Comcast’s (NASDAQ:CMCSA) Universal Pictures came up with another hit – Despicable Me 2, which topped the July 4 weekend over Disney’s (NYSE:DIS) Lone Ranger.  Every movie studio has its own share of hits and misses given the cyclical nature of the business.
For the past 12 months, Universal has been on a winning streak, releasing 14 films and amassing $3.2 billion at worldwide box office, making it a record 12-month period in the studio’s history.  Going forward, we expect NBCUniversal to do even better as it continues to turnaround the movie business by targeting overseas audiences who make up 70% of theatrical box office revenues. 
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Success of Despicable Me 2
Despicable Me 2 is a $76 million animated film from Universal and Illumination Entertainment. The film crushed the competition in its first five days in theaters, earning $142 million and led the box office to the best July 4th weekend of all time. The movie’s $82.5 million start was able to marginally beat Disney’s Monsters University‘s $82.4 million debut. Despicable Me 2’s $142.5 million start stands as the best ever five-day opening for an animated film ahead of Shrek 2‘s $128.9 million haul in May 2004. Universal reported that crowds were 60% female and 55% below the age of 25 and 27% of viewers were Hispanic. 
Comcast’s Movie Business
Comcast’s Filmed Entertainment business includes production, acquisition, marketing and distribution of movies and stage plays worldwide by Universal Pictures. This includes revenue from different media such as box office, home entertainment (example DVDs), television and other. Movie business contributed close to 8% to Comcast’s revenues and 1.4% to its operating income (before depreciation and amortization) during Q1, 2013. Also, the company had reported a 1000% jump in operating income from this division as compared to the same period previous year. 
How The Year Went So Far?
Comcast’s Filmed Entertainment segment has been doing fairly well this year. It hauled in quick cash for the company courtesy Furious 6 and Despicable Me 2.  In 2013 (Jan 1- Jun 30), Universal Pictures commanded a market share of 14% at the domestic box office grossing over $700 million.  Filmed Entertainment segment is a part of NBC and Comcast Content, which contributes 25% to Comcast’s value. However, 2013 so far has been a better year for the studio’s direct competitor Disney, which we expect will end the year with notable share gains in global box office market.
Disney’s four movies – Iron Man 3, Oz – The Great and Powerful and Monsters University have helped the company cross $2 billion in grossing so far this year.  However, for Disney The Lone Ranger has been a sheer disappointment. The film cost $250 million to make and the company spent $175 million in marketing and advertising worldwide. By the end of The Lone Ranger‘s run it will likely manage to make $125 million domestically and $150 million overseas. It will likely be the second big loss for Disney in many years after $200 million loss in John Carter in 2012.  While Comcast has been focusing on its strategy to partner with international franchisees and target the international box office, Disney has been eyeing bigger franchisee names and comes up with limited number of releases. For the time being, strategies for both the companies look to be working out well. Going forward, it will be interesting to see if Universal with the help of its international franchisees manages to grab a larger market share in the global box office.
Our price estimate for Comcast stands at $46, implying a premium of over 10% to the market price.Notes:
- Despicable Me 2 beats Johnny Depp’s The Lone Ranger to top US Box office, The Independent, Jul 9, 2013 [↩]
- Universal’s Year-Long Turnaround Shows Cyclical Nature Of Insane Movie Business, Deadline, Jul 7, 2013 [↩]
- How the global box office is changing Hollywood, BBC, Jun 20, 2013 [↩]
- Box office report: ‘Despicable Me 2’ scores $142 million, leaves ‘Lone Ranger’ in the dust, Entertainment Weekly, Jul 7, 2013 [↩]
- Comcast’s SEC Filings [↩]
- Universal Pictures’ Fast And Furious Is Hauling In Quick Sales For Comcast, Trefis, May 28, 2013 [↩]
- 2013 DOMESTIC GROSSES, Box Office Mojo [↩]
- 2013 WORLDWIDE GROSSES, Box Office Mojo [↩]
- Disney Could Lose $150 Million On The Lone Ranger, Cinema Blend, Jul 8, 2013 [↩]