Lucas Empire Strikes Gold Again

Forget the dismal reviews. Forget the theater owners who refused to bow to what they considered to be unreasonable demands to play the movie through the summer.

“Star Wars: Episode I The Phantom Menace,” the year’s most anticipated film, still will make a bloody fortune. Especially for creator and financier George Lucas, who owns and controls the world’s most lucrative movie franchise, which he launched more than two decades ago. Lucas’ stash will total more than anyone has ever made from a single movie.

Industry sources estimate that the shy filmmaker could potentially pocket more than $2 billion of profit from the sci-fi prequel’s worldwide revenue streams, including huge royalties from action figures, video games, toys, books, lamps, toothbrushes, cereals, shampoos and other merchandise.

And “Phantom Menace” is just Lucas’ first payday from the new trilogy. “Episode II” bows in 2002, and “Episode III” is scheduled for 2005.

For “Phantom Menace’s” worldwide distributor, 20th Century Fox, the film is a lucrative, no-risk venture. Fox is gambling none of its own money. (Though the studio is advancing the prints and advertising costs, it will recoup them off the top.)

Lucas is paying Fox a small “handling fee” for distributing the picture, which sources estimate at 5% to 7% of his

total revenue. If the movie performs as expected, the studio could see as much as $75 million to $100 million in profit--which would be comparable to the revenue it reaped from its low-budget surprise hit “The Full Monty” two years ago.

Based on Wednesday’s record opening of $28.5 million, industry pundits estimate that “Phantom Menace” could gross $1.2 billion to $1.5 billion in worldwide theatrical revenue alone. While some industry insiders are estimating $350 million to $400 million will be generated domestically, others said the film could bring in as much $450 million to $500 million.

“Titanic,” the current record-holder, grossed $600 million domestically and $1.2 billion in foreign theatrical markets.

After exhibitors take their cut of the worldwide theatrical gross, Lucas could net in the neighborhood of $800 million from “Phantom Menace.”

Additionally, sources estimate that the film could potentially sell 50 million to 60 million videocassettes worldwide, which would translate into another $500 million to $600 million for Lucas, based on his getting an estimated $10 a cassette.

Pay TV and broadcast TV sales around the world could contribute another $150 million or more to his pot.

That would bring Lucas’ revenue from the film to no less than $1.4 billion, from which Lucas would subtract Fox’s distribution fee and the marketing dollars the studio is advancing him, plus $115 million the filmmaker forked out in production costs.

Sources estimate that, depending on “Phantom Menace’s” staying power, marketing costs could rival that of “Titanic,” which ran about $80 million for the domestic and international releases.

That still leaves Lucas with well over $1 billion in profit before merchandising is considered. Since that could generate another $2 billion or more, Lucas potentially could net $1 billion in royalties.

Toy maker Hasbro, which holds the “Star Wars” licensing rights, for example, has guaranteed Lucas an estimated $500 million in royalties. And that’s for starters.

Lucas also was made a major shareholder in Hasbro in 1997 when the licensing deal was struck. He owns 7% of the world’s second-largest toy company, putting him only behind Hasbro’s Chief Executive Alan Hassenfeld, who holds 9%.

And Hasbro isn’t the only “Star Wars” toy maker--there’s also Lego toys, not to mention the myriad other “Phantom Menace”-related products, including books, T-shirts and video games.

“And, don’t forget, Hasbro is going to bring out new toys at Christmas,” says one rival studio merchandising head, adding, “Then you have to figure how much this will stimulate sales of the old toy line and what impact collectors will have on all this.”

Not that Lucas or his San Rafael-based Lucasfilm needs the money. The first three “Star Wars” films, combined with such ventures as his special-effects house Industrial Light & Magic, have put him on the Forbes 400 list of richest Americans with an estimated worth of $2 billion.

Given the pre-release hoopla, retail sales and zillions of dollars in promotions with such corporate partners as PepsiCo, “Phantom Menace” hardly needed much paid advertising upfront to launch the movie.

That’s in fact why Lucas and Fox decided on a different sort of marketing and spending strategy for “Phantom Menace”--a further indication that this movie compares with no other.

Whereas most studios will fork out between $15 million to $20 million to buy ads in the days leading up to, and during the week of, the release of a film, Fox is said to be laying out, on behalf of Lucas, only about $10 million initially.

The thinking behind that is why spend more money than you have to if you know going in that there was virtually total awareness and absolute want-to-see among moviegoers for what may be the most anticipated event in modern movie history. TV and print publications have promoted the film relentlessly. USA Today for weeks even ran a daily “countdown.”

Witness last Sunday, for example, when Fox bought a mere one-third page ad in the Los Angeles Times for “Phantom Menace” and had no ad in Sunday’s New York Times.

Rather than spend most of its advertising dollars upfront, Fox figures it’s better off spending the big bucks when it really needs to, after competition from other major summer films heats up next month.

At least until the second week of June, “Phantom Menace” will be virtually unchallenged. Even “Notting Hill,” the highly anticipated romantic comedy starring Julia Roberts and Hugh Grant that Universal Pictures is opening May 28, isn’t expected to cut into ticket sales for “Phantom Menace” because it appeals to an older audience.

Some industry executives predict that “Phantom Menace” could gross as much as $300 million by the end of the lucrative Memorial Day weekend before any movie takes a bite out of it. While the film will likely go on to gross another $150 million to $200 million beyond that, it is impossible to predict how quickly the remaining dollars will flow in relative to the competition.

The first film likely to do some damage is New Line’s sequel “Austin Powers II: The Spy Who Shagged Me,” which debuts June 11. Industry insiders are projecting an opening weekend gross of $30 million or more for that film, expected to have a strong appeal to the lucrative teen audience.

“Phantom Menace’s” longevity depends on strong repeat business--which is expected largely to come from the hard-core “Star Wars” fans. The longer it runs, the more advertising costs will rise. “You want to support the repeat business and get more of it,” said a source at Fox, noting the campaign at that point will be aimed at telling moviegoers, “ ‘Hey, I’m still out here’--and that costs more money.”

Fox’s competitors are betting that some of their big summer movies will score big at the box office after the initial “Phantom Menace” blast eases.

A week after “Austin Powers,” Disney releases its animated feature “Tarzan” on June 18--which, like “Phantom Menace,” also is targeted at young boys.

The following weekend, Sony Pictures brings out the expected hit “Big Daddy,” an Adam Sandler comedy that is sure to pack in teen audiences based on the popularity of the star of such films as “The Waterboy” and “The Wedding Singer.”

On Wednesday, June 30, Paramount Pictures offers young audiences its animated feature “South Park: Bigger, Longer & Uncut,” based on the popular, raunchy TV series. That same day, Warner Bros. brings out its big-budget action comedy “Wild, Wild West,” starring Will Smith and directed by Barry Sonnenfeld--who last teamed for Columbia’s 1997 hit “Men In Black.”

And Disney releases the live-action family film “Inspector Gadget” on July 23.

While some or all of these competitors will undoubtedly ding “Phantom Menace’s” business, as one Hollywood insider reminded, “At that point, it hardly matters.”

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Hyperspace Profits

Based on industry expectations, “Star Wars: Episode I The Phantom Menace” could earn creator and director George Lucas more than $2 billion. Here’s a rough breakdown of how he could profit if the film performs as observers expect:

Video: $500 million: From about 50 million to 60 million videocassettes.

TV: $150 million: From pay and broadcast sales around the world.

Box Office: $800 million: From global theatrical revenues, easily paying for the $115 million to make the movie and as much as $80 million to market it.

Merchandising: $1 billion: From sales of action figures, video games, toys, creal, shampoo, pillows and scores of other tie-ins.

Sharing the wealth: -$100 million: Distributor 20th Century Fox gets an estimated 5% to 7% fee, probably from $75 million to $100 million, from Lucas’ total.

Source: Times research