King Disney

By CLAUDIA ELLER

June 10, 1997 12 AM PT

Walt Disney Co. is doing something really, really weird--in fact, almost unheard of in this day and age: It’s making money in the movie business. And lots of it.

Defying the odds, the Burbank-based studio is actually seeing double-digit returns on its investment in movies, which, including production, marketing and overhead, amounts to about $1.5 billion a year.

According to Mike Yocco, entertainment analyst for Paul Kagan Associates, Disney is “one of the only studios” that can make that claim. Certainly, with the success of “Liar Liar” and “The Lost World: Jurassic Park,” Universal is doing so in the first half of this year. Sony, with “The Fifth Element,” “Jerry Maguire,” “Anaconda” and such hit-hopefuls as “Men in Black,” is also raking in the bucks for the moment.

But with production and marketing costs so high and the marketplace flooded with product, the chances of making profitable movies today are typically slim to nil. Ask anyone in the business, and he or she will tell you that most films lose money.

Yet for the last three years Disney has spent more on movie making and marketing than during any time in its history. And it’s also sold more tickets to its movies worldwide than any other distributor.

Disney Studios Chairman Joe Roth, who since taking over the reins in 1994 has transformed the once-notoriously cheap movie-making factory into a competitive supplier of highly exploitable live-action features, sees the studio’s current mission as “keeping up its worldwide market-share leadership and continuing to increase profitability by driving the same kind of revenues with far fewer titles.”

Disney has been steadily shaving the number of films it makes, from 40 a year to about 20. The company recently assembled a 1998 slate of 19 films, on which it will spend an estimated $750 million in production costs and an additional $400 million on marketing.

While Yocco believes that Disney will continue to be profitable in the foreseeable future, he also thinks the studio’s decreased output “will cut down on the number of opportunities to get blockbusters.”

Roth disagrees: “That’s completely inverted logic. Anyone who does their job reasonably well will be able to identify high-revenue pictures when going through their 200 or so projects in development, whether they’re making 15 movies a year or 40.”

While Roth declined to divulge specifics, he said he expects fiscal 1997 (which began Oct. 1) to be “our most profitable year” ever in the live-action genre, thanks to such hits as “Ransom” and “101 Dalmatians.” Yocco estimates Disney already has seen more than $100 million in profit on “Ransom,” which grossed $300 million worldwide, and projects that “Dalmatians,” which grossed more than $300 million globally from theaters, will reap the studio more than $300 million in total earnings from all revenue streams, including consumer products.

The most surprising number, though, is Disney’s success rate for its films since October. During that period, according to industry sources, Disney has lost money on only one movie out of 16 releases--a whopping $30 million on “The Preacher’s Wife,” which cost $65 million to make--and is sure to lose some on its current box-office dud “Gone Fishin’,” which cost around $30 million and has grossed just $10.5 million in two weeks.

This weekend, Disney had the No. 1 box-office draw in the country with “Con Air,” an $80-million action movie starring Nicolas Cage and produced by Jerry Bruckheimer (the team behind Disney’s hit film “The Rock”) that debuted with $24 million.

The film, released simultaneously in Britain, Hong Kong, Latin America and Israel, grossed an additional $5 million overseas, only $500,000 less than what “The Rock” opened with last year in those same regions. Based on its initial release, Disney is projecting that “Con Air” will gross more than $100 million domestically and $175 million internationally.

Roth says he is “nervous” about how the film will fare in coming weeks against the back-to-back releases of other big summer entries like “Speed 2: Cruise Control,” “Batman & Robin,” “Face/Off,” “Men in Black,” “Contact” and “Air Force One.”

“No matter how well it plays, we’re going to have competition one weekend after another,” Roth says.

Disney’s other potentially lucrative properties this year include the animated feature “Hercules” (June 27), “George of the Jungle” (July 16), the re-release of “The Little Mermaid” (Nov. 14) and “Flubber,” starring Robin Williams (Nov. 26).

The number of expensive, star-driven movies on its next year’s slate, put together by Roth and his two movie division heads, Touchstone Pictures’ Donald De Line and Disney Pictures’ David Vogel, underscores Disney’s about-face strategy and spending habits under Roth.

Contrasted with its prior practice of relying on inexpensive formulaic comedies to make up the bulk of its live-action film division, which consistently lost tens of millions of dollars a year, Disney now pays competitive market prices for talent and material.

Its rivals often gripe that Disney overspends for marketing to try and buy grosses, a complaint that Roth calls “completely absurd.” If that were true, he says, “none of us [studios] would have a failure.”

But he concedes that Disney sometimes overspends.

“Yes, absolutely,” he said. “The tendency to overspend for us is on the Disney films like ‘Toy Story’ and ‘Dalmatians,’ where we’re not only promoting the theatrical release but setting up the sell-through video and consumer products.”

In live action, Roth believes Disney can derive its best return on investment by making big, star-driven, adult-oriented movies and family franchise movies like “Dalmatians,” because of their highly exploitable value both here and abroad.

“The heart of our most profitable movies appears to come from worldwide event movies and Disney family brand movies, which doesn’t mean we won’t make a ‘Grosse Point Blank’ or ‘Romy and Michele’s High School Reunion,’ ” says Roth, which each cost under $20 million and are profitable for the studio.

But to turn out the big grossers, Roth and his team know it takes big bucks.

“Movies have to be bigger and better than ever,” says Disney’s Motion Picture Group chairman Dick Cook. “Audiences have grown to expect to not only see good stories but dazzling filmmaking, and that all costs money.”

Disney executives like to remind critics that compared with movies like “Speed 2,” which sources estimate cost $145 million, and “Batman & Robin,” which is said to cost $175 million, “Con Air” and some of Disney’s other big-budget summer movies seem relatively reasonable in cost.

Roth said efforts are being made to manage costs by “making fewer movies, chasing the gross less on movies that don’t perform and cutting overhead” with fewer overall talent deals and the shuttering of its third production label, Hollywood Pictures.

Though his strategy has paid off so far, Roth is also mindful of the gambles.

“There used to be better margins, but in the past five to 10 years, margins are smaller and costs are higher,” he says. “It’s much more difficult to break out smaller pictures.”

Roth recently gave the go-ahead to Disney’s most expensive movie ever, “Armageddon,” a $100-million sci-fi fantasy adventure to star Bruce Willis and to be directed by Michael Bay, who will produce with Bruckheimer and Gale Anne Hurd.

Disney isn’t only spending big on its movies for older audiences. Its historically low- to moderate-cost family films now often carry budgets rivaling its adult fare. Summer release “George of the Jungle” costs $50 million, Thanksgiving’s “Flubber” is $75 million, and its summer 1998 offering “Mighty Joe Young” costs $80 million.

Disney has been king of ticket sales worldwide for three years. Recognizing the importance of international markets, Roth has been buying foreign rights to big event movies, owning half of Sony’s $100-million “Starship Troopers” and its $90-million “Air Force One,” starring Harrison Ford, and Paramount’s “Face/Off,” teaming John Travolta and Nicolas Cage.

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Spending Big, Making Big

The following figures reflect production costs and estimated profit (after Walt Disney Co. recoups all production and marketing costs) from all revenue streams of Disney’s biggest moneymakers over the last year:

*--*

Production cost* Profit Film (millions) (millions) Ransom $75 $100-plus 101 Dalmations 60 300-plus The Rock 75 100-plus Phenomenon 32 75-plus The Hunchback of Notre Dame 70-plus 300-plus

*--*

* Disney spends an average of an additional $50 million in worldwide marketing costs per movie.

Sources: Industry sources and analysts, including Paul Kagan Associates.

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Disney’s 1998 Slate

WINTER

* Kundun, Martin Scorsese’s film about the Dalai Lama

* Krippendorf’s Tribe, a comedy starring Richard Dreyfuss

SPRING

* The Deedles, a comedy starring Dennis Hopper

* Eaters of the Dead, based on Michael Crichton’s novel

* Holy Man, a comedy starring Eddie Murphy