Weekly Puzzle #7: Side Benefits and Synergies – The value of Frozen, the franchise

The Movie

Unless you have been completely disconnected from the news, you are probably aware that Disney released a movie called "Frozen" in November 2013. That movie drew people into the theaters all through 2014 and had total gate receipts of $1.27 billion by the end of that year, making it the fifth highest grossing movie of all time. If you have no idea what the fuss is all about and want to see the movie for yourself, it will cost you about $14.99 at Amazon.

The Side Benefits

Besides the obvious payoff from the movie, Disney has managed to make money in a myriad of ways off the Frozen franchise. While the list of "add ons" is too long for me to go through, here are a few:

1. Disney sold 3 million Frozen dresses in 2014, roughly the same number as 3-year olds in the United States.

2. The name Elsa jumped to 83^rd on the list of most common names for babies, though I don't think Disney collects royalties on these (yet).

3. Disney has books, software and games all built around Frozen.

I found the most comprehensive list of these side benefits on Wikipedia (No. I don't share the typical academic disdain for Wikipedia. I love it!) and you can too: Collectively, it is estimated that these side benefits added up to almost a billion dollars in revenues for Disney in 2014, with the added benefit that they came with very little in costs since Disney licenses many of these products (and therefore does not bear the costs). This New York Times article makes the case for the Frozen cash cow.

Franchise Value

Given that past Disney franchises are the gifts that seem to keep giving for very long time periods (Mickey Mouse, The Lion King, The Little Mermaid), the Frozen franchise is worth a great deal. To value it, you will have to make some estimates on how much the franchise revenue will be for the foreseeable future, what the depletion rate in those revenues will be (as 3-year olds become 4-year olds and fall in love with something new) and how long the revenue stream will continue. I won't make those judgments for you but I have a template that I can offer you, based on a valuation I did of the Star Wars Franchise, when Disney bought Lucas Films in 2011.

Key Questions to Answer

1. Based on your judgment, what value would you attach to the Frozen franchise?

2. If you were the project analyst at Disney and you were assessing whether to invest in the next big animated movie (at Disney or Pixar), would you count the side benefits from the movie in making a judgment on whether the produce the movie?

3. If yes, how would you make these judgments?

4. If no, why not?