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Side Costs & Benefits: The Star Wars Franchise

The Discussion Issue

Disney bought LucasFilms in 2012 for approximately $4 billion. By doing so, it acquired primarily the Star Wars franchise (since Paramount has claim on the Indiana Jones franchise). While the franchise is centered on the Star Wars movies (the six that have been produced so far, with perhaps more to come), the value of the franchise stems from the other benefits that flow from these movies including toys, comic books, interactive games and television spinoffs.

Background: The Star Wars Franchise

The Star Wars franchise is legendary, and if you grew up playing with Star Wars toys, you probably will not be surprised by the graph below that documents the reach of the franchise well beyond the movies. In particular, while the movies and DVDs have accounted for about $ 8 billion in revenues, the total revenues from the franchise are more than three times larger:

StarWars

Next Steps: The Next Star Wars Movie

The value of the Star Wars franchise is high, but is it worth $4 billion. That was the question at the time of the acquisition and this article provides some early perspective on what people were expecting Disney to do with the franchise. At the time of the acquisition, I tried to value the Star Wars franchise and I posted this spreadsheet and listed my assumptions that backed up my value. You are welcome to download that spreadsheet and change some numbers for yourself, especially since you have a lot more information today about Disney's future plans which include:

  1. Six more movies: It looks like Disney is planning a Star Wars movie each year from 2015 to 2020, adding up to six new Star Wars movies. While all we have rumors about what these movies will do, the first of these six movies is starting to take form, with JJ Abrams as the director, with a scheduled opening date in theaters in December 2015.
  2. Theme parks: This story suggests that Disney is also ramping up additions to its theme parks that will increase the Star Wars presence at the parks.
  3. Comic books: Disney is also planning, according to stories, to use another one of its acquisitons, Marvel, to come out with comic books centered on Star Wars.
At this point, it does like this is one of Disney's better acquisitions and perhaps can be used as a blueprint for future acquisitions. If you are a Star Wars fan, it is double the fun!

Key Questions

  1. If you were asked to do a financial analysis of the next Star Wars movie, how would you go about forecasting not only the revenues from the movie but also the benefits from all the by products of the movie?
  2. The Star Wars franchise is global. In coming up with a hurdle rate for the franchise, what would you use as your estimates for risk parameters (beta or alternative risk measure) and risk premium.
  3. If you were put in charge of maximizing the revenues from the by products of the movie, what would you do? Would you want input into how the movie is made, the characters that will be highlighted and the stars that will play those characters? Why or why not?
  4. If you were to draw general lessons for Disney from this acquisition, what would they be?