The film business is famously competitive, and studios are waging an endless war to deliver the biggest Hollywood hits. Opening weekend showdowns, box office battles between rival superhero squads, the quest for the next big franchise: these are just some of the battlefields unfolding at multiplexes across the globe.
If you're an investor looking at entertainment companies for your portfolio, these companies are also competing for your investment dollars. Here's why Disney (NYSE:DIS), Time Warner (NYSE:TWX), and 21st Century Fox (NASDAQ:FOX) should be on your radar if you're interesting in buying into the Hollywood scene.
Disney has been on an undeniable hot streak at the box office, and the company's stock price is trading near its all-time high. Disney's stock has grown roughly 28% in value over the last year, crushing the S&P 500's 7% spike, and the future looks bright in the Magic Kingdom. Disney has the greatest wealth of blockbuster properties in the film industry, an enormous cache of viable movie franchises that also delivers big wins in its other segments.
In its last fiscal year, box office revenues accounted for just 15% of Disney's sales. However, Hollywood hits also enrich its theme parks, merchandise sales, television networks, and interactive entertainment business. Take the incredibly popular Frozen, for instance. The film delivered an incredible $1.27 billion in global box office, then propelled double-digit growth in merchandise sales. Attractions based on the hit children's movie will open at Disney parks this summer, and its characters and songs are also being incorporated into the company's themed cruise ships. That's just a small example of the way Disney creates synergy across its segments.
For the foreseeable future, Disney looks set to rule the box office with its massive Star Wars and Marvel franchises. It is also introducing live-action versions of some of its biggest animated classics. The company pays a dividend, with its yield now sitting at roughly 1%. With a payout ratio of just 22.8%, the House of Mouse has plenty of room to raise its payout if it wishes to do so.
Time Warner might not be able to stand toe-to-toe with Disney in terms of valuable Hollywood properties, but the company and its Warner Bros. production wing are no slouches in the blockbuster franchise department. Most crucial to the performance of Warner's film wing is development of a movie universe based on DC Comics characters. The studio plans next year to release Batman v Superman: Dawn of Justice and Suicide Squad, two films that are being primed to launch a movie universe that can rival Disney's Avengers.
Also of great importance to Warner is the upcoming Fantastic Beasts and Where to Find Them trilogy, based on author J.K. Rowling's Harry Potter universe. The eight Potter films did roughly $7.72 billion in worldwide box office and created huge merchandizing opportunities; Warner is looking to Fantastic Beasts to keep the magic alive.
Like Disney, the company's Hollywood movies are assets beyond their initial box office run, with Warner's HBO platform and their presence on streaming services such as Netflix extending the revenue generation. Time Warner also pays a dividend, with its yield sitting at roughly 1.6% and its payout ratio at just 30%.
21st Century Fox
21st Century Fox is looking to improved performance from its Hollywood output to smooth earnings turbulence stemming from underperformance in its networks segment and unfavorable currency exchange rates. Fox's filmed entertainment segment accounted for roughly 30% of its revenue and 20% of OIBDA in the last fiscal year, and the company is looking to its core franchises and new properties such as The Maze Runner trilogy to drive growth.
The company's film division made some significant progress in 2014, delivering a Planet of the Apes sequel that did roughly $220 million more at the global box office than its predecessor, along with an X-Men film that reinvigorated the franchise. The X-Men series has the potential to foster an expanded universe similar to what Disney has accomplished, but the pending departure of stars Hugh Jackman and Jennifer Lawrence could set the franchise back. Fox is also looking to the Avatar series to generate wins down the line, with the first of three sequels to the $2.79-billion-grossing original due in 2017. Fox is teaming with Disney to bring Avatar attractions to Disney parks, but the company is also opening its own resorts based around big movie properties, with the first set to open in Malaysia in 2016.
Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Apple, Netflix, and Walt Disney. The Motley Fool owns shares of Apple, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.