Unit 8 - Assignment 1bLucas Warren

The Walt Disney Company is the largest media conglomerate in the world in terms of revenue and with profits in 2012 exceeding $5.7

On 30th October 2012 the global giant, The Walt Disney Company acquired 100% of the iconic company Lucasfilm Ltd, in a stock and cash transaction.

Lucas film was 100% owned by Lucasfilm Chairman and Founder, George Lucas and was responsible for the Star Wars franchise

The Deal and Strategy

The transaction value was $4.05 billion, Disney paid approximately half in cash and issued 40 million shares at closing. Lucas Film is now a 100% owned subsidiary of The Walt Disney Company.

Disney’s strategy is to acquire companies that could be described as mini-Disney’s such as Pixar and Marvel—reservoirs of franchise-worthy characters that can drive all of Disney’s businesses, from movies and television shows to theme parks, toys, and beyond.

Lucasfilm, Star Wars merchandise and videogames earned $1.5 billion in revenue in 2012 alone more than other high-profile movie franchises, including Superman, Spider-Man and Pirates of the Caribbean.

Walt Disney Highest Grossing films:

Disney Studios are famous for both live action and animated feature films, with a staggering top 10 most profitable films as follows: 1. The Avengers (2012) – Worldwide gross: $1.51 billion2. Pirates of the Caribbean: Dead Man’s Chest (2006) – Worldwide gross: $1.07 billion3. Pirates of the Caribbean: On Stranger Tides (2011) – Worldwide gross: $1.04 billion4. Alice in Wonderland (2010) – Worldwide gross: $1.02 billion5. Pirates of the Caribbean: At World’s End (2007) – Worldwide gross: $960 million6. The Lion King (1994) – Worldwide gross: $952 million7. The Chronicles of Narnia: The Lion, the Witch, and the Wardrobe (2005),Worldwide gross: $745m8. Pirates of the Caribbean (2003) – Worldwide gross: $654 million9. Tangled (2010) – Worldwide gross: $591 million10. Cars 2 (2011) – Worldwide gross: $560 million

http://www.therichest.com/business/top-10-most-profitable-walt-disney-movies/

Lucasfilms highest grossing films and value of the franchise:

Lucas’ first Star Wars film grossed $1.17 billion at the box office, becoming the second-highest-grossing film of all time behind 1939′s Gone With the Wind. At an original cost of only 13 million 1977 dollars, that makes Star Wars an incredible steal for studio 20th Century Fox.

StarWars box office:

Star Wars’ initial release was followed by another five blockbuster films and a mini-industry of tapes and DVDs, toys, videogames and books. Taken together over its 30 years of cultural dominance, the Star Wars franchise has earned more than $22 billion.

(http://en.wikipedia.org/wiki/Lucasfilm)

Deal benefits for Disney:

The acquisition combines two highly compatible family entertainment brands, and strengthens the long-standing beneficial relationship between them that already includes successful integration of Star Wars content into Disney theme parks in Anaheim, Orlando, Paris and Tokyo. 

The Lucasfilm acquisition follows Disney's very successful acquisitions of Pixar and Marvel, which demonstrated the company's unique ability to fully develop and expand the financial potential of high quality creative content with compelling characters and storytelling through the application of innovative technology and multiplatform distribution on a truly global basis to create maximum value.

Adding Lucasfilm to Disney's portfolio of world class brands significantly enhances the company's ability to serve consumers with a broad variety of the world's highest-quality content and to create additional long-term value for our shareholders. 

Is Disney as an Oligopoly?

Disney can afford to take huge risks and can influence market conditions - although there is debate as to whether Disney is a true Oligopoly there is no doubt it has huge power in the market.

The television and high speed internet industry is mostly an oligopoly of seven companies:  The Walt Disney Company, CBS Corporation, Viacom, Comcast, Hearst Corporation, Time Warner, and News Corporation.

The Walt Disney Company has 5 primary units: Parks and Resorts, Disney Consumer Products,  Media Networks, Disney Interactive and at the heart The Walt Disney Studios whose features and holding include; Disney studios itself, Disney Music, Disney Theatrical Group, Pixar animation, Marvel Entertainment and Lucasfilm.

Key issues with this ownership

Creative freedom: George Lucas has a patchy history dealing with big studios; On THX-1138 Warner Bros took the movie out of his hands and recut it before it was released in 1971. Universal did the same thing with his next film, American Graffiti. In 1971 on Star Wars Episode IV: A New Hope. He turned down a $500,000 fee to direct his own script, instead asking for $50,000 and the rights to all sequels. Post the sale of Lucasfilm to Disney George Lucas will no longer have the control over the franchise he created – which may lead to conflict if a creative vision can not be agreed upon.

Detrimental to creative free market:

Creates a Market where only the strong and commercial can compete, because they control all areas from production to distribution, it means Disney is partly vertically integrated.

Is Disney too powerful:Now that Disney are very powerful, they are able to control the social messages and role models for children and possibly even set public agenda.

Overview: ownership practices work within the film industry

Disney and Lucasfilm are a perfect example of how big business needs to diversify and not only control the creation of content but it’s distribution

This is also an example of how in a crowded market big film/media business look to own brands that can break through and can allow the sale of a huge amount of merchandising

The money behind a loved brand like Disney corporation or indeed Lucasfilm is astronomical and demonstrates the premium business place on brand recognition as well as quality of output

Disney is a floated business, which means it’s shares are traded on the stock market. This allows it to acquire other business’ for ‘share/stocks/paper’ as well as for cash – so it can leverage it position to grow without depending on bank debt to do this.

Funding and the film industry

There are many different ways in which the film industry funds projects for example; Development funds in the UK from the likes of Film 4 or BBC Films often get a project going, the Film Distributors or Studios may invest in a project, Film Distributors are willing to make an ‘advance’ payment into the film budget so they get the rights to take the film to cinemas or release it on DVD - they will charge a commission for this service which in success could be worth much more than the advance. Private and Corporate investors often contribute to film budgets – they will both be looking for a better return on their cash than could be got by putting money in the bank – as with the film distributor they will be looking to firstly get their money back and then secondly taking a ‘cut of the back end’ in success this can be deliver them a very good return on their investment. Kids films in particular will often feature characters that allow for a huge amount of toys/merchandising that can be very lucrative if the film is a success, so Toy manufacturers will often give ‘advances’ to producers to ensure they are able to make the toys and take a cut of the profits from their sales. Other product related funding can come from product placement and sponsorship – the former sees products given air time with in the film itself for a fee and the latter is about the association of a product with a film which doesn’t necessary feature in the film itself.

The Film

Finance and

funding

Development fundsEg. From Broadcasters like Film 4,

BBC Films, A+E Indie films or Studios help producers get a script and an idea going - in

return for a back end postion and credit

SponsorshipThe association of a brand with a film

can be valuable

Box officeDVD’s

Merchandising

Private investmentIndividuals who invest in a film by

helping to fund it’s production in return for a cut of the projected profits that in success could give them a good return

on the investment

Product Placement Eg. Pepsi will give the producers money in return for screen time

of their product – this can go towards the cost of the

production

Corporate investment Eg. Where companies (eg. Pension funds) invest in films/media funds in the hope that a hit movie will deliver big profits

Private investmentEg. Individuals (or funds) invest in a film by helping to fund it’s production in return for a cut of the projected profits that in success

could give them a good return on the investement

£

££

££

££

££

£

Development fundsA Film4 will recoup their development

funding from the profits of the film

Product Placement The value returns to the product/brand when the film is released – they do not

receive money from the film but publicity for their product/sales

SponsorshipThe more successful a film the more publicity a sponsors product gets to justify the money they

contributed to the film/producers

Corporate investment Investors get their money from thea split of the box office, DVD, merchandising and any other exploitation of a film – they more successful the more their % is worth

Film Distributors Will often invest and make an

advance investment into a film to get the distribution rights – to screen

films and exploit on DVD

Film Distributors Eg. Where companies (eg. Pension funds)

invest in films/media funds in the hope that a hit movie will deliver big profits – so they get a high return on their investment

Merchandising/Toy makers A big toy company like Hasbros may invest in the film so they can produce toys or books of

characters in films Merchandising/Toy makers Eg. A big toy company like Hasbros may invest in the film so

they can produce toys or books of characters in films

£

££

Product placement:

This is an advertising technique used by companies to subtly promote their product through a non-traditional advertising technique, usually through appearances in film, television or other media. Product placements are often initiated through an agreement between a product manufacturer and the media company in which the media company receives economic benefit. A company will often pay a fee to have their product used, displayed or significantly featured in a movie. For example in the film ‘Back to the future’, the brand of drink Pepsi is used almost throughout the entire film, but very subtly.

Sponsorship:

Sponsorship is a cash and/or in-kind fee paid to a property (typically in sports, arts, entertainment or causes) in return for access to the exploitable commercial potential associated with that property. Sponsorship is a great way to access new customers and gain a higher awareness level for your brand. An example of this is clearly seen on the popular show, X-Factor, because just before the adverts begin this short sponsor comes up, to remind the viewers about the brand and gain some awareness. Another example of sponsorship can be seen with ‘The Avengers’ movie, as they were sponsored by the car brand Acura, which can bee seen when Robert Downey Jr. drives into the premier of the film in an Acura car, giving the brand recognition and publicity.

Development funds:Getting a film into development is the first hurdle for producers and in order to finance a film they will usually need a script - but it costs money to commission a script from a writer and time to source the idea hence the need for support and partners at this stage in the process.

Organisations like Film 4 are set up to support the UK film industry and have a role to help develop new projects rather than fully fund lots of films – so they will work with producers to find and option ideas from books or to commission original treatments and then scripts from writers. Once a script is written the process of finding backing can start, this is usually pieced together from a number or sources which is why at the end of some films you often see lots of co-producers and credits.

Producers might sell rights to different territories to raise funds – the first port of call is often the film distributor who is responsible for the theatrical distribution (i.e.. getting it into the cinema e.g. Global or Lionsgate) they will often pay an advance to the producer for these rights. Alongside this there are numerous funds that are set up either by investors (such as Ingenious) who represent people/companies who want to invest in this sector or there are schemes that offer incentives for film makers and can be backed by the likes of the BFI or indeed the National lottery to support the film and creative community in the UK.

Producers also look to film in places around the world where there are tax credits – this is where the local government offers to pay the producers a percentage of their budget for bringing the business to their territory (and helping this becomes a strong part of their economy) , for US producers Canada offers fantastic tax credits and for the UK Ireland also offers incentives to producers to film there.

The fact is film production is a risky business and many more films fail to make a profit than becomes hits and make everyone involved rich!

http://www.bbc.co.uk/news/business-20146942 http://

www.businessweek.com/articles/2013-03-07/how-disney-bought-lucasfilm-and-its-plans-for-star-wars

http://www.cinemablend.com/new/Disney-Acquires-Rights-Lucasfilm-Developing-Star-Wars-Episode-VII-2015-33834.html

http://www.forbes.com/2007/05/24/star-wars-revenues-tech-cx_ag_0524money.html http://

thewaltdisneycompany.com/disney-news/press-releases/2012/10/disney-acquire-lucasfilm-ltd

http://en.wikipedia.org/wiki/Oligopoly http://en.wikipedia.org/wiki/Lucasfilm http://www.therichest.com/business/top-10-most-profitable-walt-disney-movies/ http://www.businessdictionary.com/definition/product-placement.html http://en.wikipedia.org/wiki/Sponsor_(commercial)

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