Disney film risk vs. DVC

[nd43]

It just amazes me that Disney will write off $200 million on the Carter film and now may write off $100 million plus on the Lone Ranger after one week in the theaters.

It makes you realize, taking a gamble on a new DVC resort is nothing to these guys. They risk a similar amount on a movie multiple times a year and it takes about one week to know they blew it. At these loses, they would have to build VGF, sell only a few thousand points in the opening week, and immediately plow it back into the ground and turn it into a green field to match these financial flops. Crazy. I know the people that run DVC at Disney do not feel this way, but man, they must shake their heads at the studio side of the business.

Of course, they make several hundred million on Iron Man III the same season, plus Monster University is doing well, so they covered their bets this year. The real gamblers at Disney, however, sit in the studio division.

 

[tjkraz]

It makes you realize, taking a gamble on a new DVC resort is nothing to these guys.

Apples and oranges.

For every "John Carter" and "Lone Ranger" there are (hopefully) many more "Avengers" ($1.5 billion), "Toy Story 3s" ($1 billion) and "Pirates of the Caribbean" (about $3.5 billion as a franchise).

There is a huge element of risk inherent to filmmaking. While they WANT every project to be a success, executives realize that they will have ugly failures long the way. The challenge is balancing the successes with failures.

Again, on Avengers alone we're talking more than a BILLION dollars worth of profit. And that's not even including home video sales, merchandise and the residual impact on other products (like the fact that Iron Man 3 made twice as much money as IM2).

By comparison, a DVC resort failure isn't going to be offset by surprisingly large profits elsewhere. For the most part, every DVC resort has a profit ceiling right from Day One. If Grand Floridian has 2.5 million points and DVC believes it will sell for an average of $160 each, gross revenues will be around $400 million. Popularity isn't going to drive that up to $750 million or $1 billion.

But failure of a resort can quickly begin eating into those profit projections. The longer it takes to sell a property, the more Disney ends up paying in marketing costs for that location--operating a sales office, staff salaries, etc. And Disney also remains on the hook for operating expenses (dues) on the unsold points.

 

[TisBit]

As previously said, box offices flop happen to every company. It is why there are not a lot of movie companies to begin with. But, even box office flops don't necessarily lose out everything invested in them. Sometimes a Lone Ranger, while doing poorly in the theater can come back a bit later. If it keeps a steady slow stream over a month it can start to recoup its losses, same thing when it hits video and merchandising.

Truth is that it was a bad weekend for it. Disney probably hoped that it would draw a different audience than DM2, but the orignal movie covered a broad spectrum audience and most people aren't going to go out to multiple movies in a weekend.

 

[Horace Horsecollar]

Tim's comments provide an excellent analysis of how Disney movies and DVC resort projects differ from a risk/reward perspective.

Timeshare developers can and do run into financial problems.

It may seem like "easy money." A timeshare condo (sold as points or weeks) often effectively goes for several times what it would sell for as a traditional condo. And the management fees that buyers are contractually obligated to pay year after year (as part of the maintenance fee) seem to guarantee consistent, long-term profits

But then you have to look at the costs of prime locations, construction of high-quality resorts, carrying unsold inventory, maintaining that inventory, high marketing costs, and buyer defaults.

DVC has been able to avoid these problems for the most part. Disney has huge advantages at WDW. Disney already owns the land, and Disney can market to WDW visitors who value the Disney brand. But Disney has to be careful not to build too many DVC villas too quickly. Also, Vero Beach, Hilton Head, and Aulani have not enjoyed the financial advantages of the on-site DVC resorts.

 

[lilpooh108]

I have a very good friend who works at "The Studio" in Burbank and she says that John Carter made more money internationally than everyone thinks. Then we all laughed at her , but I guess I believe it.

So Lone Ranger might not end up being a real flop.

 

[Sammie]

Also you have to realize that just because DVC has Disney in the name, there is no way you can compare movie loss to DVC loss or gain. Almost like two completely different companies.

 

[bighoo93]

Also you have to realize that just because DVC has Disney in the name, there is no way you can compare movie loss to DVC loss or gain. Almost like two completely different companies.

Both go directly to Disney's bottom line though. WDC is an enormous company of diverse interests and offerings. But they do report consolidated earnings, and a dollar is a dollar. This isn't because Disney is in the name, it is because DVD is owned by Disney (which is also why Disney is in the name...).

I agree with you though that analysts understand the volatile nature of the entertainment business, and taking a big loss on a single movie flop would probably be discounted more than taking a flop on a new DVC resort, which is more likely to be an indication of poor execution or a weakening business model.

 

[crisi]

Accounting for film production is a huge game anyway. Don't believe anything about accounting in film. There are ways to make movies UNprofitable that you wouldn't believe

http://en.wikipedia.org/wiki/Hollywood_accounting

 

[wdrl]

Despite the apparent financial failure of "The Lone Ranger" Disney's stock price hasn't suffered. In fact, it's stock is already getting some favorable analysts' recommendations because of the upcoming "Star Wars 7" movie. Analysts are already speculating that SW7 will add a minimum of $1.2 billion to Disney's bottom line.

"Mars Needs Moms" and "Prince of Persia: Sands of Time" have been two more Disney films that failed to meet financial expectations. But don't forget that Depp's "Alice in Wonderland" was a huge billion dollar success, and "Ironman 3" has, I believe, topped the $1 billion mark here in 2013.

 

[bighoo93]

Despite the apparent financial failure of "The Lone Ranger" Disney's stock price hasn't suffered. In fact, it's stock is already getting some favorable analysts' recommendations because of the upcoming "Star Wars 7" movie. Analysts are already speculating that SW7 will add a minimum of $1.2 billion to Disney's bottom line.

Probably for good reason. The base of dedicated Star Wars fans is so large and so loyal, that Disney could probably turn out a complete and total piece of garbage and make a fortune. See the Star Wars prequel series, for example.

 

[tjkraz]

Both go directly to Disney's bottom line though. WDC is an enormous company of diverse interests and offerings. But they do report consolidated earnings, and a dollar is a dollar. This isn't because Disney is in the name, it is because DVD is owned by Disney (which is also why Disney is in the name...).

Sure, a dollar is a dollar. But investors realize that different projects yield different rewards.

Nobody started loading-up on Disney stock in anticipation of the Grand Floridian villas going on sale. That's business-as-usual. But "Avengers 2", "Star Wars 7" and "Finding Dory" will all be watched very closely and are likely to impact the market.

From a managerial perspective, all divisions are evaluated independently. If DVC underperforms, Ken Potrock doesn't have the luxury of saying "well, we still have that ESPN and 'Iron Man 3' money coming in so it's all good!" Potrock needs to make sure DVC is meeting expectations or he will be replaced.

Back to the films, Rich Ross was head of Walt Disney Studios from 2009 to April 2012. He was let go in the wake of "John Carter", and "Lone Ranger" was also approved during his tenure. Despite many successes over that period, even Ross wasn't immune to the fallout from those failures.

 

[dburg30]

Sad part, is from what I've heard from many people is that John Carter was NOT a bad movie. It's just that no one knew what the heck or who the heck John Carter was / is / will be / whatever.

 

[disneynutz]

From a managerial perspective, all divisions are evaluated independently. If DVC underperforms, Ken Potrock doesn't have the luxury of saying "well, we still have that ESPN and 'Iron Man 3' money coming in so it's all good!" Potrock needs to make sure DVC is meeting expectations or he will be replaced.

As Jim Lewis and Claire Bilby was.

Bill

 

[Sammie]

Not convinced Lone Ranger will be a complete loss. It will do well overseas due to Johnny Depp and it will do well in DVD.

 

[Sammie]

As Jim Lewis and Claire Bilby was.

Bill

Claire was not replaced due to poor performance. Certainly not the same as Jim Lewis getting fired either.

 

[KAT4DISNEY]

Sad part, is from what I've heard from many people is that John Carter was NOT a bad movie. It's just that no one knew what the heck or who the heck John Carter was / is / will be / whatever.

Yes. We did not go see it in the theatre - I had to finally hear more about exactly what John Carter was before I garnered any interest and then watched it on TV. And DH and I both liked the movie.

So this time we're going to see the Lone Ranger. Haven't yet because we only do an opening weekend about once a decade and we've already done ours for this one.