Disney’s (NYSE:DIS) Monsters University topped the box office for a second consecutive weekend ahead of the $40 million debut of 21st Century Fox’s The Heat. Disney’s prequel grossed another $46.2 million for a 10-day total of $171 million, which put it on course to out-gross the $251 million that Monsters Inc. made in 2001.  Disney studios is riding high this year with the success of Iron Man 3. While Disney has been behind many popular movie titles such as Pirates Of The Caribbean, The Cars and Toy Story, the performance of its studio division can be erratic as it largely depends on the audience’s response at box office.
Studio Building Assets Through Acquisitions
Disney has added to its movie-making assets through a series of acquisitions, including its $7.4 billion purchase of Pixar, maker of the Cars and Toy Story films in 2006. It added Marvel in 2009 at a cost of $4.2 billion and last year it added Lucasfilm, maker of the Star Wars films, in a deal valued at $4.1 billion.  The company’s latest moves suggest it could be on the verge of repeating the success of Marvel and Pixar with Lucasfilm. Disney is currently working on Episode VII of the nine-part Star Wars series, with release slated for the summer of 2015. 
In 2015, Disney Studios will release expected hits from Star Wars and Avengers. We estimate the studio revenues to cross $2 billion in 2015, based on these two important releases for the company. There are rumors of a Star Wars Land at Disney’s theme park in Orlando, which could be operational by 2015 and will help the company promote its Star War sequel. (Disney May Bring The Force To Orlando With Star Wars Theme Park, Trefis, Jun 26, 2013)
In the latest move, Disney acquired the rights to four Marvel superhero movies held by Viacom’s (NASDAQ:VIA) Paramount Pictures. The agreement covers the Iron Man I and II, Thor and Captain America: The First Avenger. The company is seeking more control over Marvel’s film library in order to expand these characters into television shows and theme-park attractions. 
Disney Studios On Track
In 2013, apart from Monster University, Disney came up with comic book blockbuster Iron Man 3, which has become the fifth top grossing film of all time, with sales topping $1.14 billion worldwide. It overtook 2011’s Transformers: Dark of the Moon to claim fifth place in the chart after Avatar, Titanic, Avengers Assemble and the final Harry Potter.  For this year there are few more popular titles to be released, including Thor: The Dark World and Frozen. The studio division contributes close to 8% to Disney’s value. In the quarter ended March 2013, Disney’s studio income surged to $118 million as compared to a loss of $84 million during the same period in 2012.
While the success of Iron Man 3 and Monsters University will help the division outperform in the coming months, the release of The Lone Rangers may spoil the party as the movie is plagued with bad early reviews and the costs to produce the film ran over budget.  Going forward, it will be interesting to see the audience response to the sequel of the popular title Thor, which is set to release in November this year.
Our price estimate for Disney stands at $66, which is roughly in line with the market price.Notes:
- Monsters University’ beats ‘The Heat’; ’White House’ is way down, Washington Post, June 30, 2013 [↩]
- Disney’s Press Releases [↩]
- DISNEY TO ACQUIRE LUCASFILM LTD., Disney’s Press Release, Oct 30, 2012 [↩]
- Disney Buys Rights to Marvel Movies From Viacom’s Paramount, Bloomberg, July 3, 2013 [↩]
- Iron Man 3 enters all-time box office top five, BBC, May 28, 2013 [↩]
- Critics tear into ‘Lone Ranger‘, CNN, July 2, 2013 [↩]