Disney mired in a box office slump

Disney, experiencing one of the worst slumps at the box office in years, is counting on talking dogs and singing teens to turn things around.

When the Walt Disney Co. reported earnings recently, the one glaring weak spot in an otherwise strong quarter was in the company’s Studio Entertainment division, which encompasses the movie studio. Operating income plunged 49 percent and revenue was off 19 percent from a year ago, mostly due to Disney’s pictures performing below expectations.

With its newest release, Swing Vote, succumbing last weekend to a landslide and ticket sales for the studio down nearly 30 percent this year, Disney is now in last place in box office market share — an unusual place for the company that is usually ranked at or near the top.

Disney is betting that won’t last for long, however. Among the movies it believes will put it back on top this fall are Beverly Hills Chihuahua, about a pampered pooch from the 90210 zip code lost in Mexico, and Bolt, an animated film about a showbiz dog that was overseen by Pixar Animation Studios guru John Lasseter. Disney is also releasing High School Musical 3: Senior Year, the third movie in the pubescent franchise and the first debuting on the big screen.

The studio says one of the reasons for its weaker performance at the box office in the third quarter is that results in the year-ago quarter were extraordinarily high due to gains by last summer’s blockbuster Pirates of the Caribbean: At World’s End, which generated $961 million in worldwide ticket sales. In addition, Disney made a strategic shift a couple years ago to release fewer movies annually, which potentially reduces its box office total.

Still, other than its current Pixar feature Wall-E, which has grossed more than $200 million in the United States, Disney hasn’t hit one out of the park in seven months. It’s biggest live-action bet, The Chronicles of Narnia: Prince Caspian, the second film in the franchise co-owned by Phil Anschutz’ Walden Media, performed below expectations at $140 million domestically — less than half of what its 2005 predecessor, The Chronicles of Narnia: The Lion, Witch and Wardrobe, did and less than half the U.S. total that Pirates achieved.

And, while the studio made some money on modest budget pictures such as College Road Trip and Step Up 2: The Streets, and its Miley Cyrus’ Hannah Montana concert movie beat expectations, those films’ grosses paled next to those collected last year by the comedy Wild Hogs, the action sequel National Treasure: Book of Secrets, and Enchanted.

“What we’re seeing is increased quarterly volatility from fewer film releases,” said Laura Martin, a senior media analyst with Soleil Securities. She said that Disney’s off-quarter was “widely expected” given the comparison to last year’s Pirates sequel. Because Disney has a strong track record delivering franchise hits, the market does not penalize the studio when its movies hit a dry patch at the box office.

Disney Studios chairman Dick Cook said that although box office races “have their place,” public companies such as Disney are “judged on having a great return on capital.” On that account, he said that the Studio Entertainment group — which includes worldwide theatrical, DVD, television sales of movies, stage plays and music earnings — is doing well.

“We’re having the second biggest year in the history of the studio,” said Cook. He noted that last year the division generated operating profit of more than $1 billion, and in the nine fiscal months of this year has earned $988 million.

Of course, much will depend on Disney’s fourth quarter, which will include the lion’s share of earnings from Wall-E, which was released one day before the end of the third fiscal quarter. Cook and his team are bullish about the films they have lined up between now and the end of the year, which also includes an Adam Sandler family comedy at Christmas, titled Bedtime Stories.

The studio could have a much tougher time selling tickets to its upcoming fall release Miracle at St. Anna, a World War II drama directed by Spike Lee.

Cook said that quarterly results are heavily dependent on when and which films are released in theaters and on DVD. Dates are selected for how movies will maximize audience, Cook said, and are not tied to the fiscal calendar.

But these days, Disney has fewer swings at bat than its competitors.

“When you make fewer movies, each one is going to count more,” Cook acknowledges.

Martin said that’s a strategy that investors support. “The live-action film business is a very low return-on-capital business and Wall Street likes the fact that Disney is making fewer films because there’s less opportunity to destroy value,” she said.


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