Tremors on Dopey Drive

Last Tuesday, Ted James saw a new movie he didn't much like, and within 24 hours the stock of the film's producer had dropped $83.2 million. Is this the plot for a high-finance thriller? A studio executive's nightmare? The full story is a little of both, and a fable proving that the stock market is just as vulnerable to whims and whispers as the movie industry.

James, 39, an analyst with San Francisco's Montgomery Securities, flew to Los Angeles for a trade screening of TRON, a $21 million innerspace fantasy with which the Disney organization hopes to reclaim its share of the movie marketplace. "Thirty-five minutes into the film/' he says, "the coughing started, and halfway through, people began to talk. This was a sympathetic audience that had turned apathetic. Walt Disney used to tell his people, 'Start with a story, then make the movie.' This time they got it backward." The next morning, through Montgomery's 30 traders and salesmen, James advised his clients to lay off the Disney stock. Wall Street reacted fast. The New York Stock Exchange delayed the opening of Disney stock by 2 1/2 hrs. because of a rush to sell. By the end of the day the listing had dropped $2.50 a share, from $58.88. It closed the week at $57.

"TRON could be one of the five or six biggest films of the summer, grossing $30 million to $50 million," says James, a lifelong movie buff with a philosophy degree from Yale and an M.B.A. from Harvard. "But that matters less than that it won't be the blockbuster they counted on. The expectations of the investment community just weren't in line with the reality of the film." James believes that the high price of Disney stock (15 times its earnings, more than double the ratio of the much faster-growing Warner Communications) had caused potential buyers to wonder if the stock had peaked. "They were ready to hear bad news. And I wasn't the only analyst advising to sell. But the train was moving, and I was the guy at the station waving it on."

James admits to no special acuity as a film critic or tea-leaf reader--"How should Ted James know what makes a great movie?"--and cautions that "the film industry is among the most difficult to forecast. We analysts just have to have the courage of our convictions and hope we're right 51% of the time." In their executive offices on Dopey Drive, the Disney people are hoping that Ted James is right only 49%.

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