31st of August, there is a big announcement in the media and entertainment world &quot;Disney acquires Marvel for approximately $4bn&quot;. Marvel is known for its vast collection of characters such as Spider-Man, Iron Man, The Incredible Hulk, Captain America, Thor, The Avengers, Ghost Rider, The Fantastic Four, X-Men, Blade, Daredevil... The financial market is not excited and considering the deal as expensive, the price including a 29 percent premium over Marvel's closing price. Disney share dropped by 3% the day the announcement is done. The investors might be worry by the fact Many Marvel's best-known characters as Spider-man, X-Men, Hulk, Fantastic Four already have contractual obligations to Disney's competitors : Warner, Sony, and News corp. It is very unlikely to see a Pixar movie (subsidiary of Disney) with Spider-Man, as this character is locked-up in perpetuity wil Sony Pictures.
Over the years Disney moved from a creator of popular family characters to the world's largest media and entertainment conglomerate. “ To build on company's brand equity among very young children and carry that through their lifetimes by way of theme parks, movies, television and multi-media outlets” this quote is from Eric Bradlow, Professor of Marketing at Wharton. Diversification started as early in 1932 by the creation of the Mickey Mouse Club, for selling more Disney products. They learned well in advance to how to leverage characters across their platforms. Today they are present on 5 business segments : media network, parks & resorts, studio entertainment, consumer products, interactive media (internet, mobile device, video games). Media network and parks & resorts generate more than 60% of the 2008 revenue of $38bn. On the last years profits and revenues are stable. In Q3 2009 every business segments shows a decline.
Since its creation Disney is family-friendly and its primarily targets are young and teenage girls. The gender divide is a long time problem for Disney. In 1990s Disney recognized the problem and launched boys-friendly products. The company started by producing several movies, in association with Pixar (bought in 2006 after 15 years of cooperation) : 1995 &quot;Toy Story&quot;, 2004 &quot;The Incredibles&quot;, 2006 &quot;Cars&quot;, 2007 &quot;Pirates of the Caribbean&quot; With &quot;Cars&quot; Disney realized that this segment can be a gold mine, particularly with sales of action figures and video games. Royalties represent 5 to 15% of toys price. In 2009 launch of a cable channel aimed at boys and their fathers, XD Channel. Ironically Marvel comics represent already 20 hours of program. “ We realized that a true headquarters for boys has been missing from the marketplace” said Anne Sweeney, co-chairwoman of Disney’s Media Networks division. However Disney remains weak on the segment teenage males.
The boys market is a juicy but difficult market. Boys from 6 to 14 are spending worldwide $50 billion annually. Boys have a different consumer behaviour than girls! Girls market for toys, books, videos is at least twice the size of boys market. Boys spend more time playing video games and sports than girls. They are easily distracted and much harder to reach. They don't respond as much as girls to products based on a single movie, even for Hulk or Harry Potter, unfortunately for Disney. The best ways to capture their attention are : TV shows, movies and magazines. There is a growing competition in offering boys dedicated cable channels : Disney XD channel, FUELTV (by News Corp.), Cartoon Network (by Time Warner) A good summary of boy's behavior &quot;Pretty simple animals – let's build things up, tear things down, fight and race and play sport&quot; by Andrew P. Mooney, former chief marketing officer of Nike, hired by Disney in 2000.
Marvel has been created some 70 years ago. It is one of the two US comic books icons. Marvel owns 40% of this business. DC Comic, its eternal rival has 32%. DC Comic is Superman, Batman, nearly all well known characters not owned by Marvel. It is important to note that DC Comic is a subsidiary of Warner Corp., a direct competitor of Disney. Today Marvel through licensing is incredibly profitable, each of its employee generating roughly $1 million revenue a year. Today the comic books business represents only 20% of Marvel revenue, the rest is licensing : movies and toys. The total portfolio of characters is 5'000 and only a few are currently used.
If we segment both Disney and Marvel's customers on demographic criterias, the complementary between the two companies is evident. Marvel's core segments are clearly male kids, male teenagers and male young adults. Disney despite its efforts to cover the all life cycle from toddlers to adults, its products don't appeal much to male teenagers and young male adults. Maybe they don't recognize themselves into their parents values. In term of segmentation, the acquisition of Marvel by Disney makes a lot of sense. It will make of Disney the one-stop shopping place, covering nearly the all life cycle.
One of the strength of Disney is the ability to the fully control all channels distributing its characters. Therefore it can exploit Marvel characters across all its universe. The financial market might be too focused on the most known characters, Disney has the power to make blockbuster hit from less popular characters. Disney should start producing hours of cartoons with less know characters. It would create extra content for XD-Channel and could be sold to another channels. As soon these characters are popular enough, Disney might start selling video games and toys related to them. New attractions based on these new characters might be also created on theme parks. Eventually these characters could end up into a blockbuster movie. And ultimately they would be recycled into video. The leverage is real, Disney can multiply a relative small investment into $100s of millions of cumulated revenue, thanks to its channels.
Despite huge resources and artistic talent on board it would be nearly impossible for Disney to replicate quickly Marvel or DC Comics universe. That's why Disney wanting to enter into the comic business, has to buy Marvel or DC Comics. First, their universes are opposed. Marvel is dark, rough, virile, even macho, when Disney is synonym of family and fairly-tale. That's probably a reason why Disney keeps Pixar's brand for animation movies, more focused on older kids and parents. Second, credibility. Before appearing on screen Marvel's characters exist from several years on ink and paper. The today young males know them from their childhood, they have grown up with them. Disney tried few years ago to enter into the comic business but quick stepped back, realizing the existing barriers.
Disney is fully aware of the culture difference of the two companies and will undoubtedly repeat the same strategy they had with Pixar : a hands-off approach. Marvel will keep a large autonomy and will not move to California, headquarter of Disney. It is not in Disney's interest to lose Marvel's talents and to kill its unique creative spirit.
You can note that the living legend Stan Lee, the “man” who created the most famous comic characters in 1960s is enthusiastic about the deal Disney-Marvel. He is not only a artistic genius, he has also some marketing skills. I reckon the financial market missed entirely the long-term thinking of Disney... The Institute of Media and Entertainment provides an excellent summary to conclude.
Marketing: why Disney buys Marvel
Disney acquires Marvel When Spider-man is needed to capture the elusive boys market August 2009 News of the week – Marketing Executive MBA – HEC Lausanne 2009-2010 Michael Eich [email_address] GNU General Public Lice Distributed under the GNU General Public License
Disney acquieres Marvel for $4bn <ul><li>31 st August 2009 : The Walt Disney Company announces it wil acquire Marvel Entertainment Inc. in a stock and cash transaction, for appro. $4bn </li></ul><ul><li>Marvel : US entertainment company </li></ul><ul><ul><li>5'000 characters : Spider-man, Hulk, X-Men, Fantastic Four, Thor </li></ul></ul><ul><li>Most-known characters are locked-up by media rivals </li></ul><ul><ul><li>Existing licensing and distribution deals remains where they are </li></ul></ul><ul><li>"Expensive deal" for the financial market </li></ul>
The Walt Disney Company <ul><li>World's largest media and entertainment conglomerate </li></ul><ul><li>Strategy : “To build on company's brand equity among very young children and carry that through their lifetimes by way of theme parks, movies, television and multi-media outlets” </li></ul><ul><li>Historical development by diversification </li></ul>$38bn revenue 2008 split by business segments Disney Factbook 2008 Eric Bradlow, Wharton Marketing professor
Disney's first move towards boys <ul><li>Traditionally weak presence on boys market </li></ul><ul><li>In 1990s recognition of gender divide problem </li></ul><ul><li>Lauch of boys-friendly products </li></ul><ul><ul><li>Movies : 1995 "Toy Story", 2004 "The Incredibles", 2006 "Cars", 2007 "Pirates of the Caribbean" </li></ul></ul><ul><ul><li>Cable channel : 2009 "XD Channel" </li></ul></ul><ul><li>“ We realized that a true headquarters for boys has been missing from the marketplace” co-chairwoman of Disney’s Media Networks division 2009 </li></ul><ul><li>Disney remains weak on the segment teenage males </li></ul>
Boys market <ul><li>Juciy but elusive market </li></ul><ul><li>$50bn spent annually by 6-14 old boys * </li></ul><ul><li>Different consumer behaviour than girls </li></ul><ul><ul><li>Harder to reach </li></ul></ul><ul><ul><li>Spend more time playing video games and sports than girls </li></ul></ul><ul><ul><li>Boys don't respond as much as girls to products based on a single movie </li></ul></ul><ul><li>Development of dedicated medias : cable channels and magazines </li></ul>* The New York Times
Marvel Entertainment Ronald Perelmann, former CEO of Marvel <ul><li>225 employees </li></ul><ul><li>Revenue 2008 $205 mio </li></ul><ul><li>Created in 1933 </li></ul><ul><li>5000 characters </li></ul>“ A mini Disney in term of intellectual property” <ul><li>Leader of US comic books </li></ul><ul><li>Licensing = 80% of revenue </li></ul>
Marvel : the missing pieces Toddlers Kids Teenagers Young adults Male Female Disney segments Marvel segments Segmentation based on family life cycle
Leverage characters across channels Video Comics Cartoons Merchandising * Movies Computers games Parks & ressorts XD Channel * not fully managed by Disney
When you can not do it, buy it <ul><li>Disney has huge resources and artistic power but cannot replicate Marvel's universe </li></ul><ul><li>Universe too different </li></ul><ul><ul><li>Marvel : dark, rough, macho </li></ul></ul><ul><ul><li>Disney : nice, fairly-tale, family </li></ul></ul><ul><li>Credibility takes time </li></ul><ul><ul><li>Most Marvel characters : over 10 years of history </li></ul></ul><ul><ul><li>Born on ink and paper first, then appeared on screen </li></ul></ul>
<ul><li>A merger : potential risk of culture clash </li></ul><ul><li>Disney : keep-off approach </li></ul><ul><ul><li>Marvel will stay in New-York and will not move to California, Disney's place </li></ul></ul><ul><ul><li>Marvel will have a large autonomy </li></ul></ul><ul><ul><li>Did the same with Pixar </li></ul></ul><ul><li>“ Marvel's culture will be safe in Disney's hands” </li></ul>How to keep Marvel spirit? John Lasseter, Chief Creative at Pixar
Conclusion <ul><li>“ Nobody can produce and market franchises better than Disney, and nobody has the extensive library of characters that would make great franchises that Marvel has” </li></ul><ul><li>“ Disney is thinking here of long-term, not short-term benefits. This move helps its build an impressive arsenal of content that can be monetized across the globe, in multiple technology and entertainment platforms, whether now or in the future” </li></ul>Stan Lee, Marvel's Chairman Emeritus Institute of Media and Entertainment