The first few months of the year were less-than-marvelous for Marvel—one of David’s stand-out breadwinners—but fourth-quarter earnings beat expectations as profits more than doubled. As the company prepares to announce first-quarter earnings and for this summer’s release of Fantastic Four, we wanted to check in with Marvel Vice-Chairman Peter Cuneo to find out what investors can expect from this super-hero company going forward.
David: Let’s start off by talking about some of your recent movies. The Punisher was not a big movie, some people felt that The Hulk underachieved, and now we have Electra. Do poorly reviewed or low-draw movies make it harder for Marvel to do good business in the future?
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Cuneo: Well, I don’t agree with you that The Hulk was disappointing or Punisher. The Hulk did $250 million worldwide box, which is a huge box, and as you may recall, we had tremendous success with our toy line, which was a complete sellout, over $100 million worldwide. Our licensing was also very, very strong, and we had a complete sell-through of all of the consumer products associated with Hulk. So from our point of view, while some people may have been predicting a higher box office, we were very thrilled with Hulk, and Hulk 2 is currently being worked on by Universal. That is the ultimate test for success or failure. If films make money, then there will be sequels.
In addition, The Punisher was a relatively small-budget movie. It was R-rated, which always limits the box office. Now, regardless of the box office on Punisher, we have had very good results with the DVD, and THQ released a video game that is doing extremely well. So in the end, Marvel will make money from The Punisher franchise. Plus, Punisher 2 is being worked on right now by Lions Gate.
I think Marvel is a victim, to a certain degree, of our own success. We have set the bar so high with Spider-Man and X Men that everybody expects every film we do to be a tremendous smash in the top 10 of all-time box offices worldwide. Of course, that is not going to happen.
I think the thing to remember for investors is that we often talk about the layering strategy. We are introducing a lot of new character franchises into the marketplace. They are new, but they are old. These characters have been around a long time and have been proven commercially in the past. Our strategy really is to layer in 10, 15 different franchises. You know what? All of them may not be successful. We can accept that, but we have so many opportunities here to do that. Of course the big new opportunity coming is Fantastic Four for this summer.
David: We’re dying to hear about Fantastic Four, and we’ll get to that in a moment, but first, can you trace out for us briefly the pie for revenues? Where is the money actually coming to Marvel?
Cuneo: Well, most of the money for Marvel comes from our licensing programs; licensing around major motion pictures that have a broad demographic appeal. The movie-related licensing as well as our non-movie, or “classic character licensing,” is the biggest single source of revenue. And we are constantly announcing new, important partners for new areas through licensing that we haven’t competed in.
Video games are also very important. Right now our biggest licensed area is toys, but we fully expect that video games will eventually surpass the toy business simply because it is an area of entertainment that is growing and growing. The demographic is widening. The games are getting better, and this is a very important area for Marvel.
Tom: What percentage of the business is comic book-related?
Cuneo: About 15% to 20% of our earnings comes from the comic book business, and it’s very important to us. Not only is it highly profitable (we have about a 35% profit margin on our comic book business), but also this is our R&D function. This is where we try out new characters, where we re-work, re-cosmetize, if you will, other older characters, and try to see what kind of story lines work, and so on.
David: Your 4,700 characters are your intellectual property. How many of those characters do you think could actually generate serious interest from Hollywood over the next 10 years?
Cuneo: We think that we probably have 10 or 12 character groups that are what you might call A-list. These are character groups that with the very first film, we can generate a lot of revenue with licensed products and so on. But we also, as you know, are constantly trying to develop characters that are a little lesser-known: Daredevil, Electra, Blade, Men in Black, all were very obscure comic books before they became popular.
David: Let’s talk about Fantastic Four, which is Marvel’s next highly anticipated release. Do you want to make any predictions?
Cuneo: No, I won’t do that at this point, but I will simply say this is one of our A-list groups. The Fantastic Four has a wide demographic appeal. It is a family film. It is a drama and a comedy. We have had tremendous reaction from licensees and from retailers, so we are very optimistic about our toy lines and our other consumer product lines. We are also getting some outstanding promotional partners, so we are very, very optimistic. Fantastic Four has the second-highest Q-score in all of the Marvel library. Only Spiderman has a higher Q-score. (A Q-score is a measure of the popularity of a particular character.)
David: Well, thanks for taking the time to talk to us. We’re looking forward to getting our first peek at the Fantastic Four this summer—as investors and movie-goers!
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