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Marvel Entertainment Inc. presents on the company's current business model, lines of business, and opportunities for future growth. The core of Marvel is its intellectual property portfolio of characters. Currently, Marvel generates most of its revenue and high margins through licensing these characters. Management sees opportunities to expand internationally, through partnerships like Hasbro for toys and Marvel Studios for films, and by leveraging the online community. Marvel also has free cash flows that could be used to acquire other companies or pay dividends.
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- 1. Marvel Entertainment Inc. The Future of Entertainment Group B-9 Fang-Chi Chang, Manuel Pineros, Christina Radcliffe, Dov Rivkin, Itaru Shiraishi.
- 2. Marvel Entertainment Inc. Agenda 1. Background and current model 2. Lines of Business 3. Sustainability of current model and life cycle 4. Management challenges 5. Marvel’s brand equity 6. Hasbro and Marvel Studios deals 7. Free Cash Flows and options for growth 8. International expansion 9. Online community 10.Implications 11.Q&A
- 3. What is atthe core of Marvel? 1939 2006 Intellectual Property High Margins = & Low Risk Low Capital Licensing Expenditure
- 4. Marvel Entertainment Inc. 1.Background and current model 2. Lines of Business 3. Sustainability of current model and life cycle 4. Management challenges 5. Marvel’s brand equity 6. Hasbro and Marvel Studios deals 7. Free Cash Flows and options for growth 8. International expansion 9. Online community 10.Implications 11.Q&A
- 5. Performance Evaluation -Licensing 70.0% Size Largest and fastest growing division 63.1% 2005 (from 19.3% of total sales in 2003 to 60.0% 2004 59% in 2005) 50.0% 43.0% Margins 62% 40.0% 31.4% Competitors Time Warner (DC Comics), Walt 30.0% Disney, NBC Universal 20.0% 15.9%15.5% 10.7% 10.3%10.0% 10.0% Market ~9% share 0.0% Domestic International Spider-Man LLP Studios Consumer Consumer Strategy Best-in-class sole-partners Products Products Advantages Disadvantages Challenges •Low risk •Short-term deals •New technology •Robust business •Final prices are set by distributors •Better royalty schemes model •Legal issues between Marvel and (from flat to Equity •High margins partners Participation) •Focus on the core •Limited by the “mindshare” it is able to business develop in the consumers •Limited by the creativity of licensees
- 6. Performance Evaluation -Publishing Size Second largest in terms of revenue Customers - Male well educated teens 13-23 Market Share - Collectors 27% Competitors DC Comics 40% Key Success - Quality content Factors - Relationship with retailers Industry - Low barrier to entry - High power of retailers Marvel 33% DC Comics - High substitution Others - High switching costs Advantages Disadvantages Challenges •Customer loyalty •Narrow demographic •Channel management •Rich characters •Few “stars” •Readership expansion •Multiple versions •Internet exploitation •Creating new “stars” •Sustaining “stars” Source: DC Comics Website, Marvel Annual Report 2005
- 7. Performance Evaluation -Toys Global Toys & Games Size Smallest in terms of revenue Market Segmentation Customers - Children 4-12 9.8% - Collectors 64.7% Competitors - Mattel - Jakks Pacific Key Success - Quality design Factors - Successful movies 25.5% Industry -Intense rivalry Traditional Games software -Short lifecycles Games consoles Advantages Disadvantages Challenges •Appeal to younger •Licensee risk •Decrease volatility segment •Concentrated retailers •Licensee •Raise new •Influenced by movies management generation of fans Source: Datamonitor, Marvel Annual Report 2005
- 8. Marvel Entertainment Inc. 1.Background and current model 2. Lines of Business 3. Sustainability of current model and life cycle 4. Management challenges 5. Marvel’s brand equity 6. Hasbro and Marvel Studios deals 7. Free Cash Flows and options for growth 8. International expansion 9. Online community 10.Implications 11.Q&A
- 9. Can the currentmodel continue to deliver? After the turnaround, Marvel is 2006 is expected to be a rough financially healthy year, but the current pipeline is promising Analysts perceive that the current business model has potential and can continue to deliver, we agree
- 10. Where do Marvel’sbusinesses stand? Publishing & Traditional Toys Licensing
- 11. Marvel Entertainment Inc. 1.Background and current model 2. Lines of Business 3. Sustainability of current model and life cycle 4. Management challenges 5. Marvel’s brand equity 6. Hasbro and Marvel Studios deals 7. Free Cash Flows and options for growth 8. International expansion 9. Online community 10.Implications 11.Q&A
- 12. Management Challenges Globalization • New market opportunities • International presence • IP protection and management Challenges for Growth Growth and Strategic Alignment • Cultural traditions of comics • Acquisition opportunities • Identify vision clearly • New technologies • Build brand equity • Strengthen and balance character portfolio Product Portfolio • Mine character library • No new characters • International expansion • Dependence on superheroes • Few “cash cows” • Appeal to new markets • Segmentation
- 13. Marvel Entertainment Inc. 1.Background and current model 2. Lines of Business 3. Sustainability of current model and life cycle 4. Management challenges 5. Marvel’s brand equity 6. Hasbro and Marvel Studios deals 7. Free Cash Flows and options for growth 8. International expansion 9. Online community 10.Implications 11.Q&A
- 14. Marvel’s Brand Equity Company Vision Intellectual Property Company Entertainment Company • Focus on character branding • Focus on corporate branding • Concentrate on developing characters • Concentrate on developing brand • Low involvement in non-core value • High involvement/extension of value chain chain • Limited use of technology • Heavy use of technology A company must have a clear vision to position and brand itself for success
- 15. Building Brand Equity Growing brand equity Make Marvel a household name • Focus on developing creativity • Differentiate image • Develop associations with the brand MARVEL CHARACTER • Build a global brand Resonance Challenges Judgments Imagery CHARACTER • Brand Dilution • IP Management Performance Feelings • Competition MARVEL Salience Building Brand Equity Allows to Capitalize on IP for Future Revenues
- 16. Marvel Entertainment Inc. 1.Background and current model 2. Lines of Business 3. Sustainability of current model and life cycle 4. Management challenges 5. Marvel’s brand equity 6. Hasbro and Marvel Studios deals 7. Free Cash Flows and options for growth 8. International expansion 9. Online community 10.Implications 11.Q&A
- 17. Is Hasbro dealbeneficial for Marvel? Revenues coming from $205 million in royalty and service fee payments ($70 million, Spider-Man 3; $35 million, Spider-Man 4) Hasbro is a strong partner •Second largest toy maker in U.S. •U.S. is the largest toy market •Benefit from Hasbro’s knowledge •Could become just “one more” in about the U.S. market Hasbro’s portfolio •Focus on Marvel’s creativity and •Efforts may be limited to advisory skills theatrical releases • Focus on technologically advanced products • Develop toys & games with cross cultural appeal The deal is financially sound and allows to focus on core business
- 18. What potential doesMarvel Studios have? Film Facility allows to minimizes risk while venturing into a potentially profitable area Marvel Facility Backed Films (2008) 10 Titles (Captain America) •Script writing know-how •Lesser known superheroes •Develop in-house film expertise •Characters limited to superheroes •Marvel movies historically profitable •Alienating core followers Company Market Cap PER 45% 40% 35% 30% 25% 2004 Marvel 1,720.00 20.74 % 20% 2005 15% 10% Pixar 7,462.00 48.8 Pixar (Adj) 6,422.00 41.99 5% 0% ROE ROA ROE ROA ROE ROA ROE ROA Marvel Pixar Pixar Cash Adjusted Disney Disney 52,036.00 21.44 Note: ROE and ROA for Marvel and Disney are not adjusted with their cash positions In-house production can be profitable by building awareness of lesser- known characters
- 19. Marvel’s Spiderman potential Superman Spider-Man Superman II Spider-Man 2 Superman III Spider-Man 3 Superman 4 Men in Black Superman Returns Men in Black 2 Superman Returns Sequel X-Men Batman X2 Batman Returns X-Men 3: The Last Stand Batman Forever Batman & Robin Fantastic Four Batman Begins Fantastic Four 2 Batman Begins Sequel (1978-2006) (1986-2006) Worldwide Gross Budget Worldwide Gross Budget Total $2,845,830,804 $1,249,000,000 $4,618,248,551 $1,820,500,000 Average $177,864,425 $89,214,286 $307,883,237 $101,138,889 • Gross returns from movies for Marvel average over 60% • Spiderman can continue to deliver revenues
- 20. Marvel Entertainment Inc. 1.Background and current model 2. Lines of Business 3. Sustainability of current model and life cycle 4. Management challenges 5. Marvel’s brand equity 6. Hasbro and Marvel Studios deals 7. Free Cash Flows and options for growth 8. International expansion 9. Online community 10.Implications 11.Q&A
- 21. Options for growth Marvel’sperformance over the past 5 years •Divested non-core businesses •Improved and expanded licensing agreements •Strong characters continue to generate cashflows •Focusing on a model that requires low capital investment Estimated free cash flows of ~$300 Million in 2006-2007 How can Marvel use these cash flows to increase shareholder value? •Expanding the Marvel Universe •Acquiring other Comics (Entertainment) Company •Expanding into new lines of business (online community) •Expanding to other markets (e.g. Japan) •Further share buybacks or paying dividends
- 22. Moving towards introductorystage Consoles & Online Games Licensing Online communities Movies International Expansion Strategy
- 23. Marvel Entertainment Inc. 1.Background and current model 2. Lines of Business 3. Sustainability of current model and life cycle 4. Management challenges 5. Marvel’s brand equity 6. Hasbro and Marvel Studios deals 7. Free Cash Flows and options for growth 8. International expansion 9. Online community 10.Implications 11.Q&A
- 24. International Expansion Strategies Japanese Key Reasons: •Major footprint in the region Market •Relative low piracy level •High technology penetration: a test market for the US and Europe Key Facts(1): US$17 billion manga, anime and related video games Hello Kitty, Cinnamoroll US$14 billion character merchandise sales 75 anime broadcast/ week (2001) 748 million comic books printed (2002) 3.2 billion comic magazine print (2002) Possible Targets (market capitalization): Sanrio ($1,348MM) Takara-Tomy ($687MM) Bandai-Namco ($3,650MM) 3/2006 PER (estimate): 30.81 Financing option: Treasury stock Operational Income Breakdown (3/2007 estimate) Access and Gain following: • Character library • New demographic segments • Client relationship • Anime management know-how • Market knowledge Note: (1) JAPA http://www.ppp.am/ppp_shiryou_data.html
- 25. Successful superheroes acrossregions? USA China Inframan Europe India Agent 327 Adaptation is necessary to transfer popular culture figures such as comics http://www.internationalhero.co.uk/nonus.htm
- 26. Marvel Entertainment Inc. 1.Background and current model 2. Lines of Business 3. Sustainability of current model and life cycle 4. Management challenges 5. Marvel’s brand equity 6. Hasbro and Marvel Studios deals 7. Free Cash Flows and options for growth 8. International expansion 9. Online community 10.Implications 11.Q&A
- 27. How technology ischanging entertainment? “57% of American teenagers create contents on the Internet(1)” Capitalizing on Online Talents Marvel Online Platform TM (easy to use, create and socialize) Provide platform for participants Select to create Participants Evaluate Contact those characters, create the quality candidates with high stories and characters of characters for possible access rates, socialize and stories and stories contracts hits and traffic Note: (1) “Pew Internet and American Life project”, http://www.pewinternet.org/pdfs/PIP_Teens_Content_Creation.pdf
- 28. Capitalizing on technologicalchanges Marvel Online Platform TM (easy to use, create and socialize) •Bring in those creative minds and talents into Marvel Fee Revenues •Provide professional assistance to develop them Marvel Marvel Partners: Entertainment Studios e.g. Microsoft NPV of first five years $1,324,688 Publications Films Video games Increased shareholder value Note: (1) “Pew Internet and American Life project”, http://www.pewinternet.org/pdfs/PIP_Teens_Content_Creation.pdf
- 29. Marvel Entertainment Inc. 1.Background and current model 2. Lines of Business 3. Sustainability of current model and life cycle 4. Management challenges 5. Marvel’s brand equity 6. Hasbro and Marvel Studios deals 7. Free Cash Flows and options for growth 8. International expansion 9. Online community 10.Implications 11.Q&A
- 30. Implications Implications Risks Risk Mitigation Strategy Marvel Studios Potentially large •Unpredictable •Recruiting creative revenues and outcome of films talents profits •Venturing into •Building inexperienced field awareness for lesser-known characters Toy Business with •Eliminate risk •Dependence on •Monitor and Hasbro •Maximize profit Hasbro distribution advise on character through Hasbro's •Brand management wider retail network mismanagement
- 31. Implications Implications Risks Risk Mitigation Strategy Acquisition ・ International •Cultural fit ・ Respect the cultural expansion •Large financial commitment differences ・ New segments •Integration ・ New markets ・ Client relationships ・ Know-how Online ・ Tap into unlimited ・ Technological changes ・ Joint venture with a strong Community talents ・ Financial commitment technology partner ・ Additional revenue ・ Intellectual property rights ・ Retain content property with ・ Raising Marvel profile disclaimer
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- 34. Financial projection andFree Cash flows Income Statement 2003A 2004A 2005A 2006E 2007E Sales 348 513 391 341 460 Licensing 189 215 230 - - Publishing 73 86 92 - - Toys 85 213 68 - - Cost of Goods Sold 79 160 51 79 107 Depreciation, Depletion & Amortization 4 4 5 5 5 Selling, General & Admin Expenses 109 143 166 166 166 Total Operating Expenses 193 306 222 250 278 Other Income/Expense - Net 1 9 2 4 5 Equity in net income of joint venture 11 8 0 0 0 Operating Income 167 224 171 95 187 Interest income 2 3 4 3 3 Interest expense 19 20 4 16 16 Income before income tax and minority interest 150 207 171 82 175 Income tax (expense) benefit 1 (65) (63) (30) (64) Tax rate 31.24% 36.73% 36.73% 36.73% Minority interest in consolidated joint venture 0 (17) (5) (8) (10) Net income 152 125 103 44 100 Less: prefered stock dividends 1 0 0 0 0 Net income attributable to common stock 150 125 103 44 100 Free cash flow EBIT 171 95 187 Depreciation 5 5 5 Changes in Working capital 10 4 (9) Free cashflow 185 104 183 Source: Annual Report, CNNmoney.com, Yahoo Finance * COGS is calculated from the from the average sales ratio of previous three years **Depreciation, SGA, Other income, interest income and tax rate are kept at the same level from 2005 *** Interest income, Other income,
- 35. Online platform –estimated cash flow • Should be launched in the US home market • Revenue model – monthly subscription • Additional motives to subscribe: opportunity to interact with Marvel designers, potential to sell their characters to Marvel or even sign a contract • Possibility to raise price in the future (audience is not price sensitive) year 1 year 2 year 3 year 4 year 5 Annual growth rate 50% subscribers 15,000 22,500 33,750 50,625 75,938 fee/month $14.95 $14.95 $17.95 $17.95 $17.95 annual revenues $2,691,000 $4,036,500 $7,269,750 $10,904,625 $16,356,938 annual costs $500,000 $500,000 $500,000 $500,000 $500,000 annual cash flow ($18,000,000) $2,191,000 $3,536,500 $6,769,750 $10,404,625 $15,856,938 Break Even Discount rate 20% NPV $1,324,688 Intangible benefits: • Increased brand awareness • Potential for new talents • Access to new segment of customers • Potential revenue source from online advertisement • Learn consumer preferences
- 36. Sales Revenue USA (dollarsin millions) 2003 2004 2005 2003 2004 2005 Licensing 106.3 173.8 182 37% 45% 59% Publishing 61.3 72.8 77.3 Percentage 21% 19% 25% Toys 118.7 140.1 47.7 41% 36% 16% Total 286.3 386.7 307 100% 100% 100% Foreign Licensing 18.2 40.9 48.1 30% 32% 58% Publishing 11.9 13.2 15.1 19% 10% 18% Percentage Toys 31.2 72.7 20.3 51% 57% 24% Total 61.3 126.8 83.5 100% 100% 100% Total Licensing 124.5 214.7 230.1 36% 42% 59% Publishing 73.2 86 92.4 21% 17% 24% Percentage Toys 149.9 212.8 68 43% 41% 17% Total 347.6 513.5 390.5 100% 100% 100%
- 37. Percentage of salesrevenue from USA Licensing 2003 2004 2005 USA 85% 81% 79% Foreign 15% 19% 21% Publishing 2003 2004 2005 USA 84% 85% 84% Foreign 16% 15% 16% Toy 2003 2004 2005 USA 79% 66% 70% Foreign 21% 34% 30%
- 38. Operating Income Margins Licensing (dollars in millions) 2003 2004 2005 Net Sales 124.4 214.7 230.1 Operating Income 83.2 152.7 143.4 Operating Income Margins 67% 71% 62% Publishing (dollars in millions) 2003 2004 2005 Net Sales 73.3 86.0 92.4 Operating Income 25.5 37.3 36.3 Operating Income Margins 35% 43% 39% Toy (dollars in millions) 2003 2004 2005 Net Sales 149.9 212.8 68.0 Operating Income 77.9 58.1 15.5 Operating Income Margins 52% 27% 23%
- 39. Marvel’s Movies andTV Pipeline Feature Films (2006) 3 Titles (X-Men 3,Ghost Rider, The Punisher 2) + Films in Development (2007) 10 (Spider Man 3, Fantastic Four 2) + Marvel Facility Backed Films (2008) 10 Titles (Captain America) + Direct-to-Video 4 releases starting in 2006 (Ultimate Avengers) Animated TV 1 release (Fantastic Four) Live Action TV 3 releases (Alter Ego, Blade) + Video Games 8 releases over 2005-06 (Activision deal through 2017)
- 40. Financials - ROA & ROIC
- 41. Financials - ROA & ROIC Comics, Graphic Novel, & Magazine Publisher Other Non-top 20 , 4.81% Small Size (2% to .24%), 10.11% IDW Publishing, 2.02% Tokyopop, 2.86% Marvel Comics, 39.56% Image Comics, 3.36% Dark Horse Comics, 4.61% DC Comics, 32.67% Source: http://www.diamondcomics.com/market_share.html
- 42. Financials - ROA & Operating Margins MARVEL - ROA (1996 - 2005) 60 40 20 0 -20 -40 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Return On Assets 11.01 -16.86 -17.54 -1.84 -10.51 4.42 9.72 31.69 18.27 15.46 Operating Profit Margin 12.28 -32.68 -1.12 0.08 -15.49 0.63 21.86 44.57 41.14 46.48 Source: Thomson
- 43. Financials - OperatingIncome per LOB Operating Income per Business Units 100% 80% 60% 40% 20% 0% -20% -40% 2001 2002 2003 2004 2005 Licensing 5,200 69,400 139,400 152,700 143,400 Toys -5,800 8,900 77,905 58,100 15,500 Publishing 14,500 19,600 25,400 37,300 36,300
- 44. Financials - Revenues by Region Licensing Revenues by Geographic Region Publishing Toys 200 MIllions 180 160 140 120 100 80 60 40 20 0 US Foreign US Foreign US Foreign 2003 2004 2005
- 45. Financials - Licensing Sales Licensing Sales by Division 250 230.1 214.7 200 150 145.3 92.4 100 2004 67.5 2005 33.3 36.5 50 24.7 21.5 23.6 0 Domestic International Spider Man Studios Total Consumer Consumer L.P. Products Products
- 46. Financials - Licensing by Category Licensing Sales by Category 70 60 50 40 2004 30 2005 20 10 0 Apparel and Entertainment Toy Royalties Other (Domestics, Accessories food and other)
- 47. Movies: Spider-man vs.Batman 1st Worldwide Released Movie Name Weekend US Gross Gross Budget 5/3/2002 Spider-Man $114,844,116 $403,706,375 $821,700,000 $139,000,000 6/30/2004 Spider-Man 2 $88,156,227 $373,524,485 $783,924,485 $200,000,000 5/4/2007 Spider-Man 3 - - - $250,000,000 Totals $777,230,860 $1,605,624,485 $589,000,000 Averages $388,615,430 $802,812,243 $196,333,333 1st Worldwide Released Movie Name US Gross Budget Weekend Gross 6/23/1989 Batman $40,505,884 $251,188,924 $413,200,000 $35,000,000 6/19/1992 Batman Returns $45,687,710 $162,833,635 $282,801,937 $80,000,000 12/25/1993 Batman: Mask of the $1,406,291 $5,617,391 - - Phantasm 6/16/1995 Batman Forever $52,784,433 $184,031,112 $335,000,000 $100,000,000 6/20/1997 Batman & Robin $42,872,605 $107,325,195 $237,300,000 $125,000,000 6/15/2005 Batman Begins $48,745,440 $205,343,774 $371,824,647 $150,000,000 12/31/2008 Batman Begins - - - - Sequel Totals $916,340,031 $1,645,743,975 $490,000,000 Averages $152,723,339 $274,290,663 $98,000,000 Source: http://www.diamondcomics.com/market_share.html
- 48. Management of IntangibleAssets “Creativity” Cross-Culture Product Segment Database & + of Cross-Boundary Customer Segment Story Resources Market Research • Freelancer Network Pool of Talents of • Designer • Drawer Talents • Talent Storyteller Matching Creative Story Talents & Story Adjustment
- 49. Sanrio (TSE: 8136) SanrioCo. (TSE:8136) Divisional Income statement Library includes: Overseas sales Hello Kitty, Cinnamoroll # of characters Main lines of business: Strength: Licensing, Overseas Weakness: theme parks, toy merchandising Other Possible Targets Sanrio Financial Data (115 yen/$) MM Yen MM $US (market capitalization): Share Price (4/25/2006) 1,785 15.52 Takara-Tomy ($687MM) Market Capitalization(4/25/2005) 154,965 1,348 Bandai-Namco ($3,650MM) Total Debt (12/2005) 39,983 348 Revenue 102,400 890 Operating Profit (2005E) 9,200 80 Financing option: Licensing Profit (2005E) 8,700 76 Net Income (2005E) 4,700 41 Treasury stock Estimated 2006 EPS 56.7 0.49 LBO Estimated 2007 EPS 51.1 0.44 Ratios D/E Ratio 1.28 Estimated 2006 PER 31.48 Estimated 2007 PER 34.93 * Note: 2005E is fiscal year ending March 2006 Note: (1) JAPA http://www.ppp.am/ppp_shiryou_data.html
- 50. Marvel & Licensingindustry 2005 2004 2003 Net Sales 230.1 214.7 124.4 Cost of sales 0 0 0 59.0% SG&A 87.1 70 52.5 Operating Income 143 152.7 83.2 41.8% Margins 62% 71% 67% 35.8% 19.3% Estimated Licensing Revenues by Property Type (2004) in $million (source: LIMA) 2005 2004 2003 2002 Estimated Revenues of Entertainment/Character Properties by Product Category (2004) 6.5% 14% 10.5% 24%
- 51. Major US Titles Source:http://www.igda.org/online/IGDA_PSW_Whitepaper_2004.pdf
- 52. •By 2008 weforecast the usage of online games will be 35 billion hours a year •PC pay revenue is the biggest revenue stream •Pay revenue is money paid by consumers for subscriptions etc; ad revenue is money from advertising, sponsorships, e-commerce royalties etc •even as usage and revenues from online games soars, profits are likely to be elusive. In fact, most companies in the online game market are likely to lose money over the next five year Source: http://www.dfcint.com/game_article/june03article.html
- 53. Economics of Onlinegames There has been little or no correlation between the level of success and the size of the investment Subscription revenues make for an attractive business case and are necessary to provide a return on the high costs of development and ongoing operations if a game has over 100,000 subscribers it is not hard to realize 25+% net profit on subscriptions and if it is over 200k, 40% is possible. Conversely, a game of 50,000 subscribers may only have a 10% net profit. Scale is clearly a significant issue in profitability, mainly because of the massive fixed expenses required to build, launch and run this kind of business Budgets for online games range from $2MM up to $30MM and higher By far the most common method for funding OL games is through publisher funding. Indeed, most MMORPGs have been not only funded by publishers but also developed by their in-house studios A small number of titles have been developed externally with Publisher funding, notably City of Heroes, developed by Cryptic Studios and published by NCsoft, and the Asheron’s Call games developed by Turbine and published by Microsoft. A few developers have had success in raising substantial venture capital investments, notably: Linden Labs ($8MM Oct 2004), Turbine ($18MM Dec 2003, at least $10MM in earlier rounds), Mythic ($32MM 2003, at least $3MM in earlier rounds), There.com (over $30MM in various rounds) and Artifact Entertainment (at least $10MM in various rounds, including $5MM from NCsoft). Raising VC is extremely difficult, and most of the above developers had established their skills and credibility by working with publishers before raising capital
- 54. Revenue models At present, and for the foreseeable future, the primary revenue source for persistent online games, at least in the U.S., is the monthly subscription Subscription pricing has increased steadily from the early days of the web. Simutronics' play.net site was one of the early subscription-based models, charging $9.95/month in 1997. Ultima Online, launched in 1998, followed suit, also charging $9.95. Today, prices tend to range between $10 & $15 per month, with $14.95 seeming to be the most popular price point Gaming audience, once they are already signed up to a game, does not appear to be particularly price sensitive. Indeed, it has proven possible to raise prices on customers without suffering substantial attrition; in 2001, Funcom and Mythic launched their titles at $12.95 per month, and in 2002, Sony Online Entertainment raised the monthly price of EverQuest from $9.89 to $12.95, with virtually no increase in customer churn as a result. Ultima Online and Funcom’s Anarchy Online raised rates as well. Additional options: Revenue Generation from Services Virtual Goods Sales article in Economist
Editor's Notes
- #4 Marvel Comics was founded by established pulp-magazine publisher Martin Goodman in 1939 as an eventual group of subsidiary companies under the umbrella name Timely Comics . Like other comics companies, Timely — generally known as Atlas Comics in the 1950s — followed pop-cultural trends with a variety of genres The first comic book labeled Marvel Comics was the science-fiction anthology Amazing Adventures #3, which showed the "MC" box on its cover. Cover-dated Aug. 1961, it was published May 9, 1961, according to Library of Congress copyright information. [1] . 1960’s - The most successful new series was The Amazing Spider-Man , by Stan Lee and Steve Ditko . The Marvel of the 1960s was in its own way the counterpart of the French New Wave .... Marvel was pioneering new methods of comics storytelling and characterization, addressing more serious themes, and in the process keeping and attracting readers in their teens and beyond. Moreover, among this new generation of readers were people who wanted to write or draw comics themselves , within the new style that Marvel had pioneered, and push the creative envelope still further." 1970’s - An attempt by Marvel to buy DC was frustrated by DC's refusal to sell its entire library of characters (wanting to retain control of Superman and Batman ), and DC was sold to Warner Communications instead. In 1988, Marvel was bought by investor/entrepreneur Ronald Perelman, who took the company public on the New York Stock Exchange, and oversaw a great increase in the number of titles the company published. As part of the process, Marvel Productions sold its back catalog to Saban Entertainment, and Marvel management closed the animation studio, opting to outsource. Creatively and commercially, the '90s were dominated by the use of gimmickry to boost sales, such as variant covers , cover enhancements and regular company-wide crossovers that threw the universe's continuity into disarray. By the 1980s, one-time wunderkind Jim Shooter was Marvel's Editor-in-Chief. Although a controversial personality, Shooter cured many of the procedural ills at Marvel (including repeatedly missed deadlines) and oversaw a creative renaissance at the company. With the new millennium, Marvel Comics escaped from bankruptcy and again began diversifying its offerings. Regardless, Marvel has also become a key player in Hollywood, with many of its characters being turned into successful film franchises, the highest-grossing being those of the X-Men , starting in 2000, and Spider-Man , beginning in 2002.
- #6 Licensing segment is responsible for the merchandising, licensing and promotion of Marvel’s characters worldwide and represents 59% of company’ sales in 2005 Licensing strategy of Marvel: best-of-class licensees in US and around the world (from ~550 in 2004 to ~800 in 2005) negotiating higher guaranteed royalty amounts from each licensee due to exclusivity create programs for classic brands beyond single characters (Marvel Heroes, etc.) major entertainment events play an important role in driving sales of licensed products (blockbuster movies, etc.) sole-partner strategy Keep control over its properties Margins are very high The Licensing segment competes with a diverse range of entities that own intellectual property rights in characters. These include DC Comics (a subsidiary of Time Warner, Inc.), The Walt Disney Company, NBC Universal, Inc. (a subsidiary of General Electric Company) and other entertainment-related entities Licensees: Studios – Sony, Fox, Lions Gate DVD and Direct-to-Video – Lions Gate TV – Moonscoop SAS, Warner brothers Video Games and On-line games – Activision, Microsoft Mobile content – Hands-On (Mforma) Clothing and Sport Equipment– Kids Headquarters , Mad Engine, K2, Sara Lee Toys – Hasbro, Toy Biz Worldwide, Mega Bloks Personal Care – Gilette Oral B Food – Unilever, BrandSource Giftware - Hallmark Theme parks – Universal, Niagara Group “ For instance, Blade and Men in Black generated over $1B worldwide across all products, but because of their lower popularity, Marvel sold the deals for a much lower amount of cash upfront. Marvel should look for these smaller movies to increase their participation to the equity level. Artisan Entertainment’s upcoming movie called The Punisher (based on the Marvel character and starring John Travolta) is Marvel’s first equity participation deal.”
- #7 Low capital requirement Easy entry Internet and other media threaten all printed publications Publishing For the years ended December 31, 2000, 2001 and 2002, approximately 9%, 10% and 14%, respectively, of Marvel Publishing’s net revenues were derived from sales to the mass market. The increase in 2002 was due partly to increased demand for, and an aggressive push by the Company of, trade paperbacks to the bookstore market. This business, which puts trade paperbacks into the mass market and in front of general consumers, grew more than fivefold from 2001 to 2002. The Company believes that there is still a great deal of growth in this market for these products, and that this is one of the better ways to attract new readers to Marvel Publishing. Publishing growth in 2005 was largely due to the expansion of the Company’s core product lines of comics and trade paperbacks in the direct market and bookstores. The Company expects continued growth from the direct market and bookstores in 2006. The Publishing segment is also focused on expanding distribution to new channels, such as the mass market, and expanding its product line to a younger demographic. For example, in 2005 the Company expanded its distribution to 7-Eleven and Blockbuster retail stores. While these initiatives did not significantly impact 2005 publishing revenues, the Company believes that they provide a valuable opportunity to increase readership. Marvel’s Publishing segment is also in the process of expanding its advertising and promotions business with an increased emphasis on custom publishing.
- #8 During 2004, the only line of products to account for more than 10% of the Company’s consolidated net revenue was the line of toys based upon the movie Spider-Man 2. In 2003, the only product line accounting for over 10% of the Company’s consolidated net revenue was toys based on the movie trilogy The Lord of The Rings . There was no such concentration in 2005. A disadvantage of producing products to order, however, is that the Toy segment increases its risk of having fewer products available, in the event of unforeseen demand, than might otherwise have been sold. In 2006, when the Company’s main toy categories will be manufactured and sold by the Company rather than by licensees, the Company will have higher inventory risk and may well end the year with more inventory than at the end of 2005. Pursuant to the terms of the termination of TBW’s license agreement, the Company purchased TBW’s existing domestic inventory of finished goods as of January 1, 2006 for approximately $6 million. The Toy segment competes with many larger toy companies in the design and development of new toys, in the procurement of licenses and for adequate retail shelf space for its products. The larger toy companies include Hasbro, Mattel Inc., and Jakks Pacific, Inc. Many of these competitors have greater financial and other resources than the Company. The toy industry's highly competitive environment continues to place cost pressures on manufacturers and distributors. Discretionary spending among potential toy consumers is limited and the toy industry competes for those dollars along with the makers of computers and video games. Toy-production delays or shortfalls, continued concentration of toy retailers and toy inventory risk . The retail toy business is highly concentrated. The three largest customers for our toy products accounted in the aggregate for approximately 48% of our total toy sales in 2005. An adverse change in, or termination of, the relationship between us or our major toy-producing licensee (Hasbro, starting in 2007) and one or more major customers could have a material adverse effect on us. In addition, the bankruptcy or other lack of success of one or more significant toy retailers could decrease our earnings. In 2006, when Marvel toys will be produced by us, rather than licensed to a third party, our production of excess products to meet anticipated retailer demand could result in markdowns and increased inventory carrying costs for us on even our most popular items. Also, if we underestimate demand for our products, we may be unable to provide adequate supplies of popular toys to retailers in a timely fashion, and may consequently lose sales opportunities. Toy revenues shifted in 2005 from lines for which Marvel records the wholesale value as sales, such as Spider-Man movie toys, to lines for which a royalty and service fee are recorded as sales, such as Fantastic Four toys. The main toy line in 2005 was Fantastic Four movie toys, which was produced by TBW under its Marvel license and for which only the royalty and service fee percentages of the wholesale sales price were recorded as revenue. Sales from the Toy segment decreased $144.8 million to $68.0 million in the year ended December 31, 2005, and also decreased as a percentage of total net sales, as sales of toys based on Spider-Man 2 decreased by $170.0 million in 2005 due to the movie’s release in June 2004 and limited carry forward into 2005. Sales of action figures and accessories based on the Lord of The Rings movies also declined $12.6 million to $7.7 million. These decreases were partially offset by an increase in royalty and service fee revenue from $15.2 million in 2004 to $51.8 million in 2005 derived from licensed toy sales made by TBW, primarily resulting from increased sales of toys based on the Fantastic Four movie and classic Spider-Man. Toy segment revenues increased by $62.9 million or 42% to $212.8 million (from $149.9 million in the 2003 period) and also increased as a percentage of total net sales. This increase was primarily due to growing sales of products based upon Spider-Man 2 (released in June 2004) which were produced by the Company (revenues for which were recorded based on the entire wholesale sales price). This increase offset a decline in royalty and service fee income derived from TBW’s sales of other action figures and accessories based on Marvel characters.
- #10 Recent share buybacks sent out a clear message: Maximizing shareholder value is the top priority pushing up share price performance
- #13 80% revenues come from the US Biggest licensing and publishing divisions have smallest international presence (20% and 16%) Characters are “American” focused
- #15 Pursue a long term strategy – repackaging characters is not enough! Must be dynamic and creative! Balance portfolio with additional intellectual property to mitigate risks, improve image and presence as an intellectual property company! Why build brand equity?? Capital produced by people who love what they are doing. How to get those people? Build reputation for something Branding – who do you want to be? Brand based on IP or entertainment company?? Must decide!! Strategy for branding is based on this Brand elements/identities that make up the brand: Action & Adventure Integration in supported marketing program: Movies and Merchandising Associations indirectly transferred to the brand: Characters No association with the brand + creativity in the long run with HR to increase talent HR – people behind the brand strong brand behind Marvel gets better talent Make use of concepts of action and adventure Truly global companies Image and entertainment continuum Character side and corporate slide Building corporate vs character Q ratings character recognition Creativity is part of entertainment and is Publishing is oldest part of business and core
- #16 Growth stage: Increase money on product improvement – develop more creativity Spend heavily on promotion and use alternative distribution channels to create product awareness Pyramid factors: Intense loyalty Positive, Accessible Reactions Strong Favorable and Unique Brand Associations Deep Broad Brand Awareness Risks: Brand Dilution IP Management Develop positive associations with the brand – team up with Fear Factor for action and adventure Differentiate image to develop strong reputation for interesting stories and dynamic characters Focus on developing creativity to attract and build expertise in story lines
- #18 Hasbro – 2007 – 2011 Corporate alignment: entertainment and intellectual capital Competition in retail market is fierce Traditional Toys & Games segment has been performing strong over the past few years, but growth is coming from the software and consoles
- #19 In 1981 Marvel purchased the DePatie-Freleng Enterprises animation studio from famed Looney Tunes director Friz Freleng and his business partner David H. DePatie . The company was renamed Marvel Productions and it produced well-known animated TV series and movies featuring such characters as G.I. Joe , The Transformers , Jim Henson's Muppet Babies , and Dungeons & Dragons , as well as cartoons based on Marvel characters, including Spider-Man and His Amazing Friends . In 1988, Marvel was bought by investor / entrepreneur Ronald Perelman , who took the company public on the New York Stock Exchange , and oversaw a great increase in the number of titles the company published. As part of the process, Marvel Productions sold its back catalog to Saban Entertainment , and Marvel management closed the animation studio, opting to outsource.
- #20 MARVEL sold over 7.7 million comic books and 1.6 million graphic novels in 2002. Eighty of the top 100 comic books in 2003 were MARVEL titles. Spider-Man has the highest Q rating of any Super Hero which means he is the most recognized and remembered. MARVEL properties are number one in virtually every category among boys of all ages and have cross gender appeal. So it's no wonder that MARVEL retail merchandising sales exceeded $2 billion in 2002. The Q Score is a way to measure the familiarity and appeal of a brand , company , celebrity , cartoon character or television show . The higher the Q Score, the more well-known and well thought of the item or person being scored is. The Q Score is primarily used by the marketing , advertising and public relations industries. Sometimes the term Q score is used in popular discussions of a person or product's overall fame, popularity , or likeability. Other popular synonyms include Q rating , Q factor , or simply Q . The Q Score was developed in 1963 by Marketing Evaluations, Inc. , a United States company based in Manhasset, New York . To calculate someone or something's Q Score, Marketing Evaluations surveys a panel of US consumer households about their awareness and opinion of that person or thing. Two factors influence the Q Score: the number of people who are aware of the product in question, and the number of people who claim that product as one of their favorites. Q Scores are calculated for the population as a whole as well as for demographic groups such as age, sex, income or education level. Marketing Evaluations claims that the Q Score is more valuable to marketers than other popularity measurements such as the Nielsen Ratings because Q Scores indicate not only how many people are aware of or watch a product, but how those people feel about the product. A well-liked television show, for example, may be worth more as a commercial venue to an advertiser than a higher-rated show that people don't like as much.
- #25 Due to the cultural aspect of cartoons, it is best to obtain the library as well as management know-how in Asia Acquire companies to boost Marvel portfolio as well as to penetrate new markets where the cultural difference is relatively large. Consider penetrating and taking advantage of large and fast growing market: Asia To obtain valuable characters and also the management understanding the Asian culture Demographically: Girls and Adults Geographically: Asia and Europe Genre: Political Cartoons, Satire Asia: Sanrio, Bandai, Sega Sammy, Takara Tommy, Studio Ghibli (non-public) Europe: Cartoon Stock Ltd (non-public), The Punch Cartoon Library (non-public) Financing options: Treasury stock. Japanese Government is preparing a registration allowing foreign companies to conduct stock-for-stock purchase from 2007 Although the company had a loss in the past year, they are working on the turn around. The situation is similar to pre-1999 Marvel. The know-how of Marvel turn around can be applied.
- #26 INDIA : Publishers in India have found that comics based on mythology and religion outsell Western fare. Dressed in a flowing dhoti, or a sarong, pointy shoes and a familiar red mask, he will swing between motor rickshaws and scooters down crowded Indian streets to take on the evil Rakshasa, or demon. Creators of India's Spider-Man, who is called Pavitr Prabhakar, hope he will soon be as well loved as the original, Peter Parker. China : Manhua (Traditional Chinese: 漫畫 ; Simplified Chinese: 漫画 ; Pinyin: Mànhuà) is a general term for comics produced in China, often including Chinese translations of Japanese manga. The Chinese characters for manhua are identical for those used in Japanese manga and Korean manhwa. Due to the greater liberalization and higher standard of living, the majority of all manhua so far has been published in Hong Kong and Taiwan rather than mainland China. As of 2004, the majority of all manhua is still published in Hong Kong and Taiwan. It is often believed that Tomasu Chew made the first of its kind.
- #28 Take an advantage of online community where people are eager to create their own contents very hard for free! Establish an online platform for individual participants The plat form allows participants to create their own characters, stories and engage in socialization with others Marvel to provide easy to use interface or software to online community Monitor the traffic of users Identify individuals with creative character building Identify popular stories Bring those creative minds into Marvel! Provide an assistance to further develop professionally Capitalize them to launch new publishing stories, characters, toys and video games Further advance Marvel’s strategic alliance with Microsoft Take advantage of consumer creativity: instead of suppressing them! (e.g. “City of Heros”)
- #29 Take an advantage of online community where people are eager to create their own contents very hard for free! Establish an online platform for individual participants The plat form allows participants to create their own characters, stories and engage in socialization with others Marvel to provide easy to use interface or software to online community Monitor the traffic of users Identify individuals with creative character building Identify popular stories Bring those creative minds into Marvel! Provide an assistance to further develop professionally Capitalize them to launch new publishing stories, characters, toys and video games Further advance Marvel’s strategic alliance with Microsoft Take advantage of consumer creativity: instead of suppressing them! (e.g. “City of Heros”)
- #33 Current roster Captain America Iron Man Luke Cage Ronin Sentry Spider-Man Spider-Woman Wolverine Notable former members Thor Henry Pym Wasp Hawkeye Quicksilver Scarlet Witch The Vision
- #40 In 1981 Marvel purchased the DePatie-Freleng Enterprises animation studio from famed Looney Tunes director Friz Freleng and his business partner David H. DePatie . The company was renamed Marvel Productions and it produced well-known animated TV series and movies featuring such characters as G.I. Joe , The Transformers , Jim Henson's Muppet Babies , and Dungeons & Dragons , as well as cartoons based on Marvel characters, including Spider-Man and His Amazing Friends . In 1988, Marvel was bought by investor / entrepreneur Ronald Perelman , who took the company public on the New York Stock Exchange , and oversaw a great increase in the number of titles the company published. As part of the process, Marvel Productions sold its back catalog to Saban Entertainment, and Marvel management closed the animation studio, opting to outsource.
- #49 Current Analysis : Current business model is based upon success story of characters in Publishing divisio n Rich content library as a resource to the future No New Stars - Capitalizing on limited number of characters No clear character path - A lot of inactive characters with similar characteristics Risk : Low barrier to entry Dependent upon retailer s Substitution to other markets New objectives : Offer quality story lines : c ontent quality and characters Turn Marvel in a customer based organization Recommendations : Adoption of 5 periods : 1a ) Develop market research procedures - Understanding trends in demographics, social uses and culture (e.g. Increase in violence or of certain demographic strata) - Use questionnaires in subscription sales to collect readers opinion 1b ) Find and discover Talents - Freelancers (for stories) - Designers (for toys) - Drawers (for comics) - Talent storytellers (for stories) 2a ) Market Segmentation ( based on the developed market research procedure ) - Product Segmentation Explore new products, both characters and stories, or redesign current products - Customer Segmentation Target new customers based on the product segmentation 2b ) Establish pool of Talents - Group the talents found and discovered at the first stage - Group the talents based on the market segmentation, especially grouping the writers 3a ) Database of Story Resources - Creative use of successful library of characters for all media - Searching for the materials for new stories or characters cross-culturally and cross-boundary. - Expand product offering to address new market segments (through acquisitions and extensive market research) in order to diversify 3b ) Network of Talents - Initiate talents gathering - know each others’ talent 4a ) Matching Talents & Story - Set up the project - Find the right talents for this project - Provide talents the one-time target customers and target story line - Provide talents the story materials in the database created in period 3 5) Adjustment - Frequently-checked market research - Monitor the performance of “creative story” in the pilot market - Updated talents group based on the adjustment of products Shortages : Multiple acquisition is difficult to handle, especially facing the cultural/national defense High uncertainty : Either successful or not Initial investment versus high pay off if success story Time gap between investment and pay off
- #50 Due to the cultural aspect of cartoons, it is best to obtain the library as well as management know-how in Asia Acquire companies to boost Marvel portfolio as well as to penetrate new markets where the cultural difference is relatively large. Consider penetrating and taking advantage of large and fast growing market: Asia To obtain valuable characters and also the management understanding the Asian culture Demographically: Girls and Adults Geographically: Asia and Europe Genre: Political Cartoons, Satire Asia: Sanrio, Bandai, Sega Sammy, Takara Tommy, Studio Ghibli (non-public) Europe: Cartoon Stock Ltd (non-public), The Punch Cartoon Library (non-public) Financing options: Treasury stock. Japanese Government is preparing a registration allowing foreign companies to conduct stock-for-stock purchase from 2007 Although the company had a loss in the past year, they are working on the turn around. The situation is similar to pre-1999 Marvel. The know-how of Marvel turn around can be applied.
- #51 In recent years, the comic book market has gone through a slump due to increased competition from video games, electronic toys and cable television. The industry peaked in 1993, when sales topped $1 billion for the first time ever, fueled in part by the big comic book houses coming out with new titles. DC Comics decided to kill off Superman and that issue sold between 2.5 million and 3 million copies. But it has been a downhill slide since then for comic book sales, which have tumbled to about $550 million a year, as kids turn to PlayStation 2 and online games to keep them happy. During the 1993 heyday, there were about 10,000 comic book stores in the country. That has dipped to about 3,000 today, according to John Miller, managing editor of Comics Buyer's Guide. Ninety-four percent of comic book readers are men, ages 18 to 30. But there are no statistics on the ethnic breakdown of comic book readers, experts said.