Followers of the movie industry know that in Hollywood, success is often cyclical. One year of stellar performance at the box office is often followed by a weaker showing as franchises come and go and audiences change their tastes.
Unless, that is, you are Walt Disney (NYSE:DIS), which managed to dominate 2016 with four of the top five highest grossing releases. By unleashing a few Marvel films, its animated movies, and a Star Wars title each year, the company has the closest thing possible to guaranteed hits, and this is the type of lineup that should pay off for years to come.
On this episode of Industry Focus: Consumer Goods, Vincent Shen is joined by Motley Fool contributor Daniel Kline to discuss how Disney wisely acquired many of its most valuable properties and how Comcast (NASDAQ:CMCSA) NBCUniversal fell from the top spot in 2015 as the cycle took its toll.
A full transcript follows the video.
This podcast was recorded on Jan. 3, 2017.
Vincent Shen: Let’s go back to Disney for a little bit. As of right now, for this past year, Disney has been the undisputed king of the box office. Over $3 billion in ticket sales across about 16 titles. It blew me away when I was looking at this top 100 listing, how many of the biggest movies came from Disney. Half of their releases managed to break the $200 million benchmark. Their top five titles put up anywhere from $350 to almost $500 million each, which is incredible.
Dan Kline: Disney has an amazing formula. Everyone questioned, when they bought Pixar, when they bought Marvel, when they bought Lucasfilm, I believe it was $7 billion, $4 billion, $4 billion, for those. But what they have is guaranteed success. The Pixar animated name, whether it’s a sequel like Finding Dory or new film, parents are going to see that. It’s just a brand that, to a certain age group, is going to appeal, and if it breaks out to adults, you’ll go from a $500 million film to a $1 billion film, like Finding Dory was globally. Then you have at least two Marvel movies every year. Those are going to be hits. The Avengers will be top tier, $1.5 to $2 billion globally. Maybe your Doctor Strange will only be $700 to $800 million. Then you have one Star Wars film a year. Rogue One, we’re not there yet, is probably going to do about $1.25 billion globally, down from Force Awakens at a little over $2 billion but still a very profitable movie, about $300 to $400 million profitable. It’s just a formula. Then you have things coming up in 2017, like live-action Beauty and the Beast, and more sequels, eventually that Frozen sequel. And you see that Disney has taken a lot of the risk out of making movies.
Whereas, if you put out a movie, and it’s a big blockbuster, say, Avatar, before it came out — you put that out, and nobody knows the property, it’s a huge risk. It could just as easily be a John Carter, which was a huge bomb, based on a literary property. It could just as easily be that as it could be a hit. But Disney has absolutely eliminated that risk. And they own enough franchises that they can do it year after year after year.
Shen: So, Disney, if we see them as the big winner this year in terms of studios, one studio that I want to look at really quick as being on the opposite side of that and dropping quite a bit was Universal, and how they struggled to maintain momentum. They were the major leading studio in 2015. They set their own record for the annual box office. But then they fell three spots this year, to No. 4.
Kline: Yeah. Universal has a cyclical problem. They don’t have enough franchises to guarantee being at the top of the box office every year. They’ll come back next year, because they will have Fast & Furious 8, I’m not sure when the next Jurassic Park sequel comes out, they’ll have a Fifty Shades of Grey sequel. The problem is, and it’s part of why they bought DreamWorks, is they can’t put out a Minions movie every year. They can’t put out a Fast and the Furious every year. They don’t have the big universes that Disney has. They do have the hit properties. But they need, probably, three or four more of them to have consistency. So, Comcast had warned that this was going to be a down year, year-over-year. It had to be. They just didn’t have the pipeline. Next year will be a big comeback.
I think the real loser is Fox, which has really stumbled with its superhero movies, aside from Deadpool, which was a surprise, out-of-nowhere hit that covered a lot of mistakes. But X-Men: Apocalypse didn’t do very well, you have a very questionable Spider-Man reboot coming up, Logan is a very dicey prospect coming up; it’s a very dark, R-rated superhero movie. Fox had a down year, and I don’t necessarily see them having a comeback. But Universal is going to crush it next year.
Shen: Yeah, they definitely have a much stronger slate for 2017. Keep in mind, they had a slightly smaller number of releases. But, they also had, with just one film, which really surprised me, after looking at the lineup that Disney put out, they only had one film, which was The Secret Life of Pets, which managed to cross the $200 million mark during the year. If you look at the 2015 average take across all their releases, it was well over $100 million, almost $110 million. For 2016, it was only $70 million. So, the cycle that you mentioned, that is a very substantial margin.
Kline: Jurassic World and Fast and Furious were a big part of that last year. They just didn’t have the releases. But to go over the overall box office, you remember when $100 million domestically made a hit? Well, the No. 19 domestic film this year was Ghostbusters. And Ghostbusters was a flop. It did not make money. And that’s a film that took in $128 million at the domestic box office. Now, it didn’t play that well globally, and it didn’t play at all in China, so that hurt it. But you can see that for these blockbusters, the standards have gotten very high, and it almost doesn’t make sense to release something unless you think it has franchise potential. Now, two years from now, Universal has The Secret Life of Pets 2 — I assume. I haven’t seen The Secret Life of Pets, maybe they all die, but probably not [laughs]. So, they have that sequel, and they can pump out of franchise, and maybe then they could spin off one of the dogs or the cat or the bird, or whatever other animals are going on there.
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