Asman Damodaran of the New York University Business School had a go at valuing the Star Wars franchise. Disney paid $4Bn for it – so did that turn out to be a good deal?
Damodaran reviews the franchise to see where the revenues have come from. Interestingly the original film is still the biggest grosser to date at nearly $4Bn. But the other revenue streams are even more important; VHS/DVD/Rentals, Toys, Gaming, Books, and TV series. These other revenues dilute Movie income to 20% of the whole alongside 23% for rentals, 15% for gaming and books, and a whopping 36% for toys and merchandise.
So how do you value it? Like any other business, one needs to take a stab at future earnings potential. In the absence of Disney’s, no doubt closely guarded, forecasts Damodaran makes educated guesses. Starting with Disney’s intent to make another two films he then assumes they’ll each gross something similar to “the Force Awakens”. I’d have assumed some slight decline each time around (as the history suggests) but you have to start somewhere. He judges that add-on revenues will continue be more important - streaming replaces rentals and he assumes $1.20/dollar v $1.14/dollar thus far, Toys continue to generate $1.80 for every dollar of movie income, Books drop 25% to $0.20/dollar, Gaming stays at $0.5/dollar, and he assumes that with the distribution power of Disney and Netflix (rumoured to be planning 3 live action series) TV rights will increase to $0.5/dollar.
One needs to keep making assumptions, when the films will be released, inflation, and of course the margin levels on the income streams – he uses sector averages here, for example toys/merchandise at 15%. Put it all together and you get an overall net income projection which he discounts at 7.61% being the average cost of capital for the entertainment sector. Net result a valuation of $10M. So Disney did a good deal. If you want the full calculation Google “Galactic Finance: Valuing the Star Wars Franchise” which will take you to his blog.
It shows you can build up a cogent case to value almost anything, although I’d have factored in some kind of discount just because of the existence of Jar Jar Binks.
May the force be with you.