5 Reasons That Disney Buying Lucasfilm Will Pay Off
Oct 31st 2012 6:00PM
Updated Oct 31st 2012 6:14PM
By now everybody knows that Disney (NYS: DIS) will be paying out $4.05 billion in cash and stock to acquire Lucasfilm.
It's a big price for what largely boils down to the Star Wars franchise, but the market likes the move. Shares of Disney opened 2% higher this morning.
Let me get into the reasons that this is going to be a great deal for Disney. Some of them may be obvious, but some may surprise you.
1. Disney knows how to make big acquisitions pay off
Disney doesn't shy away from cutting big checks if the pieces fit together. There were plenty of skeptics when the family entertainment giant shelled out $19 billion for Capital Cities/ABC. No one's laughing at the deal now, especially since ESPN has grown into one of Disney's crown jewels.
Disney has also turned heads on this side of the millennium with 10-figure deals for Pixar and Marvel. The box office success of those properties since arriving at Disney says it all.
2. Disney needs sci-fi muscle
When Disney took a $200 million writedown on the colossal theatrical flop that was John Carter earlier this year, it came on the heels of last year's animated Mars Needs Moms also floundering.
Sure, the Tron Legacy reboot two years ago had legs. However, securing the class act in computer-rendered animation through Pixar and nabbing superhero street cred with Marvel still left a void in the still-popular sci-fi genre. It's hard to top Star Wars, and what Disney can do with the franchise in the coming years.
3. Star Wars gets Disney in the game
Star Wars has already been squeezed for console and PC games. From traditional arcade games to console games for kids starring Star Wars characters as Lego pieces, one can argue that Lucasfilm has milked all that it can out of its gaming license. In at least one problematic sign that the franchise may be losing its gaming luster, Electronic Arts (NAS: EA) put out Star Wars: The Old Republic as a PC game late last year. It had as many as 1.7 million players shortly after its launch, but now there are fewer than a million active gamers. EA is promising a "free-to-play" option to bring back penny-pinching players next month.
However, just because gaming accounts for less than 20% of Lucasfilm's revenue doesn't mean that it can't grow. Disney's reach should be able to get both younger and older players -- of all genders -- interested in the franchise, ideally without alienating the hard-core fans.
4. Consumer Products is Disney's middle name
Another 25% of Lucasfilm's revenue over the past year came from consumer products. The toy licensing deal with Hasbro (NAS: HAS) has paid off over the years, but now Disney can take it to the next level.
Sure, Disney works with Hasbro, too. However, Disney's ability to transform its stable of characters into relatable consumer products across various categories is downright impressive. Beyond the Disney Store retail network, we're looking at a thick Rolodex of potential licensing partners that Lucasfilm hasn't monetized as effectively as Disney will.
5. Let's count down to a Star Wars-themed land if not an outright theme park
Disney can usually afford to ignore what rival theme parks are doing. The House of Mouse runs the world's most popular gated attractions, and it can outspend anyone.
However, the booming success of the Harry Potter-themed attractions that opened at Universal's Islands of Adventure -- a park ironically now majority owned by Comcast (NAS: CMCSA) , which made an unsuccessful play to buy Disney eight years ago -- got its attention. Families flocking to Orlando now are taking time away from visiting Disney's four theme parks to sip butterbeer and come face to face with creepy death eaters at Islands of Adventure a few I-4 exits away.
The move found Disney scrambling to drum up something similar, but it couldn't lean on its freshly acquired Marvel -- at least not in Florida. Universal's Islands of Adventure has the theme park rights there to many of Marvel's most famous characters.
Disney turned to James Cameron's Avatar instead. As the highest-grossing film of all time, the Avatar franchise will help liven things up at Disney's Animal Kingdom come 2016. However, Disney doesn't own the franchise, and it's not even the studio putting out the movies. Now it can really dream out loud with a property that it fully owns.
Some Disney parks have Star Tours attractions, but these aren't the E-ticket rides that the franchise deserves. Disney will make it happen, likely in a lucrative expansion to its Hollywood Studios park in Florida as well as California Adventure on the other coast.
May the force be with you
Don't expect the milking process to kick in right away. However, by the time that Disney puts out the seventh Star Wars movie in 2015, it's safe to say that there will be plenty of theme park, consumer products, and gaming support for the franchise.
It may be something as simple as Star Wars-themed laser tag on Disney cruise ships, adding an animated Princess Leia to the Disney Princess line, or adding a Cantina Bar watering hole to its parks. It may be something as intense as breaking ground on a futuristic theme park geared toward thrill-seeking teens and adults or rolling out a new prime-time sci-fi series on Disney Channel or ABC.
Disney's just getting started, and the force is strong in that one.
On with the show
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The article 5 Reasons That Disney Buying Lucasfilm Will Pay Off originally appeared on Fool.com.Longtime Fool contributor Rick Aristotle Munarriz owns shares of Walt Disney. The Motley Fool owns shares of Walt Disney, Electronic Arts, and Hasbro. Motley Fool newsletter services recommend Walt Disney, Electronic Arts, and Hasbro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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