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Betting on "Pearl Harbor"
May 25, 2001: 4:48 p.m. ET

Negative reviews could hurt box-office sales for war-time epic
By Staff Writer John Chartier
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NEW YORK (CNNfn) - Hopes that "Pearl Harbor" would help boost Disney's bottom line faded Friday after the war-time epic opened to almost universally negative reviews.

"Pearl Harbor," which recounts the surprise Dec. 7, 1941, Japanese bombing of the U.S. Naval base in Hawaii, cost a whopping $135 million to produce, compared with the average $75 million it costs to make a film. That means it has to gross roughly $450 million in theaters worldwide in order to add to Disney's earnings per share, according to UBS Warburg analyst Christopher Dixon.

That prospect was put in question when critics called the movie "one of the wimpiest wartime romances ever filmed" and "an epic disappointment."

Still, it remains to be seen how the movie will fare in its opening weekend. Ticket sales over the three-day Memorial Day weekend, which marks the beginning of the summer movie-going season in the United States, could get a boost as chilly and rainy weather is forecast for the Northeast during the entire weekend.

Dixon believes "Pearl Harbor" could add 15 cents a share to Disney's (DIS: down $0.66 to $32.64, Research, Estimates) earnings for the next two years if successful, chiefly because of video and DVD sales along with pay television and other after-market sales.

Pearl Harbor cost $135 million to produce (Courtesy: Touchstone Pictures and Jerry Bruckheimer Inc.)

But the critics have not been kind to the film. Their chief complaint is it has a weak storyline based on a love triangle. The fictional love story goes on for nearly 3 hours before the actual attack, which critics have given high marks for special effects and historical accuracy.

Eating at the profits

On top of the huge budget come marketing and advertising costs, which could add another $5 million to expenses and hurt profit. And about half of the film's gross will go to the exhibitors, the movie houses.

The hefty salaries that top-notch actors, directors, writers and others command could also put a damper on the movie's earnings. In addition to earning as much as $20 million a film for a top-tier actor, most stars now demand a cut from the box office gross, which also could affect a film's profit.

"Pearl Harbor" was way over budget topping out at $200 million until the film's producers and several of its stars agreed to take a pay cut in order to get the film made. Producer Jerry Bruckheimer and director Michael Bay gave up $4 million in salary, and actors Ben Affleck, Alec Baldwin and Cuba Gooding Jr. were paid only a fraction of their usual salaries. But all will get a cut of the profits, which could translate into bigger paychecks.

"In order to pay it's got to be a pretty big winner," said Bill Fries, manager of the Thornburg Value Fund, a mutual fund that owns studio stocks. "But if it's a big hit from a financial standpoint, then next year you've got a very tough comparison."

Disney does have a solid track record, with a string of successes such as "Remember the Titans" and "The Rock," both of which grossed more than $100 million at the box office.

But in general, banking on a film's success to boost a studio's financial performance is not a good bet.

Another "Titanic"?

20th Century Fox, which is owned by News Corp. (NWS: Research, Estimates), took a big gamble in 1997 with "Titanic." The film cost $200 million to produce, and -- like "Pearl Harbor" -- critics panned the fictional storyline used to string together killer special effects and an accurate portrayal of a historic event.


Yet "Titanic" became the top-grossing film of all time at $1.8 billion, generating substantial profits for News Corp.

On the other hand, studios have had their share of under-performing blockbusters. Universal Studios, a unit of Vivendi-Universal (V: Research, Estimates), spent about $175 million producing 1995's "Waterworld," a futuristic story about an earth completely covered in water. The film grossed just $255.2 million, handing Universal only a slight profit.

Although the U.S. box office gross certainly is important, there also is the overseas release, which could put a studio in the black for a film.

But Fries and other analysts said the box office gross is also an important bellwether for future sales on video and DVD, cable and pay television, and other avenues.

"There are multiple revenue streams, so theatrical gross is important because it signals the subsequent revenue through home video rentals, sales of DVDs, pay television and others," said Sam Craig, a marketing professor at New York University's Stern School of Business and director of the school's entertainment, media and technology program.

That's where Disney has an advantage. Its dense film library, theme parks, merchandising reach and cable and television holdings create many avenues through which to market "Pearl Harbor."

One film won't make or break a studio

Yet any number of factors could affect the film's performance.

The film is being released during Memorial Day weekend, one of the biggest movie-going weekends of the year. There is added symbolism in "Pearl Harbor's" release at a time when the nation honors its veterans.

"Certainly for Disney it's riskier than their standard animation film because it has a lot fewer merchandising opportunities," Craig said. "My guess is they'll at least break even. It's being introduced early in the season and there's not much out there competing with it. The other studios are staying away from it."

Analysts also are unsure just how the film will be received in Japan, which initiated the attack, or Germany, which along with Italy, formed the Axis powers that fought against the Allied countries of the United States, Great Britain and the former Soviet Union. Disney said it is releasing slightly edited versions in those countries in order to avoid offending some audiences.

"One school says that they (Japanese) will be very fascinated by it. The other says that it will be treated politically," Dixon said. "My view is that the Japanese are always very interested in American entertainment products."

Craig takes a more cautious view.

"It certainly was a historical event that Japan played a major role in, and whether the younger generation will want to see that, and through American eyes, learn more about Pearl Harbor and World War II, remains to be seen," Craig said.

Fries questioned the interest level among young U.S. moviegoers in an event that occurred 60 years ago.

However, Craig said the success of "Saving Private Ryan," Steven Spielberg's World War II film with arguably the most realistic battle scenes ever filmed, demonstrates the interest is there if the story is good.

Check media and entertainment stocks

No matter how "Pearl Harbor" does at the box office or what, if any, impact it has on Disney's bottom line, it brings up an important point for investors thinking of buying media company stocks.

It's not a good idea to base any decisions on the strength of one film, analysts caution. A hit film is nice, but it's generally a temporary, short-lived event. After that, it's important to consider the studio's film library what resources it has to market films beyond the box office, such as video, DVD and pay-television.

It's also important to look at the rest of the company's assets and businesses and consider its prospects.

"One picture is not going to make a significant difference," Dixon said. graphic


Disney tops 2Q - April 24, 2001

Report says Disney may cut jobs, salaries in animation unit - April 24, 2001


Walt Disney Co.

Pearl Harbor movie site

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