Disney's purchase of Lucasfilm, and by extension Star Wars, in 2012 wasn't cheap. At least, not on the face of it. But once you add up all those movie tickets, action figures, and limited-edition Coffee-mate creamers, billions will come back to replace the billions spent. Just how do those billions stack up, though? While the exact math is fuzzy, the long-term picture is clear. Disney immediately started making money on an investment that will continue to pay off in a huge way—likely for years to come.
The stock of a company making so huge a purchase often takes a hit after the acquisition—less cash in the coffers, after all—but just four trading days after the buy in October 2012, Disney stock was on the rise again. "Wall Street perceived the acquisition as accretive, adding to potential earnings per share growth," says John Holbeck, a senior vice president of finance at Merrill Corporation, a financial services and marketing company. "And the stock has continued to outperform the market."
What Holbeck is saying, for those of you who don't speak Wall Street, is that Disney probably won't miss that $4 billion one bit. He notes that $1 placed in an S&P indexed fund—a market benchmark—in October 2012 would be worth about $1.50 today. But Disney stock has more than doubled since the Star Wars acquisition, which means it's outpacing a growing market by an additional 50 percent.
Some of the reasons are boring and business-y: Natural synergies, consolidation of corporate overhead, etc. But the hyperspeed factor here is Star Wars: The Force Awakens. Quite simply, George Lucas was not going to do new Star Wars movies. It was like Lucasfilm was sitting on top of the world’s richest oil deposit, but didn't want to drill.
Disney tapped that well. And it's a gusher.
In January, a relaunched Star Wars comic book from Marvel sold almost a million units (remember, Disney owns Marvel, too). That's only about, oh, 25 times more than the final Star Wars issue published by Dark Horse Comics a mere seven months prior. And then along came Force Friday.
The rollout of more than 100 new Star Wars toys was a cultural phenomenon, with a huge bottom line. Toy sales between Force Friday and the end of the year should reach $2 billion in retail sales. At an approximate $1 billion wholesale, and with Disney's estimated royalty rate of 15 percent, that’s a lot of cheddar for the Mouse.
"For just toys, just through the end of this year, $150 million in royalties to Disney is a massive number," says Marc Mostman, a partner at Striker Entertainment, an entertainment-focused licensing and merchandising agency. "This is a beast. I can't wait to see where else it will go."
Marty Brochstein, a senior VP at LIMA, the global trade organization for companies in the licensing business, says Force Friday was but a breeze in the forthcoming Star Wars merchandising windfall.
"Force Friday was unprecedented," he says. "Think about this: This was a promotion, for the launch of a product line, not the movie! And it was brilliant. But what that did was focus the attention of the collectors. The more traditional merchandise rush is four to six weeks before the movie, where the mainstream really comes in. The casual fan or the child who really doesn’t know Star Wars yet is just starting to buy the merchandise in the stores."
And then there's ticket sales. Jurassic World holds the current record for the richest opening weekend for domestic box office with $209 million. But with more than $50 million already in the bank in advance ticket sales and theaters adding showings at 2 am and 5 am (!), The Force Awakens seems a good bet to make the dinos' record extinct.
Shawn Robbins, a senior analyst for BoxOffice.com, thinks that a $180 million opening is "reasonable," but admits, "The sky is really the limit on this one. If reviews come out strong, yes, they could get the record."
BoxOffice.com is projecting $762 million in cumulative ticket sales for The Force Awakens, and Robbins says "generally, rule of thumb, most people will tell you it’s about 50 percent" that makes it back to the studio. So count on $380 million in Disney revenue there.
And let us not forget the non-toy licensing, pay-per-view, home DVD sales, and more.
"That $4 billion is a large chunk of change," Robbins says, "but more than likely, we think Disney will make half that back on this movie alone once you figure in all the revenue streams." And will there be more down the line? These are the dividends you're looking for. (Some analysts are already predicting Disney could reap $500 million in revenue next year from Star Wars products alone.)
"With Star Wars, Disney is adding to what they already have in princesses," Robbins says. "Daisy Ridley [Rey] looks to me to be the main character in this. Now I know John Boyega [Finn] is front and center there, too, but all indications from my perspective look like she will end up being the star of this new series. That’s going to tap into the princess angle that Disney already owns."
Bottom line, this this is not uncharted territory for Disney. It previously bought Pixar for $9 billion in 2006, and Marvel for $4 billion in 2009. So it knows what its doing.
“When you make acquisitions, two things happen," Holbeck says. "First, you get better at valuing potential acquisitions, so you’re making the right deal. And second, you get better at integrating and assimilating your acquisitions into the culture of the parent company. I’m not saying there weren’t some tight throats in the boardroom when this was being bandied about—there likely were, because make no mistake, a $4 billion deal is huge. But having just been down that path with a similar Marvel deal likely gave them the mojo and the guts to get it done. This was a very good acquisition."
