Walt Disney (NYSE: DIS) may be struggling at the movie box office lately, but it's smashing records in the theatrical world. Earlier this month, the company's live stage musical adaptation of The Lion King became the top-grossing show of all time on Broadway, surpassing longtime rival The Phantom of the Opera. This is a welcome bit of good news for the company, which is still reeling from the box office failure of its expensive film John Carter. It also points out the strength of the Mouse's business model.
Big production, big returns
As befits royalty, The Lion King's numbers are big and impressive. The musical has grossed around $854 million, dating from its splashy debut on The Great White Way in late 1997. It's edged past Phantom in spite of the fact that its rival is nearly 10 years older (it premiered in 1988).
Much of the reason for that is Disney's propensity to do things big. This production romps across the stage of the Minskoff theater, one of Broadway's highest-capacity venues with 1,710 seats. Prior to its Minskoff residency, it was the main attraction at the 1,747-seat New Amsterdam theater (it moved venues to make way for Mary Poppins). The New Amsterdam, by the way, happens to be leased on a long-term basis by Disney. The Phantom of the Opera, meanwhile, is staged at the Majestic, with 1,645 seats. Over the course of a decade-and-a-half run, that difference in capacity starts to mean something.
Ticket prices are also in the Lion King's favor in a matchup with Phantom: $87 to $147 for Lion King, but just $26.50 to $141.50 for Phantom.
And these are only the numbers for the New York run of the show. There are 19 productions around the world, in such places as London, Hamburg, Madrid, and Tokyo. All told, the show has grossed more than $4.8 billion in ticket sales, according to the company. Oh, and by the way, The Lion King happens to be the sixth-longest running musical in the history of Broadway theater. It's also one of only six stage productions to have had a run lasting more than 10 years on both Broadway and in London's West End.
An up-and-down way to earn a buck
Entertainment is an inherently volatile business. Since revenue and earnings in the sector are so dependent on the latest production, album, or TV show, they can jump up and down from quarter to quarter and year to year.
For example, look at one company headed by an ex-Disney executive: Jeffrey Katzenberg's DreamWorks Animation (Nasdaq: DWA). Due to the long production time of its animated offerings, the company releases only two or three films per year. Quarterly figures for 2011 seesawed dramatically. Net profit, for example, totaled $8.8 million in Q1 before rising to $34.0 million the next. Q3 saw another drop, to $19.7 million, before lifting again to hit $24.3 million in the subsequent quarter.
Slightly more diversified, but not by much, is Viacom (Nasdaq: VIA). It mitigates risk somewhat by operating in two segments: movies and television. The volatility of the former is evened out, to some degree, by the more predictable take of the latter. It's easier to figure out how much advertising a particular channel will sell, for example.
The Mouse gets around
Disney's particularly good at diversification; out of its five divisions, no single one is responsible for more than 50% of revenue. That's one reason it didn't collapse following the John Carter debacle, which will see it lose several hundred million dollars from its investment in the movie. After all, the company's studio unit (which covers feature films and will take the bullet for John Carter) comprised only about 15% of its business in 2011.
As a result, its top and bottom lines show much smoother rates of growth. Revenue, for instance, advanced from $36.1 billion to $38.0 billion to $40.9 billion in the years 2009 to 2011.
One firm that's roughly comparable to Disney in the way it runs its business is Time Warner (NYSE: TWX), which also likes to spread its risk among numerous units. But even though it's more active in the movie sphere thanks to its Warner Bros. division, it's a smaller company in terms of revenue. Its revenue base is also more sprawling, as the company is active in everything from magazines to radio stations to TV. Partially as a result, its margins aren't quite as high as Disney's.
Time Warner also doesn't have the unique assets produced by its competitor. As a conglomerate it tends to veer more toward journalistic offerings like Time magazine. As such, it's very likely it'll never dive as heavily into stage productions as Disney has -- which is too bad. In the case of a production like The Lion King, that means it's missing out on a lot of steady revenue. Instead, it's the Mouse that roars and takes in the revenue.
