Walt Disney (NYSE:DIS) has paid dearly for intellectual property (IP) over the years, and its track record with the properties it has bought has been nearly perfect. Aside from making a mistake in thinking that fans would care about a Han Solo origin story, the company has scored hit after hit since buying Pixar, Marvel, and Lucasfilm.
The Mouse House has shown that content is king, and owning the right IP provides a foundation for its business. Now, Disney has a deal to buy certain Twenty-First Century Fox (NASDAQ:FOX) (NASDAQ:FOXA) assets, including its film and television properties, for $71.3 billion. That's a very rich price, which was pushed higher when Comcast (NASDAQ:CMCSA) made a bid as well, but it will ultimately prove to be a sensible deal.
Owning more top-tier IP will strengthen Disney's film, television, and theme park businesses. It will also give the company an even stronger foundation for its upcoming subscription streaming service.
It's all about IP
Disney's character and content library has taken much of the risk out of the company's film business. While Comcast has films including Loving Pablo, Night School, and a reboot of Halloween on its upcoming schedule -- movies that are either unknown quantities or risks -- Disney's lineup is stronger.
To close 2018, the company has Christopher Robin, a live-action Winnie-the-Pooh film; a Nutcracker musical; and sequels to Mary Poppins and Wreck-it Ralph. That's actually somewhat weak by the company's standards, and pales in comparison to 2019, when Disney has Captain Marvel, the next Avengers movie, Toy Story 4, Star Wars IX, and Frozen 2 -- all potentially $1 billion releases.
On the film side, even before the Fox deal closes, Disney can release an impressive array of near-certain hits each year. Of course, there can be missteps -- like Solo -- but so far those have been rare. The company's annual slate can include:
- Three Marvel films
- Two Pixar releases
- One Star Wars title
- One classic Disney Animation title
- One live-action adaptation of a classic Disney property
- One sequel to a Disney hit (like Pirates of the Caribbean)
Once the Fox deal closes, Disney will get rights to additional Marvel characters, including the X-Men and Deadpool. It will also add the Avatar sequels and other potentially rebootable franchises, including Predator (a new film is in the works) and Independence Day, among others.
Content is king
While movies are important, Disney is more than just a film company. It also leverages its IP for use on its cable networks and in its theme parks. Perhaps most importantly, the company has the characters and franchises that can attract subscribers to its upcoming streaming service.
Disney should be able to use Star Wars -- through its first-ever live action series -- as a key draw for its upcoming subscription product. It can also use Pixar characters and archives to lure in parents and kids, while digging into the Marvel and Lucasfilm archives for other must-see shows.
Beyond film, television, and even theme parks, Disney has also built an impressive machine to exploit its IP. You can buy nearly anything branded with Star Wars, the various Marvel superheroes, and numerous Pixar characters. Those are gold mines that will pay off for a long time to come, as new kids grow up and discover those franchises.
It's a moat
The past 30 or so years of film and television have shown that it's a lot easier to succeed with a known quantity than an original property. And Disney has demonstrated that it can manage and nurture franchises to maximize their value.
That will play out in 2019 when the company opens Star Wars lands at its Florida and California theme park properties in the same year it releases the next film in the space saga. It's likely that both will be massive successes, and Star Wars is just a small piece of what Disney will offer in the coming year.
By gobbling up IP, Disney is making it harder for its rivals to compete. It's also giving itself a more-certain future where it can plug different characters and franchises into varying slots as needed. Of all its competitors, only Comcast can follow a similar strategy, and it does not have a lineup that comes even close to what Disney owns.