Disney CEO’s Franchise Film Push Takes Toll as Ross Exits

April 23 (Bloomberg) -- Bloomberg's Erik Schatzker reports that Walt Disney Co. Chief Executive Officer Robert Iger’s franchise-focused movie strategy will survive the downfall of the company’s movie chief even after “John Carter” lost $200 million, analysts said. He speaks on Blo0omberg Television's "Inside Track." (Source: Bloomberg)

Walt Disney Co. (DIS) Chief Executive Officer Robert Iger’s franchise-focused movie strategy will survive the downfall of the company’s movie chief even after “John Carter” lost $200 million, analysts said.

The world’s biggest entertainment company, Burbank, California-based Disney has cut its film releases in half to 12 this year and targeted spending on large-budget pictures that have the potential to be long-lived, consumer franchises.

The perils of betting big were underscored with the science-fiction flop “John Carter,” which led to possibly the largest loss ever on a single film. Iger spent $7 billion on Pixar in 2006 and $4.2 billion on Marvel in 2009 to acquire intellectual property for films, theme-park rides, toys and other merchandise.

The strategy was “set by Iger himself,” Matt Harrigan, an analyst with Wunderlich Securities in Denver, said in an e-mail. He has a hold rating on Disney stock.

Rich Ross, who resigned as studio chairman yesterday and presided over the release of “John Carter,” wasn’t a good fit for the role, according to analysts as well as Ross’s memo to staff, which cited a lack of passion for the job.

Ross faced a difficult transition to the movie business from the Disney Channel cable network after Iger moved him to the studio in October 2009, Harrigan said.

Hollywood Newbies

Ross and executives under him with little film experience mishandled the marketing of “John Carter,” said Peter Sealey, a former executive at Columbia Pictures.

MT Carney, the New York advertising executive who Ross recruited to run film-studio marketing, quit in January after 20 months, ahead of the “John Carter” release. She directed campaigns for hits including “The Help,” “Cars 2” and “Pirates of the Caribbean,” and also disappointments like “Secretariat” and “Mars Needs Moms.”

The company hasn’t named a replacement for Ross. Those mentioned as possible candidates by outsiders include DreamWorks Studios co-Chairman and CEO Stacey Snider, Marvel Studios’ president of production, Kevin Feige, and Mary Parent, the former studio head at Metro-Goldwyn-Mayer Studios Inc.

“It’ll be someone in the industry, someone with gravitas and credentials,” Sealey said.

Lagging Sales

Elizabeth Kaltman, a spokeswoman for Disney’s film unit, declined to comment on succession plans. Feige didn’t respond to a message left at his office. Chip Sullivan, a spokesman for DreamWorks Studios, declined to comment. Parent didn’t respond to an e-mailed request for comment.

Disney ranks seventh among studios this year, with domestic ticket sales of $186.7 million as of April 15, according to researcher Box Office Mojo. That’s last among the major studios and also behind Lions Gate Entertainment Corp. (LGF), which has 2012’s biggest hit so far in “The Hunger Games.”

“Marvel’s The Avengers” makes its debut on May 4 for Disney, and is expected to be among the year’s top-grossing pictures with an estimated $370 million in domestic ticket sales, according to Phil Contrino, editor of film researcher BoxOffice.com. The company’s next major release, Pixar’s “Brave,” may take in $200 million domestically after its June 22 debut, Contrino said.

Franchise Strength

Disney added 0.6 percent to $42.35 yesterday in New York trading. The shares have risen 13 percent this year.

Chief Financial Officer Jay Rasulo explained the company’s strategy at an analyst event last year. Sequels such as Pixar’s “Toy Story 3” can generate $9 billion in retail sales, mostly from consumer products such as games and books, far more than a stand-alone, non-franchise picture, he said.

Some 80 percent of film-unit production spending went toward franchises last year, up from 40 percent in 2010, he said.

“I don’t see this changing the studio strategy of focusing on Disney and Marvel-branded stories,” Alan Gould, an analyst with New York-based Evercore Partners, said in an e-mail. He has an overweight or buy rating on the stock.

As a result of “John Carter,” the studio will report an operating loss of as much as $120 million for the quarter that ended March 31, the company has said.

Profit Struggle

Disney releases fiscal second-quarter earnings on May 8 and is projected to report profit of 57 cents a share, up from 49 cents in the same period last year, according to an average of 28 estimates compiled by Bloomberg.

Iger’s franchise-focused movie strategy has yet to translate into enhanced profitability for the studio, said Martin Pyykkonen, an analyst at Wedge Partners in Greenwood Village, Colorado, who doesn’t rate the stock.

“The film biz has really been their Achilles’ heel,” he said.

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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