Stocks and popcorn: A night out at the movies

April 29, 2019 Richard Schmidt

          

No spoilers here! The new Avengers: Endgame movie hit theaters on April 26th and I couldn't have been more excited. I've had my tickets for weeks and I wasn’t the only one. Endgame broke advanced ticket sales records around the world. The lineups made ticketing websites shut down. Some tickets were reportedly selling on eBay for thousands. The movie is expected to bring in billions.

The hype is real

So why all the hype? Personally, I think it's because this is the biggest movie in the longest ongoing movie saga that we've ever seen. Normally when you see a movie, an hour is spent building up the characters before you get into the action. In this case however, we already know the characters' back stories. We have the story's building blocks, and now we get to see it all come together.

The movie is a culmination of more than 11 years of storytelling work, bringing together 11 different franchises (Iron-Man, Thor, the Hulk and Captain America, just to name a few, all come together in the end to finish the Marvel saga). Everyone around the world is so excited that the directors even Tweeted an open letter to fans, asking them to keep from spoiling the film's ending for those who haven't seen it yet.

More than just a one hit wonder

This one movie aside, The Walt Disney Company which owns the Avengers franchise, is an interesting stock to watch of late. In addition to the Avengers release, they've also announced a release date for the newest Star Wars movie, The Rise of Skywalker (December 20, for those of you keeping track). More, fans and market watchers alike were thrilled recently to learn that Disney is making its library of over 400 films from marquee names including Star Wars, Marvel, Pixar and National Geographic available on demand via Disney+, its own content streaming service. Let's not forget the more than 7,500 television episodes, including 30 seasons of the Simpsons and teases of new content also slated to hit the service.

Following that announcement, Disney shares rose over 9%, while incumbent streaming company, Netflix, Inc. shares lost more than 4%.

Janus Henderson Investors, one of our sub-advisor partners, observes that Disney's Disney+ announcement, combined with its existing ESPN+ service and its 60% stake in streaming entertainment company, Hulu, indicates that Disney is “all in" on its direct to consumer initiative. They say Disney made the move because of the streaming market's potential size: In 2015 there were 700-million global broadband homes. By 2020, they expect that number to reach 1.1-billion. In 2015, meanwhile, there were 190-million direct to consumer subscriptions. In 2020, Janus expects that number could reach 810-million.

“Combined, this represents a significant shift in the way viewers digest their content, and thus, is a massive opportunity for content producers to reach their desired audiences," they say. “The shift in the content marketplace is indicative of how technology is disrupting traditional business models and creates opportunities for both new and legacy content creators and distributors."

There is still a place for theaters

Disney is no slouch at the traditional box office either. In 2018, according to media analytics company, ComScore, Disney movies took home 27% of the box office sales during the year. Second place, Universal Pictures garnered only 17% of all box office sales.

This year, in addition to Endgame and Star Wars, Toy Story 4 is expected to be another mega release for Disney. It comes out June 21. Old favourites like Aladdin and The Lion King are also getting re-released this year, on May 24 and July 19, respectively.

All of this action leads us next to another stock that we own: Cineplex Inc. Although Cineplex's share price has endured a rough couple of quarters of late, for Canadian market investors, particularly those who follow value and dividend stocks on the S&P/TSX Composite Index, Cineplex is another interesting company to watch.

For one thing, the company pays dividends—a lot of them. The company's extremely attractive dividend yield, over 7%, appears to be quite sustainable for the time being. One of Cineplex's challenges include keeping their seats filled, and investors onside, even during quarters when there aren't blockbuster hits to keep patrons coming.

To that end, you might have noticed the company coming up with alternate uses for their space. They host corporate events, concerts, e-gaming competitions and even churchgoers on Sunday who gather to watch televised sermons on the big screen. For those who do come for the movies, the company also has its higher price point, VIP experience where waiters will bring concession treats right to your seat. The majority of their business continues to be driven by movie releases, but it is interesting to see the company doing other things to drive profit and wealth for shareholders. Would you like a beer with that movie? It comes at a higher price than you might normally pay, but making drinks available before and after the film is another way Cineplex is driving sales in some locations.

Movies at MD

Want to be a Disney or Cineplex investor? A lot of our MD clients are already there. Cineplex is held in a few of our funds and pools: the MDPIM Canadian Equity Pool, MD Equity Fund, MDPIM Dividend Pool and the MD Dividend Growth Fund. The Walt Disney Company's shares, meanwhile, can be found in the MD Growth Fund and the MD Precision Canadian Balanced Growth Fund. Lastly, for debt exposure, our investors can invest in Disney via the MDPIM Canadian Bond Pool.

If you'd like to know more about these holdings, how they're performing, and how investment managers use them in your portfolio, please contact your MD Advisor.

About the Author

Richard Schmidt

RICHARD SCHMIDT, CFA, is a Quantitative Investment Analyst with the Investment Management team at MD Financial Management. He provides research and analysis for all fixed income and equity mandates.

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