Studios Ask the Wizard for Box-Office Magic

New films from Disney, Summit Entertainment might bring a renewed interest to Oz

   

Studios Ask the Wizard for Box-Office Magic

In the world of finance, “Investing in Oz” is usually taken to mean investing in Australia. But with the recent interest in the 1939 classic movie The Wizard of Oz, the phrase has taken on a whole new meaning.

In 2013, Oz is back in a big way. Walt Disney Pictures, a division of Walt Disney (NYSE:DIS), is set to release Oz the Great and Powerful early next month. The movie — which had a $200 million budget — is a prequel to the original Wizard of Oz and tells the story of how the Wizard, played by James Franco, originally got to Oz. It features Rachel Weisz and Mila Kunis as the Wicked Witches of the East and West.

But the Disney production is not the only game in town. Summertime Entertainment, a privately held company, is producing a $60 million animated telling of the Oz story with the working title Dorothy of Oz.

Dorothy 300x178 Studios Ask the Wizard for Box Office Magic

Dorothy Gale, voiced by Lea Michele

While the live-action Disney movie is getting more attention at the moment due to its imminent release, Dorothy of Oz might end up being the larger money maker. The producers put together a cast that includes Glee star Lea Michele as Dorothy, Dan Aykroyd as the Scarecrow, Kelsey Grammer as the Tin Man and Jim Belushi as the Lion. Smash’s Megan Hilty plays the China Princess, a new character not seen in the original Wizard of Oz, and Martin Short, Oliver Platt and Patrick Stewart also have prominent roles as new characters. Much of the soundtrack is being recorded by singer-songwriter Bryan Adams.

Paying actors to voice an animated character is cheaper and more time-efficient than paying them to stand in front of a camera. But apart from having a production budget that is one-fourth the size of Oz the Great and Powerful — and thus a much lower threshold for profitability — Dorothy of Oz could easily end up out-grossing its live-action rival.

Animated movies perform unbelievably well at the box office. As NPR reported last year, 70 computer-animated movies have been produced since the launch of Toy Story in 1995, and virtually all of them have grossed more than $100 million at the box office. Animated films are also uniquely well suited for sequels, which often perform better than the originals. That’s good news for Dorothy — the first of a three-part trilogy.

To throw out a few examples you might recognize, the Shrek franchise has taken in more than $3.5 billion internationally, the Ice Age franchise $2.8 billion and the Toy Story and Madagascar franchises $1.9 billion each. To put this in perspective, the entire Star Wars franchise, spanning six major movies over 35 years, has grossed only $4.3 billion. The James Bond franchise, which has spanned 23 films over 50 years and six actors playing the starring role, has grossed $6.1 billion.

The children’s movie industry also has excellent demographics in front of it. 2007 was the largest birth year in U.S. history, even larger than the years of the post-World War II baby boom. The children born in 2007 are now 5 to 6 years old and finally old enough to sit through a movie. They are also plenty old enough to nag their parents to take them.

But this is just the tip of the iceberg in the business of animation. Though shrinking because of piracy and streaming services, DVD sales generally make up a large percentage of the total gross for a movie studio, and animated films do particularly well in this area. Revenues from DVD sales are often higher than revenues from the box office for animated movies. Kids often rewatch their favorite movies multiple times per day, and a $15 DVD is often the cheapest babysitter a parent will find for their kids.

And this is nothing compared to merchandising. If past animated films are any indication, Dorothy of Oz has the potential to generate toy and merchandise revenues many multiples larger than its box-office sales.

For example, five years after the 2006 release of Disney’s Cars, the movie had grossed $462 million at the box office. But it had generated $8 billion in retail merchandise sales — 17 times the amount it earned in ticket sales — and this was before interest in the franchise was rekindled by the sequel, Cars 2. New merchandise sales put the total well in excess of $10 billion … and counting.

Given the number of Lightning McQueen and Mater toys rolling around my house and the closet full of Cars-themed shirts and jackets in my 3-year-old son’s room, I feel as though I have spent that much single-handedly.

The Cars franchise was wildly successful, but not every animated movie can be expected to generate those kinds of returns. As a case in point, consider the 2007 hit Ratatouille. Though it was popular at the box office, kids weren’t exactly lining up to buy rat dolls after watching it.

Still, The Wizard of Oz is not Ratatouille. Including its original books, it’s been an American cultural icon for more than a century, and its characters are highly marketable. Dorothy stands to profit handsomely from this.

You don’t need to look behind the curtain to see the potential for a boom in all things Oz.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management.  As of this writing, he did not hold a position in any of the aforementioned securities. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar but also which stocks will deliver the highest returns. The series starts November 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.


Article printed from InvestorPlace Media, http://investorplace.com/2013/02/studios-ask-the-wizard-for-box-office-magic/.

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