Monday Mouse Watch : Why all the dough that “The Simpsons Movie” is earning is making Disney & Pixar executives say “D’oh !”

Jim Hill

17 years ago

Let’s start with the news that may confuse some of you. In that there are folks at Walt Disney Animation Studios who are downright giddy that “The Simpsons Movie” has done as well as it has over the past 10 days.

“And why would WDAS employees be excited by the success of a 20th Century Fox film ?,” you ask. Well, the huge grosses that “The Simpsons Movie” has been racking up since its July 27th release are now being seen as proof positive that there is actually an audience out there that’s hungry for traditional animation. Which really bodes well for Disney’s “Enchanted” ‘s release this Thanksgiving as well as for “The Princess and the Frog” come 2009.

Mind you, not everyone at the Mouse House has been thrilled by how well Bart & his buddies have been doing at your local multiplex. I am referring — of course — to the people over at Pixar Animation Studios. Who are said to be rather depressed that “The Simpsons Movie” has already earned $128.5 million during its initial domestic release. Which puts this David Silverman film on track to blow right past the $188.2 million that “Ratatouille” has earned to date during its stateside run sometime over the next three weeks.

“And what’s so bad about that?,” you query. Well, to be honest, the folks at Pixar already have their nose out of joint over the fact that — while this new Brad Bird film may be the best reviewed movie of the year — “Ratatouille” ‘s box office still lags behind that of “Shrek the Third.” Which — to date — has hauled in over $320 million during its initial domestic run.

Okay. So maybe it’s not exactly fair to compare “Ratatouille” ‘s box office to that of “Shrek the Third” and “The Simpsons Movie.” Given that only one of these animated features is actually an entirely new entity. Whereas these other two films are basically extensions of already well-established brands.

But nobody said that life is fair. More importantly, this is Hollywood we’re talking about here, people. Where perception is reality. Which is why its going be difficult for the folks who work at what is arguably the No. 1 animation studio in the world to have their latest feature length cartoon coming in third at the Summer 2007 box office race once Labor Day arrives.

Certainly the investment community has had trouble wrapping its head around this intriguing new development. Don’t believe me? Okay. Then check on this excerpt from this past Wednesday’s third quarter earnings conference call. Where Disney CEO Bob Iger and Chief Financial Officer Tom Staggs found themselves fielding questions about “Ratatouille” and Pixar. Take — for example — this exchange with Doug Mitchelson, who’s an analyst for Deutsche Bank.

Doug Mitchelson: I wanted to see if you felt the Pixar deal is tracking in-line with your acquisition budgets given “Ratatouille,” which despite its critical success, is performing domestically a bit below the prior Pixar films. Thanks.

Bob Iger: Your question about Pixar. First of all, when we evaluated the acquisition, we looked at their titles on a global basis, not just on a domestic basis, and we think “Ratatouille” is going to be an extremely successful global property.

We also believe that these are long-term products, meaning they will deliver value for the company, for a long period of time. What we have learned, when you put the Pixar name or the Disney name on a high quality animated feature, it delivers results or shareholder value for decades to come. Witness how we did recently with bringing “Peter Pan” out in the marketplace or “Little Mermaid.” We think “Ratatouille,” because it is the best reviewed film of the year, and it is as good as it is, will drive that type of long-term value.

Copyright 2007 Pixar Animation Studios / Disney Enterprises, Inc. All Rights Reserved

We also bought Pixar for multiple reasons. We clearly knew that we wanted to bolster our animation efforts, which are critical to the company, but they also brought to the company quality and creativity and a significant amount of technological innovation. So when we valued it, we clearly looked at the potential at the box office for their upcoming titles, and we also looked at the potential at the box office for the Disney titles that Pixar management and creativity would deliver. And we looked at all the other variables, like the long-term impact on the high quality of the company, creativity and bringing their great technological experience to us.

So we really believe that if “Ratatouille” ends up hitting the 200 million plus number that I mentioned in my remarks domestically, and it does well internationally, which we are optimistic about, we have got a good solid title for The Walt Disney Company from a value perspective for many, many years to come.

Now please note that “… if ‘Ratatouille’ ends up hitting the 200 million plus number” comment. This is in reference to a statement that Iger made earlier in this same conference call, where he said that …

… “Ratatouille,” the best reviewed movie of the year, is on track to see over $200 million domestic box office, and is just now beginning its broad international rollout.”

Now what’s significant about Bob’s comments is that they’re the first real acknowledgment from senior Disney officials that “Ratatouille” is no longer expected to earn as much as “Cars” did last summer. Which (let’s remember) was perceived as something of a disappointment, given that this John Lasseter film only earned $244 million during its initial domestic run.

Of course, what wound up redeeming this particular Pixar production was the fact that Disney Consumer Products was able to move a ridiculously large amount of “Cars” -related merchandise over the past 15 months. As Tom Staggs recounted in last Wednesday’s earnings conference call:

The Consumer Products revenue from “Cars” is really kind of a phenomenon. It is our most successful new film, new animated film franchise, since “The Lion King.” And so any film that we would release in the last 10 years would pale in comparison to where “Cars” has been. We are obviously thrilled with that, and hope to see “Cars” continue. “Ratatouille” has a more limited Consumer Products program, as you might imagine.

That ” … ‘Ratatouille’ has a more limited Consumer Products program” comment is significant as well. Given that this is Mouse House management’s way of acknowledging that the Cavalry will not be coming over the hill this time around. That — at least when it comes to this particular Pixar production — what you see (i.e. box office totals) is what you get.

And — yes — I know. “Ratatouille” has yet to released in a number of significant markets overseas. As Dave Miller of SMH Capital pointed out in his question to Bob Iger last Wednesday:

Dave Miller: We noticed that for the European release of “Ratatouille,” the release by country is somewhat staggered. I don’t think the film is set to be even released in some of the Top 5 markets, in terms of screen counts, until the fall. I think you have got Italy on October 19th, the U.K. on October 5th. I think Germany is on October 3rd. Those are all top five markets in terms of screen count. Other than the overall competitive situation with flows of product out of the U.S. into the European market place, is there any other reason for that?

Bob Iger: No, you hit it on the head Dave. We are staying out of the way of some significant competition. You wouldn’t want to compete against “Harry Potter,” as a for instance in the U.K. We have stayed out of the way of “Shrek” and some of those other really big titles. We do open in a number of key markets this coming week. It is opening in France as a for instance. But the rollout is what I will call staggered for the reason that you cited – to basically create a competitive environment that we feel is healthy for the film.

So obviously the jury’s still out as to how “Ratatouille” will do during its overseas run. Indeed, we may be well into the late Fall of 2007 before we finally get some definitive numbers on how this new Brad Bird film did in its foreign box office run. But given that Pixar’s latest is now only being shown in 1940 theaters in the U.S. (Down from the 3940 that “Ratatouille” debuted in back on June 29th), it’s fairly safe to say that the stateside portion of this new CG feature’s theatrical run is officially winding down.

Oh, sure. Given that this Pixar film will continue to play in U.S. theaters ’til at least Labor Day, it’s virtually guaranteed at this point that “Ratatouille” will earn $200 million domestic (Thereby granting this new animated feature really-for-real blockbuster status, at least by Hollywood-of-2007 standards). That said, this new Brad Bird film is still going to wind up earning around $40 million less than “Cars” did. Which (As Doug Mitchelson’s question last week proved) is going to get Wall Street talking.

Particularly since — as part of this past Wednesday’s third quarter earnings conference call — Iger & Staggs had to admit that …

… At domestic theatrical distribution, the strong performance of “Pirates of the Caribbean: At World’s End” was offset by higher distribution costs driven by marketing expenses for Disney/Pixar’s “Ratatouille,” which was released later in the same quarter.

Translation: Walt Disney Studios had to spend so much on the proper promotion/launch of “Ratatouille” that these expenditures actually began eating into the profits that “Pirates of the Caribbean: At World’s End” was generating for the company. And then when you consider that — in spite of all the extra dough that the Mouse spent on marketing this new CG movie — “Ratatouille” still managed to miss the investment community’s opening weekend expectations by a very wide margin … Well, is it any wonder that many Disney & Pixar officials then began channeling for Homer Simpson and said “D’oh !”

Your thoughts?