On Disney And Cost Efficiency: Maybe Robert Downey Jr. Should No Longer Portray 'Iron Man'

| About: The Walt (DIS)

Summary

According to a Bloomberg article, Disney wants to keep company costs to a minimum, something which possibly may have affected the succession process.

Cutting costs is something shareholders should applaud, but movie budgets should be looked at first.

Disney needs to stop relying on star talent to drive Marvel projects, as an example.

The first person who should be replaced in a Marvel role probably should be Robert Downey, Jr. - he's too expensive at this point.

Disney (NYSE: DIS) is considered a smart media company. Besides being artistically creative, it also tends to manage its assets very carefully from a financial viewpoint. A recent article published by Bloomberg discusses the company's aggressive stance toward reducing cost structures in its business model.

It's extremely interesting to note from the piece that this corporate attitude may have been responsible in some part for the decision not to move so fast in terms of locking in a plan of succession. Soon-to-be former chief operating officer Thomas O. Staggs was considered the person most likely to become the next CEO of Disney, but the board of directors seemed to have some reservations about that potential choice and wanted to keep its options open, reserving its right to vet other qualified candidates in the industry.

Whatever the reality, it's good to hear as a shareholder that Disney, despite its earnings/cash flow success, nevertheless is keeping a close watch on costs. All successful companies do that, certainly, but over the years, I've always inferred an impression that Disney management goes the extra distance in the science of efficiency.

Perhaps the most salient part of the article for me discusses the idea of Marvel exec Isaac Perlmutter's belief that Robert Downey Jr.'s compensation package for his role as the Iron Man in the Marvel cinematic universe was overdone. I very much agree with this, and I recall mention in the past that this superhero could be like James Bond or Doctor Who - i.e., different actors step into the role over the lifetime of the franchise. In fact, remember when it was unthinkable that the Doctor could be portrayed by anyone other than Tom Baker or David Tennant?

This area of cost-cutting - bringing down movie budgets by reducing compensation for above-the-line star talent - is something I've long believed has not been studied enough by the management teams of media companies, and I've written about the subject in the past on other platforms (here's one such article about Harrison Ford and Indiana Jones); I'm sure I'll continue to write about it in the future. What often happens is big studios will give in to the agents and managers who fight for their clients (and they fight for their clients for an understandable reason: the more their clients make, the more they make).

So, while I do fully agree with controlling costs and expenses, I think certain types should receive more focus than others. The counter argument is that Disney sells its movies so well and has such in-demand content backing its portfolio, that it isn't worth quibbling over what seems like an exorbitant amount of money when in fact it will easily be made back, followed by an enviable gross profit, especially on the consumer-products side of the ledger; furthermore, the rejoinder states that Disney has valuable content because of the stars in front of the camera - if that formula isn't kept intact, then failure might be the result.

Sure, there's more than enough money to go around. But movies will always be a risky business, and studios must be compensated for the risk they undertake. Studios must be compensated for the maturation of their franchise businesses, as well - as time goes on, the risk of slowing growth in a franchise is particularly concerning, especially if the math behind compensation formulae doesn't adjust to reflect the reality. The Marvel cinematic universe should produce hits for some time to come, but not all of them will break records or become huge blockbusters - some might even fail. Even the mighty Pixar stumbled with The Good Dinosaur. This is the movie business - it's expected to happen and it happens. That's why constantly cutting tens of millions of dollars to a Downey Jr. isn't representative of a cogent long-term strategy.

Eliminating star talent means Disney movies would have to go the extra mile in terms of generating stories that people want to see. Then again, who says that star talent would be eliminated, if Disney didn't want to give in to the constant demands for more money? Would every single actor in the Marvel Universe refuse to participate? I'd have to assume the answer to that is no. Being in a Marvel picture or any Disney/major-studio project has its own prestige and value. Also, Disney could promise other incentives - it could figure out ways to require actors to be on the set for a shorter amount of time (computer imagery and doubles could fill in the blanks, something that is probably especially easy for an action-saturated plot); the company could offer to fund short-content passion projects some actors might want to lens, ones that could then be ported over to Disney-owned Maker Studios; the company could offer to fund low-budget film projects for theatrical release that are likewise something a star always wanted to do, but for which she could not secure funding; maybe an actor wants to create a Disney Channel cartoon/series, or star in a pilot for ABC or Freeform; the point is, there are many different things a media company can do to entice an actor to give up chasing too many millions of dollars for a movie, and it is not an unheard-of strategy.

Disney wants to maximize profits. Trimming costs in operations is important, even when the money is flowing and the economy is sound. Specifically targeting content budgets for reduction, whether for movies or episodic series, is something that most studios say they want to do but, in my opinion, never end up really doing in a meaningful way. Fear of not using stars in projects is obviously rampant, especially on the basis that other studios will simply use those stars and take away market share with them. A fair point, but then we've always been told that story and brand are the most important things of all; perhaps Disney should find out if that is truly the case with the Iron Man franchise. Disney may be on a roll with its studio, but that shouldn't render it intellectually paralyzed in terms of changing casting strategies and budget plans.

Disclosure: I am/we are long DIS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.