According to this news source, Princess delivered a healthy number of young viewers. About 8.5 million watched. Last year's Disney movie Camp Rock scored a little higher in its debut. The article points out what High School Musical 2 scored, which was about twice as many viewers in its initial run (hey, you can't beat Musical). The article further points out that all these statistics do not include time-shifted ratings, which takes into account later viewings facilitated by digital-recording technologies.

That's okay. This initial data is interesting enough. It is further evidence of the Disney Channel's utility as a franchise incubator. And, on an anecdotal basis, I know some parents who bought the DVD of the movie for their kids this week at full price. Not bad. Plus, you've got to love the nice set-up for the Wizards movie coming on the channel in August.

Nevertheless, Disney still has its challenges. While the Disney Channel may be a success, DVD sales are slowing down. Which is too bad, since one of the best ways for the company to fully monetize its library of tween cable products is to utilize the home video market. To see how challenging things are, take a look at this article. It's been reported that Viacom (NYSE: VIA) actually wants to combine its DVD manufacturing operations with another studio, maybe a Sony (NYSE: SNE) or a News Corp. (NASDAQ: NWS), to reduce the expense of distributing physical media in an increasingly broadband world. You can also look at Disney's Q2 release to see how the studio division is suffering, in part, from a weak DVD picture.

So, with the DVD industry not doing as well as before, Disney probably should tweak its strategy. What I would suggest is this: make more Disney Channel films for less money. Aggressively cut the budgets. I think there's strength in numbers in this case, but if the budgets remain the same, then no economic advantage will be realized. I'm sure the Princess film didn't cost a bundle, but whatever it cost, there probably was some opportunity somewhere to weed out a redundant expense or two.

Some will point out the issue of dilution. More original films might make the cable brand less valuable. Perhaps. Still, more films will lead to a higher chance of finding the next hot franchise. And CEO Bob Iger knows the net worth of a Disney franchise. He believes exploitation of key franchises is crucial to shareholder value.

Because of Disney's long-term stock performance and dividend history, it's hard to recommend the stock as a buy. I've owned shares of the company in a core portfolio since 1998, and I've come to regret it. I guess I keep holding on because somewhere deep down inside me, I believe in the brand and the franchises. At some point, though, you have to say, big deal, the franchises haven't meant much of anything. If Iger truly wants institutions to recognize the value of a Disney position, he'll have to radically alter the company's content model by producing more of it for less.

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