Walt Disney Co., sharply countering production cutbacks by other movie makers, said Thursday that it is forming a new film unit and plans to double its production of feature films.
The new unit, Hollywood Pictures, will begin operation in February and will make about 12 movies a year by 1991, Disney said. The studio currently releases about 15 films a year, including several "picked up" from outside producers, under the Touchstone Pictures and Walt Disney Pictures labels.
Pressure on Rivals
The move will apparently put new pressure on weaker competitors such as MGM/UA Communications Co. and Columbia Pictures Entertainment's Columbia and Tri-Star units, which are already struggling at the box office. Top-ranked Disney commands more than 20% of movie box-office receipts in the United States.
Several industry executives and analysts were immediately skeptical of the plan, however.
"It's been tried and it doesn't work," said Dennis McAlpine, a securities analyst with New York-based Oppenheimer & Co. McAlpine and others pointed out that dual production companies such as those at MGM/UA, which recently folded its United Artists unit, tend to compete with each other both for prime theater space and for the attention of top executives. Disney executives maintain that there is a surplus of theaters and of executive talent at the company.
In composite trading on the New York Stock Exchange, Disney shares closed Thursday at $62.875, off 50 cents.
Under the Disney arrangement, two separate production staffs will share a single marketing and distribution apparatus, and both production staffs will report to Walt Disney Studios Chairman Jeffrey Katzenberg and President Richard Frank.
Capitalizing on Problems
Ricardo Mestres, 30, was named president of Hollywood Pictures. In his previous job as Touchstone's production president, Mestres was largely responsible for movies including "Outrageous Fortune," "Big Business" and "Three Men and a Baby."
David Hoberman, 36, who was previously production president for family-oriented Walt Disney Pictures but was also involved with such Touchstone films as "Stakeout," "Ruthless People" and "Beaches," will become president of Touchstone while continuing to oversee Walt Disney Pictures.
In a statement, Katzenberg said the expansion would take advantage of problems elsewhere in the movie business. "At a time when consolidation and concentration within the industry have resulted in a downswing in production, it seems to us to be an opportune time to expand our production to help fill the void," Katzenberg said.
MGM/UA has scaled back movie production, and some big independent companies such as Lorimar-Telepictures and De Laurentiis Entertainment Group have halted production amid financial difficulties. Citing such cutbacks, Disney executives have predicted a serious shortage of major feature films as early as next year, following several years of "glut" during which the number of movies released in the United States topped 500 annually.
Some industry executives have said that Disney was also motivated by a need to defuse conflicts between Hoberman and Mestres and to keep its film production staff from defecting to competitors.
In an interview, Frank said there were no such conflicts, but he acknowledged that the new studio was clearly intended to provide elbow room for ambitious executives. "If you're growing, you can provide room to let executives keep developing. If you're not growing, you can't supply that," Frank said.
According to Katzenberg, the new unit will produce mainstream Hollywood pictures, much as Touchstone does. He also said the unit will share funding from the studio's Silver Screen Partners IV offering, which raised $400 million in movie financing for Disney earlier this year. According to executives at Disney, which is headquartered in Burbank, the first Hollywood Pictures film will probably be released in 1989, but no plan has been set.
One securities analyst, who declined to be identified, pointed out that Disney's success in raising the partnership money, at a time when other companies found it difficult to raise capital, significantly reduced the risks to Disney--if not to Silver Screen investors--of the double-studio arrangement. "Now they can make more movies and get more distribution fees--the part they keep," the analyst said of the studio.