Back to Main

Walt Disney Builds on Its Movie Making Success

By: Trefis
Posted: 11/29/2012 9:58:00 AM
Referenced Stocks: DIS;LGF;RGC;SNE;TWX

Submitted by Investing Daily as part of our contributors program .

The 2012 summer movie season was a disappointing one for movie producers. Roughly 533 million Americans went out to their local theater during the period, down 4% from a year earlier.

However, the Summer Olympics were a significant reason for that drop. As well, the shooting at the Colorado premiere of the latest Batman film, The Dark Knight Rises , likely kept some moviegoers away.

But even with the lower attendance, the season saw some massive hits. The biggest box-office haul went to The Avengers , produced by Walt Disney Company 's ( DIS ) Marvel division. The film raked in a total of $1.5 billion, including $620 million in the U.S., making it the third-highest-grossing movie of all time. Other franchise-based films, such as the third installment of the Men in Black series, also did well.

2013 Should Be a Better Year for Movie Companies-Including Walt Disney

Fortunately, 2013 is looking better for film producers, starting with the Thanksgiving-to-Christmas season. The latest edition of Lions Gate Entertainment 's ( LGF ) Twilight series, Breaking Dawn: Part 2 , brought in $64 million over the Thanksgiving weekend, and MGM and Sony 's ( SNE ) Skyfall , the latest edition in the James Bond series, also did well.

The most-anticipated upcoming film is The Hobbit: An Unexpected Adventure , set to be released by Time Warner ( TWX ) and MGM on December 14. Walt Disney should also attract big crowds with a 3D version of its 2001 hit Monsters Inc. , produced by its Pixar animation subsidiary.

Disney also made news recently when it gained control of arguably the most powerful franchise in the movie business-the Star Wars films-with its recent purchase of Lucasfilm Inc.

Smart Acquisitions Have Given Walt Disney a Big Boost

Walt Disney owns the rights to some of the most popular movies of all time. The company's core film brand is Walt Disney Studios, which it founded back in 1950. The company bought Pixar, maker of the Cars and Toy Story films, for $7.4 billion in 2006. It added Marvel in 2009 at a cost of $4.2 billion.

Pixar's 3D release of Monsters Inc. comes in advance of the next Monsters film, Monsters University , in 2013. The company also released its summer hit Brave on DVD on November 13. The Pixar acquisition has been hugely successful for Walt Disney: it currently accounts for seven of the company's 15 highest-earning movies of all time, and the average revenue for a Pixar film is $595 million, according to Forbes .

Marvel has also been a strong performer for Walt Disney. The division is planning to build on the success of The Avengers by releasing a number of films featuring characters from the movie in 2013, including Iron Man 3 and Thor 2 .

Han Solo Meets Mickey Mouse

In October, Disney announced that it will purchase Lucasfilm Inc., which is wholly owned by Star Wars creator George Lucas, in a deal valued at $4.1 billion. Disney will pay half that price in cash and will issue 40 million shares to pay for the rest.

The company plans to grow and aggressively market the landmark franchise by releasing a new Star Wars film roughly every other year. It also plans to explore opportunities to bring Star Wars to television.

The first three Star Wars films were runaway hits in the late 1970s and early1980s, but the prequels that Lucasfilm released between 1999 and 2005 were not as well-received. Disney's long experience in moviemaking, particularly using advanced techniques like those employed by Pixar and Marvel, should give the new films a much better chance of succeeding. The company can also use its established distribution channels to boost sales of Star Wars merchandise.

Disney's Diversified Business Helps Ease the Volatility of Moviemaking

Movies are hugely expensive to make, and a flop can put a big dent in filmmakers' profits. (Disney itself is not immune to this. The big-budget John Carter, released last spring, reportedly lost $200 million.) Moreover, the complexity of modern films increases the possibility of budget overruns and production snags that can lead to costly delays.

However, Disney's movie business is just one part of its many operations. Its studios supplied 13.7% of its sales in its 2012 fiscal year. That helps offset the risk of the odd poorly performing film.

Moreover, the company's other operations, including its theme parks, resorts and cruise lines, have brighter prospects as the U.S. economy picks up steam.

The stock has risen 46.6% in the past year, but it still trades at 15.7 times Disney's last 12 months of earnings, in line with competitors like Viacom (NasdaqGS: VIAB) and Time Warner. Disney also has a long history of paying dividends. The current annual rate of $0.60 yields 1.22%.
Another Way to Profit From Blockbuster Films

If you want to profit more directly from box office sales, consider investing in shares of major theater operators, which are first in line to benefit from an increase in movie attendance.

Two of the biggest publicly traded theater companies in the U.S. include Regal Entertainment Group ( RGC ), with 6,580 screens in 522 theaters and Cinemark Holdings (CNK), with 3,895 screens in 298 theaters in the U.S. and 161 (1,286 screens) in Latin America. For more explosive growth stock picks, check out this free report.

This article by Chad Fraser was originally published on Investing Daily under the title Walt Disney Builds on Its Movie Making Success .