Wednesday, October 31, 2012

Episode III: The Empire Jumps the S Curve

News broke yesterday that Disney has purchased Lucasfilm for $4 billion, a move that has elicited two very different responses from the public.  On the purist’s side of the equation, Disney is considered a carnivorous company eager to buy up and taint the legendary science fiction brand.  On the investor’s side, Disney stockholders widely applaud the purchase and look forward to seeing the ticker as the stock exchange responds in the coming days.

But who is right?  How can the investors love the move when the steadfast consumers disavow the acquisition?

If we can ignore the fact that Star Wars has created perhaps the most loyal customer base of any movie franchise, we rightfully interpret Disney’s purchase as a jump in the S curve.  That is, Disney hopes to stay stave off the staleness that often occurs in the entertainment industry by injecting a new brand and new possibilities into its repertoire.

We need not look too far into history to see that Disney commonly reinvents by acquisition, especially during the Iger years.  In 2006, Disney purchased Pixar Animation Studios, blending the highly talented design team at Pixar with the existing infrastructure at Disney.  The merger created the foundation for more Pixar successes—Up, WALL-E, and Cars 2 just to name a few.

Three years later, Disney acquired Marvel Entertainment, a purchase that has given way to a number of blockbuster films (Iron Man 2, X-Men First Class, Captain America, The Avengers).  This purchase broadened Disney's profile to include a substantial piece of the superhero genre, a previously under-utilized segment of their marketplace.

And now, after another three year cycle, Disney has a buyer’s appetite again.  An investor should look favorably at the decision to buy Lucasfilm because it introduces new intellectual capital and property into the brand.  With such a durable franchise as Star Wars and other Lucasfilm titles are, investors should be encouraged that the move expands Disney’s breadth with the promise of future financial gain.

And provided Justin Beiber isn’t cast as Luke Skywalker in revival films, consumers will get over it soon enough.

A fair question worth considering: should Disney continue jumping the S curve through acquisition when similar innovation may be possible with less-costly internal reforms and innovation?


By Mark Heckmann

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