What 'The Secret Life Of Pets 2' Modest Box Office Opening Means To Universal

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About: Comcast Corporation (CMCSA), Includes: DIS
by: The Entertainment Oracle
Summary

Universal opened its "Secret Life of Pets" sequel this past weekend, but despite early tracking, it under-performed at the box office.

"Secret Life’s" lower earnings are tied to heavier competition stemming from a less ideal release date that comes from a packed summer of family films - specifically from Disney.

However, the film, as with all films from Illumination Entertainment, was produced on a modest budget, dramatically lowering the amount needed to make back its money.

Illumination’s penchant for making low-budget, high-quality films has turned it into one of the most reliable film studios out there - especially for investors.

Universal has basically found a way to make the same quality movies as rivals like Pixar, but for a much lower price and still turn a sizable profit.

(Image Credit: Universal)

Sequelitis hit the box office this weekend - and hard.

Despite franchises like Avengers and John Wick having strong success with their latest installments earlier in the season, other brands are feeling the pinch. Granted having the most talked-about and anticipated film of the summer come a week before the season even started didn't help, but in the end, people will see what appeals to them.

Based on the box office returns this weekend - both X-Men and The Secret Life Of Pets were not as appealing as thought. I'll get to Pets in a second, but the latest (and possibly final) X-Men sequel - in this latest iteration - had a hard go of it.

Like franchise killing hard go.

Okay, we all know with Disney (NYSE:DIS) now overseeing the franchise, our X-friends are not long for purgatory, but it may be a while before we see that mutants/Avengers team up we were hoping for. I'll refer you to Deadline's breakdown of what happened there, because they capture it and all the behind-the-scenes details in a spectacular fashion.

For me though, I wanted to stay on Pets 2 because most of the coverage there has this as failure for Illumination and Universal (NASDAQ:CMCSA) - it's not. It may be an underwhelming total, but a $47 million total for movie made for $80 million signals its bound for profitability to me and it should to investors (technically, if you include a matching $40+ million take from international audience, then you are already there).

Yes, it's not that record-breaking $100+ million total the original did, but that movie had no competition and a July slot where it didn't have to contend with four AAA Disney titles in quick succession. Some had even asked why the sequel was even greenlit. That to me is an absurd question that I think even those asking probably knew the answer to - if a film dominates the way the original did, you make a sequel, no questions asked.

Granted the question here that should have been asked is "do we know the plot is?" because that also seemed to be a factor in the lower returns. The movie's biggest mark against it is that the storyline didn't seem as flushed out as before and that's a fair point - and one that I'm surprised wasn't caught earlier in the process.

Still I want to go back to that production cost because it really should make a difference in the eyes of investors. $80 million to turn $200+ million domestically (the previously projected final tally for the film) and millions more globally is a good deal no matter how you look at it - especially compared to Disney/Pixar where since 2007 ALL of their films have been budgeted well over $150 million…with their last four costing between $175 million and $200 million each.

That's not to take anything away from Disney/Pixar's success, but if you look at the average amount made over the career of the companies (pre Pets 2), Illumination actually comes in HIGHER stateside and worldwide. Illumination has averaged $272 million domestically and $698 million globally while Pixar has averaged $265 million domestically and $633 million globally.

Now the sample size there is obviously skewed as Pixar has had more films, and if you shrink the time frame down to just Pixar's movies from 2010 until now, the numbers spike back in Pixar's favor. Those numbers are an average of $304 million in the US and $756 million globally, but also a higher average budget around $189 million compared with $72 million for Illumination.

All of those numbers are courtesy of The-Numbers.com and you can find them here for Illumination and here for Pixar - just note the Illumination page has been updated for Pets 2 and given Toy Story 4 hasn't come out yet, I purposely didn't include Pets 2 in any calculations for this article to keep things balanced.

I also feel the need to say this isn't a Pixar vs. Illumination debate - Hollywood is lucky to have both, and audiences would be foolish to pick one side. What I'm saying is the level of what's successful and what's not are drastically different since budget-wise, you are not really comparing apples to apples.

For Universal, it has basically found a way to make the same quality movies for a much lower price and still turn a sizable profit - and I'm not even mentioning the recent(-ish) acquisition of DreamWorks Animation which only makes it more of a force. Separate and combined, it's a remarkable feat and one most companies would love to duplicate.

Everyone would have liked to have seen Pets 2 perform better, but it's not a situation that should have long-term effects (unlike X-Men: Dark Phoenix) for Universal; it still should have a profitable film and still has a few more AAA films to come this year that can boost its bottom line.

So all things equal, all of those stories about Pets' bark not matching its bite are really for the dogs.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.