Here's Why Disney Is Cutting Jobs By The Hundreds

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Disney confirmed rumors this week that it would be laying off staff in a move to streamline its businesses.

Mouse House cut 150 positions from several film studio divisions, nearly 2 percent of the division's 7,000 overall jobs, according to Bloomberg.

Disney's studio department is made up of theatrical distribution, home entertainment, and television.

Disney announced the cuts as "part of an ongoing review to ensure that the Studios’ operational structure and economics align with the demands of the current marketplace" in a spokesperson statement.

Last week, cuts were reported to be part of an internal audit ordered by Disney CEO and Chairman Bob Iger.

The layoffs were the second round Disney made in a week after closing Lucasfilm's video game division, LucasArts, and laying off 150 staff members.

Disney acquired Lucasfilm last December in a $4 billion deal.

Business Insider caught up with Jeff Gomez, CEO of Starlight Runner Entertainment, to discuss the most recent layoffs and those at LucasArts.

Starlight Runner closely tracks projects at all of the major studios. Gomez has worked on Disney's "Pirates of the Caribbean" and has served as a brand extension consultant to the company.

Here's what's going on at the Mouse House:

Home theatrical sales are down

During Disney's Q1 earning's call in February, Iger acknowledged an operating income decline in the home entertainment and theatrical businesses due to the poor retail performances of "Brave" and a re-release of "Cinderella."

"Home entertainment results faced a difficult comparison given the releases of 'Cars 2' and 'The Lion King' last year compared to 'Brave' and 'Cinderella' this year. While theatrical revenue was higher in the quarter due to the release of 'Wreck-It Ralph,' 'Lincoln' and 'Frankenweenie,' operating income declined as a result of higher distribution and film amortization costs compared to prior year."

Disney's most recent 10K SEC filing expands on this more:

Lower home entertainment revenue reflected a 23% decrease from a decline in unit sales and an 8% decrease from lower net effective pricing including the impact of a higher current-quarter sales mix of catalog titles, which have a lower sales price than new releases. Significant titles in the current year included Brave, Cinderella Diamond Release and Marvel's The Avengers ...

As a result, Gomez says the latest round of layoffs at the studio make a lot of sense.

"Our mass conversion to a digital and cloud-based society is picking up steam and impacting DVD / Blu-Ray, consumer products and distribution to say the least," says Gomez. "It makes sense to move people around as a result, or to even cut staff. We last saw this at the studios not long after DVD sales peaked earlier last decade."

Moving away from in-house studio films

Another factor that has affected the studio is Disney's reduced reliance on distributing less films through its own studio.

Last September, Disney took a reported $50 million write-down on a stop-motion animation project set to debut fall 2013.

During 2012's Q4 earnings call last November, Chief Financial Officer and Senior Executive Vice President James A. Rasulo mentioned the cancellation of the film, "Cinderbiter," was responsible for 98 percent of the write-downs Q4 2012.

Instead the Mouse House turns to its big three acquisitions — Pixar, Marvel, and, now Lucasfilm — to deliver hits.

"With Pixar, Lucasfilm and Marvel, more of Disney's key product is being developed off the studio lot and with greater autonomy," says Gomez. "This taxes the studio proper less than in the past, but pulls the focus to some of Disney's greatest strengths: marketing and distribution, consumer products, and theme parks. You can expect these divisions to be bolstered in the coming months."

This year, the company will release a total of ten films. Its big hits for the year include Marvel's "Iron Man III," "Thor: The Dark World," and Pixar's "Monsters University."

Four months into the year, the company has only released one movie, "Oz the Great and Powerful," with plans to release ten this year.

There was a time the Mouse House was putting out triple that number of films in 2000. Last year, Disney released 18 movies.

Laying off LucasArts staff

Gomez says the decision to rid of Lucasfilm's gaming division most likely had to do with the LucasArt's distribution record.

"Although LucasArts have made some great games over the years, the division's record for hits was inconsistent, which was something Disney was already familiar with," says Gomez.

Plus the Mouse House doesn't need another video game division that may deliver flops.

The segment posted losses for 19-consecutive quarters. Despite posting its first profits in Q1 2013, Interactive is still Disney's least profitable division.

Gomez adds it's highly unlikely that the LucasArts cancelled game "Star Wars 1313," which was rumored to revolve around bounty hunter Boba Fett, fell in line with Disney's line of family-friendly material.

"Major projects in production like the 'Star Wars 1313' game may have been significantly afield tonally (e.g., much darker) from the kinds of films and television shows now being planned for the franchise. Fortunately we're seeing indications that some of the great talent from that division will be finding their way into movie production at Lucasfilm."

Later this year, Disney is hoping for a big hit from its video game department with the release of an interactive game, "Disney Infinity," something Iger hinted can be a make or break for the Interactive division in February.

"The biggest swing factor for the year, as I said in my remarks, is 'Infinity,'" said Iger. "If 'Infinity' does well, it bodes very well for the bottom line for this unit. If it doesn't do well, the opposite will be the case."

The game's release date has already been pushed back from June to August of this year.