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Disney Milks Its Hits For Profits Ever After --- CEO Iger's love of 'franchises' spawns years of sequels, park rides, merchandise Author: Fritz, Ben ProQuest document link Abstract:  "When people love a Disney product this much, they expect to be able to somehow experience it," said Kathy Mangum, a senior creative executive in the Imagineering theme-park design group, as the ride in Disney's warehouse ended and the world of Arendelle disappeared from the white walls, ceiling and floor. Links: Linking Service Full text:  Norway is about to get a "Frozen" makeover. At Walt Disney Co.'s Epcot Center in Orlando, Fla., a 27-year-old tour of Norwegian history and mythology called "Maelstrom" is being rebuilt as "Frozen Ever After," based on the blockbuster animated musical's fictional world of Arendelle. Disney Imagineers who designed the ride recently got a virtual-reality tour at a warehouse in Glendale, Calif., wearing 3-D glasses while watching high-definition images of Olaf and Sven horsing around, Grandpappy Troll telling a magical story and Elsa belting out her song "Let It Go." They will become animatronic characters that Epcot visitors float by on a log after "Frozen Ever After" opens next year. The first "Frozen" ride is the latest example of Disney's transformation under Chairman and Chief Executive Robert Iger into a company that tries to turn each big hit into its own successful business. Mr. Iger has refocused Disney around what it calls "franchises" -- or entertainment juggernauts that live on for many years as theme-park rides, toys, videogames, television shows, pajamas and just about anything else that keeps revenue rolling in. The consistent performance of those franchises is helping Disney outshine competitors by measurements ranging from stock-price growth to product licensing to ticket sales per movie. "Ten years ago, we were more like other media companies, more broad-based," Jay Rasulo, then Disney's chief financial officer, told analysts last fall. "Almost every aspect of the company" is now "oriented around brands and franchises." It's easy to see why Disney is giving Anna and Elsa a new home in Epcot. As of early May, sales of "Frozen" merchandise so far this year are more than 10 times higher than during the same period of 2014. A mobile game has been downloaded more than 105 million times. The movie itself has grossed about $1.3 billion since its release in November 2013, the most successful animated motion picture ever. In March, Disney announced that work has begun on a sequel. The new ride is just the start of a growing presence for "Frozen" in theme parks around the world, executives say. "When people love a Disney product this much, they expect to be able to somehow experience it," said Kathy Mangum, a senior creative executive in the Imagineering theme-park design group, as the ride in Disney's warehouse ended and the world of Arendelle disappeared from the white walls, ceiling and floor. Anyone who recalls the five "Planet of the Apes" movies from 1968 to 1973 (or two more sequels since 2011 and another scheduled for release in 2017) knows that franchises have been part of Hollywood for ages. Disney has been a pioneer of the strategy since the company opened Disneyland in 1955 with Sleeping Beauty's castle at the park's center. For decades, though, Disney also churned out a hodgepodge of content with no particular connection to any of 12 March 2017

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its entertainment properties, including the 1998 thriller "Armageddon" and California Adventure theme park. Walt Disney Studios released 19 movies nationwide in 2006, Mr. Iger's first full year as CEO, and its Miramax unit had nine "art house" films. Those releases included just three that could be considered part of a franchise: "Cars," "Pirates of the Caribbean: Dead Man's Chest" and "The Santa Clause 3." Movies released that year, like Mel Gibson's ultraviolent "Apocalypto," a pair of action thrillers starring Denzel Washington and Kevin Costner, and Christopher Nolan's drama "The Prestige," wouldn't be made by Disney now. The studio now produces about 10 movies a year, and its annual lineup is dominated by family-friendly franchises: one "Star Wars" sequel or spinoff, two or three Marvel superhero movies, one or two live-action versions of animated classics like "The Jungle Book" and "Beauty and the Beast," and two or three animated films, either originals or sequels. Miramax was sold five years ago. The changes show that the traditional Hollywood model of producing a large, diverse slate of risky movies in hopes that a few big hits outweigh a larger number of flops is dead at Disney as part of its focus on consistency. The strategy has swept through every part of Disney except for its television business, which is dominated by ESPN. For example, employees in Disney's consumer products group are assigned to "Toy Story," "Mickey Mouse," "Marvel" and other cash cows. The group used to be divided by product categories such as clothes, toys and furniture. Disney's videogame division now publishes just one major console game a year, Infinity, which brings together the company's most popular characters. It used to make as many as half a dozen games a year, with original titles in genres like action and auto racing. To keep executives focused on the biggest hits, Mr. Iger has tied the majority of their compensation to the performance of Disney as a whole, rather than individual businesses. A committee of 20 executives analyzes franchises, hunts for new opportunities and occasionally demotes fallen stars, as happened with "High School Musical." Mr. Iger decides what the company's top franchise priorities are each year, sending a powerful signal to Disney's 180,000 employees in offices, studios and theme parks around the world. "Once that's done, a switch is turned and off the organization goes," he said in an interview. The push is paying off in ways that are envied by rivals. The interactive media unit that includes Infinity reported its first-ever annual profit in fiscal 2014, which ended in September. Last year, 11 different Disney franchises each sold more than $1 billion of branded products, up from seven in 2011. Disney's film studio, which gets a cut of revenue from products based on its movies, had an operating profit margin of 21% in fiscal 2014 and 27% in the next six months. Profit margins averaged about 10% in the previous decade, roughly in line with competitors such as Viacom Inc.'s Paramount Pictures and Comcast Corp.'s Universal Pictures. Overall, Disney earned profits of $7.5 billion in its latest fiscal year, up 22% from $6.14 billion in fiscal 2013. Revenue rose 8% to $48.81 billion. Disney hasn't disclosed its number of franchises or profit and revenue for each. Many outsiders believe Disney is defying the long-held maxim that entertainment is an inherently topsy-turvy business plagued by unpredictable hits and flops. "Some on Wall Street no longer see Disney as a media company and see it more as a global consumerproducts company like Nike," said Michael Nathanson, senior research analyst at MoffettNathanson LLC. Disney's collection of successful intellectual property is so vast that a senior executive at one Disney rival complained recently: "It's almost unfair given the amalgamation of resources they have." Relying so much on a small number of moneymakers is risky, though. If interest in the Marvel or Star Wars franchises were to falter, it would be a serious blow to the entire company, not just Disney's movie studio. 12 March 2017

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Last month's Marvel sequel, "Avengers: Age of Ultron," has grossed 23% less in the U.S. and Canada than its 2012 predecessor during the same period, though it still is the highest-grossing movie of the year and has exceeded the first "Avengers" internationally. And because Disney makes fewer films now, especially original, live-action productions, the company is less likely to develop new franchises like Universal's "Fast and Furious" or surprise hits like "American Sniper" from Time Warner Inc.'s Warner Bros. The latest "Fast and Furious" movie is in a virtual tie with "Avengers" as the third-highest-grossing movie of all time. Meanwhile, Disney competitors are doubling down on their franchises. Starting next year, Warner Bros. will release two superhero films a year from its stable of DC Comics characters like Batman and Wonder Woman. Universal is making a series of movies based on classic monsters like "The Mummy" and "The Thing." Paramount plans to accelerate the pace of sequels and spinoffs based on "Transformers." Some analysts are worried. "We think there is cause for increasing concern that the major studios are all moving towards increasingly indistinguishable strategies as they all put more eggs in the franchise picture basket," media analyst Doug Creutz of Cowen and Co. wrote in a research note. The shift also could make it harder for fresh ideas to surface in Hollywood, skeptics claim, while filling theater marquees, theme parks and store shelves with even more of the same. In response to criticism that they aren't doing enough to foster originality, Disney executives point to offbeat, animated fare like next week's "Inside Out," about the characters inside an 11-year-old girl's brain, and last year's "Guardians of the Galaxy," based on an obscure Marvel comic book that was new to most moviegoers. Mr. Iger began focusing on franchises early in his tenure as CEO. He said he was "pretty amazed at how low" Disney's return was on capital invested in movies. He was quickly willing to bet that kicking a then-nascent franchise strategy "into high gear" would help Disney withstand the challenges of globalization and falling DVD sales by letting movies, theme parks, product licensing and other businesses feed off each other's successes. "The case I laid out was that by creating and then supporting franchises, it could impact the bottom line of the whole company in a very profound way and everybody would benefit from that," he said. Over the past decade, Disney has primarily fostered franchises in its own animation divisions and at companies it bought. The takeover of Marvel Entertainment Inc. for $4 billion in 2009 brought "Avengers" and "Guardians of the Galaxy." The 2012 purchase of Lucasfilm Ltd. for another $4 billion gave Disney the ability to release a "Star Wars" follow-up every year, starting with "Star Wars: The Force Awakens" this December. Disney paid $7.4 billion in 2006 for Pixar Animation Studios, which released "Cars" and "Toy Story" and delivered a jolt of energy to Walt Disney Animation Studios, the creator of "Frozen" and last year's hit "Big Hero 6." The Disney Junior cable channel, which went on the air in 2012, is considered a franchise, too, with "subfranchises" such as the animated series "Sofia the First" and "Doc McStuffins." At theme parks, Disney's annual capital investments have roughly tripled in the past decade. Franchises are becoming much more prominent, a shift from the more abstract ideas that used to inspire rides and attractions, such as the future and the Wild West. Thomas Staggs, Disney's chief operating officer, said that a "pretty high percentage of the uptick in capital we've been deploying has to do with our belief in the creative library." He ran the theme-parks unit until February. California Adventure got the "Cars"-inspired "Cars Land" in 2012, and the Seven Dwarfs Mine Train roller coaster opened at Walt Disney World's Magic Kingdom last year. Next year, Disney will open Iron Man Experience, its first attraction based on a Marvel character, at Hong Kong Disneyland. "Star Wars" attractions also are in the works. Disney's new $5.5 billion theme park in Shanghai, set to open in 2016, will include a large "Pirates" area based 12 March 2017

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on the movies that were in turn based on a ride. Other Shanghai attractions were picked partly based on analyses of the most popular Disney franchises in China, Mr. Iger said. The link between popular franchises and park attendance is strong. After struggling for a decade, California Adventure in Anaheim, Calif., saw attendance surge 40% between 2011 and 2014, a sign that "Cars Land" is a powerful draw, according to the Themed Entertainment Association. Disney executives are hoping that "Frozen Ever After" will help boost Epcot, where attendance has grown just 4% in the last five years. "Epcot could use a shot in the arm," said Ms. Mangum, the Imagineer executive who oversees Disney's theme parks in Orlando. Purists may scoff at putting sentient snowmen in a park meant to "entertain with a purpose," as Disney's chief executive described Epcot when it opened in 1982. But Disney executives point out that "Frozen" is tied to Scandinavian art and culture, adding that millions more people will likely visit Norway and the rest of the World Showcase just to experience the new four-minute ride. "We have to be careful not be too doctrinaire when we apply these principles," said Mr. Staggs. With a sequel and Broadway show also in the works, he added: "You will see 'Frozen' in the parks for as long as we're around."

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