Fool on the Street: Marvel Mimics Mickey

Will Iron Man be invincible? Will The Incredible Hulk smash? Will Ghost Rider ride again? These questions and more faced Marvel Entertainment (NYSE:MVL) top executives Peter Cuneo and John Turitzin during last week's Banc of America Media, Telecommunications, & Entertainment Conference.

Yawn ... oh, wait, what was that?
Sadly, their answers didn't offer much news. But the conference was worth it -- if only to see how Cuneo and Turitzin responded to questions about Marvel's strategy. Consider this sound bite from Cuneo's opening remarks:

Last year, about this time, Marvel was noted by LICENSE Magazine as the fourth-largest licensor of consumer products in the world. They estimated that the total value of Marvel's products sold through licensees and so on at retail worldwide was about $5 billion -- putting us No. 4, close to No. 3 and No. 2. Disney (NYSE:DIS), of course, is by far the worldwide leader in this area.

Three things strike me about Cuneo's comments. First, Marvel booked $390.5 million in revenue during 2005. If LICENSE was even within spitting distance of being correct, Marvel collected less than 8% of the value of its licensed properties. And since revenue fell in 2006, I sense that the ratio still straddles 7% and 8%.

Second, the comic book king is in great company. LICENSE placed Time Warner's (NYSE:TWX) Warner Bros. group second with $6 billion and Viacom's (NYSE:VIA) properties third at $5.2 billion. Marvel, meanwhile, outsold Major League Baseball, which produced $4.7 billion to earn fifth place.

Third, management believes Marvel will do better, pointing to Disney as a firm worth emulating. That's encouraging. Disney topped $21 billion in the LICENSE survey, so with more than $32.1 billion in calendar 2005 revenue, it collects 150% on the value of its properties. Licensing, therefore, should still be a high-growth business for Marvel.

Captain America ships out
A deal in Dubai could help. Marvel is teaming with the Al Ahli Group to build a $1 billion -- read: Disney-sized -- theme park in the heart of the Arabian Peninsula's top tourist trap. The hope, Turitzin says, is to collect revenue at the same time as Marvel builds awareness of and fondness for its fictional universe.

The idea has merit. A handful of Marvel films -- including its two most successful -- have earned more at overseas box offices than on their home soil (highlighted in bold):

But broad-based international growth is the goal. Says Cuneo, "We really put our foot, if you will, on the international pedal only about three years ago." One billion bucks in Dubai could be one heck of an accelerator.

The most profitable R&D function on the planet
Finally, Cuneo and Turitzin told analysts to remember its publishing division, which Cuneo said is "the most profitable R&D function on the planet." Funny. I said something similar right here.

We're both right. Marvel says that, when it exited bankruptcy in 1998, it had a 23% share of the comic book publishing market. Today, Marvel's share tops 45%. Cuneo credits the talent for that: "Both the illustrations and the writing is about 45 times better than it was seven or eight years ago."

I can't really speak to that, since I stopped actively collecting comics 15 years ago. Still, killing off Captain America, as Marvel's writers just did, seems more like clever marketing than a unique storyline. DC Comics buried Superman more than a decade ago, and then resuscitated him within a few issues. Captain America has "died" before, too. What's really new here? Not much, I'd say.

But I digress. The point is that Marvel's publishing group is a profitable leader in an industry that, after a decade of sagging sales, is growing once again. Cuneo says that comic-book publishing was up 14% in the U.S. during 2006.

The Foolish bottom line
Will Marvel continue to deliver heroic returns for investors? Cuneo likes the opportunity:

Marvel has 5,000 characters to draw from. I think that's significant. But what is more significant is that we actually own and control over 99% of those characters. I'm not aware of another company, including Disney, with that number of characters and that total amount of control.

Or, in simpler language: Watch out, Mickey. Spidey's coming for you.

Disney, Marvel, and Time Warner are all Motley Fool Stock Advisor picks. Click here to get 30 days of free access to the entire portfolio, which is beating the market by more than 39 percentage points.

Fool contributor Tim Beyers, who is ranked 866 out of more than 25,500 in our Motley Fool CAPS investor-intelligence database, still owns more than 2,000 comic books but didn't own shares in any of the companies mentioned in this article at the time of publication. All of his portfolio holdings can be found at his Fool profile. His thoughts on Foolishness and investing may be found in his blog. The Motley Fool's disclosure policy wonders whether Captain America will have his own ride at the forthcoming Dubai theme park.