The video streaming wars have heated up with Walt Disney’s (NYSE: DIS) U.S. launch of their Disney+ streaming service on Nov. 12, 2019. The initial content includes 25-original series, 10-original films, 500 theatrical films, and over 7,500 television episodes for a monthly fee of $6.99 or an annual prepaid fee for $70. Disney estimates it will amass 60-to-90 million subscribers by 2025, including 30-million domestic subscribers. Disney+ will be the exclusive streaming home for their theatrical releases moving forward. With the deep library of content, it’s easy to overlook the “hidden-in-plain-sight” growth driver that should shatter upside subscriber estimates starting in Q2 2020. This gem is the Marvel Cinematic Universe (MCU).
What is the MCU?
The MCU is the “alternate” comic universe where licensed superhero characters are crafted into movie storylines that differ from their comic book storylines. This enables Marvel Studios the flexibility to develop compelling story arcs with mass appeal to mainstream moviegoers. Rather than one-and-done incongruent nature of superhero film releases that swapped out actors for Batman and Superman. Marvel set out to introduce, incubate and slowly build the momentum for each key character ultimately building up to a climactic tie-in movie through “Phases”. Fostering this “sticky” effect kept viewers invested and engaged as each movie ended with a clue at the end of the credits that hinted on new characters to be introduced in future films.
Phase One to Phase Three: $22.5 Billion Gross Worldwide Box Office
Marvel started with the launch of Iron Man in 2008, starring controversial B-list actor Robert Downey Junior. The $140-million bet paid off generating $585-million in worldwide box office receipts validating a new template for monetizing superhero films. With the subsequent introduction and release of new Marvel character films including The Hulk, Thor, and Captain America, Phase One concluded in the crossover film “The Avengers” in 2012, which generated an astonishing $1.5-billion in worldwide sales. Marvel continued the formula with Phase Two concluding with the crossover film “The Avengers: Age of Ultron” in 2015, generating $1.4-billion. Marvel masterfully parlayed the momentum with Phase Three introducing characters like The Guardians of the Galaxy, Dr. Strange, and the Black Panther and concluding with the tie-in finale “Avengers: Endgame” in 2019, which went on to become the highest-grossing film of all-time generating $2.8-billion in worldwide ticket sales. The culmination of this 11-year journey generated a total worldwide box office of $22.5 billion at a cost of $4.5 billion to produce the 23-films that solidified the MCU model as the most successful commercial template in the history of film.
Marvel Studios Consolidation of TV and Cinema subsidiaries
Disney recently consolidated the Marvel Television division with its film division and promoted the architect of the model, Kevin Feige, to head of Marvel Studios and Creative Director for Marvel Comics. This much-needed move will align story arcs and dramatically improve quality. Marvel has stated they will invest up to $25 million per episode for the exclusive and original content TV shows in Phase Four.
In the past, fragmentation of storylines between the two divisions made it difficult for viewers to remain engaged. Shows like Daredevil, Luke Cage and Iron Fist on Netflix were of much lower quality compared to theatrical releases. Now, the television shows will get an upgrade to theater-quality productions making each episode an event unto itself. Through Disney+, Marvel will accelerate the introduction of new characters (IE: She-Hulk and Moon Knight) leading up their theatrical releases and crossover events.
Phase Four: The Game Changer
The Disney+ streaming platform is integral to Phase Four (commencing May 2020 with “The Black Widow” release) as Marvel plans to expand the MCU with the rollout of 10-movies and exclusive TV shows inside a two-and-a-half-year period. On the surface, this seems like a rush to cram 11-years’ worth of content in under three-years, but that would be overlooking the “sticky” effect that Marvel has meticulously cultivated through the years. Feige has stated that viewers will need to watch the Disney+ streaming TV shows in order to understand the theatrical releases. Every episode will have confluence with all MCU content. Unlike their rival Time-Warner’s (NYSE: TWX) D.C. Comics having three different actors playing Superman simultaneously between film and television properties, Marvel will have the same actors on the big screen play their identical roles on the small screen, continuity and confluence. At a production cost of $25-million per episode, viewers will flock to the subscription service upon the launch of Phase Four just to see what a $25-million TV episode even looks like, a game-changer. Note that the most expensive TV show ever produced was HBO’s “Game of Thrones” averaging $15-million per episode.
Buying Opportunity Q2 2020
Based on the $2.8-billion worldwide box office receipts for “Avengers: Endgame” at an average ticket price of $10 equates to 280 million individuals who were compelled to physically make the trip to a movie theater to view the film. Even a conservative 20% conversion rate to Disney+ subscriptions equates to 56-million worldwide subscribers alone which I estimate heading into the climax tie-in event for Phase Four in the Fall of 2021. The ideal buying opportunity may present itself just before the rollout of Phase Four in Q2 2020 after the initial hype of the Disney+ launch has worn off.
To further knock the ball out of the park, Marvel’s acquisition of Fox Studio’s license assets opens the gateway for introducing the much-awaited Fantastic Four, Deadpool and X-Men franchises in Phase Five commencing in 2022. For those unfamiliar, the comic book speculation (spec) market has been on fire with key issue prices spiking on confirmations of new character introductions and story arcs for MCU properties. This market often foreshadows the likelihood of box office success well in advance. The MCU alone could propel Disney+ subscription rates to the 60-90 million target range well ahead of 2025. The rollout of Disney+ has also reclassified Disney as a technology stock joining the ranks of competitors Netflix (NASDAQ: NFLX), Amazon (NASDAQ: AMZN), Roku (NASDAQ: ROKU) and Apple (NASDAQ: AAPL). Moving forward, the Disney+ subscriber growth figures will be a main focal point for analysts and investors to see if Disney’s largest bet pays off.
Companies Mentioned in This Article
|Walt Disney (DIS)||$147.72||+0.2%||1.19%||25.60||Buy||$155.95|