How Much Will Star Wars Episode 7 Gross at the Box Office?

The first installment of the third Star Wars trilogy is set to be released on Dec. 18, 2015. Should you strongly consider investing in Disney prior to the movie's release?

Jan 22, 2014 at 8:00PM

When you think of Disney (NYSE:DIS), you're probably reminded of fairy tales, theme parks, and Mickey Mouse. But Disney has been slowly expanding its brand, purchasing Marvel in 2009 and Lucasfilm in 2012. The Marvel acquisition looks to have been a wise decision considering the movie successes of The Avengers and Iron Man.

But it can be argued that nothing is bigger than Star Wars. You might not feel that way due to the lackluster prequels, but Disney is a master at delivering what audiences want. Yes, expectations will be extremely high. And, to be honest, it will be nearly impossible to match the quality of the original Star Wars trilogy. That said, if we're only looking at this from an investing perspective, then Disney has enormous potential ahead.

Recent successful trilogies
Time Warner's (NYSE:TWX) Warner Bros. delivered a smash hit with its Dark Knight trilogy. Batman Begins had a budget of $150 million, going on to gross $205 million domestically and $374 million worldwide. That seemed good at the time, but it was nothing compared to The Dark Knight.

With a budget of $185 million, The Dark Knight grossed $533 million domestically and $1 billion worldwide. Based on that success, Warner Bros. upped the stakes for The Dark Knight Rises. With a budget of $250 million, The Dark Knight Rises grossed $448 million domestically and $1 billion worldwide. While audiences enjoyed the third installment (8.6 of 10 on IMDb and 90% audience approval rating on, it wasn't as loved as the second installment (9.0 on IMDb and 94% audience approval rating on RottenTomatoes). This proves that a production company can't rely solely on a previous installment's success.

In other words, Disney had better make sure it delivers on all three upcoming Star Wars movies if it wants to see continued box office momentum. Star Wars is a more popular brand than Batman. Therefore, it holds even more box office potential.

Now let's take a look at another recent successful trilogy, at least from a financial perspective. Viacom's (NASDAQ:VIAB) Paramount Pictures hit box office gold with the Transformers trilogy.

Transformers (the first installment) had a budget of $150 million, going on to gross $319 million domestically and $709 million worldwide. Audiences also enjoyed the movie, as evidenced by a 7.2 rating on IMDb and an 86% audience approval rating on RottenTomatoes.

Paramount Pictures bet bigger on the second installment, Revenge of the Fallen, going with a budget of $200 million. It paid off. Revenge of the Fallen went on to gross $402 million domestically and $836 million worldwide. However, the movie wasn't that well received by moviegoers, scoring 6.0 on IMDb and a 58% audience approval rating on RottenTomatoes.

Paramount Pictures backed off its investment slightly with the third installment, going with a budget of $195 million for Dark of the Moon. It went on to gross $352 million domestically and $1.1 billion worldwide. It seems as though Americans, who are used to the excitement of special effects, demand a quality story to go along with those effects.

Note: A fourth Transformers installment, Age of Extinction, is due to be released on June 27, 2014, and it will star Mark Wahlberg. Its budget: $165 million. 

What should be noted here is that aside from the Generation X crowd, Transformers was new to many audiences, making the special effects the primary appeal. And kids don't care as much about story lines as adults.

Star Wars won't have the same luxury, thankfully! Star Wars fans come in all ages, but most of them will not stand for a lackluster story to go along with superior special effects. Put simply, Star Wars will have to deliver a much stronger story line to see similar box office success to the Transformers movies. 

Past results help determine future success
Past results might not guarantee future success, but sometimes they do help. The Phantom Menace had a budget of $115 million, going on to gross $431 million domestically and $1 billion worldwide. The excitement of a new Star Wars movie had a lot to do with this, as audiences weren't very impressed. The Phantom Menace scored 6.5 on IMDb and had an audience approval rating of 61% on RottenTomatoes.

This led to decreased demand for Attack of the Clones. Despite similar scores of 6.8 on IMDb and an audience approval rating of 60% on RottenTomatoes, Attack of the Clones wasn't nearly as impressive at the box office. On a budget of $115 million, it grossed $302 million domestically and $649 million worldwide.

The budget for Revenge of the Sith was reduced to $113 million. Audiences enjoyed this movie the best; it scored a 7.7 on IMDb, and had an audience approval rating of 65% on RottenTomatoes. But it still didn't perform as well as The Phantom Menace at the box office, grossing $380 million domestically and $848 million worldwide.

Based on the numbers above, Disney needs to nail it on the first installment, otherwise momentum may fade. Disney hinted at a $200 million budget for Episode 7 (no title has been revealed yet).  

If we look at results for the trilogy above, these movies grossed between 5.6 times their budget and 8.7 times their budget worldwide, depending on the movie. Let's take the middle number for Revenge of the Sith at 7.5 times its budget and base Episode 7's expected worldwide gross on the rumored $200 million budget. That would lead to a worldwide gross of $1.5 billion. And that's just for the first installment. 

The Foolish bottom line
That might seem like a lofty target, but betting on Disney usually works out. Even if the estimate is off, Disney will have merchandising opportunities, Star Wars theme park attractions, television spinoffs, and more. Disney made $45 billion in revenue in FY 2013. If Episode 7 is successful, it would lead to several added revenue streams. However, if Episode 7 falls flat on its face, Disney is still diversified enough that it wouldn't have any long-term effects. Therefore, investing in the future potential of Star Wars presents upside potential with limited downside risk. 

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Fool contributor Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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