The Walt Disney Company (DIS -1.96%) is a textbook story of the power of business diversification. Although the stock has underperformed lately, reporting a 5% loss for the prior three years while the greater S&P 500 has produced a 27% gain, things could be worse -- the company's television empire, its largest division by revenue and operating profit, is under threat in a world where many are choosing to forgo cable.
As an entertainment conglomerate, Disney is better situated than many of its cable-focused peers like Viacom and AMC Networks, which have produced losses of 48% and 32% during the same period. Disney CEO Bob Iger was wise to acquire film rights and/or technology from Pixar, Marvel, and Lucasfilm. More recently, Disney's film division has taken up the slack from a sluggish television business.
However, Disney's next blockbuster film could be a bust. Here's why that's important.
Supposedly, Disney itself thinks Solo: A Star Wars Story will be a flop
Disney will follow its wildly successful Marvel Black Panther movie by bringing a new Star Wars film to the box office. On May 25 the studio will release Solo: A Star Wars Story, which provides the backstory of Han Solo.
According to reports complied from The Ringer, the news flow regarding Solo is disconcerting. First, the original directors were dropped from the film over creative differences. Alden Ehrenreich reportedly struggled so much in the title role that an acting coach was bought on set to help him improve.
Most importantly, Lawrence Kasdan, co-writer of the original trilogy, reportedly said the script is "unworkable" and that Disney expects the film to bomb. For Disney, unfortunately, a Star Wars flop is bigger than a one-off deal, as it confirms the passionate fanbase's initial concerns when the company purchased Lucasfilm.
Cash over canon
Fans rebelled in each studio acquisition, worried Disney would trample on canon or exhaust moviegoers by churning out an incessant stream of films to commercialize every aspect of the acquisition.
For Pixar and Marvel, those concerns haven't really materialized in a meaningful way. Disney has been judicious with Pixar releases and the Marvel material, and a host of characters afford the company a litany of content to use before it has to create new storylines that could possibly turn off its fanbase.
Star Wars is different, because the initial storyline is so focused that it's hard to integrate new content. Recently, there have been grumblings among its fanbase. The last Star Wars film, The Last Jedi, was praised by critics but only scored a 47 from fans on Rotten Tomatoes.
Disney's plan to is to follow two distinct paths: the first is to continue the original story under the Star Wars-branded line of movies, and the second is to provide backstories and deeper insight to prior films with the Star Wars Story-branded line. While this doubles the monetization opportunities, it increases the risk of disappointing and alienating the original fanbase.
Although it's important not to overexaggerate its importance, Disney investors should pay careful attention to box-office numbers and fan sentiment for its next Star Wars movie.