Three Companies Set to Profit From Three Avatar Sequels

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Stop me if you have heard this one before, movie sequels equal big bucks for studios and parties involved. This theory normally proved true as sequels come with high anticipation and a built in audience. With that being said, how high will expectations be for the three announced sequels to the highest grossing film of all time?

Back in December of 2009, James Cameron finally released his masterpiece “Avatar.” The movie went on to be the highest grossing movie of all time with an amazing $2.78 billion worldwide. The movie had staying power and was in theaters for 238 days. “Avatar” also held the number one spot in domestic box office for seven straight weeks, on its way to making $760.5 million in domestic markets.

Biggest winner

Twenty-First Century Fox (NASDAQ: NWSA) will be hoping for a huge boost with three sequels to “Avatar.” The recently spun-off company from News Corp contains television and movie assets, which is home to the “Avatar” franchise. Cameron announced that three sequels will be released in December 2016, December 2017, and December 2018. This release schedule should provide investors with three big years of blockbuster revenue.

International revenue for “Avatar” was particularly strong in 2009. Countries like China, France, Germany, Japan, and the United Kingdom all saw the movie gross over $150 million. Russia, Spain, and South Korea also saw grosses over $100 million. Since the release of “Avatar,” several of these international regions have expanded the number of theaters or seen rising incomes. Total international revenue of the first “Avatar” movie hit $2.02 billion. That number could actually improve in 2016.

Fox will also benefit from strong DVD and Blu-Ray sales of “Avatar” sequels in an otherwise declining segment. Back in 2010, “Avatar” sold 10.5 million DVDs, including 4 million in its first week. Total sales from the DVD were over $190 million.

In fiscal 2013, Twenty-First Century Fox reported $8.6 billion in revenue for its filmed entertainment segment. This was the second biggest business segment behind cable television. The segment also made up nearly a third of total revenue. Operating income of the segment represented only 20% of the company’s total in fiscal 2013. That number could rise with huge blockbuster movies and the likelihood of budget costs being kept in check by shooting all three movies in a row.

Back in February of 2010, former parent News Corp blew past estimates thanks to “Avatar.” The movie helped quarterly revenue grow 28% to $1.9 billion. Operating profit tripled to $324 million during the quarter when the movie was released. The new movies should have a similar effect and with three consecutive years, the film entertainment business segment could see record numbers.

Can Imax repeat?

IMAX (NYSE: IMAX) could be the next biggest winner from three additional “Avatar” movies. Back in 2009, many consumers saw their first IMAX movie ever with “Avatar” on the unique big screens. IMAX scored big by having the blockbuster movie on its big screens and the same could be said going forward if it lands the three sequels.

Back in 2009 when “Avatar” opened, there were only 178 IMAX theaters in the United States. “Avatar” also opened on 58 international screens. Fast forward to 2016 and IMAX plans to have 977 theaters open worldwide. Imagine the possible revenue numbers this small company could post from three “Avatar” movies.

“Avatar” grossed $228 million on IMAX screens during its theatrical run. In its first weekend in North America, the movie made $9.5 million, which represented 12% of the North American box office, despite being on only 3% of the screens. The company benefitted from viewers wanting to see the movie in 3D and on the oversized screens, due to its stunning visual effects. The same should bode well for IMAX in the future years.

The fact that IMAX will have more than four times the numbers of theaters should benefit shareholders going forward. IMAX continues to attract some of the biggest blockbuster movies to play on its screens. The company has strong relationships with several blockbuster franchises including: “Batman,” “Superman,” “Star Wars,” “Pirates of the Caribbean,” “The Hunger Games,” and “The Avengers.” All of these franchises, along with three new “Avatar” movies, should power revenue gains and higher profits in the next five years.

The wild card investment

Another company to eye  in the “Avatar” sweepstakes is Mattel (NASDAQ: MAT). Back in 2009, the toy making company had the rights to make toys based on the sci-fi movie. If Mattel maintains those rights or wins them back, the company can fight off its declining sales elsewhere.

In the most recent second quarter, Mattel saw total sales increase 1%. This came on the heels of a 2% decline in North America and modest growth of 4% in growing international markets. The company’s key franchises like Barbie, Hot Wheels, and Fisher Price all saw declines, including’s Barbie’s 12% lower sales.

Back in 2009, Mattel launched an action figure line of “Avatar” toys, which included interactive figures. Customers could use a webcam to unlock information from the character through their computer. With the popularity of interactive toys now, Mattel could see great success with a re-launched line.

Conclusion

I feel certain the “Avatar” sequels will be blockbusters. The three sequels may not break the box office records put up by the original, but each one should see box office revenue between $1 and $2 billion. Twenty-First Century Fox will be the biggest winner from the additional movies, and should see a bigger financial impact, now that the company is independent from the slow growth publishing arm.

IMAX investors should see large gains from “Avatar” and other blockbuster movie franchises. Despite the share price run-up, I continue to recommend buying shares of IMAX as the company continues to expand internationally and introduce new technology.

Mattel could be the wild card investment here, since with declining sales, “Avatar” could be just the boost the company needs to get investors and analysts excited. Competitor Hasbro has seen a boost from its Marvel character products, and I’m sure some analysts will take note of this. 


Chris Katje has no position in any stocks mentioned. The Motley Fool recommends Imax and Mattel. The Motley Fool owns shares of Imax. 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!

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