The new Barbie movie, based on an iconic Mattel (MAT -2.13%) toy, had an opening weekend box office of $162 million in the U.S. market, according to Box Office Mojo. It has turned into something of a cultural moment, with pink likely to be the summer color in 2023.
But investors need to tread carefully when it comes to movie success stories. Getting caught up in the hype could lead you to make short-term decisions when you should be thinking about the long term.
Something is different
Movie theaters make up roughly 40% of the rent roll at EPR Properties (EPR -0.84%), a real estate investment trust (REIT) focused on experiential assets. That's a very big number, and it might lead investors to think that this REIT is in a prime position to benefit from a movie's strong box office. The problem is that even with the headline-grabbing success of Barbie, the movie theater business still isn't back to its pre-pandemic norms.
Image source: Getty Images.
To put some numbers on that, the full-year box office in 2019 added up to $11.4 billion, but was just $7.4 billion in 2022. More specifically, EPR collected $123.8 million in rent from AMC Entertainment and $75.8 million from Cineworld's Regal Cinemas in 2019 -- 17.6% and 10.8%, respectively, of the REIT's total revenue for the year. These are two of the largest movie chains in the United States.
But in 2022, the rent it collected from AMC and Regal dropped to $94.5 million and $90.7 million, respectively, or 14.4% and 13.8% of overall revenue. Regal, meanwhile, recently declared bankruptcy and is exiting some properties that EPR owns, with annual rents from the theater operator expected to drop to $65 million. EPR is also prepared to permanently forgive $51.8 million in unpaid rents if Regal meets its current rent obligations.
Buying a theater landlord like EPR is clearly not a great option for investors looking to benefit from a movie blockbuster. Regal's bankruptcy and ongoing troubles at AMC also suggest that movie theater operators are a bad call.
But the real takeaway is that, despite the success of Barbie and other recent hits, like The Super Mario Bros. Movie, the movie business is still struggling. And the industry has always been something of a hit-or-miss affair.
Content is king, when it works
Investors will probably be more inclined to focus on the companies that are more directly tied to successful movies: Mattel, for example, with Barbie. The toy maker is in a concerted push to develop more of its brands into movies, but those aren't its main business. The company specifically highlights entertainment as an additional way to capture more of the value of its intellectual property, but says it is not the main way.
And while it seems likely that there will be a boost to Barbie sales thanks to the movie's success, it will probably be fleeting. In the long term, the Barbie movie will likely be a blip, not a transformational turn higher for the company. Hasbro is basically the same story.
Then there's Walt Disney (DIS 0.01%), which is heavily focused on media assets and integrating them into its overall business, notably with regard to its theme parks. However, this is where the fickle nature of consumers comes into play.
Disney's latest Ant-Man movie was a box-office disappointment. And the studio has recently announced that it will be pulling back on its once-reliable powerhouse Marvel and Star Wars franchises. That hints that even great intellectual property can get fatigued if it is pushed too hard for too long.
As an investor, it is virtually impossible to know what will resonate with consumers and what won't. The same statements could likely be applied to other media-focused businesses, including Universal Studios, which is owned by Comcast.
In other words, it is probably better for investors to enjoy a hit movie than try to profit from it via a stock investment. That's not to suggest that companies with powerful brands, such as Disney, aren't worth owning over the long term. They can be; Star Wars and Marvel are still strong brands, even if they are facing consumer fatigue. But content companies aren't worth owning simply because a movie, or even two, caught on with consumers.
Don't get caught up in the hype
Wall Street loves a good story, and a movie that has huge consumer and media appeal is a very attractive story. If you are a long-term investor, you need to step back and think about the big picture. Consumer trends are hard to predict, and buying a stock like Mattel just because Barbie is a huge success is a decidedly short-term decision.
Eventually, the movie's run will end, and consumers, the media, and Wall Street will move on to the next big thing. You could be the one left holding the empty popcorn bag. It would be better to ignore the one-off successes here and focus on the long term.
