Dear readers,
Taking a different tack this time with a review of the drama taking place at Walt Disney. It’s probably a bit controversial, but if Substack isn’t a good place for civilized discussion, there’s none. I hope you like it! Even if not, I’m pretty sure you won’t find the analysis below anywhere else, and that alone is worth the read.
Let me know what you think in the comments section, and please drop me a like, a share, or a restack!
One of my first posts on this platform was a review of the state of the movie industry in Hollywood. It was a bad time at La-La-Land. Several movies which were supposed to be sure bets tanked badly, costing producers several hundred million dollars, including Marvel superhero movies and Indiana Jones. But two movies from the sidelines did surprisingly well, Barbie and Oppenheimer.
On a closer look, there’s one company which is at the center of the industry’s trouble: Walt Disney. At the helm of Disney, behind closed curtains and locked executive office doors, a huge battle is raging.
War of the Worlds
The key opponents are Kathleen Kennedy, president of Lucasfilm, one of Disney’s key properties, and Bob Iger, CEO of The Walt Disney Company.
Kathleen Kennedy was recruited by Stephen Spielberg, the famous film director, around 1980 to become his assistant. Spielberg was working on a new project at Lucasfilm, the production company of George Lucas which Lucas founded in 1972, and which Lucas used to produce his vision of a revolutionary movie experience, Star Wars. The first film of the original trilogy was released in 1977.
Next to his cinematic vision, George Lucas also had a business vision, and he retained all merchandising rights for the Star Wars universe. His business partners didn’t think much of it, but merchandising became an immensely valuable property which was managed through Lucasfilm.
Right at the time Kennedy joined him, Steven Spielberg was developing another major movie franchise: Indiana Jones. The first installment, Raiders of the Lost Ark, based on a story of George Lucas, was released in 1981. Kathleen Kennedy already received a mention in the final movie credits. It was Spielberg’s most prolific period, and Kennedy received a producer credit in Spielberg’s blockbuster hit “E.T. the Extra-Terrestrial” (1982). She became a producer of other Spielberg movies which turned out very successful and famous, including Jurassic Park, or Schindler’s List.
(Closing credits, “Indiana Jones: Raiders of the Lost Ark”, 1981)
As Kennedy was a rising in the industry, George Lucas, on his part, produced the Star Wars prequel trilogy, a ten-year project which started in 1995. After that, Lucasfilm Animations developed an animated Star Wars series called the Clone Wars, which was originally aired between 2008 and 2013. Even though Kathleen Kennedy had received a lot of recognition for her work on Indiana Jones (all of them produced by Lucasfilm), and was an important producer for Lucas’s buddy Stephen Spielberg, she was not involved in any of George Lucas’s Star Wars projects.
In early 2012, Lucas announced he wanted to step back from producing blockbuster movies and focus on smaller, independent films. During a transition period, Kennedy became his co-chair in June 2012. In October 2012, George Lucas announced he was selling Lucasfilm to Walt Disney for $4 billion. With that move, Disney acquired two of the biggest and most cherished movie franchises of all time, Indiana Jones and Star Wars.
(Disney CEO Bob Iger and George Lucas doing some paperwork. Oct 30, 2012.)
Walt Disney is one of the strongest entertainment companies, and its movies have shaped the childhood experiences of generation after generation. Disney movies were not only a cultural phenomenon, but also a financial success. For this posting, I’ve analyzed the financial performance of all Disney movies (for theatrical release) over the last ten years, in total close to 70 films. In the chart below, each dot denotes a movie. The red line is the profit & loss breakeven line. The vertical distance of a dot to the line shows the profit or loss of a movie. Revenues are the net take of studios of gross ticket sales.
I’ll discuss some interesting trends in what seems to be a random spread of data points in this posting.
The Kennedy era at Lucasfilm
After George Lucas sold his company, Kathleen Kennedy finally gained control over the most coveted asset in the film industry. She immediately started preparations to continue the Star Wars saga, assembling more resources behind the project than ever before. The production budget for the first movie of the sequel trilogy, “The Force Awakens”, finally came out at a whopping $447 million, making it the most expensive movie ever. Kennedy wanted to make sure the movie was a commercial success and put $350 million into marketing. J.J. Abrams, who had demonstrated he knew how to create stunning visuals in his Star Trek movies, directed The Force Awakens and set up the stage for a successful sequel trilogy.
However, events took a negative turn at the second installment, “The Last Jedi”. A new director arrived, Rian Johnson, who also wrote the screenplay. Johnson marginalized some of the key characters which Abrams had developed, and which audiences were ready to embrace, but even worse, he badly mishandled one of the most iconic movie characters of all time, Luke Skywalker. The movie received weak audience reception and bad word of mouth in social media. Ticket sales for Star Wars started collapsing.
(Rapid decline of ticket sales for the sequel trilogy: from The Force Awakens (2017), over The Last Jedi (2017), to The Rise of Skywalker (2019))
Movie fans and Disney executives thought that “The Last Jedi” was a one-off, but things got worse during the production of the fifth installment of Indiana Jones, “The Dial of Destiny”. Studio insiders leaked to movie critics that the story involved time travel and a plot to erase Indiana Jones, played by Harrison Ford, from history and replace him with a new character, played by Phoebe Waller-Bridge, who was going to re-live Indy’s previous adventures, essentially purging Indy/ Ford from story canon. The news whipped up furor in the fan base. Lucasfilm saw no way out but to reshoot large parts of the movie, adding to a budget which was already bloated. The film was delayed several times and ultimately by a year, accompanied by an increasingly negative tone in press reporting.
The original creative heads of Lucasfilm were abhorred, and a rift began to form between them and Kathleen Kennedy. Steven Spielberg, under whom Kennedy had gained a strong presence in the industry and earned several producer and executive producer credits in major productions, publicly turned his back on her. When Indiana Jones finally premiered in 2023, several industry reps took the stage at the theater: Spielberg, Lucas, Harrison Ford, John Williams (who composed the Indiana Jones soundtrack), Kennedy and her husband Frank Marshall (another movie producer). Spielberg said he wanted to express his thanks to the three persons who made Indiana Jones possible: the person who created Indiana Jones (“George Lucas”), the person who was Indiana Jones (“Harrison Ford”), and the person who glued all five installments together (making a pause for more dramatic impact), “John Williams”. It was an incredible, public snub for Kennedy.
Character replacement and story reframing, like in “Dial of Destiny”, however have taken root more broadly at Disney since the Star Wars sequel trilogy, as seen in movies like “The Little Mermaid”. Was there an agenda behind it? Movie audiences didn’t like what they saw.
After the Star Wars debacle, most Disney movies ended up as loss makers, including the three most expensive productions.
The stock market soon took notice of the continued losses of Disney movies. Disney shares started underperforming the market by a significant margin.
Hedge funds decided to get involved as Disney shares tanked. Hedge fund manager Nelson Peltz started accumulating Disney stock in his Trian fund and made a bid for a board seat in early 2022. He made a second attempt in the spring of 2024, when the size of his position in Disney reached $2.5 billion, to get a board set for himself and another one for former Disney CFO Jay Rasulo. It was going to be a tough battle for Disney. Finally, George Lucas spoke up for Iger and his board, saying that “filmmaking is not for amateurs”. Investors gave Iger a vote of confidence, and Peltz dropped his bid.
But is Bob Iger really in control of his company?
Even though he survived the boardroom coup, Iger was forced into the defensive. While shareholders supported him in the battle with Peltz, they started asking questions about Disney’s hidden agenda as the company rewrites much of its movies’ lore. In an interview on CNBC’s “Squawk on the Street” in early April, Iger said that Disney was still prioritizing entertainment over messaging.
“They need to be entertaining and look — where the Disney company can have a positive impact on the world, whether it’s, you know, fostering acceptance and understanding of, you know, people of all different types, great. But, generally speaking, we need to be an entertainment-first company, and I’ve worked really hard to do that.”
(Bob Iger on Disney movies, April 4)
The marketing campaign for Disney’s latest Star Wars streaming show, “The Acolyte”, contradicted him directly. In interviews, showrunner Leslye Headland quipped “This is the gayest Star Wars ever”. Charlie Barnett, one of the lead actors, said that “Anakin Skywalker blew up the death star, potentially killing millions of people”. While it’s frustrating that an actor mixes up key characters, the real problem here is that he attempted to reframe the Star Wars history. In Star Wars lore, the Jedi were the force of good, standing up to an evil empire. The current generation of developers remodels them into potential villains. That’s deeply divisive in the fan base. While Bob Iger says he wants to broaden the fan base, it seems his acolytes at Lucasfilm do their best to alienate them.
Why do they get away with it?
Bob Iger is now in full damage repair mode. He has cancelled season 2 of The Acolyte after the show received the worst audience score ever of a Disney show (14% approval rating at Rotten Tomatoes), and fired one of the lead actors, Amandla Stenberg, after she posted an insulting clip on Youtube.
But at the same time, Disney produces a life-action version of Snow White and the Seven Dwarfs which again is hugely polarizing. The original version was made in 1937. The movie became a key part of the Disney heritage, and in 1989 was selected as one of 25 films for preservation in the National Film Registry because it was “culturally, historically, or aesthetically significant”.
The new movie doesn’t have the 7 dwarfs, it doesn’t have a princess, and it doesn’t have the central theme of the search for, and finding of love. When pictures from the production were leaked to the public last year, the backlash was so bad that again Disney had to re-write and reshoot large parts of the movie, blowing up the production budget into the same league as the doomed Indiana Jones 5 movie ($295 million).
Hollywood is almost like a parallel universe. Like its new movies, nothing is what it seems to be. It is one of the few industries, and that makes it so fascinating for many, where the successful can reach all three of the most basic societal prices: money, fame, and power. But to get there, you have to navigate your way through Hollywood’s cults and initiation rituals. Pay the price, and earn the sign of approval. Whatever Bob Iger went through, it doesn’t look good on him. He is the CEO of Disney but doesn’t seem to have much control over key studios and the main company assets. The confidence of audiences is disappearing quickly, and with “Snow White and the Seven Dwarfs” Disney has another hugely expensive movie in the pipeline which will almost certainly flop at the box office. If the string of losses continues much longer, it’s not only the reputation of Disney (and Iger) which is on the line, but also the company itself.
Let me know what you think!
all the best,
John
Good article. You’re identifying the blockbusterism which has overtaken the soul of studios financial structures and audiences attention. So to keep the potential total addressable market as large as possible—studios believe (rightly or wrongly) they need to be as aggressively inclusive as possible and provocative in advancing storytelling into new territory before the competition—because this is what the modern audience wants or is focused on—right? Criticism proves this out—even if they don’t get box office they get what Bob Iger would call ‘brand deposits’—meaning the story reflects who the company wants to be identified as and with. Compelling characters and stories become just a vehicle to achieve these things.
Something else to note is that while most studios are simply film, streaming, and product—with licensing rights—companies, Disney film studio is a very small part of their total business and revenue model. Pixar, Disney Animation, ESPN, Disney parks and resorts, ABC television, Lucas Films, Marvel, Disney consumer products and publications, Disney +, Fox, etc. are all pieces of the corporation. The synergies of the studio stories have a significant influence but they are not the definition of the Disney company. That said—I think your criticism is valid. They are searching for their audience and direction—it’s hard to sustain growth as the family company (with the great Disney legacy) when customers are not growing/raising families and rejecting the families that they have. How do you create compelling stories for these customers and set the direction for the next 50 years? (It has been 45 years since the first Star Wars film)
Great write-up!