $3.2 billion at the box office worldwide. Its finance-and-distribution deal was set to expire after the release of Pixar's Cars this June. Even worse, the companies nearly split in a War of the Roses--style divorce as friction mounted between Jobs and Eisner over terms of a new partnership. That fracture helped ignite a shareholder revolt against Eisner. When Iger took over, one of his first calls was to Jobs.

Although Disney is buying Pixar's talents in digital animation, including proprietary software, the key asset is more prosaic: Pixar's superior skill at telling stories. "We won't let anything get ahead of the quality of the story," Pixar president Ed Catmull told TIME. "It's meant we have not increased production at the rate we have wanted to."