Disney adds 'Star Wars' to its galaxy

By Richard Verrier

Oct. 31, 2012 12 AM PT

Adding another marquee pop-culture property to its roster, Walt Disney Co. has agreed to pay $4.05 billion to acquire the company that controls the blockbuster “Star Wars” franchise -- allowing Disney to exploit the brand through film, television, consumer products and theme parks.

With the purchase of Lucasfilm Ltd., Disney plans to churn out new “Star Wars” movies every two or three years beginning in 2015 with “Star Wars Episode 7,” Disney Chief Executive Bob Iger said in conference call with analysts late Tuesday.

The acquisition surprised rival studios, especially 20th Century Fox, which has released all of the live-action “Star Wars” movies since the 1977 original. Executives at Fox and other studios said they weren’t even offered a chance to bid for Lucasfilm, the San Francisco company founded and owned by filmmaker George Lucas.

But it’s unlikely anyone else would have paid more than Disney, which can make use of “Star Wars” characters throughout its sprawling media and consumer empire, analysts said. Disney already has “Star Wars”-related attractions at four theme parks.

“No other company is as well positioned to take advantage of this opportunity as Disney is,” said RBC Capital Markets analyst David Bank.

The acquisition is another high-stakes gamble for Iger. Since taking the helm in 2005, he has transformed Disney from a company that developed and produced its intellectual property in-house to one that spends billions to buy popular characters. The Burbank company purchased Pixar Animation Studios in 2006 for $7.4 billion and Marvel Entertainment in 2009 for $4 billion.

So far, the deals are paying off. Although Iger was criticized by some for overspending, the acquisitions have generated billions of dollars in revenue through such mega-hits as “Cars” and “The Avengers.” The studio’s track record outside of Pixar and Marvel has been mixed, marred by such box-office flops as “John Carter” and “Mars Needs Moms.”

“Nobody, not even George Lucas, can just go out and create another ‘Star Wars,’ ” Wunderlich Securities media analyst Matthew Harrigan said. “By the time Bob retires, I think people will be confident they’re going to see more consistent performance from Disney’s movie studio.”

Iger said that although Disney is also getting Lucasfilms’ well-regarded special effects and sound units, the deal was all about acquiring the “Star Wars” property.

“It makes sense not just because of our brand compatibility and the previous success that we’ve had together, but because Disney respects and understands probably better than just about anyone else the importance of iconic characters and what it takes to protect and leverage them effectively,” he said.

With the sale of his 41-year-old company and his previously announced retirement, Lucas will end three decades as the movie industry’s most powerful independent producer while simultaneously injecting new life into the fan-favorite “Star Wars” brand.

The seven “Star Wars” movies, including 2008’s animated “The Clone Wars,” have grossed $4.4 billion worldwide, making it the third-most-successful franchise ever at the box office, behind only “Harry Potter” and “James Bond.”

“I wanted to go on and do other things, things in philanthropy and doing more experimental kinds of films, but I couldn’t really drag my company into that,” Lucas said in a video released by Disney. “This will give me a chance to go off and explore my own interests and at the same time feel completely confident that Disney will take good care of the franchise I’ve built.”

At one time, Lucas said he had no intention of making new “Star Wars” movies. But in the last few months he has changed his mind, putting together story treatments for three movies that would take place chronologically after 1983’s “Return of the Jedi.” He is now turning those treatments over to Disney.

“I’m doing this so that the films will have a longer life, so more people can enjoy them in the future,” Lucas said. “I get to be a fan now.”

The deal with Disney comes almost five months after Lucas named veteran producer Kathleen Kennedy co-chairman of his company as the first step in his retirement plan. Lucas had intended to remain chief executive and serve as Kennedy’s co-chairman for at least a year.

However, Lucas will not be a part of Disney once the sale is complete, except as one of its 10 largest shareholders, with an approximately 2% stake. Kennedy will remain and report to new movie studio Chairman Alan Horn, overseeing the “Star Wars” brand.

Few financial details are available on privately held Lucasfilm. Disney Chief Financial Officer Jay Rasulo said the purchase will dilute Disney earnings by “low single-digit percentage points” in its fiscal 2013 and 2014. But in fiscal 2015, when the next “Star Wars” movie is set to come out, he expects the acquisition to turn positive.

In 2005, the last year a “Star Wars” movie came out, Lucasfilm generated $550 million in operating income.

About 25% of Lucasfilm’s revenue last year came from its movie business and another 25% from consumer products, Rasulo said. The other half came from video games and postproduction services.

The latter category includes special effects house Industrial Light & Magic and sound company Skywalker Sound. Acquiring them will help Disney save money by doing expensive effects work in-house, rather than paying outside firms.

The sale must still be approved by regulatory authorities before it can close. Rasulo said Disney over the next two years will repurchase the shares that it issues to Lucas.

Iger said on the conference call that “Star Wars” sequels will be among the few original live-action movies that Disney is planning to release annually under Horn.

“We actually determined that we’d be better off as a company releasing a sequel to ‘Star Wars’ than probably most other not-yet-determined films,” Iger said. “This will take its place in our live-action strategy as an already-branded, already-known quantity.”

Disney will also take ownership of the Lucas-produced “Indiana Jones” franchise, although Iger did not indicate any plans to do more with the adventurous archaeologist.

Rasulo said Disney’s valuation of Lucasfilm is based entirely on what it hopes to make off “Star Wars.” Any additional opportunities, he added, “would provide upside to our base case.”

As the sole shareholder of Lucasfilm, Lucas will benefit enormously from the $4.05-billion acquisition. Forbes last month estimated his net worth at $3.3 billion.

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Times staff writers Meg James, Gina McIntyre, Amy Kaufman, Joe Flint and Dawn C. Chmielewski contributed to this report.

(BEGIN TEXT OF INFOBOX)

Buying spree

Walt Disney Co. acquisitions under CEO Bob Iger include:

$4.05 billion: Lucasfilm, October 2012

$4 billion: Marvel Entertainment, August 2009

$7.4 billion: Pixar Animation Studios, January 2006