Analysis: Disney's Lucasfilm purchase seems significantly riskier than the $4 billion purchase of Marvel in 2009
In buying Lucasfilm for a stunning $4.05 billion on Tuesday, Walt Disney CEO Bob Iger has made yet another bold gamble for the future of his media company, betting on a beloved but dusty franchise in need of a radical reimagining for a new generation.
The Lucasfilm purchase seems significantly riskier than the $4 billion purchase of Marvel in 2009 — and certainly of Pixar, a hit machine that brought a house full of talent with its $7.4 billion price tag.
In Marvel’s case, the purchase came with a wide array of characters and comic-book properties that had been recently in the cultural bloodstream, whether Iron Man or The Hulk.
Lucasfilm will be more complicated. Disney will need to justify the $4 billion price — half in cash, half in issued stock — through a series of new “Star Wars” movies, written and directed by someone other than George Lucas. They will need to ignite the imaginations of audiences in this century in the same way Lucas did in the last one.
Can Disney do that? Because only if the movies are successful will the strategy of leveraging that brand value across all of Disney’s arms — international, consumer products and theme parks — also work.
“I don’t know what Lucasfilm is without George Lucas," one Wall Street observer who declined to be identified told TheWrap. "It’s not like they bought Marvel with the value of the characters, or Pixar where they bought a team, all of whom stayed.”
This observer said Disney was essentially substituting the risk of one of its annual tentpole movies with a lower-risk property: “What do you want to pay to lower the risk? The worst case is a ‘John Carter,’ in which they wrote off $250 million. They just paid $4 billion to avoid that. How many films will it take to pay back that lowered risk?”
There is little doubt about the uniqueness of the “Star Wars” brand. Lucas converted a generation of young moviegoers into “Star Wars” fanatics and set the bar for a pop-culture genre that has sold millions of light sabers and Wookie suits, not to mention DVD box sets.
Disney announced its plans to release a new trilogy starting in 2015, with the next episodes following two and three years after. They will be episodes 7, 8 and 9, to be produced by veteran Kathleen Kennedy.
In the aftermath of the announcement on Tuesday, plenty of analysts were bullish on the synergies of the deal.
“It was incredibly smart for both sides,” said Seth Willenson, an industry consultant and valuation expert. “Even though the series is falling off, it’s still worldwide like James Bond in terms of valuation. I believe they’re going to be in this position where they can revitalize the franchise and keep pumping out ‘Star Wars’ movies.”
He added: “Between the movies, merchandising, licensing, virtual goods, videogames …When I run all the numbers, I can easily get to $4 billion to $5 billion valuation, and it could be worth a lot more.”
The library value is difficult to pinpoint for a private company, but several analysts estimated $300 million cash flow from ongoing “Star Wars” sales of boxed sets, DVDs, streaming and licensing. Disney CFO Jay Rasulo on Tuesday declined to break down the cash flow from the library, but said that about 25 percent of revenue currently comes from “studio-based business," one-quarter in consumer products and 20 percent from Lucasfilm games.
Still, others are skeptical that a new “Star Wars” trilogy will capture the magic of the originals, and indeed plenty of fans say that Lucas himself has been running on the reputation of the first three in the franchise for a long time.
“The prospect of keeping the 'Star Wars' series going ad infinitum and expanding it to regions and age groups in which it isn't already well known or loved, is far from a sure bet with consumers,” wrote Kevin Roose on Daily Intel.
“It essentially amounts to wagering that diehards will continue to flock to anything with the 'Star Wars' name on it, while also betting that new movies will draw a younger generation that didn't grow up on Millenium Falcon references.”
In a call with analysts after the announcement on Tuesday, Rasulo essentially agreed with that view, noting, “We determined we’d be better off releasing a sequel to ‘Star Wars’ than most other not yet determined films. We love that this will take place in our release strategy as an already branded known property."
For a studio still smarting from the catastrophe of “John Carter,” that argument makes sense. But Rasulo and Iger also argued on Tuesday that there was a great deal of untapped value in the Lucasfilm library and franchise.
Owning both Marvel and Lucasfilm strengthens Disney’s hand with retailers, they said, and Lucasfilm has a huge amount of untapped value in international consumer products.
“We believe we can substantially increase the footprint of Lucasfilms through consumer products perspective internationally,” Rasulo said.
Whatever Disney’s calculations, the purchase is a stunning outcome for George Lucas, who was lucky enough to be forced into owning his own movies — and who as a result may go down in history as the wealthiest independent filmmaker of all time. And whether Iger’s latest bet will pay off?
That will take a decade or more to discover.
Brent Lang and Lucas Shaw contributed to this report.