Wednesday, August 6, 2008

Disney: Real Moat?

Jason Kelly writes for Seeking Alpha that Disney has a significant animation moat that will protect it from competitors.

I beg to differ.

To the extent Disney can be argued to have such a moat, it bought that moat when it acquired Pixar. Yes, Disney was once the undisputed leader in hand-drawn animation ... but when's the last time you saw a hand-animated movie?

Come to think of it, when's the last time you saw a non-Pixar Disney animation? For me, the answer is Beauty and the Beast. Yeah. From 1991. [UPDATE: Astute readers might discern from this post that I saw Fantasia 2000 when it was released, oh, eight years ago. I tell you, it was great in IMAX. I am disappointed the film hasn't had sequels, which the comic Steve Martin, the narrator following the first musical piece, suggested was Disney's intent. Disney's loss ... and mine, too.]

But, let's admit Disney now owns Pixar, and recognize that Disney agreed to leave Pixar where it is and not sell the place to move everybody under the thumb of the numbskulls who've been making Brother Bear, Brother Bear 2, the Brother Bear Sing-Alongs, and other tripe you didn't watch. Therefore: Pixar lives! And Pixar has made some good stuff under Disney ownership.

But no matter how much better Pixar is at making real art, there's even more money being made in animating lowbrow entertainment. On the heels of Pixar's ingenious Monsters Inc., Dreamworks released an orge movie that opened with fart jokes, and matured into short jokes. Maybe you've heard of Shrek, Shrek 2, or Shrek The Third? Or the animation box-office records that each one has set?

With Shrek and its sequelt having bumped Monsters entirely off the inflation-adjusted top-100 box office results, it's clear that non-Disney monster movies -- fart jokes and all -- are ample competition for good Pixar craft that I'm actually willing to show children.

So, where's Disney's animation moat?

The fact that Disney's "moat" was bought from Steve Jobs is really something to chew on in positing Disney as possessing a moat: Pixar developed its capacity to create films independently. Why can't someone else?

Why conclude Disney is impervious to competition, when it's clear that (a) Disney's "distinctive" advantage was developed outside Disney, and was available for purchase, and (b) yet-extant competitors still turn out box-office topping animation hits?

The good news for Disney (and Dreamworks!) is that the public doesn't seem quickly sated by animation offerings. That is, Monsters Inc. didn't quell appetite for Shrek in 2001, and other competition hasn't tended to preclude ticket sales. The fact that Disney doesn't really have a moat about its animation business (computers are cheap, and Dreamworks didn't grow from moon dust but originated with competition from Disney defectors) doesn't mean Disney can't keep making money. Anyone making a feature film will be making similar deals with theaters for access to the screens and the moviegoers, and there's no evidence that filmmakers are at risk of making so many films that their terms with theaters are likely to suffer. James Bond doesn't prevent Iron Man profits, and Monsters doesn't spoil Shrek.

There's enough for everybody.

But -- that's not a moat in animation. That's a barrier to entry to the industry generally, protecting incumbents' opportunity to achieve outsized returns. However, given the abundance of good stories on this planet and the falling price of computing power, computer animation is probably the place that the moat around the film studio business is narrowest.

What this means for the very-long-term movie industry will be interesting to see. For now, there's money to be made in animation and Dreamworks and Disney both probably work to grow public interest in animation much more than they compete to steal each others' viewers.

Disney may be a buy -- I haven't checked it out to know -- but if it is, it's not because animated films gives DIS a moat.

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