Dis­ney is a box-of­fice su­per­hero

▶▶Dis­ney’s ac­qui­si­tion strat­egy is pay­ing off—to the detri­ment of its ri­vals ▶▶“They seem to have a fin­ger on the pulse of what the pub­lic wants at a level that I haven’t seen”

Bloomberg Businessweek (Asia) - - CONTENTS - Anousha Sak­oui, with Christo­pher Palmeri

When Cap­tain Amer­ica bursts back onto the big screen on May 6, au­di­ences will likely be thrilled by his much an­tic­i­pated fight with Iron Man. The out­come of the bat­tle, how­ever, is a fore­gone con­clu­sion: Walt Dis­ney will emerge vic­to­ri­ous. Box-of­fice an­a­lysts say Cap­tain Amer­ica: Civil War— the eighth Marvel film from Dis­ney since it bought the com­pany in 2009 and the third Cap­tain Amer­ica film— could ri­val the big­gest hits in the fran­chise. The re­views are over­whelm­ingly pos­i­tive, and ad­vanced ticket sales have eclipsed those of other su­per­hero movies, con­found­ing naysay­ers who were warn­ing that movie­go­ers might be tir­ing of the genre.

The likely block­buster kicks off a po­ten­tially record-break­ing sum­mer for ticket sales and what an­a­lysts say could be Dis­ney’s best year at the movies in its his­tory. Dis­ney, with a 25 per­cent mar­ket share this year, is dom­i­nat­ing the film business to an un­prece­dented de­gree. In the first half, Dis­ney will have the No. 1 movie for 13 of those 26 weeks, pre­dicts Bar­ton Crock­ett, an an­a­lyst at FBR Cap­i­tal Mar­kets. “They will have the high­est share in a gen­er­a­tion, or

maybe of all time,” he says. The stu­dio also is scor­ing points with a mix of nos­tal­gia flicks such as its Star Wars se­quel and tech­nol­o­gy­driven hits like The Jun­gle Book, Crock­ett says. “They seem to have a fin­ger on the pulse of what the pub­lic wants at a level that I haven’t seen be­fore.”

Dis­ney’s ad­van­tages lie in its sto­ry­telling abil­ity and the strength—and num­ber—of its brands. Time Warner’s

Warner Bros. has DC Comics, and Com­cast’s Uni­ver­sal Pic­tures has a strong an­i­ma­tion arm, but Dis­ney has un­par­al­leled scale. This is largely be­cause of an ac­qui­si­tion spree by Chief Ex­ec­u­tive Of­fi­cer Bob Iger, which in­cluded Lu­cas­film, Marvel, and Pixar. That built the stu­dio into five po­tent film brands while com­peti­tors weren’t in­vest­ing in the risky business.

Play­ing catch-up, ri­val stu­dios are dig­ging into their ar­chives to re­make films with new twists, such as Sony

Pic­tures’ all-fe­male Ghost­busters. Or they’re hav­ing to find fran­chise

prop­er­ties, such as Para­mount Pic­tures’ ven­ture with Has­bro to bring to the screen a uni­verse con­structed around ac­tion fig­ure G.I. Joe. The pres­sure to com­pete will prob­a­bly en­cour­age ac­qui­si­tions. “Smaller firms with unique con­tent will con­tinue to be takeover tar­gets,” says Christo­pher Marangi, a port­fo­lio man­ager at Ga­belli Funds, an in­vestor in me­dia stocks. But some an­a­lysts worry that in­dus­try pres­sure could lead to ex­pen­sive ac­qui­si­tions that de­stroy value as movie com­pa­nies chase—and over­pay for—tar­gets like Lions Gate

En­ter­tain­ment, cre­ator of Twi­light

and The Hunger Games.

Dis­ney’s multi­bil­lion-dol­lar in­vest­ment in pro­duc­tion com­pa­nies since 2006 has come to fruition in 2016. The five film units could this year re­lease a record num­ber of movies that break $1 bil­lion in ticket sales. “We have talked for 25 years about the big six global en­ter­tain­ment com­pa­nies, [but] maybe we are start­ing to see the strat­i­fi­ca­tion among them,” says Jonathan Kuntz, a film his­to­rian and pro­fes­sor at the UCLA School of Theater, Film & Tele­vi­sion. “‘Su­per­ma­jors’ might be a good term for what Dis­ney, and maybe Com­cast and Time Warner, as­pire to be.”

For much of the 20th cen­tury, Dis­ney, Para­mount, Sony Pic­tures, Warner Bros., Uni­ver­sal Pic­tures, and 20th Cen­tury Fox dom­i­nated film pro­duc­tion and dis­tri­bu­tion glob­ally. But Dis­ney’s three ac­qui­si­tions, along with its two other la­bels, Walt Dis­ney An­i­ma­tion and Walt Dis­ney Pic­tures, has left it with some of the best fran­chises in Hol­ly­wood. That’s al­lowed the stu­dio to map out a com­bined film slate into 2020.

“That is the fu­ture for the next decade,” with Dis­ney and Warner Bros. hav­ing laid out su­per­hero movies and other se­quels, spinoffs, and re­boots for years to come, says Jeff Bock, a box­of­fice an­a­lyst at Ex­hibitor Re­la­tions. Bock fig­ures that Dis­ney alone will have six or seven of the top 10 gross­ing films this year and po­ten­tially four movies each gen­er­at­ing $1 bil­lion world­wide:

Cap­tain Amer­ica: Civil War; The Jun­gle Book; Rogue One: A Star Wars Story; and

Find­ing Dory, a se­quel to Find­ing Nemo. “The Pixar ac­qui­si­tion saved Dis­ney An­i­ma­tion,” says Bank of Amer­ica Mer­rill Lynch an­a­lyst Jes­sica Reif Co­hen. “That was the be­gin­ning.” Dis­ney is “the only com­pany right now that has a branded film strat­egy,” she says, with each of its sub-brands churn­ing out its own string of re­li­able, pre­dictable fare. “Con­sumers know what they are go­ing to get, which makes mar­ket­ing easy and ef­fi­cient.”

John Las­seter, one of the orig­i­nal Pixar an­i­ma­tors and di­rec­tor of the megahit Toy Story, is the cre­ative leader of Pixar and Walt Dis­ney An­i­ma­tion. That’s al­lowed him to help rein­vig­o­rate the an­i­ma­tion unit and pro­duce more mod­ern hits, such as

Frozen and this year’s Zootopia. Uni­ver­sal is ap­ing that ap­proach with Chris Meledan­dri, cre­ator of the hugely suc­cess­ful De­spi­ca­ble Me films, who will over­see his Il­lu­mi­na­tion

En­ter­tain­ment, Uni­ver­sal’s an­i­ma­tion part­ner, and the DreamWorks

An­i­ma­tion stu­dio Com­cast agreed to ac­quire in April. The buy­out is seen as Com­cast’s at­tempt to lock in in­tel­lec­tual prop­erty—in­clud­ing the char­ac­ters from DreamWorks’ Shrek and Kung

Fu Panda—that Uni­ver­sal can ex­ploit in its theme parks, the way Dis­ney does. “The in­dus­try looks at Dis­ney with envy,” Reif Co­hen says. “It is a highly suc­cess­ful and unique strat­egy, wellex­e­cuted and hard to du­pli­cate.”

Sum­mer is the most lu­cra­tive time of year for stu­dios, and an­a­lysts pre­dict this sea­son could beat 2013’s record. A slew of highly an­tic­i­pated re­leases in­clud­ing Find­ing Dory and Warner Bros.’ Sui­cide Squad could, along with

Cap­tain Amer­ica, push the sum­mer sea­son to about $5 bil­lion in ticket sales in North Amer­ica, es­ti­mates Geetha Ran­ganathan, an an­a­lyst at Bloomberg In­tel­li­gence. With break­out hits such as Fox’s off­beat an­ti­hero Deadpool and the un­ex­pect­edly strong turnout for Dis­ney’s The Jun­gle Book, 2016 could see re­cently set an­nual box­of­fice records bro­ken again—es­pe­cially be­cause Dis­ney’s sec­ond

Star Wars-re­lated re­lease will hit the­aters in De­cem­ber. Crock­ett es­ti­mates 2016 will out­strip the

$11.1 bil­lion an­nual record gen­er­ated at the do­mes­tic box of­fice in 2015 and Dis­ney’s stu­dios will gen­er­ate more than $3 bil­lion in profit, its largest ever. For now, at least, Hol­ly­wood’s big­gest star is Dis­ney it­self.

The bot­tom line Dis­ney’s ac­qui­si­tion spree un­der CEO Iger has po­si­tioned the com­pany to dom­i­nate the movie business—and give ri­vals headaches.

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