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Disney's Oz is Popular but Not Yet Profitable

Disney's Oz is Popular but Not Yet Profitable

Disney (NYSE: DIS) has found a hit in the release of Oz: The Great and Powerful. With an estimated opening weekend haul of $80 million in the United States and another $69.9 million overseas, Oz is one "powerful" film.

However, it is not yet profitable.

According to Box Office Mojo, the film had a production budget of $215 million. It is unclear if Disney used every penny, as studios rarely brag when they come under budget (though they frequently complain about the opposite). Even if Disney made Oz for less than $200 million, the company spent millions on a massive worldwide marketing campaign. Thus, if the $215 million production estimate includes both the film's development and its ad campaign, Oz would still be $65 million below the break-even point.

This is not uncommon for Hollywood films, especially spring and summer blockbusters. It is rare that a film is able to turn a profit during opening weekend, which is why the next few weeks will be essential to Oz's overall success.

As it stands, Disney is following through with its plans to produce a sequel. This might suggest that the Mickey Mouse maker is satisfied with Oz's performance thus far, but the truth is that Disney has always hoped to turn the film into a franchise. While Alice in Wonderland was a one-off project, Oz could become a continuing tent-pole for the studio.

Last year Disney acquired Lucasfilm for $4 billion with the goal of producing new Star Wars films, TV shows and video games, as well as toys and other merchandise.

Disney did the same thing when it purchased Marvel, which also sold for $4 billion. However, the company did not need to purchase The Wizard of Oz or its owner because the original story is now public domain. The same cannot be said for the 1939 film, which has a number of unique elements that might not make it into Disney's sequel.

If Oz experiences the usual 40 percent decline this week, the film will earn another $48 million in North America. If it drops another 50 percent after that, the film will acquire an additional $24 million. This would bring the domestic total to $152 million. When combined with international earnings of at least $69.9 million, Oz will have earned more than $220 million, surpassing the break-even point.

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