Disney Pushes Marvel Acquisition to New Frontiers

By Tom Gibbs - July 3, 2012 | Tickers: HAS, SIX, SNE, VIA, DIS | 0 Comments

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Disney (NYSE: DIS) received a considerable amount of criticism following its $4.2 billion acquisition of Marvel Entertainment in 2009.  Although the purchase did grant the entertainment conglomerate access to a huge vault of some of the most famous characters in the comic book world, the acquisition was, well, expensive.  Likewise, because it came right off the $7.4 billion purchase of Pixar three years prior, many were concerned that the creative abilities of Disney had hit a brick wall.

Since the original criticism came, however, most of the pundits have sealed their lips.  Several key Pixar films over the past five years – Up, WALL-E, Ratatouille, and Cars 2 – collectively brought in around $2.5 billion in top line, and 2010’s blockbuster Toy Story 3 generated over $1 billion in worldwide box office gross alone.  

Likewise, especially after the recent release of The Avengers this April, there can be no doubt that Disney is on to something special with its hefty Marvel acquisition.   A new announcement from the Disney camp proves that feature films are just the tip of the iceberg when it comes to Marvel’s IP, however.

Why Just Watch When You Can Experience?

Disney has recently announced that it plans to finally integrate its slew of Marvel comic book characters into the physical, theme park world.  With a planned opening in late 2013, the Marvel Adventure entertainment center will be part of the very optimistic, $5 billion City of Arabia project currently being developed at the gateway to the Dubailand complex in the United Arab Emirates.

The entertainment center might appear to be a compelling novelty expansion platform on the surface, but the attraction will provide very little meat for Disney when compared to its full-scale parks in other key cities around the world.  First, the City of Arabia, for instance, is its own self-contained community that will cater primarily to its own residents upon completion.  An estimated 33,000 citizens will reside in the small city, and a monorail system will attach the tuck-in community to the larger surrounding urban area that contains less than 2 million people.

Similarly, Disney has made it clear that Marvel Adventure will not involve its theme park division (which provided close to 30% of its total company revenues in 2011) or its creative arm in the Imagineering team.  Instead, the park will simply be a licensing agreement allowing the IMG Group, which is to build and operate the center, to utilize the characters’ rights. 

Part of a Much Greater Vision

The Marvel Adventure entertainment center in the City of Arabia may not be the most game changing news tidbit released by Disney over the past year, but it does show the extent to which the Marvel franchise can be applied to Disney’s entertainment empire.  Additional parks around the world including the France-based Disneyland Paris have already been suggested as future recipients of the Marvel heroes.  Unfortunately, due to the proximity of Disney’s key parks in Orlando, Florida to Universal Studios (NASDAQ: VIA), which has exclusive rights to the Marvel characters in the region, some of Disney’s highest traffic attractions are not eligible for Marvel integration. 

Despite this fact, however, there is reason to be largely bullish on Disney’s future plans with its Marvel acquisition. The recent release of The Avengers, which has pulled in nearly $1.5 billion in worldwide box office thus far (42% overseas), has already established an attractive halo for subsequent releases on the near-term horizon.  Iron Man 3, which is in the filming process, and the already green-lighted sequels to Thor and Captain America: The First Avenger are bound to be blockbuster hits as a result. 

Similarly, the mojo produced by The Avengers as well as the premier films in each individual superhero’s personal story arcs has granted Disney an attractive platform to showcase lesser-known characters from deeper within the Marvel vaults.  Disney’s film studio has, for example, recently confirmed its first animated Marvel film that will feature the Big Hero 6 team of superheroes.  Although the project will not include the Pixar animation team, one can only imagine the success that can be reaped with the integration of the two creative arms in the future as popular Marvel characters are launched into the animation realm. 

Merchandizing sales are also bigger than ever.  Disney’s consumer products division, for example, brought in more operating income than the company’s original film studio business in 2011 -- $816 million versus $618 million.  Average analyst expectations for Hasbro’s (NASDAQ: HAS) Avengers toy lineup, which includes novelties like Thor’s hammer and the Hulk’s crushing fists, is for nearly $400 million in revenues this year alone.  All of these individual revenue streams mean more to stuff into Disney’s bulging pocketbook, and highlight the beauty of its business model – successes located in its film studio (the test market) can be milked for years in each of the enterprise’s other operating divisions. 

A Bullish Note

Disney may not have access to some of Marvel’s most popular characters including the X-Men bunch and Spider-Man (controlled by Fox and Sony Pictures (NYSE: SNE), respectively), but the sky is truly the limit when it comes to the ~5,000 characters the corporation can utilize.  Coming off of the astounding success of The Avengers film, the Marvel Adventures entertainment center slated for a late 2013 launch in Dubai may not be the most profitable next step for Disney, but it does represent a starting point in bringing these characters to the physical world via Disney parks.   

Up nearly 30% year-to-date, Disney stock may not be the most compelling bargain on the market right now – it sells for a near 16% premium to its past five year average P/E – but it should be closely followed and accumulated at any upcoming pullbacks. 

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