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Wall Street dislikes the movie business and hated Disney CEO Bob Iger’s 2009 agreement to pay $4.2B for Marvel, especially after he paid $7.5B for Pixar. So, does the huge success for The Avengers give him the right to boast that he was right all along? Almost, but not quite, Bernstein Research’s Todd Juenger seems to conclude in a provocative report this morning. “We agree it was a good deal, but disagree that The Avengers makes that conclusion self-evident,” the analyst says. Pre-Avengers, Disney had to release two Marvel films a year with each grossing an average of $517M worldwide just to make the acquisition break even, Juenger figures. That was an ambitious goal considering that Marvel releases have averaged $417M over the last five years. But The Avengers changes the math: Now each Marvel release has to gross $437M. That’s within range, Juenger says, because the growing demand for films overseas means that “future Marvel films will do better than they have historically.” He estimates that The Avengers will generate a $1.29B profit for Disney with revenues of $3.7B ($2B gross box office, $50M from TV, $1.2B in home video, and $500M from toys and merchandise) and $2.4B in costs ($257M fee to Paramount, $1B to exhibitors, $150M for prints and ads, $220M in production costs, $117M for home video distribution, $125M cost for consumer products, and $558M for profit participations and residuals.) While Juenger’s analysis should cheer the studio, which he says is one of the most profitable in the business, it’s hardly a rousing endorsement for Hollywood. Making movies, he says, is “a crummy business with terrible structural dynamics. It’s hit driven with no barriers to entry, no sustainable competitive advantages, and its main profit driver (home video) is in decline.”
‘The Avengers’ Makes Marvel A “Good Deal” For Disney, Not A Great One: Analyst
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Stuff like this….
Making movies, he says, is “a crummy business with terrible structural dynamics. It’s hit driven with no barriers to entry, no sustainable competitive advantages, and its main profit driver (home video) is in decline.”
…, keeps me up at night.
I have a horrible feeling that in 5 to 10 years the film industry will be like the music industry and between mergers and consolidation Fox, Disney and Time Warner will end up own everything.
I shudder at the thought of Universal being nothing more than a label within Fox or WB that does nothing but make Fast/Furious movies year in, year out.
Blargh.
I’d take FAST GIVE over most of the “blockbusters” that have come out in the last couple of years. Sadly most of what Universal gives us is BATTLESHIP crap.
FAST FIVE. not FAST GIVE. lol. Apologies!
Was FAST FIVE really a good movie? I didn’t see it, but now I’m curious.
No.
It, Fast Five, was okay, not great. The money for the huge budget was all on the screen, but I would not call it event filmmaking or blockbuster worthy.
Don’t worry so much – this is just the same as it ever was.
Premium entertainment has an even higher value in a world of noisy amateur-hour content. Global franchises and hits that generate billions… Faster than ever before.
The sky isn’t falling. We’ll get increased piracy protection of some sort next year, most likely. IP has become too valuable financially for it not to be enforced. There’s too much money at stake.
I wouldn’t let that keep you up at night. This is the opinion of one analyst and regardless of how many MBA’s these guys have, they can’t tell you the future.
Remember, a lot of these investment analysts didn’t see anything wrong with giving triple A credit-ratings to bonds filled $500,000 mortgages going to people making $10/hr and a miserable credit score because house prices were going to keep going up “forever and ever and ever (see 2007).”
So take their words with a grain of salt and go get some sleep!
What Juenger is saying is that a better business would be Health Care or Mortgage Lending, where you can really nail the customer to the wall. I mean, what movie studio has the ability to ruin the lives of customers forever?
“….a crummy busines….”
Where have we heard this before? Hardly worthy of a probable MBA.
You gotta love guys like this. I just hope he’s directing the personal finances of people like Jamie Diamond, Mitt Romney, Uncle Newtie, et al.
Easy to fix this industry.
You don’t pay Robert Downey Junior $50 million for delivering one liners in a red suit.
You don’t pay for 12 executive producers. You don’t pay for private jets for promo tours. I see so much ridiculous waste every single day around me that it makes me sick. We should all be saving money at every possible second for when DVD sales dry up instead of throwing it out the window at 24-hour car services and the like. The fact that we don’t make these people drive from their Beverly Hills mansions to an Ellen show taping in their own cars is an example of what is wrong with our industry.
you are so right, there should be a website where folks could post anonymously all the waste, all the money that some peep feel they deserve that could be cut and should be cut…everyone knows how these entitled folks abuse the money in these public companies..be fun to see it exposed.
You are so right about the pointless waste
RDJ made that from a fee plus a percentage.
He was in the first two Iron Man movies which made 300M domestic each. After that he spells out what he wants for the next movie, and the studio either gives it to him or replaces him.
Now you really think a movie with Iron Man played by someone else is a sure thing to make as much? Sure, you replace RDJ and pay someone else far less…that only ends up being more profitable if the movie makes within 50 million of what it would have made with him. It’s one thing to do with a director (and even that I think is stupid in many cases) but would you want to be the studio exec who says RDJ is too expensive for IM3 and replaces him saving the 50M…and then it makes $210M?
Regardless of how anyone feels about how much these guys are making, the fact is they can ask for those fees because their films bring in the cash (sure there are other actors who are highly paid and NOT bringing in the $$$ any more, but that’s not RDJ).
And about the “barrier to entry” – sure, anyone can make a movie. But not a movie like Avengers, and most of the highest grossing films tend to be the big budget ones, not the ones anyone could have shot on their iPhone.
Thanks goodness for the artists out there making movies for art and to entertain us.
What incredibly faulty logic. What about the huge money Disney will make with all the ancillary products from shampoo to motorcycles to theme park rides. Coupled with the millions who have seen upcoming trailers and will attend movies that they would never have been exposed to. Not to mention the sequels and spinoffs, video games, apps and ability to make films and tv shows based on lesser Marvel products. ..Anyone who says the 100 y.o. film business is a lousy place to be has no footing to be an analyst for the industry in any event…
Exactly, if Disney were only making movies it would be a bad investment, but the reality is, this was a bargain.
Disney is basically buying a huge library of characters which means, tv shows, movies, books, toys, clothes, video games, rides, and every kind of merchandising there is. They have basically doubled their character properties in one agreement. If anyone knows how to market a product, it’s Disney.
Well, he’s right that there’s no barrier to entry–anyone with a camera can make a movie, but good luck getting it distributed. There’s a pretty high hurdle, if not to entry, then to the ability to earn money after entry.
As for sustainable competitive advantage, there’s this thing called talent. Too bad Hollywood can’t recognize it most of the time.
$558 million in profit participation and residuals? How does that break down, exactly? $150 million to Downey / $100 million to Whedon / $100 million producers / $100 million to other stars combined (other than Downey) / $100 million to everyone else?
Iger spent close to 12 Billion for Pixar and Marvel. Disney is a long long way from breaking even on those two buys. He over-paid for both companies. They might never see a profit. That 12 Billion would have made more money if he’d simply put the total amount in a savings account that would have paid Disney 10% a year interest = 1.2 Billion. Studios can actually make more money by making half as many movies at half the price they normally do.
Re “A savings account that … paid Disney 10% interest”:
To State the Obvious: Savings accounts don’t make more than the prime interest rate, ever. If you can provide an account that pays more than 2%, give Iger a call.
Your post is super-applicable in an alternate reality in your own head – but on Earth, it’s just dumb.
Where is this hypothetical savings account that earns a 10% yield?
What savings account pays 10%?!?! Maybe 1% if they are lucky.
Please post info on that saving account that pays 10% interest. I am very interested.
Can you imagine a world without Pixar being owned by Disney, just think about it? Eisner had Jobs so pissed we WAS going to move Pixar from Disney, and I’m sure there was probably more than one studio that would have loved to get Pixar.
You can sit in a chair and bean count all day long but in the end Disney is made up of SEVERAL parts all working together to form the Disney brand. One division feeds off of the other, like Pixar’s Cars, I’m sure someday Disney will put some of the Marvel characters in the Disney parks, like Universal Parks has done with the Transformers and Harry Potter franchises.
Please find me a savings account has a 10% interest rate. I’m serious. Please find me one.
This comment is so laughable. Toy Story 3 merchandise licensing and sales alone grossed more than the amount Disney paid for Pixar (Disney paid 7.4bn. Toy Story 3 merchandise had revenues of 7.6Bn. Of course, that ignores inflation.). Not including theme park revenues, TS3 itself earned Disney nearly $10Bn.
http://www.businessweek.com/articles/2013-03-07/the-toy-story-3-story
No way will this picture hit $2 billion in worldwide grosses, so I wouldn’t say his analysis is all that great.
It’s at $1.2 billion currently and fast running out of steam, and with Men In Black 3 opening this week it will take a large drop next weekend. It will top out at $1.5 billion max.
As well, will there be a fatigue factor for audiences on the Marvel properties? They’re stuck with the IP they brung with em’, you know, and these pictures are so formulaic and predictable that there’s nowhere to go. I don’t know that the Hawkeye spinoff attempt is going to make 437m.
Savings acct paying 10%????? Hahahaha!!! If u find one let me know I’ll be able to retire sooner then I thought!
What the article fails to take into consideration, is that Avengers sequels alone should take care of Disney’s investment, as it’s a given there’ll be at least a trilogy of films (all potentially generating a billion-plus in revenue). Then it’s just a matter of developing Marvel’s thousands of properties to see if they can find the next Iron Man.
I don’t see Disney losing out in the long term here.
Hey Team Disney, please tell me where one can find a savings account with a 10% return? And you can’t say Bernie Madoff! Seriously, have you seen savings account returns? When I was a kid it was 3%, now you’re fucking lucky if you can find one that will give you a full 1%. Anywho,
I’m with Bean Counter, I would really love to see the participation and residual breakdowns if at all possible!
Could you tell me how I can find this savings account that pays 10% interest? Oh right, there isn’t one…
Whenever I read that Katzenberg memo I always think about how much hassle it must be to produce these giant films – Avengers was literally too big to fail. How much of the billions that it generated is because of 3D inflation, overseas premiere before domestic (to puff up the release numbers for the opening weekend), and this suicide pact every studio has made with fanboys to make their releases singular, short-lived events?
I mean, I LIKED Avengers, but I don’t get how it’s doing over a billion worldwide – it’s a giant cartoon. How many times can they honestly go to that well? When will Hollywood reach peak-event-movie? All of the studios need to start finding small, counter-programming movies and lots of them. They need to make a “Night at the Movies” a thing people can still do without buying tickets online, reserving seats, and paying upwards of $50. For $50 you can see a GREAT, once-in-a-lifetime concert or go to a playoff game (well, at least one ticket).
> Avengers was literally too big to fail
So was John Carter.
In the end, even John Carter will bring in more money for Disney than it cost.
(John Carter was a huge marketing failure, nothing more. The movie itself was quite good.)
Disney rarely makes financial errors. Getting John Lasseter as your Director of Disney Animation & Theme Parks alone is worth a huge chunk of that 7 billion on stock they paid to Steve Jobs for Pixar.
Marvel, with Avengers pulling in 1.6 billion, and Iron Man 3 having made 680 million after 1 week foreign, 1 weekend domestic…Disney will make their investment back from that on the movie box office alone before Avengers 2 comes out. That’s not counting merchandising…
Strange that an analyst who follows the film industry is so far off with his estimated revenue and costs for the film. Also, box office is not revenue and exhibitor share is not a cost (in the same way retail price of a disc is not revenue)
“Wall Street dislikes the movie business…”
Dear Todd Juenger: we dislike the Wall Street business. You think you know it all, yet you and your ilk lose billions of other people’s money yearly with gross negligence, stupidity and arrogance.
Why not make yourself useful and do more reporting on Mark Zuckerberg’s hoodie and offensive fashion choices.
First of all, most WS analysts are idiots barely know anything and only ike to offer analysis of industries where ALL the costs are known and growth is like 3% a year so they are never far off base. Look how they cannot figure and hate Apple because 90% of Appl’e revenue is from consumers … same with the film industry and or entertainment industry. They HATE the fact they cannot figure out if you spend $200-$300 million on a film and it may or may not be hit. But that’s the roll of the dice they hate and will never understand. A $75 million dollar film might gross a billon dollars when all is said & done like HUNGER … or John Carter will break even when all is said and done but if you go by quarters, it’s a “flop.”
So, you cannot just cost out Marvel like it’s a buying a ton of shrimp and you have no flash freezer. That’s just idiotic. What other property can you buy with 5,000 characters. Sure, leopard man or colossal blunder boy might not be worth a movie but it’s still something – maybe a web series in 3 years?
Disney also has a bunch of theme parks – how much do they save on licensing for characters? IT ALL ADDS UP. But that’s too complicated for an idiot from WS to figure out, that would require putting in more than 2o minutes at work or crunching real numbers.
He’s also mad he can’t trade derivaties and lose $5 billion in a week. Or 25 million releases of JOHN CARTER loses at $200 million per …
He must be a Wall Street analyst, because he can’t see the medium-term or even long-term growth of the acquisition. Instead, he just whines about there not being enough security to ensure the big bonuses next Christmas. Whatever the future of the movie industry is, Marvel has proven to be a profitable brand 50 years on and if there is one thing Disney knows how to do, it’s profit off a brand. Decades of merchandising of just not the Avengers, but Spider-Man and the X-Men, multi-platform growth on television, in video games, and even the dying print media if they can make it succeed digitally is on the table. And yes, that movie average will continue to go down after Disney releases an Avengers film every three years for at least the next decade and making their billion dollar films in between their countless built-in franchises that should be able to average over $400 million WW. The Marvel brand is going to be something Disney is using just as much as their Mickey Mouse and princesses lines decades from now.
There’s no way home video revenue’s going to get close to $1.2 billion. And there’s no way TV revenue worldwide is going to be just $50 million.
More homework needs to be done!
Mike, what concerts are you going to that only cost $50, and what play off game tickets are $50. Tickets to big events are a lot more than $50. What movie costs $50? Are you sure your not the same guy with a 10% savings account? How many times can they goto the well? Every 10 years is another group of kids, and another group of adults who want to relive their child hood. Disney will make so much off of marvel. Spider Man has been around 50 years and will be around 50 more. Marvel theme rides will pack Orlando. Disney didn’t buy the rights to a movie, they bought stories that are apart of world wide folk lore. This will go down as a better buy than even Pixar.
Forgot to mention how crap the research was by Todd Juenger, revenue is slowing down from The Avengers and it’s total box office revenue should fall between $1.4Billion and $1.6Billion; far below his expectations. Of this North American Film Studios generally receive ~45% of the proceeds while Overseas it varying greatly buy averages ~40%.
My estimates are $575million NA – $1Billion OS.
That puts profits at (260m+400m) $660million, far shy of this estimated 1 Billion in profits and this doesn’t take into account their 9% deal with Paramount for distribution rights.
These figures are also estimates but with just a small amount of research I’m sure Todd Juenger could have come up with far more realistic figures.
The Pixar Cars brand has brought in approximately $200Million PROFIT, per year since 2006 through merchandise alone (not the films profits).
Pixar and Marvel are not short term investments and yet they have almost paid themselves off in a few short years, Bob Iger should expect a massive bonus again this year for his foresight.