No flies on Disney

TAKE Lightning McQueen, Hannah Montana and High School Musical, then add Iron Man, the Incredible Hulk and Spider-Man, and suddenly you've accounted for nearly half of all the backpacks and lunchboxes carried into the average primary school every weekday morning. That's what Disney wants, and with Marvel Entertainment under its wing, that's what the Magic Kingdom will get.

The surprise move to take over the world's biggest comic book publisher will give Disney access to about 5,000 Marvel characters ranging from the Hulk and Spidey to the Fantastic Four, X-Men and Captain America. If approved by antitrust authorities, the $4 billion (2.4bn) cash and shares deal will substantially bolster Disney's kudos among boys age six to 16, who have proven stoically resistant to female-friendly properties such as the Jonas Brothers – the teen pop band that launched to fame from the Disney Channel – and the ever-present Montana and Musical franchises.

The plan is to create new films and television programmes based around Marvel's often edgy and brooding characters, and then push that content through the massive distribution network that turned Mickey Mouse into a household name throughout the world. Additional opportunities lie in other areas such as video games, as well as the creation of new superhero-based attractions at Disney's amusement parks.

Given the runaway critical and financial success of last summer's release of Iron Man, it seems rather clear why chief executive Robert Iger is prepared to pay a very full price that is equal to about 40 times Marvel's expected net income of $100 million (61m) in the current year. If even a mere fraction of the Marvel line-up were successfully groomed into big-screen stars, that could mean dozens upon dozens of new film properties for years to come.

Though Disney and Marvel will undoubtedly churn out all of this in the fullness of time, questions remain as to how quickly the financial returns can be achieved. As Marvel has evolved into a multi-platform entertainment group under 12 years of leadership by media-shy chief executive Ike Perlmutter, it has signed numerous distribution, development and licensing agreements that will have some of its biggest-name characters tied up to varying degrees for years to come.

Analyst David Joyce of Miller Tabak & Co in New York describes the price as "full but fair" in the currently battered media market. He says though $4bn puts Marvel on a par with valuations enjoyed by entertainment conglomerates prior to the recession, the deal is strategically and financially justifiable by "the value we think can be unlocked" from the majority of Marvel characters whose potential remains essentially untapped. Joyce notes that third-party licensing for merchandise such as bags, shirts, toys and sleepwear featuring the Marvel stable of characters is "quite intricate and complex". However, revenues generated from outside the US through these channels is below 50 per cent, whereas Disney gets more than half of its third-party income from abroad.

"Disney could help to push that over time," he says. "I would also expect Disney to develop more of the characters that we don't currently think of when we think of Marvel."

The list of potential candidates to fulfil this role is extensive, ranging from Aardwolf and Agent Axis through to Empath, Lylla, Skin-Bender and Zzzax. Though neither company has hinted at which Marvel characters might be due for the big time, Disney's chief executive said a meeting between the creative heads at both groups had already sparked thoughts about various potential opportunities.

"The group got pretty excited very fast," Iger told analysts after the deal was announced on Monday. "I almost felt like saying, 'OK, guys, you have to slow down. We haven't done this deal yet.'"

With Perlmutter already confirmed to continue heading up Marvel's creative team after the deal is completed, it is widely expected that the Marvel acquisition will follow the blueprint established when Disney spent $7.4bn (4.5bn) on the award-winning Pixar Animation in 2006. Since that deal was completed, the renowned creators of Pixar blockbusters such as Toy Story, Cars, Finding Nemo and WALL-E have remained a near-autonomous unit under the Disney umbrella.

Disney has also given a great deal of independence to other divisions within its organisation, including its ESPN operations, which came to the fore in the UK this summer after acquiring the rights to broadcast English and Scottish Premier League football matches. ESPN, headed by George Bodenheimer, ranks among Disney's most successful business units.

Miller Tabak's Joyce says that track record would have been one of the compelling reasons behind Marvel executives' decision to endorse a takeover by Disney: "That is another reason why Marvel was willing to go with Disney, rather than one of its existing partners such as Viacom, Fox or Sony. They know what happened (with Pixar], and would have felt comfortable with that."

Marvel will also be protected by the fact that Perlmutter, who owns nearly 37% of the comic book powerhouse, will have significant influence within Disney when the deal is completed towards the end of this year. He stands to gain more than $1.4bn from the sale, including some $600m in Disney stock, making him one of the company's largest shareholders after Apple chief executive Steve Jobs.

According to some industry sources, Disney first considered buying Marvel more than a decade ago. However, it was not until this summer that Iger approached Perlmutter – an Israeli immigrant and veteran of the 1967 Six Day War – to discuss the possibilities.

In an interview with the Los Angeles Times earlier this week, Iger said the two men first met in June at Perlmutter's office in New York. Negotiations were concluded last weekend, with not even a hint that anything was in the offing before the announcement on Monday morning.

From Perlmutter's side, at least, this should come as no surprise. Though he saved Marvel from bankruptcy in 1997 – successfully wresting control away from legendary corporate raider Carl Icahn in the process – it is all but impossible to find a photograph of Perlmutter. It is said that the intensely private executive attended the premiere of Iron Man disguised in glasses and a fake moustache.

Though Perlmutter's voice was not to be heard during Monday's conference call with investors, other Marvel executives insist Disney is a "perfect home" for their collection of comic heroes and villains.

The indomitable Stan Lee – who co-created the likes of Spider-Man, X-Men, Iron Man and the Hulk while working for Marvel from the 1960s onwards – is said to agree. Though the former president and chairman of Marvel sued his erstwhile company in 2005 for an unpaid share of film profits, he told US comic book website Newsarama that the deal with Disney was "terrific". He added: "The synergy between them is perfect."

Most analysts tend to agree with this assessment, though opinions vary as to how much impact Disney can achieve with the acquisition. "Disney is, in our view, the business best positioned to maximise the value of Marvel's IP across multiple businesses, given its closely integrated divisions and content platforms," Barclays Capital analyst Anthony DiClemente says in a note to investors. However, he tempers any notions of heroic proportions by adding that the deal is only a "modest positive for Disney".

The hint of caution comes from the fact that so many of Marvel's best-known characters are already tied up in licensing contracts with other film studios and content companies. The sequel to Iron Man – whose $585m in global ticket sales helped boost Marvel's profits to $206m last year – will be distributed globally by Viacom's Paramount Pictures when it is released next spring. That deal, which runs through 2011, also gives Paramount distribution rights over forthcoming Thor, Captain America and Iron Man 3 films.

Meanwhile, Sony Pictures owns the big screen rights to Spider-Man in perpetuity, as does 20th Century Fox for the X-Men, Daredevil and the Fantastic Four. And while Disney will be able to quickly integrate certain Marvel characters into its theme parks in California, Paris and Hong Kong, no such moves will be possible at Walt Disney World in Florida, where the Hulk, X-Men, Dr Doom and Spider-Man provide thrills at rival amusement operator Universal Studios Orlando under an existing pact with Marvel.

That said, Disney does have several other outlets that could be quickly pressed into the service of the superheroes. These include its boy-focused cable network Disney XD, as well as the massive retail marketing potential that can be shaped through its consumer products group. Miller Tabak's Joyce also notes that Disney has been putting significant resources into its interactive unit for the past three years, opening up the possibilities for Marvel-based games and online communities.

"The only potential drawback is that Marvel does have so many licensing and distribution agreements already in place," he said. "It is going to take some time and effort to unwind all of these third-party contracts, or a lot of patience to let them expire."