By  Steven Mallas From Seeking Alpha

Summary

Disney had high hopes when it agreed to distribute Steven Spielberg’s “The BFG,” but the movie seems to be a failure at this point.

Estimates at the time of this writing are for the movie to open at around $25 million for the holiday weekend.

CEO Bob Iger should tell investors how he intends to hedge the studio against the risk of big-budget flops.

The biggest hedge of all, of course, is to not let budgets get out of control in the first place, and to avoid certain material.

Disney (NYSE: DIS) recently suffered box-office disappointment in the form of its fantasy sequel Alice Through the Looking Glass. Now, for the Fourth of July weekend, Disney is at it again with a weak domestic theatrical performance – the disappointment cuts even deeper this time around because it involves Steven Spielberg and a film that, on the surface, looks like it should be a silver-screen winner.

The BFG is distributed by Disney and is a co-production between Disney and Walden Media (Spielberg’s Amblin’s name is also attached, of course). Disney may have spread some of its risks, I suppose, but, speaking as a shareholder of the company, this still certainly stings.

As I write this, the film is expected to gross about $25 million for the four-day weekend, according to Deadline. The final number could obviously be different once it’s in the record books, but it doesn’t really matter…the movie isn’t doing what it should be doing. This is making Disney’s studio division look bad; CEO Bob Iger should be especially embarrassed considering he was awfully proud of his studio execs during the last earnings call.

Actually, he should still be proud of his studio execs, they’re doing a good job managing Lucasfilm, Marvel, Pixar and Disney’s own animation unit. The Walt Disney live-action division, however, could use some help. Besides Alice and BFG, the company also saw a weak performance earlier in the year with the release of The Finest Hours. According to Box Office Mojo, that picture took in a little over $50 million worldwide. Variety reported that Hours lost millions of dollars for Disney.

The counterargument to these failed movie projects is found in the idea that Disney’s success stories help to mask the losses generated by a small portion of the slate. Zootopia, The Jungle Book, Star Wars: The Force Awakens, Captain America: Civil War – the bulls will point to these franchise assets as proof that the positive thesis on Disney should not be discontinued.

I would agree that Disney can easily take some shocks to its studio system, but at the same time, the company should be concerned any time something like BFG is rejected by the marketplace. Finding Dory will end up in the top spot this weekend, but really, BFG possibly in fourth place? With all its special effects, its incredible source material (from the mind of Roald Dahl), its Fourth of July holiday placement? The fact that it was directed by Steven Spielberg makes the result even more mysterious.

Or does it? Spielberg would probably be the first to tell you that sometimes movies work and sometimes they don’t. I hope Bob Iger is not celebrating the holiday this weekend and is instead calling a meeting to order that tasks his studio’s intellectual resources with the challenge of figuring out what happened. Was the marketing all it could have been? Was the story up to par? Was too much faith given to Spielberg’s brand equity? It’s funny when one considers that Spielberg was the one who was concerned about tentpoles with big budgets, as this article in The Hollywood Reporter states. Granted, BFG‘s budget of $140 million isn’t on the same scale as the $250 million budget mentioned in the Reporter piece that Spielberg apparently was highlighting, but the lesson is clear: when a budget is high and the box-office returns are low, the economics of a media conglomerate can be adversely affected, no matter how diversified it is. As many analysts point out, Disney takes a movie, its story and its characters, and monetizes them through its consumer products division, and its theme park division, etc. The movie has to be a hit, though, and in today’s age, that means it has to be a spectacle, with high-profile actors supporting it… and that means a high budget with expensive profit participation attached.

Disney has to figure out a way to give the public what it wants at an affordable budget, one that allows for the risk involved in creating movies. It has to, for instance, pay stars less money to be in its product – maybe the company could offer a different incentive to its celebrity talent to encourage more rational deals (offer investment in a television pilot, maybe fund a low-budget passion project that could be exclusively shown on Disney’s Maker Studios platform, etc.). For the company’s live-action Disney-branded films, perhaps more story and less special effects might help ease the financial obligation (a strong concept can work wonders when budgets need to come down). Instead of automatically going with something because someone like Spielberg wants to do it, it’s possible that a more prudent, thoughtful approach to the material would hold a lot of value, especially in avoiding concepts that might not necessarily work for Disney (not saying that is necessarily the case here, but it’s something to nevertheless point out). From what I’ve read, it seems that the BFG project has been around for a while, and that it’s taken a long time to get to the screen. Sometimes a movie can go through so much development that it either loses a lot along the way, or its time to strike has come and gone; it’s hard to say, certainly.

Here’s what I would do if I were the CEO: figure out some quick exit strategy from theaters and get the film out on pay-per-view and Blu-Ray. I suppose too that Iger could try a reboot of the release, maybe increasing theater counts later in the summer and starting fresh with a new marketing campaign.

The important thing to keep in mind is that Disney can’t simply say to its corporate self that failures like Alice and BFG don’t matter because Dory is keeping the studio afloat. The stock benefits best when every project in the marketplace is working. No one can ever ensure that happens, but that should be the goal. It would help if Iger made a statement on the movie next week, one that vigorously dissects what may have gone wrong, and what the solution might be in terms of avoiding such disasters in the future. At the very least, one can bet that, for most Disney shareholders, the F in BFG stands for something other than friendly.

Disclosure: I am/we are long DIS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

For more on this story go to; http://seekingalpha.com/article/3985969-disneys-the-bfg-proves-steven-spielberg-always-great-investment?auth_param=ar3l1:1bnhilv:efa92a23134f0596e7e4ce4e921e8198&uprof=53

See related story:

‘The BFG’ is a big flop at the box office

By  TVGuide From FOX

“Finding Dory” maintained its spot at No. 1 for the third week in a row this July 4th, taking in $50.2 million at the four-day weekend box office.

The Pixar-Disney fish tale kept reeling viewers in, making for a total of $380.5 million so far–just $300,000 shy of matching the entire run of its predecessor, “Finding Nemo.”

“Finding Dory” outperformed its competition, including “The Legend of Tarzan,” which finished second at $45.6 million. “The Purge: Election Year” came in third with $34.8 million.

“The BFG,” Steven Spielberg’s adaptation of the Roald Dahl children’s book, came in fourth, taking in a paltry $22.3 million in its opening weekend. It’s proving to be a big disappointment for the Hollywood icon, as experts now doubt “The BFG” will recoup anywhere close to its $140 million budget, and are hoping foreign markets will prevent it from becoming a disaster.

“Independence Day: Resurgence” rounded out the top five with $19.3 million.

For more on this story and video go to: http://www.foxnews.com/entertainment/2016/07/05/bfg-is-big-flop-at-box-office.html

IMAGE: www.youtube.com