Impact of 2 Disney Movies Hitting $1 Billion in 2010
Disney’s (NYSE:DIS) Toy Story 3 crossed the $1 billion mark in box offices in August joining Alice in Wonderland as the second film to pass $1 billion in 2010 from the company. [1] The movie had tremendous success in the US and internationally and helped Disney become the only studio in history to have two $1 billion successes in a given year.
Disney’s studio business competes with other studios like Fox Studios owned by News Corp (NASDAQ:NWS), Paramount Studios owned by Viacom (NYSE:VIA) and Warner Brothers owned by Time Warner (NYSE:TWX).
While Disney’s box office performance is important, Disney also earns handsomely on selling DVDs and licensing content after a movie is released. Below we explore two optimistic scenarios assuming that Disney’s success leads to sustainable market share gains to around 12% for both DVD Sales and Box Office Sales, contributing around 9% to our Trefis price estimate of $37.44.
+5% if Box Office Market Share Jumps to 12%
We estimate that overall Disney Studios constitutes about 16% of Disney’s value, of which box office sales account for 4% of our estimate and licensing and DVD’s chip in 6% each. Disney is expected to gain market share riding on the success of its animated movies from a global box office market share of close to 8% in 2010.
These market share gains are likely to continue given the likelihood of success of Cars 2 in 2011, and Disney’s Tangled which is currently doing well in theaters. This is not only due to higher box office sales but also due to higher content licensing revenues which generally depend on box office sales. We estimate that content licensing revenues amount to about 90% of gross box office sales. If these trends continue, Disney’s global box office market share may pass its previous peak in 2007, amounting to 12% by the end of our forecast period translating into potential upside of a little over 5%.
+4% if DVD Market Share Rises to 12%
If Disney leverages its box office success well and is able to drive market share gains in the global DVD market amounting to 12% share by the end of our forecast, it can add and additional 3-4% upside to our price estimate.
Although video rentals and streaming are the growing trends for adults, we believe that animated movies will continue to sell well as DVDs in the near term as many parents enjoy buying DVDs like Toy Story 3 rather than renting so that their kids can watch them multiple times [2]. Additionally, Disney is trying to push DVDs into the market by offering packaged sales wherein ownership of the DVD or Blu-ray disc is tied up with access to digital versions of the movie.
While we believe these scenarios are very optimistic, they seem achievable and could add around 8-9% to Disney’s current price estimate.
You can see the complete $37.44 Trefis price estimate for Disney’s stock here.