Disney's Plans Have <I>Tarzan</I> Rescuing a Mouse

Throw me a vine, the struggling media conglomerate tells its jungle hero.
Author:
Publish date:

The conventional wisdom is that no single movie matters to the long-term success or failure of the big studios.

The conventional wisdom is that

Viacom

(VIA) - Get Report

,

Time Warner

(TWX)

and their kin are too big to be touched by a hit or flop.

The conventional wisdom is that

The Postman

and

Titanic

come and go, and the studios sail on.

And the conventional wisdom is usually right. Each of the major studios releases 15 or 20 movies a year. Some are winners, some losers, and life goes on either way, though an executive who greenlights too many of the latter will eventually be shown the door with only a golden parachute to cushion his fall.

But come June 18, the conventional wisdom will have to take the weekend off.

On that day,

Disney

(DIS) - Get Report

will release

Tarzan

, a movie that matters enormously to the company -- for the next quarter and the next five years. If

Tarzan

is a genuine breakout hit, grossing $200 million or more at the U.S. box office, the multitude of problems that have lately been

plaguing the Mouse will recede noticeably for at least a couple of quarters.

But if

Tarzan

can't get past the $120 million pulled in by

Mulan

, the Mouse's most recent big animated feature, the company's profit crunch will probably continue. And even optimistic investors will have to question whether Disney is losing touch with its core preteen audience. (

TSC

explored this issue in a five-part

series in April.)

That difference between $120 million and $200 million may seem small to Disney, which will pull in revenue of more than $22 billion this year. But for

Tarzan

, $200 million minus $120 million turns out to be much more than $80 million.

That's because the U.S. box office gross drives

all

the other revenue a movie generates, including the foreign box office and the sales of highly profitable home videos and licensed merchandise. And

Sanford Bernstein

analyst Tom Wolzien notes that once a movie becomes a hit, those ancillary sales grow exponentially, because the film becomes a pop culture phenomenon that consumers want to be a part of. (Sanford Bernstein doesn't disclose its stock ratings publicly; the bank has no underwriting relationship with Disney.)

For animated movies, that's especially true. Home videos from a hit animated movie are popular on college campuses, not just preschools; its T-shirts sell to oldsters and youngsters alike. All in all, an animated movie that grosses $200 million in the U.S. ultimately will generate two to three times as much revenue as one that grosses $120 million. Because the costs of making and marketing the film are largely fixed, much of that extra revenue will drop directly to Disney's bottom line.

So outsize hits equal outsize profits. In 1994,

The Lion King

became the biggest animated movie of all time, pulling in $313 million at the U.S. box office -- and $1 billion in operating profits for Disney, according to

Credit Suisse First Boston

. Calls to Disney seeking comment weren't immediately returned.

But since

The Lion King

, Disney's animated movies have merely meowed. Disney's past four big summer releases have averaged $120 million in U.S. box office; the three before that averaged $224 million. In 1997,

Hercules

couldn't even break the $100 million barrier.

What's wrong? Maybe the dearly departed

Jeffrey Katzenberg

, currently trying to pick Disney's pockets to the tune of a half-billion dollars, really was the genius behind the Mouse's success in animation in the early '90s. Certainly, Disney's offerings haven't been the same since Katzenberg stopped running the company's film division in 1994.

Or maybe the company has just picked the wrong themes for its past few animated efforts.

Mulan

, the inspiring tale of a Chinese cross-dresser?

The Hunchback of Notre Dame

?

But

Tarzan

doesn't have that problem. It's hard to imagine a story better suited to Disney than

Tarzan

, a classic coming-of-age saga with a cool hero and a hot heroine. And so far, the early reviews have been positive, although not spectacular.

Variety

said Tuesday that the film "doesn't measure up to Disney's top-level animated features" but will likely "emerge as one of the studio's long-distance

box office champs, as its appeal will cut across all youthful demographics internationally and its repeat viewing potential is high."

A couple of movie geeks at the

Aint-it-cool-news

Web site largely agreed, with one calling it "a really fun film and probably one of the best films I've seen lately."

"I think it'll do better than the past couple of movies have done," says a sell-side analyst who follows Disney but asked not to be named. "I think it'll skew more male, and that'll drive more repeat visits." With the latest

Star Wars

installment beginning to recede after its monster opening and relatively few other kids' movies out, the field for

Tarzan

is relatively clear.

But the early buzz only raises the stakes for

Tarzan

. If this film doesn't break out despite its strengths, then Disney shareholders must seriously wonder how much "age compression" has eroded Disney's core audience. On the other hand, if

Tarzan

turns into

The Lion King II

, the specter of age compression will recede.

"Its importance extends past the numbers. It

signals Disney's ability to sustain growth," the analyst says of the movie.

And that's all kinds of pressure for a manchild raised by apes.