Making a blockbuster film isn't easy, but there are a few ways a big movie studio can tip the balance in its favor.
If you look at the top-grossing films of the last 17 years, all but one of them (American Sniper) have something in common. They're all sequels, spinoffs, reboots, or adaptations. (Technically American Sniper is an adaptation as well, but the book wasn't popular until Warner Bros. started promoting the film.)
"Most consumers are simultaneously neophilic -- curious to discover new things -- and deeply neophobic -- afraid of anything that's too new," Derek Thompson writes in his book Hit Makers. That's what makes sequels movie-goer catnip. They're new and familiar at the same time.
There's one studio that's particularly well set-up to continue pumping out new films with a bit of familiarity: Disney (NYSE:DIS).
Disney's intellectual property portfolio is unmatched
Disney is responsible for six of the seven top-grossing films of 2016. Only one of them (Zootopia) is a completely original story. The other five fall back on Disney's trove of intellectual property from Lucasfilm (Rogue One), Marvel (Captain America: Civil War, Deadpool), Pixar (Finding Dory), and classic Disney (The Jungle Book).
While last year was a particularly successful year for Disney, it's been using the same formula for years. And it has no plans of stopping. On the slate this year is another Star Wars saga film, four films from the Marvel Universe, a live-action version of Beauty and the Beast, a sequel to Pixar's Cars, and another Pirates of the Caribbean film. And it's just going to rinse and repeat the same formula next year, and the year after that.
And don't forget the value of Disney's brands themselves as a means of producing a familiarity. Just putting the word "Disney" or "Pixar" on a movie poster lets potential viewers know what they're in for. That helps Disney launch new franchises every year or two.
Disney is also a master of exposure marketing
It's not just a matter of superior intellectual property to draw from, Disney also has the resources to produce familiarity with its upcoming films well in advance of their release. When it's releasing a new film, you'll see it everywhere: in the toy store, at its amusement parks, on its television networks, at the department store. Even if you never buy any of the merchandise associated with the film, you'll be hearing about it months before its release (assuming you're the target audience).
So, when Saturday night rolls around and you're looking for a movie to go see, that familiar title stands out.
Few, if any, of Disney's competitors have the same resources and merchandise licensing capabilities. Time Warner (NYSE: TWX) may be closest, but it still hasn't had the same success as Disney in recent years. Time Warner has had success when it echoes what works for Disney -- e.g., the Lego movies, D.C. Comics films -- but less so with its more original productions.
The formula doesn't always work
Investors should note that producing a big-budget sequel, reboot, or adaptation isn't a guarantee for success. It simply stacks the odds.
Look at last year's The BFG, an adaptation of the Roald Dahl book. The film had everything going for it: a familiar story, a familiar brand behind the film, a familiar director (Steven Spielberg), and a familiar musical score composer (John Williams).
It flopped. The BFG brought in just $55 million domestically and $183 million worldwide. It was the lowest-grossing Steven Spielberg film of all time. While the box-office gross surpassed the $140 million production budget, Disney surely lost money on the film.
Conversely, films can break through even if they're not based on anything familiar. That could be thanks to a familiar actor, superior marketing or distribution, or just audiences actually appreciating a good movie.
If you're going to invest in a film studio, though, you might as well invest in the one that's capable of stacking the odds in its favor nearly every time it releases a film. In that regard, Disney is your best bet.