Distribution Retribution: Marvel's The Avengers at this weekend's box office
D.K. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Gore Vidal writes that the four sweetish words in English are "I told you so."
We hate to say, but ... we told you so. Close movie business observers have been touting the predicted success of The Hunger Games for months, and its impact on the film's producer and distributor, Lions Gate Entertainment (NYSE: LGF), one of the last of the wholly film and television oriented entertainment corporations. The Hunger Games held the top box office spot four weeks in a row. The film became a national craze.
Unfortunately, stock for LGF failed to rise much. It got up to just over $13, hovered around $12+ and as of this writing fell to $11.47. LGF's P/E Ratio is 47.60, and its dividend yield is … 0 ($0.00 [0.0%]). How can this be when Hunger Games has taken in $609,226,998 worldwide off of a $78 million dollar budget? LGF has some worrisome components. It is in the process of expansion, recently adding Summit Entertainment, of the Twilight series, to its now nine subsidiaries. To make room for the Summit carryovers, several key executives have and will continue to leave. And LGF is probably heavily leveraged at this time.
Now LGF and Hunger Games is almost ancient history. The film was "toppled" by one of those out-of-nowhere My Big Fat Greek Wedding type movies called Think Like a Man, a romantic comedy with a largely African-American cast about the dating wars. Released by Screen Gems, a subsidiary of Sony Pictures, i.e., Sony Corporation (NYSE: SNE), the film cost $13 million to make and has thus far raked in $73 million in the U. S. alone, and this on the tail of its previous hit, The Vow ($30 million budget; $125 million in revenues).
But that was last week. Though by Sunday night, Think Like a Man continues to hold second place, with Hunger Games third, the big story is Marvel's The Avengers, from Walt Disney Studios Motion Pictures, a subsidiary of the Walt Disney Company (NYSE: DIS). Avengers made an astonishing but not unpredictable $200 million dollars, on top of an almost equal amount in Europe and the rest of the world, totaling $461 million worldwide, where the film was released a week earlier.
Marvel's The Avengers will have broken numerous box office records by Monday night's smoke-clearing assessment, but the news is especially welcome at DIS, which just two months ago (on March 9) released John Carter, the Edgar Rice Burroughs adaptation that is widely perceived to be a flop, though by now it has made some $269 million dollars – but off an estimated $250 million dollar budget, which may itself be shy of a full total after advertising costs. Not only did the film tarnish the reputation of Pixar animation director Andrew Stanton, who had been lavishly profiled in the New Yorker, but after reshoots and an incoherent advertising campaign the film also resulted in the resignation of Rich Ross, chairman of Walt Disney Studios Motion Pictures, where he had ruled for three years after coming over from a successful run at the Disney Channel. According to reports, John Carter wasn't the only reason. Mr. Ross apparently also didn't mesh with the high pressure and high yield producers who had agreements with DIS.
The upshot is that DIS now has a much healthier outlook. Its current price as of this writing is $42.96 and has a healthy P/E ratio of 16.59 with a 1.4% dividend yield. Talk about avenging a wrong: Marvel's The Avengers may only end up making John Carter a draw for DIS, but it's also the foundation for a vital new franchise that could coast through at last two more profitable releases.
dkholm has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend 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. If you have questions about this post or the Fool’s blog network, click here for information.
