It’s Time to Break Up Disney

The company known for Mickey Mouse is now a sprawling conglomerate in entertainment and beyond, and that’s a big problem.

by

Richard Drew/Associated Press

This has been an incredible year for the Walt Disney Company. Not only has Avengers: Endgame become the best-selling movie in box office history, but Disney currently holds all four slots for this year’s top-earning films. However, the company’s dominance isn’t quite something to celebrate.

At the moment, almost 38 percent of all U.S. box office sales in 2019 have gone to a Disney-owned movie, down from a peak of over 40 percent earlier this year. And that’s even before coming releases of Frozen 2, Maleficent: Mistress of Evil, and Star Wars: Rise of Skywalker. As we can see by looking at the U.S. box office over the last 30 years, Disney has more than doubled its already significant market share in just five years, reaching an unprecedented point in modern history for a film company.

Source: boxofficemojo.com

This wasn’t always the case. After a rather successful mid-1990s, Disney’s market share trended downwards through the late ’90s and 2000s, bottoming out at just under 10 percent in 2008. Then Disney started gobbling up the competition. In 2009, it purchased Marvel Studios, following up with the acquisition of Lucasfilm in 2012. This gave an already large Hollywood film studio the rights to some of America’s most wildly successful film franchises: Marvel, Star Wars, and Indiana Jones.

The result was a shot in Disney’s arm. By the end of 2015, Disney had surpassed its 1990s peak thanks to the release of ten wildly successful Marvel films and two Lucasfilm movies, including the start of its lucrative new Star Wars trilogy. Since then, Marvel Studios and Lucasfilm have been behind another 14 movies for Disney, earning hundreds of billions of dollars in ticket sales and countless billions more in merchandise and property tie-ins.

This year, the Walt Disney Company finalized its purchase of most of 21st Century Fox’s assets, including the Fox film studio and Fox’s distribution deal with Regency Enterprises. As a result, Disney now stands to profit from franchises like Avatar, Deadpool, Fantastic Four, Ice Age, Kingsman, Independence Day, X-Men, and more. This isn’t lost on the increasingly franchise-focused company, as Disney is already planning for four more Avatar films. And the 21st Century Fox deal gives Disney post-theatrical distribution rights for hundreds of major films, from Fight Club to Titanic.

Within the next couple of years, there is a good chance that the majority of all money made from wide-release movies will go into the pockets of the Walt Disney Company. Even if you consider yourself a dedicated Disney fan, this should concern you.

The Concentration Conundrum

The U.S. economy is in the midst of a “concentration crisis” in which industry after industry is being dominated by one company or a small handful of companies that control markets, and Hollywood is no different. The harmful effects of this are far-reaching, with damage done to competition, wages, business formation, innovation, and more. Disney’s emergence as a monopoly power in the film industry threatens the viability of creative independent films, places movie theaters under exploitative pressure, limits the diversity of films available, cheapens our culture, and worsens economic and political inequality.

First comes the problem of independent film distribution. When you combine Disney’s massive share of the box office this year with the five next-largest studios, the current “Big Six” have taken in over 85 percent of box office sales this year. This is despite the fact that these studios have been producing a smaller share of total films released for years now, with more and more coming from smaller studios.

It may seem positive that independent films represent a greater share of overall movies released. But while independent distribution companies like A24 have been responsible for some of the best and most well-received films in recent years, they increasingly struggle for a spot in major theaters. Movie theaters themselves are struggling to stay afloat, and thus have to rely on big-budget blockbusters that are guaranteed to earn a return. As a result, the entire industry has become risk-averse. Independent films and their groundbreaking, influential directors are increasingly relegated to smaller venues, which are also facing a crunch against declining ticket sales and an emerging theater oligopoly (AMC, Cinemark, and Regal) that controls half of all screens in America.

When theaters rely on a handful of films from the same companies to stay afloat, it gives those companies enormous leverage. In 1948, the Supreme Court found in United States v. Paramount that America’s eight largest film companies engaged in illegal “price-fixing conspiracies” in order to “restrain and monopolize interstate trade in the exhibition of motion pictures in most of the larger cities of the country.” In essence, the major Hollywood film companies used their market power to take control over the film industry, all the way down to theaters themselves, in a process known as “vertical integration.”

Last year, the Department of Justice announced that it was taking public comment on whether or not to undo the consent decrees it made with the film companies in that case. But it’s clear that the reason for their existence hasn’t disappeared, and the same anti-competitive behaviors of the film industry are just as present today. Indeed, that same year, streaming distributors like Netflix and Amazon sought to buy out Landmark theaters.

It’s Disney, however, that has been most aggressive in attempting to control theaters today. When Disney negotiated the rights to show Star Wars: The Last Jedi with movie theaters, it gave the theaters “a set of top-secret terms that numerous theater owners say are the most onerous they have ever seen,” including giving Disney “65% of ticket revenue from the film, a new high for a Hollywood studio,” and forcing them to “show the movie in their largest auditorium for at least four weeks.” Any violation of these conditions meant that Disney had the right to take away another 5 percent of the box office revenue from the theater. The combination of struggling theaters and consolidating studios means that companies like Disney can now bully theaters around before giving them access to show must-see films. Disney extracting unearned rent from other parts of the market is an irrefutable sign that the company is already using its position to squeeze money out of other parts of the industry.

As mentioned earlier, the total number of major studio releases has been slowly shrinking over time. Disney, for example, went from producing an average of 24 films a year in the 1990s to producing 12 films a year in the 2010s. How can this be the case given Disney’s rising market share? Simple: Though they produce fewer products, they put far more money into the budget of each to ensure it has a massive audience. In the 1990s, Disney had an average of 1.9 films in each year’s top 10 highest-grossing movies; in the 2010s, they have averaged 3.7.

This is perhaps the best case for why Disney’s monopoly status is a problem even for fans of Disney and its subsidiaries: The lack of powerful competition means Disney simply doesn’t have to make as many films. Based on the numbers above, the Disney of today would likely have never approved the making of lesser-known fan favorites like Air Bud, James and the Giant Peach, Ed Wood, or O Brother, Where Art Thou?, nor would they have agreed to distribute Japanese masterpieces like Howl’s Moving Castle or Spirited Away in America.

Reduction in the quantity of movies doesn’t mean an increase in quality; it may well mean the opposite. When Disney decides what ideas to put money behind, they aren’t doing it based on the actual quality of the movie, but on its potential profitability. Ed Wood, one of Disney’s worst-selling movies of 1994, has a 92 percent from critics and an 88 percent from audiences on Rotten Tomatoes. Compare this to Beverly Hills Chihuahua, a film that made 16 times as much in net gross but received a 40 percent and 52 percent, respectively. Guess which would get made today?

Perhaps the most recent example of this is Disney’s semi–live-action The Lion King remake. The film received generally positive reviews from nostalgic audiences, but many panned the film as a mediocre cash-in on an already valuable property propelled into success through nothing but a famous voice cast and a massive marketing budget. Despite this, the remake has now entered the top 10 best-selling films of all time.

Disney shows some signs of producing more output now that they’ve acquired Fox, planning to release 18 movies next year (though this number is likely to be lowered as some films are shelved or pushed back). But of those, at most half appear to be original scripts or new films based on books, while the other half consists of remakes, sequels, spin-offs, Marvel movies, and one tie-in to boost the profitability of a Disneyland attraction. Looking back at 2000, sequels and re-issues made up less than a quarter of the 21 films Disney released. Welcome to Monopoly Disney.

While it’s true that streaming sites can help films from smaller studios find an audience, corporate Goliaths predominate there as well—including Disney. Earlier this year, Disney purchased Hulu, one of the most popular streaming services, and it is also planning to launch its own service just for Disney content soon. The biggest streaming sites now mirror the biggest companies in the economy: Amazon, YouTube (part of Google), NBC (Comcast), Apple, and Warner Media (AT&T). All of them are chasing Netflix, which has unrivaled market share for streaming. This is another downside to corporate monopolies: They have the resources to take over and dominate new market innovations that could otherwise threaten their established business model.

The Disney-fication of Everything

It’s important to remember that Disney is not just a film company, but a large-scale corporate conglomerate. In fact, the company only gets about 17 percent of its total revenue directly from movies, although they are responsible for driving many of its other sales. While Disney’s film company acquisitions have been in major headlines due to their effect on Hollywood, many other acquisitions have gone less noticed. Disney now owns or holds a share in a small kingdom of companies: 20th Century Fox, ABC, A&E, Endemol Shine (producers of everything from Deal or No Deal to Black Mirror), ESPN, Fox Sports Network, FX, GoPro, History Channel, Hollywood Records, Hulu, Lifetime, Lucasfilm, National Geographic, Marvel, Photobucket, Pixar, Touchstone Pictures, and Vice Media.

Disney owns construction companies, luxury cruises, hotels, theme parks, music producers, libraries, digital marketing companies, web streaming services, photography companies, video game studios, television and radio stations, magazines and book publishers, financial and real-estate firms, and more. Disney owns local news stations in eight major U.S. cities, an amusement park in Paris, a marine port in the Bahamas, venture capital firms in Shanghai, and even its own private government district in Florida. In total, Disney’s net worth is estimated to be larger than the economies of Ukraine or Morocco.

Not all of this is inherently objectionable. It makes sense for reasons of diversification or supply chain management that Disney might want to own certain other firms involved with media production. It also wants to expand to profit off its films as properties—valuable copyrights that can be used to brand everything from T-shirts to roller coasters. But collectively, Disney’s scale means that its growth will impact not just the film industry, but dozens of different industries. Disney’s particular trajectory means that its range of interests grows side by side with its ability to stifle competition or effectively lobby government in these areas.

Many of the pioneers of antitrust law were not only worried that monopolies are inefficient and rig markets, but also that they are undemocratic and rig governments. Despite Disney’s relatively gentle brand reputation, it has already influenced government for profit before, lobbying heavily for both the 1976 Copyright Act and the 1998 Copyright Term Extension Act (CTEA) in order to extend its copyright over the likeness of Mickey Mouse. Thus, the length of a basic copyright term in the U.S. has grown to keep rough pace with Mickey Mouse for decades now, leading some critics to refer to CTEA as the “Mickey Mouse Protection Act.”

Now that Disney has grown in size and strength, there’s every reason to expect that its efforts to corrupt the policymaking process will do so as well. The internet has sufficiently shifted the debate around intellectual property in such a way that another copyright extension to prevent Mickey from joining the public domain in 2024 seems unlikely. But as Disney’s growth into new markets continues, it acquires a profit motive to influence the laws surrounding more and more industries.

The Walt Disney Company is no longer the gentle giant of film and animation of yesteryear. Today, Disney is a multinational corporate conglomerate that takes in over $10 billion a year in profits alone. Its consistent growth and strategy of buying out other firms has put the company in a position of nearly unprecedented power in the U.S. media market, and thus in the global media market as well.

This position gives Disney the ability to offer lower-quality products, crush competitors, squeeze profits from other markets, influence politicians in its favor, and more. As the controversy around modern monopolies heats up, it is becoming clear that we need a generalized revitalization of antitrust law in the United States. As part of such a campaign, Disney too must be identified as a monopolistic corporate titan in severe need of being broken up into a number of smaller companies in order to restore both fair competition and the sanctity of American democracy.

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