The Force Behind Star Wars

The franchise may be getting a little long in the tooth, but creator George Lucas will still make a mint on it. Let's count the ways

By Ronald Grover

Chances are that George Lucas' Star Wars: Episode III -- Revenge of the Sith will be one of this summer's box-office hits. It's the sixth -- and presumably final -- installment of the franchise that set new standards for special effects when the first one was released in 1977.

But for all of its supergalactic buildup, Stars Wars: Episode III could also end up being a big disappointment. It already has the unmistakable feel of being part of a faded franchise, even though it'll likely still do north of $200 million in the U.S. alone. And less than stellar box office could be bad news for the film's small army of promotional partners, who have already had to contend with the tightfisted, controlling Lucas.

To get an idea of why Sith might underperform, take a look at the numbers for Star Wars: Episode II, Attack of the Clones, the fifth in the series. It grossed $310.7 million at the U.S. box office in 2002, according to movie tracker Nielsen EDI. That was enough to make it the year's No. 3 flick, behind Spider-Man and Lord of the Rings: The Two Towers. But Episode II did $120 million less at the box office than 1997's Star Wars: Episode I -- The Phantom Menace, according to EDI.


 More important, Episode II saw a drop of 25% from the first weekend to the second, while the 1997 installment saw its box office increase by 3.2% between weekends one and two. Clearly, not a lot of overage Wookie lovers were walking out of The Phantom Menace humming a John Williams tune.

What will an underperforming Star Wars mean exactly? To Lucas, not that much. The former wunderkind has become among Hollywood's wealthiest players, thanks to the Star Wars franchise. And his partners may already see the handwriting on the wall. Fox, which distributes the films, collects only about an 8% fee (the Hollywood standard is 15% to 17% of the amount theaters return to the studio).

For years, Fox executives have viewed the high-profile Star Wars films as a promotion vehicle for their other releases. This year, Episode III will be preceded by a trailer for Fox's July 8 superhero flick Fantastic Four, based on the Marvel comic book. (Fox declined to comment for this story, as did Lucas, through a company spokeswoman.)


  Toymaker Hasbro (HAS ) pays among the highest royalty rates around (estimated to be 20%) to be part of the Star Wars family. Industry standards usually run from 6% to the mid-teens. (Hasbro declined to talk about rates for this story.)

Hasbro revamped its deal with Lucas when it became obvious Hasbro wasn't going to make the kind of money it had originally anticipated. According to its Securities & Exchange Commission filings, Hasbro has cut $85 million from what it guarantees to Lucas and gave him warrants to make up for it. That means if Lucas can deliver, he gets paid more money.

Moreover, to make sure that the $515 million it has already paid to Lucas gets recovered, Hasbro is extending its deal to 2018 to cover new Star Wars cartoons, action figures, and other products that will come down the line. "We believe that this is a great franchise that will live a long, long time," says Brian Goldner, head of U.S. toys for Hasbro.


  Still, Lucas had no problem getting partners. Pepsi (PEP ) is rolling out a commercial starring a singing Yoda, Chewbacca is seen recording ring tones in a commercial for Cingular, and Mars is featuring an M&M Darth Vader. Other sponsors include Burger King, Kellogg (K ), and America Online (TWX ). Eidos is making a Star Wars video game featuring LEGO-based characters, and Sony (SNE ) is rolling out the latest installment of its Internet game Star Wars Galaxies: Episode III -- Rage of the Wookies.

Add in the other computer games, magazines, and books that Lucas will peddle, and the return of this Jedi will be worth more than $1 billion. (Lucas' prior five films have generated more than $3 billion in worldwide box-office sales and $9 billion in retail sales since 1977.)

So his partners seem willing to take a ride along with Lucas. "The Star Wars franchise can make a big difference at retail, because the characters are incredibly popular and draw consumers to our display," says a spokesperson for Pepsi. "That helps us stand out from the crowd." Indeed, Pepsi's Web site had more than 700,000 clicks for its Yoda sweepstakes within the first 24 hours.


  The big hope, of course, is that the new Star Wars installment will reclaim some of the early films' charm and action, leaving behind Episode II's dopey characters and pointless plot. And Time Magazine did call it "darker, scarier, better." But "darker and scarier" has already earned the film a PG-13 rating, which means a smaller potential audience than its PG predecessors had.

"What [the rating] will do to this film is anyone's guess," says Paul Dergarabedian, president of box-office tracker Exhibitor Relations. Still, he predicts that Star Wars: Episode III will do "very big business, enough to jump-start what has been a slow box office so far this year."

Doing very big business in a lackluster year isn't that great an accomplishment. But it may not matter to the 61-year old Lucas, who has told intimates that he hopes to start making smaller, more artistic movies. And Star Wars won't be orphaned anytime soon. The Jedi master is planning two cartoon series based on his franchise, which will be created by a new Singapore-based animation studio that Lucas announced last summer -- even though top animation officials are already housed at Lucas' Skywalker Ranch in California.

Lucas is also at work on remastered versions of the entire Star Wars series, to be released down the road in high-definition video. Never let it be said that Lucas is anything but a force when it comes to getting every cent out of his franchise.

Grover is BusinessWeek's Los Angeles bureau chief

Edited by Patricia O'Connell

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