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Posted on: Thursday, June 21, 2001

Disney Studios chief resigns as 'Pearl Harbor' falls short

Bloomberg News Service

BURBANK, Calif. — Walt Disney Co.'s "Pearl Harbor" is falling short of lofty predictions made by Chairman Michael Eisner when the World War II movie opened last month, and the studio's chief resigned yesterday.

"Pearl Harbor," which cost an estimated $205 million to make and market, has sold $160.4 million in tickets in four weeks in the United States and Canada and $76.9 million elsewhere. Disney expects more than $200 million in North American sales by the end of the summer, Chuck Viane, president of distribution, has said.

Walt Disney Studios Chairman Peter Schneider is resigning to start a Broadway production and financing company, Disney said yesterday. The company said Schneider's resignation isn't related to "Pearl Harbor."

Eisner had predicted that "Pearl Harbor," which depicts Japan's attack on the U.S. Navy in Hawai'i in 1941, would be Disney's biggest non-animated film ever, surpassing "The Sixth Sense" with $662 million worldwide.

"Pearl Harbor's" three-hour length and negative reviews have discouraged repeat visits, analysts said. Disney shares are down 12 percent since it opened.

"It's a little bit of a disappointment," said Harold Vogel, chief executive of Vogel Capital Inc., a New York investment company. "They really had a lot riding on this."

"Pearl Harbor," released in late May in the United States and Canada, was directed by Michael Bay and produced by Jerry Bruckheimer, the team behind movies "Armageddon" and "The Rock."

Disney shares rose 40 cents to $29.25 in New York Stock Exchange trading.

Disney expects the movie will gross $450 million to $500 million worldwide, chief financial officer Thomas Staggs said. It will definitely be profitable, he said, because the financial structure of the film, which defers part of certain salary costs, makes break-even "much, much" lower than for a traditionally financed film.

"Based on the opening, I knew we had a solidly profitable film on our hands," Staggs said . "Any studio in town right now would take our whole P&L on 'Pearl Harbor' with a giant grin on their face if given the opportunity."

Before "Pearl Harbor" opened, Eisner sent a letter to employees of Burbank, California-based Disney.

"There are no sure things in the entertainment industry, but this comes close," Eisner wrote. "I've been telling anybody who would listen that this will be our biggest live-action film ever."

The Disney chief likely is regretting those words, Vogel said.

A movie's box-office sales are divided about 50-50 between the studio and theater owners, so if "Pearl Harbor" sells $200 million of tickets in the United States and Canada, Disney will receive $100 million in so-called rentals.

Because of the expense of producing and marketing "Pearl Harbor," the studio likely won't turn a profit on the film until it's released on home video and licensed to cable and broadcast TV networks, analysts said. That will be in the first quarter of fiscal 2002, which ends Dec. 31.

"Pearl Harbor" likely will gross more than $420 million in theaters worldwide and will generate $200 million to $240 million after its release on video, said Jordan Rohan, an analyst at Wit SoundView, who has a "buy" rating on Disney shares.

That would add 6 cents a share to Disney's earnings either in Disney's fiscal first quarter or later, depending on when the movie is released on DVD and video, Rohan said.

"The film will eke out a nice profit for Disney," said Sutro & Co. analyst David Miller, who has a "buy" rating on the stock. "'Pearl Harbor' could contribute 2 cents to 4 cents once it's pushed through all ancillary" markets such as home video and TV, he said.

Miller said it might be too early to issue a verdict on "Pearl Harbor." It hasn't opened in all international markets, including Japan, the biggest movie market after the United States. Miller expects the film to gross $50 million in Japan after it opens in there July 14.