Disney (NYSE:DIS) has recently surpassed the $4 billion mark at the global box office for the first time in its history.  Disney studios is riding high this year with the success of Iron Man 3, Monsters University, Thor: The Dark World and Oz: The Great And Powerful. For the fiscal year 2013, the company reported a 27% jump in its theatrical distribution to $1.87 billion. 
The success ride for Disney appears to be far from over due to solid lineup in the coming years. The popular titles such as Need For Speed, Captain America: The Winter Soldier and Planes: Fire and Rescue are scheduled to be released in 2014. Come 2015, Disney is all set to bring the next episode of Star Wars and a sequel to Avengers. 
According to our estimates, Disney’s Studio business contributes close to 7% to the company’s value. While this business accounts for close to 14% to the overall revenues, it hardly contributes 6% to the company’s reported EBITDA. Such low value contribution can be attributed to the higher marketing costs involved in the business.
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Disney Will Continue To Benefit From Its Acquired Assets
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 bought 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 would obviously try to repeat the success of Marvel and Pixar with Lucasfilm. This shouldn’t be that difficult, especially for Star Wars considering the huge fan base and followers of the popular series. Disney is currently working on Episode VII of the nine-part Star Wars series, with release slated for the summer of 2015.
Given the popular titles coming up in the next few years, we estimate the theatrical revenues to cross $2 billion and overall studio entertainment revenues to be northward of $6 billion in 2015. Earlier this year, 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.
Netflix Will Offer A Platform For Marvel Characters
Recently Disney announced a deal with Netflix (NASDAQ:NFLX) to create a multiple live-action series based on Marvel TV’s four most popular characters and one mini-series exclusively to be shown on Netflix’s streaming-video service. Under this deal, Disney will provide Netflix with a live action series developed by Marvel featuring its four popular characters: Daredevil, Jessica Jones, Iron Fist and Luke Cage. Netflix’s video streaming service will show around 60 episodes in total in 2015, featuring the four superheroes, and the mini-series will be called The Defender. 
Such deals not only aid the company’s overall revenue growth, they provide a good platform to deliver Disney’s rich content of its acquired assets, brand, and characters. Netflix itself has been focusing more on the original content after the success it witnessed with the House of Cards. As far as Disney is concerned, there are lots of Marvel characters, which may not fit in with the current movie universe. Disney can utilize such characters to develop series for streaming services or its own TV channels.
For now, Disney continues to expand its characters universe and the way demand for content is rising, the company will continue to benefit from these characters. The company also has an added advantage of theme parks, which helps promoting its movies and characters.
Our price estimate for Disney stands at $75, which is at around 6% premium to the current market price.Notes:
- Walt Disney Studios Breaks $4 Billion at the Global Box Office for the First Time, Disney’s Press Release, Nov 27, 2013 [↩]
- Disney’s SEC Filings [↩]
- Disney’s Release Schedule, Box Office Mojo [↩]
- Disney Buys Rights to Marvel Movies From Viacom’s Paramount, Bloomberg, Jul 3, 2013 [↩]
- Disney’s Marvel and Netflix Join Forces to Develop Historic Four Series Epic plus a Mini-Series Event, Marvel, Nov 7, 2013 [↩]