Disney's ROI Return on Investment Star Wars

Disney’s ROI Return on Investment Star Wars

When Star Wars: The Force Awakens arrives in theaters, the question isn’t whether it will shatter records—it’s by how much. Many sources estimate The Force Awakens will be the highest-grossing film of 2015 both domestically and internationally, with figures in excess of $1.5 billion. An analysis by Morgan Stanley in November estimates it will be among the top three highest-grossing films of all time.  While these are impressive numbers, what do they mean for Disney’s return on a $4 billion investment in Lucasfilm Ltd? Disney’s ROI Return on Investment Star Wars.

Merchandising

Merchandising has the potential to be even more lucrative than the film itself. When Disney bought Lucasfilm Ltd in 2012, they certainly had an eye toward integrating Star Wars into their already dominant brand merchandising, and that’s exactly what they’ve done. Star Wars-themed attractions are slated for construction in both Disneyland and Disney World. There are stormtrooper necklaces from Kay, a Millennium Falcon bed from Pottery Barn, and even intergalactic Coffee-mate creamers and a Luke Frywalker Mr. Potato Head. In 2014, global retail sales of Star Wars merchandise were $2.4 billion, making it the fifth-most popular licensed brand in the world—but another Morgan Stanley analysis estimates that The Force Awakens could double that figure to $4.9 billion, making it the number one best-selling brand worldwide.

Considerations

Considering these enormous numbers and the fact that The Force Awakens is just the first of five or six  Star Wars films slated to release by the end of 2020, it’s obvious that Disney’s purchase of Lucasfilm was a smart investment—but it may take longer than expected for Disney to break even on the purchase. For one, Disney doesn’t necessarily get royalties from the sale of every single Star Wars toy—more than likely, most of the toy companies pay a one-time licensing fee to Disney for rights to the brand and then keep the revenue for themselves.

Moreover, because of Hollywood’s opaque accounting practices, it’s unclear how much of a cut Disney will receive from the first few weeks of ticket sales. We estimate that, when all is said and done, Disney will retain anywhere from 40% to 60% of the film’s gross ticket sales—but even if The Force Awakens exceeds every expectation and pulls in $1.5 or $2 billion, that won’t be enough to break even on their buyout of Lucasfilm.

The Crowd

However, the great thing about a franchise like Star Wars is its ability to reliably draw a crowd again and again. Disney has a Star Wars film slated to be released every year between now and 2019. Even if next year’s Rogue One spin-off doesn’t quite pull Disney’s revenues over the $4 billion mark, Episode VIII almost certainly will. It may end up taking five years, but by the eighth installment’s release in 2017, Bob Iger and the rest of Disney can confidently say they made a good investment.


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