It’s fair to say that George Lucas changed the world, or certainly changed the film industry when he created the Star Wars entertainment franchise.
Back in 1977, the key players in Hollywood expected Star Wars to be a flop in terms of box office takings, but as we all know, it went on to become one of the most successful movie franchises of all time.
The movie franchise was also notable as being the first to monetise its licencing and merchandise ecosystem, turning the young directorial wunderkind George Lucas into one of the wealthiest individuals in the entertainment industry.
Lucas’s first foray into the movie world happened via a deal with the United Artists Corporation where he was commissioned to write a script for American Graffiti and an unnamed, nine-part science fiction movie. Lucas wrote the script for American Graffiti with Willard Huyck and Gloria Katz and it was turned down several times by various studios before ending up being made by Universal. Lucas had also written the treatment for Star Wars by this point and Universal passed on this even though they had the option for Lucas’ next film – although it’s worth bearing in mind that American Graffiti had not yet become the monster hit it was going to be.
Jeff Berg, who was Lucas’s agent, took the Star Wars treatment to Alan Ladd Jr at Fox who agreed to make the movie and they began negotiations for the outline of a deal. Lucas was to receive $50,000 to write the film, another $50,000 to produce it, and $50,000 to direct it. When American Graffiti came out and became a huge hit (It was made for $750,000 and generated over $100 million) Berg suggested to Lucas that he could get paid a lot more than $150,000 to make Star Wars and talked of a figure ranging between $500,000 and $1 million. Lucas, upon realising that he was going to earn a lot of money from American Graffiti, outlined the sort of deal he wanted to make with regards to the production of Star Wars.
Lucas saw the movie working in multiple parts so his greatest concern was that he wouldn’t be able to make the sequel, or wouldn’t be able to do the rest of the series if the first one worked out, so instead of taking more money, he used the success of Graffiti to ensure that he would be able to do that. It must be stressed that at this point Lucas didn’t know how successful Star Wars was going to be, but he was driven by having the ability to make the films that he wanted to make.
As the negotiations continued, it was agreed that Lucas would retain the rights to make the sequel and Fox would get a first opportunity and last refusal right to make the movie as well.
The deal was eventually closed and Star Wars became what was at the time, the most successful movie in history. When it came to doing a sequel, Lucasfilm had made so much money from Star Wars that Lucas decided to reinvest the profits into the production of The Empire Strikes Back and the deal offered to Fox was that they would get distribution rights theatrically and video around the world for seven years, and Lucasfilm would retain everything else.
Significantly, an important clause in the deal was that the merchandising rights would revert to Lucasfilm upon the launch of Empire Strikes Back as they were currently still controlled by Fox who had been doing well out of them for a couple of years – this meant soundtrack albums, music publishing, television and all rights other than the rights that were being granted to Fox under the Empire deal.
Fox granted Lucasfilm the merchandising rights for The Empire Strikes Back and subsequent movies because Lucasfilm were not obliged to sell it to them and the success of Star Wars meant they were keen to get the next movie made. Whilst the merchandising for Star Wars (which Fox still owned) was doing pretty well, it hadn’t yet become the phenomenon that it was yet to morph into, so The Return of the Jedi and the three prequels were all structured in a similar way with Fox receiving a distribution fee and Lucas retaining complete ownership of everything else.
Star Wars has since generated more than $32 billion in merchandising sales alone and that number is increasing by at least $1.5 billion per year. The estimated $42 billion total generated by the Star Wars franchise dwarfs the $25 billion revenue earned from the Harry Potter books, movies and toys and James Bond’s estimate rests at a relatively paltry $8 billion.
In our opinion, 20th Century Fox shouldn’t be too upset about giving away the merchandising and licensing rights for the most successful film franchise of all time. We’ve often considered merchandising based on The W1nners’ Club Series of books, but we haven’t even turned them into a bloody film yet!