The Exchange

For Disney, Lucasfilm a Natural Fit

The Exchange

It is an ever-deepening irony that near the start of his tenure as chief executive of The Walt Disney Co. (DIS) seven years ago, Robert Iger was tagged as a management technocrat who didn't think much of the film business as it was commonly practiced in Hollywood.

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That's right, the man whose three boldest, multi-billion-dollar deals have been the purchases of Pixar, Marvel and now Lucasfilm — perhaps the leading studios in the production of emotion-stirring Hollywood magic and slam-bang blockbuster spectacles — long carried the reputation of a spoilsport and a scold on the subject of film economics.

The "Franchise" Model

A professional manager with roots in the television business, Iger indeed has been open in charging that studios, including his own at times, made too many movies each year for their own good. But his real point was that the industry made too many generic, me-too movies that crowded one another out of the audience's field of attention.

One of his top priorities for Disney — which, after all, earns more from its cable networks such as ESPN and Disney Channel than its movies — has been to make as many of its film releases as possible be immediately identifiable as Disney productions, and ideally as the core elements of a durable "franchise."

Fewer standard romantic comedies, more films that are preceded by a vivid sense of the quality and character of the creative source, whether traditional Disney animation, Pixar's ingenious high-tech animation, Marvel's comic books come to life or, now, Lucas' Star Wars saga.

To Iger, a "franchise" embodies a particular set of attributes. It is anchored by a set of characters and stories that spawns long-lived products across multiple platforms, including movies, merchandise, theme-park rides and video games. Disney Princesses, Pirates of the Caribbean, Cars, The Avengers and Toy Story all qualify. Other entries, such as The Muppets, may or may not flower into multi-generational, cross-platform franchises.

How Lucasfilm Fits

Lucas' Star Wars is almost certainly the most resonant, globally beloved franchise out there that could be acquired. Some reflex commentary casts the price - $4.05 billion, all going to founder George Lucas, half in cash and half in stock — as steep. Similar remarks greeted the $7.6 billion acquisition of Pixar in 2006 and the $3.9 billion pickup of Marvel in 2009.

Each deal, though, has already delivered on their promise, both in direct entertainment-product revenue and in refreshing Disney's claim as the industry's source of the most distinctive, technologically sophisticated moviemaking.

For further perspective, consider that Disney is parting with less than 5% of its market capitalization in cash and stock for the irreproducible Star Wars properties. And the $2 billion or so worth of stock being paid to Lucas represents less than the value that Disney's total equity value has gained so far this year with the shares impressive 33% gain, to 50.08 as of Friday's close.

The fact is that no other company can extend the reach and value of Lucasfilm as effectively as Disney can, with its ability to consider cable content, create live stage shows using the characters or dream up kid-thrilling rides at its parks (including the forthcoming Shanghai Disneyland, due to open in late 2015). Therefore, no other company could prudently pay as much.

If anything, there is less doubt about the staying power and multi-generational appeal of Star Wars than there was about Pixar and Marvel when those content producers became part of Disney, which has since proven that it can be a hospitable home for founder-operated, culturally distinct storytelling organizations.

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