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Spider provider grows new legs

Marvel hedges tentpole bets with licensing

A financial basket case just six years ago, Marvel Comics has seen its stock double in the last year, and its market cap swell to $2.17 billion.

Why?

Part of the story is, of course, “Spider-Man.” Sony’s hit grossed $830 million worldwide, and its June 30 release of a sequel could be poised to do just as well, if not better. From that original pic, Marvel pocketed roughly $40 million from a 5% theatrical gross participation.

And, Marvel’s 2002 licensing and toy revenues came to $233 million, also largely powered by “Spider-man.”

Yet despite stumbles along the road, the company seems as impervious to slings and arrows as Iron Man.

For example, last year, Marvel and Universal were surprised by the underwhelming and costly “Hulk,” which managed to grunt out only $245 million worldwide on a pic that cost $150 million. But while the movie made only a modest profit, the DVDs and other licensing gear yielded healthy revenues. (Marvel doesn’t break out its earnings by films.)

When Avi Arad, chief creative officer and head of its film division, sold 2 million of his shares (roughly a third of his stake in Marvel) for $38.5 million on May 20, the stock only dipped by 5%. His mega-sale hardly signaled a vote of confidence in “Spider-man 2,” but ten days later, Marvel’s stock had completely recovered to $20.20 a share.

Largely, this is because licensing accounts for more than half of Marvel’s revenues. And its licensing revenue increased by approximately $110 million — or 138% — to $189.2 million from 2002 to 2003.

But the company’s resilience also flows from the fact that Marvel’s future is increasingly tied not just to name-brand superheroes, like the Hulk and Spider-man, but hundreds of modestly known characters that can be made into movies at modest prices, and even characters that can go straight to video.

Marvel’s also branching into new businesses, like literary novelizations inspired by comic book characters. (Wolverine meets Beowulf, anyone?)

And the company’s learned it’s far wiser to play with other people’s money instead of its own. In January, it hired former Livent prexy and Michael Ovitz protege David Maisel as president. His mandate: to look at off-balance-sheet financing for its motion pictures and yet enable Marvel to participate more fully in the upside of its films.

Some of these were painful lessons to learn, but ones surely worth learning sooner than later.

Arad is still sanguine about a “Hulk” sequel, but admits it would be a slimmer one (“a diet Hulk,” is how Arad puts it in a recent interview with Variety).

Likely he’s right: After the $190 million “franchise” that might — just might — break even in “Van Helsing,” U is probably not eager to make such enormous budgetary bets.

So it was no accident that on May 25, the company announced it had partnered with Lions Gate Entertainment to develop, produce and distribute original animated DVD features based on lesser-known characters within the Marvel universe. Those titles will hit shelves in 2005.

“We saw all these cartoons that used to air on Fox Family making all sorts of money on DVD for Disney (which purchased the channel from News Corp.),” says Arad.”It was just killing me.”

Prior to going bankrupt in 1998, Marvel sold off many rights to New World Animation (now Fox) and to Disney, which have broadcast and video rights to TV skeins like “X-Men,” “Spider-Man,” “Fantastic 4,” “Iron Man” and “Hulk.”

Marvel also recently stopped biting the hand that feeds it such amazing licensing opportunities: On June 1, it settled its long-standing litigation with Sony Pictures Entertainment over the residuals from the original “Spider-Man” film, an ugly suit that darkened the release of the upcoming Spidey sequel.

It was hardly the first lawsuit Marvel became enmeshed in. Company is also in legal tussles with comicbook retailers, with Tribune Entertainment and in a contract dispute with Spider-Man creator Stan Lee.

But lawsuits aside, its webs of litigation haven’t hurt the company in Hollywood, thanks largely to its well-regarded creative ambassador Arad, who film execs say serves as a diplomatic counterbalance to the shrewd and aggressive vice-chairman, Ike Perlmutter.

At Fox, “Fantastic Four” is casting, with Tim Story (“Barbershop”) at the helm. The company is recruiting Chris Columbus (“Harry Potter”) to direct “Sub-mariner” at Universal; “Iron Man” is set up at New Line, while “Elektra” is in production at Fox/New Regency and “Deathlok” is out to directors at Paramount.

Moreover, Maisel — the architect of the Lions Gate DVD pact — points out that by June 16, Marvel will have totally retired its debt (roughly $150 million) and is now exploring ways of bringing additional pic financing to the table.

“The more you bring to the table,” says Maisel, “the better gross participation you get.”

He could just as easily have said, “the more movies you get made.” If Maisel is successful in raising outside financing, that would mean Marvel is poised to more fully participate in the success of “unencumbered” major characters (those that haven’t yet been set up at studios) like “Captain America” “The Avengers” and “Thor” — and of course, reap the licensing windfall again.

And if Maisel isn’t successful raising outside dough? The future still doesn’t look particularly dour: Even when Marvel’s movie slate is flabby, the toys and T-shirts are still, well, Hulks.

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