Disney Banking on Lower-Cost Films

Michael Eisner was seeing red.

Walt Disney Co. had been clobbered by some costly box-office flops, movies that seemed to have strayed too far from the live-action family fare that once characterized Disney releases.

Eisner, Disney’s chairman, ordered the studio to slash its annual investment in movies and instructed his troops to produce more broad comedies and uplifting films that wouldn’t depend on highly paid stars to deliver profits.

Since that mandate four years ago, Disney has found a cheaper way to make money. It has produced a string of moderately priced, highly profitable hits, including “Remember the Titans,” “The Princess Diaries,” “Snow Dogs,” “The Rookie” and “Sweet Home Alabama.”

The latest success story: “Bringing Down the House,” a $35-million comedy starring Steve Martin and Queen Latifah. Last weekend, the film passed the $100-million mark in ticket sales and is poised to be a significant moneymaker for the Burbank-based entertainment giant.

The studio’s run of lower-cost hits has given a welcome boost to Disney’s bottom line as some of its key business units -- most notably its theme parks and TV network ABC -- are suffering.

“These are unexpected gifts that bail you out when things aren’t working according to plan in your other divisions,” said entertainment analyst Larry Gerbrandt of Kagan World Media.

The strategy also has cushioned the blow of some of Disney’s bigger-budget misfires, most recently the animated space adventure “Treasure Planet” and the comedy “Bad Company,” which teamed Chris Rock and Anthony Hopkins.

Like the usually risk-adverse Paramount Pictures, Disney is known to be one of the more fiscally conservative studios, producing many of its movies for little more than half the industry average, about $60 million.

“Over the last couple of years, we have been more obsessed with the cost of our movies,” said Disney Studios Chairman Richard Cook. “We’re constantly looking at our investments and what our return on investment will be, and we are trying to have a slate of movies that are diverse in what they cost and in their subject matter and appeal.”

It’s no accident that last year Eisner selected Cook as the successor to former studio head Joe Roth, who helped shape the strategy but left in January 2000 to form his own entertainment concern. Arguably, nobody understands the value of the traditional family brand and how to sell it better than Cook, a 32-year company veteran who began as a ride operator at Disneyland.

Still, when it comes to helping him pick the right movies, Cook, who spent most of his career in distribution and marketing, relies heavily on his more experienced production chief Nina Jacobson, who says the studio’s lower-cost hits did not spring from a preconceived business model but rather reflect a “belief in a business practice.”

“Did we come up with a plan to have a certain amount of movies at this price every year? No,” said Jacobson. “You can’t back into decisions like that. The movies we make are determined by the scripts and our ability to package them well.”

Jacobson said relatively low production costs relieve some of the make-or-break pressure on any given movie. “You’re not having to risk colossal failure.”

‘Good, Clean Fun’

Jacobson likens “Bringing Down the House” to such successful comedies as “Pretty Woman,” “Splash” and “Down and Out in Beverly Hills,” all made under Disney’s more adult-oriented movie label Touchstone Pictures. “These movies are all good, clean fun made at a [moderate] price.”

Although the odd-couple pairing of Martin and Queen Latifah proved to be a winning combination, it didn’t hurt that the movie’s release came on the heels of Latifah’s red-hot performance in “Chicago” and just before Martin did a turn as this year’s Oscar telecast host.

“The timing was a stroke of luck,” Cook said, noting that not all of the studio’s lower-cost movies have caught on with audiences. Chief among the disappointments were “The Country Bears,” which cost $35 million and grossed $17 million, and “Big Trouble,” which cost $40 million and grossed $7 million. Analysts suggest that because so many of Disney’s movies today are reasonably priced, the studio has increased its odds of coming out ahead at the end of the year.

“Disney has a much higher probability of generating profits in its film portfolio,” said analyst Jeffrey Logsdon of Gerard Klauer Mattison. “And because the films cost less, you start generating positive cash-flow earnings much faster than with the average studio film.”

Yet two of Disney’s more expensive movies paid off big time last year. The Mel Gibson drama “Signs,” costing $72 million, took in $228 million domestically, and the $60-million comedy “The Santa Clause 2,” starring Tim Allen, scored $140 million.

Cook said Disney will continue to roll the dice on a certain number of big-budget films each year, as it has on its coming releases “Pirates of the Caribbean,” which cost about $140 million, and “The Haunted Mansion,” budgeted at nearly $90 million -- both inspired by popular Disneyland attractions. The studio’s remake of “The Alamo,” now shooting in Texas, is budgeted at $95 million.

Seeking Mega-Hit

But the studio also will stand pat on its current strategy of producing “good ideas made at reasonable costs,” Cook said.

On the near horizon is “The Lizzie McGuire Movie,” starring Hilary Duff of the popular television show, along with a remake of “Freaky Friday” with Jamie Lee Curtis. Also in the works is a sequel to “Princess Diaries.”

Disney has yet to produce a mega-hit franchise movie such as Sony Pictures’ “Spider-Man,” Warner Bros.’ “Harry Potter” or New Line Cinema’s “Lord of the Rings,” a project that Disney passed on for budget reasons. Each has spawned sequels, merchandise and other lucrative spin-offs, earning their respective studios hundreds of millions of dollars in profit.

Disney is hoping that “Pirates of the Caribbean,” from top-drawer producer Jerry Bruckheimer, will fit the bill.

“It’s not like we don’t want a billion-dollar franchise,” Jacobson said.

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Low-cost plan pays off

Disney has hit a winning streak with its lower-budget, high-concept comedies and family movies. Some examples:

*--* Domestic Expected Release Cost box office profit* Title date (millions) (millions) (millions) “Bringing Down the House” 3/7/03 $35 $102.8** $130 “Sweet Home Alabama” 9/27/02 38 127.2 140 “The Rookie” 3/29/02 24 75.6 50 “Snow Dogs” 1/18/02 35 81.1 70 “The Princess Diaries” 8/3/01 37 108.2 105 “Remember the Titans” 9/29/00 30 115.6 100 Upcoming low-cost hopefuls Release Cost Title date (millions) “Holes”*** 4/18/03 $30 “The Lizzie McGuire 5/2/03 17 Movie” “Freaky Friday” 8/1/03 26

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* Money that Disney expects to collect over the life of the movie, including worldwide box-office, DVD and television sales, of which the lion’s share comes in the first three years.

** Still tracking.

*** Co-financed by Walden Media.

Sources: Los Angeles Times, industry sources, Exhibitor Relations Co.