LOS ANGELES—For 10 years, Walt Disney Co. and McDonald's appeared to have the perfect marriage. Happy Meals bore little figurines of Nemo, Mr. Incredible and 101 Dalmatians.
But no more. This is one relationship that's ending in part because of the children.
Disney is not renewing its cross-promotional pact with the fast-food giant, ending the arrangement with this summer's release of "Cars" and "Pirates of the Caribbean: Dead Man's Chest." One reason, say multiple high-ranking sources within Disney, is that the company — which prides itself on being family friendly — wants to distance itself from fast food and its links to the epidemic of childhood obesity.
Under the terms of the agreement, said to be worth $1 billion to Disney, McDonald's paid $100 million in royalties and conducted 11 promotions a year for Disney films, videos and TV shows, with seven aimed specifically toward the young Happy Meal consumers. Disney also agreed to let McDonald's set up shop inside its theme parks.
Disney declined to discuss the breakup. But in a conference call last year, Pixar Animation Studios chief Steve Jobs — who is now Disney's largest shareholder in the wake of Disney's recent purchase of Pixar — signaled his ambivalence about using characters to sell fast food while promoting a film.
"There is value" in fast-food tie-ins, Jobs said then. "But there are also some concerns, as our society becomes more conscious of some of the implications of fast food."
And Disney is not the only studio that thinks French fries loaded with trans fats may be too hot to handle.
DreamWorks Animation SKG is working with McDonald's to promote "Shrek 3," due out next year. But according to one top-level source inside the studio, there is already internal debate about whether the lovable green ogre should steer clear of Chicken McNuggets and Big Macs in favor of the more healthful fare that McDonald's has added to its menu, such as salads (Shrek is, after all, overweight).
The end of the Happy Meal partnership with Disney comes at a time when the processed- and fast-food industries are under fire on a number of fronts because of growing concerns about expanding waistlines, particularly among youngsters. Last week, former President Clinton announced an agreement worked out by his William J. Clinton Foundation and the American Heart Assn. to persuade the makers of Coke, Pepsi and others to phase out the sale of sugary soft drinks in schools.
But some say the more discreet actions of the entertainment industry could ultimately have a greater influence, especially if other corporate giants follow suit.
"I think it would have impact in contributing to the cultural change that is necessary," said Dr. J. Michael McGinnis, chairman of a National Academy of Sciences panel that just released a study showing how food marketing adversely affects children's diets. "The committee thought it was important for the use of cartoon characters that appeal to children only to be used in the marketing of healthy products."
One of the industry's most prominent critics, "Fast Food Nation" author Eric Schlosser, said it would be "hugely significant" if Hollywood walked away from Happy Meals. "It will put more pressure on McDonald's to change what they sell in Happy Meals. The obesity issue would be irrelevant if the food in the Happy Meals was healthy."
Sources on both sides of the agreement say the parting of the ways was mutual. And it's not a complete divorce. McDonald's fare will continue to be offered in Disney's theme parks. Disney is also leaving open the possibility of McDonald's promotions geared toward adults.
Disney released a statement praising its decades-long relationship with McDonald's, adding: "While our contract with them will expire at the end of the year, we look forward to a more flexible, nonexclusive relationship where we will be working with them on a case-by-case basis."
That sentiment was shared by Dean Barrett, senior vice president of global marketing for McDonald's.
"Our relationship was ongoing before the agreement and will continue after," Barrett said. "We've had great success. There's great entertainment value with us and Disney, and I would think that would continue for years to come."
Barrett said the only factor that was really changing was the exclusivity of the relationship — McDonald's is now free to partner with other studios. Hence McDonald's new, two-year agreement with DreamWorks, beginning with "Shrek 3." DreamWorks declined to comment.
Disney has not signed any new promotional deals with fast-food providers, even though its purchase of Pixar gave it an even bigger slate of potential family-oriented blockbusters to market to youngsters. Industry analysts say the breakup will force both Disney and McDonald's to find new promotional outlets.
"Fast food has been a very important promotional partner in promoting films to children," said industry analyst Lowell Singer of Cowen and Co. "As the animated marketplace gets more competition over the next few years, Disney will need to be much more aggressive and creative in reaching children though other promotional outlets."