Disney Seeks Long-Term Benefits from Avatar Investment

Theater operators say the new "Avatar" movie needs time to find its audience. But that might not be enough. The movie may need to make some changes to find success.

The long-awaited sequel to the biggest blockbuster ever had a mixed opening last weekend. A global bow of $435 million puts Disney in second place for the weekend.

"Avatar: The Way of Water" came in second place this year, but its domestic haul of $134 million on the opening weekend was only fifth best. Even Disney was disappointed with the film's $57.1 million opening in China, where fresh Covid outbreaks have sharply limited attendance. In some cases, the movie was playing to nearly empty theaters.

The new "Avatar" movie has grossed over $550 million at the box office, proving that it is no flop. The real question is whether the new film can have the same level of success as its predecessor. The original "Avatar" movie didn't have a huge opening weekend, but it stayed at the top of the box office for seven weeks in a row. If the new "Avatar" movie can maintain a similar level of popularity, it will be a huge success.

The foreign market is especially important for blockbuster movies. According to data from the movie-industry data site The Numbers, out of five movies that have grossed more than $2 billion in global box office sales, 2009’s “Avatar” had the smallest contribution—27%—coming from the domestic market. China, which at the time had an emerging movie market hungry for big-budget American spectacles, played a significant role in that success. With the help of a short rerelease in September to warm up the audience for the sequel, the global gross of the first “Avatar” has now hit $2.9 billion, making it the biggest movie ever.

The odds that the sequel will do the same amount of business are long. The initial release of “Avatar” lasted 234 days in theaters domestically. This is almost unheard of in today’s market, where movies are often pulled onto streaming platforms after 45 days. About 20% of the first Avatar’s domestic gross came after that window—$154 million worth. Disney, which inherited the “Avatar” franchise through its 2019 acquisition of Twentieth Century Fox, hasn’t spelled out its streaming plans for “The Way of Water.” But the company’s last four Marvel movies have seen higher-than-normal box-office drops after their opening weekends, likely in part because Disney viewers have become accustomed to the company’s movies hitting Disney+ in two months or less.

If the new "Avatar" is successful, Disney will want to capitalize on that success by creating a franchise. The new film was designed with that in mind, and three sequels are already planned. Writer-director James Cameron told the Hollywood Reporter last month that Disney has already spent more than $100 million on the third film, which has already been shot.

Disney and its Chief Executive Bob Iger, who has returned recently, could also use a success story that can be traced back to the Fox acquisition. The deal, worth $71 billion, was completed in 2019 and was the largest undertaken by Mr. Iger, who also spearheaded the acquisitions of Lucasfilm, Marvel and Pixar. The deal was designed, in part, to bolster Disney’s library of general entertainment content as the company was preparing to become a streaming powerhouse. Mr. Iger even showed an early preview of “Avatar: The Way of Water” at Disney’s annual meeting in early 2019.

Some investors have criticized Disney's acquisition of Fox, calling it a "significant strategic error" that has cost the company nearly $12 billion in economic value. Disney has come under pressure from activist investor Nelson Peltz of Trian Fund Management, who has called for operational changes and a seat on the company's board of directors.

"Avatar: The Way of Water" is unlikely to be a box office bomb. However, with hopes of a new global franchise hanging over the picture, coming up even a little short might leave both Disney and theater owners disappointed.