NEWS ANALYSIS : What the Roth Deal Means for Disney

When Walt Disney Co. signed outgoing 20th Century Fox Chairman Joe Roth to a lucrative production deal Monday, it did more than gain than the services of a top executive. The entertainment giant also signaled that it puts a premium on dominating the marketplace.

Disney, which has the biggest box office share among studios, is pursuing a risky strategy of producing up to 35 films a year by the end of the decade, up from 23 now. The Burbank-based studio is counting on Roth to contribute about five films annually by 1994, and to produce as many as 30 pictures over the life of his five-year deal with the company.

Chairman Michael D. Eisner hinted Monday that there may be more Roth-style deals in the offing at the expansionary studio. “Our strength is in having a lot of quality American product,” he said. “Joe’s value to us is in what he creates. These are our assets.”

Disney may also look to Roth to soften its reputation as a mass marketer of low-budget, unprovocative films. The company, which has enjoyed its greatest success with animated pictures such as “Beauty and the Beast,” stands to benefit from Roth’s production instincts and talent ties. At Fox, he made deals with filmmakers John Hughes (“Home Alone”) and James Cameron (“Terminator 2”).

Disney is swimming against the tide by growing in a stagnant box office environment. The film business is riskier than ever these days, with industry-wide costs averaging more than $25 million per movie, not counting marketing. Other studios have cut back on annual production budgets, and a slew of independent companies have gone into bankruptcy.

But analysts said Disney’s game plan could work, if the company keeps a tight lid on costs and continues making movies with commercial appeal.

Disney benefits from diversity, deep pockets and a unique off-balance-sheet financing system. The company raised an unprecedented $1.5 billion for production through limited partnerships between 1985 and 1990, and recently completed a $400-million bond offering.

Eisner said Disney stands ready to “pick up the slack” left by other companies.

Disney studio chief Jeffrey Katzenberg also characterized the Ross signing as a harbinger. “We’re very bullish on the movie business,” he said. “As long as it’s run in a financially responsible way, we’ll continue to be ambitious and continue to expand.”

Disney isn’t the only company to take on a high-profile partner. Warner Bros.--whose 22 films this year make it Disney’s biggest rival in the market share sweepstakes--has a production deal with Arnon Milchan of “JFK” fame. But that deal is only partly funded by Warner. Disney is the only studio currently financing such an ambitious independent production company.

Jeffrey Logsdon, an entertainment analyst with Seidler Amdec Securities in Los Angeles, said the Roth deal improves Disney’s long-term prospects in the marketplace. “With so many ancillary markets maturing, there are only three ways you can make more money: have a better batting average, lower your costs or get lucky,” Logsdon said. “And the more premium players that you put in the lineup, the better chance you have of upping your average.”

Roth comes to Disney after three years at Fox, where he enjoyed a largely successful run. Hits such as “Home Alone” and the more recent “The Last of the Mohicans” overshadowed box office duds such as “For the Boys” and “Shining Through.” Roth on Monday said he turned down an opportunity to stay at Fox because he preferred making films to managing a studio.

Sources said Fox was unable to offer Roth the broad production deal he sought without cutting into its existing slate of films. Roth and Fox Inc. Chairman Rupert Murdoch are said to have parted amicably after a final meeting late Sunday.

Roth downplayed speculation that there was a down-to-the-wire negotiation with Murdoch. “I never considered staying at Fox,” Roth said. “I only said that to avoid looking like a lame duck. I love making movies, and as a studio executive I wasn’t doing that.”

Roth, who started as an independent producer and director, joins Disney on Jan. 1. The deal gives him the autonomy to chose his projects, though Disney is said to have veto rights over big-budget films. Roth said he would search out eclectic subject matter.

“I’m going to make the same movies I’ve been making,” he added. “It’s always been intuitive. If you look at Fox, you will see an eclectic mess. There’s no pattern in films like ‘Grand Canyon,’ ‘Hot Shots’ and ‘The Commitments.’ ”

Roth’s deal was worked out during a series of secretive meetings that began several months ago. Katzenberg said he looks to Roth to establish a fourth label in addition to Disney, Touchstone and Hollywood pictures.

“This is not a traditional producing deal,” Katzenberg said. “Joe is an executive running a company making five films a year.”

Both sides refused to discuss the financing, but Roth is sure to receive a multimillion-dollar salary. Entertainment attorney David Colden said Roth’s presence adds to Disney’s allure.

“If you’re an agent, you’ll be more likely to take something to Joe Roth first,” Colden said. “And if you get turned down, you can go to Disney second. It’ll be like going to another studio.”