When you look at a list of the most valuable companies in the world, it is no surprise to see brands such as Apple, Microsoft, Google, and Coca-Cola near the top. However, you don’t have to scroll down much further to see Disney, one of the globe’s most renowned and respected film studios.
After all, global box office revenue for films released in each country around the world hit $36.4 billion last year. What’s more, the number of cinema screens increased by 6 per cent worldwide in 2014 to over 142,000.
Therefore, it is fair to say that there are plenty of film studio investment opportunities to capitalise on for those trading in stocks and shares. But how does the release of huge blockbusters affect the markets? To explain the numbers behind the silver screen successes, we spoke to Chris Beauchamp from spread betting and CFD trading company IG and Derren Nathan, lead analyst at Hybridan.
The importance of Hollywood blockbusters to film studios
Despite the fact that consumers are turning their attention to other forms of entertainment such as video games, online content, and on-demand streaming services, watching a Hollywood blockbuster at the cinema remains an unrivalled experience.
For a while, it seemed as though concerns over copyright infringement and film piracy would significantly reduce profit margins for film studios. But, in recent years, Hollywood blockbusters have proven why they remain the ultimate in immersive entertainment.
“We’ve actually seen a number of blockbusters come through over the last couple of years that revived the fortunes of movie firms that otherwise were looking a bit weak; and big names have really revived interest in the cinema and confounded expectations that actually it would continue to lose ground to other forms of entertainment,” notes Chris Beauchamp, Senior Market Analyst at IG.
Not only do Hollywood blockbusters gives film studios favourable financial returns, they also supply the means in which to produce more unique movies.
“Blockbusters provide the funds for more speculative movies that are not expected to be successful – like Up! and Frozen – but actually came through to be very big,” adds Beauchamp. “But it’s those sort of small ventures that are needed to try to generate some more interesting profits.”
Taking advantage of the film industry’s affect on the markets
When it comes to backing a film studio from an investment perspective, Beauchamp believes there is one company that sits head and shoulders above the rest. “It continues to be Disney really, its strong stock performance, its decent valuation and its strong financial firepower means that it stands out against most of them,” he stated.
But in addition to backing films produced by Disney, such as the latest instalment of the Star Wars franchise, the industry’s resurgence means that investors should also consider putting money behind distributors and studios too.
“The Force Awakens is not the only blockbuster of the season, you’ve got Spectre, which is doing rather well at the box office, but both Everyman Cinemas and Cineworld have said they’re looking forward to good viewer numbers in this second half of the year,” notes Nathan.
“For the studio themselves, Pinewood, it’s a really good profile for them. A great British institution, they’re actually looking beyond Britain, they’re looking to buy studio assets in places like Chile, and they’re expanding the actual main studio because they are experiencing such demand for productions.”
Big blockbuster film, therefore, carry financial clout. They boost studios and cinemas alike and provide employment for a whole host of companies that need to bring them from script to screen. On top of that, a great Hollywood film can also boost the tourist industry of a nation or region – just look at the interest in New Zealand from the Middle Earth adventures of Lord Of The Rings and The Hobbit. There’s nothing like an influx of tourists to boost the economy and markets of a nation – meaning the impact of such films has a ripple effect across a whole range of markets.