While searching through the news, I caught an item highlighted by theflyonthewall. It was a piece on the economic science of advertising a feature movie. And it mentioned DreamWorks Animation's (DWA) How to Train Your Dragon. That film hasn't done as well as management probably expected; it certainly didn't do as well as the market expected, judging by the price action of DWA after the flick's first weekend at bat.
According to Reuters, all the studios are trying to deal with the inflationary aspects related to opening a movie. Whether you're a Disney (DIS) or a Time Warner (TWX), it makes no difference; if you want a big debut weekend for a tent-pole production, you're probably going to put a lot of capital to work (and, by definition, at risk).
Reuters says DreamWorks Animation put a lot of capital to work. I was a little surprised to see that the company may have spent over $170 million to market Dragon. I didn't think it was that high on this particular initiative. Analysts apparently believe that management dropped the ball this time around.
Hollywood has to realize a couple things about selling a movie. First, there's no guarantee that any amount of marketing funds will deliver a hit; at some point, it all becomes luck. Second, the addiction to spending a ton of money on campaigns to boost an opening or the ultimate gross should be ditched. Profitability of a project should be the focus.
I am not against spending a significant sum to open a picture -- please don't get me wrong. The question is, how significant should significant be? In the case of Dragon, which wasn't a branded franchise, some heightened level of financial commitment was required. Nevertheless, in my opinion, studios need to spend less. And they need to leverage their existing assets. This doesn't apply to DreamWorks Animation so much, but when you're talking about a media conglomerate like Disney, here's my suggestion: try to advertise and promote a film mostly on platforms that are already owned by the business. In Disney's case, we can consider the upcoming sequel to Iron Man. What if the Mouse simply used ABC, as well as its cable properties, to let people know that the movie was coming out? And I hope not too much will be spent on Toy Story 3. I would have to assume it's pretty well-known already that it will hit theaters this summer. When you've got strong, broad brand equity already attached, take advantage! This definitely applies to the Shrek sequel, keep in mind.
Again, the issue comes down to whether you want to maximize the ultimate potential of a movie. It's a difficult balance to strike, I concede. DreamWorks Animation probably should be blamed to some degree. Maybe management should have encouraged Viacom (VIA), its distributor, to make better use of its own media assets. And I guess the whole Walmart (WMT) thing didn't do much.
I'll say this, though: DreamWorks Animation ahead of the new Shrek could be an interesting trade idea for those who have a little risk capital to spare. When that blockbuster comes out, all this Dragon stuff may end up being quickly forgotten.
Disclosure: I own Disney; positions can change without notice.