By Glenn S. Demby, Esq.
Most movie-based entertainment properties have a limited shelf life lasting roughly as long as the film’s run. Occasionally, exemplary properties like Cars, Monsters Inc. or Toy Story will drive sales for a few years after the film closes.
But Star Wars is in a universe of its own. There hasn’t been a new Star Wars film since 2005. Yet the franchise not only survives but thrives on its own, perennially appearing at or near the top of The Licensing Letter’s Annual $100 Million Entertainment Properties list. And now with The Force Awakens opening in December, Star Wars will be a strong contender for the Number 1 spot on the list.
Why Force Will Outperform Frozen
Last year, Frozen merchandise generated over $1.3 billion in worldwide sales. Cars 2 did $3 billion in its first year. It would be shocking if The Force Awakens doesn’t outperform them both given the inherent advantages of the Star Wars franchise:
- A longstanding, dedicated worldwide fan base;
- A following among not just children but adults of all ages; and
- An unmatched record of box office success.
As if all of this weren’t enough, the new film will benefit from the state-of-the-art marketing campaign that draws on the collective experience and genius of the Disney machine that kicked off notably early in September with the “Force Friday” promotion.
Bottom Line: Word on the financial street is that The Force Awakens could do $5 billion in merchandising sales in its first year—not too shabby, especially when you consider Disney paid $4.1 billion to acquire the Star Wars franchise in the first place.
Dividing the Licensing Pie
Disney’s share of $5 billion, should it come to that, would be in the vicinity of $500 million, according to financial analysts. Disney doesn’t disclose royalties by product. But we know that royalty rates are based on the wholesale price of licensed goods, which is typically half retail. So a projection of $500 million royalties on $5 billion in sales would mean that Disney is commanding royalties of 20% on Force Awakens products. That figure may not be as stratospheric as it sounds when you consider the fact that:
- Disney’s royalties are, for good reason, high to begin with;
- Several Disney licensees who responded to TLL’s 2014 Licensing Business Survey told us the company hiked royalties at the end of the year; and
- Star Wars is a proven winner for which Disney is almost surely charging a fat premium.
Also poised for profits are the licensees. Star Wars veteran Hasbro is once more the biggest toy licensee. In 2013, Hasbro guaranteed Disney up to $225 million, including $75 million upfront, for Star Wars toy rights. Lego is also on board again. But this time Disney has opened toy licensing to a broader range of companies including Mattel, Jakks Pacific and Spin Master.
Electronic Arts owns the Star Wars gaming rights under a 10-year exclusive signed in 2013. The deal is already paying dividends for EA. Expectations for the Star Wars Battlefront multi-player shooter game (sales of up to 15 million copies by March), which hit shelves this week, has fueled a 50% spike in EA stock prices for the year.
Another difference between Force Awakens and previous Star Wars licensing strategy is the array of product categories it spans. In addition to the usual suspects of toys, games, collectibles, gifts, costumes and apparel, Force Awakens products include just about anything and everything from duct tape to fruits and vegetables.
Signs of Trouble?
Force Friday was a smash. Star Wars merchandise is already selling like hot cakes. Advance ticket sales for the movie are at record levels.
For Disney, licensees and retailers, it all seems to be going according to plan. And what a plan it is! But is it? There are already signs of trouble. The success of Frozen at the end of 2013 caught Disney off guard and left retailers understocked. Disney resolved to be ready this time. But it appears that inventory problems may be rearing their ugly head once more.
Not Enough: With release still a month away, there are indications that demand for Force Awakens merchandise may already be outstripping supply. Thus this week, Hasbro’s CEO reported that sales are “running ahead of our expectations” resulting in “light” inventory.
Too Much: There’s also buzz about SKUs levels of some merchandise being too high in certain places, perhaps resulting in mark downs.
Too Many: Some have suggested that Disney signed too many licensees for marginal products resulting in conflicting SKUs.
Are the rumors true? Are the expectations for Force Awakens realistic? We’ll look into these and other questions as the story unfolds.