News Corp.'s (NASDAQ: NWS) new computer cartoon, Ice Age: Dawn of the Dinosaurs, had a strong domestic debut this past Wednesday. It opened with $13.8 million on that day, which represents a record-breaking performance for an animated feature released in the middle of the week. Now, just recently, I mentioned how I hate it when Hollywood promotes the breaking of a record. It tends to be very qualified. This situation is no different. Still, I'll give credit where credit is due. Dinosaurs is doing well so far.
We'll have to see how the weekend ultimately treats the new feature. The competition is stiff. It's the July 4th holiday, and Viacom (NYSE: VIA) is out there with Transformers: Revenge of the Fallen. Thankfully, News Corp. won't have too much to worry about from Disney's (NYSE: DIS) Pixar cartoon Up. As can be seen by a Boxofficemojo chart, the excitement surrounding Up has faded. News Corp. was naturally counting on this to happen by this point in time.
The Ice Age franchise has been good to News Corp. in terms of global box office. The first film took in over $380 million around the world, while the second animated flick grossed over $650 million. Looking at these stats, I can't help but think about Pixar.
As we all know, Pixar is the most respected brand in computer animation. Disney paid a lot of money for the studio, over $ 7 billion, in fact. There has been debate on whether that was too much to pay. The debate is framed as follows: Is overpaying for talent good in some cases, or is it bad in all cases? My colleague Sheldon Liber wrote about Pixar back in 2007 when Ratatouille hit the screens. It was his opinion that, indeed, some talent is unique enough that a large premium is justified.
Pixar is full of talent. I won't question that. However, as a Disney shareholder, I think overpaying for talent undermines shareholder value. I don't see how it doesn't. When it comes to acting, screenwriting, and directing, quite frankly, I think cheap talent can oftentimes do as good as expensive talent. Considering how hit-or-miss the movie model is, I just don't see why a lot of capital needs to be put at risk. Put another way, you can bomb just as easily with a concept powered by a $25-million-plus-20%-of-first-dollar-gross star as you can with a neophyte thespian.
And, getting back to Ice Age, let me state a vital fact: Ice Age was not made by Pixar. This is important because it actually proves to me that it is more than possible to make a hit computer-animated series even if you're not Pixar. Of course, the counterargument is that Disney really needed Pixar to help out with the Mouse's entire animation department, an asset considered to be in disarray at the time. Perhaps that's true.
But it's also true that the stock hasn't experienced rocket-like growth since Disney purchased the company. I don't know, as a long-term shareholder, I'm still not sure we got enough bang for the buck from the acquisition. I guess shareholders will have to remain patient for now.
In the meantime, I will be watching the performance of the new Ice Age movie carefully and see how it does compared to Up. And as for News Corp.'s stock, I wouldn't buy it because of the film alone; the feature won't influence the media conglomerate in a big enough way to justify a trade based on such a thesis.
Disclosure: I own Disney; positions can change without notice.
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Reader Comments (Page 1 of 1)
7-04-2009 @ 12:30PM
bigsampson said...
funny your assesment on if the money disney paid was worth it....of course it is.....anything pixar throws together is brilliant.....u ask was it worth it...will given that within about 5-7 years it will pay for itself and then all they have to do is make 2 films a year for 5 years and they will be amazingly rewarded....have you seen UP...ya thye talking about an Oscar...thats a big deal specially when now there allowing 10 films to be in that slot. If u had invested $200k in a liquor store....it usually takes about 5 to 8 years before u start noticing viable profit from your original purchase price after inventory....that means u invest the money when your 40 and by the time your 50 your kids have something that will support there kids......in the long run it was probly in the long run it was one of the best buys in the entertainment field...sure every one wants to get rich quick but this was about power in the film world.....and disney own this genre.
7-06-2009 @ 1:28AM
D. N. said...
Your analysis seems completely shallow and off-base, and demonstrates a lack of understanding of the film industry and its revenue streams.
Yes, the Ice Age franchise is successful and was made without Pixar. However, this is just a single franchise of three films so far. Blue Sky Studios, Fox's computer-animation department that produced the Ice Age franchise, has so far only produced two other animated films: Robots, a $75m film that grossed $128m domestically, and Dr Seuss' Horton Hears a Who!, an $85m film that grossed $154m domestically. Each of these films made about as much foreign as they did domestic, and neither are well-suited for sequels.
Look at Pixar on the other hand. They have made 10 films so far, 8 of which have grossed over $200m domestically. The two that were under $200m were their first two films, so in fact Pixar has made 8 films in a row which have grossed more than $200m domestically. Only one of these 8 films was a sequel, the other 7 were original properties. You alluded to the film industry being hit-or-miss, and on the surface it appears to be in general, but you make an enormous mistake applying this adage to Pixar. Pixar has not missed yet, and have with every one of their films so far managed to recoup their production costs through box-office receipts.
Granted, some of Pixar's films have larger budgets (Cars was $120m, and Up was a staggering $175m) but their films also often lend themselves to much stronger foreign appeal (Wall-E had $310m in foreign gross, Ratatouille had a staggering $414m in foreign sales, both on top of their $200+m domestic take each). Disney has already taken advantage of the synergy with Pixar through merchandise sales (which properties like Cars and Toy Story especially lend themselves well to) and have seen impressive DVD sales of these movies after they end their theatrical runs. Already Pixar is demonstrating a continued source of profit for Disney, and that's without mentioning future sequel opportunities.
This is where Pixar will really begin to make money for Disney. That Ice Age franchise you talked about and how much money it is making for Fox? Ponder the fact that Pixar now has successful original properties that it can tap and turn into similarly profitable franchises. Currently in the works are films such as Toy Story 3 and Cars 2, and a Monsters Inc 2 is rumored to be in the works. Where Fox has one successful franchise, within the next few years Pixar will have several. The potential revenue stream from each franchise, not just in domestic and foreign gross but also DVD sales and merchandising tie-ins, is in the billions over the next few years.
The ability to reliably generate and maintain new franchises like that is invaluable. What do you think Fox will do when the public starts tiring of Ice Age sequels? They have nothing strong enough to replace it in their revenue stream, whereas Pixar has demonstrated the ability to create new franchise-opening properties again and again.
This is due largely to a solid management team with a cohesive product-generating strategy, something in common with the businesses Warren Buffett invests in. His investment model is to buy well-led companies and leave the management in place, and Disney has likewise done a solid job of making use of the Pixar management team after absorbing the company. From a business perspective, the Disney/Pixar combination is the closest thing to a sure financial bet as you can find in the film industry.