Disney's Muppets Purchase May Finally Pay Off with New Film


Walt Disney's (DIS) gamble on the Muppets may finally be paying off -- nearly a decade later.

Jim Henson tried to sell his company to the House of Mouse before his death in 1990, but a deal never happened. The Muppets wound up in limbo after EM.TV, which acquired Kermit and Co. for $680 million, experienced financial problems. Three years later, it sold the characters back to the Henson children for $78 million. The Hensons later sold the characters to Disney in 2004 for an undisclosed price, which was likely under $200 million. Sesame Workshop, the nonprofit that produces Sesame Street, still owns the Muppet characters that appear on the beloved children's show.

The Muppets' first feature film, 1979's The Muppet Movie, includes the immortal song The Rainbow Connection and was by far the highest-grossing of the six that were eventually made, with a box office of $65.2 million, according to Box Office Mojo. But many of the other movies from the franchise didn't live up to promise of the Muppets, or have the infectious zaniness of The Muppet Show (1976-1981). The entire Muppet series has grossed an adjusted $500 million, which is chicken feed compared with other franchises. For instance, Toy Story 3, which was released last year, grossed more than $1 billion on its own.

So for Disney shareholders, The Muppets may prove to be a pleasant surprise. The film's production budget is reportedly around $50 million, paltry by Hollywood standards. Given the potential appeal to nostalgic Gen Xers and early favorable reviews, the potential upside is huge.

"After seeing it, I believe that through some sort of dark ritual, Jason Segel, Nicholas Stoller, and James Bobin convened with the spirit of Jim Henson and figured out how to get the Muppets all Muppety again," writes the online movie news and reviews site Ain't It Cool News. "While not without its few problems, The Muppets is every bit as joyful, clever, self-aware, blissfully stupid, and full of heart as you'd hoped it would be."

Fifteen Seconds to Curtain, Mr. Segal

How big could the upside be? Other family franchises I consider inferior to The Muppets have made big bucks, among them Viacom's (VIA) SpongeBob SquarePants Movie, which grossed $85.4 million, and the two Chipmunks movies, which grossed more than $443 million for News Corp's (NWS) Fox. A third installment, Alvin and the Chipmunks: Chipwrecked, is due out in December.

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According to the film review aggregator Rotten Tomatoes, 87% of users say they want to see The Muppets, which opens in theaters the week of Thanksgiving. More than two dozen celebrities including Jack Black, Emily Blunt, and Zach Galifianakis did cameos, underscoring the wide affection people still have for the characters, according to Entertainment Weekly. The plot deals with a small-town couple (Segal and Amy Adams), who, along with a new Muppet named Walter, head to Los Angeles and find the Muppet Studios abandoned -- similar to what happened to the beloved characters in real life.

The Muppets' film career died after 1999's Muppets From Space bombed at the box office, grossing a meager $16.6 million. Actor/writer/producer Jason Segal is an unlikely potential savior for Kermit, Miss Piggy, and Fozzie Bear. Known for edgy comedies such as Forgetting Sarah Marshall and the sitcom How I Met Your Mother, Segal convinced Disney to dust off the franchise for another film, according to The New York Times.

This time, moviegoers will see the Muppets battle an evil Texas oilman who is convinced there is oil underneath Muppet Theater. The gang decides to get together for one more show to save their home.

If all goes well, this may be the first of many new adventures for the beloved characters, marking a big score for Disney.

Motley Fool contributor Jonathan Berr does not own shares of the stocks listed here. Motley Fool newsletter services have recommended buying shares of Walt Disney.

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