In late October 2012 a great disturbance was felt in the Force when Walt Disney (NYSE:DIS) bought the Star Wars franchise from creator George Lucas.
Since that purchase, the company has moved to bring the many pieces of the Star Wars empire under its umbrella. This included shuttering the LucasArts video game studio in favor of developing games with its own team. Disney also brought the Star Wars comic book license from its long-term home at Dark Horse to Marvel, the company's other recent big-ticket acquisition. The same was done with the Star Wars adult fiction line, which will be published jointly by Disney and Random House.
Most important, of course, is the creation of new Star Wars films, including the continuation of the story that ended on the big screen with 1983's Return of the Jedi as well as stand-alone films based on popular characters in the sci-fi tale's vast universe. It's the fate of those movies more than anything else which will determine whether Disney made the right move in spending $4 billion to acquire Luke Skywalker, Han Solo, Darth Vader, Yoda, and the rest of the Star Wars universe.
What is the movie strategy?
The first film under the Disney banner, Star Wars: Episode VII (the first of a new trilogy) has a Dec. 18, 2015, release date and a cast that includes Mark Hamill, Harrison Ford, Carrie Fisher, and others playing their parts from the first trilogy in a story set 30 years after Jedi. Aside from that, and a list of new cast members, little else is known about the film, which is being co-written and directed by J.J. Abrams.
Episode VII will kick off a movie strategy that will alternate films that advance the original trilogy with stand-alone movies. Directors have been named for two of the stand-alone films, though no storyline details have been released.
The first new Star Wars movie featuring Luke Skywalker, Han Solo, and the rest may be as close to a box office sure thing as is possible. The challenge, however, will be creating a movie that delivers on the hype so the series can grow beyond the nostalgia audience. Disney has done this masterfully with its Marvel pictures as the quality has been consistently high enough that the studio was able build up the Marvel brand name so well that it had a box office hit with Guardians of the Galaxy, a film based on a relatively unknown comic book.
To make Star Wars on par with its Marvel franchise Disney needs to deliver a first film that's a worthy heir to the original trilogy. That is something that the prequel trilogy failed at. Episode 1: The Phantom Menace took in over $1 billion in global box office, but Episode II: Attack of the Clones brought in only $649 million worldwide, and Episode III: Revenge of the Sith made $848 million despite featuring the highly anticipated creation of Darth Vader scene. (All box office totals are from Box Office Mojo).
Follow the Marvel blueprint
While the Star Wars prequels started strong, then faltered, the Marvel films have steadily built. The first two Iron Man movies not only laid the foundation for introducing other characters, but also built toward The Avengers, which in turn made the third Iron Man movie even bigger than the first two.
|Movie||Year released||Global Box Office|
|Iron Man||2008||$585 million|
|Iron Man 2||2010||$623 million|
|The Avengers||2012||$1.5 billion|
|Iron Man 3||2013||$1.2 billion|
Marvel was also able to successfully launch film franchises based on Thor and Captain America, both of which had sequels which made more money than their predecessor. All of this made it possible to release the seemingly ridiculous Guardians, which featured a talking raccoon and a tree-person who says the same line of dialogue in all situations, and have it be a huge hit.
|Movie||Year released||Global Box Office|
|Thor: The Dark World||2013||$644 million|
|Captain America: The First Avenger||2011||$370 million|
|Captain America: The Winter Soldier||2014||$714 million|
|Guardians of The Galaxy||2014||$653 million*|
What this means for Disney
The entire fate of the Star Wars brand rests on whether Episode VII is good or not. That film should take in $1 billion minimum, but if it's as lousy as Phantom Menace, the returns for the rest of the trilogy are likely to diminish and interest in the stand-alone movies, books, video games, and toys will evaporate. Lucas had a certain amount of goodwill built up with his fan base, which kept them buying even when faced with missteps like the vaguely racist Jar Jar Binks. Disney has none of that and while it's hard to imagine any of the new films doing worse than the $649 million Attack of the Clones took in, all the ancillary projects could suffer.
If Episode VII delivers, it has the potential to be as big as The Avengers and bring in $1.5 billion in global box office, while doing the same for its sequels, and pushing the stand-alone films to $1 billion hauls as well. In roughly six years, that could mean $4.5 billion in box office receipts just from the new trilogy and $3 billion from the other movies (plus untold billions from the games, books, and toys). If the first movie fails to be compelling it will likely still earn $1 billion, but the sequels could dip to Phantom Menace-like levels and the stand-alones would become risky projects.
If Abrams delivers the film fans are hoping for, then the franchise becomes an annual cash machine with numerous other opportunities to exploit the brand. If he doesn't, Star Wars becomes a more successful version of The Muppets -- a nostalgia franchise which makes money trading off its past with limited future prospects.
Daniel Kline has no position in any stocks mentioned. He has read every Star Wars book ever written. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.