Making New Mileys: Disney's Teen-Star Factory

Bridgit Mendler is a willowy, blond teen with a sweet singing voice and decent comic timing. She's also the show-biz equivalent of the next iPhone — a young Disney star-in-waiting. Mendler, 16, is getting the full Disney Channel rollout. Introduced with recurring guest spots on two of its hit shows, Jonas and Wizards of Waverly Place, she will star in her own series, Good Luck Charlie, in 2010. "I've been told to brace myself," says Mendler. "If we have the success I hope we have with the show, everything will change."

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Mendler is following a path to fame the channel has mapped over the past three years as it has launched serial stars into orbit: the supernova Miley Cyrus in 2006, Selena Gomez in 2007, the Jonas Brothers in 2008 and Demi Lovato this year. (See pictures of Disney stars throughout the years.)

Each of these youngsters was given a TV show — the so-called zitcom — followed usually by a recording contract with Disney-owned Hollywood Records, songs in heavy rotation on Radio Disney and on Disney-movie sound tracks, a concert tour with Disney-owned Buena Vista Concerts and tie-in merchandise throughout the Disney stores. Miley & Co. are like modern Mouseketeers, but instead of M-I-C-K-E-Y, they spell C-A-S-H.

The Disney Teen Machine has become a finely tuned profit pump in an industry rife with unpredictability. The result is that Disney's cable networks represent the one slightly solid piece of earth among the entertainment giant's sinking properties. ABC is struggling, sales are way down at Disney's theme parks and stores, most of its non-Pixar movies have been wan performers, and revenue from DVDs is shriveling. The cable networks, which in addition to the Disney Channel include ESPN, ABC Family, Soapnet and Disney XD, brought in 26% of the company's $26.3 billion in revenue and 58% of its $4.8 billion in operating income during the nine months ending June 27. In the past three years, they have represented 80% of Disney's revenue growth. (See pictures of Miley Cyrus' budding career.)

ESPN does rule sports with ever higher-priced program rights, but as an incubator, Disney Channel is more important, a fact amply displayed by its High School Musical franchise. The channel made the original TV movie for about $5 million. It took off, leading to a sequel, a sound-track album, a motion picture, books and video games. "So far, the franchise has generated $150 million to $200 million in operating income," estimates Barclays Capital analyst Anthony DiClemente. If the company leverages all aspects of the brand, he says, the teen franchises are a formidable force.

Disney's much admired ability to maximize profit from every pop-culture nugget it creates — this is a company that made billions of dollars from movies based on Pirates of the Caribbean, a cheesy 10-minute boat ride — works only if it continues to create appealing characters and stories that it can cross-promote. When Gomez released her new album, Kiss & Tell, on Sept. 29, she celebrated with an appearance on ABC's Dancing with the Stars. She has a song that plays during the end credits of the first Tinkerbell DVD. While on hiatus from her show, Wizards of Waverly Place, she made a TV movie with Lovato, Princess Protection Program, that got decent ratings. Mike Tirico just can't pull off that stuff. (See the top 10 dubious toys.)

That's why the Disney Channel's ability to mint teen stars is so central to the company's future and why Rich Ross, former head of the Disney Channel, was recently tapped to replace longtime studio chief Dick Cook. In many ways, Ross ran his outfit like an old-school movie studio. The channel has always found young stars. Shia LaBeouf got his first break there, as did Hilary Duff and — way back in 1993 — Britney Spears. But only in the past few years has Disney mastered how to hang on to them, to keep them from getting away like LaBeouf, tiring of Disney like Duff or being churned into tabloid chum like Spears. And only since High School Musical and Hannah Montana has it learned how to supersize them.

See pictures of High School Musical star Zac Efron.

Watch TIME's video "Dressing Miley Cyrus."