Why Cancelling Star Wars: 1313 Is Such a Good Thing

Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

On Wednesday, Disney (NYSE: DIS) announced something of a surprise.  They are shutting down LucasArts.  LucasArts is the branch of George Lucas' company that develops video games.  Over the years they have made dozens of games based on the Star Wars universe.  But they also have developed other classic properties such as The Secret of Monkey Island and Day of the Tentacle.  

But for the last couple of years the developer has been struggling.  Four months into the happy marriage between Disney and Lucas, Disney thought it best to shut it down.  150 people were laid off.  Games in development, like Star Wars: 1313, are being cancelled.  Dinsey now plans on licensing LucasArts' video game properties out to third party developers.  

Video game's future

While the Star Wars video games have been lackluster of late, don't think that gamers aren't still serious about their light sabers.  Star Wars still has a huge following.  Recent games like Kinect Star Wars only got a 53% ranking on GameRankings.com.  But despite this, fans were drooling over upcoming Star Wars: 1313.  Read any of the articles out there now that it's cancelled, and you'll see scores of comments from angry fans. They want their game back.

But here's some reasons that I think it's a smart move:

  • LucasArt's properties already have a cult-like following.  Disney can leverage this to get the most lucrative licensing agreement.
  • Any developer paying a premium for properties like Star Wars or Indiana Jones is going to push the video game's limits to ensure success.
  • Success will result in a no-cost all-profit situation for Disney.
  • Disney can shop smaller properties like Monkey Island and Full Throttle that likely wouldn't be developed if they all stayed in-house.

Activision Blizzard (NASDAQ: ATVI) already has a history with LucasArts.  They have been in a distribution agreement for some time.  But perhaps now AB will want to take it to the next level and develop a property such as Indiana Jones.  As the parent company behind games like Call of Duty, the possibilities are pretty interesting.

Electronic Arts (NASDAQ: EA) is another likely candidate.  EA has already developed Star Wars games before.  They are the developer behind Star Wars: The Old Republic.  And here's a consolation prize force fans:  Star Wars 1313 may not be dead after all.  A representative stated that it's "still possible" it will get released by a licensing agreement.

<img alt="" src="http://media.ycharts.com/charts/b531611d3953ed0487522087aa28e103.png" />

ATVI Revenue TTM data by YCharts

Revenue for both Activision Blizzard and Electronic Arts has largely flat-lined since 2009. Despite both companies having great properties and good reviews, there hasn't been that one thing that pushes revenues higher.  Getting a hold of a major property like Star Wars or Indiana Jones could be just what the doctor ordered. 

But I'd like to see Zynga (NASDAQ: ZNGA) make an attempt at one of the smaller properties, like Full Throttle.  Many investors are ecstatic with Zynga's new real money gambling endeavor, but I'm much less optimistic.  Online gambling already has many options.  And with the United States clamping down, it may be a dead end.  I see the real pathway for this company in social networking and smartphone apps.

Zynga has attempted to up their presence in the smartphone world with the $200 million purchase of developer OMGPOP.  So, they have a big time developer now in their arsenal.  Time to put it to good use.  Licensing a known property from LucasArts and releasing a game for smartphones and tablets would make a lot of sense.

Episode Seven

More than anything, the move to shut down LucasArts underscores Disney's current commitment to making a stellar Star Wars Episode 7.  

<table> <tbody> <tr> <td><strong><em>Year</em></strong></td> <td><strong><em>Movie</em></strong></td> <td><strong><em>World-Wide Box Office*</em></strong></td> </tr> <tr> <td>1977</td> <td>A New Hope</td> <td>$797,900,000</td> </tr> <tr> <td>1980</td> <td>The Empire Strikes Back</td> <td>$534,171,960</td> </tr> <tr> <td>1983</td> <td>Return of the Jedi</td> <td>$572,700,000</td> </tr> <tr> <td>1999</td> <td>The Phantom Menace</td> <td>$1,007,044,677</td> </tr> <tr> <td>2002</td> <td>Attack of the Clones</td> <td>$656,695,615</td> </tr> <tr> <td>2005</td> <td>Revenge of the Sith</td> <td>$848,998,877</td> </tr> <tr> <td><em>2015</em></td> <td><em>Episode Seven</em></td> <td><em>TBD</em></td> </tr> </tbody> </table>

*Source www.the-numbers.com

These movies practically sell themselves.  The Star Wars movies have some of the most committed fans, willing to camp out in parking lots dressed in a full Kit Fisto costume for weeks before opening night.  And let's be honest, the most recent trilogy of films wasn't that great.  Yet, they made quite a bit of money at the box office.

Imagine what the potential would be if Disney nails episode seven.  Many analysts are already speculating the possibility.  Several are saying that Episode Seven is going to join the very prestigious $2 billion club.  With no distraction from LucasArts, I have confidence that Disney is going to pool all their resources, all their experience, and all their best people to make this movie a screaming success.

Foolish bottom line

When Disney bought LucasFilm a couple months back, I thought it was a brilliant move.  But as time has gone on, things keep brightening.  Make no mistake about it, this deal has gigantic revenue potential for Disney.  Developments like this only highlight that we just don't know how big this is going to be for Disney yet.

Jon Quast owns shares of Activision Blizzard. The Motley Fool recommends Activision Blizzard and Walt Disney. The Motley Fool owns shares of Activision Blizzard and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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