How Disney Turned A Problem Area Inside Out Ahead Of Critical Earnings Period

Summary:

• During the summer, animation saw a box office resurgence courtesy of Disney/Pixar’s “Inside Out 2” and Comcast/Universal’s “Despicable Me 4” breaking the streak of low-earning summer films this season.
• For Disney, this was a major win at an important time as following a high-profile board battle, the studio needed to come out swinging ahead of its latest earnings report.
• “Inside Out 2” scored the second-highest debut for an animated picture of all time and since then, has become the highest-grossing animated film ever… with “Despicable Me 4” also earning accolades.
• Both movies showed the benefits of character-first content that effectively made consumers feel like they were missing out if they didn’t go to the theater.
• “Inside Out 2’s” success gives Disney back a certain level of freedom to again experiment with other movies that may be higher concept and financially riskier.

A group of emotions and a gaggle of minions walk into a movie theater…

I’d say stop me if you’ve heard this one before, but in all likelihood you have and that’s the point.

Since mid June, Disney (NYSE:DIS)/Pixar’s Inside Out 2 and Comcast (NASDAQ:CMCSA)/Universal’s Despicable Me 4 have set the box office ablaze. Even releasing in such close proximity hasn’t impacted their success, and when all is said and done both movies will have played a big role in the box office’s summer resurgence.

But then there’s the argument that both are sequels and you can’t make any original content anymore that succeeds. While that’s becoming more and more a valid argument in theory, for animation to survive as a medium, the industry needs these sequels to succeed, and for these studios to survive they need to use these movies as reminders to audiences of past days.

And for Disney specifically – with earnings coming up – they needed a bona-fide hit to keep to show the board it really was going in the right direction and stave off more “activist” investors.

So how did Disney and Universal deliver such big hits and why did the industry under-estimate their potential?

First as always, some background.

Going into this summer it was all doom-and-gloom with analysts. This would be a box-office year like no other was the mentality – but for the wrong reasons. The dual writers/actors strikes of 2023 left the Cineplex in shambles as its busy summer season would be heavily impacted. Paired with the continued impact from the rise of streaming, theaters were made out to be akin to ghost towns during the May-August period.

And yes, for the first month and half that looked to be the case.

Universal’s The Fall Guy fell off the radar quickly, audiences weren’t madly in love with Warner Bros. Discovery’s (NASDAQ:WBD) Mad Max prequel the way they were with the original, and a number of other contenders failed to capture audiences’ imaginations from the jump.

Yet we did start seeing signs of life in late May when Sony’s (NYSE:SONY) The Garfield Movie topped Mad Max to take in nearly $25 million in its opening weekend en-route to $90-plus million domestically and nearly $250 million worldwide.

That should have been a sign right there… but the media was pre-occupied griping about how the Chris Pratt voiced feline sounded more like Chris Pratt than what they remember Garfield sounding like in the old cartoons.

Yes – that was a thing.

The truth is also when the media decides to lean more into “anxiety” than “joy,” you can guess which one wins out.

But then Inside Out 2 over-delivered, flipping the narrative.

With $155 million in its opening frame, the movie scored the second highest debut for an animated picture of all time – only behind Pixar’s The Incredibles sequel. In the weeks since, it has become the highest-grossing animated film of all time and eclipsed the billion–dollar mark in total earnings worldwide. The movie also ranked as having the most diverse audience of any other Pixar movie (outside of Coco) and just as important played on audience’s emotions.

In today’s streaming-first landscape, you must force viewers off the couch and into their local theaters. You need to manufacture a “must-watch” can’t miss moment, and that’s what happened here. The teaser trailer dropped back in November smashed records with 157 million views in a 24-hour period – topping views for the first peaks at Incredibles 2 and Frozen 2.

It continued with a variety of in-person activations and digital integrations. We also saw custom on-screen and in-person content including special popcorn buckets (as per the latest movie trend). Disney also leaned heavily into its synergy system to get the emotions into the NBA championship coverage, the NHL Stanley Cup playoffs, college football games and American Idol.

They also went outside their company with America’s Got Talent and Jeopardy segments as well as the tried-and-true McDonald’s Happy Meal route. And that’s not even speaking of the Microsoft, Uber and Samsung partnerships (among others – and I’m excluding a ton ranging from Paper Mate, Post-Its and a dog DNA deal with Embark).

And then came the minions.

Universal also went all-in on its massive animated brand that used the 4^th of July holiday to launch into theaters.

Despicable Me 4 with Gru and his beloved little yellow sidekicks snagged $75 million in the three-day opening frame and more than $120 million across the five-day holiday weekend. Like with Inside Out 2 there was an increase among Hispanic and Latino audiences as well as stronger overall walk-in foot traffic. In total, it was the second best opening of the four movies. All of that speaks to the power of this franchise which now counts six films across its two brands (Despicable Me and Minions) and an a seventh just greenlit this month coming in 2027.

What makes the brand so formidable isn’t just the clever concept and fun nature of the films – but the power of the characters.

Namely the previously mentioned minions.

Case in point: While Despicable Me 4 may have out-done the original and its most recent sequel, it still trails both standalone Minion solo films (which is why a third one is now on the way).

Those characters are gold mines and Comcast knows it. These movies aren’t just designed to make money at the box office, but to keep the franchise fresh and active in the minds of consumers. And when you factor in that Steve Carell voicing your real main character is actually a secondary point, it shows why this franchise is an embarrassment of riches that was present everywhere this summer.

From the Kentucky Derby to Olympics preview coverage/spots to the Today show the movie was heavily promoted – not to mention in “real” life at Universal’s theme parks and properties. In addition, the studio tapped in the physical similarities of Gru and NBA MVP Nikola Jokic who joined the fun for a custom spot.

Call it synergy, call it product placement, call it whatever you want. But from the Sphere in Las Vegas to big notable buildings Sydney, Australia, the film made sure its message was amplified across the board.

And as with Inside Out 2, of course McDonald’s also was a prized partner.

The difference with Despicable though is that this a sum-of-its-part franchise. In total this new installment pushed the entire effort to more than $5 billion in global box office. That’s a new record that’s every bit as impressive as it sounds.

So now about that “original content” is dead argument.

No it’s not dead – audiences are just more selective in what they want now. Simply put if they feel like they’ve seen something before or they feel like something is designed to preach a message, they’re more inclined to tune out.

That’s where Disney re-enters the conversation.

Investors are well aware that Disney has especially been accused of both lately and after their board vote fight and prior mixed earnings they needed a big win like this one. You can expect Bob Iger and team to be heavily touting the film’s success when discussing its newest quarter performance next month.

Although what goes missing in this conversation – and overshadowed by the controversies – is as long as you have Inside Out level brands, they can afford to take those wilder shots even if they miss… and yes they have missed.

We know the last few years have not been the Mouse’s best efforts. Pixar’s Onward, Turning Red, Luca and whatever Lightyear was, did not help when it came to winning over audiences. And that also expanded to other Disney studio arms which saw stumbles when The Little Mermaid, Strange World and The Haunted Mansion didn’t trip the light fantastic either.

Even prized franchise like Marvel, Star Wars and Indiana Jones have taken a hit

Yes, the screen-to-stream mindset that prevailed during COVID didn’t help, but critics tend to agree these all were not the studio’s strongest offerings in general. Although credit to the teams for trying and not relying on the need to do a sequel every year – Pixar especially. In fact, you have to go back to 2019 and Toy Story 4 to find the last sequel the studio put out.

Short version – Pixar was due. After everything they went through during the pandemic they were allowed to go back to the well and it worked.

Pixar has always been best – Universal/Illumination as well – when its movies relied more on creating memorable characters than crafting conversations. In other words… people aren’t going to see an animated to movie to learn something.

They’re going to be entertained.

The Inside Out and the Despicable Me franchises work because we love these worlds and both are continuing to expand them. Inside Out added new emotions and Despicable Me added new types of minions to the fold. That helps not just the movie but the consumer products campaign that really end up helping fund these movies in the first place (ever wonder why there were three Cars and a Planes spinoff?)

So long as these studios can pull out a movie of this nature you are going to see them experiment in other areas. And given Frozen 3 and Toy Story 5 are now in development – don’t expect these new high concept original films to stop anytime soon.

But let’s also take a step back and look at Disney specifically from that top level view because for all the investor concerns and board in-fighting – it can’t be lost that the Mouse has had a big summer.

And Inside Out 2 is only a part of that.

In May the studio’s Fox division topped all comers with the latest Planet of the Apes movie, then Pixar’s Inside Out 2 did its thing in June and this past weekend Marvel’s Deadpool & Wolverine had a weekend unlike any other “R” rated movie ever.

And I could get into why in that same weekend Disney proved it may have also flipped its Marvel perceptions inside out as well. But while that will be a talking point during its earnings presentation, it won’t have any impact until the next quarter so we’ll hold that conversation for then.

Let’s just say though Disney may have put the “super” back into “super-hero” game despite some recent high-profile misses.

For now, investors need to focus on this past quarter while understanding what that means to the bigger picture. Yes, these companies are going to miss and while some of those are going to be glaring, remember when they hit, they hit hard.

And given the “feelings” heading into the summer, they’re also hitting at the right time.

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