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Does Pixar care about Disney shareholders?

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I'm sure you've heard about this by now. It's been all over the blogs and discussion boards. An article at The New York Times has spurned discussion over whether or not Disney's (NYSE: DIS) next Pixar film, Up, is shareholder-friendly. In other words, has it been designed so that it can make a lot of money? Or, is it instead just another self-satisfying exercise for its creators, shareholder value be damned?

Well, here's a quote that's gotten some play. Co-director of Up, Pete Docter, has stated that he doesn't really care about the money potential of a project. He said: "We make these films for ourselves. We're kind of selfish that way." Oh, gee, thanks a lot, you overpaid Pixar punk. Just out of curiosity, do you care at all about shareholders like myself who have held Disney for a really long time? Do you realize that the dividend received no raise this year?

Of course he does. And I'm sure he'd think I'm an idiot for complaining (media observer Michael Giltz certainly would think so, as he penned a piece supporting Docter et al.). After all, in his mind, so long as he satisfies himself, he figures that his movies will never fail. Maybe he's right, but I'm not sure I could ever be that arrogant.

Now, you can't fault the guy totally. He certainly takes his cues from head Pixar guy John Lasseter. The latter, according to the Times, apparently usually discounts the idea that one should think of a film's commercial potential when deciding whether or not to greenlight. Here's his quote: "Quality is the best business plan." Hey, I'm not down on quality, but I really don't think it's so awful to do some research on an idea to see what its chances might be from both a creative standpoint and a merchandising angle (incidentally, I do think that the lack of interest from merchandisers on Up that was mentioned in the article has more to do with the sour economy than anything else).

Where does CEO Bob Iger fit in all this? Now, he was quoted as saying "We seek to make great films first." In other words, he's supportive of his Pixar staff. Really, Bob? You seek to make great films first? You don't crunch any data and make modifications to your business model? You know, if I recall correctly, I think you do.

Iger came to the conclusion that Disney-branded family flicks tend to do better in the marketplace than, say, Touchstone-branded features that might not be so family-oriented. As a result, Iger felt it could be more economically ideal to reduce the quantity of projects released on an annual basis and instead focus capital on fewer concepts (see this old article). Iger, as well as competitors like Viacom (NYSE: VIA), Sony (NYSE: SNE), General Electric's (NYSE: GE) NBC Universal, and News Corp. (NYSE: NWS), still don't really get it. What they need to do is control compensation of talent, which tends to be very expensive and unfriendly to shareholders.

That's a subject for another day, however. The point is, Iger does look at the numbers, and I think he's being intellectually dishonest when he dismisses the idea that a public business can't mitigate risks when it comes to the movie industry. Although it's difficult to do, there are models and projections that can be made as to the potential profitability of a film if a certain concept is funded, especially when you take a look at the talent involved (talent obviously drives risk mitigation via foreign sales and the like).

And, obviously, the hedge funds that invest in Hollywood have their own models. Granted, though, many projections are most likely made in a macro sense (taking into account trends for ticket sales, inflation, DVD markets, etc.). I know that you can't necessarily look at specific plot details and predict if something is going to hit.

Still, it does irk me as a shareholder when I read stuff like this. One thing we all need to remember is that Disney paid billions for Pixar a few years back. Take a look at the stock price since the purchase and tell me if, so far, the move has been worth it.

And, by the way, even if you don't own Disney stock directly, it might be a large holding in one of your mutual funds. Believe me, a lot of people have exposure to the Mouse. I mean, come on, Lasseter and Docter make a ton of money. They walk around like they should feel no pressure. They seem to believe that the interest of shareholders should not matter, only that they should have fun doing whatever they want to do in Hollywood.

Then again, they won the lottery. They're richer than most of us will ever be. Seriously, I don't blame them for not caring. They're like CEOs. They're too overcompensated to care, too. Actually, they're better off than CEOs. The Pixar people are overpaid, and they don't have to deal with all the pressures of the business. Where do I sign up?

Disclosure: I own Disney, GE; positions can change without notice.

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Last updated: November 26, 2009: 02:46 PM

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