The Walt Disney’s DIS latest movie in the Avatar franchise is set to release in China along with the rest of the world on Dec 16.
Disney executives and movie theatre chains were keeping a close watch on the Chinese censors on the movies given the potential box office revenues from China.
The Chinese censors have been quite strict in recent years, disallowing various Hollywood studios to launch movies in the country, citing reasons such as sensitive political themes and statements to which the authorities object.
Strict censorship in China affected the global box office gross of the last seven superhero films produced by Marvel Studios, which is Disney’s most profitable film studio. For example, in July Marvel’s latest Thor movie underperformed at the international box office due to not receiving release dates in China.
While Disney did not reveal the budget of the Avatar sequel, James Cameron, the director of the movie, cited that it has to be the third or fourth highest-grossing movie to break even. Being allowed to open up in China might allow the franchise movie to live up to past performance expectations.
The first Avatar movie released in 2009 grossed nearly $2.9 billion worldwide, with $259 million coming from China, making it the highest-grossing movie of all time. It edged out “Avengers: Endgame” after a September 2022 rerelease as the movie added $73 million in ticket sales.
The launch of the first Avatar movie sparked a boom in multiplex construction in China which allowed U.S.-based multiplex businesses like IMAX IMAX to solidify their businesses in China.
Chinese theaters saw lines of up to six hours long for the Avatar movie. Before the movie, IMAX had 14 screens in China and currently has 800, with 200 more contracted to be built.
The Walt Disney Company Price and Consensus
The Walt Disney Company price-consensus-chart | The Walt Disney Company Quote
Further, this will allow Disney, which currently carries a Zacks Rank #3 (Hold), to diversify its income source into high-growth markets and economies, which will fund its key growth drivers like Disney+.
Disney+ is facing significant competition in the streaming market from Netflix NFLX and Apple’s AAPL Apple TV+ and is spending huge capital to bring out original content to fight against stiff competition in an extremely saturated market. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Disney Movie Release in China to Fund Disney+ Business
Disney is focusing on its streaming service, which will cost the company capital in terms of content and marketing to fend off competition from Netflix and Apple.
Netflix is considered a pioneer in the streaming space and is enjoying the first mover’s advantage in the industry. Its solid content portfolio is a major growth driver.
Since the launch of Apple TV+, several Apple original series and films have earned more than 240 awards and 950 nominations, including the acclaimed SAG Awards, Primetime Emmy Awards and Critics Choice Awards. These accolades are catching viewers’ attention and helping it to win market share from Netflix and Disney.
In order to fight peers, we expect Disney will expand its Direct-to-Consumer spending by 12.5% year over year. As a result, Direct-to-Consumer operating loss is expected to be $4.88 billion for fiscal 2023 compared with $4 billion in fiscal 2022. The rising spending and losses are expected to keep consolidated margins under pressure.
Also, Disney has an extremely leveraged balance sheet portraying that it is lending more money to grow business in a highly fragmented market. Total borrowings were $48.37 billion as of Oct 1, 2022, compared with $46.6 billion as of Jul 2, 2022. Disney’s debt balance compares unfavorably with cash, cash equivalents and its current marketable investment securities balance of $11.62 billion.
All of this impacted the share price of Disney quite adversely. In the year-to-date period, its shares fell 36.2% compared with the Zacks Media Conglomerates industry’s decline of 33.7%.
Amid this, the release of the new Avatar movie in China is welcome news for the company. This will create a new revenue source for the company and help increase its top line in the coming quarters.
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