Disney Buys Marvel

September 1, 2009 -Disney is betting $4 billion that Iron Man and his fellow superheroes can help it beat the malaise gripping the entertainment industry. Disney agreed to buy Marvel Entertainment, adding a legion of superheroes to a durable family of children's favorites. By marrying the X-Men and the Incredible Hulk with Snow White, Wall-E and Hannah Montana, the entertainment giant calculates it will be able to exploit a powerful stable of characters across movies, comic books, television channels, licensed merchandise and theme parks.

As DVD sales sink, Hollywood has been scrambling for new sources of ancillary revenue, such as toys, videogames, clothing and rollercoasters. Marvel, with its roster of 5,000 characters, could provide several years of fodder for Disney's entertainment and marketing empire.

By bringing in macho types such as Iron Man, Thor and Captain America, the Marvel deal would expand Disney's audience, adding properties that appeal to boys from their preteen years into young adulthood.

The deal is Disney's biggest since its 2006 purchase of Pixar, the creator of "Toy Story," for $7.4 billion in stock, an acquisition that was also considered pricey. The latest price is far less, but the deal comes with more baggage: Marvel is tied up with almost every studio in town, and unraveling those ties is going to become a long-term project for Disney.

Before Marvel began financing its own films, such as "The Incredible Hulk" and "Iron Man," it licensed its characters out to other studios.

Marvel owns Spider-Man, but it has a long-term agreement with Sony that allows them to make movies based on the character, in exchange for royalties. Similarly, News Corp.'s Twentieth Century Fox makes the movies starring Marvel's "X-Men."

While Marvel doesn't comment on those deals, it receives gross participation in the films, usually a percentage that analysts estimate to be as high as 5% off the top of the film's revenue.

Sony's first three Spider-Man films have taken in more than $1 billion at the domestic box office and DVD sales, and the studio has three more movies in development, and rights to make movies even beyond those.

Disney said it plans to assume production of more of the comic company's movies as deals with other studios expire.

Marvel also has a deal giving the Universal Studios theme parks rights to Marvel attractions in Florida and Japan, but Disney said the company could mine Marvel's properties for rides at its parks in California, France, Hong Kong and elsewhere.

As an entertainment conglomerate Disney needs content to feed its machines. Smaller players like Marvel have content, but lack the heft that big studios can muster for a marketing push, potentially triggering a fresh round of consolidation in Hollywood.

Others ripe for content-picking include Dreamworks and MGM, which has a library of classic movies, including the James Bond franchise.

Like other studios, Disney also has to combat the decline in DVD sales. Hollywood still makes the bulk of its profits from home-video sales. But that market, which grew more than 15% a year between 2000 and 2004, has begun to wilt. According to experts, consumer spending on home video fell 9% last year. It projects home-video sales will fall between 8% and 10% for 2009.

There is a risk that Hollywood will flood the multiplex with comic-book fare and the current audience enthusiasm for superheroes will wane. Time Warner has been mining its own stable of superheroes through its DC Comics unit. Warner Bros. has already had success with the "Batman" franchise and is planning several other movies.