By Hillel Aron
By Joseph Tsidulko
By Patrick Range McDonald
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By Dennis Romero
By Jill Stewart
By Dennis Romero
Now, four years later, a big-budget summer popcorn pic has ended the weekendwith $133 mil. Pirates2 buried the previous record holder, Sony’s Spider-Man. It was a truly historic opening, and it had been eons since Disney shareholders had something to cheer about. Now Disney has network prime-time hits and box-office booty. And, to further curry favor with his penny-pinching Disney bosses, Cook immediately launched a plan for substantial layoffs and a production slate that will go down from 18 to eight films. All of the remaining pics will be Disney-branded, which may prove to be a deathblow to Touchstone and many production deals on the lot. The idea is to “improve the studio’s return on investment.” (Warners did the same thing after its banner 2005.)
So why isn’t Disney’s stock price soaring?
True, shares spiked 41 cents at one point in trading Monday, but then it settled down to its normal range. Which just goes to show that, no matter what Hollywood does, the Street is awfully hard to impress.
The reality is that Wall Street understands that filmed entertainment has become just a small part of a major media company’s overall portfolio. Disney’s entire film/TV unit accounts for about 16 percent of the company’s market value: That’s only about $4.80 out of the $30 its stock trades for. So an individual film just doesn’t move the dial very much at these huge companies. What’s more, since stocks are typically priced on multiples of the expected value of discounted cash flows, for a film to have an impact, it would not have to do well — it would have to do shockingly well.In other words, generate far more profit than investors expected without something else pulling down the total.
Everyone expected that P2would be at least as big as P1. The problem for Wall Street specifically is that while Pirates2 topped all expectations in a big way, Disney/Pixar’s Carsdidn’t live up to them. Its $60 mil opening-weekend gross was perceived as disappointing because it was at least $10 mil below even the most modest predictions.
Also, there’s the not insignificant matter of costs versus returns. Check out the profit margins for the movie business and you’ll wonder why anyone sane is in this industry. Given the movie’s $250 mil budget, and astronomical marketing costs, if Pirates2 simply matches Spider-Man and grosses $822 mil worldwide, then Disney would collect about half. Ergo, a blockbuster doesn’t look so big, at least in theater revenue. At most infotainment companies today, there is no real afterlife for these films. Sure, there are DVDs — but after six months, that’s the gift that stops giving. Disney is an exception because it can milk theme-park rides, make TV shows for the Disney Channel and sell more tchotchkes. Then again, Johnny Depp, Jerry Bruckheimer, et al. probably didn’t leave much money on the table. The perception is that the best way to make a million dollars in Hollywood is to start with 2 million.
Old joke, but they still believe it on Wall Street.