Marvel Enterprise Case Notes

Marvel Enterprise Notes

Case Intro

• Marvel was in trouble in 2004 but is doing really good recently (topped journals best performing stocks over the past 3 years)
• The rescue plan was Spiderman (box office phenomenon since 2002)
• 6 years after bankruptcy, its market value was 2Billion, 300 million is sales, 170 million in operating income
• Share price increased
• Marvel’s property rights allow for great opportunities
• Characters in movies, toys, games, cloths, party and food items
• For the spider man sequel the journal article stated the company milked its profits from a prominent character and could not sustain growth with newer characters
• Avi Arad (Chief Creative Officer) says a lot of the revenue made doesn’t go to them. They only received 25 million for spider man 2. Box office gains were 820 million.
• Question was whether to move into production and distribution of content

Critical to marvels future was 2 things.

• Is company’s success due to large icons like Spiderman and therefore they continue to capitalize  on it or was it time to seek growth in less popular characters
• In exploring growth opportunities should marvel beyond into more capital intensive activities?

Company Background

• They had the advantage of being the oldest and most recognizable characters in entertainment
• In 1989 Perelman bought marvel comics and then streamlined the business and diversified its operations beyond the core comic book business
• 1990 business started faltering due to controversy over Perelman. Legal battles went on till 1998 and Toy Biz bought it and renamed it Marvel Enterprise, Inc.
• After all this they hired new board members and had a loss of 105 million for 2000.
• But company did well after and the company’s success was due to 3 divisions: comic book publishing, toys and licensing.
• Started monetizing all content throughout these divisions. Therefore these three division reinforced themselves
• Managing long term value was another focus (ex. What is the future of Spiderman within the divisions)
• Third strategy was quality and consistency in the publishing division  (this is why Marvel dominated DC Comics)

Comic Book Publishing

Products

• Comic books come in periodical (90% sales 2003) and graphic novels.
• # of titles decreased since 90s. But marvel stayed aggressive.
• 60 periodicals every month and 100 – 300 graphic novels each year
• They moulded the characters to the specific timeline of when they were releasing it  (radioactive spider vs. genetically mutated)

Customers

• Target market of males aged 13 -23 years old. Hooked readers stayed longer.
• Readers were in two categories: the ones who bought them like magazines, and the ones that collect
• Comic book shops helped understand what the fans wanted

Distribution

• 3 channels: Comic book specialty stores, traditional retail outlets, subscription sales
• For specialty stores, there were 3000 in the US and contributed a vast majority to net revenue
• This is bc no other retailer can carry the amount of product they produce
• Large shelf space
• But these shops do not occupy premier retail locations and not as professionally dealt
• Narrow customer base and no effort to build market. No new readers

Market Performance

• Marvel circulation had grown to 3.6 million copies a month in 2003. 1.6 million in kids/teens (less than 17 years old) and the rest to people 18+
• Monthly, periodicals sold 50 000, and trades 10 000. Collectibles sometimes generated over 250 000.
• Adjusted supply of certain character specific content when it was prevalent in the media, news etc
• Low costs of producing books so it has room to experiment with new characters

Comic Book Industry

• Market has been stable since 1997 with 300 million dollars in sales then and also 300 million in 2003.
• Marvel had a 40% dollar market share vs 35% for DC comics
• They competed for presence with publishers. 8 of the top ten monthly comic books were marvel publication

Toys

• Had valuable experience from Toy Biz, product development/marketing staff of 12-14 people and freelancers/third party inventors
• In 2001 marvel entered a 5 and a half year contract with Hong Kong manufacturer TBW. Gave them the right to manufacture and sell with a royalty fee of 15% (wholesale value)
• Only spider man was under a separate agreement with Sony pictures (only deal not in TBW)
• This agreement allowed them to have control over the products

Products

• Most of the toy divisions designs were praised from industry experts
• Won awards for this
• Good product mix. Ex of Spiderman where they had at least 5 sets of action figures which all varied in prices.
• Retailer margins were 35% - 50%
• Toy design and marketing largely relied on upcoming movies

Customers

• Marvel had an age target of 4-12 year olds but they had a collectors market which accounted for about 20% of sales

Distribution

• Other than some select figures. Outlet for toys were: specialty toy retailers, mass merchandisers, mail order companies, and variety stores
• Also sold to independent distributors who shipped to retail outlets
• Wal mart, toys r us, target, k mart, and kay bee stores accounted for 66% of total toy sales in 2003
• Sales efforts to retailers usually start 12 months prior to the planned selling point to guarantee their place in min order and shelf space

Market Performance

• In 2001 toys based on spider man 1 accounted for more than 10% of marvels net revenue
• 2002, when movie released the share was just over 35%
• 2003 without the support of a major movie, marvel sold more than 1.5 mill unites of the spider man web blaster
• For 2004 with the movie sequel. They expect toy sales to be around 165 million

Toy Industry

• The toy business as a whole generated over 20 billion dollars in sales in 2003
• Action figures and accessories accounted for 1.2 billion in revenue  
• A lot of competition
• FAO Schwarz and Kay-Bee toy stores both filed for bankruptcy
• Remaining retailers gained power by manufacturers vying for shelf space in a market with short life cycles
• Competitors include: Bandai, Hasbro and Mattel

Licensing

• Licensing division licensed characters to a variety of media: feature films, tv programs, video games, animation and destination based attractions like theme parks
•  Very active in the licensing

Motion Pictures

• Diversified their studio partners to ensure commitment and reduce risk
• Executives were closely involved  with film development
• Had a revenue participation and profit participation plan (Table A in Case)
• Film studio still controlled release date and strategy
• Marvel only held merchandising rights but never contributed to the movie production and marketing expenses (maybe they could do this and gain a larger share of revenue and profits to offset the risk?)
• This subsection exploded causing marvel to spread like wildfire and gain worldwide exposure for the marvel brand and some of its characters

Other Media

• Animated shows produced by Sony and appeared on mtv in the US (spider man)
• Contracted with lions gate to develop produce and distribute 8 original animated dvd features
• Partnered with other companies like video game companies

Other Consumer Products

• The received fees from many divisions like toys apparel accessories, footwear food and etc
• At the end of 2003 it had over 450 active license contracts in domestic and international markets
• Also sold short term licenses like sweepstakes and contests
• Aimed for best in class licensing partners in all major categories

Licensing Industry

• Overall manufacturers paid 5.8 billion in licensing royalties in the US in 2003 which then projected out to over 110 billion in retail sales of licenses products ****
• Largest sector was entertainment and characters, with 2.5 billion in royalty revenue for nearly 50 billion in retail value. This second was also the most concentrated of all major licensing sectors

Positioning For The Future

• Marvel execs had 2 challenges critical to their future success. Had to decide bw two emerging strategies for their character lib.