Episode 6: Lucasfilm
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who got. true. Easy you with you with you see me down. Welcome to episode six of acquired the .

podcast where we talk about technology acquisitions that actually went well. I'm been gilbert.

i'm David rose .

all and we are your host um just a quick administration of thing. If you like the show, we would love for you to rate us on itunes. Do a lot of research on podcast recently and how how the itunes search algorithm works and if you like IT and you think other people would like IT to with love, love, love free video. And likewise.

as always, if you have feedback hit up on twitter at acquired data FM? Or are we become in on the .

website? yes. So this week, we are i'd say we're timely were prouty months late. We are talking about the disney acquisition of lucas film and all of lucas films franchise.

Then I am your father.

but that wasn't in the script. All right, um David over you first for acquisition history effects.

Oh man, look this film star wars. What more can you say? So um George lucas obviously founded luis film a one thousand nine hundred and seventy one in san rafael, california, which has personal significance for me in my family is where my wife is from where my in laws live and David, where did you work star was and I was gonna say episode seven um we went we went over the holiday brick to the theater in coral matera that George look is himself a helped to innovate for the I believe for the prequel when they came out it's a one screen theatre in marine and IT was amazing there's a great vanity fair article about this theatre and and the work that look is has done on IT super fun so nineteen early seventies A U uh lucas founds luis film uh and the first project that the company does is american h which comes out in one thousand nine seventy three. And then the next the next film that the company produces, nineteen seventy seven, is a new hope.

I guess.

was called starts time. We know IT .

is a new hope .

on this podcast is just called. And and then since then, over the years, pretty incredible what this company has, has produced both itself and what's come out of IT. I think we've ready. This is our second episode about luis film company.

a disney acquisition. Yeah.

disney acquisition of a luis film company.

I was going to a try and catch you there. And uh, well, David, I think you mean because pixar was also acquired, the disney was also spin out of lucas film.

Yeah, well, essentially, I mean, you could argue started that lucas film, they could the company in the product itself.

And I was started at with this film. yeah. So I guess, you know, I guess they just took .

two shots exactly. Do you know what else came out of lickers? Film, that is, that is no longer part of the company.

Industrial light magic?

Yes, but that's far of the company. This came out of industrial light magic .

specifically. I have no idea.

Photoshop.

what? adobe?

Not adobe. photoshop.

What did I be acquired? photoshop.

B, R. photoshop. yeah.

A isom yeah too .

I believe john, I believe john knows, uh, was a an employee of I O M. And one summer, I believe as part of a movie project I didn't read the full history online. Uh, needed this piece software so he wrote IT and then sold IT to adobe crazy yeah party.

incredible company. I think we know what's coming next for disney.

Among so those great a organizations decide other things that the lucas film contains star wars inDiana Jones I O M obviously a skyWalker sound uh which is uh film and T V sound production um quite large video game uh publishing and and development ARM which now post acquisition has been mostly outsource to E A by disney animation ARM licensing um and and then the other company to come out of likes films T H X the family consumer sound named for George .

lucas first film in film school. THX1 thirty eight did not know that。

So acquisition um in twenty eleven, this is a great story. Uh star tours which i've done many, many times, most recently just a few weeks ago in december um was being revamped at disney world in in florida and George lucas flies out to come go to the premiere of the new version, the new rerated t star tours ride. And while he's there, he's talking with bob beggar, the C O of disney and mentions to him that he's thinking about retiring and maybe selling lucas film and and that was, uh that was summer, uh, I believe, of twenty eleven and and then about a year later, lell over year later, october ony twelve, disney announced the acquisition four .

point one billion dollars pretty. And lucas s, if you saying you'd never dream of selling at .

anyone else would been pretty hard from to sell IT anybody else? yes.

Yeah yeah it's interesting because I think we'll get a little bit in to bob I girt but mean, there's fascinating history there. There's a twenty year old relationship where bob eager was working at A B, C. And actually Green let the ah the television show Young inDiana Jones for George lucas which did not go so well but he kind of stuck with him through at least the first season and there's always good whale between between lucas and and the trust that he he and iger had that eventually kind of let them here.

Yeah um interestingly though, and I didn't realized this so we started researching this episode um disney obviously spends one point four point one billion dollars to acquire lucas film and requires a lot within that all the properties we just mentioned I am and skyWalker sound and what not that hadn't been spent out. But the distribution rights to the original star wars movies uh were held by fox and still are wow. So disney was really making a big bet on the future with this acquisition .

yeah because it's easy to justify buying that existing cash cow. This pretty much no chance that .

raise your hand if in anticipation of the force awakened digital, the the star wars collection IT was my hands.

and I I went to watch on itunes. And the only way that I could do IT was like some massive three pack collectors edition, really expensive digits downa.

I an six back on amazon.

nice. So that when I bought that through apple, on the apple TV is that through fox mony's going to fox watching, we watched four, five and six again. Actually this isn't full.

Each I I watched the d specialized editions, but also not going to get that problem. But yeah, that's crazy. So fox was actually capital. So fox I don't .

imagine fox made a significant amount of money in the lead up to the force awakens.

Uh that doesn't include ah that do know that includes merge from those original characters like if you're sell in, they'll in a episode for on solo toy. Yeah that's .

a good question and I think this is on the wikipedia ticket .

about the acquisition.

But yeah, I believe I read in there that that at least for episode four, I think there's a special deal for episode for that fox might be even getting those ancillary .

rights as well. Why are you going to keep gone .

with the let's keep on. So then what's your category?

So .

as a reminder.

we've got people, technology, product, business line and the all powerful other.

This, to me, is a product requisition in the near term, but it's a lot more in the kind of far reaching future.

I mean, the way that disney learned from pixar and was able to produce in disney creative studio, not in pixar frozen and put that at the center of the company and and have that in seeing cats like one point four billion or something three somewhere there in saying cash cow and frozen, your disney learned from that acquisition without messing with pixar too much. And that is a bob yager thing. I mean, I think when bobbi grier took over from michigan, a CEO, he's largely returning to the company's roots. And there's an incredible diagram that shows disney's business model and there the ecosystem thinking and how everything goes in.

Everything is on .

twitter and on twitter. It's amazing like any anybody has ever been pitch to company and wondered, what's the lock and what of the network? how? How does this company build a motor around itself? Disney has this unbelievable ecosystem where everything goes into each other.

And the center of the whole thing, as as illustrated in the diagram, is phenomenal content in future length films. And that's something that escape them for a long time. I mean, you look at if you look at these revenues right now, one half are from cable subsidiaries from a pilot money that they get, which .

probable ninety .

percent, fifty, fifty percent. But know, yes, P N is is a quarter of disease revenue. And if you look every year, the cord cutting moneys going away like that future is not sustainable. And IT was drifting far from disney original route.

So putting incredible content in feature link films back at the center of the business model, he's a total change of direction for disney and and something that bob eggar really kind of came in and OK everything up and and and did. And he gave a lot of autonomy to all the individual groups. So you know, the way that pixar was left alone, the way that luis film was left to do its thing, the the incredible long term thing, if they can pull IT off, is sort of reverse acquiring the things made. That incredible content and letting them produce incredible content in house is, right now they bought the star wars product, but they have not sustainably proven. And of course, this takes a lot of time that they can now take the muscle of what that made that content incredible and and make that something something they can produce on the road in the future.

Yeah, you're reading a couple interesting teams. S that i've been noodling on about this. So when I would my category to you have product you have product today and is a sign in the future or yeah, I guess.

you know, I think it's sticks with the product, but I think it's sort of reverse infection thing like the the able to next like can the the the product in is the product is that makes disney and and and uh makes pixar and lucas film what they are. And I guess get around there.

You we might have to do a complete you here at some point. Do .

marble yeah. Interestingly.

just almost about the same Price .

that is not at the of the product, uh, that they get this product. But the ultimate thing that will prove with this this uh spray of acquisitions in this business strategy was successful as can disney reacquire that muscle to build their own incredible content and of all types.

sense force. yep. And you know I think I basically think the same thing. My my frame on IT that I was gna say is, is this is a product acquisition but what the product is is the product is the juice that flows through the the disney fly wheel ah and this diagram the ban was talking about what disney illustrated IT by hand it's actually is beautiful.

There's Mickey and mines and take Better yeah all but it's this amazing um uh document of a business strategy and um and and and and what IT is is a file i've been thinking a lot about fly wheel over the past few months inspired by inspired by the everything store reading the everything still reading about amazon and the amazon ly weel. And the definition basically being, you know, how do you create this dynamic and a business where you've got different pieces of the business? And if you push on one piece of business, IT accelerates the whole system.

So like an amazon, it's lower Prices lead to more consumers, which lead to more suppliers in the marketplace, which um and leads to more leverage over those suppliers um which enable to you to charge lower Prices, which gets you more consumers, which gets more suppliers, more leverage for disney. Um you know the actual diagram is quite complicated, but the nodes in their business are films and tent pole use. The media industry term going way back to my days as a media investment banker here um content and and franchisees at the center and then the parks and the rides and television and music and merchandising and and publications, your comic books ah and and everything flowing through that system and so to me, star wars is like just a great juice is probably the wrong word, but like A A great car to put on that .

track yeah I like that way thinking about you all right next section a .

technology what would have happened otherwise which we almost .

PPT but I think be interesting um what would have happened otherwise so lucas SAT on this for I don't know how long a forty .

years yeah .

but from not he started saying in ninety seven no plans to make the equal cryo gy. I've made the on .

star wars yeah .

yeah I mean that we haven't see anything since since nineteen ninety seven and he's been adamantly saying I will never produce more starts by and he's also .

been taking .

gay didn't how are the duck? Uh and not only that saying that he wouldn't, but saying that, uh, he wouldn't IT and anyone else see there. And I think that maybe that's just like that all way out over time. And this thing has too much value not to go back and remark and they would have sold IT to somebody else. But I think the circumstances were unique that this is exactly the sort of thing that disney was was acquiring as part of its new strategy going forward, that there was a relationship and trust there from from lucas film, not only with um the relationship with either but also you know that um you know they they watched uh uh lucas watch jobs take pixar from him, the extremely product focused about IT, very hands on and very um intentional to keep that things separate and then watched the fact that disney was able to shelter IT and when disney was was able to keep that thing thing separate and nurture what made IT special and you know I don't I get the sense that look as doesn't have that trust lightly that this wouldn't been sold to someone that he didn't feel would would you know keep IT in that sort of form.

So this was inevitable.

ww. I don't think that would have had been disney or no one, but I it's hard to imagine this falling into place with a company other than disney.

Could you imagine fox owning star wars?

Me, what if I mean this? Is that just as crazy as five years ago? Can imagine disney owning star wars?

Yeah a bit but I mean, like there is disney and legalist film have always had a tight relationship. I mean, there's the star towards ride. There's the indian and Jones rides. You is IT possible .

that um luc film would just not have produce more films that George lucas would have retired IT would have made botley .

s money off the market .

yeah and like it's just not a company that preach films anymore .

is a definite yeah it's interesting, right? And that kind of gets to um if you think about acquisitions as a form of investing, which they should be um just one that mean most company they tend to be pretty bad at. At the core of investing is about identifying it's about identifying this prize assets. And so if you if you're disney bob bigger and disney fame technologies and strategy group and ma group and you're looking at lucas film and the worth of luis film sitting there as an independent entity was x call IT four point one billion. But was that misPriced relative to the opportunity ah that look is film had I think you know if if the force awakens is any indication and and and you know I think the not so secret secret and that I am just like beyon excited about is seeing that we're not going to have to wait too long to see star wars land and and always spin off movies that they ve already announced in everything coming .

down the pipe. I an this is a power. I say there's a spoil alert. So use a couple seconds, if you like, to turn the podcast off. A disney didn't acquire a lucas film and no one did and IT laid dormant then we would have on solo forever and on .

solo wouldn't be so sad what .

you know the um I I saw doing .

research for this um I think the second star wars spinoff movie that disney gona make is A A on solo chronicle yeah the first being rogue .

on in the second being the first of the chronic following consolo and so that's this kind of amazing. I mean, we've got five films cute up before twenty twenty. I mean, let's let's review the finances so far from the force awakens.

So already it's made one point seven eight billion. That's incredible. Yeah, recording this on january fourteen th. That's including domestic, international, not including .

any just box office recedes on a two hundred .

million dollar budget. Now if you look at the prequel as a hot, remember.

that's amazing.

Well, yeah, it's the most incredible film. No, as a business ever created on every metric, literally every metric. So you know four point one billion, that's that's the number as .

as I needed to. Earlier, Jenny and my wife and I went to disney world over new year's, which was amazing. And the number of light sakyo n lights vers with with cross guards in .

a school. So stupid, you're just going to cut yourself.

IT doesn't vote. Well when the part what IT comes, it's useful in the one of the battle scenes.

And I think IT does more harm. It's like we can have a whole different podcast about this.

Thank you. Be our next podcast vote in the comments if you want to hear IT.

So we're trying to get to four point one billion, right? We're already one point seven eight of the way there. I just the two hundred days spend on IT, I think it's not quite like that. But if you want to pencil IT out, if if you compare that to all of the the prequel, the first one, which it's hard even speaking of these when really they don't exist, but the the um uh first prequel made a billion dollars, the second eight forty eight million, the second six forty nine billion. So total the free quattro gy made two point five billion on on theater tickets and like we could see that alone from the force awakens .

before we get .

any distribution outside of theatres. And so we're are you looking at that? Um the economist quotes that uh they imagine that um five billion and star wars license products will be sold in twenty sixteen and I don't you know judging by your experience at this new world and and um the the start worst toaster. And like everything we're seeing everywhere, disney has the most incredible licensing team in the world there and they're taking full of hand to star wars and is is they ve got an instagram barger .

on their hands yeah well, maybe I quite in syria.

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Let's move on to a tech themes because, uh, I think this is a good, a good segway. You know, as I was thinking about this, you know what technology theme is this illustrate for you? I was sitting here and I was thinking, this is our sixth episode. We should to say this for episode seven. Appropriate, not as timely.

And and and the companies we've done so far for a show that's sustentation bly about technology acquisitions, we've done pixar, instagram, twitch, bunge, siri and now look this film, you can argue that that's that's five media companies and one technology company in in syria being the technology company in everything else being, yes, the technology company, but also a media company. Um and what's interesting for me, this highlights couple of things which we've mentioned um before on this on the show um but one you know um as A I don't know if I need to pay any royalty is on this phrase two entries and herods probably trade market but like software is he in the world? Um two um I actually like this phrasing of IT Better. This is from an old version of the skoal website that they've since changed, but they used have a section on their called or something like what we believe or like what we've learned over forty years of venture capital is something like that and and one of the phrases was technology is the best amplifier of a business.

Very rest of programs, recent technology as .

a ever yes exactly exactly. And and if you think about technology as a lever um for IT always has been for luis film oh my gosh .

I am like they were doing things they were exactly unheard of yeah um so both .

within within lucas film itself but then also you know now as as part of disney, I mean there is the whole disney fly wheel but like um I think one of the coolest parts about uh episode seven, of course, of sort of things that um business things that happen around IT is disney didn't do a big marketing blowout budget for like who in the world didn't know that the force awakened was coming out this past december.

They didn't do a big marketing budget like there was more media for the force weakens than i've ever seen for a movie before.

yes. And IT was free from technology from social media. So there's there's tremens amount of earn media there.

but a tremendous amount of n media.

And of course, they had they had a marketing budget for the film, and I believe IT was about one hundred million dollars, but IT was on the low end for big tent pole with the releases. And actually there are a few interviews with Bobby gar about this our stories, this one in the wall street journal one infortune um where he he really pushed the company to be thoughts about this and say, hey, do we need to spend in huge amount of like traditional marketing on on the first weakens? Yeah it's really interesting.

I mean, I said there's definitely some some paid media where or leveraging of internal assets where I mean, at sports center, the day before the money came out, there was a fifteen minute segment middle of sports center on the the athletic training behind star wars as a jacek start is credible party. I mean, the amount started from IT of like people taking pictures of weird star wars products and then posting them on instagram and twitter. And like there was that hashi like only disney or something like that. And I mean, read IT was just they they knew where people were and they took full advantage of their ability to spread content virally 行。

Second thing for me, whatever I just talked about is, is just the illustrating the power of the fly wheel. More so here than uh then technology being an amplifier because at the core luis film probably less so than pixar and twitch. Um is is is a technology business and IT is but the power of the fly will both within lucas film within disney is incredible here.

Yeah interesting. I was thinking um you know a lot of times we talk about themes, we talk about the technology themes and other ones, the acquisition teams. What this almost feels like a facebook style acquisition where disney is acquiring a portfolio of you know third party brands that they really are learning from but not.

Not roping in in the wrong way. They're leveraging the disney assets. And the thing that disney does best merchandizing a lot of this media distribution, but they're not well, actually, here's here's the best lemons test of all, there was no disney logo logo at the beginning .

of star wars. I mean.

we didn't have twenty century fox. We didn't get the fan fair and like god did my heart think. But i'll take IT as a compromise for we didn't get the castle. And yeah course I concept thing about this in the movie of how good disney is at at just like letting this thing be what IT is contributing its own assets where they make sense and learning from IT in a very slow hands off way.

And the the trend has mean facebook is is the shining example so far of of um companies that know how to do really good kind of silos, acquisitions where you don't messed up too much. And like look at instagram from the day I was tired to today. No, you look at what's out from the day was acquired today. That is the theme of the modern quisisana es well and I think .

it's a major theme of the show. Um you know look at the all the episodes we've done. Uh you know we've all the successful deals have all been the style acquisition. Pigs are instagram, twitch, bungy to an extent as we heard and talk about you, they had their own office, they were knocked down the walls and they kept their culture. And then the acquisition we did that hasn't gone so well is the one that didn't take this approach in theory.

yeah. And I think to distill IT downa more catchy thing than that long version I articulated before, I think it's amplify quickly in integrate slowly yeah .

because there's no question that disney is integrating pixar. Is film more right?

solution? absolutely. I just never want to see a world where, look, skyWalker faces off against no man, right? Like we Better not see combining of universes.

I think we will have to go back and read this episode if .

that happened the yeah.

I never got that man versus superman. All right, on that note, any other things you want to have been.

I don't so great.

What's you good?

I'm going to give you an a and not an a plus um even though financially I think spectacular, but I think the .

thing that we .

will see in the future is, is disney able to produce content like this without gigantic acquisitions from now on because there's only so many pieces of gigantic content houses that they can pick up. Um there are some stat. I was looking at the top twenty five movies from last year and and like twenty one or twenty two of them were rebooted.

The very I guess star was is in a riot but on original storylines, on original assets and you compare that was like one thousand nine hundred eighty five and IT was like three of the top twenty five were equals. And you we're seeing the same thing happening um in entertainment today that's happening elsewhere and it's you you you in movies, you know they are gonna spend one to two hundred million dollars producing what's going to be for sure a big hit and all the experimental has moved to television. So that's the whole kind of like started up scrappy.

We're going to try one little thing, small investment, if IT works, will double down. Like what does that look like for feature film content in the future? And when disney runs out of star wars movies to make and runs out of star wars like franchises to buy, how do they continue and and what does that fly will look like .

after twenty twenty five? Yes, I I was going to down the same path. I want to give any minus for this reason.

Um thinking about lucas film pigs are. Lucas film is a reseating asset. IT was a misprint, one that disney correctly identified.

And they're gonna be able to get a tonto you out of IT by feeding IT to their fly away. And that'll go on and on and on for a long time. But fundamentally, there is not a ah IT is just content.

There's not a mote there, you know. Um maybe there isn't in I O M um in their technology to the extent that that's differentiated um but the mode is disney. Um and what's interesting is pigs are I think was different.

Um you know their mode was people, which is slightly arguably more a femoral more a more than um an organization or process or a technology mode. But pigs are a for disney he has been an appreciating asset uh because the process that IT brought the ability to continually generate new successful content. Maybe they can apply that to luis film um but I don't think lucas film itself is gonna be that gift that keeps on giving.

We talking about Jones is gonna be like.

yeah but that's just one more just one more um existing content branches .

yeah like this film, the division of disney come up with an entirely new franchise and will they go spend one hundred million dollars to make that movie that is the new lucis phone franchise? unlikely. The question is what maybe able to do IT successfully within what disney studios?

Yeah and here's the question, right. I financially probably lucas film in the medium term is gonna be a Better acquisition than pixel 2。 And but in the long, long term in terms of like extending disney competitive advantage and and mode around around mode around their fly wheel to mix two metaphors, I feel like I feel like pixar is going to add longevity. And lucas film is like a it's like like a turbo boost.

yeah. Yeah, I like that. Well, I got me .

too on that note. Happy twenty sixteen.

Everybody with you .

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