Week Of July 17, 2006 -Mon / Wed / Fri

July 17, 2006

Hollywood is sometimes like an episode of Sesame Street.

"Biiiigggger…"

"BIGGER!"

"Smaaaaaaallller…"

"SMALLER!"

Every year, there is a new fad. A year ago, Fox Searchlight was expanding its number of offerings, working towards the creation of Fox Atomic, a further expansion, and all the while 20th Century Fox was preparing 14 films for release in 2006. Sony will release 23 films this year… Warner Bros 21… and Paramount, 13.

This month's trend is being embodied by Disney. The story is a major reduction in forces, as the studio continues what it set out to do a couple of years ago… become almost exclusively a family film studio again. In the same papers that are drooling over this slow-developing change that is finally landing, you can read about how Paramount has to buy DreamWorks in order to bolster production, how Universal desperately needs Imagine as a content provider, Warner Indie allegedly continuing to push for more business, and MGM coming and going from Sony.

What is most amusing to me in reading the coverage of this move by Disney is the absolute absence of Pixar from the conversation. A company with $32 billion in annual revenues acquires another company for $7.4 billion… and they put a guy from the new acquisition in charge of the division expected to be strongest for the company for years to come… they fill a third of this same animation slot with the acquisition of the company that will remain physically separate from the main entity… and then they announce that this new acquisition, by way of its leadership, will be responsible for what will now be about one-third of the companies annual output of film, representing an annual investment - including production, distribution and marketing - of about $750 million. Yet this massive investment in Pixar, which naturally and logically shifts the film studio's entire focus and leadership structure, is not the key or even a key to the choices currently being made at Disney.

Hmmmm…

If you want the idea of this shift broken down into easy math, here it is:

35 releases by Disney in the last two years, grossing $2.1 billion domestic.

Now subtract The Last Shot, Mr. 3000, The Alamo, Raising Helen, The Life Aquatic with Steve Zissou, The Lady Killers, King Arthur, Shopgirl, Casanova, A Lot like Love and Dark Water.

(This year, Annapolis and Stay Alive have already crashed and burned. The Guardian may be a surprise hit and The Prestige, Déjà Vu, and Apocalypto are all muscular, somewhat niche titles that are risky.)

Now we're down to 11.5 releases a year.

Subtract acquisitions and films that were primarily financed by other companies, like Around The World in 80 Days, Hitchhiker's Guide To The Galaxy, Ladder 49, Howl's Moving Castle, and Valiant.

Now we're at 9.

Now take away the Disney brand movies that will now be "made for cable" or direct-to-DVD, Pooh's Heffalump Movie (spin-off) and Teacher's Pet (from the ABC series).

8 movies a year.

According to Laura Holson, next year's 12 releases will include the Miramax titles… which means that Daniel Battsek's just-starting-to-roll Miramax division will be g-o-n-e by about this time next year. An art/genre division that releases 2 or 3 films a year is not a business model that works for anyone anywhere.

(Story to come… studios get out of the independent business, shuttering Dependents or turning them into Dimension-esque genre arms. Watch for it. And watch the watchers watch John Lesher's Paramount Vantage, which will either fly or crash carrying the weight of mid-priced art films, $10 million - $40 million.)

The harsh reality behind all of this is that selling movies has become as risky, if not a riskier business, than making movies. The DiXar (Disney/Pixar) animated movies cost about as much to market as they cost to make. The good part about having lots of movies to sell is that one might catch fire unexpectedly. The bad part is that they all may suffer as you try to keep marketing costs down because no one can afford to sell all those movies with heavy marketing dollars.

And though he appears to be Mr. Progressive to a lot of journalists, in reality Bob Iger is the most conservative studio head in town. The Pixar deal proves that. Michael Eisner was willing to risk that he could lead the company to new success in the future, not giving in to Steve Jobs on Pixar. But Iger has placed a significant portion of his company's future on Jobs' past track record, at enormous cost. That was a tight play, not a loose play.

The move to charging people for primarily television via iTunes is also little more than an expansion of the distribution model that was started years before when TV series started being sold on DVD. But for all the chatter, Iger still has not pushed a producer into a day-n-date DVD release experiment on either a small movie for which the studio isn't going to invest a lot of P&A (see: Goal! The Dream Begins) or a huge movie on which they will invest a fortune (see: Cars).

What is progressive is that Iger is taking Disney niche before he is forced to by market forces. 3 animated films, 2 Bruckheimer films, 3 family titles.

The question, which will be in vogue again in about 18 months, is whether Disney can afford a loss of DVD revenue from making fewer movies. Will there be more acquisitions that specifically target direct-to-video? Can Disney maximize one niche instead of fighting on all fronts? Or will they face years like this one with enough family product from themselves and all their competitors with which to choke a very large horse?

You probably noticed DreamWorks going out of business, releasing 5-10 films a year. The economies of scale ate them up. Of course, Disney has a large library, and the movie division (including Home Entertainment's film product) only represents about 12% to 18% of the company.

The nice thing for the studio is that building things back up is a lot easier than ripping apart long-established infrastructure.

There is nothing pleasant about reducing hundreds of people who work at the studio, many of whom have worked there for a long, long time, to "infrastructure." But the Disney family is, in the end, still a business. And the survivors are likely to be reflective of the new future of this industry… there will still be lots of money… there will still be lots of excess… but people will have to carry their weight with both hands full…

Meanwhile, more fat reduction (from the absorption of DreamWorks) will soon occur at Paramount… MGM is operating as a distributor, though they make no movies and have no marketing in place… The Weinstein Company is releasing through MGM to take advantage of the Showtime deal and working through the process of a relatively inexperienced staff instead of paying for experience… Warner Bros. is still belt-tightening… Universal is trying to maintain an even keel to keep the NBC wolves at bay and, while still smarting from losing DreamWorks (in a very Eisner/Iger kind of deal scenario), has to decide how much Imagine is worth to their bsuiness… Sony loses Revolution and, presumably, Tri-Star, next year… and Fox remains the sole expander.

"Sometimes when you win, you really lose. Sometimes when you lose, you really win. Sometimes when you win or lose, you actually tie. Sometimes when you tie, you actually win or lose."

Ya know?

E Me.

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