Now that Disney management has won its proxy battle with activist investor Nelson Peltz, let's take a look at the Big Lie the company told to help keep shareholders on management's side.
Last month, the Mouse House released a detailed, 67-page report for investors "singing the praises of its chief executive Bob Iger in a bid to convince stockholders to side with him in a battle with activist investors," as Forbes' Caroline Reid put it. I included the link because Reid did in her write-up, but the PDF file is no longer there, perhaps flushed down the memory hole.
Reid's article is a bit technical but the upshot is that when calculating the studio's return on investment for franchises like The Avengers and Star Wars, Disney didn't factor in the multibillion-dollar acquisition costs of buying Marvel and Lucasfilm.
"Calculating ROI on revenue rather than profit ignores the costs so artificially inflates the result," Reid explained. Well, yes. It's really easy to show a profit when you include revenues but conveniently leave out major expenses.
Reid concluded that "Disney hasn't misled investors as the methodology is in the fine print." But the methodology itself is a scam, a way to calculate returns on investment that no reputable firm would ever use. The Avengers movies made boatloads of money (at least until recent years) but Star Wars is probably still in the red — despite what Disney told investors.
This all goes back to a column I wrote right after the new year — Advantage: VodkaPundit™ — arguing, "If Disney has realized an actual profit on its $4.05 billion Lucasfilm investment, I'd be shocked." My back-of-the-envelope math, in which I gave the benefit of every doubt to Disney's Star Wars revenues, indicated that the company had spent $7.35 billion acquiring and producing Star Wars entertainment but generated just $6.41 billion in revenues.
"They're losing money on Star Wars. That, to borrow Bill Clinton's inelegant-but-ever-so-apt description of his wife's presidential campaign, is like failing to sell p**** on a troop train."
Investors should know why Disney's $4 billion purchase of Star Wars has failed to turn a profit after 12 years, five feature films, a half-dozen TV shows, and countless remainder-binned Rose Tico action figures.
Instead, Disney produced a report that lied about what it cost to acquire Lucasfilm properties like Star Wars and Indiana Jones and also included overly optimistic projected revenues the company may never earn. "There's fudging the books," the Critical Drinker said in a recent podcast, "and then there's just straight making s*** up."
The board won its proxy battle against Peltz, so I guess it was all worth it.
So we can be reasonably sure Disney has lost money on Star Wars but the question is how? How do you lose money selling tickets and toys to young (mostly) males who like plucky heroes, spaceships, and lightsabers? One of the Drinker's guests, the Outcasts Creative's Lance Steen Anthony Nielsen, summed it up nicely.
"With an IP [intellectual property] like that you would have thought you'd have been able to [turn a profit after 12 years] but I wonder why they haven't been able to do that. Could it be the content's been a bit s***?"
It would be fair to ask if Nielsen was talking about the content of Disney Star Wars movies and shows, the content of its investor report, or both.
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