Disney's Proposal: Movies Don't Make Much Money, But Toys Do

The LA Times (still doing occasionally interesting reporting on their website) tells us that Disney is not interested in a sequel to 2009's "the Proposal." Given that the movie made $314 million world-wide in box office gross revenues, this is remarkable.

The LAT spins this as part of Disney Chief Bob Iger's "branding strategy" which is doomed to fail. More likely, it is part of cash-strapped, debt-servicing (Disney's latest 10Q reports $118 million in interest, not net, for the Quarter ended Jan 2, 2010) Disney recognizing one bitter truth: movies don't make much profits any more.


Disney spent $4 billion to purchase Marvel Entertainment, in a mixture of cash and stock, requiring heavy debt service for at least two years and threats to downgrade its bond ratings from Standard and Poor's. Thus, Disney can't afford to push for projects that don't produce a lot of cash, up-front. The year-on estimates for Disney's cash payments for the Marvel (and likely, Pixar acquisition) are about $400 million a year. Given slow growth in theme parks and other divisions, including ABC and ESPN (the ad market is projected to only slightly improve for 2010), Disney has no choice but to maximize cash from films that make money from toys and games. Call it "the Revenge of George Lucas," who amassed his $3 billion dollar fortune largely off Star Wars merchandising, for which he retained the rights. Or as the movie "All the President's Men" urged, "follow the money."

The movie "The Proposal" cost around $40 million to make, with probably another $30 million to market for a total cost of $70 million. Even assuming very little in foreign revenues due to marketing agreements, and perhaps co-financing with outside partners, and focusing solely on domestic box office, we would arrive at the following. The opening weekend grossed $33 million, of which Disney would keep 75% or roughly $25 million. The remaining $130 million gross would result in Disney keeping $65 million, for a total of $90 million. This is at worst, a profit of $20 million, before of course other costs, depreciation, taxes, and so on. Very likely, at least some money would roll in from foreign box office.

But compare to a movie like Up. Its production budget was $175 million, with another $30 million or so for marketing, making a total cost of $205 million. Its opening week-end produced $68 million, of which Disney kept $51 million. The remainder of the domestic box office was $225 million, of which Disney kept roughly $112 million, for a total of $163 million. Nearly covering the production cost, and with $430 million in foreign revenues, it is likely that at least some money came back to the US to completely cover the production and marketing costs. Given how well an animated, often wordless kid movie would do overseas.

Now compare the two movies side-by-side after the films are done playing in theaters. What revenue does "The Proposal" bring in DVD, toy, licensing, and other revenue? The answer, not much. With DVD sales dropping, particularly with the threat of both Redbox $1 rentals and piracy, a film like "The Proposal" has little to offer in revenue after its done playing in theaters. It will make some money, from DVD sales, and perhaps TV rights sales, but not a lot.
By contrast, "Up" can be assumed to be a reliable seller, such as it is in the new market for DVD and Blu-Ray home video releases, because it appeals to kids. "Up" is a no-brainer to generate higher DVD and Blu-Ray sales simply because kids will want to see that versus "The Proposal" which is more like a $1 Redbox rental on a Friday night, or a Netflix queue movie. And in contrast to "The Proposal," there are toys, figures, licensing fees, and more to be milked out of the movie "Up," with "Doug" the talking dog, the old man and little boy character, and more. Kids (well their parents) will fork over cash for a toy based on the lovable talking dog. You can't make a toy out of actress Sandra Bullock.

What does this mean? It means money is shifting from films (and this started in 1977 with the release of Star Wars) to characters and toys, games, and so on based on the film. The film being one giant commercial for characters people love. Love enough to buy toys, video games, and more based on the character. The actor, and director, will be less important.

This too, points out a flaw in "AVATAR." The characters are bland, inter-changeable, and not "lovable." Ten year old boys and girls will not pester their parents for an "AVATAR" toy. You can't create and sell "AVATAR" bed sheets and video games. Little boys and girls won't clutch "AVATAR" stuffed animals in their beds at night, as they go to sleep, the way they will with "Doug" from "Up" or, perhaps, Captain America, Thor, Iron Man, Spider-Man, or the Hulk.

It used to be, that movie stars like John Wayne, were the ones who put butts in seats and thus, created the money. Later, stars like Paul Newman and Robert Redford, freed from the Studio system, exploited the power their ability to make money gave them, to the fullest. Now, Disney does not want a sequel to a profitable movie like "The Proposal."

Because the real money (which their debt load forces them to recognize) is not in actors, or directors, but CHARACTERS. The plots, situations, cinematography, and action of movies like "Up" or "Iron Man" may not be as complex or well-crafted as those of adult-oriented films featuring actors and actresses on top of their game, in funny or dramatically interesting situations. But little kids (and their parents, and young adults) don't go out and purchase "the Hangover" figurines, toys, and other paraphernalia. And DVD sales, having crashed, won't bail out Hollywood from recognizing the truth: it is characters (and those characters who can be made into toys children love) that count.

Because movies just don't make money.

On a related note, given that toys (and other merchandise) are what makes money, the creators of characters that kids love, can wield a lot of influence and power, if they organize to extract the best deals. On the other hand, actors and actresses and directors are mere disposable cogs, increasingly. Marvel is filled with characters kids have loved since 1940 (Captain America), but most of their characters that kids actually like date from that period up through the mid 1960's. No one would expect kids to embrace either the Punisher or "Terror" (a forgettable 1990's character from Marvel). Kids can be induced, if movie-makers don't screw it up, to reliably love and beg their parents to buy, Superman, Wonder Woman, the Flash, Green Lantern, and other DC heroes. They have before.

But in order to do so, writers must write not for themselves, or tragically hip editors, critics, peers, adults, and others, but the inner 11 year old boy, wanting wonder and excitement, and entirely devoid of irony, hipness, and posturing. Few in Hollywood are even capable of doing this, much less doing it well.

With barriers to entry (online film distribution, lower-cost CGI production through cheap WETA-style render farms, emphasis on writing-driven character creation, not big stars or effects) lowering, it is entirely possible that some group or collections of individuals will seize the moment, and produce kid-friendly content. This does not mean Disney duds like "Storyteller" or "G-Force" (animated hamsters) but particularly, heroes, characters, and such that young boys like (girls are already inundated with Disney princesses). Non-ironic superheros, fantasy "good dads" for fatherless boys in a single-mother dominated environment, positive male role models for boys to look up to, lovable talking dogs and other fantasy pets adoring young boys, these are the kinds of characters that will succeed in a marketplace where films (and TV, likely) are all just commercials for what really makes money: toys and merchandise. Other people besides Disney can make them too.





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