Disney Remakes the Movie Studio

In early October, Walt Disney (DIS) Chief Executive Robert A. Iger installed a new chairman at the company's movie studio. Such shakeups are routine in Hollywood, especially now that the entertainment business is struggling. But in hiring as his studio chief Rich Ross, who helped make companywide franchises out of such Disney Channel hits as Hannah Montana and High School Musical, Iger seems to be reinventing the modern Hollywood studio. "The primary responsibility" of any movie executive, Iger said at a public event recently, is to "choose good movies." But he also expects his studio executive "to be a brand manager."

Iger's philosophy is one that a Procter & Gamble (PG), say, would instantly recognize: build a stable of brands, each with its own strong identity and core group of customers. Since becoming CEO four years ago, Iger has brought inside the Disney tent a handful of marquee names—among them director Steven Spielberg and his DreamWorks SKG (DWA) team, animation giant Pixar, and Marvel Entertainment (MVL). That bolsters a studio that already has Hollywood's biggest brand, Disney, and superstar producer Jerry Bruckheimer, who created such blockbusters as the Pirates of the Caribbean series.

Managing these big names and keeping them from undermining one another will be a challenge. But Rick Sands, a former MGM chief operating officer, calls Iger's strategy "pure genius" at a time when "you need well-known filmmakers who can create event films" that stand out amid the clutter of entertainment choices.

GIVING UP CONTROLStudios in the past have tried to line up hitmakers, often signing them to "first look" agreements that give the studio dibs on new projects. But most films were funneled through a studio's creative executives, who often found the project and supervised the script. Ross will green-light projects and set in motion many of the 16 films Disney makes each year. But when a studio brings in famous moviemakers such as Spielberg, it's banking on their ability to continue to work their magic. That means giving up some control.

Ross essentially operated that way at the Disney Channel. He allowed the creative folks to take the lead for Hannah Montana and High School Musical. Then he got deeply involved in marketing strategy. Before the first Hannah Montana episode aired, Ross took its young star, Miley Cyrus, on an internal road show, visiting other Disney units and enlisting them to sell merchandise that helped make the show a hit.

He is expected to be similarly hands-on at the movie studio. Bruckheimer recently showed Ross a 30-minute segment of next year's live-action version of The Sorcerer's Apprentice, and says Ross suggested "a dozen ways to market it before he left the room."

BIG OPENING WEEKENDSEach brand will require a different management approach. Disney and Pixar executives already sit on a committee that decides which animated projects Pixar should pursue. The committee gives wide latitude to the wishes of Pixar's creative guru, John Lasseter. Spielberg and his DreamWorks partner, Stacey Snider, arrange financing and make their own creative decisions. Disney will provide marketing support. How Marvel will fit into the strategy has yet to be determined, although Iger has said publicly that it will enjoy a lot of autonomy.

From Iger's perspective, the beauty of controlling the rights to movies made by Spielberg, Pixar, and Marvel is that they become events in and of themselves, with lavish press coverage and Web chatter that all but guarantees a big opening weekend. "When you settle into your seat for a Marvel film, you know immediately it's going to be a fun ride," says Avi Arad, the former Marvel Studios CEO who produced Spider-Man and other films. Marketing is by far the fastest-growing expense for most studios: It can cost $50 million or more to open a major film. The prerelease buzz from a Spielberg or Marvel film could help rein in marketing costs at a studio that lost money in its most recent quarter.

If films by Disney's stable of brands become hits—and their track records are pretty good—they also will generate hefty revenues from DVDs, merchandise, and theme-park rides. Under the deal with Spielberg, Disney gets 10% of a film's revenues from its theatrical and DVD sales for distributing four to six DreamWorks films a year. It also gets first shot at the rights to sell toys, consumer products, and video games. (Theme-park rights are committed to NBC Universal.) Plus, Disney can package lesser films with the Spielberg or Marvel flicks and charge cable channels and foreign networks more to air them, says former MGM executive Sands.

No question, Iger's brand strategy will put Ross' diplomatic skills to the test. Soap bars and hand creams don't have egos or demand a cut of the profits. Spielbergs and Bruckheimers do. They also will be jockeying for attention and money. "There is only one July 4th, one Christmas," says a Hollywood veteran. "What do you tell Steven Spielberg when Disney gives the [opening] date he wants to Marvel? And what do you tell Bruckheimer when he hears that they've spent more to market a DreamWorks film than one of his?"

Clearly Iger believes the box office boost will be worth all the trouble. At a time when studios are reducing risk by making fewer movies, he is betting on household names with an established record of turning blank pages into billion-dollar franchises.

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic networkDigital KingdomWalt Disney (DIS) is embracing the concept of the cloud. In November the company will unveil a technology code-named Keychest that would allow people who purchase a Disney movie to play it back on multiple gadgets, whether a PC, a TV hooked up to cable, or a cell phone, reported The Wall Street Journal on Oct. 21. Disney also has been shopping Keychest to movie studios and tech companies in an effort to get others to sign on.To view the story, go to http://bx.businessweek.com/movie-industry/reference/

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