Walt Disney's (NYSE:DIS) Pixar division has been a cash cow for the Mouse House.
The animated movie studio has had an unprecedented run of box office success that continued with its latest film, Inside Out. That movie was actually Pixar's first to not open its theatrical run at No. 1 in the company's history. Still, the film's $91 million opening made it an immediate hit even if it had the misfortune of opening against Jurassic World -- one of the highest-grossing films of all time.
Pixar has been making Disney money since even before its now-owner purchased it in 2006. It has distributed Pixar's movies since the company launched in the late 1990s, and not losing that relationship was a prime reason Disney ponied up $7.4 billion to buy the brand.
In its relatively short life, Pixar has known nothing but success. Its brand name essentially guarantees good reviews and a huge opening weekend. It's a studio that can do no wrong -- as close to a sure thing as you can have in a business known for its unpredictability.
A look at the movies
Now, Pixar makes Disney money in a number of ways, with product licensing being an important piece of the puzzle. The brand also brings value in the company's theme parks, though that's a difficult number to quantify.
However, before you consider any other value created by Pixar for its parent company, you have to break down the movies. Without successful movies, there would be no stuffed animals, clothing, lunch boxes, theme park rides, or anything else covered in the various well-known Pixar characters.
Fortunately for the company, every Pixar film since the acquisition, beginning with 2006's Cars, has performed at the box office, as you can see on the chart below.
|Release Date||Movie||Budget||Global Box Office|
|June 9, 2006||Cars||$70 million||$461 million|
|June 29, 2007||Ratatouille||$150 million||$626 million|
|June 27, 2008||WALL-E||$180 million||$532 million|
|May 29, 2009||Up||$175 million||$731 million|
|June 18, 2010||Toy Story 3||$200 million||$1.06 billion|
|June 24, 2011||Cars 2||$200 million||$560 million|
|June 22, 2012||Brave||$185 million||$554 million|
|June 21, 2013||Monsters University||$200 million||$743 million|
|June 19, 2015||Inside Out||*$200 million||**$602 million|
All of the Pixar movies have been hits, but on a pure theatrical release basis, not all are incredibly financially successful. On a very raw basis, let's assume the company retains about half of the box office haul (theater owners get the rest). You also need to consider that movies on this scale require a huge marketing spend (let's use half the budget as a rough number).
Under that logic, a film that, on the company's high scale, did not perform as well at the box office, does not earn a huge theatrical return. Cars 2, for example, has around $300 million in costs, returning only about $280 million in box office revenue.
That's not to say the film lost money. Animated children's movies still move DVDs, and these properties make money for Disney's various television entities, but the theatrical release itself is not always particularly lucrative.
It's still a good business
Since Disney bought Pixar in 2006, its movies have taken in $5.81 billion at the box office, with a little more still to come for Inside Out. That makes the company's share of box office revenues about $2.9 billion.
To make those movies, the company has spent approximately $1.56 billion in production costs, and roughly another $750 million in marketing and advertising, for a total of around $2.25 billion in expenses.
Overall, that generates a healthy $650 million in profit -- a number that almost certainly escalates dramatically when you consider the post-theatrical release revenue produced by these movies.
The bottom line
Releasing movies that cost $200 million to make is a high-stakes game where it's very easy to lose money. With Pixar, however, Disney has taken much of the risk out of the process by building equity in the brand name.
Families go to see Pixar movies because they are Pixar movies. Even a misstep like Cars 2 will ultimately prove profitable, and winners like the Toy Story franchise are essentially annuities that can be renewed every few years.
Disney has the formula down, and there's no reason to think it won't keep releasing successful movies under the Pixar banner, even adding new franchises to the fold. All the company has to do is maintain quality and protect the brand name, and it has a veritable license to print money, even if it requires spending a lot to do so.