Bob Iger, CEO, The Walt Disney Company
Scott Mlyn | CNBC
It’s been a tough decade for big media companies as more people stream content over the internet instead of paying for cable subscriptions. But this year in the movie business, the Force has been with Walt Disney.
The company released six of the eight highest-grossing films so far in 2019, including titles such as “Avengers: Endgame,” “The Lion King” and “Toy Story 4,” helping it reach a record $10 billion at the global box office.
The entertainment giant’s success dates back to a series of strategic acquisitions over the past decade that set Disney up to win in movie theaters and beyond. In 2009, the company bought Marvel for $4.3 billion in a bid to widen its entertainment assets with comic book characters such as Iron Man, Captain America and Thor.
The deal came just three years after Disney had purchased animation studio Pixar, known for titles including “Toy Story” and “A Bug’s Life,” for $7.4 billion. In 2012, the company spent an additional $4.05 billion on Lucasfilm, the studio behind the “Star Wars” and “Indiana Jones” franchises.
Those bets appear to have paid off. Disney’s stock has increased about 350% from around $32 per share at the end of 2009 to more than $150 per share 10 years later.
Its box-office haul represented 31.6% of the money made in the U.S. film industry in 2019, up from 11.5% in 2009, according to data from Comscore.
And while studio entertainment represents roughly 16% of Disney’s revenue, the company is leveraging its well-known franchises in other parts of the business. In the past year, it has opened up two “Star Wars” theme parks, for instance.
But as Disney heads into 2020, it faces a changing media landscape. New competitors such as Netflix, Amazon and Apple have ramped up their spending on content and created a war for share of consumers’ wallets and Hollywood talent.
Disney is making an effort to compete. In the last year, it closed a $71 billion acquisition of 21st Century Fox’s entertainment assets, launched the Disney+ streaming service, gained complete control of Hulu and released the highest-grossing movie in cinematic history, “Avengers: Endgame.” It also launched a separate sports streaming service, ESPN+, in April 2018.
But will it be enough to compete against Big Tech companies in the long run? And who will be at the helm in the new era of entertainment? The company’s 68-year-old chief executive, Bob Iger, has said that he is stepping down from his post in 2021 after extending his contract twice.
In the last decade, Iger has helped grow Disney’s market cap from $60.15 billion to more than $265 billion.
Disney’s deals: Pixar, Marvel, Lucasfilm & Fox
Iger has been at the helm of Disney since 2005 but had been part of the company since ABC was brought into the fold in 1996. In his first earnings call as CEO he was quick to address how he planned to put his mark on the company.
“We are prepared to move wisely and quickly in order to respond to rapid changes in the marketplace,” Iger said at the time.
Within two months of that call, Iger announced that Disney would acquire Pixar.
Still from Pixar’s “Up.”
Disney | Pixar
Since Pixar’s first film “Toy Story” debuted in 1995, the animation studio has garnered more than $14 billion at the global box office. Around $11 billion of that has come after Disney’s acquisition.
But when Disney first announced the deal, analysts were skeptical. Some even felt that Disney had paid too much to acquire the studio.
“You have to give Disney credit, not just for the acquisition but for the execution,” Paul Dergarabedian, senior media analyst at Comscore, told CNBC in August. “Had other companies bought these brands, the market share could have been split up, but we don’t know what other studios would have done with these brands.”
That same sentiment followed Iger when he announced Disney would buy Marvel, which was fresh off its success with the 2008 release of “Iron Man,” for $4 billion, an amount that some investors viewed as steep.
Robert Downey Jr. and Jeff Bridges star in “Iron Man.”
Paramount Pictures | Marvel
But Marvel tapped into a core demographic that Disney was missing at that time, Squire said. While Disney was well-loved by children and by older adults who had a nostalgia for the programs and movies they grew up with, it wasn’t creating a lot of content for older teens and young adults.
“At that time they had a gap for the 18-24 [demographic], and that’s Marvel’s sweet spot,” said Jason Squire, professor at the USC School of Cinematic Arts and editor of “The Movie Business Book.”
Since releasing its first Disney-produced Marvel movie in 2012, the company has hauled in more than $18.2 billion at the global box office. The company had a string of box-office successes across nearly two dozen films in less than a decade, something no other studio has ever succeeded in doing.
In the same year that Disney released its first produced Marvel feature, it also snatched up another lucrative brand — Lucasfilm.
After three years of production, the company released “Star Wars: The Force Awakens” in 2015. It was a continuation of the original “Star Wars” trilogy from the late ’70s and early ’80s, taking place 30 years after the fall of the Empire.
The film made more than $2 billion globally and remains the fourth-highest-grossing film of all time worldwide. Domestically, the film hauled in $936.6 million in ticket sales. It is still the highest-grossing film of all time in North America.
Adam Driver as Kylo Ren in “Star Wars: The Force Awakens.”
Overall, since 2015, Disney has released four “Star Wars” films and garnered nearly $5 billion at the global box office. The final film in the Skywalker saga is set to be released on Dec. 20.
Then, Disney closed on its biggest deal yet last March: the $71 billion purchase of the major entertainment assets of Fox, including a movie studio and cable channels such as National Geographic and FX. Through this deal, Disney gained a number of Marvel characters that had been sold to Fox in the late ’90s, including Deadpool and the X-Men. It also acquired the Avatar sequels that were greenlighted by the Fox studio.
These assets would allow Disney to better compete for viewership and dollars as the streaming war intensifies.
Source: Walt Disney Studios
While Pixar, Marvel and Lucasfilm all seemed to fit nicely into the Disney mold, Fox is a bit of an outlier, entertainment industry observers say. Fox’s catalog includes a vast number of movies and television shows that date back to the turn of the 21st century, and not all of them fit Disney’s squeaky clean brand.
“As Disney owns more and more, it’s going to lose that brand identification,” said Thomas Doherty, professor at Brandeis and a cultural historian with a special interest in Hollywood cinema. “How long can you sustain that trend before the bubble bursts?”
The streaming era
Sensing the growing competition from nontraditional studios such as Netflix and Amazon, Disney bought complete control of Hulu and launched Disney’s own proprietary streaming services.
Over the last few years, Disney stopped letting other companies license its content, wanting to keep more of its movies and TV series in-house. It also purchased a little-known tech company, BamTech, to build out its streaming platform.
In November, Disney+ launched with hundreds of library titles available, ranging from animated classics and Disney Channel TV shows to superhero blockbusters and intergalactic sagas. This followed the launch of ESPN+ in 2018.
Even with this successful start, industry analysts ask: Will Disney have enough original content to keep customers coming back to the service in the years to come as their kids get older? And can the streaming services ever be profitable? The segment that includes Disney+ and ESPN+ lost $1.8 billion in the year ended Sept. 28, compared with $738 million in 2018.
While many have opted in to Disney’s enticing three-year deal, which discounted the service by about 33%, analysts question if Disney will be able to sustain its streaming service. Rivals such as Netflix are known for spending billions on acquiring licensing for shows from other companies as well as on original content. Netflix is expected to shell out around $15 billion this year just for content.
For comparison, Disney said it expects it will spend about $1 billion in 2020 on original content for the platform and $2 billion by 2024.
“They seem to be taking the long view on this; it’s enormously expensive,” Squire said. “They are preparing themselves for a few years of extra heavy expenditures on all of this original content that they have announced. But early signs are very positive. The first month of Disney + had very strong turnout.”
The Child, popularly known as “Baby Yoda,” is a character in the new Disney+ series, “The Mandalorian”
Episodic Photos, Disney
Iger has said within a year of Disney+’s launch the number of original shows and movies will go from 10 to 45. He also noted that by year five there will be more than 60 original projects on the service.
The company has already announced new shows based on “Toy Story,” “Monsters, Inc.,” “Lizzie McGuire” and “High School Musical” that will appear on the service within its first year.
The company is also forecasting it will have between 60 million and 90 million subscribers by the end of 2024. One-third of those subscribers will be domestic and two-thirds will be international, the company said.