We didn’t react immediately when Disney announced yesterday, with John Carter 11 days into its theatrical run, that it will be booking a $200m writedown, making the Andrew Stanton film instantly the holder of the “biggest flop ever” title. We wanted to sleep on it, and have an opportunity to reflect on the strategy behind the announcement.
Well, we’ve slept on it, and here are our thoughts.
First, the timing and manner of the announcement has brought clarity regarding something we’ve long suspected: The one-note, uninspired marketing of John Carter reflects the underlying reality that at Disney — where no key executive involved in green lighting the project remains — John Carter some time ago became first an orphan, then a hospice case, meaning the Disney top brass first distanced themselves from the project, then accepted the diagnosis of the experts that it would not succeed and decided there was no point in making creative, imaginative, or otherwise “heroic” efforts to save the film. Instead, as with a hospice patient, they simply did the minimum necessary to keep it reasonably comfortable until it had run its course and time came to pull the plug. I realize this may sound like a cynical overstatement — but I don’t think it is. I’ll explain why. But first — let’s look at the logic of the announcement.
If your frame of reference is the economics of this movie only — the announcement, coming when it did and being stated the way it was stated, seems shortsighted and foolish. With the film only 11 days in theaters (3 in China, unreleased in Japan), the announcement (a shot heard round the world, not just in the US) instantly branding the film as the BIGGEST FLOP EVER would clearly be expected have a negative effect on ticket sales for the remainder of the run. How much effect? If we use standard industry measures, John Carter as of yesterday had harvested approximately 60% of it’s likely total box office revenue — so another $100m or so remains to be captured, and the announcement will surely have the effect of depressing that remainder by at least 10%. So let’s start with $10m there; then add in diminished DVD/Blu-Ray value, diminished TV values …. and clearly you end up with the timing and nature of the announcement costing some tens of millions of revenue dollars to Disney. Why throw that money away unnecessarily? The argument, being put forward in some quarters, that public company disclosure requirements demanded that Disney make such a statement right now is ridiculous and is not supported by the actions of other publicly owned studios in similar situations. There are wars of choice and wars of necessity; in corporate terms there are announcements of choice and announcements of necessity and this was the former, not the latter.
So we wondered yesterday — why make the announcement now when it wasn’t really necessary to do so? Why not, if an announcement was deemed appropriate, say something to the effect that Disney is grateful that audiences worldwide continue to enjoy the film and support it in theaters, and while results aren’t what Disney had hoped for, Disney remains confident that Andrew Stanton and the film-makers have made a film that will stand the test of time, with longterm revenues and asset value helping to offset near term losses, which will be substantial, but which in any event will not be enough to substantially affect the overall bottom line at Disney where the motion picture division in total only accounts for 7% of revenue.
In other words, why not acknowledge there will be a near term loss, meet your disclosure obligations, set up your next quarterly report so you can “beat expectations” (that’s the game, right?) — and get all this done without negatively impacting the remaining theatrical run — and without throwing the movie, the filmmakers, and the fans under the bus.
But that, as noted, is if you are looking at it from the frame of reference of the economic interests of this movie.
Time to zoom out a bit.
Clearly there was much more in play than just the economics of one movie, or even the economics of the motion picture division at Disney. This all has to do with the larger corporate scheme of things.
The announcement from Disney was was timed so that it came after the stock markets had closed — giving investors and analysts overnight to put the news in perspective. Then this morning, when trading started, Disney stock was hardly affected, trading down 0.7% at $43.12, which is a lot closer to the 52 week high of $44.13 than the low of $28.19 registered last October.
One analyst – Drew Crum of Stifel, Nicolaus was quoted as saying that the motion picture division of Disney is “financially not that important……..While the studio serves as a creative engine for Disney’s intellectual property, it comprised only 7 percent of fiscal year 2011 segment operating income and is only 6 percent of our fiscal year 2012 estimate. While discouraged by another large film loss (last year, it was Mars Needs Moms), we’re not deterred and continue to focus on the positives including media networks and parks – nearly 90 percent of estimated fiscal year 2012 segment operating income.”
Another analyst, Nomura’s Michael Nathanson, put it this way: “One-off charges at the studio segment are not indicative of the overall health of the company’s core businesses, namely the media networks and [theme] parks. We view any pullback in the stock around this higher film loss as an enhanced buying opportunity.”
An “enhanced buying opportunity”?
Now — put those numbers in perspective. The studio comprises only 7% of operating income for Disney, who is much more in the business of theme parks and cable TV networks. So, looking at from that perspective, which is of course the perspective that top Disney management would be looking at it, it was clearly better to pull the plug on hospice case John Carter and eat whatever fallout (minimal in the overall scheme of things) this produces, even if doing so meant losing some 10’s of millions in unharvested revenue and forever branding an otherwise worthy film that will make $300m worldwide at the box office as the “biggest flop ever”. Larger corporate interests were clear — pull the plug, minimize the damage to stock prices, and move on.
So … the announcement does make sense.
Cold, calculating, corporate sense.
I would how Walt Disney would feel about that calculation?
Just as the decision to make the announcement makes more sense now — so too do some other things make better sense.
Such as the fact that with the execs who originally greenlit John Carter gone, and with MT Carney (marketing head and author of the removal of “of Mars” from the title) , no one at Disney really had ownership of this property — no one was, within the studio — a true champion of the project nor did anyone at the studio have a great deal personally at stake. The heads that would have rolled were already gone; those that remained would remain intact no matter what happened to John Carter. In the absence of any champion, what evolved was a stodgy “going through the motions” promotional campaign that was remarkable for its uninspired one-note artlessness, and which included none of the cross-promotions, merchandise tie-ins, or other “very Disney” types of components that were expected, but never materialized.
Meanwhile, the campaign never adapted — never even attempted the kind of course corrections that were clearly indicated after the first round of TV ads in December failed to ignite interest. Prior to the release we kept wondering — do they know something that we don’t’? Does Disney understand the Disney audience in some unique way? It was baffling then. Now it’s clear — no one was really seriously trying to get the promotion to work. Hospice care – that’s all it was.
In sum, it now seems clear that Disney made the judgment some time ago that the patient could not be saved, and at best could just be made reasonably comfortable and allowed to continue until the moment came when Disney could make the announcement which — in the overall corporate scheme of things where the motion picture division accounts for 7% and John Carter is a subcomponent of that –would best serve the larger corporate interests.
That day came yesterday; Disney did what its executives felt it was in the company’s best interests to do; and the results prove one thing for sure: Disney has proven to be much, much more adept at managing its stock price than marketing John Carter.
And so it goes.
Edgar Rice Burroughs deserved better.
Andrew Stanton deserved better.
Fans of both ERB and Andrew Stanton deserved better.
And all the 1000 or more people who worked on the movie, busting a gut for four years and putting their heart and soul into it — they deserved better.
But in the end, the Walt Disney Corporation is not in the business of making movies – they are in the business of making profits, of generating value for shareholders. John Carter is a momentary blip on that radar, and if the film, filmmakers, fans, and good old ERB himself all had to be sacrificed on the altar of earnings per share, so be it. It makes sense.
This is not the end for John Carter. Andrew Stanton has made a wonderful film whose stature will grow as time passes. This is no Heaven’s Gate; no Ishtar; no Water World. Cinema history may have labeled it “flop” for the moment — the longer term evaluation will be quite different. It will eventually take root and the film’s passionate fan base will gradually elevate it out of the muck and mire into which it has been so unceremoniously deposited.
In the meantime — it’s a pretty damn dark day on Barsoom.
UPDATE 11:00AM 103 Facebook shares in the first hour this post has been up. I think perhaps it just speaks to the frustration that people are feeling, and the search — or need — for answers. I’m going to embed our two fan trailers here –not sure exactly why, except that my own spirits are lifted when I watch them. It’s definitely a “what might have been” kind of feeling — but it just reminds that there is an actual excellent movie out there.
Fan Trailer 1
Fan Trailer 2 “Heritage”