Disney Eyes DVD Potential in $4 Billion Marvel Acquisition

31 Aug, 2009 By: Erik Gruenwedel

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In its biggest deal since the 2006 acquisition of Pixar Animation, The Walt Disney Co. Aug. 31 said it had agreed to acquire Marvel Entertainment Inc. (including Marvel Studios and Marvel Animation) for $4 billion in cash and stock.

Disney CEO Bob Iger, in a call with investors, said Marvel’s 5,000 characters, which include Iron Man, Spider-Man, the X-Men, Thor and Captain America, transcend gender, age and cultural boundaries, all the more important he said in a market in which consumers have multiple entertainment options.

When asked about the market potential for Marvel DVD and Blu-ray releases in light of Disney’s recent concerns about packaged-media saturation, Iger said the studio remained interested in the DVD potential for strong box office movies despite his vocal concerns in the past about market trends.

“People’s interest in high-quality product, particularly product that makes sense for them to own because of its appeal to their kids, is something that we think has given us an advantage and is in fact evidenced in our conversion rates of DVD sales to box office,” Iger said.

He said Disney executives factored in the impact on DVD and Blu-ray marketplace when analyzing the Marvel acquisition.

“They’re not bulletproof,” Iger said, referring to Marvel characters in packaged media. “They are not immune from the changes that we’re seeing. But they established footing that we think is more solid than what you typically see in the non-branded non-character driven movie.”

Disney said it would recognize Marvel’s current theatrical and home entertainment distribution deal through 2011 with Paramount Pictures that includes the upcoming Iron Man 2 and three other feature films. Disney CFO Tom Staggs said the company would begin to see incremental revenue gains from the deal in 2012.

“As the current distributions in place sunset, and as we look to exploit the library of [Marvel] characters more broadly [i.e. theme parks] by leveraging Disney’s infrastructure, that’s when the revenue synergies can really start to kick in,” Staggs said.

DVD and Blu-ray Disc sales of Iron Man through Paramount Home Entertainment have generated more than $250 million in revenue since the title’s Sept. 30, 2008 release, according regulatory filings.

Iger said it would make sense that Disney over time would assume primary distribution of Marvel properties theatrically and in home entertainment due to the lower costs compared to third party distribution.

“We believe that when you are distributing your own films, the opportunities are even greater,” Iger said.

Staggs said less than 50% of Marvel’s licensing revenue comes from foreign sales compared to more than 50% for Disney brands.

“We think there is a real opportunity to bring up the licensing mix,” he said.

Iger said creative executives from Pixar and Marvel had already met and that there existed numerous opportunities to work together without co-branding properties.

“The groups got excited pretty fast,” Iger said. “The sparks will fly.”

The acquisition, which has the approval of both Disney and Marvel boards of directors, still requires the approval of Marvel shareholders, in addition to satisfying various federal antitrust regulations.

Marvel shareholders would get $30 per share in cash plus about 0.745 Disney share for each Marvel share. The deal is valued at $50 per share to Marvel shareholders — a 29% premium on Marvel shares Aug. 28.

“I couldn’t be happier with this agreement,” said Stan Lee, chairman emeritus of Marvel Media and founder, chairman of the board of directors and chief creative officer of POW! Entertainment. “It's a great move for Disney, for Marvel and for my company POW! Entertainment, since POW! has a first look deal with Disney. From every possible point of view, the merger of Disney and Marvel is a match made in heaven.”

Additional reporting by Chris Tribbey

 

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