How fat cats killed off Mickey Mouse

Disney is said to have overpaid for Lucasfilm's Star Wars but the money's not at the box office any more

Los Angeles

In an out-of-the-way corner of Disney's vast headquarters in Burbank, California, there's a small and these days empty office that used to belong to Walt Disney's nephew, Roy. It is cone-shaped, like a vast sorcerer's hat, and lit by a three-ring chandelier which, if you stand in the right place, throws a silhouette of Mickey Mouse against the ceiling.

Roy died in 2009, around the time his one-time family firm plunked down $4bn (£2.5bn) for the comic book firm Marvel. This week, the company spent another $4bn to acquire Lucasfilm, which will now begin churning out new Star Wars movies for the summer blockbuster market.

The deal is spectacular for George Lucas, who at 68 becomes one of the wealthiest men in showbusiness. Whether Disney can call it money well spent remains to be seen. The last Star Wars film, 2005's Revenge of the Sith, made $850m at the box office, against a budget of $113m (and marketing costs of roughly the same). If the next few instalments in Luke Skywalker's odyssey perform similarly, starting with 2015's Episode 7, the studio should recoup its investment in the mid-2030s.

That would be the logic of old Hollywood, at least. But today's Disney is unrecognisable from the empire Walt built. It exists in a different world even to the one in which Roy, the last of the family to serve on the board, served out his career. Today's movie studios aren't really designed to churn out films any more. That's why they produce fewer and fewer of them each year. Instead, they're in the business of creating "intellectual property".

Last year, for example, Disney's entire movie business generated income of around $600m. That's less than a tenth of the amount the firm earned from its media companies, which include the TV networks ABC and ESPN, and less than half the total profits it made from theme parks. It was a smaller amount even than the corporation made from "consumer products", the division which sells branded clothing and merchandise to its fans.

Yet if box office is nowadays a virtual rounding error to The Mouse House, Disney nonetheless lives or dies by its ability to create hit movies. Popular franchises provide the creative spark which lights up the rest of its highly lucrative empire. They inspire theme park rides and TV spin-offs, hit toys and video games. Without fresh films to drive it, Disney's hugely profitable wider business would stagnate.

Little wonder, then, that in a message to shareholders, Disney's chief executive Bob Iger stressed this week that Lucasfilm isn't really a production firm. Instead, he called it the business behind: "Seventeen thousand characters that inhabit several thousand planets spanning 20,000 years." The science fiction franchise offers, in Mr Iger's words, a whole new "universe" of commercial possibilities.

No-one knows exactly how lucrative this universe will be, since Lucasfilm is a private firm with opaque financials. However, USA Today reported in 2007 that Lucas Licensing, the commercial arm of Star Wars, generated $1.5bn that year. The Numbers, a Los Angeles firm which analyses the movie business, says its toy division, which makes action figures and plastic lightsabers, is worth $416m per annum.

Disney shares were nonetheless off around 2 per cent yesterday, reflecting consensus that Mr Iger had slightly overpaid. But in the long term, analysts agree with his logic.

Much like Pixar, the CGI powerhouse behind films like Toy Story and Cars, which Disney snapped up for $7.4bn in 2006, the Star Wars franchise could end up looking cheap at the price.

"We like this acquisition," was the take of Davenport and Co's Michael Morris, who predicted that from 2015 it will provide a "meaningful" boost to Disney's bottom line, particularly in international markets. "This [deal] is not inexpensive, and the valuation will be debated," he wrote. But its logic is sound.

Mr Iger's stewardship of Marvel, which he was widely said to have overpaid for in 2009, should also give investors cheer. Barclays Capital has maintained a relatively modest near-term price target for Disney of $52 per share (it's currently trading at $49) but is bullish about long-term prospects of Star Wars theme park rides and spin-off TV shows, along with toys and branded merchandise.

The deal "continues Disney's well-worn strategy of acquiring valuable intellectual property and monetising it better through its global, multi-product distribution engine", wrote Barclays.

So while Mickey Mouse may still be part of the scenery in Burbank, in creative terms, he's had his day: in the eyes of Mr Iger, the commercial future of Disney now rests on the rather broader shoulders of Iron Man, the Avengers, Luke Skywalker and Han Solo.

News
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
News
people'I’d rather have Fred and Rose West quote my characters on childcare'
Life and Style
The new Windows 10 Start Menu
tech
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
PROMOTED VIDEO
Travel
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
Sport
footballManchester City 1 Roma 1: Result leaves Premier League champions in danger of not progressing
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
News
i100
Life and Style
Magic roundabouts: the gyratory system that has excited enthusiasts in Swindon
motoringJust who are the Roundabout Appreciation Society?
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
booksWell it was good enough for Ancient Egyptians and Picasso...
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?