Bob Iger (Photo credit: Wikipedia)
When the rights to the “Lord of the Rings” movies were held by producer Saul Zaentz, he had developed a rapport with Harvey Weinstein when the two made “The English Patient.” So Weinstein worked on Zaentz to develop the idea for two “Lord of the Rings” pictures to be directed by Peter Jackson at a cost of $180 million. Weinstein, the co-founder of the specialty film studio Miramax Films, didn’t have the money but around 1998 took the idea to his then-boss, Michael Eisner, the CEO of Walt Disney Co., which then owned Miramax. “Michael passed,” Eisner’s production chief Joe Roth told Weinstein, according to James Stewart’s book “DisneyWar.”
“He what?” said Weinstein. Michael Eisner, burned by a few 1990s box-office disappointments such as “Armageddon,” had returned to a “singles and doubles” strategy. He didn’t want to spend $180 million, even for one of the most beloved fantasy franchises in history. The three “Lord of the Rings” pictures would go on to gross nearly $3 billion at the box office alone.
Eisner’s successor, Bob Iger, has steered the company in a completely different direction: Forget the small stuff and deliver all blockbusters, all the time, with mammoth costs paying off with gargantuan profits.
But blockbusters aren’t just big budgets; they’re big stories with big characters. To get some of each, Iger went shopping. In 2006 he was derided for paying $7.4 billion for Pixar (“doesn’t add up....seems pricey” declared Fortune. “Investors, beware: Disney is paying too much for Pixar” declared Stewart himself, when Disney stock stood at $25.31) Since then the “Cars” and “Toy Story” franchises have rung up roughly $10 billion in sales -- each.
In 2009 Iger paid $4.2 billion for Marvel and its Avengers characters; Disney stock retreated slightly on the news, to about $26. “Is Disney paying a superhuman price?” asked the Wall Street Journal. “Most analysts think” the price was “generous,” said The Economist.
Last year an analyst estimated that “The Avengers” film would, by itself, generate $1.29 billion in profit for Disney. This year’s “Iron Man 3” is tracking only slightly behind “The Avengers,” which has also goosed interest in Marvel’s forthcoming Thor and Captain America sequels, both due in the next 12 months.
Last year Iger paid $4.05 billion for Lucasfilm and the rights to “Star Wars” -- and investors promptly knocked two percent off the stock price, which was then about $49. The seventh film in the franchise is due in 2015. How much might a Jedi epic be worth to the world’s no. 1 licensing operation, to say nothing of the billion or so each film might reasonably be expected to earn at the box office alone? Iger is hinting at “Star Wars” theme parks and television spinoffs and has a Marvel theme park in Hong Kong under way.
Meanwhile, Iger has launched yet another profitable franchise with “Oz: The Great and Powerful,” which has sold half a billion in tickets and, like Iger’s other big bets, has corporate synergy written all over it. A fifth “Pirates of the Caribbean” movie is pencilled in for 2015, as is a “Finding Nemo” sequel and a Marvel movie based on the Ant-Man character. Hundreds more Marvel characters belong to Disney.
The Disney movie studio’s much-discussed “boy problem” is solved. No longer is it seen as a haven for princesses and fairies and the little girls who love them. Not unexpectedly, the theme park business has received a fresh boost from such rides as Cars Land at Disney California adventure, with admissions up eight percent and per-capita spending rising 10 percent.
Any one of Iger’s three huge content deals could look like the steal of the century if it weren’t for the other two, and Disney stock this week hit an all-time, surpassing $65. Investors might be hoping to take advantage of investor grousing driving the stock down the next time Iger announces a big franchise buy. If only there were any comparable ones for sale.
Michael Eisner properly gets much of the credit for revitalizing Disney’s fortunes when the company was at its nadir. When he took over in 1984, the price (adjusted for splits) was less than a buck a share. But saving money on development costs turned out to be a false economy. When it comes to movies, established mythic characters don’t come cheap -- but Iger has proved that when it comes to great stories, $7 billion can be a bargain.
