Please ensure Javascript is enabled for purposes of website accessibility

Why You’re Smart to Buy Disney

By Daniel B. Kline - Feb 25, 2018 at 3:12PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company has a huge edge with all its intellectual property, which can only help its streaming service.

Walt Disney (DIS 1.84%) has been a dominant player at the box office, and it's poised to become one in another field when it launches a streaming service designed to take on Netflix (NFLX 2.90%).

That's because among the company's many strengths, it has a foundation of intellectual property to build its business on. Disney has found a formula that largely removes risk from the box office equation that can be used to create demand for its streaming service, which is scheduled to launch in late 2019. With its plethora of well-known characters and franchises, the company can drive people to its theme parks, launch video games, and sell every manner of merchandise imaginable.

People often call Disney the "Mouse House," but in reality, Marvel Studios, Pixar, Star Wars, and more are driving the company's business, while its classic characters play a smaller role. Consider Mickey Mouse the front-person, but Black Panther, Dory, Rey, Elsa and so many other new characters have become the drivers of its ongoing success.

An illustration of a new Star Wars ride panned for two Disney theme parks.

Walt Disney is building theme park "lands" based on Star Wars. Image source: Walt Disney.

What can Disney do?

Disney has built a film business where its biggest risk is whether its latest Marvel movie will be a hit, a big hit, or a blockbuster. That's a bit of an exaggeration, but the company's slate is filled with low-risk movies.

In any given year, the company fills much of its schedule with films for familiar brands -- roughly three Marvel movies, a Star Wars film, a Pixar title or two, a Disney animated film, and a live-action movie based on one of its classic features. It's a formula that led Disney to top the domestic box office in 2017 with $2.4 billion in ticket sales. It's also one that will grow even stronger if its deal to buy certain Twenty-First Century Fox (FOX) assets goes through.

It's not that Disney doesn't take any risks; the upcoming huge-budget A Wrinkle in Time is certainly not a sure thing. But the company takes fewer swings where it might miss than its rivals do. That approach has led to first- or second-place domestic box office finishes every year since 2013, according to data from BoxOffice Mojo.

How does this apply to streaming?

Disney has already shown the value of its content library in the streaming world through its partnership with Netflix. That deal led to The Defenders family of shows, including individual series for each member of that hero group (Daredevil, Jessica Jones, Luke Cage, Iron Fist) as well as a standalone series for The Punisher. Those have all been hits for Netflix (although Iron Fist was not as well received), and these are not Marvel's most well-known characters.

When Disney launches its own streaming service, it can bring out the top-tier players. The service will almost certainly include a live-action Star Wars show -- the first of its kind -- and other series from its intellectual property library.

What's next for Disney?

All attention is on the Fox deal, which would add Avatar, The SimpsonsAlienPredatorDie Hard, Kingsman, Planet of the Apes, and even Alvin and the Chipmunks to the mix. It will also reacquire the rights to Marvel's X-Men franchise, which creates instant crossover potential.

While not every Fox franchise is as revenue-driving as Star Wars, in a streaming world where a sequel to Full House is a valuable property, every recognizable property has potential. Ice Age, for example, may have petered out at the box office, but it could be rebooted as a TV series or after time be brought back in theaters.

Even without Fox, Disney has the intellectual property to protect its box office market for years to come. That, along with its existing content library, will help it launch a viable Netflix competitor, and continue to bolster its theme parks.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
$96.14 (1.84%) $1.74
Netflix, Inc. Stock Quote
Netflix, Inc.
$179.95 (2.90%) $5.08
Twenty-First Century Fox, Inc. Stock Quote
Twenty-First Century Fox, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.