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July 10, 2006

Disney's Pirates Brings Big Profits

Consumers and investors tend to focus on box office and forget profits when looking at domestic box office numbers. Several analyst reports out today are looking at the profitsfor Pirates and the news is good for Disney (DIS). Analysts must have been playing it safe because several bumped their estimates by a nickel or more for FY07 which is where the profits on the film will reside due to the requirement that marketing and production costs be expensed upfront. Film profits usually come from windows like DVD and sale of TV rights that come six to 18 months after the domestic theatrical opening.

For Pirates, analysts are estimating that production costs were anywhere from $200 million to $250 million. Film advertising and print cost estimates range from $75 million to $150 million. This creates a cost basis ranging from $275 million to $400 million before additional costs related to participations for talent and any financing partners. Consequently, on the assumption that DIS will collect revenues equal to 50% of the global box office, the total worldwide take must be $550 million to $800 million for the film to reach breakeven during the theatrical run which will correlate with DIS’ 3Q and 4Q06. The first film did worldwide box office of $653 million ($305 million domestic, $348 million international). Analyst are estimating the new film to do at least as well as the first film, thus, breakeven is on the horizon. That would be good news as most films are not profitable on their theatrical run.

Analysts project that over the next 18 months, the film will produce profits for DIS form $250 million to $400 million across all windows and including merchandising. Down the road, there is also an immeasurable benefit to the theme parks. This film is the perfect example of how DIS can benefit across its divisions from successful family-oriented films. With Chicken Little, Narnia, Cars, and Pirates all having been successful since the 2005 holiday season, there is a lot of cushion in the DIS numbers over the next 4-6 quarters.

Posted by Steve Birenberg at July 10, 2006 09:06 AM in DIS