Disney rarely posts disappointing financial results. Yet on 6 August 2019, the entertainment empire represented by New York Stock Exchange counter code:DIS reported falling fiscal third-quarter 2019 results with adjusted earnings per share (EPS) dropping 28% year over year despite revenue jumping 33%. The legendary domestic park for which the brand had made its name had taken a rare stumble, with operating income declining year over year, finding difficulty recovering expenses associated with Star Wars: Galaxy’s Edge. Though there were other factors at play, most notably high profile acquisitions like Twentieth Century Fox, it must be noted that in 2018,  the Star Wars franchise was valued at as estimated at US$65 billion, and is currently the fifth-highest-grossing media franchise of all time.

In terms of opportunities for commercial expansion, Star Wars holds the Guinness World Records title for the “Most successful film merchandising franchise”, which for all intents and purposes, the Disney multi-media empire with its powerful Disney Parks, Experiences and Products division (formerly Disney Consumer Products) which generated $20.8 billion in 2018 would have continued that track record of merchandising sales. Furthermore, the brand new Star Wars: Galaxy’s Edge section, occupying a quarter of the Anaheim theme park, widely considered to be Disney’s most anticipated expansion in 20 years opened at Disneyland on May 31 and shortly thereafter began suffering from falling attendance and lacklustre interest in the franchise which some blamed on the Rian Johnson debacle which was The Last Jedi. Will the Star Wars empire crumble under Disney CEO Bob Iger’s charge? What made Marvel Entertainment succeed where Star Wars struggles?

Will the Star Wars empire crumble under Disney CEO Bob Iger’s charge?

Star Wars The rise of Skywalker was supposed to be the climatic end of the Skywalker saga, leaving Disney open narratively to explore other aspects of the Star Wars universe. But the numbers showed that comparatively The Rise of Skywalker debuted to fewer viewers than The Last Jedi with a $175.5 million domestic opening weekend, well below the $248 million opening in 2015 for The Force Awakens (Episode VII) and the $220 million opening in 2017 for The Last Jedi. After a close to 60% drop in revenues for its second weekend, it’s almost certain that Skywalker will wind up as the lowest-grossing episode of all the trilogies. Who or what is to blame? And will the challenges which face the franchise moving forward be too great for CEO Bob Iger to overcome?

While the Lucasfilm acquisition hasn’t worked out nearly as well as anyone involved had envisioned or hoped, the benefit of hindsight allows us to draw corollary lines from Disney’s earlier and arguably more successful acquisitions, Pixar and Marvel . However, with the benefit of hindsight, from there we can pinpoint where things went wrong and why Lucasfilm failed under Disney ownership.

Iger’s masterstroke: Acquiring Pixar

When Iger was appointed the new CEO of the Walt Disney Company in 2005, he had three specific priorities for Disney: First, to create branded content. Second, to embrace the changes brought on by technology and finally, to become a truly global corporation. The first of those priorities to create more branded content led Iger to plan for the acquisition of other companies which either had the production know-how and or intellectual property to add to the Disney portfolio. In particular, he set his sights on Pixar, Marvel and Lucasfilm.

Many consider the period from 1989 to 1999 to be the height of the Disney Renaissance with classic hits such as “The Little Mermaid,” “Beauty and the Beast,” “Aladdin,” and “The Lion King.” By the time Iger joined Disney, Pixar had already begun to outshine Disney in animated films. An independent production company, Pixar had a distribution and co-funding deal with Disney, and as the natural result of the laws of comparative advantage, that vaunted Disney know-how in animation began to languish and as a result of Eisner’s de-emphasising of that department in favour of simply depending on Pixar.

Furthermore, politics between then CEO Eisner and then Pixar CEO Steve Jobs at deteriorated to the point where it manifested itself in open hostility between the two companies. With the distribution deal running out, it was almost sure that Pixar would go elsewhere. These strategic errors eventually forced Eisner’s ouster in 2004, leading Iger to correctly surmise that the most pressing need was to restore Disney’s animation kudos and lustre, hence, it made sense that he would set his sights on Pixar.

Pixar began in 1979 as part of the Lucasfilm computer division, and in 1995, it produced the world’s first computer-animated feature film – Toy Story. Directed by John Lasseter, the movie went on to gross more than $350 million worldwide, breaking critical and commercial estimates, becoming the highest-grossing domestic film of the year with fierce competition like Apollo 13 (also starring Tom Hanks), Disney’s own Pocahontas and GoldenEye. It was an amazing performance considering that Disney had previously fired Lasseter for his failed pitch at the company to produce a computer animated film. Joining Lucasfilm in 1986, Lasseter is considered a founding member of Pixar and by the time Steve Jobs had acquired the company, Lasseter had already been creating animated shorts to show off Pixar’s computing capabilities, winning a 1988 Academy Award for Best Animated Short Film, making Tin Toy, the first computer-generated film to do so.

Disney’s acquisition of Pixar would be crucial in not only giving Iger the know-how in modern computer animated technology but also access to the company’s Chief Creative Officer Lasseter and President Ed Catmull, both visionaries were responsible for Pixar’s unprecedented track record of success. When Iger officially started his tenure as CEO, he immediately set about mending Disney’s relationship with Steve Jobs and Pixar, and he was largely successful. Iger and Jobs eventually developed a mutual respect and personal friendship, which in turn fostered a deepening business relationship between Disney and Pixar allowing Iger to make Jobs the deal of their lives: Convincing both their respective shareholders it was the right move, Disney bought Pixar for $7.4 billion.

One of the conditions of the deal was that Pixar will be allowed to remain Pixar and retain the unique culture that made them a creative powerhouse in the first place. But the real masterstroke was that Iger had now two talented individuals to give full command of Walt Disney Animation Studios in essence, Iger could now rebuild Disney’s historical raison d’etre.

The Pixar deal also set up the conditions for two of Iger’s next biggest moves – Confidence in Iger’s decisions on future Disney acquisitions, as well as the relationship needed to eventually convince George Lucas to part with Lucasfilms.

Next on the radar, Marvel

Marvel had actually been on Disney’s radar since before Iger’s appointment. In fact, internal discussions about the pros and cons of a Marvel acquisition have been entertained previously and it was decided that Marvel was too “edgy” and inconsistent with the Disney image, so nothing more was pursued, at least until Iger.

The newly appointed CEO disagreed with the earlier assessments and decided to pursue Marvel, tracking down Marvel’s reclusive owner Ike Perlmutter, and giving him the reassurance that Marvel would remain Marvel much in the same way Pixar was left to its own creative devices. Perlmutter agreed to sell.

On August 31 2009, Disney announced that the acquisition of Marvel Entertainment for $4 billion in a part cash part shares deal (compared to Pixar’s all shares deal). Critics felt that Iger had made a mistake as Disney had overpaid for a company which didn’t have the movie rights to its most famous characters (e.g. The X-Men was with 20th Century Fox). Iger however, saw the potential of Iron Man, the film which would eventually launch the MCU and of course, we now know today, that the MCU has become the biggest brand in entertainment history.

Acquiring Lucasfilm and where it started to go wrong for Disney

Iger now set his sights on Lucasfilm. Bob Iger and George Lucas knew each other from his (Iger’s) tenure as president of ABC television, where he had both greenlit and remained extremely supportive of the young Indiana Jones Chronicles. Iger continued to support Lucas even when ratings it started to dwindle, something which George Lucas remained extremely appreciative of.

During casual lunch appointment in May 2011, Iger began to lay the groundwork gently, both he and Lucas knew that there was no plan for succession for Lucasfilm and while his children would inherit his assets, they had little interest in actually running Lucasfilm. The question then, became one of Lucas’s legacy and life’s work – with his best days behind him and no heir apparent, who would do the job when he was no longer able to? Being a casual catch up lunch, Iger left Lucas to ponder the big questions.

Unprompted, Lucas met with Steve Jobs, a man he had known well before Pixar and after acquiring Pixar, Jobs was the man who made it a stellar success. During their meeting, Jobs pointed out to Lucas that under Iger, Disney had done right by Pixar, and that argument probably helped sway Lucas to ultimately sell to Disney. A few months later, Lucas reached out to Iger and let him know his terms – he wanted the Pixar deal for it, $7.4 billion for Lucasfilm and all of its associated assets, the biggest of all – Star Wars. But there was one glaring problem.

When Disney bought Pixar for $7.4 billion, that deal included world class engineers, creatives and modern animation technology with a real production infrastructure that included six surefire hit movies (thanks to the peerless Pixar brand name) in various stages of development, the first of which will be released the same year and the subsequent ones annually after that. Marvel was similarly worth $4 billion because it too came with a creative team, a production infrastructure, and the company’s all important MCU roadmap with three movies in production, the first of which would be released the next year and followed by two movies the year after that, and down the line, possibly three movies a year. Lucasfilm had none of that – there were no plans for Star Wars or Indiana Jones, no production pipeline and the only work was all in the technical and animation departments for third party productions – the movie division was as good as dormant. Sure there was talent available but nothing would make short term revenues to justify a $7.4 billion deal. Furthermore, Pixar and Marvel were distinct creative entities with unique company cultures and fully functional production facilities, Disney would have to get the ball rolling and set up the production roadmap from scratch – even the Star Wars Expanded Universe, previously licensed to Dark Horse would have to be revisited since Disney had its own Marvel comics division. In retrospect, this could now be seen as a red flag, and given contributing factors, both Disney accountants and external evaluators concluded that Lucasfilm would be worth $3.75 billion at best. Maybe if there was Star Wars sequels in the plan, Lucasfilm valuations could be increased to Pixar levels and while Lucas understood Disney’s rationale, taking home less than the Marvel deal would have been insulting.

Iger really believed in Lucasfilm and with his clout and success, Disney increased their offer for Lucasfilm to $4.05 billion. It was a token amount above the Marvel deal but a crucial face-saving sum for Lucas. The deal went through on 30 October 2012 and to Disney’s bean counters, over-paying by half a billion dollars meant that the pressure was now on for Star Wars to live up to its reputation as one of the world’s most profitable franchises.

“At some point in the process, George told me that he had completed outlines for three new movies. He agreed to send us three copies of the outlines: one for me; one for Alan Braverman; and one for Alan Horn, who’d just been hired to run our studio. Alan Horn and I read George’s outlines and decided we needed to buy them, though we made clear in the purchase agreement that we would not be contractually obligated to adhere to the plot lines he’d laid out.” – Bob Iger confirming that George Lucas had an outline for the sequel trilogy

As part of the deal, Lucas would serve a consulting role but Disney would now be the ones who made the decisions. Just before the acquisition became a done deal, Lucas appointed Kathleen Kennedy to succeed him as Lucasfilm chairman. Though the reason behind Lucas’s intention for promoting Kennedy has never been publicly stated, it is widely believed that installing his own “inside woman” before Disney did, would ensure that Lucas had some one high up at Lucasfilm to protect his vision and serve as an intermediary for his new corporate overlord.

In theory, it was a prudent hedge, in practice, it appears to be the fatal mistake that is damning both Lucas and Iger. It would appear, having over three decades of experience during which she has served on advisory boards, made honorary Commander of the Order of the British Empire for services to film production and having been awarded a Grammy Award in recognition of her outstanding support of student filmmaking, a Women in Film Crystal Award, some critics now say that her accolades are merely the result of having such an extensive working relationship with  George Lucas and Steven Spielberg, both of whom are among the greatest filmmakers of all time. Virtually all of the great movies she worked on were either written by Lucas directed by Spielberg, or both, to which extent her input as a producer made Spielberg’s movies better is unknown. The movie where she had the most input prior to becoming chairman of Lucasfilm was Jurassic Park 3 and that film ignominiously ended the franchise for a decade and a half up until the reboot.

“Every one of these movies is a particularly hard nut to crack. There’s no source material. We don’t have comic books. We don’t have 800-page novels. We don’t have anything other than passionate storytellers who get together and talk about what the next iteration might be.” – Kathleen Kennedy to Rolling Stone

Though stellar on paper, nothing indicated she was ready to run her own show or even whether she had a passion for Star Wars; if Lucas had indeed hired her to protect his vision and legacy, it must be stated that Disney abandoned Lucas’s outline for a Star Wars sequel trilogy with Kennedy claiming that “there was not enough source material”. CEO Iger himself contradicts Kennedy in his recent memoirs saying that, ““At some point in the process, George told me that he had completed outlines for three new movies. He agreed to send us three copies of the outlines: one for me; one for Alan Braverman; and one for Alan Horn, who’d just been hired to run our studio. Alan Horn and I read George’s outlines and decided we needed to buy them, though we made clear in the purchase agreement that we would not be contractually obligated to adhere to the plot lines he’d laid out.”

Obviously, Lucas’s original outline was abandoned and if ever Kennedy would have served as bulwark for his legacy, it would have been at that critical juncture and she obviously didn’t fight for his vision. Instead she sided with Iger alongside director JJ Abrams, and created a new vision for the sequel trilogy, to which Kennedy then added her “woke” political ideology. Still, what about her stellar credentials? One might argue that though her time playing second fiddle to the industry’s most talented men was nothing but glowing, her time as Lucasfilm president post-acquisition has been anything but. Instead, what we got is The Force Awakens, which the majority of fans felt was a beat-for-beat remake of A New Hope.

Iger himself confirms in his book that Lucas was disappointed, stating, “Just prior to the global release, Kathy [Kennedy] screened ‘The Force Awakens’ for George. He didn’t hide his disappointment. ‘There’s nothing new,’ he said. In each of the films in the original trilogy, it was important to him to present new worlds, new stories, new characters, and new technologies. In this one, he said, ‘There weren’t enough visual or technical leaps forward.”

For the second part of the trilogy, The Last Jedi, Kennedy hired Rian Johnson, who then proceeded to deviate from the sequel trilogy outline that Abrams, Kennedy and Iger originally had agreed upon, to which extent he deviated is known to only those involved. Every plot thread begun in Force Awakens was “subverted” and the huge box office opening of the second in the trilog, was followed by a sharp drop off in the subsequent weeks.

Emblematic of her leadership, how many directors have you heard being fired pre-production or mid-production? It’s unprecedented, Josh Trank, Phil Lord and Chris Miller, and Colin Trevorrow, 2-3 directors per film during her tenure. The lack of cohesion, narrative and coherence of the trilogy, as evidenced by multiple re-shoots and changes, eventually turned off the brand’s core audience and if that wasn’t enough, Kennedy started to blame her customers for her failures. “Toxic fandom,” she coined.

At this point, an entire market of hardcore fans simply stopped supporting the franchise with massive drops in merchandising and toy sales, where once Kenner (now Hasbro) couldn’t make the toys fast enough, today most are in discount bins, extending to remakes of the original toys. The first standalone feature film, Solo, failed at the box office and attendance at the Star Wars: Galaxy’s Edge attraction at Anaheim Disney is at an all time low with the official stated position that this phenomena was as intended “in order to maintain visitor’s experience”. Last we looked, Star Wars seemed to have alien worlds and settings teeming with life.

Iger has given accolades for every executive he has worked with except Kennedy. Will Iger take responsibility for Star Wars failure? Should he?

What differentiates the Lucasfilm acquisition from the Pixar and Marvel acquisitions was that with Lucasfilm, there came no production pipeline and creative powers with the projects waiting to be realised. But that itself wouldn’t have been fatal. Instead, a convergence of evidence showed that if left to CEO Bob Iger, he would have picked the right talents to head his business units. Lasseter for Walt Disney Animation, Kevin Feige for MCU (not coincidentally, he was nominated for the Academy Award for Best Picture for producing Black Panther, the first superhero film ever to receive a Best Picture nomination, as well as the first film in the Marvel Cinematic Universe to win an Academy Award. Under his charge, Avengers: Endgame became the highest-grossing film of all time); which leaves us Lucasfilm and the last minute addition of Kathleen Kennedy, was of Lucas’s choosing and not Iger’s.

In fact, it is telling that in Iger’s latest book, many executives he was worked with received glowing accolades and mentions but Kennedy is mentioned only in that she was part of the Lucasfilm deal. It would be a PR nightmare if Kennedy was fired, “social justice drama” is not the kind of publicity that family-friendly Disney would like to attract since she’s a high profile female executive but for all intents and purposes, the announcement in September 2019 that Feige was to develop a new Star Wars film implies that Kennedy has been sidelined. If her current contract is not extended, that would be the final proof needed that Iger needs Kennedy out of the way for Star Wars to succeed. For better or worse, the Skywalker saga is over, whether the Iger and Marvel guru Feige is able to save the Star Wars empire is in Maz Kanata’s words, “a story for another time”.

 

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