How Did 2015 Turn Out For Disney’s Studio And What To Expect In 2016?

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Disney’s (NYSE:DIS) studio business has seen another spectacular year and it has managed to grow the market share in the U.S. for 2015. The studio benefited from the success of Avengers: Age of Ultron, Inside Out and Ant-Man, among others. Its global box office grossing has seen an uptick and is expected to continue this trajectory in 2016, which will primarily benefit from the much-hyped  Star Wars: The Force Awakens – scheduled to be released next week. Star Wars will likely boost Disney’s global box-office market share in 2016, in our view. On that note, we discuss below Disney’s success with movies in 2015 and our estimates for 2016.

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Disney Managed To Grow Its Global Box-Office Grossing In 2015

While 2014 was a great year for Disney’s studio business, 2015 turned out to be even better. We estimate that the studio business contributes more than 10% to Disney’s stock value. In fiscal 2015, the studio accounted for 14% of Disney’s overall revenues and operating income. [1] This is far better than some of its peers. For instance, Viacom’s studio segment accounted for 21% of overall revenues in fiscal 2015 while it contributed a mere 3.5% to operating income. [2] This can be attributed to high production and distribution costs associated with this business. Even for Disney, studio’s contribution in earnings has been low historically due to the same factors.

Avengers: Age of Ultron and Inside Out primarily drove Disney’s box-office success in 2015. These two movies have grossed over $2.25 billion at the global box office, while the production budget of these movies combined was $425 million. [3] Disney also benefited from its other releases, including Cinderella and Ant-Man. The success of these movies at box-office will also aid other studio revenues such as revenues earned by Disney via pay-per-view, video-on-demand and pay-TV mediums.

While most of its movies did well at the box-office, Tomorrowland was a big disappointment for Disney. The movie was made with a budget of $330 million (includes production and marketing costs) while it grossed a mere $209 million globally, translating into a loss of over $120 million for Disney. [4] Barring Tomorrowland, 2015 was another great year for Disney’s studio business and it has managed to increase its U.S. market share by around 50 basis points to 16%. Looking at global box office, Disney’s grossing increased slightly to $3.85 billion. [5]

2016 Looks Promising Courtesy Of Star Wars

Disney had a fantastic run at the box office this year and it has a solid lineup for 2016, when the studio will reap the benefits from the much awaited Star Wars: The Force Awakens, along with The Jungle Book, Captain America: Civil War and Steven Spielberg’s The BFG. We estimate the studio’s revenues to be north of $8 billion and an estimated EBITDA margin of 28% for Disney’s studio business will translate into EBITDA of $2.25 billion for calendar year 2016, representing 12% of the company’s overall EBITDA for the year. It must be noted that these figures represent entire studio operations, including box-office, home entertainment and TV distribution business.

We believe that this growth will largely be driven by Star Wars, which has a massive fan following and can help Disney achieve high box-office grossing. Also, Disney has been aggressively pushing the brand across its platforms, including consumer products, video games and theme parks. Disney will release one Star Wars movie every year starting 2015 for next 4 to 5 years. Given that it’s a big series, it makes sense for Disney to use its other platforms, such as theme parks, to further elevate the Star Wars brand.

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Notes:
  1. Disney’s SEC Filings []
  2. Viacom’s SEC Filings []
  3. Avengers: Age of Ultron, Inside Out, Box Office Mojo []
  4. Summer Box-Office Flops: ‘Tomorrowland,’ ‘Fantastic Four’ Top List, The Hollywood Reporter, Sep 4, 2015 []
  5. Studio Market Share, Box Office Mojo []