Disney ‘Star Wars’ Box-Office Profits Fail To Cover Cost Of Buying Lucasfilm

Box office profits generated by Disney's Star Wars movies have fallen $2.8 billion short of covering the media giant's purchase of the sci-fi saga’s creator, Lucasfilm, according to analysis of recently-filed financial statements.

Disney bought Lucasfilm for $4 billion in 2012 and soon gave the green light to a new trilogy of Star Wars movies which teamed up rising stars Daisy Ridley and John Boyega with Mark Hamill, Harrison Ford and the late Carrie Fisher who headlined the original movies more than 30 years earlier.

All the stars aligned when The Force Awakens, the first film in the new series was released in 2015. According to industry analyst Box Office Mojo, it grossed a staggering $2.1 billion causing Disney to commission two spinoff movies as well as the two sequels that were already planned. However, as the series continued there was a disturbance in the force due an over-reliance on computer generated effects and a lack of the gritty quirky characters who made the original movies smash hits.

In 2019, The Rise of Skywalker, the third instalment in the new trilogy, hauled in around half as much at the box office as The Force Awakens though the series soon had a renaissance. Just a few weeks before the first case of Covid-19 was discovered in December 2019, Disney debuted its first Star Wars streaming series, The Mandalorian.

It was a instant success thanks to the unlikely pairing of its protagonists. The series is named after a gruff armor-clad bounty hunter, played by Pedro Pascal, who is tasked with tracking down the family of a pointy-eared green alien called Grogu.

Photos of the cute character went viral because of its resemblance to beloved Star Wars sage Yoda. The timing couldn't have been better as it thrust The Mandalorian into the spotlight just as the world went into lockdown. Viewers were stuck indoors for the majority of the following year leading to a surge in subscriptions to the Disney+ streaming platform.

The Mandalorian was watched more than any other show and, according to Nielsen, it racked up 5.4 billion minutes of viewing time during its seven-week run, peaking at 1.2 billion during the week its finale aired. It didn't just appeal to fans but critics too.

Audiences awarded The Mandalorian a 92% rating on review aggregator Rotten Tomatoes whilst critics went even further with a score of 93%. In fact, the industry liked it so much that it was nominated for six Primetime Emmy Awards and forty-two Primetime Creative Arts Emmy Awards, winning in 15 categories.

Unsurprisingly it was renewed for two further seasons and even spawned its own spinoff series, The Book of Boba Fett, which premiered in December 2021. The only reason that a fourth season of The Mandalorian hasn't gone into production is that a movie based on its two stars is due to be released in 2026. It doesn't stop there.

The show's success spurred the development of a suite of new Star Wars productions. Since it debuted, three other streaming shows have been released and three more movies are in development in addition to The Mandalorian and Grogu.

The declining interest in Disney's initial trilogy of movies seems like a distant memory and the Mouse has made the most of it. Last month, Disney released a 67-page presentation singing the praises of its chief executive Bob Iger in a bid to convince stockholders to side with him in a battle with activist investors.

One of its key boasts was about the supposedly spellbinding return on investment generated by the franchises that Disney acquired under Iger.

The presentation gives the impression that Disney's Star Wars trilogy generated a 2.9 times return on the purchase of Lucasfilm as that figure is presented next to a timeline of key events in the production company's history. They include the release of the Disney movies and its acquisition of Lucasfilm which is the only milestone marked with a star. Adding to this impression is the fact that at the other end of the timeline is the Star Wars logo and a photo of the Mandalorian with his little green friend.

However, buried in the fine print is the revelation that the purchase price of Lucasfilm isn't even included in the ROI calculation. Instead, it is purely based on the box office performance of Disney's Star Wars trilogy, its two spinoff movies, merchandise, DVD and Blu Ray sales.

As revealed, the methodology is questionable as Disney based the ROI on the revenue generated by the movies, merchandise, DVDs and Blu Rays rather than the profit they made as it should have done. Using the revenue rather than the profit artificially inflates the result as it doesn't factor in the costs that Disney had to pay out.

Even this wasn't enough for the media giant so it also forecast the revenue that it expected the Star Wars movies, merchandise, DVDs and Blu Rays to generate over a ten-year period and based the calculation on that too. In other words, Disney hasn't actually received the revenue that it used to calculate the return on its investment.

In summary, despite seeming to do so, Disney's presentation doesn't actually reveal whether its Star Wars movies have covered the cost of its purchase of Lucasfilm. There may be good reason for this.

Analysis of more than 800 pages of company filings has revealed that the cost of making Disney's five Star Wars movies hit a total of $2.1 billion, peaking at $567.3 million (£449.1 million) on The Force Awakens. However, that's just the start.

Mindful of this blockbuster budget, Disney devised an ingenious way to make money back on the movie. Instead of shooting it in the United States, it chose Pinewood Studios in the United Kingdom, where the original trilogy of films was made. This enabled it to benefit from the UK government's Audio-Visual Expenditure Credit which gives studios a cash reimbursement of up to 25.5% of the money they spend in the UK provided that it represents at least 10% of the film's total costs.

At the start of this year the UK government slightly raised the reimbursement ceiling from 25% in the face of competition from other countries which are offering similar schemes. It has helped to make the UK a dream ticket for movie makers and according to the British Film Institute, foreign studios contributed around 77% of the $1.8 billion (£1.4 billion) spent on making films in the country last year.

With so much at stake Disney didn't take any chances and got endorsement from the UK government right from the start. In 2014 Treasury Secretary George Osborne proudly announced that Pinewood would not just be home to The Force Awakens but also its two sequels. "This will mean more jobs and more investment," he said. "It is great news for people working at Pinewood Studios, from the set designers to the carpenters."

The production also had an impact farther afield. Sets featuring the iconic Millennium Falcon and X-Wing space ships were built at a Royal Air Force base about 55 miles west of London whilst the mountainous Lake District region in the north of England was the setting for the planet Takodana, hiding place of the sword-like Lightsaber weapon belonging to Hamill's Luke Skywalker character.

Using local staff wasn't the only catch that came with the generous fiscal incentives. Movie budgets are usually a closely-guarded secret as studios tend to absorb the cost of individual pictures in their overall expenses and don't itemize how much they spent on each one. However, the costs of movies made in the UK are consolidated in single companies which file annual financial statements showing the cash reimbursement, headcount, salaries, total expenses and more.

The production companies usually have code names so that they don’t raise attention when filing for permits to shoot off-site. The Disney subsidiary behind The Force Awakens is named Foodles Production after the cafe next to the San Rafael California headquarters of Kerner Optical, the original practical effects division of Lucasfilm's Industrial Light & Magic VFX firm.

A condition of receiving the cash reimbursement is that the companies must be responsible for everything from pre-production to delivery of the movie and paying for services relating to the finished film. It is one of the reasons why Foodles is still booking costs on its financial statements more than eight years after The Force Awakens was released.

Another reason is that the companies often file the financial statements around a year after the period they cover. This is why the latest results for Foodles were filed in December 2023 and are for the year-ending December 31, 2022. During that period the company spent $3.5 million (£2.8 million) bringing the total budget for The Force Awakens to a massive $567.3 million (£449.1 million).

Surprisingly, this isn't more than Disney expected as the financial statements noted that "at the year end the estimated total cost was within budget." Salaries alone came to a total of $22.7 million (£18 million) with staff numbers peaking at 258 without even including freelancers and self-employed workers who make up the majority of the crew.

Then comes the cash reimbursement which was a whopping $92.2 million (£73 million) bringing the movie's net costs down to $475.1 million. As we revealed in Britain's Sunday Times newspaper last year, including the streaming shows, Disney has received more than $410 million (£325 million) in reimbursements from the UK government. No wonder Disney thanked Osborne in the credits of The Force Awakens and gave him several replica Lightsabers.

The second-biggest budget was for 2019's The Rise of Skywalker which cost $542.4 million (£429.4 million) to make. At the other end of the spectrum are the two Star Wars spin-offs which were also made in the UK. Rogue One is a prequel to the first Star Wars film whilst Solo tells the origin story of Ford's Han Solo character.

Several of the Star Wars Disney+ streaming series were also made in the UK so their costs are known but, unlike the movies, their profit cannot be calculated. This is because Disney+ subscribers pay a single fee which grants them access to all of its content making it impossible to determine how much subscription revenue is generated specific shows. In contrast, if they had been screened at the theater, viewers would have had to pay separately to watch them all.

Theater chains typically get around half of the takings with the remainder going to the studios. Deducting the $475.1 million net cost of The Force Awakens from Disney's share of the box office leaves a blockbuster profit of $559.6 million. This is 1.2 times its net costs giving Disney a 1.2 times return on its investment.

Its 2017 sequel The Last Jedi had a multiple of 1.1 times, as did the 2016 spin-off movie Rogue One. However, as the graph below shows, its net profit in Dollar terms was half as much as the amount made by The Force Awakens.

Disney spent a total of $298.7 million (£236.5 million) making Rogue One which was a tremendous gamble as it largely featured little-known actors. Although it paid off with a healthy profit it could have made even more as the filings for the movie state that "the final cost was higher than the agreed budget."

At the other end of the spectrum is Solo: A Star Wars Story which is Disney's only loss-making Star Wars movie. During production of the 2018 Han Solo origin picture, directors Phil Lord and Christopher Miller were replaced with Oscar-winner Ron Howard who reportedly carried out extensive reshoots causing costs to skyrocket.

The impact of this is revealed in the financial statements for the production company behind Solo which say that "the final cost was higher than the agreed budget." A total of $350.4 million (£277.4 million) was spent on making the movie which also got $63.2 million (£50 million) of its costs reimbursed bringing its net spending to $287.2 million. However the movie bombed at the box office as the takings came to just $392.9 million leaving Disney with an estimated loss of $90.7 million.

Aside from this loss, the accolade for the lowest profit and ROI multiple in Disney's Star Wars series goes to The Rise Of Skywalker even though the financial statements reveal that its costs were "below the production budget." Its $112.4 million (£89 million) bottom line brings the total net profits from Disney's five Star Wars movies to $1.2 billion which is $2.8 billion short of the purchase price of Lucasfilm.

Bearing this in mind it's little surprise that Disney's presentation didn't work out the return on its acquisition of Lucasfilm by using the profits of the movies as it has still got a long way to go just to break even.

Of course, the calculation above doesn't include the huge profits Disney makes on the Star Wars merchandise, DVDs and Blu Rays. However, it also doesn't include the massive marketing costs of the movies as well as the costs of the Star Wars streaming shows and theme park attractions which also don't have revenue streams directly connected to them as visitors get access to all of the rides for the price of a single ticket.

Likewise, the calculation doesn't include the results of the other Lucasfilm franchises. As we recently revealed, Disney lost $134.2 million at the box office on its latest Indiana Jones movie and Lucasfilm's streaming series based on 1988 fantasy film Willow was canceled despite the Mouse pouring more than $100 million into it. Lucasfilm also owns the Industrial Light & Magic visual effects division though that is far smaller than its flagship franchises.

The Star Wars movies are the jewel in Lucasfilm's crown and generate the lion's share of the revenue which is of course why Disney highlighted them in the timeline in its presentation. With several Star Wars movies in the pipeline, Disney still has a chance to get its money back through their box office profits. The films have rediscovered the magic formula to appeal to fans but aren't yet a force to be reckoned with for investors.