For the longest time, investors wouldn't touch companies that try to exploit Disney (DIS) merchandise, betting that it would be too episodic and not lucrative enough.
Instead, they wanted to buy the stock of Trifecta Stocks portfolio holding Disney itself, because you got the consistent stream of cable, specifically ESPN. Who needed how toys did or games did that used Disney characters, when you could buy the real thing without worry that Disney might have a movie dry spell, causing the merchants to come up snake eyes?
Today we've seen the exact opposite. Electronic Arts (EA), the game company, is seeing its stock soar, in large part because of its partnership with Disney to produce an incredibly successful Star Wars game. The EA conference call emphasized this remarkable tie-up, with this gem standing out: "engagement in 'Star Wars, Galaxy of Heroes' is exceptional, with players spending two hours a day on average in the game during Q4." Disney's "Star Wars" led the mobile business, too, a division that generated $173 million for the quarter, up 15% for the year.
And it's long term, as the company points out: "We'll most likely have at least one 'Star Wars' title a year over the next three to four years. Next year, we will see 'Star Wars Battlefront' back, with bigger and better worlds, because we now have the new movies to work off, not just the historical movies that we used before." They are talking about a franchise that could be the biggest EA has ever had. No wonder its stock's up nine.
Here's the irony, though: we tend to forget the releases they are depending on are from Disney, and Disney will be the chief beneficiary. Right now, though, no one cares about what it will mean for Disney, because of the slowdown of the rate of growth of ESPN and the issues involving anemic advertising.
Hasbro (HAS) is no different. As CEO Brian Goldner told me last night on Mad Money, "the reason we have this strong partnership, we treat Disney's brands like our own brands." Goldner went on to say: "Disney's 'Princess' and 'Frozen', that business is terrific. We're off to a great start." Like EA, Goldner's Hasbro is talking about a close partnership that makes toys seamless creations, using that leverage of the Disney movie brands.
Now, there's genuine irony here. One of the reasons why EA's stock is doing so well is that there was chatter that the 'Star Wars' games were off to a slow start. None other than Disney's Bob Iger told you that just wasn't true, and that sales would be surprisingly strong. It seems as if the shorts who didn't believe Iger are now paying the price.
At the same time, Hasbro's figured out how to integrate Disney characters into a variety of narratives and storytelling at the same time that Disney is shuttering its Infinity video game division, which theoretically could have stolen both Hasbro's and EA's thunder and profits, for that matter.
Now, I personally think EA's gotten ahead of itself, while I think Hasbro represents good value. But the best value may be the company that owns the franchises that these two companies have harvested so well, Disney itself.
I am sure that one day we will realize that just as these two companies see the long-term slate of films and salivate, the average investor will do the same when the noise of ESPN dies down, and I do believe that while the noise is hitting some very high decibels it will ultimately be drowned out by the surety of the studio schedule.
I know I am in the minority right now, but never forget that both Hasbro and EA are derivatives, and in the end I would always rather own the real thing.