When the 3-D animated movie from the company’s Pixar unit hits theaters Friday, Disney is hoping it will be the first of three summer films to reverse an ongoing skid at the conglomerate’s movie studio. The studio last quarter reported a 97% decline in operating income largely due to the ongoing drop-off in DVD sales and weak box-office performance.

President and Chief Executive Robert Iger, in an analyst call earlier this month, said “studio performance was disappointing, something they would be the first to admit.” He added, “But we are enthusiastic about several upcoming films, including ‘Up’…

Up” has become a bellwether release for the studio in part because of the company’s own effort to cut costs. In 2006, the Burbank, Calif.,-based conglomerate said it would cut its feature-film slate and release only about 12 movies per year, compared to the 18 or 20 its rivals typically distribute.

Most studios can release a number of underperforming movies — or outright flops — during the year and recoup many of their losses with just one or two big blockbusters.

But since Disney releases fewer total films, the studio is more reliant on each film to score well at the box office and sell well in the ancillary market, or risk hurting the entire studio’s bottom line. Disney is also facing tough comparisons this year, and it hasn’t had any of its reliable franchises to fall back on

Nor is it likely that Disney’s two other summer movies will become breakouts. After “Up” comes romantic comedy “The Proposal,” starring Sandra Bullock (June 19). That’s followed by the G-rated “G-Force” (July 24), about a cadre of computer-animated secret agent guinea pigs trained by the government to fight bad people.

The desire for bona fide hits is part of the reason why Disney is re-releasing the first two Pixar “Toy Story” movies — this time in 3-D — later this year, in advance of the new “Toy Story 3,” slated for next summer. And in order to hedge against its 12-movie plan, Disney in February signed a long-term distribution deal with DreamWorks, the studio run by Steven Spielberg and his business partner Stacey Snider. That deal will allow Disney to release roughly six more live-action movies per year, bringing the total back up to 18.

But Disney will be taking only a distribution fee from DreamWorks to release the films, which provides financial protection if a movie flops, but limits Disney’s own upside if the film proves a blockbuster.

“More than any time over the past three or four years, Disney needs a hit, and they need ‘Up’ to be a real success,” says Rich Greenfield, analyst at Pali Capital in New York. “One movie is not going to be the be-all, end-all for Disney, but the problem has been a sustained streak of underperforming films.”

Up” is unlikely to match the blockbuster box office success of last summer’s “Wall-E,” which took in more than $534 million world-wide. But the movie was a hit when it opened the Cannes Film Festival earlier this month and has been met with generally positive reviews before its release

Like “Wall-E, which featured limited dialogue and tackled issues such as pollution and human apathy, this year’s “Up” isn’t a straightforward kiddie tale. Its main character is a 78-year-old widower played by Ed Asner.

Disney executives say they’re confident. “I think we’ve all learned that a great story, no matter what it is, told well and with great characters is going to find a big audience,” says Dick Cook, chairman of Walt Disney Studios. “Time and again people tend to stereotype movies; they’ll say ‘pirates never work,’ or ‘older protagonists’ never work, and each time, the marketplace tells you differently.”

But analysts like Mr. Greenfield say it may be awhile before the studio sees solid results again. “Sure, there are big films at the end of fiscal year 2010 and into 2011, but between now and then the pressure on film profitability continues to grow.”

Article source: The Wall Street Journal