Comcast: Fifty Shades’ Performance Epitomizes Universal’s Low-Budget Strategy

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The R-rated film Fifty Shades of Grey has set the box office on fire. The film was co-produced and is being distributed by Universal Studios. Universal is one of Hollywood’s major film studios and is part of NBCUniversal business segment of Comcast (NASDAQ:CMCSA). The studio has adopted a strategy of producing and distributing immensely successful low-budget films and Fifty Shades is a shining example of said strategy.

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Fifty Shades Exceeds Expectations

Fifty Shades of Grey, based on the best-selling book of the same name, was one of the most anticipated releases of 2015. On its release, the film exceeded expectations and broke the record for the highest grossing opening weekend for a movie ever on the President’s Day holiday weekend. [1] The film grossed $94.4 million in its opening weekend, which obliterated the previous record of $63.1 million set by 2010’s Valentine’s Day. The film continued to maintain its momentum in subsequent weeks and has grossed a cool $546 million globally. [2] It broke many box office records in the process and is currently the highest grossing movie of 2015. [3] What makes the achievements of this movie truly remarkable is the fact that the movie’s production budget was a paltry $40 million. The good news for Universal does not end there as Fifty Shades is not the only low-budget movie from studio to strike gold at the box office.

The Movie Is The Product Of An Immensely Successful Strategy

In the age of big-budget movies, Universal has charted out a different path for itself. The studio is making money off of movies that are produced at a very reasonable budget. The studio has been successfully implementing this strategy for a while now. The 2012 blockbuster Ted was produced at a budget of $50 million and grossed close to $550 million globally. [4] Similarly, Despicable Me 2 performed exceedingly well for Universal and was second on the list of highest-grossing animated films of 2013, bringing in close to $ 1 billion. [5] [6] The film was produced at a budget of $76 million, approximately half the amount spent on making Frozen ($150 million), the movie that topped the list. [7] The slew of low-budget blockbusters continued in 2014 with the likes of Lucy, Neighbors and Ride Along leading the charge. The studio produced or distributed fifteen movies in 2014 and eleven of those had a budget of $40 million or less. The movie Dracula Untold had the maximum budget at around $70 million, not even close to a big budget by current industry standards.

Low budget movies have lower risk attached to them and recover their costs if they have one or two good weeks at the box-office. The studio does not have to take a big hit if the movie tanks and every once in a while, there are runaway hits which gross $500 million or more,  as seen with Fifty Shades, Ted and Despicable Me 2. The success Comcast has had with Universal Studios has helped the company grow its filmed entertainment business from $4.2 billion in revenues in 2011 to over $5 billion by 2014. [8] This translates to a growth of around 20% in 3 years.

Looking Ahead

We believe that NBC and Comcast Content, of which Universal is a part of, contributes more than 32% of Comcast’s stock price. Continuing with its recipe for success, Universal has many low-budget releases lined up for 2015. Along with those movies, Universal continues to focus on international markets and is creating films with popular international franchises such as Fast and Furious, Jurassic Park and Despicable Me. Each of these franchises has a movie release in 2015, with potentially more to follow. With the success of the first movie in the Fifty Shades series, Universal has added another successful franchise to its portfolio. The best-selling book on which the movie is based is part of a trilogy which essentially guarantees the studio two more movies in the future. The sequel for the movie is expected to hit theaters in 2016. [9] Accordingly, we believe that Universal has built a strong platform and will continue to contribute towards Comcast’s filmed entertainment revenues. We project filmed entertainment revenues to grow from current levels of around $5 billion to around $7 billion by the end of our forecast period.

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Notes:
  1. Box Office: ‘Fifty Shades of Grey’ Torches Records With $94.4 Million Debut, February 16, 2015, Variety []
  2. Fifty Shades of Grey, Box Office Mojo []
  3. Fifty Shades of Grey (film) – Box Office, Wikipedia.org []
  4. Ted, Box Office Mojo []
  5. List of animated feature films of 2013, Wikipedia.org []
  6. Despicable Me 2, Box Office Mojo []
  7. Frozen, Box Office Mojo []
  8. Comcast’s SEC Filings []
  9. ‘Fifty Shades Of Grey’ Sequels Confirmed; Fans React To ‘Fifty Shades Darker’ And ‘Fifty Shades Freed’ Movie Announcement, February 06 2015, International Business Times []