In the decade following the release of the original Star Wars movie in 1977 the licensing business overall grew more than 10 times, from $4.9 billion in retail sales that year to $54 billion in 1986, according to The Licensing Letter Databook.
Star Wars is credited as the catalyst for much of that growth — certainly in the entertainment sector, but across the rest of the licensing business as well. In recent years, worldwide retail sales of merchandise based on the Star Wars characters and imagery has hovered in the vicinity of $2 billion annually.
So as the rollout of new Star Wars merchandise begins this Friday, with a new movie coming in December, what are the prospects for Star Wars sales now?
A widely reported bullish analysis of Disney’s stock by Macquarie Securities analyst Tim Nollen puts the number at $5 billion in the first year following release of the movie (which is a funny time to start counting, since the merchandise is going on sale more than three months before the movie comes out). Good forecast or is Nollen building unrealistic expectations for investors?
“Star Wars is on a whole other level from anything we’ve ever done,” Dynomighty’s Sydney Pham told me at the NY NOW gift show in New York recently. Dynomighty makes Tyvek wallets, passport holders, and other accessories, and festooned its booth with Star Wars displays.
“We started pre-selling the classic images a month before the [mid-August] show; we’ll have new images from the movie for the spring. But even the classic images are outselling all of the best-sellers we’ve had for eight years,” Pham said.
That’s pretty strong language. Joyce Washnik, editor of Giftbeat, a newsletter for the gift industry, sees Star Wars crossing all retail channels, including specialty gift stores which, traditionally, might not touch a pop culture phenomenon such as Star Wars because so much merchandise is available at Walmart, Target, and everywhere else.
Still, Washnik says, gift stores had a great run with Frozen and she sees Star Wars following in those footsteps. Frozen did just shy of $1 billion in retail sales of consumer products in its first year following release, based on my analysis of various Disney statements over the past few months. And that was for a property no one had ever heard of and for which Disney probably could have done more had the studio, retailers, and manufacturers anticipated the immediate success of the movie. (Not being able to anticipate that is why movies and merchandising are art not science, thank you.) In the case of Frozen, the licensing program had to be revved up quickly in response to the movie’s wildfire takeoff; needless to say, Disney knew what to do.
For perspective, Mickey Mouse and Hello Kitty do a little less than $4 billion each in retail sales of licensed merchandise annually, worldwide. Disney Princess and Winnie the Pooh are just below $3 billion each, and Cars and Star Wars have done about $2 billion each. Note that all but one of those — Hello Kitty — are owned by Disney.
If the new Star Wars movie bombs, which seems unlikely, Disney will still have built momentum and had three months to sell the goods. That’s analogous to most fast food promotions which end before the movie opens…just in case.
Nollen writes that Star Wars “could generate $5 billion in consumer merchandise sales in its first year of release…[and] this would easily net Disney about $500 million in licensing and retail revenue.”
Using the loosest of calculations, $5 billion — which is greater than the value of the entire licensing business pre-Star Wars! — would be $2.5 billion at wholesale. Since royalties are mostly calculated on wholesale, and the rule-of-thumb for rough estimates across all categories is a 10% royalty rate, that’s $250 million net to Disney. Even if the royalty is higher (likely), it’s still not going to come to $500 million. But $250 million? Even Mickey wouldn’t sneeze at that.
Good forecast or unrealistic expectation? As Robert Browning wrote, “Ah, but a man’s reach should exceed his grasp, Or what’s a heaven for?” Written for Star Wars, no?