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"Avengers" And "Avatar": What's The Endgame?

|About: The Walt Disney Company (DIS)
Summary

Disney recently increased "Avengers: Endgame's" theater count to enhance its box office.

There are a couple theories as to why this is being done, but my belief is Disney is going after "Avatar's" global-gross record.

If Disney wants to win, it can.

However, Disney could have also decided to release the physical disc earlier than the normal three-month window dictates because the math in this case defined a limit on box-office potential.

A collapsed distribution window may have granted Disney a faster in-flow of higher-margin revenue, as well as given execs a chance at reducing marketing costs (if they chose to use that lever of efficiency).

There's a fun little thing going on with Disney (DIS) and its Marvel super-film, Avengers: Endgame. I will comment on it in this blog post. 

I've been reading articles over at Forbes, specifically the box-office coverage, and that site has been tracking the race between Avatar and Endgame. At the time of this writing, the latter has $2,766,340,683 in worldwide take. James Cameron's spectacle is recorded in the books with a final haul of $2,787,965,087. Adding a bit of detail to it all is the fact that Avatar had a short re-release in late-summer 2010 before it finally left theaters (that chart I linked over at Box Office Mojo is somewhat confusing, but it basically shows the foreign gross quite clearly of the special edition, along with what the domestic gross became after the new money came in; I'm assuming at the time that the special edition came out domestically while the regular edition was still in theaters, thus eliminating the need on Box Office Mojo's part to reset the value like it did for foreign screens). 

There's a sense over at Forbes that Disney may really be doing this for marketing purposes, specifically for Sony's (SNE) new Spider-Man feature, which Disney wants to do well given the importance of the character in the company's own Marvel universe, as indicated by this article. I agree that this could be one of the angles to the overall geometric shape of the plan, but I believe it may be one of the smaller angles. The idea that it is to beat Avatar's final record stat is discounted at the magazine site to the point of nonexistence. Also, it was pointed out that Disney has bettered Cameron's film if you back out the re-release performance.

I disagree. I think the new theater count for Endgame was ordered for the express purpose of beating Avatar once and for all. There are two reasons for this.   

First: The industry may not be in such a position for a long, long time, meaning that there may not be a film strong enough to challenge Avatar's global record for many years. (And just a quick note here: it's true that I'm purposely leaving out the effect of inflation, but as time goes on, the media landscape becomes increasingly fragmented and cluttered by disruption, so I think Endgame, existing in the age of streaming and online video sites, is still an impressive feat. In other words, Gone With the Wind would not have been as successful today, one can easily imagine. One last part: Avatar was released at the end of 2009, so it's not like the movies are 20+ years apart.) Honestly, why not, simply for the notoriety, beat the record and define a new upper limit of success? 

Second: Disney probably wants to appease talent. Doing so by pushing the movie past Avatar is no different than campaigning for an Oscar on behalf of talent. In fact, one might argue that it's the next best thing given the thespians and writers/directors/et cetera involved in the project really don't have a chance of scoring at the Academy Awards based on their work (maybe effects, I suppose, but you get the point I'm making). If Endgame scores, then Robert Downey Jr., Kevin Feige and all the rest will feel like they've received a valuable bonus. Never underestimate ego equity in the land of Tinsel. 

Beyond all this, there is something even more interesting about Endgame and Avatar that I want to get into, something that has to do with narrowing distribution windows. 

As it stands now, the Blu-ray for Endgame will be released in mid-August. Digital sales of the film will begin at the end of this month. To remind you, the movie was released in theaters near the end of April. 

This film should have been released to digital and Blu-ray as soon as it became apparent that the absolute limit of the movie is Avatar's worldwide record gross. There was nothing to gain from that point forward by keeping it in theaters. A different way of expressing this sentiment, based on the alternative scenario of beating Avatar, is: the film should immediately be released to digital/physical immediately after Disney pushes the gross over the desired number. (Quick note #2: Disney is extremely capable of pushing films over a desired number, as witnessed by the ticket-sales performances of Frozen and Black Panther; please see that data.)

Let me expand upon this last paragraph so I am clear in what I am saying. Disney had two choices: beat Avatar, or not beat Avatar. Literally, the choice is up to Disney. It doesn't matter from an economic standpoint if Disney beats Avatar or not; that won't affect the stock. Releasing the Blu-ray early, though, gets the money flowing from that aspect of the distribution strategy more quickly, and it is a higher-margin flow, presumably. Also, as pundits have pointed out, the reason to do this is because, also presumably, it creates an efficiency of marketing: Disney would have to invest proportionately less capital into a selling plan for the digital/physical release the more collapsed the distribution window is because the public is already activated by the theatrical campaign. Sometimes I question that logic a little, only because, in my mind, I wonder if the amount Disney spends to release a disc into retail is truly that significant, even under the definition of a normal three-month window. I don't know, for instance, if Disney pays a company like Apple (AAPL) to promote its digital releases on iTunes/Apple TV. I'd think not, as it would be in Apple's interest to highlight new releases. Same thing for Comcast (CMCSA). And retail stores will get the word out on their own; why would Wal-Mart (WMT) not want you to know the disc is available? Obviously there are the physical-marketing aspects, such as cardboard displays and point-of-sale promotional techniques. Those do cost money, and Disney does advertise on television (I suppose Wal-Mart et al. would still want Disney to invest some money in the selling) all of its discs. I'm not sure, though, if Disney, or any other media conglomerate, would change its spend that drastically on a collapsed window; if anything, it might increase its budget if only because consumers might not be used to buying a tentpole release on an earlier schedule.

Nevertheless, it is true that there is an advantage to an earlier release, a built-in marketing angle that costs nothing to communicate: it's just a cool thing to see something like Endgame show up on retail shelves and the Comcast menu way earlier than expected. That has to be worth something. As this Box Office Mojo data set makes clear, once the movie hit $800 million domestically, it started to slow down rapidly. The Forbes coverage also made clear early on that beating Avatar was highly unlikely. This is probably a unique time that won't be repeated again soon: because of the box-office track, the future was known - Endgame would not beat Avatar in a reasonable time without more re-releases. The math literally told Disney execs that moving the film from theaters to its next phase of existence as a revenue-generator is something to be prescribed. 

I find it odd that, in this era of big-data analysis, an obvious opportunity can easily slip by. It's very easy to tell when a regular movie has exhausted its base of consumers when it isn't trying to catch up to the biggest-grossing film of all time, but respecting windows is simply the tradition in that case. Here, though, with Endgame, it was literally provable, inarguably so, that the run was essentially over.

Disney may decide, I suppose, to try again at another point in the year to see if placing Endgame in theaters will have the desired effect it wants. An increase in theater count around Labor Day would be one possibility. But I'm not necessarily predicting that; if anything, I assume the company might try to ride this recent play for the record a little further the next few weekends, not only domestically but around the world. Maybe the company should simply come out and say it: let's do this, Marvel fans! With or without that type of marketing ploy, Disney can certainly do what it wants. It could have even delayed the release of the Blu-ray and promoted the film on its platforms on the cheap for an additional month or so. It could have put more extras into the movie. 

My main thesis, though, is that Disney, a company that supports current distribution windows, will probably never be in such a position again for the foreseeable future. If it really is true that Disney doesn't care if Endgame achieved the global box-office record, then it made a mistake by not placing the disc, at least domestically, for sale at the major chains at the end of May. I'm a near day-and-date person (if not entirely day-and-date), and while the end of May might not exactly qualify for near day-and-date (a possible definition for that might be after fourteen days or less, but I go back and forth on that concept), it certainly would have been a bold move worthy of a superhero...

Disclosure: I am/we are long AAPL, CMCSA, DIS.