The Wealth of a Galaxy Not So Far Away
May 25th 2013 4:00PM
Updated May 26th 2013 10:00AM
On this day in economic and business history ...
A few decades ago, in theaters everywhere, the first Star Wars film wowed audiences for the very first time. George Lucas' contribution to the cultural zeitgeist, subtitled A New Hope, made its theatrical debut on May 25, 1977. Beyond adding Darth Vader and Luke Skywalker to lists of the world's most recognizable fictional characters, Star Wars also pioneered a new method of movie moneymaking that would transform the industry into the blockbuster-driven franchise-focused system we recognize today.
How did George Lucas transform the industry and become the wealthiest filmmaker in history? Brian Warner, writing for Celebrity Net Worth, boils it down to one simple concept: merchandising rights.
[Lucas] offered to keep his salary at $150,000 in exchange for two seemingly insignificant requests: (1) That he retain all merchandising rights, and (2) that he would retain the rights to any sequels. As crazy as it sounds now, at the time this was actually a fantastic deal for the studio. Fox had previously lost a fortune in the merchandising business with [the] monumental failure of 1967′s Doctor Doolittle. Moreover, merchandise just wasn't a meaningful revenue stream in general back then. As for sequel rights, these were also not an important factor for Fox considering the fact that no executive thought the movie had a snowball's chance in hell of making money the first time around. So off [Lucas] went to finalize his script with $150,000 and what seemed like an incredibly naive contract in his pocket.
Warner pegs the total value of this contract, 35 years later, at $27 billion in revenue. That's $12 billion in toy sales (roughly $3 billion are now sold each year), $3.5 billion in sequel box office revenues, $4 billion of tapes and DVDs, and a whole bunch of other ancillary sources of Star Wars monetization. Lucas was originally set to earn $500,000 to direct Star Wars. After Disney bought the Lucas film and merchandising empire in 2012 for roughly $4 billion, Lucas found himself with a net worth of $7.3 billion, for which he gave up $350,000. Would you have the guts and foresight to give up a hefty paycheck for the long-term rights to one great story? Lucas did. No matter how brilliant Disney's marketing minds might be, they'll never achieve the same rate of return -- they'd have to turn that $4 billion buy into an $83 trillion value.
Per aspera ad astra
The world's interest in galactic-scale space opera was no doubt enhanced by a decision made exactly 16 years before Star Wars first reached theaters. On May 25, 1961, President John F. Kennedy proclaimed that the United States must reach the moon before the end of the 1960s:
I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth. No single space project in this period will be more impressive to mankind, or more important for the long-range exploration of space; and none will be so difficult or expensive to accomplish. We propose to accelerate the development of the appropriate lunar space craft. We propose to develop alternate liquid and solid fuel boosters, much larger than any now being developed, until certain which is superior. We propose additional funds for other engine development and for unmanned explorations -- explorations which are particularly important for one purpose which this nation will never overlook: the survival of the man who first makes this daring flight. But in a very real sense, it will not be one man going to the moon -- if we make this judgment affirmatively, it will be an entire nation. For all of us must work to put him there.
It was undeniably one of the most ambitious public proclamations ever made by an American president, but Kennedy got the support he needed thanks to a Red-fearing Congress with something to prove the Soviet Union beat it to several notable space milestones by 1961. The 13-year-long Apollo program (culminating with the successful moon landing of Apollo 11 in 1969 and continuing for several further moon landings) would account for $19.4 billion in nominal terms over its lifetime, equal to about $100 billion today. According to the Congressional Research Service, the Apollo program accounted for 2.2% of all federal outlays and roughly half a percent of American GDP during its single costliest year.
Boeing was the single largest beneficiary of this massive outlay, as it either built or bought the companies that built all three of the Saturn V rocket booster stages, as well as its engines. IBM provided the Saturn V's instrumentation, and at a total project cost of $9.3 billion, the rocket booster accounted for nearly half of Apollo's total cost, and became a revenue windfall for these and other major NASA contractors. Apollo also nearly undid North American Aviation, which was responsible for building the Apollo I command module that caught fire and killed its three-man crew in 1967. Three months after this incident, North American merged with Rockwell-Standard, which became Rockwell International -- which is now part of Boeing.
The Apollo program (and other space efforts) was estimated by former NASA research director G. Scott Hubbard to confer $8 in benefits to the American economy for every $1 spent. This may understate the indirect benefits to the scientific and technological community, as many thousands of budding scientists found their ambitions while watching the fiery trail of an ascending Saturn V rocket.
The last surviving passenger steamship company in the United States closed down on May 25, 1962 -- one year to the day after President Kennedy set a moon landing in motion. That day, shareholders of the Baltimore Steam Packet Company, popularly known as the Old Bay Line, voted to liquidate the failing company's assets, ending a 122-year-old enterprise that had been ferrying people between Baltimore and Norfolk, Va., since 1840.
The Old Bay Line's early steamships used the iconic paddlewheel design, but by the 1900s its leisurely 12-hour transits took place on more streamlined ships. The Old Bay Line gained international recognition after World War II thanks to the ship Exodus, which was repurposed from the line's route to transport Jewish refugees to Palestine in 1947, and which inspired both a book and a movie of the same name. However, by the 1950s it became easier for people to simply drive or fly between the Old Bay Line's ports of call, and its services were rendered obsolete. The age of ship-based transportation had finally come to a close, several centuries after the Age of Sail, and a few short decades after the invention of the aircraft and the automobile.
Chemically bonding to a better stock exchange
DuPont is the oldest continuously operating company of all the Dow Jones Industrial Average components. Founded in 1802 as a gunpowder maker, DuPont would grow to become America's premier chemical company by the turn of the 20th century. However, DuPont would also spend significant time trading on over-the-counter exchanges, which was not altogether uncommon for larger companies a century ago. DuPont began paying dividends in 1904, but it was another 18 years before it finally joined the New York Stock Exchange, which occurred on May 25, 1922. By this point, DuPont was already one of the largest companies in the United States, with substantial investments in the automotive industry.
Joining the NYSE was a sort of initiation process for DuPont, which joined the Dow for the first time a mere two years after it began trading on the Big Board. This was a period of rapid change for the Dow and for the United States, as the market was in the early stages of one of the greatest multiyear rallies in history. DuPont wouldn't gain permanent (or at least durable) placement on the Dow until 1935. Its 78-year tenure is one of the longest streaks out of the Dow's 30 components, but it accounts for only a third of DuPont's total corporate life.
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The article The Wealth of a Galaxy Not So Far Away originally appeared on Fool.com.Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more insight into markets, history, and technology. The Motley Fool recommends NYSE Euronext and Walt Disney and owns shares of IBM and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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