Why Universal Studio Is Becoming Increasingly Important To Comcast’s Value?

by Trefis Team
+20.40%
Upside
54.03
Market
65.05
Trefis
CMCSA
Comcast
Rate   |   votes   |   Share

Universal Studios’ Jurassic World has set the box office on fire. The movie’s success is a result of Universal’s focus on franchise building, a strategy which will serve the studio well in the future. The studio’s current franchise slate is impressive with a balanced mix of big-budget brands such as Fast & Furious, Jurassic World, Despicable Me/Minions and Fifty Shades of Grey and relatively less capital intensive properties such as Pitch Perfect, Jason Bourne, Neighbors, Ted, The Purge, etc. Universal Studios is an integral part of Comcast (NASDAQ:CMCSA), bringing in approximately $5 billion in revenues last year. [1] Based on current strength and expected future growth, we believe that Universal’s EBITDA will more than double from $680 million in 2014 to $1.56 billion by 2021. Consequently, the increase in this segment’s EBITDA will be instrumental in pushing NBCUniversal’s contribution to Comcast’s total EBITDA from 24% currently to around 30% by the end of our forecast period. NBCUniversal’s importance is growing as the segment is becoming a meaningful growth driver for Comcast in the wake of the company’s saturating pay-TV business.

Our price estimate for Comcast stands at $64.80, implying a premium of about 7% to the market.

See our complete analysis for Comcast

2015: Universal’s Banner Year

Universal studios’ dinosaur-themed science fiction adventure movie Jurassic World has met with unprecedented success. The quasi reboot took a monstrous bite out of the global box office right off the bat, becoming the first ever movie to take home $500 million in its opening weekend. [2] The movie simultaneously broke the domestic opening weekend record too, edging out Marvel’s The Avengers’ $207.4 million with $208.8 million of its own. [3] Jurassic World has maintained its extraordinary pace over the subsequent weeks and has demolished various other box office records in the process. It is now the fastest movie to reach $1 billion at the global box office, completing the feat in 13 days and dwarfing the previous record of 17 days held by Furious 7. Jurassic World has also crossed the $500 million landmark domestically, the fifth movie to do so after Titanic, The Dark Knight, Avatar and Marvel’s The Avengers. [4]

Comcast’ Universal has had a banner year so far, delivering hits such as Furious 7 (grossed $1.51 billion [5] worldwide), Fifty Shades of Grey ($570 million [6] worldwide) and Pitch Perfect 2 ($277 million [7] worldwide) in addition to Jurassic World. This amazing run has helped the studio reach the $3 billion mark at the global box office in record time. [8] Universal is currently sitting on a $3.8 billion haul for 2015 with six months still left on the calendar. [9] The studio looks set to add to its spoils with upcoming movies Ted 2 and Minions also expected to do well.

Future Looks Bright

The most pleasing part of Universal’s success is that the studio has a blueprint to replicate it in the future. The studio is building brands with an eye on the future. Universal continues to focus on international markets and is creating movies with popular international franchises such as Fast & Furious and Despicable Me. The first movie in the Fifty Shades franchise did extremely well and the rest are expected to follow suit. Universal has now successfully revived a fan-favorite franchise with Jurassic World and the movie’s lead actor Chris Pratt recently confirmed that he has signed on for more movies in the series. [10] The studio also has other relatively lower grossing franchise properties such as Pitch Perfect, Jason Bourne, Neighbors, Ted, The Purge, Snow White and the Huntsman, etc.

Big budget franchises have become the current norm and studios have built popular brands which all but guarantee success. Disney (NYSE:DIS) has The Avengers, Star Wars and Pirates of the Caribbean; Time Warner (NYSE:TWX) has Batman, Justice League and Harry Potter spin-off Fantastic Beasts and Where to Find Them; Viacom (NYSE:DIS) has Transformers and Star Trek; Sony (NYSE:SNE) has Spider-Man and Men in Black; 21st Century Fox (NASDAQ:FOX) has  X-Men, Planet of the Apes and Ice Age. Universal did not have a $1 billion movie on its resume till the end of 2014. However, the studio put out two such movies this year with Furious 7 and Jurassic World. Fifty Shades of Grey met with unprecedented success and Minions is also tracking to perform exceptionally well. Having such franchises in its repertoire offers Universal a certain degree of certainty and stability.

In addition to big-budget movies, the studio is making money off of movies that are produced at a very reasonable budget. The studio produced or distributed fifteen movies in 2014 and eleven of those had a budget of $40 million or less. 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’s margins improve as it does not have to take a big hit if the movie tanks and every once in a while, a movie performs exceptionally and grosses $500 million or more,  as seen with Fifty Shades of Grey, Ted and Despicable Me 2. Such a two-pronged strategy will serve the studio well in the years to come. Accordingly, we believe that filmed entertainment revenues will grow from $5 billion in 2014 to around $7.5 billion by the end of our forecast period.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Comcast’s SEC Filings []
  2. Box Office: ‘Jurassic World’ Sets Global Record With $511.8 Million Debut, June 14, 2015, Variety []
  3. Jurassic World – Box Office Records, Wikipedia []
  4. Box Office: ‘Jurassic World’ Nabs 3rd-Biggest 3rd Weekend, Tops $500M, June 28, 2015, Forbes []
  5. Furious 7, Box Office Mojo []
  6. Fifty Shades of Grey, Box Office Mojo []
  7. Pitch Perfect 2, Box Office Mojo []
  8. Universal Reaches $1B Domestic, $3B Global Box Office In Industry-Record Time, June 14, 2015, Deadline []
  9. ‘Jurassic World,’ ‘Furious 7′ Push Universal to Record Year, June 14, 2015, Variety []
  10. Chris Pratt is signed on for more Jurassic World movies, June 14, 2015, Entertainment Weekly []
Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!