Why Disney Is the Best Buy in the Entertainment Sector

Walt Disney (NYSE: DIS) went through a long period of disarray. Its legendary movie studio struggled through the 70s and early 80s, only turning around when the so-called Disney Renaissance began in the mid-1980s under then-CEO Michael Eisner.

The company began its turnaround buying by ABC and ESPN, then revived its fortunes when films including Beauty and the Beast and Aladdin helped it get its mojo back. After that, of course, the company went on a buying spree, paying $7.4 for Pixar, $4 billion for Marvel, and $4 billion for Lucasfilms (Star Wars).

Those deals gave the company the content it needed, and Harry Potter, the fictional wizard, inadvertently spurred the company to invest in its U.S. theme parks: adding worlds based on Potter made Comcast's (NASDAQ: CMCSA) Universal Studios a viable rival for the Disney parks. That forced the House of Mouse to make a series of moves which it's just starting to benefit from.

Why is Disney the best stock in entertainment?

Movies, television, theme parks, and even games have all become about intellectual property (IP). Disney owns the most and best, with Comcast a distant second.

The company also had its lineup of classic characters, and now it has expanded that into new demographics with films like Moana and Frozen. It also has Pixar's ever-expanding lineup of characters, along with the Marvel Universe, Star Wars, and a potential Indiana Jones reboot down the line.

That gives Disney an unstoppable edge at the box office. It can release one Disney animated movie, three Marvel films, two Pixar movies, and a Star Wars every year with near-guaranteed success. In 2016, the company showed the power of that slate by taking the top five spots at the global box office, according to data from Box Office Mojo.

Rank Film Studoi Worldwide  Domestic
1 Captain America: Civil War Disney $1,153.30 $408.10
2 Rogue One: A Star Wars Story Disney $1,056.10 $532.20
3 Finding Dory Disney $1,028.60 $486.30
4 Zootopia Disney $1,023.80 $341.30
5 The Jungle Book (2016) Disney $966.60 $364.00

That's an unprecedented feat, but it's not an anomaly. As of August 18, Disney leads the 2017 global box office and has the top-grossing film of the year -- Beauty and the Beast -- and two others in the top six. That status should improve even further, as the company still has Star Wars: The Last Jedi and Thor: Ragnarok on its 2017 release schedule.  

Why is IP so important?

It's easier to sell a familiar product to consumers. That's why studios spit out movies based on board games and remakes of TV shows that weren't that good in the first place.

Disney has the ability to do that with not just movies, but also television and its theme parks. Take its Marvel properties. They have obviously spawned hit movies, but they also provide Agents of Shield for the company's ABC network and a number of shows (Daredevil, Jessica Jones, Luke Cage, etc.) for Netflix, and they have also ed to character meet and greets as well as rides in its theme parks.

Of course, Universal Studios has a deal for most Marvel characters that predates Disney owning the brand. That agreement only applies to characters the Comcast park has used, though, leaving Guardians of the Galaxy as fair game for Disney parks, where a ride has already been repurposed for the oddball heroes at DisneyLand; a new one will be built at EPCOT (while various characters appear at other Disney parks).

It's the gift that keeps on giving

Disney will again exploit its IP (and deal a blow to Comcast) when it opens two new Star Wars lands in California and Florida in 2019. The biggest land additions in the company's history, these attractions should complete the company's wave of investment designed to answer Harry Potter.

This included adding an Avatar-themed land to Animal Kingdom (a rare case of licensing IP from another company), adding a Toy Story land to Disney's Hollywood Studios, and building a Tron roller coaster at Magic Kingdom. The company also built a Frozen ride at EPCOT and plans a Mickey Mouse ride for Hollywood Studios.

Disney always had a vault of characters, but now it has an unmatched array of IP that it can leverage in many ways. The company still has issues to solve at ESPN and with its cable networks, but its IP should help it solve those problems as it transitions to digital services.

No matter the medium, Disney owns properties people connect to. That's a powerful base to build off of, which should guarantee the company's success for a long time to come.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.