(This is Part II of a multi-part series answering the question: “How Much Money Did Disney Make on the Lucasfilm deal?” Previous sections are here:
Part I: Introduction & “The Time Value of Money Explained”
Appendix: Feature Film Finances Explained!
Part II: Star Wars Movie Revenue So Far
Part III: The Economics of Blockbusters
Part IV: Movie Revenue – Modeling the Scenarios
Part V: The Analysis! Implications, Takeaways and Cautions about Projected Revenue
Part VI: The Television!
Part VII: Licensing (Merchandise, Like Toys, Books, Comics, Video Games and Stuff)
Part VIII: The Theme Parks Make The Rest of the Money)
Today, we continue our series evaluating the Disney purchase of Lucasfilm for $4 billion dollars. (Read the introduction here.) I can hear some of you saying, “Why do you even need to do that analysis? Why did you waste all those words on a question we already know the answer to!” And then you would point to this Hollywood Reporter headline:
Star Wars’ Franchise Crosses $4 Billion [Box Office], Eclipsing Disney’s Lucasfilm Price
I mean, if you want to know why I’m writing this series, that article—or more precisely that terrible headline—explains it. Even the article points out that Disney won’t keep all of the $4 billion in box office, and it doesn’t account for production costs or marketing. So the article itself acknowledges that the headline is as flashy as it is misleading. (And I would throw in that it doesn’t factor in the time value of money, the centerpiece of Part I’s analysis.)
Yet the Star Wars franchise has crushed the domestic and international box office. Doing $4.7 billion (and counting) in total box office since Disney acquired it ain’t nothing. Claiming three number one movies for three years in a row ain’t nothing. Having three films each do over a $1 billion in box office ain’t nothing.
Lucasfilm and Disney are doing well, but how well? More precisely, how much cash did they make on these movies? How well do we think they will do going forward? And could they start losing money?
How to Analyze Lucasfilm Movie Performance
I’ve had a lot of “fun” trying to figure out how to organize this part of my analysis. There’s a lot to go over and explain and justify. I’m really worried that, without realizing it, I’ll tip into text book territory and all my easily distracted Baby Boomer readers will go back to email. (What? Should I have put easily distracted Millennials? I’ll save that for another time.)
The difficulty stems in part from having to differentiate between what I know, what I can estimate, and what I have to, frankly, guess about Star Wars films. And that realization gave me the organization for the rest of the movie section. When I say “know”, I mean that we have the results of how well a movie did. We know (roughly) how movies that have been released did at the box office. “Estimate” means films we know are coming out (or have a high confidence that they will come out) but we have to estimate how well they will do. And all the other potential films? Those are guesses and we’ll need to build scenarios to cover the various options.
So let’s start with what we know: the first four films.
What we know: How well did the first four new Star Wars films do?
Let’s be clear on what “know” means here. It doesn’t mean I have a 100% accurate accounting statement of the films. But since we know the box office results, we have a very strong idea of total revenue and we can make really good assumptions on productions and costs. Take that all together and I can make a single estimate for how well each film did.
But we have some explaining about how I got those estimates.