Legendary Entertainment and Comcast’s (NASDAQ:CMCSA) Universal Pictures recently announced that they will enter into a multi-year film partnership. Universal will market, co-finance and distribute Legendary films for five years beginning in 2014. Under the agreement, Legendary will expand its intellectual properties into Universal’s theme parks.  Universal is in the middle of a turnaround of its movie business and an association with Legendary is going to help in that regard as it has a reputation for being extremely talent friendly and picking good films, and that’s the reason why the studio has very few big misses on its slate.
The Deal With Legendary
- Comcast Q4 Earnings: Best Pay-TV Subscriber Performance In Last Nine Years, NBCUniversal And High-Speed Internet Continue To Grow
- Comcast’s High-Speed Internet Business: Subscriber Base, ARPU Growth Likely
- Comcast Q3 Earnings: NBCUniversal, High Speed Internet Drive Growth
- Comcast Q3 Earnings Preview: NBCUniversal, Subscriber Trends In Focus
- Comcast’s Pay-TV Business: Our Long-Term Projections Suggest Growth In ARPU Will Offset Declining Subscriber Base
- Comcast Q2 Earnings: High Speed Internet Segment And NBCUniversal Lead Revenue Growth
The two companies will produce and co-finance future Legendary and Universal movies, and Universal will distribute Legendary projects worldwide. Legendary will also utilize Universal’s theme park enterprises and promotional support from Comcast.  Legendary is known for its popular titles including The Dark Knight, Man of Steel, 300, Inception and The Hangover. Specifically mentioned as an important part of the deal’s terms, Universal and Legendary will seize opportunities to expand Legendary’s franchises and intellectual property into Universal’s theme parks. Universal will work with Legendary on projects in China after the latter’s deal with China Film Group.  Legendary Entertainment is currently in partnership with Time Warner’s (NYSE:TWX) Warner Bros with recent projects including Man of Steel.
NBCUniversal’s Theme Park Business
NBCUniversal’s theme parks business primarily involves Universal Studios Hollywood theme park, Wet ‘n Wild water park, and fees for intellectual property licenses and other services from third parties that own and operate Universal Studios Japan and Universal Studios Singapore. The theme parks business is a stable source of cash for the company. While this business contributes under 10% to NBCUniversal’s revenues, it accounts for more than 20% of its operating income (before depreciation and amortization). 
Recently, Universal added Transformers – The Ride 3D to its theme park attractions. (Read – Universal Studios Brings Transformers The Ride 3D To Orlando Park) The company has been expanding its theme parks business and is second only to Disney (NYSE:DIS) in terms of attendance. An association with Legendary can bring in more attractions into the theme park, which can help NBCUniversal increase its share in global theme parks market.
What About DC Characters?
While Comcast would be happy to have many popular legendary titles in NBCUniversal’s theme parks, Six Flags theme parks is under an exclusive licensing agreement with Warner Brothers and features many of DC Comics characters. DC Comics is the publishing unit of DC Entertainment, a company of Warner Bros. Entertainment owned by Time Warner. The new deal with Legendary doesn’t talk about this issue and it appears that a full-scaled DC-comics attraction is unlikely to find its place in NBCUniversal’s theme parks. Moreover, unlike Disney, which acquired all of Marvell’s intellectual properties in 2010 for $4 billion, Batman, Superman and the Wolfpack remain the property of Warner Bros in the new deal with Legendary.  However, there are still few characters and themes that can be added to the theme park including Legendary’s forthcoming features that include The Seventh Son, 300: Rise of an Empire and Cyber.
Our price estimate for Comcast stands at $46, implying a premium of over 10% to the market price.Notes:
- UNIVERSAL PICTURES AND LEGENDARY ENTERTAINMENT ANNOUNCE MULTI-YEAR FILM PARTNERSHIP, Comcast’s Press Release, Jul 11, 2013 [↩] [↩]
- Legendary Pictures Teams Up With Chinese Film Producer, The Wall Street Journal, May 30, 2013 [↩]
- Comcast’s SEC Filings [↩]
- Report: Legendary Pictures moves to Universal – new theme park attractions next?, Theme Park Insider, Jul 9, 2013 [↩]