Monday, January 19, 2009

Is Marvel the next Disney?

Batman vs. Wolverine, Spiderman vs. Superman? Many comic book lovers have an opinion about who would win a battle between these heroes.  For decades, DC Comics and Marvel Comics have also battled – to create the most enthralling “Superheroes” to rescue people from their hard earned dollars through many avenues: comic books, cartoons, action figures and branded toys, Halloween costumes, etc. And for most of the world, despite the recent ascendancy of characters like Spiderman, the Fantastic Four and Iron Man, DC’s Superman continues to reign supreme as the most recognized superhero. Who, or what, props up the Kryptonian’s enduring media success? The simplicity of his powers, the iconic outfit, the way he embodies every characteristic a child wishes to possess?  Yes, but also his decades of media exposure to a superhero-hungry public.  Superman has been appearing on screen, and before the public, since the 1950’s.  He appeared in the television serial, “Atom Man vs. Superman”, in 1950 and the movie, “Superman and the Mole Men”, in 1951. The legacies of over half a century of media exposure are certainly an integral part of Superman, Batman, and DC Comics success.

After watching the film Ironman three times in four days, a dim light began growing in my own superhero-conscious consciousness. Maybe there’s a different kind of war brewing beyond the obvious. An unexpected war.  Not between Batman and Ironman for 2008 summer blockbuster supremacy. Not even between Marvel and DC for the title of “supreme comic book creator”.  Instead it is a war between Marvel and Disney!

With Ironman following the great success of the Spiderman films, the continued success of the X-Men films, the existence of two Hulk films, two Punisher films, two Fantastic Four films, one Daredevil film, one Elektra film, one Ghost Rider film and the upcoming Wolverine movie, Marvel has produced 17 movie superhero movies since 2000 (give or take one or two that I may have missed).  This outbreak could signify an escalation of competitive franchise expansion. Could Marvel be poised to become the next Disney?

Disney’s CEO Bob Iger defines a franchise as "something that creates value across multiple businesses and across multiple territories over a long period of time." I began reviewing my own comic book history, thinking about Marvel and its bevy of characters and its similarities to the “Mouse House”-era of Disney in the 1980’s. Yes, comic books still serve as Marvel’s bread and butter. But they are now licensing their superheroes for products ranging from toothpaste to underwear. This kind of thing has been going on for years with Marvel, and while DC has also done its share of character exploitation, no company has really approached Disney in terms of sheer volume.  Disney’s characters have graced everything from lunch boxes to clothing, from repeated appearances in McDonald’s Happy Meals to serving as the subject of an entire television channel.

Disney’s characters have crossed into the immortal and have been lauded as such for decades. For years Disney’s feature length animated movies were the only game in town, bringing euphoria into the hearts of young children who then just had to have the storybooks, toys, and lunch pails to continue the Disney experience. The thrill never really went away, with a real resurgence of popularity when VHS videos came into existence and allowed parents to bring that joy and magic into their hearts and homes as often as their children wanted.

Of course there was competition, looking at the less chronicled, but highly visible, franchise war in the 1990’s between the Disney and WB stores. Back then, it was Warner Brothers’ Looney Tunes – Bugs Bunny, Tweety Bird and the Tasmanian Devil that sent a volley of cannon shots at Disney’s marketing efforts. By 1996, Warner Brothers had 127 stores, while Disney had 353.  That year, their mutual flagship stores duked it out on two blocks of New York City’s 5th Avenue, 56th and 57th Street. Although this was just a few years before changing economic scenarios, such as e-shopping, caused the bulk of their retail operations to come crumbling down, the strength of their brands and the power of having easily recognized and licensed characters, i.e. franchised characters, allowed both companies to rise mightily, albeit only for a few moments of retail history.

Marvel’s characters are only now beginning to explore the full range of marketing options available to them.  In addition to movies and cartoons, they have begun appearing in various rides at the Universal Studios theme parks.  They’ve become action figure mainstays and, to a lesser degree, acceptable icons for mainstream youth. These characters are becoming franchises in themselves.  

Anytime Marvel comes out with a movie about one or more of their superheroes, the sound of cash registers selling spin-off merchandise reaches to a new, ear-splitting volume.  With the public’s desire to buy the latest trend for birthdays, Christmas presents, and Halloween costumes, each release is a new windfall for merchandisers. This is one of the benefits of movies, the ability to finally turn comic book characters into something all of mainstream America can enjoy together.  Gone are the days when children put away their comic book heroes so they could pick up newer, cooler hobbies and trends.  Today’s superheroes are the cool trends.  Taking a date to see a comic book movie is no longer socially unacceptable; wearing a Spider-Man t-shirt to school is edgy, not dorky; and talking about your favorite X-Men character is barbershop fodder, not the whispered ramblings of a social outcast.  Hopefully, Marvel has the media savvy to continue effectively licensing and merchandising their characters across multiple businesses and across multiple territories.

Media conglomerates like Disney, Warner Brothers, and Marvel are highly influenced by what psychologists call the halo effect, referencing a cognitive bias where a perception of a specific trait is influenced by the perception of former traits in a sequence of psychological interpretations. Every movie featuring Marvel characters and every new license Marvel grants has the power to increase the halo effect for these characters.

I tried to get a handle on just how much revenue Marvel makes on merchandise.  They made $218.3 million in their joint venture with Sony on Spiderman, meaning between 2004 and 2007, Spiderman made $436.6 million which breaks down to roughly $109 million a year for Spiderman merchandising alone.  While the Ironman franchise may not yield as much because is neither as innocent nor as popular a character for young children, he is sexier with an edge that will cater more to the tastes of adults and teens.

Marvel is projected to do $500 million annually in revenue 2009, so even it Iron Man doesn’t hit the equivalent to $100 million annually, and does only between 45 to 60 million annually from merchandising and licensing, Marvel will still be happy with those residuals until Iron Man 2 or the Avengers’ movies come out . 

With two summer blockbusters (the Hulk and Iron Man) and one dud, Punisher War Zone, Marvel has plenty of opportunity to flex its merchandising and licensing muscle. But can they really take on Disney in such a big way? Are they exhausting their pantheon of characters- or, in fact, are they just beginning? Numbers support the strength of Marvel’s future, and show it to be a worthy investment vehicle.

Although Marvel is a significantly smaller company than Disney with $37B vs. $500M in total revenue, Marvel is the more profitable company. For the 3 years for which I could find Marvel’s income statements (2005-2007), Marvel has averaged approximately 23% of total revenue resulting in net income.  The result for Disney (2006-2008) has been approximately 11%. For the two years that Marvel and Disney have in common, 2006-2007, those numbers are 22.5% and 11.5% respectively. This significant difference has been reflected in the stock price of the two companies.  Over the last year, Marvel stock has soared 30.53% versus Disney losing -23.05%. Marvel is copying Disney’s playbook with marvelous (pun intended) success. By turning their more popular characters into successful franchises, the company’s overall growth should come from an emphasis on creativity, technology, and international markets. In the near future it may be Disney-who? instead of Disneyland.