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Disney's 'Frozen' Deal With Hasbro Strengthens Franchise, Sets Up Likely Sequel
| About: The Walt Disney Company (DIS), Includes: HAS
Disney boosts further franchise power of billion dollar movie "Frozen."
Expansion of "Frozen" continues and likely leading to a sequel.
Hasbro scores with deal and now has "Frozen," "Star Wars," and Marvel signed for future.
Despite grossing more than $1.3 billion worldwide, hit movie "Frozen" has yet to receive an official sequel order. Disney (NYSE:DIS) signed a new licensing deal this week that will extend the power and revenue of the franchise and could be major foreshadowing step to an extension of the franchise.
Hasbro (NASDAQ:HAS) gained the rights to make dolls based on the "Frozen" movie beginning in the year 2016. Prior to this deal, Mattel (NASDAQ:MAT) had the rights and is the obvious loser here. The deal comes less than a week after highlighting Jakks Pacific (NASDAQ:JAKK) as a winner this holiday season with its highly anticipated Snow Glow Elsa doll and Olaf Sno Cone Maker. Investors sold off Jakks on the Hasbro news, but Jakks does not lose anything in the deal.
Not to take away from the deal or cause speculation, I have to believe that this is foreshadowing for an official sequel notice coming soon. Since being released in November of 2013, "Frozen" has been one of the biggest movies of all time and is boosting Disney revenue and shares.
So when would a "Frozen" sequel hit theaters? That\'s the million dollar, or in this case, billion dollar question. My educated guess in November of 2018, or more specifically November 21st 2018. Disney has that date already on the calendar as "Untitled Disney Animation." Of course, Disney also has November of 2016 blocked off for "Untitled Disney Animation," but I believe that is too soon for Disney.
An announcement of an official sequel to "Frozen" is one potential catalyst for Disney shares. Now a $1 billion movie might not seem like enough to move a $151 billion valued company, it certainly is the case here. "Frozen" affects so many lines of Disney\'s business, that a sequel could see strong analyst upgrades and more record highs for Disney shares.
Now of course there is also the chance that a sequel never gets made. While this may seem dumb on Disney\'s part, it doesn\'t necessarily take away from the licensing power of the brand, as "Frozen" is still expanding. The brand is headed to attractions on stage and on the ice. Disney has also announced that "Frozen"-themed attractions will come to Epcot in 2016. This should ultimately boost theme park revenue. Anna and Elsa lookalikes have already been placed at Disneyland\'s Fantasyland park and are becoming an integral part of the theme park business.
In fiscal 2013, Disney saw growth across all of its business units. Here is a look at revenue and operating profits for the units:
All of these figures came before "Frozen" had ever hit the big screen. Since then, the popular animated movie has hit all of the lines. "Frozen" has powered the studio segment for fiscal 2014. The most recent third quarter saw strong growth in the consumer and studio segments thanks to "Frozen." The media network segment is set to get a boost this weekend as the hit ABC show "Once Upon a Time" will feature Anna and Elsa this season in a follow-up to "Frozen."
Specifically in the third quarter, "Frozen" was the biggest contributor to studio due to additional international territories being added and strong DVD sales. The growth in licensing was driven by the performance of "Frozen." Going forward, Disney says, "and we\'re very excited about our new line \'Frozen\' merchandise coming this holiday season." Keep in mind that the third quarter marked the fourth consecutive quarter of double digit growth in both revenue and operating income in the consumer products category.
Adding "Frozen 2" to the line-up would significantly boost an already promising blockbuster line-up, even only when taking Star Wars, Marvel and Pixar into account.
November 2015: "The Good Dinosaur" (Pixar)
December 2015: "Star Wars Episode VII"
2017: Untitled Pixar Movie x2 (June and November)
Disney has shown its licensing power over the years. In 2012, Disney had six of the top 10 licensed brands in the world and had a huge 80% market share for franchised entertainment.
Beyond Disney, Hasbro is a winner here going forward. Hasbro will make money alongside Disney as a partner on the company\'s best franchises. Back in 2013, Hasbro expanded its deal with Disney for the rights to both Marvel and Star Wars. Hasbro now has the rights to make toys based on Marvel and Star Wars both through 2020.
Of course, as part of the 2013 deal, Hasbro has to pay out guaranteed royalties to Disney to have the rights to these large franchises. Hasbro is paying a minimum in $80 million in royalties to Disney for the Marvel rights. As part of the extension of the Star Wars deal and the fact that there are new movies coming out that will boost sales, Disney saw an opportunity to boost the revenue stream. Hasbro will pay up to $225 million in guaranteed payments to Disney, including $75 million paid at the time of signing.
The minimum royalties are more than worth it for Hasbro, as investors will find out over the next few years. Hasbro will make toys and dolls for "Frozen," "Star Wars," and all Marvel properties from 2016 to 2020. By adding the Frozen dolls, Hasbro compliments its girls line of toys. Hasbro has long been known for its boys line of toys that features Transformers, Nerf and Hot Wheels. The girls segment consists of My Little Pony, Furby, and My Littlest Pet Shop, and has lately seen strength in sales.
Shares of Disney trade close to all-time highs ($91.20) and have a market capitalization of $152 billion. Despite the fact that shares of Disney are up 15% in 2014, I have to continue to recommend buying Disney shares on any pullbacks, as it will be a great long-term pick on the heels of its blockbuster franchises. Hasbro also has a bright future, as it will bask in the success of Disney\'s top franchises.
Source: Disney's 'Frozen' Deal With Hasbro Strengthens Franchise, Sets Up Likely Sequel
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. (More...)
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