Disney's Mixed Release Experiment Nears Potential End With Mixed Results... For Now
Summary
- Disney is a company steeped in tradition and one generally steered by steady hands - it is also one that usually gets the last laugh when doubted.
- Disney, along with AT&T (via WarnerMedia) has throughout the pandemic been the most consistent companies to adapt to this new streaming normal, but coming at it from different perspectives.
- This weekend marks the end (for now) of Disney’s hybrid distribution strategy which has had its share of ups and downs, ranging from strong subscription plays to a surprising lawsuit.
- Most of the attention has been focused on “Black Widow,” which scored the biggest theatrical debut since the pandemic started, but also raised questions around both profitability and profit sharing.
- Recently Disney also used the approach with “Jungle Cruise,” which defied the doubters and over-performed domestically, but still has a sizable way to go to recoup its production budget.
This article was amended on 8/2/2021 to reflect minor clarifying adjustments.
Remember the old adage – “those who forget the past, are doomed to repeat it.”
While it wasn’t coined to relate to investors, it doesn’t make it any less true.
In today’s entertainment landscape (traditional, streaming, hybrid, etc), there are a number of core players, Disney (NYSE:NYSE:DIS) being one of them. It’s a company steeped in tradition and a company traditionally steered by steady hands, but moreover it’s a company where every time someone has doubted them, they’ve gotten the last laugh.
Nothing has changed…at least for the moment.
Disney, along with AT&T (NYSE:T) (via WarnerMedia) have throughout the pandemic been the most consistent companies to adapt to this new streaming normal. While Disney did so from a position of strength, AT&T did from one of weakness.
Yet, both seem like when all is said and done will meet in the middle in terms of results.
That’s a conversation for later though, for now it is worth taking a step back and looking at the bigger picture and what it means for Disney. Specifically, while the model has seemingly paid off financially for its investors, it is worth investors asking…was it worth it?
First of always, some background.
Let me start this section by simply stating a fact that I’m shocked still isn’t just a more accepted truth.
Never under-estimate Dwayne Johnson.
(Credit: Disney)
I’ve followed wrestling for years and I’ve watched Johnson’s path from in-ring performer to media mogul and I’m still floored when people doubt his abilities.
That’s the thing though, Johnson isn’t surprised and that’s why he’s become as successful as he has over the past decade.
So what does that have to do with Disney?
Johnson’s latest project Jungle Cruise was just released over the weekend by the House of Mouse and the movie found itself in a surprising position. The film was never meant to be more than an action film based on a popular (if not controversial) Disney ride which the company hoped would turn into a franchise on the level of Pirates of the Caribbean.
Yet instead the movie turned in a referendum on the future of the moviegoing experience…and that’s just not a fair comparison to make, especially when Fast & Furious 9 and Black Widow are also playing the same frame (and Suicide Squad) still to come.
That’s the thing about Johnson though – he took it as a challenge and he did what he does best – he laid the smackdown to his critics.
Let me set the stage because it’s important everyone understand the scenario that Cruise found itself opening in the middle of last weekend.
Black Widow bowed in early July to $80 million at the box office and another $60 million from Disney+ upcharge viewing. Combined with international totals the gross was near $220 million from the first frame.
Now factoring out Disney+, the film in theaters alone is presently at $167 million domestically and when you add $176 million from its international haul that puts the movie on track to soon clear $350 million (and really over $400 million if you count Disney+, which I argue is fair to do).
Yes, other Marvel films made double or triple that overall, but those opened pre-pandemic. The world is not the same and neither is the box office. We are in recovery mode and while things (were) improving here in the States, the rest of the world is a different story….hence why Disney made and then expanded the hybrid day/date strategy in the first place.
(Credit: Disney)
Let’s stick Stateside for a minute though, I’ll get too international soon, don’t worry.
Counting Disney+ revenue (from a $30 at home upcharge) Widow’s domestic total is at least $227 million – again that’s $167 million in theaters and at least $60 million from streaming, keeping in mind Disney has NOT released streaming totals for subsequent weeks.
Some have seen that as a red flag, but I see it as we are lucky they released any totals period and I’m grateful for the context. Streaming is the Wild West and to have anything solid to help investors get any type of extra understanding is welcome.
It is also worth noting that it is correct not all streams were US based, but it is being reported the majority were domestic. It is because of that I'm basing some of these projections off that total.
The truth is these numbers are open to multiple interpretations and (as odd as it sounds) when you are talking about hundreds of millions overall, the semantics of being off by $10 million-$15 million doesn't really detract from the point.
Those clarifications aside, that is not so far off from domestic totals of other non-Avengers franchise Marvel films (under normal circumstances). Ant-Man & The Wasp closed out its run domestically with $216 million (the original topped out at $180 million) and Doctor Strange did $232 million…both more recent releases and pre-pandemic.
You could also make the argument that with unreported Disney+ earnings built in the movie could be approaching the most recent Thor (Ragnarok) film earnings of $315 million (granted it may not be a strong argument, but it is in the realm of possibility that the extra revenue and subscription fees kicks the total to at least $250 million or more).
Regardless, yes the expectation from Widow – a female-centric superhero film featuring a core and beloved character from The Avengers film – was higher, but let’s face reality for a second. We are still dealing with a global pandemic, so check your expectations at the door.
Let’s also be clear here the argument about streaming causing money to be left on the table is really a misdirect. The money is not being left, it is be rerouted and the uproar is largely coming from the vocal minority of theater owners ticked off they are getting cut out of profits. And I understand and can sympathize with their plight, it’s a bad situation and this is their livelihood so the stakes are incredibly high.
(Credit: Disney)
But let’s call a spade a spade – NATO (the National Association of Theater Owners) claimed that had streaming not been an option, Widow could have made $90 million to a $100 million at the box office that first weekend. Although technically it DID – just not their box office – all told it actually made $140 million, the point of contention is that Disney kept that extra $60 million and didn’t have to split it with theaters.
At the end of the day, regardless of where ALL the Disney+ streams originated, the movie did likely break the $100 million mark, but not solely in the traditional sense – and that’s no longer the only option.
Left out of those same “money left on the table” arguments by the way is that Black Widow put up – to date – the largest opening for film since the pandemic started. That in itself shows that when people want to come to see a movie they’ll come see a movie – even when presented a potentially more appealing at-home paid option.
Critics also like to point out that Widow dropped 67% from week one to week two…a steep swing for a Marvel film but not uncommon for blockbusters in general. Again though what is left out is Fast & Furious 9 also dropped 67% week-to-week and the only way to watch that film was in theaters.
Comcast/Universal’s (NASDAQ:CMCSA) F9 is also important to discuss here because it runs counter to the “money on the table” argument as well…despite some critic’s arguments. F9 in total domestically has essentially matched Black Widow’s pure-theatrical total. The difference – and why it’s become a talking point for anti-streamers - is internationally F9 has drove circles around the superhero flick and is up to a global haul of $641 million.
Again though something is left out of the conversation – in this case international numbers, specifically China.
(Credit: Universal)
F9 opened in China and Black Widow has not (and is not currently scheduled – neither is Jungle Cruise). In China F9 amassed $215 million. That is roughly 45% of the movie’s entire $473 million haul. Take that total out of the mix and F9’s global gross margin over Widow shrinks down and then when you factor in Disney+ the numbers shrink even further.
I will say the theater owners arguments are not unexpected, Disney has played rougher with them than WarnerMedia and others, which is not a good look. That said while the company has been less flexible than rivals in splits/profit-sharing options/etc, it also could have just said “tough luck” and pulled the movie from theaters altogether.
Disney pre-pandemic was a big supporter of the theatrical model and again as of this writing has no plans to bring out that “Premiere+” tag for any future films. It was an experiment designed to protect its investments in high profile movies with an eye on protecting its investors.
And that takes us back to Jungle Cruise.
As mentioned, Cruise was not in the original streaming release conversation – originally it was just Cruella and Black Widow, but when COVID didn’t ease up internationally, Disney got spooked and made the change…and they enlisted Johnson to be the one to break the news.
It worked.
The backlash was minimal.
And then Johnson did what he does best – he hit the campaign trail and along with co-star Emily Blunt did the press stops, engaged with the fans and promoted the movie to literally (almost) all ends of the Earth.
The naysayers who wanted to paint Cruise as Black Widow 2.0 all projected the film to do $25 million over opening weekend, citing the Disney+ option – and then they had to back-pedal when by Friday $25 million became $30 million, by Saturday it became $32 million and by Sunday it was just shy of $35 million.
That’s “The Rock” effect in action for you.
(Credit: Disney)
So how did the movie do on Disney+?
It nearly matched the box office total and earned $30 million.
If you combine the two numbers that would place the movie at nearly $65 million for week one - which outside off the Fast and Furious movies - would be a new personal opening weekend best for Johnson, OR again depending the breakdown of streaming origins right on track for what one of his movies would usually do.
Even not counting streaming, (and excluding the F&F Hobbs & Shaw spin-off), that $34 million domestic total is EQUAL to the opening average of Johnson’s last five headlined films.
While coming in about $10 million over-projections is not a silver bullet here by any stretch and we are talking semantics here, it shows that if NATO wants to play that game, so can Disney.
It also shows Dwayne Johnson’s fans respect and support him because he respects and supports them…and that also played a massive role in the movie topping expectations.
Let me share a quick story on that.
In 2011, Johnson was a bankable leading man, but his films were doing a shell of what they were doing in the beginning. Ten years into his career he was in danger of stalling out and he knew he had one more chance – a big role in Fast Five, the fifth film in the Fast & Furious franchise.
So how did he ensure it would be successful?
He came home.
In what – to this day – remains one of the most memorable and powerful WWE moments of all time, Dwayne “The Rock” Johnson came back to WWE to surprise the fans. It was a 20-minute-long segment that can best be described as “genuine.” In his remarks, he admitted to the “millions and millions” of his fans that he had essentially left them and he was never going to do that again.
(Credit: WWE)
Johnson spent 10 years running from his wrestling past and realized the whole time he should have been embracing it. The proof is in the numbers – Fast Five went on to break box-office records and the tale of the tape for his future roles is heads and tails better than anything he did prior.
The WWE universe made Dwayne “The Rock” Johnson and they could break him just as fast.
It is something he has never again forgot.
Johnson’s mantra in life is stay humble, he embodies the golden rule and that’s the intangible critics overlooked.
Although intangibles also can prove negative.
For example, Black Widow’s success was marred by a lawsuit – not coincidentally filed just days before Cruise set sail – by the film’s star Scarlett Johansson who claimed that Disney’s hybrid model cost her millions on back-end profits. That lawsuit could easily have been avoided if Disney did what AT&T/WB did and take care of its talent from the beginning with new make-good deals.
As Disney did with theaters, it is also playing rough with Johansson and fired right back at her by revealing her sizable salary for the movie AND insinuating she was in line to make more from the streaming success if she had waited a bit longer.
I’m defending Disney a lot here but I will say that is going to prove to be a miscalculation on the Mouse’s end. Disney tried to close one door around those questioning its streaming strategy, but the impact of that door slamming, jarred open another one around payment disparity between male and female actors.
It has led to a number of other powerful groups getting ready to challenge Disney’s actions. For investors, the optics are terrible and even if it doesn’t impact the financial bottom line at the upcoming earnings call – it’s a distraction that will come up and strike at its carefully built image spotlighting diversity and equality.
Getting back to Cruise, it is also isn’t all good news.
While Disney strategically mapped out how best to utilize Johnson and tap into his fanbase, it still carries a $200 million price tag. Yes, the movie over-performed this weekend, but its global gross is sitting at just over $90 million. While a respectable number and one that helps Disney do what it set out to with the hybrid approach, the films still needs help and it is still uncertain it can get there.
That’s the other infuriating thing about the “money on the table” argument – streaming is not the root cause of the box office’s problems, it’s barely top three. COVID and the international market both rank higher. For example, China has gotten very protective of its film business in recent years and in the UK right now Cruise faced competition from a local production AND an early release of the new Suicide Squad (which will be a whole other story when it goes wide next weekend).
(Credit: WB)
We are not in the same place we were pre-pandemic and right now studios just want some type of return on investment. Yes, Disney and AT&T’s approaches were not perfect – but they provided invaluable data about the moviegoing public that streaming to that point was not offering.
AT&T/WB also showed people WOULD go back to the theaters even if they got the movie for free at home (with subscription) and Disney showed you could monetize that option even more and turn an extra profit for itself and its investors.
You could also look at it as if AT&T/Disney hadn’t done what they did, the current box office system could potentially be much worse off. Without the data gleamed from the move, the studios would have likely continued to be afraid to put their movies out there, further weakening theatrical returns. It’s a subjective argument for sure, but what we’ve seen is the two systems have the potential to co-exist and audiences will pick what’s best for them.
That’s also the crux of Johansson’s case by the way – she’s not fighting for the survival of the traditional method, she’s fighting for her compensation under the terms of a deal that was hammered out with the traditional method in mind. It’s a fair ask and she won’t be the last one to make it, especially as we move more away from hybrid releases and into a new 45-day window between theaters and streaming.
Disney may have won the battle, but in the process, it is has stepped into a war it was not expecting to fight. That said, just as I advise against under-estimating Johnson, I’d also advise against under-estimating Disney, but that doesn’t mean it may not get a little rocky in the coming months.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
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Comments (14)
The market for the two have some overlap, but it is far from a complete overlap. Many (myself included) consider streaming a new movie at home to be BETTER than going to a movie theater.
