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2019-07-22 14:09:19

Daniel B. Kline The Motley Fool

Published 7:00 AM EDT Jul 22, 2019

When a little film becomes a big hit, that makes it seem like every movie released has a chance at box office success. In reality, low-cost, out-of-nowhere blockbusters like Juno, Slumdog Millionaire, or My Big Fat Greek Wedding are incredibly rare.

These days, big-budget franchises dominate the box office, and smaller films have increasingly been relegated to shorter runs in theaters or go straight to streaming. That may not be great for film lovers, but it makes financial sense.

It's expensive to go to the movies, and when people do, they want spectacle (and maybe explosions). They also want something familiar they know will be worth the roughly $10 that the average movie ticket now costs.

Walt Disney saw this reality coming and has positioned its film division to take advantage. It may suffer the occasional misstep (it turns out that not that many people were interested in a Han Solo origin story), but overall it's going to dominate the box office year after year.

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What has Disney done?

Since it bought Pixar in 2006, Disney has been acquiring near-sure-thing film brands. That includes Lucasfilm (Star Wars and Indiana Jones) and Marvel. Its recent acquisition of Twenty-First Century Fox's film and TV libraries gives it access to the Avatar franchise (which already has a presence at the Animal Kingdom theme park) and reunites the Marvel universe, bringing back into the fold characters like the X-Men and Deadpool.

Add in Disney's own animated films and its ability to reuse movies from its library as remakes or in live-action versions based on cartoon originals, and it's a near-certain recipe for success. In any given year, Disney's lineup could contain:

2 Pixar animated movies3 Marvel superhero movies1 Star Wars-universe filmAn X-Men or Deadpool film1 Disney animated movie1 remake of a Disney classic1 Avatar sequel1 Kingsman sequel

Not every year will have each of those, but that list does not include every major brand the company owns. For example, a second The Simpsons movie would likely be a major hit, as might a new Indiana Jones or even another Pirates of the Caribbean.

Basically, Disney enters every year with 10 to 12 movies that have billion-dollar box office potential. Some will falter, but even that is relative since Solo – the company's highest-profile mistake – still made $392 million globally. That's a failure by Star Wars standards (and measured against its budget), but it's certainly not the financial disaster that spending $200 million or more on a non-franchise film has repeatedly been for other studios.

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The death of creativity?

Disney has found a formula that works reliably. It's also a system that minimizes risk. Of course, this setup means that the company does not take many shots at building new franchises or telling smaller stories.

Despite that, it's hard to argue that the company has not been creative. Avengers: Endgame may be a franchise movie, but it finishes a story that was planned out across 21 movies that came before it in a way that's satisfying and believable while also laying groundwork for the future.

Disney isn't making art-house fare, but it is producing blockbusters that largely deliver to their audiences. That keeps these franchises strong and lets the company leverage them across television, theme parks, and consumer goods. Art-house films or even modestly budgeted buddy-cop movies generally don't get theme park rides, pajamas, or all the other things a Disney film might generate. This formula works, and Disney has set itself up to be the company that delivers movies people will pay full price to see at the box office.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney and short October 2019 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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