If all the recent blockbusters have you thinking about investing in the movie industry, there are a few things you need to consider beyond the basic financials. First, you should examine which recent movies are performing well, as well as which movies (and franchises) are likely to offer the most future potential. On top of that, you should keep a company's focus in mind -- for instance, that Lions Gate Entertainment (NYSE: LGF ) solely focuses on movie and television production while Disney (NYSE: DIS ) and Time Warner (NYSE: TWX ) , owner of Warner Bros., are more diversified, which makes them different types of investments. Let's take a look at what each of these companies have to offer from a movie perspective.
A cast of investment characters
If you're looking for high-growth potential, and you're willing to take on more risk, then you might want to look at Lions Gate. Its Hunger Games franchise is off to a phenomenal start, and there's no reason to think that its momentum will suddenly slow. More on this soon.
If you're looking to invest in a much larger company, yet you'd still like to invest in movies, then you might want to consider Disney. Its most recent release, Frozen, has been a home run. Considering the movie's success, Disney is likely to go with another fairy tale in the near future, which could further drive the company's top line. This is especially the case given Disney's skill at merchandise sales following a movie's success.
As far as Time Warner goes, its Hobbit franchise seems to be delivering a solid performance, especially considering that the original The Hobbit: An Unexpected Journey grossed just north of $1 billion and is No. 16 on the list of all-time highest-grossing movies. Personally, I don't think that ranking is justifiable, as I didn't think the movie held a candle to any of the Lord of the Rings movies, but that's just my opinion. Only the numbers matter.
Let's see how Hunger Games: Catching Fire, Frozen, and The Hobbit: The Desolation of Smaug performed over the weekend, and take a look at some other interesting numbers.
The Hobbit: The Desolation of Smaug brought in $73.68 million on its opening weekend. This fell short of expectations, and it didn't match the original's opening-weekend total of $84.6 million. Electra, the snowstorm that affected a good portion of the country, might have played a role. The Desolation of Smaug also sported higher ratings than An Unexpected Journey.
For example, The Desolation of Smaug carries an IMDb rating of 8.5, whereas An Unexpected Journey's rating is 8.0. The Desolation of Smaug also has a higher RottenTomatoes.com rating of 87% (audience approval rating) versus 83% for An Unexpected Journey.
The point here is that these higher scores combined with poor weather might indicate that The Desolation of Smaug still has good potential going forward. However, these numbers still aren't as impressive as those achieved by Frozen and The Hunger Games: Catching Fire, at least from the perspective of audience approval ratings.
Disney's Frozen brought in $22.2 million over the weekend ending Dec. 15. After 19 days, Frozen has brought in $164.4 million, 42.5% more than Tangled (2010) for the same time frame. Frozen has an IMDb rating of 8.1 and an audience approval rating of 90% on RottenTomatoes.
The Hunger Games: Catching Fire brought in $13.2 million over the weekend. However, after four weeks, its box-office sales totaled $357 million, which is a 6% better pace than the original. Catching Fire has an IMDb rating of 8.1 and an audience approval rating of 93% on RottenTomatoes.
The Desolation of Smaug appears to offer a solid moviegoing experience, but even if the weather was poor, audience demand doesn't appear to be high enough to offset that headwind. Personally, I don't think it will be a big revenue driver for Time Warner. On the other hand, Time Warner's Warner Bros. consistently pumps out theatrical hits, and it owns TNT, TBS, CNN, and HBO. This broad diversification is a plus, and Time Warner currently yields 1.70%.
Disney never stops winning. It's one of those few companies that will always find a way to please its investors over the long haul. With filmed entertainment, ESPN, other popular cable networks, theme parks, resorts, cruise lines, and more, Disney is even more diversified than Time Warner, as well as more than twice the size. Therefore, it offers more resiliency, as it's a bigger ship to turn if the economy falters. It also currently yields 1.20%. Disney should find a way to further capitalize on Frozen's success, whether via a sequel or more fairy-tale-themed movies. Don't forget about Disney's merchandising capabilities, either.
Lions Gate isn't diversified. I'm usually not a fan of these types of companies, but Lions Gate's The Hunger Games franchise is proving to be a huge success, and there are two more movies in the series coming out over the next two years. Just as hot brands drive the top line for retailers, hot movies drive the top line for production companies. The recent sell-off in the stock seems illogical. That said, due to a lack of diversification, Lions Gate is more of a high-risk/high-reward investment than Time Warner and Disney.
Secrets of the living room wars
The future of television begins now... with an all-out $2.2 trillion media war that pits cable companies like Cox, Comcast, and Time Warner against technology giants like Apple, Google, and Netflix. The Motley Fool's shocking video presentation reveals the secret Steve Jobs took to his grave, and explains why the only real winners are these three lesser-known power players that film your favorite shows. Click here to watch today!