Marvel (MVL) is a company that has huge potential, as it has a portfolio of over 5,000 characters it can draw on for all sorts of revenue possibilities. There is also the licensing potential from its characters to movie studios, toy companies for merchandising, gaming companies and TV.
They are possibly putting all of that on the line as they look for a bigger piece of the pie through financing its own movie projects, in place of the usual partnering they've done with Hollywood studios.
The risk goes beyond simple risks that all movie projects entail, not only is it not being spread across numerous entities, but even more, the risk of it not being the core purpose and expertise of the business. That, more than anything else, will be the key to what becomes of the company in the next couple of years.
A big risk that has also been taken by the company has been the financing of projects by using the theatrical rights to the characters as collateral in a $525 million financing deal. If this doesn't work for them, they could lose a lot, depending on how long the interest of the public continues in this genre.
What the real question is why is the company willing to take such a high risk? Are the possible rewards worth the risks involved?
Part of the answer is that when the company does deals with major Hollywood studios, they get anywhere from 2 to 7 percent of the box office receipts. On mega hits like Spider-Man, they lose huge windfalls from the partnerships.
Another reason is that while the company has always done good with their publishing division, growth has been steady, but slow, for quite a long time. They are looking for a huge growth vehicle that movies represent. One other key element is the publicity that is received for the company through the exposure of the films.
So with all the risk, what's the upside, other than increased percentage of the box office receipts?
There are two that stand out. The first would be the improvement and increased merchandising sales connected to its characters. So far the company hasn't done anywhere near as good as they could in this space. Having complete control would probably result in different types of deals that would be far more lucrative to the company. They recently made a deal with Hasbro which should improve this area immensely.
But even more important would be the ensuing DVD sales that they would get all the proceeds on. That is probably the greatest goldmine that the company has to dig in for future revenue. It is largely untapped and full of revenue potential beyond the big screen productions.
The company does have some measures in place that could protect some of the downside while it increases the chances for upside success.
One of those is that the company could decide to bring films direct to DVD if their venture in Hollywood fails, something that would retain part of the largest profits to a media company. They of course can always fall back to what has brought them this far in the first place: putting out more comic books.
When all is said and done with Marvel, it will be their ability to produce successful films that will determine the growth and success of the company in the next year or two.
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