Taken 2, a movie under the banner of News Corp’s (NASDAQ:NWS) Twentieth Century Fox, did well on its opening weekend, grabbing $50 million as the top grossing film.  How well does this bode for the financial health of the company? As we have maintained in the past, the success of a single movie hardly holds any significance for media companies in the long run for two reasons.
First, the movie business margins are so low that its cash profits pale in comparison to what media companies earn from cable and broadcasting networks. In case of News Corp, while cable and broadcasting networks together constitute 65% of the company’s value, movie and TV show production and distribution business constitutes just 20%. If we look at movies alone, this value contribution comes down further significantly.
Second, the movie business is quite unpredictable. One of the good ways to judge the annual success is to look at the successful franchises that the media companies own and whether their sequels are scheduled for release. Disney (NYSE:DIS) with its Marvel franchise and Time Warner (NYSE:TWX) with its Batman franchise have done well. News Corp does have some successful franchises such as Rio, How To Train Your Dragon, Kung Fu Panda, etc., but their sequels do not release until 2014 and beyond. In any case, compared to Disney and Time Warner, News Corp’s franchises pale in terms of success and box office revenues.
- How Is News Corp Expected To Perform In 2016?
- How Will News Corp’s Revenue And EBITDA Composition Change In The Next Five Years?
- How Much Of News Corp’s Value Comes From Digital Real Estate?
- How Important Is The News And Information Segment For News Corp?
- How Much Upside Can Digital Real Estate Growth Drive For News Corp?
- What Is News Corp’s Fundamental Value Based On Expected 2016 Results?
News Corp trailed other major studios in terms of box office revenues in 2011 and the trend is continuing in 2012 as well, according to Box Office Mojo. Given the relative weakness of its franchises and no major sequels scheduled for late 2012 or 2013, we expect News Corp to perform below other major studios in the short-to-medium term.
Our price estimate for News Corp stands at $26.60, implying a premium of about 5% to the market price.Notes:
- Neeson Gets Revenge Again as Fox’s ‘Taken 2’ Leads Weekend Films, Bloomberg Businessweek, Oct 8 2012 [↩]