Category: The Disney-Lucasfilm Deal

Disney-Lucasfilm Deal Part VI – Television Revenue

(This is Part VI 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! Performance, Implications, and Cautions)

So film is dead. TV reigns supreme. We know this.

Except, it’s not?

I mean, we just calculated that Disney made back 63% of their initial investment on Star Wars with four movies, and has many more in the future. At its peak, nothing can challenge the feature film.

Though some gigantic TV shows have come close. Game of Thrones is a juggernaut in ratings, home entertainment purchases and merchandise sales. The top TV shows can command sales figures in the billions of dollars years after their initial broadcast. I’m thinking of Friends or Seinfeld. And not just in America, but overseas, like The Simpsons, which travels well because it is animated.

Of course, now seems like the time to mention that the future of TV isn’t in international sales, but streaming. (That’s semi-sarcastic.) Streaming will play a key role in Disney’s future and, as Disney CEO Bob Iger has put out, new Star Wars series will be a centerpiece of that.

So let’s value two more pillars of Disney’s empire today: adult and children’s television.

TV – Adult

Being frank, this is much more complicated than calculating projected revenue for films. With movies, we know how well they did at the box office and roughly in home entertainment, so we can assume a lot of the other windows. We can also use box office data sets to gauge ranges of outcomes.

We don’t have that luxury with TV anymore. Subscription services like Netflix, Amazon, HBO and Hulu can hide online ratings. They don’t release the costs of the shows. Other windows are more complex than film: Netflix won’t release in DVD if it doesn’t have to, Amazon hasn’t decided, and HBO will release its shows on DVD, merchandise and even sell to other networks. Even Nielsen data is available, but expensive. (I don’t have it since I’m not in a corporate setting.)

I don’t know what Disney will decide, which makes calculating the value for television series so difficult. Given the variability in the rest of the model, I’ve had to make some simplifying assumptions.

To start, how many series will Disney make? I’m going to assume that since Disney has said they are working on a “few TV series” this will mean three series released per year from 2019 (when the service launches) to 2021. And we’ll give each a three year run. Likely, some will do better, some will do worse. (Better meaning 5+ seasons, worse meaning one season. In between is 3 seasons.) Since they’ll keep making TV series, my model has two new series premiering after that through 2028.

Read More

Disney-Lucasfilm Deal Part V: Movie Revenue – The Analysis! Performance, Implications and Cautions

(This is Part V 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! Performance, Implications, and Cautions)

Have you ever been on a long hike? Your friends tell you, “Let’s go on this beautiful four mile hike to the top of a mountain with a scenic overview.” So you say yes. You go. It’s long, but you keep trudging.

Midway, you start to count your steps, anything to avoid thinking about the burning in your legs. You imagine the joys of finishing. It just keeps going.

Finally, mercifully, you finish and you’re at the top of the hill. Man, the view is worth it.


Then it hits you: you have another four miles to get back down.

It was four miles each way.

That’s a test of fortitude. I bring this up because this article just keeps going. Every time I think I’m finished, well I find another fascinating principle to explain. The “movies” portion alone has kept me busy for four parts and a bonus appendix. (And maybe a bonus article next week on this topic.)

Last time, I explained how I built 8 scenarios forecasting the future of Lucasfilm’s film slate. Previously, I explained how feature film economics work, explained my financial estimates for the first four Star Wars, and explained the economics of blockbusters, which developed a set of “comps” for franchise blockbusters. I brought them together in my 8 scenarios. Today, we’re bringing it home to analyze the results of my model. (See the links at the top.)

Really, this is the fun part. The hard work was building the model and getting some good data to make it accurate. That was the hike up the hill. Let’s gaze out at that gorgeous view, to drive the above analogy firmly into the ground.

Overall Performance

The best way to summarize our 8 scenarios is to calculate the net profits for each outcome. (In my model so far, gross profits are revenues minus costs, and net profits then subtract talent participation.) I’ve discounted them all back to 2012 acquisition dollars since that is when Disney first acquired Lucasfilm:Slide 33Those are a lot of big numbers, so another way to look at it is in percentage terms of the acquisition price ($4.05 billion with a “b”). Here’s that:Slide 34Wow. So in 5 scenarios, Disney makes all its money back with just this line of business alone. Further, even if they only achieve “Blockbuster Average” at the box office, they can even have production issues and still get 94% of the initial price. At worst, with production issues and a franchise fatigue, they still make back 82% of the initial deal price ($3.3 billion in adjusted dollars).

Still, I can hear you, “Entertainment Strategy Guy, just give us a single number! Tell us the average!”

In scenario modeling, the “expected value” is the closest thing you get to an overall “average”. To give that to you, though, I need some probabilities. These scenarios aren’t equally likely. It’s more likely that Lucasfilm has production issues then it is they ramp up to 14 films per year. It’s also more unlikely that “Star Wars is Star Wars” at the box office, as opposed to franchise fatigue or just general underperformance.

So here is how I would rate the probabilities of each scenario. And to simplify things, I gave each scenario it’s own name to make it easier to refer to. And it’s more fun. So how likely are each scenario?Slide 35Here’s the thing: I don’t have great rationale for the production side of the equation. I had started with MCU-style at 20%, but given the vague post-Solo rumors, Lucasfilm put the spin-off movies on hold. That makes me think they will strive for the one film per year rate. For the performance, I think the odds that franchise fatigue truly sets in is about as likely the high case where Star Wars defies box office gravity forever, especially if Lucasfilm determinedly releases 1 film per year. (Remember, before this, Lucasfilm had a 15 and then 10 year gap in films.)

I used my judgment for these probabilities, but I could tweak them if I found better data to make the forecasts. So with the probabilities of our two inputs, we could calculate the probability of each scenario.

Slide 36

The odds of “Gangbusters”, the scenario where “Star Wars is Star Wars” at the box office while moving to two films per year is only 2%. That makes sense; each is unlikely. On the other hand, the idea that franchise fatigue sets in and they have production issues (“Worst Case”) is 5%, which feels right.

In the downside, in “Burn Out” or “Sub-Optimal” Disney doesn’t make their money back. On the other hand, Lucasfilm makes money in the “Base Case”, “Make Money”, “Make More Money” and really cashes in with “Gangbusters”. They also make money in “Missed Opportunity”, though it contains a good lesson that production issues can really leave money on the table.

With our probabilities and the returns, we can now calculate the “expected value” of Star Wars movie revenue going forward. To take this all the way back to the introduction from yesterday, I can’t tell I “know” how well the films will perform from here on out. (Again, that quote.) But I can tell you this is what I expect just the movie portion of the deal to be worth, in financial terms: $4.3 billion in 2012 dollars from 2015-2028. In other words, I expect the movie net profits, after costs and talent participation, just the movie revenue, without toy merchandise sales either, to account for 106.8% of the value of this deal through 2028. In just one line of business, Disney made its money back.

Slide 37

It does strike me that my “base case” scenario is fairly close to the expected value (only off by about $40 million, or less than 1%. So was it a waste to build all the scenarios? No. Those numbers represent two different things, though it does give me confidence in using the base case in an “average total model” when I finish all the lines of business.


Overall performance isn’t the only thing we can learn from this model. The great thing about a scenario model like this is we can learn some things from it (assuming our math is right, the data is accurate and representative and our assumptions are reliable):

“Franchise blockbusters” have a low downside.

This was a conclusion from “Part III”, but bears repeating. Blockbusters based off preexisting movie series can usually put up something of an opening weekend and make some money. This doesn’t apply to brand new blockbusters, who can lose a whole lot more when they completely flop (I’m looking at you, John Carter of Mars and The Lone Ranger. I wonder what studio made those?)

For franchises—movies in a series based off preexisting IP, for lack of a better definition—the downside really is limited. For Lucasfilm, you can see why they’ll keep making Star Wars films: it’s a low downside risk. (If you’re a Star Wars fan upset at Disney making so many films, well this is your explanation.)

We can quantify this per film with our “expected value” chart as well. Here is the net profits from the green light model per comparable level. Now we can multiple these by expected probabilities:Slide 38For a franchise blockbuster, like Star Wars or Marvel or Harry Potter, the studio can expect $392 million in expected revenue if it performs like past films. Now they will hardly ever get exactly that, but in a portfolio of films this is what they can expect to earn. (For Star Wars fans who think Disney is driving the franchise into the ground, this is your financial explanation of why.)

2020 is a big year for the model

I put most of Star Wars: Episodes 9’s revenue in this year because it will come out in December of 2019, so Disney won’t collect the cash until 2020. Combined with an Indiana Jones 5—if it stays on track—then the total revenue in 2020 is $2.7 billion. That’s a big year. Combined with a 2019 or 2020 release of a new TV series and Lucasfilm has a lot going on.

The time value of money starts to have a strong effect.

The time value of money has a real effect. Take the $2.7 billion in 2020 dollars. Well, discounted back to 2012 dollars, it’s only worth $1.6 billion.

Assuming Rian Johnson’s first new Star Wars movie comes out in 2021 (the year after Indiana Jones or the Christmas of 2020), if you booked all the profit and loss the next year (2022), well you would only earn $0.50 on every dollar in 2012 dollar terms. Again, not that Disney wouldn’t collect each dollar, but if you’re evaluating the deal in 2012 terms, ten years down the line a dollar is only worth half in 2022 what it was worth in 2012 when discounted at 8%. The easiest way to understand the time value of money (for me) is to multiply the money earned by the discounted rate, as shown here:

Slide 39That’s why literally more than half the value of this deal in terms of movie revenue was baked in when the first four films came out, again when evaluating in 2012 terms. Essentially, huge box office returns from the first three films locked in 63% of the adjusted price. A huge Episode 9 and big Indiana Jones 5 (which I assume in half of the scenarios) yields another 23% of the initial price. By 2028, if the series performs on blockbuster average, the last seven movies only make 20% of the initial price of the deal. Here is how that looks by scenario:

Slide 40In terms of our initial question, it basically says that Disney would have to do a lot wrong with the franchise to NOT make money at this point. It’s possible, just much less likely.

Cautions & Criticisms

I’m not perfect, so naturally I can look at my model and give some critiques. Let’s keep these in mind so we don’t take this model as 100% gospel truth.

Be ready to update your priors…especially with small sample size.

If it seems like everyone is over-reacting to Solo’s disappointing box office, well I disagree. Essentially, I think Solo: A Star Wars Story caused a lot of people, myself included to “adjust their priors” to use Bayesian/Nate Silver-ish talk. We assumed Star Wars films didn’t have flop potential when they clearly did. Solo: A Star Wars Story changed my preconceived floor of box office performance for this franchise. I changed my whole model based off that event. That’s worth the conversation.

And it should provide a warning. Do I have other prior assumptions I haven’t captured in this model? I tried to call out as much as possible, but it’s always the concern. Off the top of my head, a big potential swing in value is the probabilities assigned to each scenario. If instead of my probabilities you just assigned an equal likelihood, then Disney would earn $4.6 billion, or 115% of the initial price.

(Of course, there is always the fact that my model might not match the actual performance. I did a little searching for research on other projections of Star Wars revenue/profits and I’ve found a range of numbers. So again, I went with my best judgement.)

This current expected value isn’t the expected value at the time this deal was signed.

Don’t mistake the current estimate of value ($4.3 billion in 2012 dollars, 106% of initial price) for the expected value at the time this deal was closed.

In 2012, at the time Disney signed this deal, a new trilogy could make over $5 billion in total box office, or it could have made “only” a billion dollars. Or somewhere in between. That’s immensely reasonable. Now, Lucasfilm and Kathleen Kennedy hired the right director for The Force Awakens and that didn’t happen.

Evaluating the deal midstream, we get to look back with hindsight and look forward with our forecasts. But that doesn’t mean the performance for the last five years was guaranteed by any means.

Is “franchise blockbusters” the right data set?

This is the toughest part of the process and I’ve seen really smart people make really big mistakes when it comes to finding the right data set of movies. So I could see quibbles with my data set of “franchise blockbusters”. The worry is I biased the data set positively for Star Wars.

As I wrote before, my notable omissions were Jurassic Park, Star Trek, Fast and Furious, and James Bond. The last two I have no qualms leaving out since they don’t have the kid appeal of Star Wars or Marvel. Same with Star Trek overall. The toughest was Jurassic Park, which would mean Jurassic World, so it’s one movie, but a “super-hit”. Again, I’m fine with this, but I’m monitoring those franchises for future data analysis. (If you’re curious, if we had added all the omitted franchises, it would have pulled down the average for hits and super-hits.)

There is no “terminal value”.

In other words, why did I stop modeling at 2028? Short answer: uncertainty. After ten years, models lose almost all their predictive value.

But won’t these films keep being made on into the future? Don’t I need to account for that? Yes. And I will, when I put it all together. I plan to do that for this deal, but not until the last step when I do it for all the business lines at one time.

Final Questions

Please, can I see the unadjusted gross profits?

Sure, since you asked nicely. Again, I don’t think we should lead with this because they are misleading. The raw numbers just look better because they look bigger. (I’m losing clicks I know by not leading with this in the headline. But fine, here they are: First, the total revenue from 2013-2028, unadjusted:Slide 41Do you learn as much? Again, I don’t think so because I think our brains translate that money into current price/value and not the true scaled price. But again it looks huge.

What is the current value of Star Wars movie revenue?

That’s a good question. First, I’m going to give you the unadjusted revenue for the next ten years. To show you how it can mislead you:

Slide 42

I put the expected value below it. So you could look at this and say, “Look, Lucasfilm is still worth $4.2 billion! In just movies!” But again, let’s discount for the time value of money. But instead of discounting to 2012, we need to discount it to the current value.

Slide 43

In this case, we see the revenue is “only” worth $2.5 billion for the next ten years. Still really not bad, but not as well as the initial deal did. Again, a lot of that is drive by the fact that most scenarios only have one or two “super-hits” whereas Disney came out and delivered three of those in a row.

Where do we go from here?

Back to the analogy. We just finished admiring a gorgeous view of financial prosperity. And we learned some things. But now we need to walk back down the hill.

The movies portion has long been the centerpiece of this deal from a financial standpoint. At least, that’s what I expected when I started on the model and remain convinced by after all this work.

But Disney is so much more than just movies. Toys. TV. Theme parks. Our walk down this hill to arrive at our final conclusion needs to analyze each of those lines of business. And I’ll do that next.

Disney-Lucasfilm Deal Part IV: Movie Revenue – Modeling the Scenarios

(This is Part IV 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! Performance, Implications, and Cautions)

Let’s talk about confidence.

When I built my film financial model, explaining it here, and after I reviewed the economics of blockbusters, I did the next logical thing: I built a financial model forecasting the performance of Star Wars films for the next ten years. I called Star Wars: Episode 9 (the next film in the Star Wars franchise being directed by JJ Abrams, Episode 9 from here on out) a “super-hit” and called the next Indiana Jones film a “hit”. (Indiana Jones 5 from here on out.) I decided that no movie from Lucasfilm would be a flop. This is Star Wars after all.

(Again, this was March.)

I liked my decisiveness. I felt confident. Then Solo: A Star Wars Story came out and proved that even a Star Wars movie could flop. (And it’s floppiness mirrored exactly what I set out for “flop” performance, with one analyst forecasting losses nearly exactly what I had forecast.)

So I began to question my confidence in that initial “single model”.

Then I slapped myself in the forehead. And said, “Duh, I need to model multiple scenarios.”

Which is how today’s article came about. See, any one model can be wrong. But multiple models that capture the uncertainty properly can be more accurate, on average. They better describe the range of outcomes and hence improve our confidence.

As they gaze towards 2028, two things will determine how much money Disney makes off the Lucasfilm acquisition, one of which they can control, the other which they can’t: how many films Disney makes and how well those films perform at the box office. These two variables gives us the solid foundation of a scenario plan. Using these discrete scenarios, we can chart out essentially the 90% confidence interval for how well this franchise will do. The columns are the best through worst case production outcomes. The rows are how well Star Wars continues to perform. It would look something like this:Slide 24Today I’m building out that simple table. But as simple as it looks, it will have a lot of calculations driving it. Basically, the film financial model I built here, the specific Star Wars models I built here and the performance of franchise blockbusters I analyzed here can now be combined.

Building a Scenario Model of Future Lucasfilm Movies: Scheduling

Let’s start with the production side of the equation. This is what the studio (mostly) controls. The studio decides what movies to make, how to develop them creatively and then produces them. Disney could keep making one film per year or decrease to one film every three years (the old Star Wars average) or increase to multiple films per year. Hmm.

Read More

Disney-Lucasfilm Deal Part III: Movie Revenue – The Economics of Blockbusters

(This is Part III 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! Performance, Implications, and Cautions)

A peak behind the curtain into how long I’ve been writing this series. I started sketching thoughts on the Lucasfilm acquisition back in February, then started writing this article in April. I’m still finishing it in June. Fortunately, this extended timeline managed to teach me a rare lesson in humility about forecasting.

See, when I started writing, Solo: A Star Wars Story was still three months away. At the time, I needed to estimate for its box office performance to calculate the movie revenue. So I searched for projections. In early March, I found forecasts for Solo’s US opening north of $150-170 million, ending in a total US run of $350-$475 million. At the time, we all assumed Solo would be a sure thing at the box office. So I put that in my model. So I put into the model that Solo would do a bit less then Rogue One, at about $800 million in total worldwide box office.

By May, the estimates had lowered but still projected an opening weekend of $150-170 million. Days before the launch, the estimates had dropped even further, to $130-$150 million. The estimates continued to decay even as the weekend progressed, as this updated article from Deadline shows. Ultimately, Solo ended up with an opening weekend of $101 million domestic on track for about $350-360 million worldwide. (The March estimates had it at $350 for just the domestic market.)

Using the tracking data above, I see a “floor” domestically of about $300 million for Solo.

There’s a very famous quote about what people do and don’t know about movies. I won’t repeat it here, but I will agree that forecasting box office returns (and hence all revenue for a filmed project) is incredibly difficult. Even a movie as closely watched as Solo: A Star Wars Story missed most of the “ranges” offered by box office projections. My initial assumptions about Solo were way too confident which meant my entire analysis was off.

So we need to go into today’s post with a little humility and our eyes open. Last time, I asked a few questions:

Lucasfilm and Disney are doing well, but how well? More precisely, how much cash did they make on these movies? And how well do we think they will do going forward? Could they start losing money?

I answered the first two questions (doing really well; $3.7 billion in unadjusted gross profits or $2.5 billion in 2012 adjusted terms) in the last article. That was the easy stuff; what I called, “What we know” last time since I just had to plug the results into my model with some sleuthing.

Now comes the hard part. We have to estimate how future films will do and then guess about the rest of the potential slate. Which I’ll try to do this week. But first, I need to illustrate how hard this is…

Difficulty in Forecasting Box Office

To show the difficulty, let’s start with the difference between Solo: A Star Wars Story and The Force Awakens. One grossed $2 billion dollars at the worldwide box office. The other did under $400 million. That’s a gap of more than $1.5 billion dollars. That gap also roughly equates to how how large our confidence interval could be when projecting box office for films that aren’t coming out for two years (or longer). To capture that, look at this chart I made (using approximate numbers):

Slide 15a

I put in these numbers as placeholder estimates. What they are are the fictional “90% confidence interval” for The Force Awakens. In other words, at greenlight, you could have guessed that a new Star Wars movie would do $2.4 billion in total box office or $400 million, and you’d be right, 90% of the time.

Read More

Disney-Lucasfilm Deal – Part II: Star Wars Movie Revenue So Far

(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! Performance, Implications, and Cautions)

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.

Read More

Disney-Lucasfilm Deal – Appendix: Feature Film Finances Explained!

(This is an “Appendix article” to 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! Performance, Implications, and Cautions)

So after a planned family vacation and an unplanned family emergency, I’m back with my series estimating how much money Disney has made on the Lucasfilm acquisition. The next place to go is movies. How much will Disney make on the new Star Wars films?


Listen, I was all set to dive into the economics of Star Wars movies. Then I realized some readers may not know how movie accounting really works (or doesn’t work?). Before I can get into the specifics of these films, I feel like I should explain all feature film economics.

Can I explain it all? Given that some professionals spend their lives working on this and books have been written on it and courses taught on it, no. What I think I can do—what I will try to do—is provide enough of a summary right now that you’ll know how I calculated the movie returns, and you’ll have an idea for how this works.

I also decided that this isn’t really “Part II” of my series. If I were writing a report on this, I’d put this section in the Appendix. You don’t have to know it to get to the conclusion, but you may want to read it. And if you don’t know it, you’d want to read it before Part II. So here is is: my explanation for how film economics works and my confidence in various pieces.

A Brief Movie Windowing Model
A movies’ finances breaks down into four rough areas: costs, revenues, studio fees and back end. They appear (either going out or coming in) in roughly that order, which is also important. (As I wrote in Part I about the time value of money, you can skip ahead if you know this, but you may still enjoy it.)

A note before I start. I call this a “windowing” model, but I’ve heard it called all sorts of things. If you make it before the film is released, then you’d call it a “greenlight” model. It’s called that because you forecast all the numbers to give a movie the “greenlight” to release. It’s called a windowing model because each phase comes in successive windows. Otherwise it could be called an accounting statement for purposes of talent.

Read More

How much money will Disney make (or lose) on the Lucasfilm deal? Part I

(This is Part I 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! Performance, Implications, and Cautions)

Let me take you into the mind of a business school student. While in school, you’re taught to be super critical of any business presented to you in the form of a Harvard case study. Even if things look super rosy, there are some bad numbers hidden in the appendix you need to find.

At the same time, you’re taught to be super positive for any business that is doing well on the stock market at the moment. You don’t have appendices to go searching through to find flaws. It’s a weird dichotomy of simultaneous criticism and optimism.

The company that was flying high when I was at business school—and has been a darling of Harvard case studies since the 1990s—was The Walt Disney Company. During my first year as an MBA student, Disney acquired Lucasfilm, the maker of Star Wars and Indiana Jones (if somehow you didn’t know that). I was so enthused by the deal that I used it as my topic for our speech class. To call me “enthusiastic” would undersell my opinion: I thought it was a guaranteed home run.

So when I came up with my first “analysis” article for this website: “How Much Money Has Disney Made on the Lucasfilm deal?” I remembered I’d already tried to answer that question. In that presentation above.

So I pulled out the presentation. I searched for my numbers to see what I said. I only found one slide with any numbers on it. I laid out the challenge for The Walt Disney Company: to make a good return on its investment, Disney would need to earn nearly $550 million per year to make up its money.


That’s a huge number. So did my speech predict how much money Disney would eventually make on the deal?


If I could make one change to the entertainment business press—and I’d make a few—it would probably be to enforce this rule: You don’t have a strategy if you don’t have any numbers. Looking back on that presentation in speech class, I didn’t obey my own rule! My presentation didn’t have any numbers. Well that’s not quite true, I had some tables showing that Disney does well at the box office and international growth is important, but I didn’t project how much money I thought Disney would make or lose by that deal. I just said I loved it and listed some general strategic points.

That’s what most of us do day in and day out in business, and I want to change that.

Strategy is numbers, and today I want to look back at that deal. It feels like a good time to update our thoughts on the Lucasfilm acquisition. While the last film was a box office smash (the number one movie in 2017), it had the worst customer feedback since The Phantom Menace. Worse, Solo had a troubled production, worrying fans on the Twitter/Reddit. And when Disney announced a new trilogy with Benioff and Weiss, it was met with a giant “Eh” and articles worrying about “saturation”.

Today, as a business analyst who loves Disney’s model and a Star Wars fan who loves the franchise, I want to combine these two things and answer a question I haven’t seen anywhere else: How much money will Disney make on the Lucasfilm deal?

Blink and Gut Analysis
When I write an “analysis” article, I’m going to try out an approach different from most other analysts. I laid out my rationale here, but to summarize, too often when we think about complex questions (like the one I laid out above) we don’t clearly own up to our initial reactions and gut thinking, even though that inevitably informs our final analysis. To combat that, I’m putting my “blink” and “gut” reactions right up front, then seeing how they change as I run the numbers. Read More