To capture the force, be patient

The negotiations behind Disney’s acquisition of Lucasfilm suggest the value of long-term planning, trust building, and careful deliberation.

By on / Business Negotiations

On October 30, 2012, Robert A. Iger, CEO of the Walt Disney Company, announced that Disney was acquiring Lucasfilm, the film-production company known primarily for the spectacularly successful Star Wars film franchise. Following lengthy negotiations, George Lucas, Lucasfilm’s founder and sole shareholder, had agreed to sell his company for $4.05 billion, an amount split roughly evenly between stock and cash.

To the joy of Star Wars fans everywhere, Iger revealed that Disney planned to release new feature films in the franchise every two or three years, beginning in 2015. Lucas included a detailed treatment for the next three films in the deal and negotiated to be a consultant on them, the New York Times reports.

The agreement is projected to be highly lucrative for Disney, which plans to expand Lucasfilm’s product-licensing revenue beyond North America and its current focus on toys. Disney also acquires Lucasfilm’s special-effects business, audio operation, and consumer-products division in the deal.

“It’s now time for me to pass Star Wars on to a new generation of filmmakers,” Lucas said in a statement. But he did not make this decision lightly, as a recent in-depth article by Devin Leonard of Bloomberg Businessweek reveals. As we will see, Iger and Lucas engaged in methodical negotiations that were built on strong reputations, mutual understanding, and thorough research—fundamentals that all negotiating professionals can capitalize on to create new sources of value.

1. Develop a long-term strategy.
In May 2011, Iger and Lucas met at the Walt Disney World Resort in Florida to kick off an upgraded Star Wars ride, which Lucas had been heavily involved in developing. Over a private breakfast, Iger asked Lucas, who had just turned 67, if he would ever consider selling his company. Lucas responded that he would “love to talk” to Iger about a sale in the future but wasn’t yet ready to plan his retirement, writes Leonard.

Far from being dissuaded, Iger was exhilarated that Lucas was open to the possibility of eventually entrusting Disney with his beloved Star Wars characters. Iger believed that Disney’s success had been built on its ability to develop enduring—and lucrative— characters, from Mickey Mouse to Jack Sparrow. Since being named CEO in 2005, Iger had focused like a laser on this strategy, spearheading deals that gave Disney a fresh influx of character-driven franchises. Iger masterminded an acquisition of Pixar Animation Studios for $7.4 billion in 2006 and of Marvel Entertainment for $4 billion in 2009.

The deals proved profitable right out of the gate: Disney rejuvenated its California theme park with a new ride based on Pixar films, and the Marvel film The Avengers grossed $1.5 billion, becoming the third-most-lucrative movie in history. Moreover, these deals helped Disney to thrive even as many of its entertainment-industry rivals struggled to stay afloat. Disney’s stock has doubled since Iger was named CEO, and the company’s healthy coffers enabled him to set his sights on other acquisitions, with Lucasfilm being his prime target.

Negotiators often fail to see the connections among various dealmaking opportunities. As a consequence, their individual deals often fail to add up to a coherent strategy. Iger’s success points to the value of a different approach: Set strategy first, and then look only for potential deals that can help you fulfill your organization’s long-term strategic goals.

2. Identify nonmonetary concerns.
As he mulled over his possible retirement, Lucas struggled with the idea of handing over creative control of the fictional universe he had created. In an interview with Leonard, Lucas claimed that for him, financial success had always been incidental to a larger concern: maintaining creative control of his movies. “I’ve never been much of a money guy,” he said.

As it turned out, Iger had experience negotiating agreements with highly creative people and had a sense of what they valued. Iger personally negotiated the terms of Disney’s Pixar deal with Apple CEO Steve Jobs, then Pixar’s head. “Steve and I spent more time negotiating the social issues than we did the economic issues,” Iger told Leonard. More specifically, Jobs successfully lobbied for Iger to keep Pixar’s creative team in place at Pixar’s Northern California headquarters, operating with minimal interference from Disney in Los Angeles.

Persuading a reluctant director

In her first significant task as Lucasfilm’s new chief, Kathleen Kennedy set about lining up a director for the next Star Wars film. Her target was J. J. Abrams, the highly successful director of the two most recent Star Trek movies. If anyone was up to the task of reviving a flagging sci-fi franchise, it was Abrams.

But Abrams was a tough sell, writes Kim Masters in an in-depth profile of Kennedy in The Hollywood Reporter. His agent told Kennedy that he was too busy with the next Star Trek movie and other projects. Yet Abrams did agree to at least meet with Kennedy, whom he had known since he was 14. Kennedy’s former boss, Steven Spielberg, had hired the teenage Abrams, something of a prodigy, to restore some of Spielberg’s childhood videos.

At their meeting, Kennedy surprised Abrams with the news that Michael Arndt, the screenwriter behind Little Miss Sunshine, had signed on to write the script for the next Star Wars film and that Lawrence Kasdan, who wrote two of the original Star Wars films, would be a script consultant. Abrams was “flipping out” at the news that Arndt and Kasden were already on board, Kennedy told Masters.

Abrams was even more energized after a secret three-hour meeting with Kennedy and the other writers, but he still had reservations. The pressure for the film and its various profit streams to earn billions would be intense, and he worried about being separated from his family during the film’s shooting.

But thanks to Kennedy’s powers of persuasion, the project became too tantalizing for Abrams to resist. After another long day of negotiations, he signed on to the film.

This pattern continued when Iger acquired Marvel. Seeking to profit from Marvel’s vast experience developing superhero movies, Iger kept the company’s leadership in place.

Not surprisingly, the hands-off management style Iger had shown with these acquisitions appealed to Lucas. As it happened, Lucas had founded Pixar as the Lucasfilm Computer Division in 1979 before selling it to Jobs in 1985. Lucas was reassured by the idea that he might still have some control over the next Star Wars trilogy if he sold his company to Disney.

Dollars and cents are important in negotiations, of course. But don’t assume that price is the other party’s foremost concern. Over a long career spent negotiating with “creatives,” Iger had come to understand the high value they place on artistic integrity. (In fact, as the sidebar “Doing Repeat Business” explains, he had even negotiated with Lucas in the past.) Iger had also discovered that loose control of acquired companies often paid off both creatively and financially. This attitude enabled him to quickly identify the issues that mattered most to Lucas and win his trust.

3. Enhance your value before negotiating.
Even as he debated whether the time was right to let go of his company, Lucas recognized that he had an opportunity to shape its future before turning it over to Disney or another buyer. His first step was to hire Kathleen Kennedy, a close friend and a founder of Steven Spielberg’s Amblin Entertainment, as Lucasfilm’s new CEO.

Together, Lucas and Kennedy began laying the groundwork for a new Star Wars trilogy. They hired a respected screenwriter to get to work on the script for the next installment, Episode VII, and began talking to members of the original Star Wars cast, including Mark Hamill, Carrie Fisher, and Harrison Ford, about appearing in the new films.

Lucas’s effort to move his company forward served two main purposes. First, it gave him a good shot at guiding the overall look and feel of the next Star Wars films before passing them off to Disney. Second, he likely understood that lining up top talent, including Kennedy, would make the Star Wars brand even more attractive to Disney and, if those talks fell through, to other potential buyers.

When someone tries to open negotiations with us, we tend to assume that the only possible answers are yes or no. By responding to Iger with a maybe, Lucas bought himself time to think about whether he was ready to enter a new, less-active chapter in his life. He also created an opportunity to enhance his company’s value prior to engaging in substantive talks. His methodical approach serves as a reminder that in negotiation, patience is indeed a virtue.

Doing repeat business

One likely reason that Lucas appears to have negotiated exclusively with Disney rather than simultaneously with other film companies was the fact that he knew and respected Iger.

In the early 1990s, when Iger was chairman of the ABC television network, Lucas pitched him a somewhat educational TV series based on Raiders of the Lost Ark called The Young Indiana Jones Chronicles. Despite some reservations about the show, Iger green-lighted it because of his respect for Lucas and kept it on the air for two seasons, even as the show struggled creatively and financially.

Though the show ultimately was taken off the air, Lucas remained appreciative of Iger’s backing—and remembered him years later as a negotiator he could trust. That doesn’t mean you should negotiate only with partners you know well, of course, but it does suggest that the way we behave in our negotiations may be remembered for years, and even decades, later.

4. Deepen your knowledge.
In June 2012, Lucas called Iger and told him he was ready to talk about a possible sale of Lucasfilm to Disney. During the five months of negotiations that followed, Lucas argued that members of his inner circle were the most qualified to create the new Star Wars films. Iger agreed in principle but stressed that Disney would have to be the ultimate decision maker regarding future movies in the franchise.

One October weekend, Iger sat down to watch all six Star Wars films again, notepad in hand. To further bring Iger and other Disney executives up to speed, Lucas loaned them Pablo Hidalgo, a Lucasfilm manager who is known for his encyclopedic knowledge of the Star Wars universe—and its approximately 17,000 characters.

Iger’s research impressed upon him the importance of determining whether Lucas had a stockpile of story lines that Disney could draw on for the next Star Wars trilogy. Without a rough idea of the plots, how could Iger assess the fantasy world’s value?

Yet when Disney executives pressed Lucas to share his treatments for the next trilogy, he vacillated. Only after Disney put the broad outlines of a deal in writing did Lucas hand over the treatments, and even then he required Iger and two other Disney higher-ups to sign an agreement stating that they would not share the content with anyone else.

It isn’t only movie executives who must sift through a dizzying array of technological knowledge as part of their negotiation preparation. At times all of us face the task of dealing with complex information that’s pertinent to the deal at hand. It can be tempting to gloss over the details, but as Iger’s experience shows, great insights can come from careful study.

Epilogue
Thrilled with Lucas’s film treatments, Iger brought him to Disney headquarters in Burbank, California, to sign off on the sale. Iger felt giddy, he told Leonard, but sensed that Lucas was in a melancholy mood: “He was saying good-bye.”

Soon after the deal was inked, Kennedy negotiated with director J. J. Abrams to helm Episode VII. (See the sidebar) Lucas sits in on story meetings for the new film. Meanwhile, Iger is busy overseeing the toys, theme park attractions, and other branding opportunities that come with his latest acquisition. Following in Lucas’s footsteps, he will step down as Disney’s CEO in 2015 and take a less-central position.

4 lessons for Jedi Negotiators

  • Negotiate for the long haul. To minimize the risk of negotiating simply for the sake of doing a deal, develop a long-term business strategy and engage only in negotiations that further your goals.
  • Look beyond the numbers. Tie negotiations over the immediate monetary value of a deal to the more intangible issues, such as control and leadership, that may be of primary concern to your counterpart.
  • Improve your appeal. Don’t coast on your reputation. By looking for ways to make your offerings even more attractive, you will heighten your counterpart’s enthusiasm and also strengthen your legacy.
  • Keep your eye on the details. The specifics of a counterpart’s operations may not seem particularly important, but they could offer clues about where you should focus your efforts at the bargaining table.

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