A recent article at the Financial Times about Disney’s Ike Perlmutter, the enormous amounts of money he makes for Disney, and the tremendous culture clash he has created got me thinking about Otto von Bismarck. Much of what went wrong in the Twentieth Century can be laid at the Iron Chancellor’s doorstep. Practicing what he termed “revolutionary conservatism” which as certainly not conservative, Bismarck kept in place the absolute power of the Kaiser and Juncker class. Leaving nothing to stop both from blundering into WWI. There was no one to force the Kaiser and Junckers to realize the wisdom of Bismarck’s declaration that the entire Balkans were not worth the bones of a single Prussian Grenadier. Or to adhere to a policy of isolating France by maintaining excellent relations with Russia and Britain. Worse, when the Kaiser and Junckers fell apart after the defeat of WWI, all that was left was a Freikorp rabble of hard men who had fought in the trenches for … nothing. Had Hitler died in one of the WWI battles, another man nearly as bad would have risen. That was already written in the cards by the Iron Chancellor doing everything he could to preserve power.
In the same way, Disney and most other major corporations, particularly entertainment companies, are doing everything in their power to retain hereditary advantage. Instead of a welfare state for the people, a massive bribe, they use Affirmative Action and political correctness to buy off the various anti-White Middle class groups: gays, younger women, Blacks, etc. All enforced not with a secret police but a rigid PC and Multicultural code. As revenues collapse. The story of how Disney is inching, essentially, to throwing Perlmutter out (and all his money) and betting it all on PC and Disney Princesses is telling.
Hollywood back in the old mogul days, of assimilated Jewish entrepreneurs, made money by making movies cheaply, that were massively popular, and selling tickets to them in theaters that they owned. If you are wondering who built those massive central city temples to movies like the Egyptian in Los Angeles, or Grauman’s Chinese Theater in Hollywood (whatever the call it now), that’s who built it. The moguls, out of their own considerable pockets lined by the average joe and jane. Then, after the Feds made the studios divest their theaters, and TV came around, Hollywood responded by getting into TV production heavily. Cheap Western serials were remade into weekly TV programs, like the Rifleman, Bonanza, Gunsmoke, Have Gun Will Travel, Maverick, Wagon Train, Wanted Dead or Alive, Wild Wild West, and more. Starring manly men like Chuck Connors, James Garner, Clint Eastwood, James Arness, Richard Boone, and Robert Conrad. Then the moguls died, their companies were bought out by conglomerates (Paramount became a Gulf+Western Company), and TV became more feminine, but profitable in the late 1960′s and through the Seventies. Just as Hollywood was reaching limits on revenues and costs increased under the TV model, the VCR and video-tape rental and purchase money streams bailed out Hollywood day to day, supplementing the TV syndication deals (where the real money was) and the reliance on a few blockbusters like Jaws and Star Wars. Then as video tape reached its limits, the DVD revolution in the late 1990′s and early 2000′s bailed out Hollywood again. Without fundamentally having to rethink its high cost, relatively low revenue flaws of production, marketing, and sales.
Unlike the TV syndication run of say, 1950-1986, where only three over the air TV networks were around, and non-network affiliates needed content to stay on the air, and there was no cable TV, the DVD run was pretty short. Shorter even than the 36 years of the TV syndication era, or the Video Tape era (1978-1995) of seventeen years. Basically the DVD era lasted from 1998 to 2003 or so, about five years. After 2003, sales growth slowed dramatically, rentals increased, and eventually Netflix came along and killed Blockbuster. With cheaper rates and higher inventory.
Hollywood in the interim avoided any soul-searching about their high cost of production: mostly constantly inflated actor salaries, and ever lower revenues. Not DVD, or streaming and Video on Demand, or foreign sales have produced enough revenue gushing into Hollywood to make a dent in the high cost of production (and marketing movies and TV shows).
Enter Ike Perlmutter. As I’ve noted before, the Financial Times has pulled the lid off Hollywood studios profitability.
The Financial Times Lex column (sorry, they don’t put it online) from Monday, May 14, 2012, had a story on how the movie business is basically just giant commercials for a few hit characters. Disney’s “John Carter” lost over $200 million. “The Avengers” is minting money, $207 million in box office revenues opening week-end, with lower than expected drop-offs for weeks after. Since 2006, Disney Studio entertainment business has had an average operating margin of 11%, while its TV business generates 31%. BUT, Disney’s resorts (average margin mid-teens) and consumer products (nearly as profitable as TV) feed off the characters in the movies. Follow-on business from Disney’s new games division promises even more money.
This is why Disney sold Miramax for $530 million in 2010, and bought Marvel for $4 billion. As the Lex Column notes, there is no appetite for “There Will Be Blood … the ride” at Disney. Or among the public. Films generate on average a return of 10% on tangible assets. That return is stable, as the Lex notes, in 2009 with a recession, and no hit films, profits at the studio crashing by four-fifths as DVD sales also crumbled, total return on assets was still a respectable 8%. As the Lex concludes, it is a mystery why other media companies do not also simply make films that are two hour plus commercials for toys and rides and merchandise.
In a recession, an 8% total return on assets is no easy matter. Particularly given the crushing nature of the recession. This wasn’t achieved by gay men pushing Disney Princesses (like the recently departed Disney Studio head Rich Ross, and openly gay man behind the Disney Princess media empire). It was done selling Iron Man, and Hulk, and other Marvel character … toys. And bedsheets, and lunchboxes, and the like.
Perlmutter came to Disney by accident. Born in Israel, after serving in the Israeli Army during the Six Day War, he made his first money offering Hebrew services for a fee, waiting outside Jewish Cemeteries. After a career with various toy companies, he merged (in a hostile take-over) the main license holder to Marvel’s toys, Toy Biz, with Marvel Comics to form Marvel Entertainment, which he owned a majority stake along with Avri Arad. He understood, as did everyone around Marvel, that their comic books made little money. It was the toys (which Marvel stupidly gave away in a cheap, long-term contract) that generated the real profits. When Marvel was bought by Disney in 2009, Perlmutter gained a 3% stake in Disney, second among individuals only to the estate of Steve Jobs. Perlmutter received $800 million in cash according to Wikipedia (shockingly, the above linked FT article about Perlmutter seems to have been basically re-written from Wikipedia’s entry on Perlmutter, showing the innate laziness and plagiarism of even the Financial Times, generally among the better papers in that regard).
Perlmutter runs Disney Consumer Products. He forced out long-time director Andy Mooney, who came over from Nike, over licensing terms. Perlmutter sensibly never forgot how he wound up there: stupid, and cheap long term deals with outside toy manufacturers gave up the bulk of potential revenues from Marvel properties to outside companies. Mooney favored these sorts of deals, for “long term relationship building” and that was not going to fly with Perlmutter. Who conducts his business mostly remotely from his Florida home.
Perlmutter was the driving force behind the firing of Dwight Howard from the second Iron Man movie and substituting actor Don Cheadle, reportedly arguing that Black actors “look the same” and no one would notice or care. Meanwhile all of Andy Mooney’s direct reports, Black women, have left and filed discrimination lawsuits against Disney. This includes, according to the Finacial Times, the Chief Financial Officer, the head of home and fashion products, and an executive in the HR department, all Black women.
Meanwhile the article notes that Disney Consumer Products generates about 10% of all Disney profits, and had operating income in the most recent quarter up 35% to $209 million. This on 2011 fiscal year operating income of $816 million, on revenues of $3 billion. As the article notes, the driving reason behind buying Marvel was so that Disney could have revenues like the Bruckheimer helmed Pirates of the Caribbean franchise, with a fraction of the expense. “The Avengers” will make more money, overall, for Disney than the Pirate movie (take your pick of any one) because while revenues were comparable, costs were FAR lower. Joss Whedon cost little, that’s why he was picked, and Mark Ruffalo replaced Edward Norton over … money. Neither Chris Evans nor Chris Hemsworth were major stars when signed. The only real expense was Robert Downey Jr.
Hollywood, and Disney, are in an existential crisis. Just as I wrote years ago, Hollywood is like the Big Three Carmakers. Stuck with low margin stuff that costs a lot to produce, and dependent on a few high-margin products.
A guy like Perlmutter understands this. Is he crude, rude, obnoxious? Certainly. He obsessively saves money even on stationery. But that habit of saving money, acquired over a lifetime, is critical to reduce Hollywood’s costs. Runaway production, to places like New York City, or Louisiana, or North Carolina, or Vancouver, or New Mexico, seeking tax rebates, is a symptom of the disease. A healthy industry does not need tax breaks and subsidies to compete. Neither the Warner Brothers nor Louis B. Mayer moved production out of Hollywood to chase a few dollars in tax breaks. The advantages of central location for talent, writers, actors, producers, directors, cinematographers, lighting people, makeup, costuming, design, not to mention sound stages, skilled craft members, and a varied location menu conveniently nearby, all meant something.
Disney cannot survive without the revenue that toys bring. Perlmutter in that role helps Disney survive, even at the cost of being rude, un-PC, and likely a personal pain to deal with every day. The Warner brothers, Mayer, and the other moguls were similarly unpleasant to deal with and generally obnoxious. That’s a function of entrepreneurship found in men like Bill Gates, Mark Zuckerberg, and the late Steve Jobs, in various ways and various quantities. Drive, vision, and ambition are coupled with a bulldozer mentality. Much the same could be said about Vince Lombardi, Bill Walsh, or Bill Belicheck.
Disney is just inching up to canning Perlmutter, and going back to the old ways of PC platitudes, easy deals that make no waves with third parties (but yield little results money-wise), and a reliance on princess characters. That is not going to be enough. [The article is clearly a result of massive, coordinated leaks to force out Perlmutter by enemies within Disney.] Disney will return to a general era of gay fabulousness and Oprah-like Black female leadership. But its ability to make money will evaporate.
And the ability to live off past earnings will erode rapidly. Already piracy, and simple apathy (a far worse threat than piracy) threatens Disney’s bottom line. Black and Hipsanic mothers don’t spend money on Disney princesses, they don’t spend much money on their daughters or sons period. A declining White population that is rapidly aging and having few kids means the ability to live off the dreams of royalty among White pre-teen girls is going to be very, very limited. Disney will rue the day it bet it all on Disney Princesses.
But culture matters. There was no Iron Chancellor, preserving the hereditary or semi-hereditary grip of the fabulous gay community and Oprah-esque women, inside Disney. Rather, it was the organic result of an emphasis almost by accident on catering to little girls and their doting parents. That in turn made vastly powerful the new aristocracy. Which practices “revolutionary conservatism.” Bismarck may be long dead, but his particular way in which he temporarily produced a good result at the cost of the German nation and Europe in general and the Western Way of Life, is still around. Practiced by a self-deluding elite that is convinced they hold the keys to history, being more moral and advanced than decadent outsiders.