Disney's Amazing Star Wars Deal, Which Might Help Fill In Disney's Amazing ESPN Profit Hole
How did Disney buy Star Wars for only $4 billion? I first saw this question asked by Kevin Drum, though I can't find the link (and I am not going to feel guilty about it after Mother Jones banned me for some still-opaque reason). But Disney is going to release a new movie every year, and if it is anything like the Marvel franchise, they are going to milk it for a lot of money. Plus TV tie-ins. Plus merchandising. Plus they are rebuilding much of their Hollywood Studios park at DisneyWorld in a Star Wars theme.
The answer is that this is the kind of deal that makes trading in a free market a win-win rather than zero-sum. Lucas, I think, was played out and had no ability, or no desire, to do what it would take to make the franchise worth $4 billion. On the flip side Disney is freaking good a milking a franchise for all its worth (there is none better at this) and so $4 billion is starting to appear cheap from their point of view.
By the way, Disney is going to need the profits from Star Wars to fill in the hole ESPN is about to create. A huge percentage of the rents in the cable business have historically flowed to ESPN, which is able to command per-subscriber fees from cable companies that dwarf any other network. Times are a-changin' though, as pressure increases from consumers to unbundle. If cable companies won't unbundle, then consumers will do it themselves, cutting the cable and creating their own bundles from streaming offerings.
ESPN is already seeing falling subscriber numbers, and everyone thinks this is just going to accelerate. ESPN is in a particularly bad position when revenues fall, because most of its costs are locked up under long-term contracts for the acquisition of sports broadcasting rights. It can't easily cut costs to keep up with falling revenues. It is like a bank that has lent long and borrowed short, and suddenly starts seeing depositors leave. And this is even before discussing competition, which has exploded -- every major pro sports league has its own network, major college athletic conferences have their own network, and competitors such as Fox and NBC seem to keep adding more channels.
