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Disney Needs to Explain Why Pixar is Taking a Year Off

By Steven Mallas – Oct 11, 2013 at 1:13PM

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Pixar needs to stop whining and make sure it has at least one film out every single year.

Sometimes it's the little things that matter. And sometimes the little things are actually not so little.

On the one hand, one could argue that what's going on at Disney (DIS -0.92%) right now isn't a huge matter. It's been reported that 2014 won't see a Pixar project because the next film in line, The Good Dinosaur, needs a bit more work. The next Pirates of the Caribbean movie is being delayed, moving from 2015 to perhaps 2016. The credits are rolling on Jerry Bruckheimer's first-look agreement. Ant-Man -- whatever that is -- has seen its release date moved up.

On the other hand, I think there is something worthy of scrutiny hidden in the recent goings-on at the studio. While most observers are happy with the media conglomerate and its acquisition strategy, as championed by uber-CEO Robert Iger, and probably don't see anything here that's a big deal, I would argue that Disney at this point has to be cautious and not allow any potential for maximizing its assets to slip away. To me, that's what's happening with a year without a Pixar project.

The reason for the delay

From what I've gathered, the primary reason for the move of the Dinosaur flick is related to quality control; presumably, this means that the magical muses over at the Pixar brain trust went on strike, or something like that. What gets me about that is, as a shareholder, I see the billions spent to acquire the animation company and I expect every year to see at least one Pixar movie. At least one. Two would be even better, and I would think that increasing output should be the goal.

Since we've been led to believe that John Lasseter and his minions are geniuses when it comes to creating cartoons on computers, works full of story magic and visual intensity, and since a lot of shareholder bucks were thrown his way, I would imagine -- and hope -- that CEO Iger would agree with me that aggressive questioning about the delay is in order. It's even possible earnings might be affected if Disney does stick to a no-Pixar-film-in-2014 policy.

Trouble on the sea

Then there's the issue of the Pirates rearrangement. While some pundits have speculated that Disney might be better off releasing that film at a later time so as not to interfere with the sequels to The Avengers and Star Wars, I'm not of the opinion that this should be the case.

Disney should be making attempts to dominate any summer it can, and while cannibalization is always possible, or perhaps there's even the risk of audiences growing weary of tentpole action, it might be useful to see how such a loaded summer that synthesizes all corners of the company's acquisition strategy in such concentrated fashion affects the return of invested capital. It's been said before that Disney loves data (actually, what company doesn't, for that matter); I would have loved to have seen the data on box-office returns for a summer that contained Han Solo, Hulk, and Sparrow.

Why am I so concerned about stuff like this when there are probably bigger fish to fry within the company? Because the studio division is arguably a driver of Disney's overall brand equity. Not only that, but content is a key driver of direct ROI as well, even if you discount the synergy value.

It's difficult to make money from movies now that the DVD market is no longer what it used to be. Even though Disney sells a lot of Iron Man DVDs, the rest of its catalog has seen its challenges. Just checking the latest earnings report shows that, for the three-month and nine-month periods, studio profit was down 36% and 14%, respectively.

The assets have to matter

CEO Bob Iger cannot chalk up the Pixar/Pirates delay to nothing more than a need-for-more-creative-time excuse. I think the financial media has dropped the ball on this and reverts back to the thesis that Disney is golden just based on its collection of its assets.

What good are the assets when they are not being aggressively monetized? Again: Did Disney buy Pixar so that it would eventually release two movies a year, or did it buy the business so that Lasseter and his minions might occasionally take a year off?

The default argument will be that it doesn't matter -- the company is so massive that it can withstand such issues. Sure, but as a shareholder I want the best bang for my equity, and an insouciant approach to content creation/scheduling should not be tolerated by the board.

Increasing studio profitability is an opportunity for the company that Iger cannot ignore. Part of the plan should involve more movies from Pixar ... at least one per year.

Steven Mallas owns shares of Disney. The Motley Fool recommends Disney. The Motley Fool owns shares of Disney. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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