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Super Heroes To the Rescue! By Ellen M. Heffes March/April 2003 (Financial Executives International) Super heroes are overturning losses and transforming Marvel into a powerhouse entertainment company that's delivering shareholder value. Generally, super heroes are seen as icons of truth and justice who demonstrate extraordinary powers fighting crime and evil. As such, they are admired by audiences worldwide. Marvel Enterprise Inc.'s characters have taken such heroism a step further by endearing themselves to still another constituency: shareholders. Staging a spectacular comeback, Marvel's roster of more than 4,700 action characters are turning the company's financial performance around.
Managed through a variety of carefully crafted contracts, retrofitted heroes -- some launched as comic book characters in the 1930s -- are leveraging 21st century multimedia platforms to lead the company's comeback after its 1996 bankruptcy filing. Last year, Marvel was the New York Stock Exchange's 18th top-performing stock -- having more than doubled from its $3.74 per share January open to its $8.98 per share December close.
Marvel's activities are reported in three segments: toys, licensing (which includes all of its studio results) and publishing. Marvel's business is basically managing its characters' careers by seeking opportunities for increasing consumer impressions through a variety of sources.
"We consider ourselves the talent agent for our characters, and we foster relationships with other major commercial players," says Kenneth West, executive vice president and CFO since May 2002. Indeed, movie relationships with players like Sony, Fox and Universal have sparked the turnaround, at a time when profits at many other entertainment giants are facing declines.
Begun in the late 1930s, Marvel became a successful comic book publisher. By the early '90s, it came under the control of financier Ronald Perelman (of Revlon fame), who acquired businesses in the then-thriving collectibles genre (baseball and other sports trading cards). An early '90's baseball strike helped drive the trading card market into a tailspin, and a then-debt-laden Marvel into bankruptcy. After a 1998 proxy battle pitted Perelman against noted investor Carl Ichan, another suitor, Isaac Perlmutter, acquired the company.
Out of bankruptcy just over three years now, Marvel has had some rough patches. At first, West says, it was a challenge getting companies to license the characters. He's focused on leveraging the intellectual assets of the brand, and claims, "We've signed 400-plus licenses for Marvel characters over the past two years."
The majority of the company's economic activity comes from licensing, followed by toys and publishing, which remains the bedrock of the business. "While most of the revenue comes from toys, the greatest amount of profit comes from licensing," says West.
The company doesn't provide revenue for individual characters, but West concedes Spider-Man is a "prominent and important brand." Last year's Spider-Man movie, released by Sony, earned a record-setting box office gross of $114.8 million for its May opening weekend, and generated gross worldwide ticket sales in excess of $800 million. The Spider-Man movie/comic book character is supported by a full line of top-selling licensed products -- toys, action figures and accessories, apparel and interactive entertainment. Marvel shares revenue -- and manages a slew of contractual arrangements -- for each category.
Like the company's super heroes, West is a man on a mission. He was hired last May with specific goals: one to foster better relations with investors, and second, to improve the balance sheet. At that time, he says, there was no investor relations and no analysts were tracking Marvel's stock, which was languishing.
"We found that as we met with analysts, none initially understood our business model." He set out to improve and expand financial disclosure, launching an IR section on the Web site, and plans to expand the Form 10-K disclosures "so readers will know exactly which segments are generating what."
As for fixing the balance sheet, West notes the company is making steady progress. It recently prepaid its three-year, $37 million bank note -- originated in December 2001 -- leaving its cash position in excess of $50 million. This step, he says, "reflects on the company's strong cash-generating activities and confidence in its future."
West believes Marvel's current upturn can be attributed to more readable and widely distributed comic books, licenses with top partners expanding market awareness of the brand and many of its characters, and the current Marvel movie onslaught -- with Daredevil, X-Men 2 and The Hulk coming to theatres in the next few months. Perhaps, with this resurgence, Spider-Man's silken safety net won't be needed -- and West will also be a hero.
Subscribe to Financial Executive! The flagship publication of Financial Executives International (FEI), this premier magazine provides senior financial executives with financial, business and management news, trends and strategies to help them work better, faster and smarter. For more information about FEI, visit www.fei.org.
Return to FEI's column
2003 Financial Executives International. Reprinted with permission.
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