Disney Is Not a Movie Company; It's a Television Company

Thank God. The movie business is awful. Just look at "The Lone Ranger."
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So, "The Lone Ranger" was a disaster. That much we know.

In its extended holiday weekend opening, the $225 million (!!!) film took in barely a fifth of its budget at the box office. Analysts are now projecting a write-down for Disney as large as $190 million. That sounds bad. It is bad.

But it's also a good time to remind people less familiar with the Walt Disney Company that, despite what you think, Disney isn't strictly speaking "a movie company." It's a TV company.

What does that mean? Doesn't Disney make movies? Yes. Lots of movies. And it owns amusement parks, all over the world. And cruise ships. And merchandise. But if you look at Disney's financials, the majority of its earnings don't come from its film studio. They come from its TV holdings: cable networks, particularly ESPN and the Disney Channel, and ABC.

Take a look. (Broadcasting, here, refers to its ABC ownership.)

Screen Shot 2013-07-10 at 11.47.46 AM.png

Financial reports aren't perfectly precise snapshots of a company's identity. Movie accounting is totally wacky and the studio division might not reflect its true significance to the parent company. Without its movies, you might say, Disney wouldn't have much of a merchandise business. Without its movies, it wouldn't have much of an amusement park business. It wouldn't have characters and plots of spin off and license on TV. And so on.

All of that's true. But at its core, the Disney company draws its largest and most dependable source of income from subscriptions fees that power its cable networks ... even though casual newspaper readers could be forgiven for thinking the company lives and dies by the opening weekend of its summer blockbusters.

And that's the brilliant thing about Disney. The movie business is a rotten thing. American audiences don't go the movies every week, so they have to be lured with egregiously expensive marketing campaigns for a handful of tentpole movies that, if they blow up, can destroy quarterly earnings for the film division and take down careers. The TV business is somewhat the opposite. The subscription fee model (wherein a sliver of your cable bill goes straight to the networks' pockets) guarantees that cable networks get paid with or without a "hit."

Think of it this way. "The Lone Ranger," the movie, only earns money from people who choose to sit at watch it in a theater. That's a high bar. But if "The Lone Ranger" were on TV, its network would earn money from all pay-TV households, whether they watched "The Lone Ranger" or not. That's the dirty secret and the dark genius of the cable TV business. And that's why it's the business Disney is in.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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