How ‘Star Wars’ Will Change Hollywood (Again)

This story first appeared in the Dec. 18 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

Fans aren’t nearly as hungry for a new Star Wars movie as The Walt Disney Co. is. The Dec. 18 opening of J.J. Abrams’ The Force Awakens represents the culmination of CEO Robert Iger’s lengthy courtship of Lucasfilm founder George Lucas, a rich $4.1 billion acquisition in 2012 that many analysts and rivals thought too pricey, and three years of intense and often problematic development of the all-important franchise relaunch. And now the film arrives with perhaps unprecedented hype, just as the Disney media giant — which has blown past competitors in recent years thanks to a boom in cable fees and theme park attendance, as well as savvy acquisitions such as Marvel Entertainment, Pixar Animation Studios and, yes, Lucasfilm — has seen its stock price fall 8 percent in the past four months.

As if it weren’t enough that all of Hollywood is watching to see whether Force Awakens lives up to astronomical expectations, Disney shareholders now are looking at the Star Wars franchise to boost an empire under siege from shrinking subscribers at its cable channels (ESPN lost 7 million subs in the past two years). In modern Hollywood, an individual film almost never moves a big conglomerate’s stock. But Star Wars isn’t just a movie — it’s an industry unto itself — merchandising and TV spinoffs and theme park extensions and video games, all dependent on one thing more than any other right now: the creative and financial success of The Force Awakens.

But both inside and outside Disney, confidence levels are high. Several key analysts have ratcheted up their stock price targets and earnings estimates based on anticipation for the film. Predicting Force Awakens box office has become a cottage industry, with opening weekend forecasts ranging anywhere from $170 million to $240 million domestic (never mind that no film has opened to more than $84.6 million in December). Some believe the film could even beat Avatar‘s $2.8 billion global all-time record.

And if Force Awakens works, it could launch a new generation of movie stars in Daisy Ridley, John Boyega and Oscar Isaac, as well as spark interest in an unprecedented four upcoming sequels and spinoffs that were greenlighted through 2019 before Force Awakens was seen by anyone and will be overseen by Lucasfilm’s Kathleen Kennedy and Disney Studios chief Alan Horn. “This movie is only the beginning of a new generation of phenomenal Star Wars storytelling,” Iger told analysts in November. Wrote Credit Suisse analyst Omar Sheikh in a fawning note, “Lucasfilm content will continue to be a growth driver across the business — in the studio, consumer products and parks — for the foreseeable future.”

It’s enough to stoke jealousy and fear in rival studios, which largely are steering clear of Force Awakens and sitting in awe of Disney’s franchise machine: Pixar, Marvel and now the franchise among franchises, Star Wars. “What are the rest of us who are charged with programming for an audience going to do?” lamented Sony chairman Tom Rothman at a recent THR roundtable. “Will the box office expand so that the Star Wars numbers are on top of the rest of the traditional Christmas box office, or will they take away from other pictures?”

Box office aside, much of Wall Street’s enthusiasm for the rebirth of Star Wars focuses on merchandise sales, which Macquarie Capital analyst Tim Nollen says could reach $5 billion in the year of Force Awakens. For perspective, Cars 2 generated $3 billion in sales. If Nollen is right (some analysts actually think he is underestimating by $1 billion), Disney’s share in year one would be $500 million.

In fact, the Force already is with Disney’s licensing business. In its most recent quarter, earned licensing revenue rose 9 percent year-over-year, and Disney CFO Christine McCarthy says much of that was because of sales of “classic” Star Wars merchandise. Products related to Force Awakens — which Disney unveiled Sept. 4 with an event it called “Force Friday,” when an estimated $1 billion in merchandise was sold at stores and online retailers worldwide — will not be accounted for until the movie is released.

Those bullish on Disney say their optimism also is based on new Star Wars lands coming to Disney’s theme parks in Florida and California, which, at 14 acres apiece, represent Disney’s largest single-themed land expansions ever. Add it all up, and Lucasfilm could turn out to impact Disney for generations to come in a manner at least as influential as the Marvel and Pixar additions.

But still, as important as Star Wars is, investors remain nervous about Disney and its suddenly vulnerable TV business. “There is no easy answer that will satisfy critics in the near term,” says Steven Birenberg of Northlake Capital Management. But now Disney has an actual new Star Wars movie. And after Force Awakens, Dec. 16, 2016, brings the standalone Rogue One; followed by Episode VIII in May 2017; then a movie about a young Han Solo in 2018; and Episode IX in 2019.

“Star Wars is a very big deal, but the expectations are very high,” says Birenberg. “No wonder J.J. Abrams is nervous.”