On Dec. 6, London’s Odeon Leicester Square theater is scheduled to light up for the premiere of Avatar: The Way of Water. As photographers jostle for a shot and fans clamor for autographs, stars Zoe Saldana and Sigourney Weaver and director James Cameron will proceed down the red-carpet for a screening of the sequel to the top-grossing movie of all time, booking sales of $2.9 billion since its release in 2009.
It’s the kind of feel-good spectacle Hollywood adores, with hefty doses of glamour, glitter and magic to enthrall the public. Way of Water has the potential to cast a similar spell on Walt Disney Co., helping the studio’s bosses forget, just for a moment, how badly the pandemic upended their business. Disney got the rights to Avatar when it paid $71 billion for 21st Century Fox three years ago, and the franchise—Cameron is planning sequels every two years through 2028—“is certainly one of our biggest priorities since the acquisition,” says Alan Bergman, chairman of Disney’s studio division. “The first film was one of the most important films ever released.”
There’s little doubt that the science fiction tale, following the story of a moon called Pandora and the colonization that threatens it, will attract a sizable audience. Adam Aron, chief executive officer of theater chain AMC Entertainment Holdings Inc., has said Way of Water will be one of 2022’s top-grossing films, approaching Paramount’s Top Gun sequel, which has taken in close to $1.5 billion since May. On Twitter, Aron called the movie a “masterpiece” and a “likely huge hit.”
What’s less clear is whether the film will do well enough to warrant the price Disney paid for Fox. The deal, put together under Bob Iger—the past and present CEO who returned to the job in November—was at first deemed a clear winner for Disney, says Geetha Ranganathan, an analyst with Bloomberg Intelligence. During Disney’s push into streaming in 2019 and 2020, Fox’s rich catalog, ranging from Bohemian Rhapsody to The Simpsons to National Geographic fare, proved a strong draw for subscribers, thrilling shareholders.
Wall Street, though, has since started focusing less on streaming subscriptions and more on profitability. In its fiscal fourth quarter, the company posted a loss of $1.5 billion from the division that runs the Disney+ streaming service—spurring some investors to start questioning the deal. “Initially it looked like a slam-dunk,” Ranganathan says. “Now it’s a bit more up in the air.”
During Iger’s run as CEO from 2005 to 2020, serial acquisitions brought in an abundance of family-friendly programming. In 2006, Iger paid $7.4 billion for Pixar, giving Disney’s aging animation operation a welcome boost. In 2009, Disney picked up superhero juggernaut Marvel Entertainment, then in 2012 it got Lucasfilm and its Star Wars series. Those deals have all proven to be bargains, with the last four Avengers films alone grossing almost double the $4 billion Disney paid for Marvel.
But the economics of The Way of Water are tougher. With a production budget that analysts say could be as high as $400 million, it’s one of the most expensive movies ever made. Add in marketing expenses that can reach hundreds of millions of dollars for A-list films, and it’s not hard to imagine Disney needing ticket sales approaching $1 billion before it earns a penny of profit.
Disney declined to comment on the picture’s financials or make Cameron available for an interview, but he told GQ magazine that The Way of Water was “the worst business case in movie history.” To break even, he said, it would need to gross roughly $2 billion. And it’s being released at a time when box office receipts remain about a third below pre-pandemic levels as inflation and competition from the likes of Netflix Inc. and Amazon Prime keep film buffs glued to the couch.
Disney’s September rerelease of the original Avatar to theaters, aimed at building momentum for the sequel, sent a positive signal, taking in more than $70 million—respectable for a 13-year-old film. And big-budget productions such as Spider-Man: No Way Home, which has grossed close to $2 billion since its release last December, have proven that big-screen offerings can still find huge audiences.
A strong box office showing for the Avatar sequel would help push perceptions of the Fox acquisition back into the win column for Disney—and provide a measure of validation for the board’s decision to rehire Iger. Anything less than a megahit, though, will only raise more questions about the direction of Disney’s overall strategy at a time when its stock is down by more than a third this year.
And no matter how the film performs in theaters, a big-budget franchise that provides just a few hours of content every couple of years won’t do much for the longer-term prospects of the streaming operation. On Dec. 8 the company will launch an ad-supported version of Disney+ in an effort to diversify its direct-to-consumer revenue. To make that work, Disney must serve up programming that gives viewers a reason to come back again and again—perhaps with Avatar spinoffs such as those that build on Avengers and Star Wars characters, says Colin Dixon, an analyst with NScreenMedia. “They’ve got plenty of great, high-profile content that attracts people in,” he says. “What they need is more bread-and-butter content to keep people there.”Read next: When Netflix and HBO Turned on Each Other, They Forged a New Era of Television
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