First Pixar, then Marvel and now Lucasfilm - entertainment giant Disney has a hunger for franchises in search for the next box-office hit.
George Lucas was not being completely serious when he said on Tuesday night that Walt Disney would be his retirement fund.
It is true that the creator of the Star Wars films is now one of Disney’s largest shareholders after agreeing this week to sell his company, Lucasfilm, to Disney for $4.05bn (£2.5bn) . But besides 40m Disney shares, the legendary director also gets a chunk of cash.
When talks between Lucas and Robert Iger, the chairman and chief executive of Disney, first began 18 months ago, however, the Hollywood producer was under little pressure to sell. Star Wars, which first hit cinemas in 1975, remains a cash cow even though the last film in the series was released seven years ago. Sean McGowan, an analyst at Needham, estimates that about $140m of Star Wars toys will be sold this year alone.
By contrast, this year has seen Disney’s film business come under increasing pressure. In March, the company warned that it would take a $200m hit after the box-office failure of John Carter, in what was the biggest loss on a single film in recent history.
Rich Ross, who ran Disney’s film studio, left within weeks. That failure, say analysts, was an embarrassing reminder to Disney of the costly and difficult challenge of creating films that have the potential to generate profits for years.
“They have a very chequered record in developing new franchises in-house,” says Matthew Harrigan, an analyst at Wunderlich Securities. “No matter how much money you spend on a film, the outcome is uncertain.”
It is not a surprise that the likes of R2-D2, Darth Vader, Luke Skywalker and other Star Wars characters attracted Disney’s chequebook. The films have raked in $4.54bn at the box office, leaving them second only to Warner Brothers’ Harry Potter series in the history books. No set of films, though, has made more money from toys. “For 35 years, it has been the most valuable toy franchise,” says McGowan.
Lucas is not the first time Iger has bet big on a maverick billionaire. At his first board meeting as chief executive in 2005, he said that the company needed to buy Pixar, the film-animation studio founded by Lucas and then sold in 1986 to a trio including Apple co-founder Steve Jobs. By the time Disney paid $7bn for it in 2006, Pixar had already produced Toy Story, the first in the most profitable ever series of animated films.
The swoop on Pixar was followed three years later by the $4.2bn purchase of Marvel Entertainment, the company behind action heroes such as Spiderman, The Incredible Hulk and The Avengers. Some shareholders balked at the prices, but both deals have paid off for Disney. The Avengers, which was released this summer, has already become the third-most successful film on record and helped drive a 24pc increase in Disney’s second-quarter profits.
For Iger, the importance of owning characters and film franchises with a global reach is magnified by the explosion of digital platforms that the internet has brought with it. “Technology has proved more friend than foe to great story-telling,” he said this week. “It allows us to distribute in ways we never thought would have been imaginable.”
Although Disney’s movie business steals the headlines, it is not the biggest driver of the company’s sales. ESPN, the television sports network, contributed $18.7bn of the $40.9bn of revenues Disney made last year. Disney’s theme parks were next, generating $11.8bn. The film studios, which are based in Burbank, California, were third with $6.3bn.
Iger, who stands down as chief executive in 2015, now faces the twin challenges of integrating Lucas’s company into Disney and ensuring that the next film is a box-office success. “The vast bulk of the deal has to be justified on the basis of the new movie releases,” says Harrigan.
The history of Pixar and Marvel suggests that goal is within Disney’s reach.
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