In TV and film, franchises are rare. Writer and director Joss Whedon has already created two in the television version of Buffy the Vampire Slayer and its long-running spinoff Angel. With better luck, he would have had a third in Firefly.
Soon, he'll get a shot at creating another.
Walt Disney (NYSE: DIS) subsidiary Marvel Studios has booked Whedon to write and direct the sequel to this summer's billion-dollar blockbuster, Marvel's The Avengers. Here's how Disney chief executive Bob Iger explained the deal in last night's conference call with analysts:
When Marvel took the stage at Comic-Con last month to announce the new slate of films that will keep the momentum going, the reaction was huge. Iron Man 3 opens on May 3, 2013 followed by Thor: The Dark World in November of next year. Captain America: The Winter Soldier will be in theaters in April of '14, and as I mentioned in our last call is the sequel to Marvel's The Avengers in the works. In fact Marvel has just signed Joss Whedon to exclusive deal and he will write and direct Avengers 2 and help develop a Marvel based series for ABC.
Notice the scope of this arrangement. While Iger isn't explicitly saying so, Whedon is being handed a large measure of creative control over the on-screen future of Marvel characters. Is that a reason to buy Disney now that the stock has reached a new 52-week high? Absolutely. Here's why.
I got your leverage right here, pal...
Serializing is what made The Avengers such a success. Marvel gave itself five films to build up the characters into a known commodity for moviegoers who might not be comic book fans. And Whedon, as a writer of both television series and comic books knows better than most how to map out a plot that unwinds slowly and with purpose.
He's also a fan of comics and knows the Marvel Universe. Don't believe me? Check out Morgan Spurlock's documentary Comic-Con Episode IV: A Fan's Hope, which features Whedon talking about his love of the medium. Or you could head to comiXology and pick up digital copies of the acclaimed 24-issue run of "Astonishing X-Men" he wrote for Marvel.
As a franchise builder, my guess is Whedon is already asking Iron Man 3 director Shane Black about his plans for that film in order to make the Avengers 2 a comprehensive sequel. I'd expect similar conversations with Alan Taylor, who's leading the Thor sequel, and Anthony and Joe Russo, who've signed on to bring Captain America back to the Big Screen in Captain America: The Winter Soldier.
Or perhaps I'm being presumptuous. Either way, Whedon is far too smart (and too proven) to overlook what's come before in creating a follow-up. Witness Serenity, the 2005 sequel to the unfortunately short-lived Firefly television series (yes, I'm a fan), which received critical acclaim for allowing familiar characters from the TV show to grow and advance themes and plots introduced in the series.
Big Pictures produce big numbers
For investors, the practical effect of this style of working is that it can make the whole greater than the sum. The Avengers has taken in more than $3 billion in worldwide box office receipts if you count up the six films as a series.
About half of that is attributable to Whedon's film, which helped Disney's studio division generate $313 million in operating profit during the just-completed fiscal third quarter -- up more than 500% year-over-year and equal to about 10% of Disney's aggregate operating earnings for the period.
A series of successful Marvel franchises for both film and TV could further boost the studio division's contributions, increase overall margins, and help Disney grow earnings much faster than the 12.5% annualized rate Wall Street is expecting.
Peers know it, too. It's why Time Warner (NYSE: TWX) is stretching Peter Jackson's take on J.R.R. Tolkien's The Hobbit into a three-film series. Lions Gate (NYSE: LGF) has a four-film plan for cashing in on author Suzanne Collins' best-selling trilogy. The finale, The Hunger Games: Mockingjay, will be released in two parts.
Like a tech stock, except different
Disney differs in that it isn't just prolonging a known story. Think of it as similar to Apple's (Nasdaq: AAPL) strategy. By giving its different products and software a similar look and feel, the company entices Mac owners to buy iPads, iPhones, and related accessories. Combined, it's an ecosystem that continues to produce billions in annual profits.
Video game publishers take a similar tack. Take Activision Blizzard (Nasdaq: ATVI), which issued higher full-year guidance last week because of gamer enthusiasm for upcoming titles and a strong reaction to the third installment in the company's Diablo franchise. Create a worthwhile, immersive experience and audiences will always come back for more.
With great power comes great profits
With Marvel building valuable new franchises to complement its crown jewels, Disney looks like a powerhouse stock worth buying and holding forever. Similarly, given the incredible performance of Apple's product lines, you could argue that it's earned that buy-and-hold status as well. With a new iPhone and iPad expected to be only months away, as well as the potential for an Apple television in the future, there are plenty of reasons to be excited about the company for the long term. Read all about these opportunities, as well as the key threats facing the company, in our brand-new premium research report on Apple. It comes loaded with a full year of updates, too, so make sure to click here and grab a copy today.
