Report card 2011: Disney moved to cut costs with fewer films

By Kurt Orzeck LOS ANGELES (TheWrap.com) - This is the sixth in TheWrap's series of Studio Report Cards. Walt Disney Pictures Grade: B- Disney downsized the number of films it released this year by 20 percent to just 14, yet global box-office revenue wasn't that far off from 2010 ($3.36 billion vs. $3.77 billion). The studio's one big hit, "Pirates of the Caribbean: On Stranger Tides," was somewhat offset by the costly failure of Robert Zemeckis's "Mars Needs Moms." Burdened the last few years by a flurry of ambitious films that were undermined by their costs -- "A Christmas Carol," "Prince of Persia" and "Tangled" -- Disney downshifted in 2011 to a lower-risk strategy. The studio reduced its slate from 19 films to 14, with four of the titles provided from DreamWorks under its distribution deal. And the studio experimented -- unsuccessfully -- with low-cost production models, such as the youth-oriented "Prom," which was shot for just $8 million (but only grossed $10.1 million). "One of Disney's sins in the past was releasing too many movies," Matthew Harrigan, an analyst with Wunderlich Securities, told TheWrap. Unlike 2010, when the studio boasted two titles that grossed more than $1 billion at the worldwide box office, "Alice in Wonderland" and "Toy Story 3," Disney had only one major hit this year in "Pirates of the Caribbean: On Stranger Tides." It also had one significant flop, with Robert Zemeckis's "Mars Needs Moms" -- which was put into motion before Rich Ross took over as chairman of the studio in October 2009 -- grossing just $39 million on a $150 million production budget. Through last week, Disney's film slate had grossed $3.36 billion globally, down about 12 percent from 2010's $3.77 billion despite a 20 percent decline in the number of movies released. Overall profit for Disney's studio entertainment operations for the fiscal year ending October 1 -- a tally that also includes home video -- decreased 11 percent to $618 million on revenue of $6.4 billion. With the international box office driving titles like "Pirates of the Caribbean" -- the "On Stranger Tides" installment took in a whopping $802.8 million in foreign theatrical revenue -- Disney's production engine is now focused on making a limited number of titles that have global appeal across theatrical, home entertainment and merchandising channels. "We're banking on something consumers can enjoy on a global basis, and stories that are universally appealing to a very broad, diverse, international audience," Disney's distribution chief, Dave Hollis, told TheWrap. Beyond "Pirates," Disney had several other very recognizable titles that connected with that broad, global audiences. "Cars 2," for one, grossed $551.2 million worldwide. "'Cars 2' did decent numbers, but more importantly, it stimulated licensed merchandise sales," said Marla Backer, an analyst at Hudson Square Research. (The "Cars" franchise has moved nearly $10 billion worth of associated toys, clothes and other licensed merchandise since the franchise kicked off in 2006.) A 3D re-release of the 17-year-old "Lion King" took in $492.1 million worldwide on a conversion cost of less than $10 million. The re-release was so successful, Disney has already slotted similar 3D premieres for "Beauty and the Beast" and "Finding Nemo" next year. "I don't think anyone expected it to do as well as it did," Backer said. "It was found money." And Disney's "Muppets" -- produced for $45 million, a very modest amount compared to the $260 million the studio spent last year on "Tangled" -- is now ready to enter the international market after a successful North American release. Among movies based on less recognizable brands, Disney enjoyed a sleeper hit with the CG-rendered "Gnomeo and Juliet" grossing $194 million worldwide. The first year under the studio's distribution arrangement with DreamWorks yielded solid results, with "The Help" grossing $201.9 million worldwide and awards consideration on a modest $25 million negative cost. Less spectacularly, Shawn Levy's futuristic action film "Real Steel" grossed $276.4 million worldwide on a $125 million budget, and D.J. Caruso's sci-fi film "I Am Number Four" recouped $144.5 million globally on a $60 million budget. The studio had few outright duds this year, but the one it did have, "Mars Needs Moms," was a doozy. With Disney CFO James Rasulo signaling out the film's performance as "very disappointing" during Disney's second-quarter earnings call, the notorious movie led the company to shutter producer Robert Zemeckis' ImageMovers Digital in March. Indeed, Disney has moved aggressively on many fronts to control costs. The studio halted preparations for the Gore Verbinski-directed "Lone Ranger" when the budget for the Johnny Depp adaptation of the TV series began to make the studio nervous. Now with a downsized budget, the film is back on. While Disney executives expect the cost-cutting strategy to improve its bottom line, not everyone is thrilled with the film division's scaled-back ambition. "It's unfortunate the movie business is less important than it was to Disney," Harrigan said. " Iger looks at it as just one part of its business." As for the 2012 slate, Disney's biggest expected moneymaker is "The Avengers," the first Marvel film released by the studio since it acquired the comic-book company two years ago. Harrigan said it could be the year's most successful film among all studios. Buzz for the first movie has been building for years. Audiences, he added, have been introduced to major characters in "Avengers" via "Iron Man" and "Captain America: The First Avenger," and lesser-known characters such as Nick Fury and Hawkeye via cameos in "Captain America" and "Thor." "We're expecting it will be an absolute phenomenon," Hollis said. "I don't know who doesn't know about 'The Avengers' at this point." Success is also predicted for "Brave," the latest product from Pixar, which, like Marvel, has massive international appeal. "Brave" will be released in 3D, followed by another computer-animated 3D release, "Wreck-It Ralph," in November. "Disney's animation business is still a crown jewel," Harrigan said. Beyond those films, though, Disney faces some risks in 2012. The studio is so confident in Andrew Stanton's $250 million sci-fi epic "John Carter" that it is releasing the film in the soft month of March. But response to the movie's trailers has not been strong. "I don't think they're going to have a great year," Harrigan said. But, he added, "I think they're doing the right thing in focusing on the major franchises and their brand extensions."

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