Despite tepid reviews (52% from Rotten Tomatoes) and questions about how well integrated the 3-D is into the plot, Disney’s Alice in Wonderland has turned out to be a big box office hit.  Out about two and a half weeks, Alice has been the #1 film in the US for the past three weekends.  It has grossed $265 million in the US so far and another $300 million abroad, according to Box Office Mojo.  This compares with estimated production costs of $200 million.  (This contrasts sharply with DIS’s previous major release last November of The Princess and the Frog, which grossed $104 million in the US and $160 million abroad vs. production costs of $105 million.  It’s now in DVD sales.)

There’s no easy way to go from movie revenues to movie profits, for two reasons:

–the division of profits among the various parties–producers, stars, distributors–can differ widely from film to film, and

–the studios use project accounting for films.  This means at the outset they estimate total revenue and total costs, and allocate each proportionately as the money comes in.  Marketing, for example, is a major expense that comes mostly during the theatrical release period.  If the studio estimates half the revenue will come from DVD sales (that would be very high in today’s world), then only half the total marketing expense would be allocated against box office.  If, in contrast, the studio said DVD revenues would be zero (another unrealistic assumption), then all the marketing costs would be allocated against box office.

It seems to me that the contribution to operating profits of Alice will be north of $200 million for this quarter.  It will be interesting to see what the actual number is.

Alice will be followed by Ironman 2, the most anticipated movie release of 2010, which will debut during the June quarter.  IM2 will likely creating another blockbuster operating profit result.

The big issue for the just-revamped Disney movie business is, of course, that neither film has much to do with the new film management.  Alice was put in the pipeline by the old regime, and IM2 was bought with Marvel Entertainment.

Nevertheless, I think some of the positive glow from these films will rub off on the rest of DIS.  Investors will be somewhat more willing to believe that Disney’s movie business is back on the right track.  And they’ll probably be willing to extrapolate any nascent signs of recovery in the theme park business more quickly than they would otherwise.

For now, that probably doesn’t translate into outperformance when the market is going up.  But it will likely mean some protection on the downside, therefore outperformance when the market is weak.