DVD article from
The Wall Street Journal (transcript)
following is a transcript of the Wall
Street Journal article which first broke the Disney
classic animated DVD story. The article appeared in the August 17th
Disney Plans Strategic Shifts in Home
By Bruce Orwall
Moving to shore up its faltering home video unit, Walt Disney Co.
plans to begin releasing its animated films on digital video disk,
after years of holding back its most valuable movie assets from the
two-year old format.
Disney's embrace of DVD could help break open sales of DVD players,
the way its videos boosted VCR sales in the 1980's as parents
clamored for cartoon feature-films for their children. Individuals
in the industry estimate about 2.4 million DVD players are now in
homes, with the number expected to rise to about four million by the
end of the year.
Disney also is weighing a strategic shift in its video operations
that would make many of its animated movies available on video all
the time. That would be a major departure from the company's
longtime strategy of rotating its animated films in stores, keeping
each title off the market for a period of seven to 10 years.
Both the DVD launch and the new video-release strategy come as
Disney's earnings have been declining, prompting the company to put
many of its operations under a microscope. Reviving the video unit
as a cash cow would go a long way toward solving the company's
current woes. A big unanswered question is whether the unit's woes
can be fixed by marketing tactics or reflect a broader decline in
the appeal of Disney movies.
"Right now there aren't a lot of earnings coming out of the
film library," says Thomas O. Staggs, Disney's chief financial
officer. "But that doesn't mean the library went away. The
value of the library's still there, it's just not apparent in the
Under the new plan, Disney would continue to retire classics such
as The Lion King for about a
decade, in hopes that demand will build for future re-releases. But
second-tier titles such as The Fox and
the Hound and The Aristocats
would be on shelves constantly, giving the company a more reliable
stream of video sales.
Disney has long resisted putting its animated movies on DVD,
because the digital format is relatively new and many of the early
users have been adults. But now, "we're a hair breadth away
from DVD exploding," says Michael Eisner, Disney's chairman and
The changes could help Disney generate more profit from its most
valuable movie assets. For more than a decade, Disney's home-video
unit was a stellar performer. But some more recent releases such as
Mulan, don't sell as many
units as classics such as Beauty and the
Beast, and sales of re-released titles have slowed.
So far, Disney's DVD releases have included only live-action titles
and A Bug's Life, a
computer-animated film it co-produced with the computer animation
This fall, Disney will begin selling DVD versions of nine animated
films, most of which are currently available on video. They include
The Little Mermaid, Peter
Pan, Lady and the Tramp,
and The Jungle Book. In the
future, Disney will release animated films on DVD at the same time
it releases them on video.
Some of the DVD titles will be available for only a short time
before they are retired to the Disney vault, while others will
remain on shelves. Mr. Eisner said the DVD releases would be
accompanied by a promotional "blitzkrieg" not unlike
Disney's huge effort to launch its Go Network Internet portal
earlier this year.
By moving aggressively to DVD now, Disney also is betting the
viewing habits of today's kids aren't the same as their older
siblings' or parents' and don't necessarily involve a television. In
addition to DVD viewers who use players hooked into their TV sets,
many young computer users don't seem to mind watching movies on a
computer monitor, using a DVD-ROM drive.
DVD-ROM sales are rising fast, with about 20 million units sold so
far and tens of millions more expected in the next few years. "People
underestimate the installed base of DVD," Mr. Stags says.
"It's certainly our hope that we will help this marketplace
expand," said Richard Cook, chairman of Walt Disney Motion
Pictures Group, who recently was given oversight of Disney's video
Disney's longtime video-release strategy was based on the idea that
keeping each film out of circulation for a few years would create
demand for a re-release every few years. Now, Mr. Eisner says: "My
sense is that we have to keep 15, 16, 17 movies on a 10-year cycle,
with the other movies maybe available more on demand." A final
decision is expected soon.
Prompting the move, in part, is the fact that some re-releases have
been disappointments. For example, the original 1992 video release
of the animated version of 101 Dalmations
sold 11.8 million units. A re-release earlier this year has sold
another 5.7 million units, below Disney's projections. While the
original reached 22% of households with VCRs, the current release
has reached just 4% of VCR households.
Earlier this year, Disney decided one problem was that the films
weren't "resting" long enough. The company said it would
extend each film's stay in the vault from seven years to 10 years.
The hope was that three extra years out of public view would result
in greater sales potential when the re-release finally arrived.
The contemplated strategy change has created a big revenue gap in
Disney's home video unit. In preparation for the shift, the company
canceled a re-release of Beauty and the
Beast that had been planned for this summer.
Now, some analysts believe Disney might not re-release The
Lion King, Beauty and the
Beast or another one of its classics until 2001.
Meanwhile, sales of the second-tier videos will "continue
feeding the growth of the company," says Mr. Cook.
"The focus is on what actions will maximize the value of these
assets," Mr. Staggs says. "Not 'How do you fix this
quarter's earnings, how do you fix next year's earnings.' "