Reactions to the transaction, which includes at least three new Star Wars films, are so lopsidedly enthusiastic that I’m hoping to see at least one analyst offer a contrarian view. Someone could start by addressing a question that was posed yesterday to Disney CEO Bob Iger, but that he mostly sidestepped: To paraphrase, he was asked whether there’s a risk that Hollywood may run into trouble by feeding audiences too many superhero/sci-fi/fantasy films. Susquehanna Financial Group’s Vasily Karasyov made a case last year that as theaters become inundated with these computer-animated extravaganzas — especially featuring comic book superheroes — “risk of underperformance increases and upside surprises become progressively less likely.” His view of Disney’s new deal is that we’ll have to wait to see how the next Star Wars film performs in 2015 to determine whether Iger made a smart move. “Until then, bulls will point to the success of The Avengers and bears will say that no franchise lasts forever,” he says. (Those interested in the subject of a superhero glut should also check out critic David Denby’s powerful cultural critique, “Has Hollywood Murdered The Movies?”, that ran last month in The New Republic.)
Meanwhile, Wall Streeters say that Iger was shrewd to add Lucasfilm to his studio properties that include Pixar and Marvel. It’s not a big deal that Disney’s shares are down 2% today: That reflects the fact that the transaction will result in a short-term hit to earnings — and reduces the likelihood that the company will increase its stock-repurchase plans.
RBC Capital Markets’ David Bank observes that “Star Wars is one of the most desirable franchises in the boys demo. It lends itself to exactly the type of opportunity that Disney monetizes best — cross platform opportunities including Movie Studio, Consumer Products, Theme Parks, and TV properties.”
Credit Suisse’s Michael Senno says that “Lucasfilm is a better companywide strategic fit, offers more synergies and, in turn, should create more shareholder value” than another widely speculated deal for Disney to buy Scripps Networks.
Bernstein Research’s Todd Juenger says that the $4B purchase price works for Disney if it sees $1.5B in worldwide box office for each of the next three Star Wars films, and finds $150M in annual synergies from Lucasfilm — which generates $860M a year in revenue. Those targets are “Not heroic, given the Star Wars brand and Disney’s unparalleled global consumer products network.” Disney said yesterday that each of the three most recent Star Wars films generated $1.5B in box office sales adjusted to today’s dollars.
And Wells Fargo Securities’ Marci Ryvicker says that the deal with Lucas could be even more lucrative than the one with Marvel, “specifically as it relates to international distribution, 3-D, consumer products and interactive gaming.” Unlike with Marvel — which had committed some of its titles to Paramount — there’s no complication involving Star Wars, which had been distributed by Fox. Disney management “highlighted these rights are for PRIOR films only,” she says.