Fallout from Disney/Pixar Split

[Sarangel]

From the Reuters Website, by Marla Matzer Rose:

LOS ANGELES (Hollywood Reporter) - In a private meeting this week with a leading Wall Street analyst, Walt Disney Co. CEO Michael Eisner confirmed earlier company statements that the studio has several sequels in the works to the blockbuster films Pixar has created for the company.

While analyst Jessica Reif Cohen of Merrill Lynch apparently regards that as a positive for Disney, she cautions that such sequels could have an "adverse impact" on Pixar, which called off contract extension talks with Disney in January, ending a partnership that resulted in such hits as "Toy Story," "Finding Nemo" and "Monsters, Inc."

"The unproven writing and graphics quality of Disney's work with computer-guided-image animation may have an unintentional 'contagion' impact since consumers may subconsciously associate these films as Pixar product," Reif Cohen said in a report issued Thursday. "In addition, too many releases may fatigue CGI's scarcity value, which has created consumer intrigue for this 'event' animation format."

Reif Cohen's comments mirror those made by Pixar CEO Steve Jobs in recent months. Addressing the issue of Disney-produced sequels during his company's fourth-quarter earnings call in February, Jobs was blunt about his feelings on the subject.

"We feel sick about Disney doing sequels because if you look at the quality of their sequels ... it's been pretty embarrassing," Jobs said, citing such examples as Disney's recent sequels to "Peter Pan" and "The Lion King."

As much as Jobs dislikes them, such sequels have been major hits for Disney, which has generated more than $1 billion in cash flow to date from direct-to-video releases. Reif Cohen estimates that Pixar would receive an 8% royalty fee from Disney on such releases, while Disney would keep the lion's share of the profits.

Reif Cohen said Disney is looking to turn out these sequels in hopes to in some degree replicate the 'Shrek 2' phenomenon. The DreamWorks-produced sequel to "Shrek" has broken several box office records since being released last week.

Doesn't this sound like the conversations we've had about Disney's DTV Sequels? Why can't Eisner figure out that quality is part of the Disney and by undercutting the quality of the company's product, he's damaging the company brand?

Sarangel

 

[manning]

Reif Cohen .....Duhhh. Sounds like she ought to get her head out of her numbers.

 

[KMovies]

Why keep making the sequals?

Here is a billion reasons:

As much as Jobs dislikes them, such sequels have been major hits for Disney, which has generated more than $1 billion in cash flow to date from direct-to-video releases.

 

[raidermatt]

Yet Disney's original animated films have for the most part struggled over that time.

Why?

Maybe the two (making multiple intentionally lower quality sequels and producing original features) have nothing to do with each other.

Or maybe, the culture that promotes the "if it makes money make it" strategy isn't the best culture for producing the kind of original features the public will consistently flock to.

Maybe seeing the Disney name slapped on all of these lower quality sequels has lowered the public's perception of the Disney brand.

Practically impossible to quantify those impacts, but the results demand those possibilities be considered.

 

[Euphscott]

While the sequels may be money makers, outside of Pixar, name me a recent huge first run hit? That's where Jobs is concerned. No one is going to see the first runs when the quality is considered (or suspected) low.

The market (and parents) have figured that all they have to do is wait a few months and shell out the cost of a DVD (which is about equal to what it would cost to take the family to the theater..). So, the movies are bombing on the first run, where before mom and dad knew (or at least had reason to believe) the film was of high quality, so they toook themselves and little Johnny and Jane to see it in the theater, then bought the DVD. Disney has saturated the market with crap and lost about half their profits.

Jobs is (rightfully so) concerned that Disney will ruin a good thing for his company. Perception is reality.

 

[hopemax]

How many DTV sequals have been produced to reach that billion dollars?

If an equivalent number of brand new features were produced instead, I wonder if the cash flow would have been more or less than 1 billion. Personally, I think it would be a lot more than $1 billion.

Yes, a sequal costs less than a new feature, but if it takes 5 sequals to generate the cash flow of one new theatrical release, you end up spending $100 million either way.

And over the lifetime of a movie, I imagine that it takes more than 5 sequals to generate the cash flow of one new feature. The drop off in video sales will be greater for the DTV vs new feature. Less dropoff in merchandise sales; you still see product for Little Mermaid, but how much Melody or Tip merchandise do you see? The sequals appear to have a very short period of time where they add significant cash flow.

$1 billion is an impressive number, but I think we'd even be more impressed by the number, say of, the cash flow generated by the five Pixar releases or Mermaid-Lion King.

 

[raidermatt]

If I'm Pixar, I might not like Disney putting out cruddy sequels, but really, it shouldn't be that big of a concern, as long as Pixar continues putting out popular features.

(That's assuming they do actually split.)

Sub-conciously, there might be a slight association, but that will be minimal. Certainly Pixar and their new partner will do everything they can to distinguish their brand from the Disney-produced sequels.

So...

While the sequels may be money makers, outside of Pixar, name me a recent huge first run hit? That's where Jobs is concerned. No one is going to see the first runs when the quality is considered (or suspected) low.

I don't think this will hurt Pixar. Disney's name will be all over the sequels, just as its all over the sequels they have already made.

Disney will do much more damage to itself than it will to Pixar.

The market (and parents) have figured that all they have to do is wait a few months and shell out the cost of a DVD (which is about equal to what it would cost to take the family to the theater..). So, the movies are bombing on the first run, where before mom and dad knew (or at least had reason to believe) the film was of high quality, so they toook themselves and little Johnny and Jane to see it in the theater, then bought the DVD. Disney has saturated the market with crap and lost about half their profits.

Don't get me wrong... the main reason for Disney's troubles at the box office are the films themselves. However, everything you named (and particularly the decision to release some of the sequels in theatres) has exacerbated the problem.

Jobs is (rightfully so) concerned that Disney will ruin a good thing for his company. Perception is reality.

Again, there should be enough brand differentiation to make this a small issue. In a perfect world for Jobs, of course, the sequels wouldn't be made.

But just by barking about it, he is helping to differentiate his brand even further.

If/when Pixar goes with another partner, and Disney releases Toy Story 33 1/3, I wouldn't be surprised to see Pixar taking out full page ads saying "This crap wasn't made by us!!!"

(A little overkill, but you get the point...)

 

[Planogirl]

Who would have thought that a company would be afraid that Disney would damage their reputation? My how the mighty have fallen.

Pixar just needs to make sure that the word is out that the companies have split up, that is assuming they do. With any luck, Eisner will go away and someone who cares about product will replace him.

 

[randytenn]

Something tells me that it's a bit of a bluff on Eisner's part. A kind of thumb in the eye to Jobs to get him back to the table.

 

[Another Voice]

No, it's not a bluff.

The rumblings are that Toy Story 3 and 4 are already in pre-prodution. A sequel and a possible TV series are in the works for Finding Nemo, as well as the further adventures of the Monsters and A Bug's Life.

One very interesting rumor is that there may be a traditionally animated sequel to Nemo ready for this Christmas buying season. It seems that Disney is finding its TV Animation group can turn out movies faster and much, much cheaper than anything CGI (remember Disney the same thing with the less-than-successful 'Buzz Lightyear' series).

Disney sees these sequels as a easy way to make big bucks.