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May 21 2012

'The Avengers' makes Marvel a "good deal" for Disney, not a great one. The article talks about what The Avengers will change for Disney, and the estimated profits it will make them.

Two, well actually three, things stood out in this polemic.

1) He expects 2b in box office. That's higher than I expected
2) He expects 1.3b in video sales. That's unexpectedly huge.
3) He postulates 558m in profit participation. Huh? Who?
Total disagree with that analyst's opinion. If Disney had only purchased Marvel Studios, then his argument might hold water, but that isn't the case. Disney will get a whole lot more out of Marvel than just a few summer blockbusters. I'm just waiting for the inevitable Marvel theme park.

[ edited by WindTheFrog on 2012-05-21 16:43 ]
WindTheFrog, I can't imagine that the Marvel publishing business has anything but razor thin margins. Dead tree publishing is not at all lucrative and digital hasn't really taken off yet.

That being said this analysts estimate for TV seems very low. I'd think it would be double that after pay cable, basic cable, network and international network sales and his consumer product revenue stream seems crazy low too. I'd add at least 50% to that number.

There is probably a laundry list of participants on a mega production like this. Every producer, production company, agency, actor and probably the VFX houses have some sort of profit participation deal that encompasses ALL revenue streams including TV rights, Home Video, merchandising etc. Something over $500m seems totally reasonable since we already have been led to believe that RDJ is getting 10% of that by himself.
Reads like a dialogue between Hadley and Sitterson.
Considering the extremely low rates of return available on other assets (particularly cash) in the current economy, Marvel was a brilliant buy. Everything is relative.
IrrationaliTV, Marvel Comics itself isn't making a huge amount of money but toys and various other merchandising does bring in a lot.

As for a Marvel theme park, Disney has to wait for Marvel's deal with Universal Theme Parks to expire (not sure how many years it will be) before they can start moving Marvel characters to Disney theme parks.
You're right Matt_Fabb, my understanding was that the sole reason Disney bought Marvel was for the merchandising opportunities. Disney has/had great homegrown franchises for babies/toddlers and girls but didn't have killer properties with boys. So they bought Pixar and then Marvel. The comics and movies simply drive (are advertising) the true moneymaker in consumer products. As far as Disney is concerned the Avengers is one big commercial for the toys on the shelves of Wal-Mart come holiday season. And if they manage to make their money there while giving us adults (and kids) a quality comic/film product then more power to them.
As of 2007, Marvel Comics (the comics-only arm of Marvel Entertainment Group) had 135% return. Their operating budget was ~56 million with a return of ~126 million. Definitely not paper thin margins.
QingTing, Link? Those numbers with that terminology is foreign to me. If they had operating revenue of $56m and profit of $126m then they would have a 226% return but that is impossible. In order to figure out return or profit or operating income you need revenue-expenses=profit. I can't get there with the numbers you provided.

I found a site that gave me 2008 financials for the consolidated Marvel. Revenue of $676m and a net income of $140m for a 30% margin. Respectable and much higher than I thought it would be. Haven't found the comics only portion yet.

[ edited by IrrationaliTV on 2012-05-22 00:27 ]
Sorry, I meant 135% profit, not return. I may've misunderstood "operating budget" as how much money they spent in total? Anyway, I'll try to dig up the report that I got my figures from.

My data is from the table at the top of p94.
Ok. Finance lesson. :) First there is no p94 at that link but the relevant page is F-5 and is titled "Consolidated Statements of Net Income."

The important lines there are "Net Sales" (Revenue) and "Net Income" (Profit). So in 2007 Marvel had revenue of $485.8m and profits of $139.8m so their profit margin is 29% (profits/revenue=margin %).

If you look at pg F-37 it breaks out publishing on the most rudimentary level and list "Net Sales" (revenue) as $125.7m and "net Income" (profit before overhead and taxes and lots of other stuff) as $53.5m which is a profit margin of 43% but doesn't really have all the expenses included so it's good for comparison to the other division purposes only. Licensing has a 72% margin and Toys has a 63% margin in the same chart.

I could geek out about reading corporate financial statements all day but this is probably not as fun for others as it is for me. :)

Needless to say there is no 135% return anywhere in there and it really isn't possible for a business like Marvel was.
When this article talks about how much money the movies have to make before Disney breaks even, does the author include the fact that Disney would still own Marvel after "break even" (and could theoretically sell it at a later date for at least some fraction of the initial purchase price)?
It was on the 94th page of the pdf, to argue that it doesn't have a 94th page just because they labelled it some other way is like the guy at starbucks telling me they don't have a medium coffee. If I want to tell my pdf reader to go to the page, I type "94" & medium is the one in the middle.

Sorry that I misunderstood the terminology. I believed the operating cost to be what they spent and the revenue to be what they earned, with revenue - expenditure = profit & profit / expenditure = % profit, like if I spent 10 on something and make 100, my profit is 90, which is 900%
QingTing, I was reading your link as a web page so I could only see the actual labeled page numbers in the document. ANd % profit always uses profit as a % of revenue never as a % of expense. The other is ROI or return on investment which isn't applicable in an ongoing business. Disney may be looking for an ROI on their purchase of Marvel but Marvel's ongoing publishing profit is never looked at that way. Not in any biz that I know of anyway.

OneTev, Disney will never sell Marvel because the two companies are worth more as one than they would be separately. Disney's licensing and merchandising machine can exploit (not in a bad way) Marvel's properties better and more efficiently than they ever could on their own.
Like I said. I misunderstood the terminology.
Sorry. Trying to be clear and thorough for other peoples' benefit.
No worries.

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