Most Widely Traded 48 Hour Clock: Disney's Fuzzy Math
Stocks: (DIS)
Disney announced that it will cut 650 jobs in its studio unit and cut the number of movies it makes each year. The company will cut production from as many as 18 films a year to 10 at its core studio unit and two or three at its Touchstone picture unit.
Part of the theory behind Disney's moves is that having few films and maintaining a $450 million production budget would remain the same so that it can be devoted to fewer films. The theory goes further by assuming that if each film has a larger financial commitment, it will do better at the box-office.
Unfortunately, the theory is flawed. Each year, a number of films with large budgets do poorly compared to expectations. "King Kong" and "Superman" are two recent examples. On the other hand, some low budget films like "My Big Fat Greek Wedding" bring in huge revenue against very little cost. Movie-making is hardly a science.
Disney has done fairly well recently but its studios have lagged. "Pirates of the Caribbean" may change that for a period. but Disney may be concerned that it does not have a blockbuster follow-up franchise one the third installment of the high-seas action film is out.
After a long period in Wall Steet exile when Disney's stock traded below $25 for much of 2003, 2004, and 2005, the company now has a reputation to defend. After rising from a 52-week low of $22.89 to near its high for the period of just over $31, any misstep by the entertainment company could take the stock back down.
There may be ways to show the market that the Disney turnaround is for real, but the studio cuts of personnel and annual film count are not the way to do it.
Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.
Disney announced that it will cut 650 jobs in its studio unit and cut the number of movies it makes each year. The company will cut production from as many as 18 films a year to 10 at its core studio unit and two or three at its Touchstone picture unit.
Part of the theory behind Disney's moves is that having few films and maintaining a $450 million production budget would remain the same so that it can be devoted to fewer films. The theory goes further by assuming that if each film has a larger financial commitment, it will do better at the box-office.
Unfortunately, the theory is flawed. Each year, a number of films with large budgets do poorly compared to expectations. "King Kong" and "Superman" are two recent examples. On the other hand, some low budget films like "My Big Fat Greek Wedding" bring in huge revenue against very little cost. Movie-making is hardly a science.
Disney has done fairly well recently but its studios have lagged. "Pirates of the Caribbean" may change that for a period. but Disney may be concerned that it does not have a blockbuster follow-up franchise one the third installment of the high-seas action film is out.
After a long period in Wall Steet exile when Disney's stock traded below $25 for much of 2003, 2004, and 2005, the company now has a reputation to defend. After rising from a 52-week low of $22.89 to near its high for the period of just over $31, any misstep by the entertainment company could take the stock back down.
There may be ways to show the market that the Disney turnaround is for real, but the studio cuts of personnel and annual film count are not the way to do it.
Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in the companies he writes about.
posted by douglas mcintyre at 5:36 AM
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