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Essay: Disney Acquires Lucasfilms: The Negotiation Behind the $4.05 Billion Deal

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Discussions about Disney making a deal with Lucasfilms began in May 2011.  George Lucas had a discussion with Bob Iger, Disney’s CEO, where Lucas told Iger that he was looking to retire and wanted to sell Lucasfilm and the Star Wars Franchise.  On October 30, 2012, Disney announced that they had a deal to acquire Licasfilm for $4.05 billion.  Of the $4.05 billion, $2.21 billion were in cash, and the rest was Disney stock.  To compare it with other massive Disney acquisitions, they bought Marvel for $4 billion in 2009 and Pixar for $7.4 billion in 2006.


Before the negotiation started, Lucas positioned Lucasfilm to create a new Star Wars trilogy.  He appointed Kathleen Kennedy, a prominent Hollywood executive, to head Lucasfilms. Lucas also hired Michael Arndt, a Oscar winning screenwriter, as a screenwriter for Episode VII and talked to former Star Wars actors about having roles in the new trilogy.  Lucas had been planning on stepping down for years and did not want the pressure that Star Wars fans had put on him.  Lucas was also aware that Disney had given Pixar creative freedom, which was important to Lucas.  Disney would also give Star Wars and Indiana Jones a boost, bringing the franchises back to life.

Disney had previously acquired Marvel and Pixar. Disney wanted to acquire another franchise that they could base movies, tv shows, theme parks and toys around.  Both Marvel and Pixar fit that role. Star Wars also fit that role. Lucas was already planning a new trilogy and had stated in the past that Star Wars could have many more films. Star Wars merchandise was very popular, selling items from action figures to video games. Disney could also potentially build a Star Wars theme park much like Universal Orlando had built Harry Potter World. Star Wars fit right into Disney’s plans to keep expanding. There could have been other targets, such as Lego or DC. But Disney was already planning on opening a Star Wars attraction, and Lucasfilms was owned by a single shareholder. It made more sense for Disney to acquire Lucasfilms than other similar companies.

During the negotiations, Iger rewatched all six Star Wars films as part of his due diligence for the negotiations.  Another reason why Iger rewatched the original six films was to make sure that Star Wars had enough intellectual property for more Star Wars media.  Disney’s $4 billion valuation of Lucasfilm came almost entirely out of the future earnings of Star Wars movies.  Additionaly, Disney could have made close to $1 billion by selling Star Wars merchandise without releasing another film.  Disney also valued Star Wars merchandising and planned on expanding the license worldwide.  Disney had big plans for Star Wars and they had to make sure there was enough in the Star Wars universe to create new movies, games and merchandising.

The negotiation took a year and a half. Disney gave Lucas a role as consultant and allowed him to have some voice in future Star Wars films.  As the Disney acquisition of Lucasfilms were coming to a close, Lucas refused to hand over the story for the new trilogy until the very last moment.  During the negotiation, Disney made it clear to Lucas that Disney would have full autonomy over the direction Star Wars goes.  Even though Lucas would stay on as an advisor, Disney did not use the story Lucas came up with and used their own screenwriter.  However, some point out that the fact that Lucas took $2 billion of Disney stock in the deal shows that Lucas is confident in the direction Disney will take with Star Wars.

Lucasfilm’s BATNA was to continue operating as they had been doing. As mentioned above, Lucas had positioned Lucasfilms to create a new trilogy, hiring a screenwriter and writing out plots for potential movies. He had hired Lucas also hired Kennedy, a close friend and a producer with an impressive resume, to oversee Lucasfilms. The second trilogy (Episodes I-III) made a total of $2.5 billion in the box office.  Star Wars merchandise sales were also a consistent source of revenue for Lucasfilms. If the deal had failed, Lucas would have also retained control of the Star Wars universe. LucasArts would have continued to publish video games. Essentially, Lucas’s BATNA was to continue operating Lucasfilms. Lucasfilms was very profitable. The major drawback for Lucas would have been not being able to retire. He was 70 years old when negotiations started and wanted to leave Star Wars in good hands. So, while he had a pretty strong BATNA, Lucasfilms would have had somewhat of an uncertain future.

Disney’s BATNA was also business as usual. Even without Lucasfilms, Disney was a very profitable company. They already had Pixar and Marvel under their control, which meant they had control over two different massive universes that could create movie after movie. While they would have not had any control over a franchise that was featured in some of their parks, Disney likely would have remained profitable. Disney also had a strong BATNA. The main reason for the acquisition of Lucasfilms is due to the massive revenue potential Star Wars has. Acquiring Lucasfilms also fit into the pattern of Disney acquiring different cinematic universes that gave them a large base of characters to base franchises on as the had acquired Pixar and Marvel previously.

The deal included more than just the Star Wars franchise. Lucasfilms also owned the Indiana Jones franchise. Disney acquired Lucasfilm’s operating business in live-action film production, consumer products, video games, animation, visual effects, and audio post-production.  Disney also acquired Lucasfilm’s portfolio of entertainment technologies. Operational brands included LucasArts, Industrial Light & Magic and Skywalker Sound. Lucasfilms wanted their current employees to remain at their locations after the acquisition  but not all the jobs in Lucasfilms were kept. In April 2013, the development arm of the LucasArts division was closed off and most of the staff was laid off.  One can attempt to extract a promise from the other party during a negotiation

LucasArts developed video games, with the most prominent ones based off Star Wars or Indiana Jones. Disney kept LucasArts opened so it could still license video games.  In May 2013, Disney announced a deal with Electronic Arts to produce Star Wars games for the core gaming market. LucasArts retained the ability to license, and Disney retained the ability to develop Star Wars games for the gaming market.  Disney had major goals with the Star Wars brand. They now controlled all of Star Wars and could lead it in any direction they wanted to.

Disney brings all of Star Wars’ rights under its control

20th Century Fox, who distributed the first six Star Wars films, retained the physical distribution rights to those six films.  They also won permanent full distribution rights to Star Wars Episode IV and hold the theatrical and home video distribution rights to the other five original films until May 2020.  On December 14, 2017, Disney agreed to acquire 20th Century Fox’s owner, 21st Century Fox, in a deal that includes 20th Century Fox. This brought the distribution rights under the Disney Umbrella. Lucasfilms retains the TV and digital distribution rights to five of the six original films with the exception being episode four.  Disney also acquired the distribution rights of other Lucasfilm movies, purchasing the distribution and marketing rights to future Indiana Jones films from Paramount Pictures. The first four films distribution rights were retained by Paramount. Star Wars also had comics. The license was held by Dark Horse Comics. That license ended in 2015 and went to Disney subsidiary Marvel Comics.  Disney was not just interested in having the rights to produce new Star Wars movies. They wanted complete control over all aspects of the movies, including the original six movies. With the acquisition of Lucasfilms, they moved quickly to bring all of Star Wars under their control.

Disney has allowed Lucasfilms to retain some of its character following the acquisition. Additionally, they are very busy with projects. There are two different Star Wars Lands being built, one in Florida and the other in California. There is also a new TV show which Disney will show on its new subscription-based television service. There is also the planned new trilogy which has already produced two new movies. On November 9, 2017, the Disney CEO announced that there would be a fourth Star Wars trilogy. Disney is currently using their new investment to its max potential in an attempt to recoup the purchase price. This was Disney’s long-term strategy. They brought in a new source of revenue and they attempting to fully exploit it with some signs of success.

Win-Win Negotiations

Win-win negotiation, also called integrative negotiation, means that all creative opportunities are leveraged, and no resources are left on the table.  There can be three levels of integrative agreements: above the reservation, better than potential agreement, and pareto optimal.  Disney’s acquisition of Lucasfilm falls in the middle level, in which some agreements yield higher joint gain than do others. Especially with Disney’s stock price rising significantly after this acquisition , both parties have benefited a great deal financially. However, there are some unsatisfactory outcomes several years after the acquisition, such as the unsatisfying reputation of the new Star Wars series.  Thus, it is hard to say that the settlement reaches the Pareto-optimal frontier.

In win-win negotiation, there are two main telltale signs for its potential. The first one is the existence of multiple issues. Single-issue negotiation cannot be win-win because whatever one party gains, the other party loses.  It seems that this negotiation began with a single issue: selling Lucasfilm for the highest value. However, several hidden issues, such as the next Star Wars Trilogy after the acquisition and other products derived from Star Wars, make it possible to reach a win-win result. Apart from seeking for underlying issues, negotiators can also bring in other relevant issues and side deals to negotiate. For example, Lucas wanted Disney to hold his employees in the same position after the acquisition, while Disney would like to control Lucas’s other brands: LucasArts, Industrial Light & Magic and Skywalker Sound. The second sign of win-win potential is the two parties’ differences in preferences, beliefs, and capacities across negotiation issues.  It is such differences that may be profitably traded off to create joint gain.  Obviously, Lucas himself is a genius in creating Star Wars as well as his special effects industry, while Disney has world class multiple platforms and markets to generate sustained growth. Their different strength lays part of the foundation of expanding the pie.

To create win-win negotiations, strategies can vary differently due to different counterparties. Previous relationship between George Lucas and Disney goes pretty well. As Lucas said in an interview , he has been a huge fan of Disney since he was born, and he has sound working experiences with Disney in 1980s, which made him think that they matched with each other so tightly that he just headed to Disney when he wanted to retire without thinking of other “buyers”. Since both parties seem cooperative and trustworthy, strategies to expand the pie can be quite straightforward and intuitive.

The first effective strategy negotiators may use in an integrative negotiation is to take the perspective of the counterparty. Negotiators who has high perspective-taking ability are more successful identifying and reaching integrative agreements, achieve maximum joint gains, and secure peace.   The fact that Iger and Lucas met personally earlier than their “formal” negotiation in 2011 gives us some clues that both Iger and Lucas were excellent perspective-takers.  Since becoming Disney’s CEO in 2005, Iger has aggressively expanded the company beyond its traditional niche in animated films for young children and theme parks.  After successful acquisitions of Pixar and Marvel, Iger sought for other objectives. He knew that Lucas was going to retire, and believed that comparing to other brands such as Harry Potter, Star Wars have the ability to generate sustained growth and drive significant long-term value.  On the other side, Lucas knew that Disney were willing and had the power to continue the legend of his Star Wars series.  With such understandings from both sides, this negotiation went quite smoothly, ending up with joint gains.

The second strategy in win-win negotiation is to exchange interests and priorities by asking such questions and sharing such information initiatively. Interests and priorities, instead of BATNA or reservation points, serve for expanding the pie. Exchanging such information helps the counterparty understand where the value is and shows a considerate attitude.  Unlike questions about BATNA or reservation points which may put the counterparty on the defensive and even lying, exchanging interests and priorities can lead to more openness and positive attributions.  Thus, it is an effective way to have win-win agreements. In the negotiation between Disney and Lucas, the issue of who would have the control over the new Star Wars trilogy played a significant part. It can be inferred that Lucas, as the creator of Star Wars, wanted some influences over the new trilogy, for he had already had a treatment for the story when they negotiated.  However, Iger made it rather clear that Disney would make the final decision on anything related to Star Wars, but Iger promised Lucas a voice in making the new Star Wars movies, including using his treatment.  This is the result of sharing interests and priorities between the two parties. Since both of them wanted the final say over the new Star Wars movies, they need to exchange other information to let the counterparties understand in order to reach agreements. Realizing that the link between Lucas and Star Wars would never disappear no matter Lucas sells this franchise or not, Iger gave Lucas a position as a story consultant.  It seems that this result yield mutual benefit: Lucas could still influence the new movies without too much pressure from fans, while Disney owned a new franchise that match its expanding plans very well. In fact, after the negotiation, the new Star Wars movie in 2015 had nothing to do with Lucas, as Lucas said in an interview.  Disney refused his script and used its own. It was really hard to know how Lucas felt about it. Obviously, the new movie was not as sound as the previous ones, but Lucas himself has complained about the pressure to meet the expectation of Star Wars fans for a long time.  He pursued his experimental movies after leaving Lucasfilm.  Maybe at least this interest was satisfied in this negotiation.

The third effective strategy in integrative negotiation is to make package deals. As mentioned earlier, single-issue negotiation cannot be win-win, so negotiators should seek for other related potentials. Making package deals is the one that helps to make trade-offs between issues.  In the negotiation between Disney and Lucas, package deals are quite obvious. According to Jay Rasulo, Disney's chief financial officer, although there are a number of ways Disney will derive value from Lucasfilm's intellectual property, some of which can be realized immediately while others will accrue to us over time.  He pointed out that Disney focused almost entirely on the financial potential of the Star Wars franchise. Iger also said that even though he loved Indiana Jones, there were no plans to extend the series.  Lucas knew clearly where his value was, so he could take advantage of it in order to increase the possibility of making trade-offs between several issues. Thus, it is wise for Lucas to make package deals with Disney, for he could get a rather entire retirement from selling those franchises. Another deal is about Star Wars merchandising and expanding the license worldwide.  Before Disney entered into Lucasfilm, merchandise licensing revenue from Lucasfilm mainly came from North America’s toy market, but Disney was confident in blazing them in television, interactive media, theme parks, live entertainment, and consumer products to a world-class level.  For example, when the six-disc set of "Star Wars: The Complete Saga," was released in 2011, it sold $84 million worth of Blu-rays worldwide in its first week of release, becoming the highest-selling Blu-ray catalog title in history.  In fact, Disney admitted in a conference that it was more interested in using the "Star Wars" characters to make toys and theme park rides than mining Lucasfilm library of older films.  Therefore, it is also wise for Disney to make package deals with Lucas.

Furthermore, more sophisticated strategies such as making multiple offers of equivalent value simultaneously, structuring contingency contracts, and searching for post settlement settlements can be used when there is not much trustworthiness or cooperation between the two parties. The negotiation between Lucas and Disney can be regarded as a kind of cooperation with each other, for their strengths and weaknesses match in many aspects. Thus, basic strategies for expanding the pie worked well in this negotiation.


In any successful negotiation, trust must manifest between the parties. It is “an expression of confidence in another person or group of people that you will not be put at risk, harmed, or injured by their actions”.  It is the exact risk of harm, exploitation, or breach of an agreement that must be present between parties. While paradoxical, negotiating in spite of these concerns is possible when both parties have established trust that these worse case scenarios will not occur.  It is because of trust that agreements and deals are able to happen, especially deals worth billions of dollars. Without trust, negotiations would never happen because no one would be open to discussion, such as George Lucas relinquishing control of his beloved franchises, that he has gone so far as to call “his kids” . Three of the main forms of trust are deterrence-based trust, knowledge-based trust, and identification-based trust. All were present in Disney’s acquisition of Lucasfilm and shall be examined further.

To begin with, the deterrence-based trust between Lucas and Iger took the form of contracts. Lucas was hesitant to turn over the film treatments and give Disney the final say over future movie planning.  Alan Horn, the chairman of Walt Disney Studios maintained that the schmoozing from “collegial conversations and collaboration” were not the same as having Lucas formally relinquish control over all creative direction, monetization, and planning aspects of the franchises’ intellectual property. Lucas needed the assurances from Disney in writing about the broad outlines of the acquisition deal. At that point, Lucas countered that Iger, Horn, and the vice president of Disney’s corporate strategy had to sign an agreement to be the only ones who could look at the film treatments.  Thus, the contracts in place gave both parties the confidence in the other side to be held accountable, with binding terms clearly set out in writing.

Additionally, knowledge-based trust played a key role in why Lucas signed Lucasfilm over to Disney. Knowledge-based trust is when an individual possesses enough information to be confident in their predictions of the actions and motivations of another.   In this case, Lucas had information about how Disney’s actions and interests as early as 1985. Back then, Lucas and Disney began a partnership for the development of Captain EO, a 3-D musical that would be performed at Disneyland.   Soon after, Disney approached Lucas with the idea of Star Tours, Star Wars-themed simulation roller coasters in Disney theme parks. This collaboration succeeded when Disney emphasized that their roller coasters were often flight simulators, which offered plenty of cinematic and special effects for the riders to experience.  As such, Lucas’ love for combining technology and story-telling were satisfied with this proposal. Given full control over the special effects and creative aspects of Star Tours, Disney worked on the mechanical and technological aspect of the flight simulators.  From these two partnerships, Lucas had first-hand experience to the vision, motivations, and execution that Disney has when they collaborate with others. This extensive amount of knowledge-based trust provided a bedrock for Lucas going into those initial discussions with Iger. Most importantly, the “throngs of of patrons, many of whom dressed up as Star Wars characters for the occasion”  and the necessity of Disneyland to stay open for 60 hours straight to celebrate Star Tours, showed Lucas the ample returns on the investments he made in his partnerships with Disney.

At the same time, knowledge-based trust can take the form of knowing an individual’s reputation can bolster the confidence instilled in those they negotiate with even before they get to the table. Here, for Robert Iger, Disney chair and CEO, trust needed to be established so that George Lucas felt comfortable enough to sell his company, brand, and several movie franchises. Trust manifested in the negotiation as assurance that the franchises would be in good hands. By good hands, this translates to maintaining the integrity of the franchises and characters despite monetizing them through several outlets , as well as remaining box office successes. Iger conveyed his credibility to Lucas by highlighting his past successful acquisitions, such as Pixar and Marvel. In January of 2006, Iger purchased Pixar for $7.4 Billion. Initially met with skepticism, critics were hesitant that the integrity of the Disney brand as traditionally animated characters would be compromised by using the computer generated animations of Pixar . However, box office flops of the traditional Disney animation model such “Treasure Planet” were quickly eclipsed by Pixar award-winning pictures such as “Finding Nemo” and “The Incredibles”.   Therefore, Iger’s instincts on the direction that animated and media needed to take to remain successful were validated. Thus, Iger’s reputation as a decisive and fearless deal-maker with a string of successful acquisitions within the industry provided Lucas additional confidence. In fact, when Iger pitched the acquisition to Lucas, he directly drew on his successes with Marvel and Pixar. To which, Lucas said to Iger regarding Lucasfilm, “if there is anyone [I] want to sell [it] to, it is you”.  This type of knowledge-based trust in Disney and Iger is the most crucial, where Lucas felt there was no other party on the other side of the negotiating table he’d ever accept an offer from.

Most importantly, Iger and Lucas shared identification-based trust with one another from various sources. Identification-based trust originates from a mutual understanding and agreement of each other’s values.   Additionally, there is an emotional connection and empathy between the parties that transcends the business and monetary interests at play.   Moreover, the Silicon Valley community is tight-knit, and the intertwining of social networks between Lucasfilm and Disney/Pixar within the industry was strong. Thus, the affect-based trust helped the two companies recognize how they were similarly situated in the industry. Indeed, Steve Jobs himself when discussing the commonalities of Disney and Pixar after the acquisition, in a similar sentiment about Disney and Lucasfilm, said that a bond the companies shared were “making a great movie”.  In fact, Lucas’ early exposure to Disney began with his first visit to DisneyLand on opening day when he was 11 years old.  The visit had a long-lasting impression on Lucas, who held similar film-making values as Disney in his later work by using films to “create new worlds, new characters and inspired generations”.  Likewise, Iger held a broad vision about the direction he wanted to take Disney/Pixar. This was crucial for being able to stand up to muster with a visionary juggernaut like Lucas.  Iger had the competitive edge needed to not appear timid in even the most ambitious of business proposals, even up against franchise founders like Lucas who can be intimidating to others. This unwavering and fearless approach Iger is famous for has earned the admiration, respect, and trust of those who he does business with in the industry.

Equally important, Iger and Lucas had shared problems they wanted to solve to come to similar end goals. Lucas and Iger had discussions over stepping down from their respective roles at Lucasfilm and Disney, and the challenges of finding a successor at the right time.   Both these men realized that they had similar aspirations to move on from their roles but be assured that the legacies of the companies they built up would be maintained long after their departures. This established a lot of identification-based trust between the negotiators, humanizing them from the proprietary and monetary concerns to more about how the culture of their companies will persist. In doing so, it highlighted to Lucas that Iger’s motivations weren’t as selfish, greedy, or exploitative because he plans on being out the door soon too.  Thus, it was “…this piece of common turf, that there was more to life than just maintaining intellectual property, that reportedly opened the door to the Lucasfilm Ltd. acquisition.”  Negotiations can easily turn adversarial, especially when the stakes are high. Nevertheless, the ability to connect can bridge even the widest gaps between opponents, transcending all their differences to find the commonalities necessary for reaching a deal.

In conclusion, Disney’s and Lucasfilms’ interests aligned. Disney was in the position to fully exploit the Star Wars universe and Lucas liked the fact that Disney could revitalize Star Wars and Indiana Jones. While Disney has enjoyed financial success after the acquisition, Star Wars has taken a reputation hit as some of the new movies have been criticized. Additionally, Disney did not keep all the promises they made to Lucas such as retaining all of Lucasfilms’ employees. Both sides had interests that aligned, resulting in a package deal for Disney. Trust also played a major part in the deal as Iger had to gain Lucas’s trust before and during the negotiation. Disney’s acquisition of Lucasfilm so far has been a financial success for them.

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