What Spider-Man can (and can't) do for Marvel.

What Spider-Man can (and can't) do for Marvel.

What Spider-Man can (and can't) do for Marvel.

Moneybox
Commentary about business and finance.
May 23 2002 12:26 PM

What Spider-Man Can (and Can't) Do for Marvel

Can Spider-man rescue Marvel?
Can Spider-man rescue Marvel?

The wild success of Spider-Man, the movie, is obviously a big victory for Sony Pictures. The film has already taken in somewhere around $225 million and is expected to end up with box-office receipts of about $800 million in 2002. But what does this mean for Marvel, the beleaguered comic-book publisher where the web-slinger was born?

Marvel has a fairly miserable recent history, chronicled in the book Comic Wars, by Dan Raviv. Back in the early 1990s, the publisher had come under the control of Ronald Perelman, who supposedly wanted to transform it into a "diversified youth entertainment company." But Perelman's Marvel was a giant flop, ending in bankruptcy and a nasty dispute with bond-holder Carl Icahn. Their smackdown is the core of Raviv's tale, which is full of entertaining exchanges of four-letter words among various bankruptcy lawyers. All along there was talk of getting Marvel characters on the big screen (after all, Batman, from rival DC, had been a Hollywood success), but the rights to a Spider-Man movie had been entangled in an endless legal dispute. More to the point, Raviv writes that Perelman simply wasn't interested in the movie business. A Perelman lieutenant is quoted saying that films are just too risky and that "Ronald likes to sell the hype, the potential of making the movie. But that's all."

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Which brings us to the present. Marvel has emerged from bankruptcy, free of Perelman and Icahn but not free of problems. The company's net sales in 2001 were about $180 million, down from $230 million in 2000 and $320 million in 1999—not a good trend. Marvel has a heavy debt load stemming from its bankruptcy, and in the first quarter of this year it lost about $8 million. Not surprisingly, MVL shares traded at paltry levels, between $2 and $4, for much of the past two years.

Also not surprisingly, the stock spiked in the last couple of months in anticipation of Spider-Man's release. Immediately before the movie came out, it hit $9. And the company's current CEO, Peter Cuneo, was not exactly bashful about Marvel's prospects. "Our portfolio of fantasy characters, in my opinion, has more value than any other entertainment company in the world," he told CBS Marketwatch just before the film's release. That's a quite a statement, considering that the market sees Marvel as being worth around $200 million, while it values Disney at about $47 billion. That's not a pure comparison, given Disney's media holdings, but you get the idea. (As for the film itself, Cuneo commented, "I think it is—and I'll be very candid—a masterpiece in our genre." Impressive candor, no?) Cuneo argued that MVL shares are up because investors are recognizing all this.

Last week, however, this argument was somewhat undercut by the disclosure that one Marvel director had lately unloaded a big piles of shares and pocketed several million dollars in profits. MVL fell and is now back around the $6 level.

Meanwhile, the candid Cuneo, while happy to make pie-in-the-sky statements about the company's future, has not been forthcoming about the percentage of Spider-Man's box office that actually goes to Marvel; it's rumored to be in the mid-single digits. So far, the firm says it has received about $16 million in advance and deferred revenue and a "seven figure" advance from Sony on a sequel. Marvel boldly predicts that it will recognize earnings before interest, taxes, depreciation, and amortization, of between $60 million and $90 million over the next two years, from Spider-Man alone. But again, it's not clear how much will come directly from the box-office cut and how much from less-certain licensing deals or maybe even a theoretical boost of actual comics sales. The firm basically has three revenue streams: sales of comics, sales of toys (a major division of Marvel makes toys of all sorts, including many not related to its comics), and licensing fees from those wish to make merchandise (or films) using Marvel characters.

Cuneo does point out that four films based on Marvel characters are slated for release in 2003: Daredevil (starring Ben Affleck), The Hulk (directed by Ang Lee), a sequel to The X-Men, and The Punisher. The company strategy these days—which will resonate with people who grew up knowing that Marvel's stuff was always way better than DC's—is that the "Marvel Universe" contains an astonishing collection of memorable and original characters who practically constitute an American mythology all their own. Spider-Man is a fine example of this: Like other Marvel heroes, he was a complicated and human character, at least compared with less-nuanced DC stalwarts like Superman. (On the other hand, dedicated Marvel fan-boys may be less excited about Cuneo's description of the company's actual production of comic books, which he refers to as "our research and development function." Oof! Nevertheless, that's essentially DC's role within AOL Time Warner, its corporate parent.)

It certainly seems that Marvel's prospects today look a good deal brighter than they did at the end of the Perelman era. But to buy Cuneo's hype involves a big leap of faith—the movie business really is a risky one. One flop could bring the company's new momentum to a rapid halt, and in the long run there's no guarantee that other members of the Marvel pantheon will gain the prominent (and lucrative) place in the culture that longtime fans figure they deserve. On the other hand, it was clearly absurd to think that they could do this without some Hollywood help. Now, at least, Marvel's heroes have a fighting chance.