Blog Editors

Recent Posts

Analyzing Tech Regulation: Shapiro's Critique and Policy Recommendations

UPCOMING EVENT: Automated Decision-Making Technology and Artificial Intelligence

Free Speech and Trademark Law Clash in Vidal v. Elster

Using Technical Solutions to Address Issues in Privacy Law: A Talk by Professor Zubair Shafiq

An Introduction to Venture Capital

Archive

Star Wars v. Finding Nemo: Did Disney Overpay for Lucasfilm?

Posted By Ike Orjiakor, Jan 28, 2013

In 2006, Disney acquired Pixar for $7.4 billion. At the time, Pixar had made six huge box office hits, including Toy Story, Toy Story 2 and Finding Nemo. On December 24, 2012, Disney completed another acquisition, this time it was George Lucas’ Lucasfilm for approximately $4 billion. As part of the deal, Disney received the famed Star Wars and Indiana Jones franchises along with a few other minor revenue generating subsidiaries. So why are Woody and Nemo worth $3 billion more than Vader and Indiana Jones? Many analysts wonder whether George Lucas did a disservice to the franchises for underselling them to Disney.

On the one hand, Lucasfilm is a risky purchase for Disney. Lucasfilm’s allure comes mostly from the Star Wars and Indiana Jones franchises. Critics and moviegoers alike panned the latest installments for both Star Wars and Indiana Jones as unworthy successors. For instance, the “original” three Star Wars movies (IV-VI) received a user and critic average of 91% on Rotten Tomatoes whereas the “new” Star Wars movies (I-III) received just a 61% average. The three “original” Indiana Jones movies received a user and critic average of 89% on Rotten Tomatoes whereas the “new” Indiana Jones movie received just a 68.5% average. The poor quality of the new movies left fans hesitant of new releases from those franchises.

Despite the poor reception, these franchises continue to generate $215 million in licensing revenue each year. At that rate and without any diminishment of the francheses popularity, Disney would need 20 years to just get a positive return on their acquisition of Lucasfilm. Disney, therefore, has a difficult road ahead restoring Star Wars and Indiana Jones to the same celebrated status they possessed twenty years ago and to justify spending over $4 billion for Lucasfilm.

On the other hand, Pixar had six extremely profitable and well received movies at the time of acquisition. All six of Pixar’s movies grossed over $500 million on average at the box office. Moreover, each movie received a 90% or higher user and critic average on Rotten Tomatoes. This success in the box office gave Pixar multiple billion dollar franchise opportunities. Additionally, Pixar had a staff of over 1,000 experienced and industry leading animators that could realize these opportunities from start to finish.

The reason why Disney paid more for Pixar was because Pixar was exactly what Disney needed at the time - multiple potential animation franchises coupled with a proven staff capable of delivering high quality and well received movies. Compared to Pixar, Lucasfilm’s franchises were old, spent, and tainted by poorly received new releases. After Disney’s troubled transition to digital animation, Pixar also allowed Disney to maintain its legacy as one of the greatest animation studios in the world.

Of note is the fact that George Lucas benefited from this deal far more than money could show. According to Lucas, he sold Lucasfilm to Disney in order to “protect it” and allow “the films to have a longer life.” He may have also viewed Disney as the only company capable of restoring his franchises to their former glory. Disney has done well with Pixar, and will likely do well with Lucasfilm. However, only time will tell for sure whether Disney will be able to succeed where Lucas had failed.

Source (Guardian): http://www.guardian.co.uk/film/filmblog/2012/oct/31/star-wars-disney-destined-lucasfilm

Source (Nasdaq): http://www.nasdaq.com/article/disney-buys-lucasfilm-analyst-blog-cm201986#.UP89jUpU5i4

Source (NYtimes): http://www.nytimes.com/2009/09/01/business/media/01disney.html?_r=0

Source (Wired): http://www.wired.com/business/2012/11/pixar-worth-more-than-lucasfilm/

Source (Forbes): http://www.forbes.com/sites/quora/2012/11/08/is-disney-buying-lucasfilm-a-good-decision-or-not/

Source (Yahoo Movies Blog): http://ca.movies.yahoo.com/blogs/wide-screen/does-disney-acquisition-lucasfilm-mean-marvel-film-universe-170451763.html

Source (NYdailynews): http://www.nydailynews.com/entertainment/tv-movies/george-lucas-special-effects-firm-boost-disney-article-1.1197570

Source (thenumbers): http://www.the-numbers.com/movies/series/Pixar.php