The Real Force Behind ‘Star Wars’: How George Lucas Built an Empire

Star Wars homages certainly have had a storied history. There are Seth Green’s Robot Chicken specials, the recent Christmas episode of Glee, the “Blue Harvest” episode of Family Guy, even Mel Brooks’ 1987 spoof Spaceballs. And then there was this year’s Super Bowl, where Volkswagen debuted a 30-second commercial entitled “The Dog Strikes Back” featuring a pooch inspired by a new 2012 VW Beetle to get into shape. The commercial cuts to the Cantina scene from the original Star Wars, filled with characters from the movie — including Darth Vader — arguing over which ad is best. This on the heels of the automaker’s mid-January teaser, “The Bark Side,” that showed a group of dogs barking Star Wars‘ Imperial March music.

What Star Wars has to do with selling cute German imports is not entirely clear. But the tie-in of Star Wars to Volkswagen’s advertising is: The ads immediately went viral (as does virtually anything Star Wars), thus not only promoting the new Beetle but also the release of Episode I: The Phantom Menace, in theaters Feb. 10 in a new 3D conversion.

Of course, the Volkswagen vignette is just one drop in the story of the most successful Hollywood marketing franchise in history. A 35-year-long tale, it began with the 1977 original, now called Star Wars: Episode IV — A New Hope. Last year alone, the franchise raked in $3 billion in licensing revenue (the next most profitable licensed movie merchandise is that of Cars). From light sabers sold at Target to the more than 1.5 million devotees who have subscribed to the online role-playing game Star Wars: The Old Republic since December to every little Yoda who shows up to your door on Halloween, Star Wars is as ubiquitous as ever. “The great achievement of Star Wars had been to take a moribund genre in science fiction and restore it to popularity,” says Toby Miller, social scientist and chair of Media and Cultural Studies at UC Riverside. “George Lucas took a genre that looked cheesy and made it look like a high-concept movie by investing in new ideas, technologies and people. Finally, the story and imagery have been the stars rather than the actors.”

Indeed, Star Wars‘ fundamental tale of good versus evil set against the backdrop of a dysfunctional father-son relationship contains themes that resonate with viewers of any age. Ask anyone with children: What once was a game of cowboys and Indians on pre-Star Wars playgrounds has morphed in the post-Lucas era into moral battles involving characters now easily purchased. Over the span of Star Wars‘ lifetime, $20 billion and counting of licensed goods has been sold, this on top of the $4.4 billion in tickets and $3.8 billion in home entertainment products. With an ever-renewing fan base, Cartoon Network has a ratings behemoth in its animated hit Clone Wars (2.2?million daily viewers), which has spawned new characters and toys (including female alien Padme Amidala and a young Obi-Wan). Just in its partnership with Lego, Star Wars propelled the faltering toy brand to new heights and more than 15 million units sold of the Lego Star Wars video game.

But how has Lucas, who has only become a more complicated figure in the past two decades, kept this most enduring and lucrative of entertainment empires going? Call it a question of focus — on story over stuff. “I’m just the movie guy. The branding and the licensing and that sort of thing, it’s fun,” says Lucas. “I like that there’s lots of great toys and funny T-shirts and really great gadgets and things that are fun. … But at the same time, my main focus is on just making the movie. I haven’t seen the VW commercial, although I saw the first one and thought it was extremely funny.”

It all began modestly. After his success with American Graffiti in 1973, Lucas wanted to make a Western set in outer space to refresh the genre. He was turned down by several studios but found a champion in Alan Ladd Jr., then running 20th Century Fox — even though most of the other Fox executives and the company board didn’t agree. Fox let Lucas pass up an additional $500,000 directing fee in return for keeping licensing and merchandising rights for himself — a decision that would cost the studio billions.

Beginning with the second episode, 1980’s The Empire Strikes Back, Lucas took full ownership and control. He would never work in the Hollywood mainstream again, choosing to base himself away from the madness in the San Francisco Bay Area, where he had grown up.

Lucas expanded his special-effects department into Industrial Light & Magic, which became a key partner to moviemakers in need of state-of-the-art effects. His Skywalker Sound provided a range of technical services. Over the years, he had computer divisions (one of which was spun off into Pixar), book imprints and other ventures, as he made movies including the hit Indiana Jones series.

While the movies have been lucrative, it is the licensing and merchandising that has brought a bonanza. Even Lucas was unprepared for the huge instant success of Star Wars in 1977, driven in part by a series of comic books released as a setup to the theatrical experience. Lucas had sold toy-merchandising rights to his movie to Kenner (then a division of cereal maker General Foods) in advance of the opening for a flat fee of $100,000 after another company turned him down. However, Kenner wasn’t ready for the explosion of interest, either.

Unable to meet the demand by Christmas 1977, Kenner sold an “Early Bird Certificate Package,” which included a kind of I.O.U. that could be redeemed later for four Star Wars action figures (Luke Skywalker, Princess Leia, Chewbacca and R2-D2), a display stand, stickers and a Star Wars fan club membership card. In 1978, Kenner brought out four more action figures from the movie’s Cantina scene, and soon after that the line grew to 20 items. By the end of 1978, Kenner had sold more than 40 million of the figures for gross sales of more than $100 million.

For the release of Empire Strikes Back, Lucasfilm and Kenner were ready, doing mail promotions and adding figures including Boba Fett. That was the beginning of the era of TV-driven marketing tied to a movie, according to Derryl DePriest, vp global brand management for Hasbro, which acquired Kenner in 1991 and later Galoob, another early Star Wars toy licensee: “That’s been the lasting legacy of Star Wars. The impact it has had on really big event-style merchandising.”

Today Star Wars is consistently among the top five licensed toy brands, bringing in retail sales of more than $3 billion in 2011. “It truly is incredible for any property to remain a top seller within licensed merchandise for such a long time,” says Anita Frazier, industry analyst for NPD Group, which tracks licensing. In 1999, as part of a drive to relicense Star Wars timed to the launch of the second trilogy of movies, Lucas agreed to a construction-toy license with Lego. It was the first time the Danish company had licensed any movie or TV show. “We felt this was something we could re-create for a fantastic Lego experience,” says Jill Wilfert, Lego’s vp global licensing and marketing. “It has wildly exceeded everyone’s expectations.”

Since Howard Roffman became head of licensing in 1986, Lucasfilm has operated with a group of fewer than three dozen employees who do everything from track in exacting detail every story arc and character in the Star Wars universe, to ensuring quality standards are met. Lucas does not get personally involved in that oversight, but the buck still stops with him on every major decision. “We don’t put out anything there is not a consumer demand for,” says Roffman. “George doesn’t want to damage the reputation of Star Wars in any way in the retail marketplace.”

Lucas keeps a tight rein on his world but isn’t a micromanager, according to Jim Gianopulos, co-chairman and co-CEO of 20th Century Fox, which has released all six of the Star Wars movies in North America, and is distributor for Lucasfilm’s 3D rereleases.

“He gets involved; he’s the ultimate arbiter,” says Gianopulos. “Obviously, he has many people he respects and trusts, or they wouldn’t be working for him. But ultimately George has been the creator and custodian of the greatest franchise in movie history. In the end, everything flows back to George. He will just know whether it’s right or wrong when he sees it.”

Steven Ekstract, group publisher of License! Global magazine, credits the merchandising and licensing for keeping fans involved between movies. “It keeps kids engaged between movies and TV seasons,” he says. “Star Wars is consistently the number-one-selling boys’ toy in the world, year after year, even when there are no new films.” Naturally, merchandise is part of the promotion of the new Phantom Menace: At AMC theaters, ticket buyers will find a Lego feature area, pod-racer 3D glasses, demonstrations of a new Xbox Kinect game and free Hasbro Star Wars Fighter Pods.

After he made the second Star Wars trilogy, which ended in 2005 with Episode III — Revenge of the Sith, Lucas swore he was done. But the sale of merchandise and continuing interest showed him there was more to do, this time with a new generation. So he expanded the story back a thousand years to create a prequel that became The Clone Wars. First mentioned in Phantom Menace in 1999, it has grown into a whole new world of Star Wars. What started as a theatrical release in 2008 has truly found its place as an animated series on Cartoon Network, where it has been the top-rated show for boys for four years.

Lucas currently is working on a comedic take on Star Wars for another animated series and a live-action TV series (though he laments that he has yet to figure out how to do visual effects on a TV-show budget). Still, it sends a chill through the empire when Lucas says he may not be minding the store forever. He is even more central to the face and focus of his business than his friend Steve Jobs was to Apple. But lately Lucas has been bandying about the word “retirement” — or at least his idea of what that means.

With a personal fortune Forbes estimated at $3.2 billion in 2011, Lucas says he is “having a great time. I’ve got one daughter in martial arts, one daughter who is a writer — which is sort of another version of martial arts — and my son is in college. So things are good.”

But first he has to work on the script for Indiana Jones 5, finish the expansion of an animation studio in Singapore, oversee a new season of Clone Wars and ready the 3D rerelease of Episode II for 2013.

Whether anyone else will be able to follow his recipe seems unlikely. “What you are talking about here is the marrying of the genius of the product with the brilliance of the original creative endeavor,” says Jon Dolgen, former chairman and CEO of Viacom Entertainment Group. “You can have hard work, diligence and creative control — but pick another movie and I don’t know that you would end up in the same place.”

This story first appeared in the Feb. 17, 2012 issue of The Hollywood Reporter magazine.