Disney plots box-office turnaround

Disney’s film division, experiencing one of its worst slumps at the box office in years, is counting on talking dogs and singing teens to turn things around.

When Walt Disney Co. reported earnings last week, the glaring weak spot in an otherwise strong quarter was the company’s Studio Entertainment unit, which encompasses the movie studio. Operating income plunged 49% and revenue was off 19% from a year ago, mostly because Disney’s pictures didn’t meet expectations.

With its newest release, the political comedy “Swing Vote,” buried in a landslide last weekend and U.S. ticket sales down nearly 30% this year, Disney finds itself in last place among the six major studios in box-office market share -- unusual for a company usually at or near the top.

Disney is betting that won’t last long, however. It has high hopes this fall for “Beverly Hills Chihuahua,” about a pampered pooch from the 90210 ZIP Code lost in Mexico, and “Bolt,” an animated film about a showbiz dog. That project is being shepherded by Pixar Animation Studios guru John Lasseter. Disney is also releasing “High School Musical 3: Senior Year,” the third movie in the pubescent franchise and the first premiering on the big screen.

The studio said one reason for its weaker performance in the third quarter was that results in the year-ago quarter were extraordinarily high, pumped up by the blockbuster “Pirates of the Caribbean: At World’s End,” which generated $961 million in worldwide ticket sales.

In addition, Disney made a strategic decision a couple of years ago to release fewer movies annually, which potentially reduces its box-office total.

Still, other than the current Pixar comedy, “Wall-E,” which has grossed more than $200 million in the U.S., Disney hasn’t hit one out of the park in seven months. Its biggest live-action bet, “The Chronicles of Narnia: Prince Caspian,” the second film in the franchise co-owned by Philip Anschutz’s Walden Media, fell below expectations at $140 million domestically. That’s less than half what its 2005 predecessor, “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe,” brought in and less than half the U.S. total that “Pirates” achieved.

The studio made some money on modest-budget pictures such as “College Road Trip” and “Step Up 2: The Streets,” and its Miley Cyrus “Hannah Montana” concert movie beat expectations. But those films’ grosses paled next to those collected last year by the comedy “Wild Hogs,” the action sequel “National Treasure: Book of Secrets” and “Enchanted.”

“What we’re seeing is increased quarterly volatility from fewer film releases,” said Laura Martin, a senior media analyst with Soleil Securities Group.

She said Disney’s off quarter was “widely expected,” given the comparison with last year’s “Pirates” sequel. Because Disney has a strong track record of delivering franchise hits, the market does not penalize the studio when it hits a dry patch at the box office.

Disney Studios Chairman Dick Cook said that, although box-office races “have their place,” public companies such as Disney are “judged on having a great return on capital.” On that account, he said, the Studio Entertainment group -- which includes worldwide theatrical, DVD and television sales of movies, stage plays and music earnings -- was doing well.

“We’re having the second-biggest year in the history of the studio,” Cook said. He noted that last year the division generated operating profit of more than $1 billion, and in the nine months of this fiscal year has earned $988 million.

Of course, much will depend on fourth-quarter results, which will include the majority of earnings from “Wall-E,” released one day before the end of the third quarter.

Cook and his team are bullish about the films they have lined up for the rest of the year, which also include an Adam Sandler family comedy titled “Bedtime Stories,” scheduled for a holiday release.

The studio could have a tougher time selling tickets to its fall release “Miracle at St. Anna,” a World War II drama directed by Spike Lee that is being touted for its award prospects.

Cook said quarterly results were heavily dependent on when and which films were released in theaters and on DVD.

Disney these days has fewer swings at bat than its competitors. In 2005, in a major cost-cutting move, the studio decided to produce and release fewer movies and maintain a less diverse slate so it could focus more heavily on its “branded,” mainstream family fare.

Results, therefore, can swing more wildly between the hits and misses. The studio now releases about a dozen movies annually compared with more than twice that number a few years ago.

“When you make fewer movies, each one is going to count more,” Cook acknowledges.

Martin said that’s a strategy investors support.

“The live-action film business is a very low-return-on-capital business, and Wall Street likes the fact that Disney is making fewer films because there’s less opportunity to destroy value,” she said.

However, Martin said Wall Street had been asking Disney what its next big live-action franchise would be -- a question that, she said, “Disney hasn’t yet answered.”

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claudia.eller@latimes.com