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Why Buying Star Wars and LucasFilm Is the Best $4 Billon Disney Ever Spent

By Daniel B. Kline - Jan 10, 2016 at 10:54AM

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The deal may prove to be even better than the company's earlier decision to purchase Marvel.

Walt Disney (DIS 3.29%) spent $4 billion buying LucasFilm and the rights to Star Wars from creator George Lucas, and the purchase could prove to be a better deal compared to the similar price it paid for Marvel.

While both franchises will prove to be well worth the money, there are reasons beyond the tremendous box office success of Star Wars: The Force Awakens which suggest that buying Lucas' assets may ultimately prove to be the stronger acquisition.

He may not be Darth Vader, but new bad guy Kylo Ren is going to move a lot of toys. Source: StarWars.com

Star Wars movies are really big 
While everyone expected The Force Awakens to be a big hit, there were no guarantees that it would shatter box office records, as it has gone on to do. The film, as of Jan. 4, was already the sixth highest-grossing movie of all time, according to Box Office Mojo, and was gunning to pass Avatar for the all-time total domestic box office crown after only a little over two weeks in release. The latest Star Wars took only 16 days to cross $700 million in the United States versus 72 days for Avatar.

Because people actually like Star Wars: The Force Awakens -- it has a 90% audience approval rating on Rotten Tomatoes -- it is unlikely to slow down anytime soon. The movie should blow past the nearly $2.8 billion Avatar made during its run, easily becoming the highest-grossing film of all time. With a likely final total of above $3 billion The Force Awakens will nearly double the $1.51 billion made by Marvel's The Avengers, released in 2012.

That's important because while Marvel has three films that have crossed $1 billion globally, The Force Awakens looks to top the profit made for Disney from the roughly $4.1 billion earned by both Avengers films and Iron Man 3 put together.

That's because all of these films cost between an estimated $175 million and $250 million to make with another $150 million to $200 million in advertising costs. But once a film has been made and launched, the added cost of keeping it in theaters is minimal -- maybe just another ad buy. That means if you assume that each of these movies has a cost of $450 million and Disney retains 55% of the box office take -- 50% is more common, but Star Wars reportedly got 60% during its opening weekend -- on $3 billion in box office, The Force Awakens would  make around $1.2 billion. Meanwhile, the Marvel films would have a combined cost of $1.35 billion, giving them a roughly $900 million profit.

The comic book company does have a bigger pipeline of two to three movies each year for the foreseeable future, but many will be comparatively mild hits like Ant-Man, which probably did not make all that much money in its theatrical release with a budget IMDB pegs at $130 million and at least a $100 million ad spend for $519 million in global box office revenue.

The Force Awakens pretty much guarantees that the next film in the new trilogy will be one of the biggest movies of all time and it should push interest in the first spin-off film -- Star Wars: Rogue One -- to an easy box office take of over $1 billion.

Star Wars is a merchandise monster
While I'm sure Disney has sold a lot of products tied into the Avengers universe, the numbers can't approach the retail phenomenon that is Star WarsDisney has smartly tapped into the nostalgia many parents likely feel when it comes to Lucas' universe. It made buying new Star Wars toys an event, which kicked off Sept. 4, dubbed Force Friday, when it launch the first batch of Force Awakens merchandise.

"That day alone Star Wars merchandise sales are estimated to have neared $1 billion," The Atlantic reported in late November. Overall, Star Wars merchandise sales could reach a potential $5 billion in the first year after the release of The Force Awakens, which could result in $500 million in licensing and retail revenue for Disney, according to Macquarie Securities analyst Tim Nollen as quoted in that article. And those predictions were made before the film was on its way to being the biggest movie ever.

Theme park rights are key
In buying Marvel, Disney had to accept the fact that domestic theme park rights to its characters are held by Comcast's (CMCSA 2.32%) Universal Studios. The company does make an undisclosed licensing fee on the properties, but that number is likely small compared to what it could generate with Marvel attractions in its Florida and California parks.

There are no similar rights issues with the LucasFilm characters and Disney is already building themed Star Wars lands at Disneyland and at Disney's Hollywood Studios (DHS). These two 14-acre sets of attractions are the company's biggest single-theme expansion ever and they should give it an answer to Universal's extremely popular Harry Potter lands.

It's hard, if not impossible, to put an exact number on this, but the Star Warslands will likely help Disney take back the hot-theme-park title from Comcast's parks. It should also single-handedly revitalize DHS, which has struggled in recent years.

Disney will make money from both its Marvel and its LucasFilm purchases, but Star Wars is one of a kind when it comes to making money for the House of Mouse.

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