Disney's surprise acquisition of Marvel Entertainment -- a missed opportunity for rivals Viacom and Warner Bros. -- assures its appeal beyond children and families across its film, TV, video game, theme park and merchandising ecosystem. Young male consumers are an elusive, but lucrative demographic is any media segment, as Disney knows from the success of its own ESPN franchise.
Male Internet users, representing the cream of the crop economically, spend most of their time using the Internet, watching TV and playing videogames, according to eMarketer -- all areas where Disney wants to bolster its reach of that demographic. The coveted group of males age 18 to 34 has been completely out of Disney's reach, preferring to watch online video in places such as Wired.Digital, World Series of Poker and Major League Gaming, according to Nielsen Media. Seventy-five percent of males age 12 to 17 regularly play console video games, which will increasingly move to multiplayer games online, according to Nielsen Media
Organic growth efforts such as its recent rebranded launch of the XD channel for boys are too slow in a recession and fragmented media market in which every consumer counts. Disney's Hannah Montana and High School Musical franchises have been golden with young girls. But even its Pirates of the Caribbean is milk-toast compared to Marvel's high-flying, often irreverent action yarns. That stark contrast has proponents of the deal wondering if Disney is paying too much for branded entertainment too different from its own, although Disney executives say the deal will pay for itself from day one.
The $50 per share in cash and stock, a premium over where Marvel was trading last week, "reflects the value they've created and the value we can create as one company," Disney CEO Bob Iger explained to analysts in a call. "Marvel's brand and treasure trove of content will now benefit from our extraordinary reach."
That means developing some of Marvel's 5,000 lesser-known comic book characters for Disney's cable channels, the ABC TV Network, its studios, international theme parks and newer interactive unit. Disney has the deep pockets, marketing and merchandising machine that Marvel was struggling to achieve on its own. Marvel has had difficulty raising required funds to match $525 million in financing to produce and distribute films like Iron Man and The Hulk. Disney's biggest challenge will be wrestling away Marvel's existing licensing pacts with Viacom's Paramount (which will distribute five films including Iron Man over the next several years), Sony Pictures Entertainment (which holds the film rights to Spider-Man) and 20th Century Fox, which has the film rights to X-Men and Fantastic Four -- in perpetuity.
Disney is banking on its ability to mine Marvel's strong stable of superheroes, which command 41 percent of the $715 million comic book market and enjoy wild niche popularity. Marvel's recent move to create new film franchises from scratch, rather than simply license characters for films, also will pay off in highly anticipated releases through 2011. Having emerged from bankruptcy in 1997, Marvel is now debt-free and been tightly managed.
The Marvel deal marks the beginning of what is expected to be a wave of consolidating mergers and acquisitions by media and entertainment giants that have been sitting out the recession with big cash reserves. Strategic alliances and investments have prevailed for more than a year, and smaller sales (such as the sale of Lifetime Entertainment to A&E Networks) are beginning to surface.
The dominant media players can maximize their financial return on investment if they own and have complete control over their own films, TV shows and franchise characters. For instance, nearly 80 percent of the prime time programs this season are owned by the Big Four broadcast networks. That new media tenet is fueling speculation that Time Warner will eventually acquire NBC Universal from General Electric.
Disney is among the large media companies eyeing DreamWorks Animation SKG, which has a market cap of nearly $3 billion. The independent blue chip studio headed by former Disney chief Jeffry Katzenberg is known for its like-minded films such as Shrek, Kung Fu Panda and Madagascar. Goldman Sachs raised its target price on DreamWorks to $38 a share on the growing likelihood it will be acquired by an international media conglomerate.
There also has been speculation that Disney could acquire or invest in video game leader Electronic Arts to expand its sector reach. Marvel, whose video game licenses are scattered among industry players such as Activision and Sega, has a 10-year exclusive agreement with gaming start-up Gazillion Entertainment to build online video games around its characters. The first game, The Super Hero Squad, will debut in 2010 after the premiere of as TV program of the same name. The Marvel assets also will be a boost to such new endeavors as Disney's official fan club and first-ever D23 convention in Anaheim, CA, in September that will focus on related merchandising and events, according to Pali Capital analyst Rich Greenfield.
Disney demonstrated with its $7.4 billion acquisition in 2006 of Steve Jobs' Pixar Animation (which fortified its storied animation unit with titles like Toy Story) and the production of edgy pop culture films at Miramax (think Pulp Fiction) that it can successfully support independent creative units different from its signature brands. That is partly due to allowing Pixar CEO John Lasseter - and, for now, Marvel CEO Ike Perlmutter - the funds and freedom to do what they do best. Pixar and Marvel will be encouraged to collaborate, Disney officials say.
That prospect has blogging cynics speculating on everything from creative compromise to possible watered-down hybrids like Wolverine in Wonderland.