Bad news for those of you who are sick of Hollywood’s flood of sequels, superheros, and animated films. Nomura analyst Anthony DiClemente says we’re going to see a lot more of them — and that’s a good thing for studios. He raised his stock forecasts for Disney, Fox, and Time Warner this morning, arguing that their efforts to appeal to overseas audiences should enable them to profit as international box office receipts grow an average of 5.5% a year to $57.6B in 2022.
Disney, Fox, and Time Warner have “increasingly shifted film production towards genres that resonate well within these markets,” he says. Sequels accounted for 76 of the 107 top grossing films in the 10 largest markets over the last 12 years. The hot genres also tend to be the most profitable: The average animated film from 2004 to 2013 generated a gross margin of 52%, followed by action with 40% — well ahead of drama at 30% and comedy at 22%.
No wonder the big studios have several franchise and superhero films teed up through 2015: Disney has seven (including Star Wars: Episode VII), Fox has 12 (it will distribute DreamWorks Animation’s Kung Fu Panda 3), and Time Warner has eight (including The Hobbit: Battle Of The Five Armies).
That’s smart, DiClemente says, because he’s confident that overseas revenues will soar. Theaters can raise ticket prices. (They averaged 53 cents in India last year vs $8.13 in the U.S.) And many countries will soon have more theaters. There are 0.13 screens per 10,000 people in the high-growth BRIC countries — Brazil, Russia, India, and China — vs 1.26 in the U.S.
DiClemente likely will face several skeptics. Investors “have typically assigned the studios with relatively low” valuations, he acknowledges. Big Media companies often make it hard to figure out how well theatrical releases perform by blending movie results with highly profitable TV productions. And other operations tend to eclipse even the blended numbers. Studio operations this year likely will account for 24% of Time Warner’s cash flow, 19% of Fox’s, 7% of Viacom’s, and 8% of Disney’s.