Again, Mickey Mouse Robbed Spidey

When Walt Disney (NYSE: DIS  ) bid $4 billion for Marvel Entertainment in 2009, I called it theft. Disney had bought the fourth-largest licensor in the world for a song, and it would generate huge profits by matching its own world-leading licensing machine to Marvel's underrated properties.

Fast-forward three years. Marvel's The Avengers, the culmination of Marvel's foray into a serial style of filmmaking that closely mirrors its comic-book franchise, has topped more than $700 million at the worldwide box office. Last weekend's $207 million U.S. opening ranks as the largest of all time, no doubt aided by nerds like me who shelled out $40 for a 12-hour marathon of Marvel flicks leading up to a midnight screening of the team-up epic (which I loved as much as many others seem to).

All signs point to The Avengers equaling or even besting Time Warner's (NYSE: TWX  ) The Dark Knight, the only comic-book adaption ever to gross more than $1 billion in worldwide box-office receipts. Mix in licensing revenue from toys, games, clothing, and more, and Disney shareholders should see a bounty of cash flowing from this flick.

Avengers not yet fully assembled
Frankly, the only thing the team of Iron Man, Captain America, Thor, The Hulk, Black Widow, and Hawkeye can't do is bulk up Disney's fiscal second-quarter profits -- not that they needed to. The House of Mouse reported $0.63 in adjusted earnings per share, up 29%, on $9.63 billion in revenue -- a 6% increase. Share repurchases added a fair amount of tailwind; Disney spent $870 million to buy back 21.4 million shares of stock during fiscal Q2, Zacks reports.

Major segments improved nicely. Media networks revenue rose 9% year over year, while parks and resorts grew 10%. Combined, the two accounted for $7.6 billion in revenue -- roughly 79% of quarterly sales. Meanwhile, studio entertainment revenue fell 12%, resulting in an $84 million operating loss, courtesy of megaflop John Carter, which took in just $271 million worldwide despite a $250 million production budget. Studio chief Rich Ross resigned in April as a result. Marvel Studios top executive Kevin Feige is rumored to be a potential replacement.

Here's why that might make sense:

Worldwide Box Office
Domestic DVD Sales
Iron Man $582.4 million $172.8 million $755.2 million
The Incredible Hulk $263.4 million $58.9 million $322.3 million
Iron Man 2 $623.6 million $121.3 million $744.9 million
Thor $449.3 million $20.9 million $470.2 million
Captain America: The First Avenger $369.7 million $28.7 million $398.4 million
Marvel's The Avengers $702.1 million TBD $702.1 million
TOTAL $2.99 billion $402.6 million $3.39 billion

Sources: The Numbers; Box Office Mojo.

Before you cry foul, realize that this list only includes films produced by Marvel Studios. Viacom's (NYSE: VIA  ) Paramount Studios distributed all but one of these flicks -- The Incredible Hulk, which was distributed by former license owner Universal Studios. These are the productions Feige had the greatest control over, and their performance as a series is the very model for what Time Warner wants DC Entertainment to achieve and what Lions Gate Entertainment (NYSE: LGF  ) is well on its way to achieving with The Hunger Games, which has already taken in more than $500 million worldwide.

Getting ready for a richer future
For Disney, The Avengers' contribution to both fiscal 2012 and 2013 could be huge. How huge? Look at history. The studio performed best in fiscal 2007 and 2008, years in which Disney benefited not only from new installments in the Pirates of the Caribbean and Chronicles of Narnia franchises, but also big wins from sub-studio Pixar.

In 2007, Ratatouille brought in $620.5 million at the worldwide box office and another $189.3 million in DVD sales. In 2008, WALL-E earned $532.7 million globally and collected another $142.9 million in DVD sales. Disney's studio operating margins came in around 15% in each year. By contrast, last year's margins dipped below 10% after barely topping double digits the year prior. Hits matter.

Disney has another in The Avengers, thanks to CEO Bob Iger's savvy buy of the comic-book king back in 2009. Well played, sir. It's almost enough to make me think your company belongs among this list of American stalwarts, each poised to dominate the world markets they participate in.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Walt Disney and Time Warner at the time of publication. Check out Tim's web home, portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services have recommended buying shares of Walt Disney. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 10, 2012, at 12:16 AM, esxokm wrote:


    I am a Disney shareholder and enjoyed this article, but I believe we don't have a complete picture regarding the true impact of Marvel and The Avengers.

    Is there any way you could research how much free cash flow will ultimately flow to Disney from The Avengers? A billion dollars at the box office is great...but how much of that billion gets taken by talent, Marvel execs, etc.?

    Also, do you think there we should be concerned about home video sales over the long run? They may decline as digital distribution heats up. And presumably the margin advantage will disappear.

    And finally: The Avengers is doing great. But...what next? Have we seen a top in Marvel's performance? How will they assemble an Avengers sequel at a proper budget, one that minimizes talent participation? Will they have to do some re-casting? I recently read an article that said Iron Man could become like James Bond, with different actors portraying the character...I could see that working. We'll have to see how the new Spider-Man actor fares with the fans.

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