DISNEY BOUGHT STAR WARS, THEN STARTED MAKING MONEY FROM FANS BEFORE THE MOVIES
Disney paid $4.05 billion for Lucasfilm in 2012. The next Star Wars movie wouldn't arrive until 2015. Disney didn't plan to wait three years to monetize the franchise.
When Disney announced the acquisition of Lucasfilm, most people immediately thought about one thing:
New Star Wars movies.
But Disney was thinking much bigger.
Star Wars wasn't just a collection of films.
It was a machine for selling:
Toys
Clothing
Games
Books
Theme-park experiences
Licensing rights
Collectibles
TV content
Merchandise
And Disney knew it could start expanding those businesses before the next movie even arrived.
DISNEY PAID $4.05 BILLION
In October 2012, Disney announced that it would acquire Lucasfilm for approximately $4.05 billion, roughly half cash and half Disney stock.
The centerpiece was obviously Star Wars.
But Disney wasn't simply buying six old movies.
Lucasfilm also controlled businesses involving consumer products, animation, visual effects and other entertainment technologies.
And Disney immediately began talking about how Star Wars could be used across its entire ecosystem.
THE NEXT MOVIE WAS THREE YEARS AWAY
The timing was important.
The most recent Star Wars movie at the time was Revenge of the Sith, released in 2005.
Disney announced the acquisition in 2012.
The first new Disney-era Star Wars movie, The Force Awakens, was planned for 2015.
That created a strange situation:
Disney had just spent $4.05 billion on a franchise whose next theatrical movie was still years away.
But Disney didn't need to wait for the cinema.
THE TOYS COULD ARRIVE FIRST
Star Wars merchandise didn't need a movie premiere.
A company could manufacture:
Action figures
LEGO sets
Costumes
School supplies
Collectibles
Clothing
Games
and sell them throughout the year.
Disney already understood this model extremely well.
Its Marvel acquisition had shown how entertainment properties could generate licensing and merchandise revenue beyond the box office.
When Disney announced the Lucasfilm deal, it said Lucasfilm's consumer-products business was expected to generate roughly $215 million in licensing revenue in 2012. Disney expected that business to grow substantially after the acquisition.
So Disney wasn't buying something that only made money when a movie ticket was sold.
It was buying an intellectual-property machine.
THEN DISNEY PUSHED STAR WARS INTO ITS OTHER BUSINESSES
Disney's acquisition presentation specifically mentioned using Star Wars in:
Parks & Resorts
Games
Television
Consumer products
Films
That meant the same fictional universe could generate revenue through completely different businesses.
Imagine the chain:
Star Wars character
↓
Movie
↓
Toy
↓
Video game
↓
Theme-park attraction
↓
Clothing
↓
Collectible
↓
Another movie
One piece of intellectual property could keep generating commercial opportunities across the Disney ecosystem.
DISNEY DIDN'T EVEN HAVE TO MAKE EVERY PRODUCT
This is where licensing becomes powerful.
Disney didn't need to manufacture every Star Wars toy itself.
Instead, companies such as Hasbro could pay for licenses allowing them to produce and sell Star Wars products.
Hasbro's SEC filings show that Star Wars was a significant licensed property in its business, and that Disney owned Lucasfilm and the Star Wars rights being licensed to Hasbro.
So the economic relationship could look like:
Disney owns Star Wars
↓
Hasbro gets a license
↓
Hasbro designs and sells products
↓
Disney receives licensing revenue
Disney could monetize the intellectual property without having to manufacture every lightsaber, action figure or board game itself.
THEN THE MOVIE ARRIVED
In December 2015, The Force Awakens finally reached cinemas.
But Disney had already been building the merchandise machine.
Hasbro reported that the retail launch of Star Wars: The Force Awakens products helped drive a 24% increase in its Boys category revenue in the third quarter of 2015.
Disney's own results also showed the effect.
In its fiscal 2016 first quarter, Disney reported that higher merchandise licensing revenue was primarily driven by Star Wars merchandise, while theatrical results were also boosted by The Force Awakens.
The movie wasn't creating the entire business.
It was activating an ecosystem that had already been prepared.
THE REAL ASSET WASN'T THE MOVIE
This is the part many people miss.
If Disney had bought six films and nothing else, the economics would have been very different.
Instead, Disney acquired a recognizable universe.
Luke Skywalker.
Darth Vader.
Stormtroopers.
Lightsabers.
Planets.
Creatures.
Ships.
Stories.
Characters.
Those things could exist on a screen, but they could also exist on a toy shelf, in a video game, on a T-shirt or inside a theme park.
The movie was only one format for the intellectual property.
DISNEY WAS BUYING A REPEATABLE REVENUE SYSTEM
A movie normally has a relatively simple economic cycle:
Production
↓
Cinema release
↓
Ticket sales
↓
Home entertainment
↓
Eventually, the movie becomes part of the library
A major franchise can work differently:
Movie
↓
Merchandise
↓
Licensing
↓
Games
↓
Theme parks
↓
TV
↓
New movie
↓
More merchandise
The same characters can keep moving through the system.
That's why Disney was interested in more than simply the next Star Wars box-office result.
AND THE FANS BECAME CUSTOMERS IN MANY DIFFERENT WAYS
A Star Wars fan doesn't necessarily have to buy a movie ticket to spend money on Star Wars.
They could buy:
A $20 toy
or
A video game
or
A LEGO set
or
A T-shirt
or
A collectible
or
A theme-park experience
or
another Star Wars movie ticket.
Disney had multiple opportunities to monetize the same emotional connection.
That's a very different business model from selling a single product.
THE BUSINESS LESSON
Disney's Star Wars acquisition shows why intellectual property can be so valuable.
The valuable asset isn't always the physical product.
Sometimes it is the world inside the product.
Once people become emotionally attached to that world, the company can potentially introduce it into completely different categories.
A character created for a movie can become:
a toy → a game → a costume → an attraction → a collectible → another movie.
The customer may feel like they're buying six different products.
The company may see them as six different ways of monetizing the same underlying IP.
MAACAT PERSPECTIVE
Disney didn't pay $4.05 billion just to own some old movies.
It bought a universe that could travel across businesses.
And Disney understood something important:
You don't always have to create a new product to create new revenue.
Sometimes you take an existing intellectual property asset and put it somewhere it has never been before.
A movie becomes a toy.
A character becomes a video game.
A fictional world becomes a theme-park attraction.
And a fan who originally paid for a movie can eventually become a customer across an entire ecosystem.
The real business wasn't just Star Wars movies.
It was everything Star Wars could become.
