The Force Is Strong With Disney
Oct 31st 2012 5:13PM
Updated Oct 31st 2012 5:24PM
Film and entertainment colossus Disney (NYS: DIS) has existed for decades as a monument to enduring success, producing iconic franchises that have pushed the company to the pinnacle of its industry. It's been cruising along pretty well recently too, as its $4 billion purchase of Marvel Entertainment in 2009 has paid off quite well. The stock's been on a tear over the past 52 weeks, rising 47% in that time span.
So how does Disney top that lofty record? By simply buying one of the most lucrative film franchises in history, of course.
Seemingly every media site in the universe has caught fire over Disney's acquisition of Lucasfilm for $4.05 billion. It's impossible not to get excited over the purchase of founder George Lucas' galaxy far, far away, but can Disney strike gold with yet another blockbuster acquisition like it did with Marvel?
It's (not) a trap!
Let's first look at just how ridiculously lucrative the Star Wars franchise has been. The six iconic feature films of the saga, along with the recent animated movie, The Clone Wars, have raked in $4.5 billion in box office totals alone to make the series the third most lucrative film franchise in history, behind only the James Bond and Harry Potter series.
That's not even a quarter of what the Star Wars franchise has made in all its forms and facets, however. While exact amounts for Star Wars' net worth vary, most estimates peg the number at greater than $20 billion. The franchise has raked in north of $9 billion just on the toys and merchandise produced by the likes of Hasbro (NAS: HAS) . Whatever it's worth, the franchise is expected to get a serious jolt soon after Disney announced a seventh Star Wars film to be released in 2015, with more planned to come after that.
There's no greater force (except, perhaps, The Force) to push Lucasfilm forward than Disney's marketing and brand-management powerhouse. It has proven its unparalleled success with earlier acquisitions of Marvel and Pixar. Marvel has grossed nearly $5 billion off its total movie count, but its 2012 film The Avengers alone has reaped more than $1.5 billion at the box office. The film blasted Disney's studio-entertainment operating income into the stratosphere last quarter as it jumped 500%.
Disney's made plans to stretch the franchise to its theme parks, further capitalizing on a good thing. Disney already flexed its muscles with Pixar in the same way, inundating its California Adventure park with Pixar-themed attractions. Given Disney's thriving success with its parks recently -- the company reported 9% growth year over year in its Parks and Resorts segment, its second-largest division, as of the last quarter -- Star Wars and Marvel should add to the entertainment giant's punch in that area.
That's no moon... it's Disney's juggernaut
As sad as it is to see George Lucas effectively riding off into the sunset, Lucasfilm will be in good hands under new president and brand manager Kathleen Kennedy, the producer of films such as E.T. and Jurassic Park. There's no doubt Kennedy can create a darn good movie, particularly since Lucas will stick around as a consultant for the coming films. She'll also have Lucasfilm's behind-the-scenes wizards at sound company Skywalker Sound and special effects producer Industrial Light & Magic to work with -- ownership of which Disney also picked up as part of the deal.
The acquisition should help Disney in other areas, as well. The company's Interactive segment, which includes Disney video games, was the only division to post an operating loss last quarter. With veteran Star Wars game studio LucasArts coming over in this acquisition, the company should see an added boost to this lagging segment. While LucasArts might not make Disney able to challenge Electronic Arts (NAS: EA) and Activision Blizzard (NAS: ATVI) yet, the studio has produced a litany of successful titles for quite a while. If nothing more, it will make Disney a competitive player in the industry and shore up this division.
The deal works for Star Wars, too. Never before has the franchise had such a financially gifted backer like Disney to back Lucasfilm's new properties. The synergies of the former's financial resources and the latter's creative ones should have Disney investors smiling from ear to ear. Given Disney's international reach -- the company took a controlling stake in leading India media company UTV earlier this year and already boasts numerous international parks -- the company will have no problem maximizing Star Wars' behemoth across the globe. The Avengers picked up nearly 60% of its box office revenue overseas; if Lucasfilm can mirror that success, it'll have no problem expanding to its other segments and quickly paying back Disney's investment.
This is all rather bad news for Disney's competitors, particularly Time Warner (NYS: TWX) . The media conglomerate planned to hit pay dirt in 2015 with a Justice League of America movie in the same vein as The Avengers. Now, not only does that film have to compete with Avengers' sequel, it also has Star Wars' seventh film as competition. Luke Skywalker had better odds flying against the Death Star than Time Warner has trying to top those two behemoths.
The Force is strong with this one
The only way I can possibly envision Disney losing on this deal is if unrealistic expectations explode for an underperforming seventh Star Wars film. Given the vitriolic responses that can be found over the franchise's prequels, however, Disney and Lucasfilm can do wonders simply by beating those films. With or without record box office success in 2015, Disney has picked up one of the world's most enduring franchises. The match of a devoted fan base and well-developed universe with Disney's incomparable experience at managing creative brands can't be underscored enough. Disney may be building a dynasty to rival the Galactic Empire with this move, but the company -- and its investors -- scored a monumental victory.
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The article The Force Is Strong With Disney originally appeared on Fool.com.Dan Carroll has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard, Walt Disney, Electronic Arts, Hasbro, and Time Warner. Motley Fool newsletter services recommend Activision Blizzard, Walt Disney, Electronic Arts, Hasbro, and Time Warner. 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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