Disney Re-brands To Grow

Note from Jeffrey: In my most recent book, Going from W2 to 1099, I stated that in order to survive this tough economy, successful companies must market all of their products and services to men, women, boys and girls and that niche markets no longer work. I also suggested that all companies could rank their business models using the Taylor Index for Products and Services (TIPS) in order to see how they coincide with the “new” marketplace; the higher the index the more likely the company will be successful.

In the following update, please see how Disney has chosen to drop certain movies which do not coincide with previously profitable markets in order to free up capital and resources which can be used more profitably within the Disney family.

3/11/10 - As the business model that propelled Hollywood for more than a decade fades to black, Disney Co is retooling how its movie studio makes and markets films. Insiders suggest that Disney is backing away from one-off comedies like "When in Rome" and "Confessions of a Shopaholic." In their place, Disney plans to focus on films that are essentially brands—like a planned Muppets movie—that can be exploited across its network of theme parks, videogames and commercial products. The recent success with "Alice in Wonderland" has given a new team of executives who run the studio confidence in their approach.

Hollywood has been hammered by changes in the industry. DVD sales in the U.S., which long cushioned the studios' bottom line, have fallen 28% from their 2004 peak of $12 billion. Wall Street has turned off the financing tap that poured billions of dollars into movie-making over the years. At the same time, consumers want instant gratification offered by digital technology. That has made it more difficult for studios to maintain the "release window" system that allowed them to sell and resell the same movie at different times on different formats, like DVDs, premium cable and regular broadcast TV.

Disney Studios for two quarters last year reported its first operating losses since 2005. In 2009, Disney was fifth out of the six major studios for U.S. box office market share.

Shaking out the management team, Disney put in charge the guy who used to head up the Disney Channel. He was given a mandate to redefine the studio in much the same way he had rebuilt the company's cable-TV network which had been a sleepy outlet for old Disney movies and created tween-oriented entertainment like "High School Musical" and "Hannah Montana," that drove profits for the radio, consumer products, recorded music and live-events divisions.

Last summer, Disney spent $4.3 billion to buy Marvel Entertainment. That purchase gave the company a stable of 5,000 comic-book characters, including Captain America, Spider-Man and Iron Man, that could be exploited throughout its empire.

It's a strategy Disney pioneered years ago, with it "Princess" movies, such as "Beauty and the Beast" and "Little Mermaid," which spawned a massive business in merchandise and theme park attractions.

According to insiders, Disney is trying to remake the studio as an ecosystem of three well-known divisions—Pixar, Marvel and Disney Studios proper. Each would produce its own flavor of movie.

One person familiar with the studio's thinking describes the strategy as "three-dimensional chess," in which the company's production units are distinct brands. Disney also has exclusive distribution rights to Steven Spielberg's DreamWorks SKG, giving it low-risk revenue from less intensively branded movies.

Disney isn't alone in attempting to replace mere movie-making with brand-building. Warner Bros. recently announced that it was overhauling DC Comics, which it had owned for more than 40 years, installing some executive firepower to make its action heroes more profitable.

Studios routinely spend $300 million to $400 million to produce, market and distribute a movie.

The company recently persuaded theater operators to cooperate with a plan to shorten by a month the period between the time some movies are released in theaters and when they come out on DVD. The old release schedule, designed to protect box office sales, worked well for years, but it is coming under fire amid plunging DVD sales and pressure from digital distribution and online piracy.

Similarly, Disney recently pulled its ABC television affiliates from Cablevision System Corp.'s pay-TV service, as the company sought higher payments for its programming.

In the long run, Disney is hoping to wipe away many of the distinctions between formats in which viewers see movies. A technological initiative called Keychest is designed to give consumers access to a given movie across a variety of platforms: DVDs, the Web, video-on-demand television and mobile devices like iPhones.