Economics of Star Wars – Part 4: Some Boneheaded Decisions

January 27, 2014 – History is replete with bad decisions that companies and individuals wish they could undo. In the commercial world, short-sighted and risk-averse decisions can mean the potential loss of hundreds of millions of dollars.

Here are two infamous examples from the very early days of Star Wars:

United Artists and Universal Turn Down Star Wars

George Lucas began writing his screenplay for Star Wars on 17 April 1973 and finished the draft of his Flash Gordon-inspired space adventure in 1974. Sometime around the age of 30, and still somewhat shy, he approached all the major Hollywood studios with his film proposal. Most all turned him down.

UA Rejection-1David Picker at United Artists opined that Lucas’s script would be too expensive to film, and he feared that the other-worldly locations and scenes were beyond his technicians’ abilities. If United Artists had funded Lucas’s dream and invested in the technology to enable the special effects (as Lucas eventually did through his Industrial Light & Magic), the company would have avoided decline in the 1980’s and 1990’s.

Another studio executive, Ned Tanen at Universal, criticized Lucas’s thirteen-page proposal as being “difficult to translate visually”, such as the droids, UA Rejection-2 R2-D2 and C-3PO. Tanen’s now infamous memorandum warned that producing the space saga would be like “rolling dice” (aren’t all investments?) and that audiences might not “completely understand the rights and wrongs involved” between the fictional characters. While Tanen expressed some excitement about the action sequences, Universal’s executives declined Lucas’s offer. They questioned “how much faith we have in Lucas’s ability to pull it off”, and so they walked away from this billion-dollar enterprise.

Twentieth Century Fox benefited from the other studios’ lack of vision. Details can be found here in Brian J. Robb’s book, A Brief History of Star Wars (book page previews courtesy of Google Books).

Mego Corp. Turns Down Toy Licensing Rights

Microman & Acroyear meet vintage C-3PO and Luke Skywalker
The name Kenner (Kenner Products) is synonymous with the early decades of Star Wars action figures, vehicles and playsets. But few remember that George Lucas first approached another company, the Mego Corporation, with an opportunity to produce the entire toyline. Mego turned it down.

Before the release of Star Wars, there was no true block-buster sci-fi release. So in 1976, when Mego’s boss, David Abrams, was offered exclusive toy licensing rights to the upcoming motion picture, he rejected the deal. His son, Martin Abrams, was in the midst of negotiation with the Japanese toy company, Takara, to bring Micronauts (the Microman toyline) to the United States, and Martin Abrams opined that Mego might go bankrupt if it made toys from every “flash in the pan” sci-fi movie that came along.
Microman-Txt-2
To its credit, Mego did many other things right. It was the predominant toy action-figure producer during most of the 1970’s. Above and below are my graphic tributes to Mego and an imaginary encounter between vintage representatives of Mego (Microman and Acroyear on the right) and vintage figures produced by Kenner (now Hasbro), represented by Luke Skywalker and C-3PO on the left (NOTE: The latter were not actually produced until 1977).
Microman-Txt-3
The Mego Corporation filed for bankruptcy in 1982 and ceased to exist in 1983.

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