Why Disney Buys All the Premium Character Collections It Can Find

Every so often, Walt Disney (NYSE: DIS  ) faces an uncomfortable dilemma. The copyright on Disney's most prized character, Mickey Mouse, won't last forever, and the expiration date is drawing close again. The Mouse is slated to enter the public domain in 2023.

That's why Disney spent $4.1 billion on Star Wars studio Lucasfilm last year. It's also a big reason behind the $4 billion Marvel deal in 2009. Mickey's copyright woes may even have played a part in the crucial 2006 buyout of Pixar for $7.6 billion.

Mickey Mouse doesn't exactly jump out and greet you at this Disney store. It's a sign of the times.

Disney CEO Bob Iger is busy constructing a framework of top-shelf characters to replace Mickey's iconic profile at the heart of the company. Buzz Lightyear can't do it alone, nor can Spider-Man or Wolverine. Even Luke Skywalker is a stretch.

So Disney is diversifying into a number of clearly defined niches. Each one comes with a central cast of characters that can carry Disney's branding flag when Mickey steps aside. In-house princesses from Snow White to Merida cater to a mostly young, female audience. Marvel's superheroes and villains do the heavy lifting for older boys, with Darth Vader and Yoda coming up behind them. The Pixar stable has something for everyone.

I don't know if you've noticed, but Mickey's stature is already shrinking. Disney hasn't even made a direct-to-video feature starring him since 2004. These days, the Mouse only stars in video games and Disney Channel TV shows. And it's for good reason. When Mickey's copyright expires in 2023 the market may (and probably will) be flooded with knock-offs. Disney also holds a fiercely protected trademark on Mickey, so nobody can pull off a complete rip-off job, but the iconic character may become fair game. Compare this to how anybody can make and sell adhesive bandages, but only Johnson & Johnson can use the Band-Aid brand.

Barring another miraculous fourth-quarter save, which doesn't seem likely this time, Disney needs to adjust to this upcoming legal reality. Mickey copies will be everywhere under a variety of new names, diluting the character's value.

But Disney plans to remain relevant and profitable, with or without Mickey Mouse in the spotlight. Disney became a Dow (DJINDICES: ^DJI  ) member in 1992, purely on the strength of its homebrew (and old public-domain) characters. The stock largely kept pace with its Dow peers in the early years of index membership, but it has absolutely crushed the Dow recently.

DIS Chart

DIS data by YCharts.

That's Mickey's scheduled replacements flexing their muscles. I think they'll be more than ready when the baton is passed in 2018.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 17, 2013, at 4:10 PM, EugeneSaxe wrote:

    I kinda doubt Mickey had anything to do with these purchases, they were just smart business decisions anyone would've jumped on.

  • Report this Comment On September 17, 2013, at 4:29 PM, uncoveror wrote:

    Steamboat Willie will probably never be in the public domain. Disney will just send lobbyists with suitcases full of cash to Washington and bribe them into passing another copyright term extension like they did the last two times it was about to lapse in the 70s and the 90s.

  • Report this Comment On September 17, 2013, at 4:47 PM, hbk72777 wrote:

    Disney has killed public domain.

    Funny how the company was built on it, (Snow White, Cinderella, Sleeping Beauty etc)

    yet doesn't want other using their characters.

    And screw the judges who let this happen too.

  • Report this Comment On September 18, 2013, at 9:51 AM, realinvalidname wrote:

    Who's to say they won't just buy enough congressmen/women to stretch out the copyright term again? A lot cheaper than these billion-dollar acquisitions.

    I seem to remember at the time of both the Marvel and Lucasfilm acquisitions that the real weakness they needed to shore up was their appeal to boys. They're good with little kids, and Disney Channel is packed with stuff tween and young teen girls like, but they have limited credibility with boys once they turn about 8. Spider-Man and Darth Vader change that.

  • Report this Comment On September 20, 2013, at 12:24 PM, TMFZahrim wrote:

    A few readers argued that my details are wrong. Allow myself to defend... myself.

    I got the 2018 expiration from a Harward Law post -- typically a reliable source: http://blogs.law.harvard.edu/infolaw/2012/12/17/copyright-gr...

    Re: what you can and can't do when a character is out of copyright but under trademark, it's admittedly a grey area. Last year's Oz movie could use Dorothy and the Scarecrow, but not the Yellow Brick Road or the exact shade of blueu of the Wicked Witch's skin due to thorny copyright details. The estate of Arthur Conan Doyle is trying to stop third-party Sherlock Homes content from being made and published, even though the characters arguably fell into the public domain already.

    If nothing else, Disney's lawyers would suddenly become very very busy in 2018 (or 2023, and probably both as some rivals might try the earlier date regardless) to try and stop the flood of not-quite-Mickeys.

    Still disagree? Please share your thoughts, insights, and sources.

    Anders

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