Disney Studios Continues Its Box Office Domination

By Danny Vena Markets Fool.com

2016 was a pretty good year for movies. According to a report(link opens PDF) by the Motion Picture Association of America (MPAA), the North American box office total reached $11.4 billion, a record-setting year.And the undisputed box office champ wasThe Walt Disney Company (NYSE: DIS).

Continue Reading Below

The House of Mouse had four of the top five, and six of the top 10 grossing movies as measured by domestic box office, according to website Box Office Mojo. The global totals are even more impressive: Disney landed all of the top five spots for worldwide box office. As icing on the cake, the company became the first film studio to rake in over $7 billion in ticket sales in a single year.

Rank Title Distributor Worldwide Box Office (millions)
1 Captain America: Civil War Buena Vista $1,153.30
2 Rogue One: A Star Wars Story Buena Vista $1,055.57
3 Finding Dory Buena Vista $1,028.60
4 Zootopia Buena Vista $1,023.80
5 The Jungle Book (2016) Buena Vista $966.60
6 The Secret Life of Pets Universal $875.50
7 Batman v Superman: Dawn of Justice Warner Bros. $873.30
8 Fantastic Beasts and Where To Find Them Warner Bros. $813.20
9 Deadpool 21st Century Fox $783.10
10 Suicide Squad Warner Bros. $745.60

Data source: Box Office Mojo.

Another banner year?

It appears that this year, Disney's studios will continue its winning ways. By the time you read this, fan favorite Beauty and the Beast will likely have crossed $1 billion in worldwide ticket sales. Earlier this week, Piper Jaffray released its semiannual survey of U.S. teens, "Taking Stock With Teens" (TSWT). One of the key takeaways from the report was that Disney dominated the list of most anticipated films among teens for 2017, nabbing three of the top eight spots. The aforementionedBeauty and the Beast, Star Wars: The Last Jedi, and Guardians of the Galaxy Vol. 2 took second, third, and fourth places, respectively.

Continue Reading Below

According to the MPAA, audiences between 18 and 25 attend more movies than any other demographic, so this helps shed light on their prospects for the coming year.If you thought the anticipation of a blockbuster movie season would be reflected in the stock price, you might be surprised to learn that the stock hasn't made much headway in the last two years.

What gives?

The cable industry has come under pressure in recent years due to the rise of streaming services like those offered by Netflix(NASDAQ: NFLX), as well as other online offerings like Alphabet's subsidiary Google's YouTube.

TWST reported that 38% of teens reported using Netflix and 26% viewed YouTube on a daily basis. Those who reported watching cable TV had declined in each of the previous four reports from 29% in late 2015 to 23% most recently. The phenomenon of cord-cutting -- those canceling their cable subscriptions in favor of free and lower-priced options -- is the culprit. Research firm Leichtman Research reported that the top cable providers lost an estimated 795,000 net video subscribers in 2016, up from estimated losses of 445,000 in 2015.

The majority of cable packages include a subscription to Disney's flagship cable sports channel, ESPN. Over the years, it had emerged as a powerhouse in sports programming. It negotiated lengthy multibillion-dollar contracts to acquire exclusive rights to broadcast games from all the major sports in the U.S. and is now tied to those in the face of a falling subscriber base. Disney doesn't break out ESPN from its broader media networks segment, which accounts for 42% of Disney's revenue, but revenue from the segment declined 2% year over year in the most recent quarter, while income fell 11%.Investors fear that if subscribers continue to defect, rising costs and fewer subscribers will pressure Disney's results.

Beauty and the Beast is closing in on $1 billion in worldwide box office. Image source: Disney.

Missing the big picture

The knee-jerk reaction by some investors fails to take into account the bigger picture. Losing only about 2% of its subscribers in each of the last three years is hardly a death sentence.Disney has been working behind the scenes on measures to stem the tide of losses at its sports behemoth. ESPN is included in most skinny bundles,and Disney has been experimenting with a direct-to-consumer service, powered by its $1 billion minority acquisition of BAMTech, a video-streaming service developed by Major League Baseball. Disney has also embarked on a campaign of cost savings, laying off some of ESPN's high-priced on-air personalities.

While ESPN may continue to weigh on Disney's results, other areas will be picking up the slack. The company opened its newest theme park, Shanghai Disneyland, in mid-2016, which should ramp up and provide a revenue boost to the parks and resorts segment. Disney is licensing recent theatrical releases to Netflix through 2018 and the two are partnering on a series of programs featuring Marvel's Defenders -- Daredevil, Jessica Jones, Luke Cage, and Iron Fist. As its studio continues to churn out hits, Disney'smarketing machine incorporates those characters into every facet of the its empire, from plush toys to lunch boxes to streaming deals with Netflix. ESPN may be the lion's share of Disney's revenue now, but over time, it will become less of the total and investors can go back to focusing on what the company does best: telling stories.

10 stocks we like better than Walt Disney
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Walt Disney wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 3, 2017

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares), Netflix, and Walt Disney. Danny Vena has the following options: long January 2018 $80 calls on Walt Disney, short July 2017 $115 calls on Walt Disney, long January 2018 $640 calls on Alphabet (C shares), and short January 2018 $650 calls on Alphabet (C shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Netflix, and Walt Disney. The Motley Fool has a disclosure policy.