News Corp (
) is a media conglomerate that competes with New York Times (
), Time Warner (
), Disney (
), Viacom (
) and CBS (CBS) in a variety of businesses ranging from
broadcasting and cable networks to filmed entertainment and
publishing. The company also owns the social networking website
Our price estimate for News Corp stands at
, which implies a premium of roughly 18% to market price.
News Corp released Avatar towards the end of 2009 and the movie
quickly became the highest grossing movie of all time at the box
office, earning close to $2.8 billion. The movie captured attention
due to its unique animation and 3D affects. News Corp is likely to
release at least two more sequels to the movie, although the first
of these is unlikely to hit theaters before 2014.
Can Avatar Sequels be Successful
Sequels have been hit-or-miss in Hollywood, some of them failing
and some of them outpacing the original. Often, when a movie
becomes a brand, a sequel tends to do a good business. Examples for
this include Harry Potter and Spider Man. Given its unique story
and visuals, coupled with the tremendous success of the first
movie, Avatar could well become a brand to leverage in its upcoming
With the appeal of 3D effects and animation techniques based on
real human movements, News Corp could do well to produce similar
movies on a regular basis if it can continue to forge strong
stories and innovative concepts. A relevant example in this context
is Disney's pixar subsidiary which typically makes one movie per
year, and has seen a relatively steady string of success.
Fox Studios Box Office Market Share -
What Does Avator Add to News Corp's Equity
We wrote an article last year (see
Avatar Has Minimal Impact on News Corp Stock
) wherein we examined the profits that Avatar generated for News
Corp. Based on our expectations of $2.5 billion of global box
office business and 20 million expected DVD sales at that point in
time, we arrived at a figure of $500 million in profits for News
Corp. However there have been two key developments since then.
Avatar did close to $2.8 billion at the box office and its DVD
sales reached 20 million by May 2010. Thus, we believe that News
Corp's profits from Avatar may have surpassed $600 million.
Thus, if the two sequels are as successful as the original
Avatar, their addition to News Corp's stock value could be about 2%
given a roughly $53 billion total value estimate for the company.
Thus, the sequels should not be independently critical to
investment decisions regarding News Corp. However, these films
could set a precedent that would have a much more notable impact on
the company's equity value. News Corp could adopt a strategy of
launching films in this category, similar to what Disney has done
using pixar, improving its share in both box office sales and the
Moreover, News Corp may be willing to assume more risk going
forward given the success of Avatar and thus potentially reap
higher profits. In the case of Avatar, most of its financing was
contributed by investors.
Fox Studios Global DVD Market Share -
Drag the trend lines in the modifiable charts above to how
various trends in Fox Studios' box office and DVD market shares
affect News Corp's stock value.
You can see
the complete $20.17 Trefis price estimate for News
Corp's stock here.