How Summer Film Releases May Affect Profits
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Walt Disney (NYSE: DIS) and Viacom Inc. (NASDAQ: VIAB) are major entertainment conglomerates. The companies are the producers of two of the highest-grossing films of the year so far, both of which were released in March. Specifically, the films are Disney's Wizard of Oz prequel and Viacom's G.I. Joe: Retaliation, which have earned $234 million and $122 million, respectively, as of this writing.
The two have also released May movies to wide box office appeal. Disney/Marvel's Iron Man 3 and Viacom/Paramount's Star Trek: Into Darkness may help to bolster the bottom lines of their studios' holding companies.
Disney's franchises tend to fare well
Disney has benefited from its previous two "Iron Man" pictures, having purchased access to numerous Marvel characters with its buyout of that firm last decade. With the latest film in the franchise, the company has attained the top spot in terms of revenue production thus far in 2013.
Most readers are likely aware of the company's other blockbuster that included numerous sequels, Pirates of the Caribbean. The most recent film in the "Pirates" franchise netted more than $241 million at the box office in 2011.
Along with moviegoer revenues, Disney benefits from these films through DVD and Blu-ray sales as well as through the offering of consumer merchandise. Home video sales are historically a major revenue generator in the December quarter. Looking forward, the company may profit from its presence in the video-on-demand market and other online channels as well.
The company's partial ownership of the Hulu service also falls into that category. Hulu is mostly a provider of television programming to online audiences, providing access to shows including some from Disney's ABC network.
Viacom bettering 2012's studio returns
Viacom's Paramount is likely to enjoy an earnings upside from its 2013 films as receipts have been strong when compared with last year. Sequels produced by the company are also big revenue contributors, helping it to mitigate the effects of possible top-line declines in other business units.
The company's cable networks are its core unit and where management has been targeting its investments of late. Properties such as MTV and Comedy Central are poised to gain in viewership as a result of improved programming. For more on that topic, view my previous blog on Viacom, Viacom's Next Growth Drivers?.
Viacom also has plans to launch an animated film business that could assist it over time in its focus on the youth consumer. Time Warner and Disney have benefited in the past from films that appeal to young theatergoers, seemingly the most surefire productions to earn substantial profits. Many of the top-grossing films have been targeted at young demographics, spurring Viacom to launch its new business with a SpongeBob SquarePants film.
Time Warner likely to achieve second place
Another media giant that released a notably high-revenue grossing film franchise within recent years was Time Warner (NYSE: TWX) with its "Harry Potter" film franchise. This year, Time Warner produced Man of Steel, which will likely generate solid ticket receipts.
As for Time Warner's ventures into the digital market, it has been one of the most active participants in the video-on-demand business of late. This initiative was detailed in a prior posting. Overall, the company is primarily a cable television network owner and should see an improvement in both its TV and film segment profits this year. Shares in the company are a good long-term holding.
Man of Steel raked in $118 million in its opening weekend, ranking second behind the Iron Man receipts for 2013. It could well also exceed $300 million in total theater revenues when all is said and done.
It is probable that the superhero film, along with heightened advertising sales in cable television and the company's video-on-demand initiative will spur heightened profits in its TV and film unit this year. The company ought to remain on pace for a solid share-earnings gain this year as a result.
In a given year, a film can be a tailwind to profitability as box office receipts, home entertainment sales and merchandise sales add to the bottom line. Disney and Viacom's latest creations may provide such tailwinds in 2013. Time Warner could be included in this mix, too. All told, studios are not the largest revenue-producing category at any of these conglomerates but may boost company profits to a significant extent. Over the long run, the stocks of entertainment firms should increase in price as a result of the companies' valuable film-related assets.
As I have stated before, those media firms with the resources to invest in newer forms of distribution and content will be the best suited to gain from industry advances. The companies mentioned here are among of those companies.
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Damon Churchwell has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!