‘Avengers: Endgame’ Makes Disney Invincible in 2019. Then What?

(Bloomberg Opinion) -- As “Avengers: Endgame” smashes box-office records, Walt Disney Co.'s greatest challenge is coming into focus: That is, how will the hit-movie maker outdo itself? 

The final installment of Marvel's “Avengers” franchise generated some $1.2 billion in global ticket sales and more than $350 million in North America during its opening weekend, feats that no other film in history has achieved. As the three-hour movie gives life to the domestic box office, over the next few weeks it's likely to join the ranks of the biggest blockbusters of all time — potentially even surpassing them:

The film is the centerpiece of what will be a tremendous year for Disney at the theaters. Already “Captain Marvel” and “Dumbo” together raked in more than $500 million in the U.S. and Canada, while next month's “Aladdin” reboot and “Toy Story: 4” in June may gross another $610 million combined. Then in July comes the remake of “The Lion King,” starring Donald Glover as the voice of Simba and Beyonce as Nala, followed by the highly anticipated sequel to “Frozen” in November. Last but not least, the final chapter of the Star Wars saga, “The Rise of Skywalker,” will cap off the year in December.

This all points to a period that's going to be incredibly difficult to repeat, especially in the age of streaming.

Disney's film businesses earned $3 billion in its latest fiscal year, directly driving nearly 20 percent of the entertainment giant's operating profit.  Each of its “Avengers” releases also had profit margins of 50 percent or better, according to Bloomberg Intelligence. Going forward, though, Disney's numbers will start to look a bit different.

Beginning with “Captain Marvel,” Disney's films will no longer get licensed to partners such as Netflix during what's known as the “pay one window;” instead, they'll go exclusively on Disney+. That's a big selling point for the streaming app, but it's a costly decision that reduces the amount of licensing revenue Disney can earn from its films after they leave theaters. Disney's inter-company transactions — i.e., selling its content to itself instead of third parties — may result in $1.8 billion of revenue eliminations in 2020 and $3.4 billion by 2023, according to Michael Nathanson, an analyst for MoffettNathanson LLC. Disney predicts that Disney+ won't turn profitable until 2024. 

There's also the question of whether Disney+ subscribers will wait to watch a new film until it's added to the app, or if they'll sign up only to see the newest release and then unsubscribe. (Disney will try to keep churn down by pushing the app's $69.99 annual subscription fee, versus the pricier $6.99 month-to-month option.)

CEO Bob Iger has transformed Disney though his acquisitions of Pixar, Marvel, Lucasfilm and BAMTech over his tenure, during which shares of Disney have returned 608 percent, far exceeding the S&P 500 index's total return. The 68-year-old is trying to ensure Disney remains a leader in TV and film entertainment — whatever its form — for decades to come. But with Iger set to retire in 2021, he not only won't get to see his strategy through, he's also setting what may be an impractically high bar for his successor. Disney may always be the box-office leader for as long as there is one, but given the industry's changing dynamics, topping its own records will be that much harder to do. 

Its films indirectly generate even more money through licensing deals, attractions at Disney theme parks and consumer products.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

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