The Avengers

Wall Street dislikes the movie business and hated Disney CEO Bob Iger’s 2009 agreement to pay $4.2B for Marvel, especially after he paid $7.5B for Pixar. So, does the huge success for The Avengers give him the right to boast that he was right all along? Almost, but not quite, Bernstein Research’s Todd Juenger seems to conclude in a provocative report this morning. “We agree it was a good deal, but disagree that The Avengers makes that conclusion self-evident,” the analyst says. Pre-Avengers, Disney had to release two Marvel films a year with each grossing an average of $517M worldwide just to make the acquisition break even, Juenger figures. That was an ambitious goal considering that Marvel releases have averaged $417M over the last five years. But The Avengers changes the math: Now each Marvel release has to gross $437M. That’s within range, Juenger says, because the growing demand for films overseas means that “future Marvel films will do better than they have historically.” He estimates that The Avengers will generate a $1.29B profit for Disney with revenues of $3.7B ($2B gross box office, $50M from TV, $1.2B in home video, and $500M from toys and merchandise) and $2.4B in costs ($257M fee to Paramount, $1B to exhibitors, $150M for prints and ads, $220M in production costs, $117M for home video distribution, $125M cost for consumer products, and $558M for profit participations and residuals.) While Juenger’s analysis should cheer the studio, which he says is one of the most profitable in the business, it’s hardly a rousing endorsement for Hollywood. Making movies, he says, is “a crummy business with terrible structural dynamics. It’s hit driven with no barriers to entry, no sustainable competitive advantages, and its main profit driver (home video) is in decline.”