Disney Plans a Holiday Blitz of "Star Wars" and "Frozen" Products

Disney (NYSE: DIS) recently announced that it will launch a wide range of consumer products for Star Wars and Frozen on Oct. 4 to coincide with the theatrical releases of Star Wars: Episode IX and Frozen 2. This marks the first time Disney simultaneously launched two major consumer product blitzes.

For Star Wars, Disney will launch Triple Force Friday at midnight. Participating stores will sell a wide range of products -- including toys, collectibles, housewares, books, and apparel -- based on Episode IX and The Mandalorian, the first live-action Star Wars series for Disney+. Electronic Arts (NASDAQ: EA) will also launch a new video game, Star Wars Jedi: Fallen Order.

BB-8 in Star Wars Episode VIII.
BB-8 in Star Wars Episode VIII.

Image source: Disney.

For Frozen, Disney will launch Frozen Fan Fest, a coordinated rollout of new products, special fan experiences, and in-store events across the world. Disney states that the fan experiences will continue until the film's premiere date, and that its product rollouts will continue after its release into the holiday shopping season. Disney plans to reveal more details about both events later this year.

Star Wars: Episode IX and Frozen 2, which will both premiere in the final two months of 2019, are widely expected to be blockbuster films for Disney's Studio Entertainment unit. However, these product launches could also strengthen its sluggish consumer products business, which it quietly bundled into its Parks and Resorts business earlier this year.

Strengthening its weakest link

Many investors consider Disney's Media Networks unit, which houses struggling cable networks like ESPN, to be its weakest link.

However, Disney's weakest business in recent quarters was actually its Consumer Products & Interactive Media business, which licenses its brands to other companies and makes first-party products like toys, T-shirts, books, and games. Here's how that business fared last year:

Metric

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Revenue

(2%)

2%

(8%)

(8%)

Operating income

(4%)

(4%)

(10%)

(10%)

Year-over-year growth. Source: Disney quarterly filings.

Throughout 2018, Disney repeatedly blamed those declines on waning interest in Frozen products, softer comps growth at its retail stores, and lower licensing fees. Those are all issues that big consumer product "events" -- like Triple Force Friday and Frozen Fan Fest -- could rectify if coordinated with major theatrical releases.

Disney's Frozen.
Disney's Frozen.

Image source: Disney.

But in the first quarter of 2019, Disney stopped disclosing the growth of its Consumer Product & Interactive Media products in its earnings releases, and merged most of those businesses into a new unit called Parks, Experiences, and Consumer Products.

That unit's revenue rose 5% annually during the quarter and accounted for 45% of its top line. Its operating income grew 10% and accounted for 59% of its operating profits.

But if we dig deeper into Disney's 10-Q filing, we'll notice that the unit's growth was entirely supported by the growth of its theme parks. On a stand-alone basis, its Consumer Products revenue still slipped 2% annually, and its operating income fell 5%. Those results were disappointing since they included the holiday shopping season, but investors should note that Disney didn't launch a numbered Star Wars film or a Frozen sequel last year.

This means that Episode IX and Frozen 2, along with other tentpole films like Toy Story IV, could significantly boost its sales of Consumer Products this year. That's why Disney is pre-announcing Triple Force Friday and Frozen Fan Fest this early -- it's telling investors to expect its weakest business to become growth engines this holiday season.

The key takeaway

Disney has lots of irons in the fire, including its acquisition of Fox's (NASDAQ: FOX) (NASDAQ: FOXA) media assets, the launch of Disney+, the opening of Star Wars: Galaxy Edge at its theme parks, and a slate of blockbuster movies.

As a result, many investors might overlook its Consumer Products business, which generated 9% of Disney's revenue and 16% of its operating profits last quarter. But that would be a mistake, since its growth could offset some of the anticipated losses from its streaming business.

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Leo Sun owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.