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September 1, 2009


Disney to Acquire Marvel Entertainment

image
from Amazing Spider-Man Annual #5 via the prominent comics retailer Joe Field, who suggested I borrow it. Thanks, Joe. His analysis is through the link in the picture.

*****

That's a hell of a thing to wake up to on a Monday morning.

My first reaction ten seconds after reading the first article is that a lot of money is going to exchange hands and the major Marvel stockholders just went from making Richie Rich's allowance to Uncle Scrooge's end of year bonus.

My second reaction is that for Disney stockholders to receive the same, this deal is going to have to work over at least a moderate period of time.

My third reaction is that the symbolism of everything they hold dear in terms of childhood-resonant stuff that has defined their lives is going to make many old-timey comics/Disney fans' brains explode.

My fourth is wondering if this is a gag because I'm really, really tired this morning. (It's not.)

My fifth is to try and recall and mostly fail in terms of how things worked out in similar deals in the past, like with the muppets -- I think most of their deals have been beneficial, but certainly they've made more money with something like the Pixar people than the Studio Ghibli people, so there has to be some sort of hierarchy and this deal is probably different anyway.

My sixth is assuming publishing remains its own man after the move from penthouse to theme park, but the fact I'm even thinking out loud about that is kind of scary -- something more likely than Disney stepping anywhere near the comics side of things is that there will be an effect in the book business, because Disney has to have better bookstore reach that Marvel's famous T-Rex style attempts to grab onto a chunk of that business in a way that matches their comics market dominance. It's fair to ask whether this will really change all that much in the comics market, as I think the answer is "maybe" and then a lot of talk about structural issues and general initiatives.

My seventh is that this basically provides a shot in the arm to Disney's film-making efforts outside of Pixar, while Marvel gets a better international framework for marketing and distributing licensed work. They would also benefit from a steady television platform with Disney's TV holdings being what they are, something Marvel hasn't really enjoyed yet.

My eighth is wondering if the pro-Marvel people at Motley Fool, so many Stevie Janowskis to Marvel's Kenny Powers, might have physically exploded (actually not; they regret losing Marvel's huge upside stand-alone stock).

My ninth is wow.

*****

The Conference Call: The Walt Disney Company's Agreement to Acquire Marvel Entertainment

I'm going to try and blog this through a provided special audio player that popped up as I randomly clicked on buttons in the initial press feature like a crazy person, although I'm not always sure how this kind of stuff works. The Kitaro-like music before the show begins is making me all Garfield and whatnot this still-early morning.

Wait, now it's turned into generic TV hosting music. I'm expecting Lorne Greene's voice. Or Roy Disney. Or The Watcher. No, it was a lady's. She's thanking me for my patience. She's the operator.

* 10:15 ET
Okay, we're definitely a minute or two past the expected start. My computer clock could be wrong, too. I just hope it eventually comes on. Man, the music finished. That's creepy. Wait for it... nope, new music. Do I have to type in a code or something? I'm confused.

* 10:20 ET
Okay, now it starts. We're being welcomed by the same voice in a little speech that seems geared towards the people that have called in -- mostly investor-type company representatives.

We're thanked by a Mr. Lowell Singer?? [that's it -- he's their investor relations guy] for joining him on short notice.

The news is an hour old as of right now. Bob Iger is there. Marvel people are in New York. Tom something, the CFO [Tom Staggs]. Marvel's board chairman [Morton Handel], cfo [Staggs] and lead counsel [John Turitzin, maybe?] are all there. I'll have to fill in the names later.

Bob Iger speaks first. He describes it as a stock and cash transaction to be completed by the end of the calendar year. He says it will help Disney increase its international profile and provide cross-platform opportunities to these characters. He now praises the brand-building effort. He cites Iron Man, Spider-Man and X-Men in that order -- and then cites Iron Man again as an achievement because it was not a well-known property.

He implies that they're even more valuable because of all the choices out there, as if they're one of the better prizes remaining.

He cites Disney's reach.

He compares this to the Pixar acquisition. The three basic goals apply. 1) Advance our overall revenue-generating strategy. 2) Expand Business reach. 3) Increase our profit to shareholders.

* 10:25 ET

Marvel chairman Morton Handel. I should probably know this name without looking it up.

Ha! He said he was with Bob and Tom. This is only funny if you grew up near Indianapolis, although I guess they're syndicated now.

Handel talks about their brand-building efforts, and how they're modeled on Disney's (which is true in a spiritual sense, anyway), and how Disney leads the way in terms of a company taking the next step.

Another speaker -- one of the Disney guys. He talks about Marvel in terms of assessing its value, very broad language. Synergy points: licensing sales and marketing infrastructure, particularly internationally. Third-party agreements were examined, display Marvel's value, and will be brought in where they will then be reconsidered.

Talks about the library of characters. Many not well known.

Marvel shareholders will get $30 in cash and a certain number of shares according to last Friday's close, $50 per share in value for $4 billion total. He announces that Disney will repurchase shares to get the value back up. He then strings together a bunch of broad financial terms that makes part of my brain die. It doesn't sound like a bad deal, though, and certainly it's Christmas for the major Marvel stockholders.

* 10:30 ET

The operator is going to Q&A.

It's a financial question in two parts, and I can barely make out the speaker's voice. And I'm in no way going to be able to track with Disney/Marvel executive is speaking -- sorry about that.

One of the Disney executive answers says it's a deal not driven by the financial benefits in terms of stock or those kinds of things. They anticipate a straight-forward accounting process. He cites synergies over time and an enhanced growth rate.

DVD Market -- they're encouraged by the trends they're seeing, although that market is changing beyond the general world economic changes. No matter those changes, people are interested in high-quality product, and this tends to mirror US box office. Part of their analysis was concerns of this marketplace, but the attraction of the brand plays a part. He says, "they're not bulletproof, they're not immune from the changes we're seeing," but he thinks they may function as a hedge against this.

Question: Does this deal have any impact on deals with other studios?

Answer: Deals that Marvel have been put in place will generally stay in effect -- he's complimentary of those deals.

Question: Specific examples of revenue-driven synergies? Why is 2012 the first positive year? Is it because of release schedules for Iron Man and Spider-Man movies?

Answer: Cites that Disney will build Marvel over time -- what's gone on before will continue and be enhanced. The timing of film releases has an effect on Marvel's businesses, and that's how they set their expectations. He can't quantify the synergies, but the marriage of Marvel content and Disney infrastructure should be a fruitful wedding.

Question: What about the rest of the library?

Answer: They'll dive into the library now.

Answer: Praise for Marvel's handling of entire library. Again, they're delighted by Iron Man's hit status. They don't pretend to be smarter than Marvel when it comes to this. Part of attraction of deal is the current decision-making framework for these characters, and they will rely on them to continue.

* 10:35 ET

Continued Answers: Notes that with licensing arrangements, they can continue to be attractive, but working within a one-company network removes a lot of friction and they see Marvel mirroring Pixar in this regard. "Nothing better than being one."

Question: Can you give a bit more specifically where you see the opportunities? Video games? Television? Also, what about the International side of this deal appeals?

Answer: Disney right now is running 20 hours a week of Marvel-related programming on one of its cable channels directed towards boy. Disney XD? They see this as an aid for boosting that channel internationally. That kind of reach gives them the ability to expose these characters all over the world, which Marvel could only do before in partnership with third parties. Programming serves watchers, but also serves Marvel.

On the videogame front, they like their licensing agreements -- while Disney is moving in a vertically integrated direction, they don't rule out a blend including licensed games. As these deals get near expiration, they can be re-evaluated.

* 10:40 ET

A little less than 50 percent of its licensing revenue comes from international; Disney is over 50 percent. So that's an opportunity over time.

Question: An obvious synergy area is distribution -- can you confirm self-distribution? How long would that take? Will Marvel's movies go 3-D like Disney's?

Answer: The 3-D is up to the movie producers -- again, Iron Man is cited. Regarding Marvel's current deal with Paramount -- Disney will respect that as the right thing to do and the right thing legally. Over time, it will probably be more attractive for Disney to be the sole distributor -- it reduces costs, and they'll be more aligned with Marvel even beyond the financial motive that Paramount has.

Question: Pixar and Marvel... cross-pollination?

Answer: John Lasseter met with Marvel executives fairly recently. They got pretty excited pretty fast -- they told them to slow down. There's definitely opportunity -- probably not co-branding, but talents and enthusiasms working together on all the different opportunities. Put a bunch of people like that in a room, and sparks will fly.

* 10:45 ET

Question: Bad Bug's Life/Spider-Man joke. Consumer products question. Do you think Disney's leverage with retail distributors will help Marvel-related products? Second question -- movies that aren't in production yet, which management teams will produce those films?

Answer: That kind of synergy is one of those things that people are excited about. On the studio front, they believe in their studio people but also think that Marvel knows their stuff. In their research, they're continuing to be impressed. Creative and business perspective. "Smartly, diligently, and carefully." If it ain't broke... good group of people.

Another person steps in: They don't have direct relationship in certain markets... Disney sure has that infrastructure in place. There's an opportunity to more broadly expose and develop these companies.

Question: Which companies come to mind?

Answer: They have relationships with some but not all of them -- they're at a lesser point than Disney in this regard.

Question: Share repurchase activity -- have you come out of the market and oh my god I have no idea what he's talking about. He asks to be walked through 2010. When do Sony, Fox and Paramount agreements retire?

* 10:50 ET

Answer: On amortization, generally speaking during an acquisition that will be spread out amongst the various efforts? As the conversations became more serious, they paused for some reason. On the current arrangements, they don't want to go into detail -- 1) the deal hasn't closed yet, 2) they expect to keep many deals alive past then, 3) paramount deal is five more pictures approximately.

Question: First, was there a competing bid? Second, will Marvel Films operate separately?

Answer: The deal came about because of mutual admiration. Bob Iger reached out to Ike Perlmutter a few months ago. They see each other as complimentary to what the other does. As to the second, they believe in the creative team and they don't see upsetting that apple cart.

Answer: They haven't looked at the real estate questions, but they don't anticipate moving the studio from Manhattan Beach.

Question: In Disney's fiscal 2010, they'll only have 1Q of Iron Man 2, and then they won't have a ton of profit from Thor and Captain America because of release dates.

Answer: They've counted on that.

Question: Are there benefits for Disney in the comic book marketplace?

Answer: We have a robust children's publishing business. They have a successful comic book business. They will look to broaden both companies' presence in publishing. There are possibilities there.

* 10:55 ET

Question: Praise for secrecy. Does it mark a shift away from Disney-branded deals (for Bob)? Second, there are differences from Pixar in terms of public valuation -- how do you figure the differences?

Answer (Bob): Focusing a lot on Disney because returns have been compelling vs. non-Disney branded business. But this has made them appreciate brands in general in increasingly competitive world marketplace. The Marvel brand and its characters are somewhat like the Disney brand and its characters. Not only is there growth for Marvel as Marvel, but Disney opportunities for Marvel -- the parks, the TV channels. The goal is not to rebrand Marvel as Marvel/Disney, but to grow it as Marvel.

Answer (Tom): Sometimes you can't avoid paying premium prices. They're in a strong position -- they didn't have to do this deal and neither did we. But it was beneficial. Premium company, premium assets = a full and fair price. They're confident that the benefits will create value for shareholders. Win/win.

Question: More value in relation to peak valuations or overall?

Answer: He wouldn't try to compare one deal to another like that. Pixar he thought was worth more as part of Disney and made Disney more valueable, so it will be with Marvel.

* 11:00 ET

Final Question: First, the film financing deal is collateralized by intellectual property -- how has that been impacted? Second, there's probably no company that Disney couldn't enhance -- why Marvel? What drove this particular deal? When did this become an imperative and what need does it fulfill.

Answer: It never became an imperative. We don't have any problematic/strategic holes. Nothing suggested a must-do. It's a great opportunity for both companies. A company we admire, we saw growing, that we were impressed with from a people perspective. The time is right and you move with alacrity so that's what we did. A continued desire to look for great stuff and great people and both old and new distribution forms. It's just awesome all around! Global growth is better served by bringing Marvel into the fold. Executive talent. Creative talent. Check.

Answer: As Bob mentioned, they'll respect the terms of the agreement. They won't answer questions about that deal's specifics. They reviewed it; it wasn't a big factor in their decision-making. That wasn't a concern for itself.

Thanks again, some odd legal language I don't understand, and then they all sing a Marvel Marching Society Song/Mickey Mouse Club theme mash-up. Okay, that part didn't happen.

*****

My Instant Analysis Of The Call And General Thoughts Around Noon ET

I thought there were a few interesting things here. Boy, Disney sure liked Iron Man. We now live in a world where the lingering echoes of Robert Downey's charm can drive billion-dollar entertainment deals.

More generally, it's clear that they see this as a marriage of a strong brand and pretty strong properties with licensing and platform opportunities, and I see it that way, too. Who wouldn't? I think given the compelling example that Disney folks used that Marvel content could be a boon to its boys-focused cable television network, both domestically and internationally, I'm not sure I believe them when they say that Marvel doesn't really fulfill a need within the larger Disney infrastructure for a certain kind of brand. Why not say it fills a boy need? I don't know. That just doesn't seem logical to me, although I can imagine Disney never admits needing anything, even a little bit.

The boy need thing is going to be the first shared point of analysis coming out of this thing, I bet.

It's hard not to think of Disney's attempts to resuscitate the muppets in the light of this deal, especially when they talk about how happy they are to be working with people that know their own brand and have done a good job of managing it. I get the sense that the muppet purchase did not come with an Iron Man-style recent success they could point to. It's also worth looking at how many areas Disney has explored with the muppets in terms of the reach they have that Marvel simply doesn't.

The publishing stuff is only a little ominous, although the general notion that Disney isn't going to second-guess Marvel where they have expertise would indicate that the comics side of things stands a good chance of being left alone -- except perhaps in terms of a wider platform for book distribution. Disney's big book arms moved to HarperCollins from Hachette in 2007 as I recall; Marvel is I believe currently working with Diamond in the book market and people make fun of Marvel's book program a lot, even though there are isolated mega-successes.

Okay, the more I think about it, that's the comics industry question: Diamond.

Apropos of nothing, but it's that kind of morning: doesn't Disney seem like a pretty good long-term partner in developing Thor? Is Generation X going to walk their grandchildren into Asgard past an animatronic Heimdall on a decent-looking Rainbow Bridge? A Warriors Three cartoon show on one of the cable networks? I know the first impulse is to say business as usual, because it's going to be business as usual, but one wonders if there aren't some properties that potentially fare better with Disney's wider reach and number of platforms.

That said, I totally gaped just now on the phone when asked to think of a Marvel property that's not in active development that seems like a perfect Disney property. I'm not sure that's important -- which Pixar property is a perfect Disney property? -- but you'd think one would come to mind. Millie the Model?

In a historical sense, I'm reminded of Marvel's many other corporate owners, the attempts to make a mini-Disney of Marvel in the early to middle 1990s without doing movies first which in part drove the company's overreach and bankruptcy, and the fact that every entertainment company of Marvel's generation looked up to Disney as the model, so it's sort of like hearing about an unlikely romance from your high school days being consummated via marriage.

John Jackson Miller has history on the mind as well, and even includes one of those Perelman quotes about being a mini-Disney.

Also, you can pretty much find this call for yourself through this post's first link, and I encourage you to do so. This was more about wrapping my own head around the deal, although I'm grateful for your company!

*****

Linkarama
* Associated Press
* Disney's PR at their Investors Page
* MarketWatch
* Motley Fool
* New York Times
* Reuters
* Variety
* Wall Street Journal
 
posted 3:00 am PST | Permalink
 

 
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