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Analysts Speculate on Effect of Disney Move on Video

21 Jul, 2006 By: Erik Gruenwedel

While Wall Street supported the Walt Disney Co.'s decision to axe 650 studio jobs, some analysts pointed out the impact of the reduced theatrical film slate.

Prudential Securities analyst Katherine Styponias said in a research note that a streamlined film slate could mean lower operating income from theatrical releases and could cut home video profits by 50%.

“It would obviously depend upon the success of the smaller film slate,” Styponias said.

Independent retail analyst Dennis McAlpine said the studio would concentrate on Disney-branded films (as opposed to Touchstone Pictures), which he said typically sell better at retail.

“Generally, live-action films don't sell as much [for Disney] as compared to babysitter product,” McAlpine said.

William Drewry, research analyst with Credit Suisse in Atlanta, said the film studio restructuring and refocus on core Disney brand films amounted to a shrewd financial strategy with “more concentrated risk.” He projected a 19.7% growth in studio entertainment for Disney's fiscal third quarter (reported Aug. 9) fueled in part by DVD releases of The Chronicles of Narnia: The Lion, the Witch and the Wardrobe, High School Musical, The Greatest Game Ever Played, Eight Below and Glory Road.

Jeffrey Logsdon, analyst with BMO Capital Markets in New York, said the revised film slate would eliminate middle-market movies.

“Home video is a changing world with [evaporating] shelf space and sellthrough that continues to shrink,” he said.

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