Not so marvelous

Marvel slumps as Spidey pic soars

With great powers come great expectations.

So it was for Spider-Man licenser Marvel Enterprises. Even meeting those expectations this past weekend didn’t prevent the company’s stock from getting pummeled for the second day in a row, as an already moody market reawakened Wednesday to the fact that the comic company has only limited access to the Spidey sequel’s boffo box office.

In fact, investors who had steadily driven up the value of the Gotham company’s shares in anticipation of “Spider-Man 2” licensing and merchandising riches seem to believe there’s nowhere to go but down. Company shares slid 5.26% to close at $16.57 on Wednesday, after losing 6% of their value Tuesday as Wall Street fretted over whether the superhero licenser (whose gross participation gives it marginal upside to B.O., anyway) can sustain growth in the sequel’s huge wake.

Despite eight successful studio releases since 1998, Marvel struggles to assure investors that its character bench is deep enough to grow the business over the long haul and beyond its best-known crime fighters.

Open-and-shut case

It’s a familiar quirk of fate at Marvel, whose shares got similarly zapped after the opening of Universal’s “The Hulk.” At that time the rationale was that the film was a dud and couldn’t sustain its muscular opening weekend — despite the fact that Marvel’s licensing upside and downside were capped.

A similar pre-release runup in the stock and post-release decline were discernible surrounding the debut of “Spider-Man” in May 2002.

Even with the sequel well on its way to being the highest grosser of the summer, the market had already baked a blockbuster hit into its valuation.

Such lofty expectations put a lot of pressure on Marvel, which is believed to be entitled to around 2.5% of the film’s gross box office revenue and is said to have already recorded some $10 million in advances for the film.

Marvel already predicted it will generate around $200 million from toy sales this year, compared with the $109 million it raked in when the first movie was released.

As a result, investors already are fretting about tough comparisons in 2005, when toy sales will likely slip and movie licensing deals will be tied to lesser-known superhero characters like Elektra, Iron Man and the Fantastic Four.

But the rough treatment may be unfair given that Marvel’s real “Spider-Man” upside is in sales of toys and other branded merchandise.

Thanks to its recently settled dispute with Sony over the handling of Spidey merchandising, Marvel has full control over the joint venture that licenses all merch rights tied to the movie and previous TV iterations. Sony will handle promotion, co-marketing and other related areas.

Bigger piece of pie

Natexis Bleichroeder analyst Robert Routh believes it is “highly likely” that Sony wound up surrendering to Marvel between 20% and 30% of its economic interest in the Spider-Man Merchandising venture. If so, that implies Marvel’s stake in merchandising rights has risen from 50% the first time out to as high as 80%.

Analysts at JPMorgan estimate Marvel typically receives terms giving it between 2% and 7% of the studio’s revenues, “a big improvement from early movies such as the ‘Blade’ series and the initial ‘X-Men,’ ” for which Marvel received minimal studio compensation. Marvel’s increased clout is due to a solid track record, with average domestic B.O. for major releases since 1998 of $166 million.

Oppenheimer analyst Peter Mirsky emphasized that toys matter more than box office. “As strong as Spidey’s box office take was, not only do we believe it was largely expected, but the financial impact is simply not as significant as that of toy and merchandise sales,” Mirsky said in a recent note.

Sales of “Spider-Man”-related toys and merchandise could account for more than half of Marvel’s operating profits this year, Oppenheimer estimated.

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