Earlier in the month, I caught an interesting article from on Reuters about Disney (NYSE: DIS) and its movie division. The president of Disney Studios, Alan Bergman, speaking at a conference, stated that profit margins have jumped five-fold at the studio. The reasons behind this success include an aggressive attack on costs and a streamlined film slate. Instead of releasing a whole boatload of features, why not focus on Disney-branded flicks? That's what Disney has been doing, making bigger bets on a smaller number of projects. Things have been going so well that Bergman said that it was conceivable that the Mouse might not need to seek partnerships with funding entities to spread a portion of the risk. What this means is that, instead of offering up a percentage of celluloid profits to a funding corporation in exchange for an investment in the budgets, Disney will just pay for its movies itself and not transfer any risk. There's an obvious reason for this: Disney then gets to retain all profits instead of sharing them.

Well, it should be stated that Disney has not said that it will definitely do this. According to the article, Bergman just mentioned that it's possible that Disney could do this if it wanted to. My opinion? End outside financing. Hey, if I want to go and make a film, I'm going to have to use other people's money, I have no choice. But Disney? The company is big enough to not need any help in financing. The problem here is that human nature comes into play. When a studio division is doing poorly, then co-financing seems attractive. When a studio division is firing on all cylinders, then becoming risk-averse doesn't appear so fetching. Well, I think any media company producing films these days should really stop and try to understand the movie business for what it is. It's always going to be a risk. Doesn't matter if you have a huge star in a picture or not. It might fail either way. But when the windfall comes, when that big hit is found, you want to own 100% of the profits. This not only goes for Disney, but it applies to others such as Viacom (NYSE: VIA), General Electric's (NYSE: GE) Universal, and Time Warner (NYSE: TWX).

Continue reading Disney may not need to spread risk on movies, but should it do so anyway?

Disney may not need to spread risk on movies, but should it do so anyway? originally appeared on BloggingStocks on Sat, 20 Sep 2008 13:40:00 EST. Please see our terms for use of feeds.