Walt Disney Co., the world’s largest media and entertainment conglomerate, is buying Marvel Entertainment, a character-based entertainment company, for $4 billion in cash and stock, pending approval from shareholders and regulators. Analysts from Wall Street firms such as Standard & Poor’s question the steep price tag, which amounts to a 29 percent premium over Marvel’s closing price as of the deal’s announcement. At the official conference call, Disney CEO Bob Iger said, however, that a full price is fair and necessary when acquiring a premium company with a premium set of assets. Which begs the question: What exactly is Disney getting from Marvel?
A recipe for blockbusters? Marvel’s portfolio boasts 5,000 plus comic book characters. However, the better-known ones are already tied-up with other studios, cable networks, video game publishers and even a theme park. For example, the Los Angeles Times reports that Sony Pictures has rights in perpetuity to make Spider-Man movies, while Twentieth Century Fox has rights in perpetuity to make movies based on the X-Men, Fantastic Four, Silver Surfer and Daredevil.
As Marvel’s new owner, Disney would have to content itself with collecting royalty fees from these and similar deals, until it can either revert the rights in-house or renegotiate contracts. Of course, there are still plenty of other characters in Marvel’s roster. Considering Disney’s reach, financial clout and talent pool (Disney also owns Pixar, which has proven skills in making critically-acclaimed top grossers), it’s not farfetched to think that Disney could make its own blockbuster hits from less popular characters. As Marvel CEO Ike Perlmutter said: “This is an unparalleled opportunity for Marvel to build upon its vibrant brand and character properties by accessing Disney’s tremendous global organization and infrastructure around the world.”
More boy appeal? Disney is known for family-friendly fare that primarily targets young and teenage girls. Think Hannah Montana, High School Musical, and the fairy tale/princess franchise (Sleeping Beauty, Snow White, The Little Mermaid). Marvel, on the other hand, has a loyal fan base among boys and older kids — an audience segment that spends about $50 billion each year (according to a recent article by The New York Times). The merger seems like a perfect fit. In fact, Disney recently launched Disney XD, an online and TV channel primarily aimed at boys. The channel already runs Marvel characters about 20 hours per week, and Iger says they are looking to add more Marvel content, and to expand merchandising opportunities worldwide. Some Marvel fans are concerned that their favorite characters would get “Disneyfied.” Both Disney and Marvel say they will protect Marvel’s artistic independence.
Online and video game content? Aside from beefing up Disney XD, the deal would also give Disney fresh content for its online and video game library. Currently, game publishers like Activision, THQ, Sega and Gazillion Entertainment have licensing rights to a number of Marvel characters, but all options are open once they expire. “We don’t rule out the possibility of a blend of licensed games, as well as self-produced and self-distributed,” says Iger. “And what is nice about this is that as some of these deals near expiration, we have the luxury of at that time considering what is best…from a financial perspective, from a quality perspective and an exposure perspective.”
What about the comic books? Marvel’s origins, and one of its core strengths, is comic book publishing. The New York Times reported that the company edged out rival publisher Time Warner’s DC Comics for the top spot in 2008, in both unit market share (46 percent for Marvel and 32 percent for DC) and retail dollar share (41 percent for Marvel and 30 percent for DC). And as Disney’s publishing division is currently the world’s largest when it comes to children’s books and magazines (says ICv2), Marvel is getting a powerful platform to raise product awareness and sales.
On the flip side, Disney can now compete with DC Comics. And as comic books expand into digital distribution, the opportunities increase. Marvel, for example, recently debuted the Spider-Woman “motion comics” with live actors providing voices for moving comic book images on iTunes, which the company says quickly hit the #1 and #2 sales chart spots.
The takeaway? Obviously, Disney is thinking here of long-term, not short-term benefits. This move helps it build an impressive arsenal of content that can be monetized across the globe, in multiple technology and entertainment platforms, whether now or in the future. It’s a strategy that drives many entertainment companies. In fact, The Financial Times reports that shares in DreamWorks Animation, creators of hit films such as Shrek, were up almost 5 percent on speculation that it could be sold to a larger studio such as Time Warner, which has oodles of cash to spend after selling its cable business.
