If Disney were a traditional, old fashioned movie studio, it would be out of business right now.
Thanks to the mess that is John Carter, Disney will report a $200 million write-down in the quarter ending at the end of this month.
Unbelievable. United Artists never recovered after Heaven’s Gate flopped in 1980, and that movie only cost $44 million (which, according to Wikipedia, would be around $120 million in 2006 dollars).
Disney will try to quickly move past all this bad press in the coming months by trumpeting upcoming Marvel and Pixar releases. But the parent company spent over $4 billion to acquire Marvel, and over $7 billion on Pixar — so the notion that The Avengers or The Brave, even if both films wildly overperform, will make any money for Disney in the short-term is preposterous. Nonetheless, Disney will try to portray it this way, in spite of the fact that the only reason Disney can release Marvel and Pixar movies in the first place is because of the nearly $12 billion spent on those high profile acquisitions.
Saying that the studio division of Disney is profitable is like arguing that the U.S. government isn’t in debt because it will collect more revenues this year than last year. In both cases, any financial losses can be stemmed by simply printing more money. Or think of it this way: Disney’s studio division just received a $200 million bailout from its parent company — its fourth such write-down in three years, by the way.
The studio division’s corporate parent, The Walt Disney Company, could literally have five John Carter-sized bombs in a row, and they’d still be doing fine. The studio division is such a relatively minor part of the overall revenues of the parent company that it’s almost impervious to box office ebb and flow. Disney’s studio division is like a professional sports team: as a franchise, it’s not penalized for having a losing season. No matter how poorly the team plays, the league it belongs to will just keep chugging along. And when you consider that The Walt Disney Company makes most of its money from theme parks, licensing and merchandising fees, TV advertising revenue (ABC, Disney Channel, and assorted cable channels), and cable fees (notably to ESPN), then you start to understand that no two studios are operating under the same set of rules.
Take Lionsgate. They’re not owned by a media conglomerate or massive parent company. The decision to buy Summit earlier this year (for around $400 million, or twice what Disney projects it will lose on John Carter) was literally made out of desperation — Lionsgate reportedly needed the infusion of any remaining Twilight money that Summit could provide in order to ensure Lionsgate’s survival. The Hunger Games will undoubtedly be a monster hit for Lionsgate this spring, but imagine a hypothetical scenario in which The Hunger Games flopped. If that were the case, Lionsgate wouldn’t have a deep-pocketed parent company to hide behind, and might be forced to find a suitor to take on some of its debt load.
If you were running a studio, would you rather be part of a company that is literally guaranteed to never go out of business, or a company whose survival each year depends solely on the success of the films you put into production? In other words, would you want your future to be tied to the quality and success of the films you make, or would you prefer to be able to “write-down” a $200 million loss as if it were the equivalent of paying a parking ticket?
I’m afraid there’s no easy answer to that one.
