Written by Russell Meyer
Published: July 3, 2005 at 8:34 PM
It seems that Pixar Animation Studios may not be the goldmine everyone thought it was. Shares of Pixar dropped a whopping 10% after announcing 2nd quarter earnings would be $6 million less than previously expected. The cause of the surprising drop is being pinned on lower than expected sales of The Incredibles on DVD. DVD sales have been tripping up a number of analysts, since many other movie companies have been missing estimates because of decreasing DVD sales. The biggest problem with DVD sales seems to be the lack of a tracking system. Music has Soundscan, which all retailers are required to use to track all music sales. However, movies have no such tracking system, and lots of DVDs are purchased by retailers and just placed on store shelves. The initial run occurs on a title, and in order to free shelf space for the next big DVD release, retailers send back unsold lots to the distributor. When announcing sales, movie companies count those unsold lots, and when they are returned, they subtract from the expected DVD sales. A similar thing happened when Shrek 2 was released, and proclaimed the best selling DVD of all time. For a couple of weeks it was, until Wal-Mart, Target, and all of the other retailers who bought monstrous lots of copies of the movie realized that they would not sell them all, and returned a large number of unsold copies. Experts want to point to the stalling interest in computer-animated movies, but I think the issue is more about the cooling interest in purchasing DVDs. I’ve noticed recently that a number of premier DVD titles are being sold at cut-rate prices, just to get them off the shelves. It’s disappointing to see Pixar fail to meet estimates, but perhaps it’s more because of the accountants than the material that Pixar is producing. Regardless, Robert Iger has just been handed a great negotiating tool to try to seal the deal and reunite Pixar with Disney.
Back to Life
RCPro 6/30/05
As a number of TPI members can already attest, the new version of Space Mountain at Disneyland is nearing completion, and has been taking riders over the past week or so. While the official grand re-opening of the classic ride is not scheduled to happen until July 15, 2005, Disney has initiated a “soft opening” period for the coaster, and some reviews have been coming in from all over about what’s been happening inside the mountain of steel over the past two years. Everyone seems to have their positives and their negatives, but most people seem to agree that it’s great to see the coaster back up and running. The track is noticeably smoother, and the soundtrack is clearer and easier to hear. Hard core fanatics of the coaster can point out every single thing that has changed about the ride, which include the lights in the tunnels, queue, and loading area. The one common change that everyone seems to like is that the inside of the mountain is much darker, and that the track can no longer be seen from the queue area. There’s still no word about the rumored “Rockit’ Mountain” which is supposed to make the ride change at night, and it is possible that those changes may not be made until early next year. Early speculations are that Disney will re-re-launch Space Mountain in the spring of next year and create another “new” attraction to draw guests to the park for the second half of the 50th Anniversary celebration. While the coaster may not please those who were looking for a more intense and more thrilling launched coaster, I think everyone will agree that Disneyland is not the same place without Space Mountain.
An Orlando Vacation Planning Guide Part I
Over the next few months, I will be writing about planning an Orlando vacation. My wife and I have begun thinking about taking a vacation to Florida in the fall of this year, and I will be discussing what we do to get the most out of our vacation. We don’t have any children yet, so I will do my best to try to consider what families with children would also be interested in doing. However, something that has always been a part of our vacations is trying to pack the most in the least amount of time. We don’t obsessively plan, but we have a good idea what we want to do on certain days, and try our best to see everything we want to see. After all, how many times to you get to go on vacation? We often come back from a trip and think that we need a vacation from our vacation. So those who are looking to move at a more leisurely pace will probably flip out when they see our eventual itinerary.
The first thing to do when planning a vacation is to decide when you want to go on vacation. Those with children may be tied to a school schedule, but while we don’t have kids, we want to take advantage of the times of the year when our likely vacations spots are going to be less crowded. For Orlando, that means avoiding the summer, major holidays, and spring break. We like to travel during the October/November time frame to avoid the crowds, and have found great success during the early part of November in particular. The great thing about October and November are two of the lesser-observed federal holidays,-Columbus Day and Veterans Day- fall during that time, so that’s one less vacation day we have to use at work. It also means any parks that are only open weekends in the fall will be open two extra weekdays. October and November is also the usual time frame for the EPCOT Food and Wine Festival. The event, which this year runs from September 30, 2005 to November 13, 2005, turns the World Showcase into a “Taste-Of” festival where you can sample food and drink from around the world at a fraction of the price of eating at the pavilion restaurants.
We’ve been tossing back places to go for our fall vacation, and the two leading contenders are Hawaii and Florida. I know, I know. The choice is easy for me too. I want to go to Hawaii, especially since my beloved Maryland Terrapins are playing the Maui Invitation preseason basketball tournament in November. Hawaii in November, and Florida in February, but it seems my wife is practical, and my whimsical visions of hiking through Volcanoes National Park and watching basketball cannot come to fruition unless I can acquire tickets to the basketball tournament. Acquiring tickets to this basketball tournament is not as easy as one would think since tickets are only being distributed right now to those who purchase travel packages through the tournament travel agent. Let’s just say the tournament travel agent is not interested in giving people a great value, but instead a first class trip. I don’t mind first class, I’m just not interested in paying for it. So as it stands right now, we’re on plan B, which is a trip to Orlando.
So we’ve decided where we want to go and when we want to go, approximately, so now it’s time to have some fun and see what Disney’s marketing machine can provide us. As someone who’s pretty experienced in the way things at Disney works, the Disney Vacation Planning Video is not completely helpful, but it’s a great place for just about everyone to start. It doesn’t cost you a dime to watch an hour of Disney self-promotion, and if you haven’t been in a few years, it’s a great way to brush up on what’s going on in the Magic Kingdom. The video can be ordered right off the Disney website, and many travel agents have them. The one we received came about a week and a half after I ordered it, and was geared towards guests traveling to Disney over the Disneyland 50th Anniversary celebration. It was clear that the video was made before a number of the new attractions were completed, but it does cover all of the recent additions to all of the parks. The video also gives details about the various resorts around the Walt Disney World Resort. Disney really wants you to stay on-site, and they’ve added a number of perks that make it hard to resist the temptation to stay on Disney property. From Extra Magic Hours, when the parks are only open to on-site resort guests, to Magical Express, a service that allows you to skip baggage claim at the airport to get straight to the parks, there are a number of new advantages to staying on property. So why would you not want to stay on-site? Price! It’s definitely not cheap to stay on Disney property, and once you’re on-site, Disney will do whatever they can to keep you from leaving. There are hotels on Disney property that are a little more reasonable, but you get what you pay for, and those “value” resorts are nothing more than silly themed motels.
After watching the video, you will want to stay at Animal Kingdom Lodge, Wilderness Lodge, or the Grand Floridian. That is, of course, until you see how expensive it is to stay at the “deluxe” resorts. Every resort has its pros and cons, but the bottom line about choosing a resort is picking something that you can afford. Remember, you still have airfare, rental car, tickets, food, and souvenirs to buy. So while it may seem really cool to stay right at the doorstep of the Magic Kingdom at one of the monorail resorts, if your budget cannot handle it, you should strongly consider one of the moderate resorts. This vacation will probably be the first time I will be staying on-site since 1987, when my parents and I stayed at the Fort Wilderness Campground as part of the old Big Red Boat cruise package. For those who are looking for the best deals, Disney does release special discounted rooms on a three month advanced schedule. That means if you’re planning on going in October/November, now’s the time to start looking around for those discounted rooms. We are in the middle of that process right now, and my next installment will go into those discounts and the world of possibilities outside of Walt Disney World.
Second, media coverage about the industry's overall lackluster box office performance may have turned off investors.
Still, I have long agreed with Mr. Baxter's assessment that 'The Incredibles' was a bit derivative -- which may indicate that the creative well may be running shallow.
And of course Mr. Meyer also has a point contending that -- as time goes on -- Disney continues to gain leverage when it comes to contract negotiations.
The clock is ticking for Mr. Jobs' company. If he doesn't ink a deal with Disney in the next ten months, the lion's share of revenue from 'Cars' goes into Disney's pocket -- and 'Toy Story 3' is scheduled to drop on to Hollywood's radar right after that.
I Inquire: What do you mean by "hits?" Movies that do well at the box office or movies that are good. Example: 'Madagascar.' My family went a couple of weeks back and found it to be rather lame. And yet it makes a zillion dollars.
So should a mediocre film be considered a "hit" if it does well at the box office?
But what does it have to do with anything? Disney will make money off a Pixar deal, but not really enough for all this brouhaha. Disney needs to be connected to the Pixar cachet AND they need the Pixar characters in the parks, since they are the only characters that compete with the Pooh characters (also non-original Disney characters) for popularity. Pixar really only needs Disney to get their films back. Pixar has distributors knocking down the door, so to go with Disney, it's all about money, and not that Disney is such a quality name anymore.
Mr. Baxter writes: "Hit" and "Bomb" are words that deal solely with box office. Besides, did I ever say DreamWorks was turning out masterpieces? I don't think Pixar has turned out nothing but masterpieces either, but every one has been hits.
I Respond: I guess this means that Disney holds the rights to make at least four “hits” off of these sequels: ‘Toy Story 3,’ ‘Monsters Inc. 2,’ ‘Finding Nemo 2’ and ‘The Incredibles 2.’ Such a prediction seems reasonable considering that all are proven, recognizable franchises and that the only theater released Pixar/Disney sequel (‘Toy story 2’) did substantially better than the original. And, as Mr. Baxter notes, just because the story's suffer from a lack of creativity does not mean they won't be "hits."
Mr. Baxter writes: But what does it have to do with anything?
I Respond: Well, it means Disney doesn’t really need Pixar to produce “hit” after “hit” and rake in millions (if not billions) on movie receipts and continued licensing revenues. If Pixar walks away, Disney can (as I have always said) shrug its soldiers and say “see ya! Hope your next revenue prediction doesn’t fall $6 million short … again.” Of course the Disney sequels probably won’t have the wonderful storylines that Pixar has. But, as a Motely Fool column pointed out “no studio has a monopoly on creativity” (Brad Bird comes from Fox. Scott Rudin leaves Paramount and heads to Disney). And, as Mr. Baxter has pointed out ‘The Incredibles’ story was derivative – a criticism that comes on the heels of a lawsuit filed by a guy who claims to have come up with the idea for ‘Finding Nemo.’
Mr. Baxter writes: Disney needs to be connected to the Pixar cachet AND they need the Pixar characters in the parks.
I Respond: Nonsense! It was Robert Iger who told a reporter last fall that he didn’t believe Disney and Pixar would ever work together again. He didn’t deflect the question – attempting to calm concerns of stockholders. That remark was followed up by Disney’s announcement that it was going to produce ‘Toy Story 3’ with or without Pixar. They can continue to produce a string of Pixar sequels (“hits”). And they already have plenty of characters from ‘Toy Story,’ ‘Bug’s Life,’ ‘Monsters Inc.’ ‘Finding Nemo,’ ‘The Incredibles.’ Mr. Baxter, please explain why Disney has a critical need to acquire licensing rights to the characters from the ‘Ratouille’ (which – by Pixar scheduling standards – won’t roll into theatres for another two years). Side note: Isn’t it interesting that ’Toy Story 3’ has gotten more attention than ‘Ratouille.’ Not a good sign for Mr. Jobs.
Mr. Baxter writes: Pixar really only needs Disney to get their films back.
I Respond: Exactly! Which is why Disney has unique leverage in the contract negotiations. That and a worldwide theme park presence that no other company can offer. But Pixar also needs to find a major distributor – the size of Disney – who has a track record that will allow their films to compete in a crowded CG market (‘Valiant,’ ‘Chicken Little,’ ‘Corpse Bride’ (which is a stop action thing but looks CG cool) ‘Ice Age 2,’ and ‘Shrek 3.’ When Disney dumps ‘Toy Story 3’ into theaters, it will already have the benefit of that marketing machine.
I don’t know if Mr. Baxter and I are talking in circles or even contradicting each other. In short, I believe that Disney does not have a critical need to sign another contract with Pixar. It holds the rights to a ton of Pixar characters and has the right to make the sequels that – regardless of the storylines – will likely be “hits.”
Meanwhile, we see Pixar fall short of its revenue expectations, create increasingly derivative (not-so-creative) productions and get less attention for its post-Disney projects than Disney is getting for planned Pixar-Disney sequels. Further, by not inking a deal, Pixar stands to lose the lion’ share of revenue from ‘Cars – measured in tens of millions of dollars.
Of course if Pixar signs a deal with one of those studios that are allegedly pounding on their door, I expect that Mr. Iger will counter that announcement by unveiling plans for ‘Monsters Inc. 2: Sulley vs. Jason.’ That film would likely suck, but I bet it would get more press than 'Ratouille.'
Greg's Preview (at Yahoo) wrote this three years ago.
"(Regarding the story of Pixar's first post-Disney production 'Ratatouille') "...there's also a certain sense of been-there-done-that. Consider, for example, that 1997's Mouse Hunt already showed us the wild adventures of a mouse who conflicts with a gourmet chef (played by Nathan Lane); heck, the video cover for that movie, complete with Lane in a chef's poofy hat and the mouse holding a fancy hors d'oeurve could be an image from this movie if it was entirely in CGI"
First some guy publicly alledges that 'Finding Nemo' was his idea.
Next, Mr. Baxter notes that 'The Incredibles' story and characters were derivative of previous concepts.
Then there are the Chevron Cars:
http://www.chevroncars.com/wocc/meet/inst.jhtml?MediaId=MeettheCarsList
...and their resemblance to the 'Cars' cars:
http://movies.yahoo.com/shop?d=hv&id=1808626781&cf=pg&photoid=562898&intl=us
And now a ten cent blogger makes a link between 'Ratatouille' and a Nathan Lane flick.
I can hardly imagine how Disney could possibly survive if it loses Pixar's bottomless well-spring of creativity.
"From Marketwatch: “J.P. Morgan downgraded Dreamworks Animations, Inc. to underweight from neutral, saying it believes issues in home video are secular in nature and reduce the long-term earnings power of computer-generated animated films. The broker told clients it believes the recent preannouncements from Dreamworks and Pixar reflect the flood of DVD product that had led to a shorter retail shelf life for each title and lower units sold per title. "This trend disproportionately hurts computer-generated animated film studios which cannot offset this dynamic given limited output," the broker concluded.”
Also from Marketwatch: “Prudential Equity Group cut Dreamworks Animation, Inc. to neutral weight from overweight and lowered its price target to $33 from $39. The broker cited the lack of compelling catalysts until early 2007, when investors may begin to price in upside from the success of Shrek 3, for its downgrade. In addition, Prudential said that management's expectations for Wallace & Gromit appear to be fairly low. "While typically setting low expectations is a good thing for stocks, we would note that this management team has not demonstrated thus far that it has a good read on the theatrical or home video market place," the broker concluded.”
Does this have any impact on Pixar? You betcha!
Pixar's earnings have fallen short. Pixar's first post-Disney film may be two years away from release.
And the business media has clearly tied the two studios' fates to each other. This from Thestreet.com:
"Katzenberg emphasized that the shortfall was not a Shrek 2 issue. Instead, he intoned, "this is a market issue." Pixar chief Steve Jobs was equally mealy-mouthed about The Incredibles' problems last month."
At this point in the news cycle, Pixar would get a big boost if it signs on with Disney. If Disney does ink a deal, then Robert Iger will have come to terms with Steve Jobs and Roy Disney in the first three months of his tenure.
That would be VERY IMPRESSIVE! Especially since he could have told both Mr. Jobs and Mr. Disney to go take a flying leap -- and the Mouse House would have had to endure little or no real impact.
Amazing!
Or it might be vindication of when I said The Incredibles just wasn't one of Pixar's best. A lot of this may be that people don't see the film as being all that kid-friendly. I have heard many tales of kids being bored early on, so maybe it isn't fair to compare it to previous films, most of which have been far more fun for kids. The same goes for Shrek 2, which also a little more adult than its predecessor. But as for people getting sick of CGI? I think it's too early to say that. Look how well the okay-reviewed Madagascar is doing.
Another reason, and I have seen it happening to me, is the novelty of owning films is dying down and people are realizing that they are buying more than they are watching. I have all kinds of movies here I would love to sit and watch, but with more than 300 films in my Netflix queue, guess which ones I am choosing.
Plus, Pixar is going to have problems with a schedule where they release one movie a year (and none this year). I TOLD them they should have bought the Muppets!