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Robert Iger to Wall Street: Disney Bought Lucasfilm for 'Star Wars'

Star Wars Attack of the Clones Episode II - H 2012

In a call with investors, the company's CEO says the $4.05 billion purchase price is two percent of the company's market value.

Disney CEO Robert Iger and chief financial officer Jay Rasulo told investors today that the purchase of Lucasfilm's company had everything to do with the Star Wars film franchise.

Those were among things revealed on a conference call for investors and the press shortly after the $4.05 billion acquisition of Lucasfilm was announced Tuesday.

Rasulo says Disney spent a long time studying the potential of the acquisition and doing pro forma revenue and profit analysis before making the deal. With the value set on Star Wars alone, other Lucasfilm efforts like the Indiana Jones movie franchise, a robust games division, (premiere special effects company) Industrial Light & Magic and (Oscar winning post production house) Skywalker Sound are all a bonus.

The Walt Disney Company will issue 40 million new shares to acquire Lucasfilm, which represent about 2 percent of the current stock market valuation for the company; but they intend to repurchase everyone of those shares by 2014, well before the first new Star Wars movie hits theaters in 2015 - and still make other share re-purchases already planned.

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Iger said Disney's experience acquiring Pixar, which made them a top brand for children again,  and then Marvel, which pushed them to the top level in action heroes, has shown they know how to grow and exploit these big franchises. “We believe we can do great things with these assets as well,” added Iger.

“This will fit perfectly into the Disney portfolio (of properties),” Rasulo added.

One area in which Disney made very conservative projections, Rasulo says, was in home entertainment, where the market has been trending downward for several years. He said they assumed in their planning for that market to continue to decrease as a source of revenue, even with the gradual shift from physical media to electronic delivery of content.

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Iger says one area in which they see huge potential is in merchandising and licensing. The majority of Lucasfilm’s deals are for toys, and more than half their sales are in the U.S. The sales they do make overseas are through middlemen who take a significant share of the profits off the top.

Disney plans to greatly expand the kinds of licensing well beyond toys, and will do a major push into the rapidly growing international markets. Disney will also use its own divisions to handle those sales – including featuring Star Wars products in Disney stores – which means they can eliminate the middlemen and ramp up their revenue and profits in the consumer merchandising arena.

Rasulo said in 2012, Lucasfilm revenue from licensing and merchandising will be around $215 million, which is roughly equal to what Marvel was doing when they acquired that brand in 2009. Since then Marvel has seen big increases in consumer product sales and Disney expects the same to happen with Star Wars.

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Much of that will kick off with the first new Star Wars movie in a decade when it is released in 2015. After that Disney plans a new Star Wars movie every two or three years into the distant future.

Currently privately held Lucasfilm gets about one quarter of its business from Star Wars, about one quarter from consumer products, about 20 percent from games and the other roughly 30 percent from everything else it does (from home video to post-production services and more). Disney thinks they can increase that mix in terms of what Star Wars contributes significantly.

Disney plans to expand the use of Star Wars in video and electronic games as well. Analyst Michael Pachter of Wedbush Equity Research thinks they will also expand its use in social media and social media gaming.

Pachter says that when Disney acquired Pixar, it got the top animated brand for children. With Marvel, it got a significant library of characters and movies. Lucasfilm has a “thin” library of perhaps a dozen movies, but it offers great opportunity as a brand. “There is merchandising opportunities and gaming opportunities which makes this different from the other two (acquisitions),” says Pachter. “They will have great cross platform possibilities.”

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Iger says they also think there is huge growth opportunities for the Star Wars franchise on their television networks, including ABC and the cable networks. Most notably, he says, they think it will be able to use Star Wars on Disney XD, the cable network targeted at boys which unlike the Disney Channel does take advertising.

Star Wars: The Clone Wars is currently a top rated show on the Cartoon Network, which is owned by Time Warner. Iger didn’t say it, but it is highly likely that when that contract expires in a couple years, those properties will move to Disney XD or another Disney owned outlet as well.

When asked why George Lucas decided to sell, Iger says he has been having conversations with the legendary producer, director, writer and entrepreneur for several years but only recently decided to get serious about a deal. He says Lucas told him he wants to retire, and that bringing in Kathleen Kennedy to run Lucasfilm was part of his plan to step back from the business he has spent four decades creating.

Now Lucas will remain a creative consultant for the production of at least the next three Star Wars movies but will leave it to others to do everything else.