In 2012, Walt Disney Co (DIS) bought Lucasfilm for $4 billion. With it, Disney acquired the rights to one of the most envied movie franchises of all time: Star Wars.
Indiana Jones is the other notable blockbuster franchise the House of Mouse gained the rights to with its purchase, but for the time being, Star Wars will be the moneymaker.
And, if a recent article on Wired is to be taken at face value, Disney is counting on the Star Wars franchise to propel DIS stock higher and higher, indefinitely.
The title of the piece, while sensational, says it all: “You Won’t Live to See the Final Star Wars Movie”. Given the series’ money-making potential, it’s very possibly true.
But the question for DIS investors is: Just how long can Disney continue to milk this cash cow? And is it enough of a reason to buy the stock today?
A Multibillion Dollar Franchise
Upon the 2012 acquisition of Lucasfilm, DIS instantly announced that a Star Wars movie was in the works for 2015. That movie, Star Wars Episode VII: The Force Awakens, is widely expected to break all sorts of box office records when it hits theaters in December.
Adjusted for ticket price inflation, the six Star Wars installments to date have done upwards of $4 billion in the box office, led by the original Star Wars‘ $1.19 billion showing.
That’s not counting the special edition releases, DVD sales or merchandise and other licensing revenues. By the way, monetizing intellectual property is sort of what DIS does best.
So yes, we can probably expect a new Star Wars project every year or two from now until the end of time, especially since Disney is a publicly traded company and it has an obligation to its shareholders to be as profitable as possible — something Lucasfilm never owed anyone.
However, DIS stock is far more driven by its cable TV properties and network revenues than anything else, and all in all, Star Wars will still be a somewhat small piece of the overall pie.
In 2014, Media Networks accounted for $21.2 billion in revenue; Parks and Resorts $15.1 billion; Studio Entertainment $7.3 billion; Consumer Products $4 billion; and Interactive $1.3 billion (PDF).
As you can see, Studio Entertainment is a distant third as a revenue generator. Sure, Star Wars will help that division gain some ground on the other two, but the success of its networks — notably ESPN, Disney Channels, ABC Family and A&E Television Networks — will be far more important.
And with Netflix (NFLX) disrupting traditional cable TV as we know it, it’s a good thing DIS also has a stake in Hulu, another streaming video service that rivals NFLX.
Now, I’m sure Disney will find other ways to monetize Star Wars outside of just box office sales. It’ll squeeze billions out of merchandise and licensing deals, and perhaps one day it’ll build a Star Wars-centric theme park.
But the pillar of DIS stock remains the cable industry, and even if we see new iterations of Skywalker & Co. every year or two indefinitely, it won’t mean much if consumers abandon cable for streaming services.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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