Film Unit Caught in Crossfire

Disney hasn’t forgotten “The Alamo” -- and neither has Wall Street.

While corporate directors and Chairman Michael Eisner deal with a building shareholder siege, Walt Disney Co.’s film unit -- a prime contributor to earnings lately -- is bracing for an uncertain spring because of some high-risk bets, including the once-delayed Texas epic.

In coming weeks, the Burbank company is set to release not only its $100-million production of “The Alamo” but also next Friday’s $78-million adventure film, “Hidalgo.” Both pictures were bumped out of last year’s lineup because they weren’t ready for audiences.

A week before the April 9 premiere of “The Alamo,” moreover, Disney plans to open “Home on the Range,” a traditionally-animated, 2-D comedy that cost about $110 million to produce -- a big roll of the dice, given today’s strong audience preference for cutting-edge computer-generated cartoons.

Those and other spring pictures already are getting close scrutiny from investors, who are looking for any sign of weakness in a film operation that is coming off a record run at the box office.

“It was the studio that blew away everybody’s first-quarter estimates,” Sanford C. Bernstein & Co. media analyst Tom Wolzein said. “So now, what’s next? Is it sustainable? That’s basically what the market is asking.”

An ill-timed stumble by the studio could undercut Eisner’s argument that Disney has put its worst days behind and is poised for a period of steady growth.

On Monday, the Florida State Board of Administration, the fourth-largest U.S. pension fund, joined a dozen other large investors in promising to withhold their votes for Eisner’s reelection to the Disney board at Wednesday’s annual meeting in Philadelphia. At a meeting scheduled tonight in Philadelphia, the board is expected to plot its strategy for responding to the growing “no” vote.

In a pair of dueling letters, meanwhile, Disney’s directors and dissident shareholders gave starkly different views of the company’s future.

Former board members Roy Disney and Stanley Gold urged shareholders to use their vote to “send an unmistakable message that it is time for a change in the senior management and board of the Walt Disney Co. Tell the board you believe it is time to replace Michael Eisner.”

The directors’ letter, however, told shareholders their support “is important to keep the momentum of the Walt Disney Company going.” By voting for the current board, it added, investors can ensure that Disney is not distracted from “realizing the full potential of our creative strength and enhancing shareholder value.”

Despite the public crossfire, studio chairman Dick Cook and his first lieutenant, production chief Nina Jacobson, insisted in a joint interview that the demands to sustain success were no greater than usual.

“The pressure is there regardless of what’s happening,” said Cook, who will be making a presentation at the crucial shareholders meeting, where a large anti-Eisner vote would fuel calls for an end to the chairman’s 20-year reign.

While acknowledging that Wall Street attention has “some impact,” Jacobson agreed that being under the microscope doesn’t add much to the usual jitters.

“We bite our nails on every picture,” Jacobson said. “We did it last year, we’re doing it now and we’ll do it next year -- that’s the nature of the business.”

Disney strategy has been to balance risk by surrounding high-cost films like last year’s “Pirates of the Caribbean,” a smash hit, with lower-cost family pictures such as “Freaky Friday” and “Bringing Down the House,” which were also nicely profitable.

This year, however, the managers found themselves with a more expensive mix. That’s largely because the bigger films, according to the executives, happened to clump together.

Big-budget releases lined up for later in the year include producer Jerry Bruckheimer’s summer action-adventure film “King Arthur,” which cost around $120 million and “National Treasure,” a $100-million picture starring Nicolas Cage as a modern-day treasure hunter. The schedule also includes a less expensive thriller from “The Sixth Sense” director M. Night Shyamalan and a modestly budgeted Bill Murray comedy at Christmas, along with Pixar’s next computer-animated comedy, “The Incredibles.”

Although the relatively heavy roster could lead to another record year, some observers are wary of high costs and the potential for flops.

“It would be difficult to expect that the fiscal 2004 theatrical releases would exceed the fiscal 2003 releases” in terms of box-office performance, said media analyst Jeffrey Logsdon of Harris Nesbitt Gerard.

“Finding Nemo,” produced by Pixar, and “Pirates,” a Disney movie produced by Bruckheimer, each amassed more than $300 million of ticket sales in U.S. theaters alone.

Strong DVD and home video revenue from both pictures gave a boost to the film unit in the fiscal first quarter, which ended Dec. 31. According to Logsdon, the studio accounted for about 36%, or $458 million, of Disney’s $1.27 billion in operating income in the period -- putting sizzle on results that were announced by Eisner at a Florida analysts’ meeting on the very day Comcast Corp. made its unsolicited takeover bid for the company.

For the next several months, however, executives will be all nerves.

“Hidalgo,” Disney’s next release, was originally to open last October but was held for five months, according to Jacobson, because the film and its marketing campaign still needed more work.

Now, the picture -- which stars Viggo Mortensen as an outcast American cowboy who races his horse in the Arabian desert -- will face unexpectedly stiff competition from Mel Gibson’s controversial drama “The Passion of the Christ,” which grossed nearly $120 million in its first five days. The same weekend, Time Warner Inc.’s Warner Bros. is also opening its action comedy “Starsky & Hutch,” starring Ben Stiller and Owen Wilson.

April brings the back-to-back openings of “Home on the Range” and “The Alamo.”

The latter was abruptly pulled from a Christmas Day slot after a test audience in Pasadena proved less than completely receptive. Director John Lee Hancock was given months to retool the picture, even though Disney had already begun to promote the Dec. 25 opening with billboards and a DVD trailer attached to the front cover of the trade paper Daily Variety, at a cost of about $130,000, according to sources.

Cook and Jacobson took exception to any suggestion that “Alamo” had been a troubled film in need of fixing.

“It needed more time,” Jacobson said. “It’s a very big movie, there are a lot of characters, a lot of story lines and a lot of choices.”

The final version puts added emphasis on the showdown at the Alamo, where fewer than 200 Texas rebels were crushed by the 5,000-man Mexican army in 1836, while downplaying the bloody retribution battle at San Jacinto weeks later.

In mid-June, Disney will release another question mark: “Around the World in 80 Days.” The ambitious, high-cost remake was financed by billionaire Philip Anschutz. But the studio will spend tens of millions to push it during a summer box-office derby that includes competitors such as “Shrek 2” from DreamWorks, “Harry Potter and the Prisoner of Azkaban” from Warner Bros. and “Spider-Man 2” from Sony Corp.’s Sony Pictures Entertainment.

Sources said Disney paid about $20 million for the North American distribution rights to “Around the World” -- less than a third of the usual cost for such rights to a film with a budget over $110 million. Marketing costs, however, will reach at least $40 million, adding to the pressure in a season that already demands heavy spending on homegrown projects.

As for “Home on the Range,” Disney animation chief David Stainton said he was not concerned about audience drift toward computer animation of the sort perfected by Pixar, which touched off a firestorm by declaring its intention several weeks ago to divorce Disney when its current partnership expires.

“The most important factors to an audience are great story and great characters,” Stainton said. “ ‘Home on the Range’ is fresh, funny and completely unpretentious.”

On Monday, Disney managers were eager to point forward, toward a picture that won’t be ready until faraway Christmas 2005.

In a high-profile announcement, the studio said it had entered a partnership with Anschutz’s Walden Media to co-finance and distribute a live-action adaptation of C.S. Lewis’ fantasy classic, “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe.”

The deal for that and future pictures based on Lewis’ novels came on the heels of an 11-Oscar sweep by Time Warner’s New Line Cinema for its “The Lord of the Rings: The Return of the King.” It promised to give Disney something it has sorely lacked: a big, live-action movie franchise to help spark new merchandising lines and theme-park attractions.

“This is something that could be a big deal,” Cook said. “It’s a property that will permeate the whole company.”