"Iron Man" Is So Much Bigger Than You Think

I didn't plan to write a series on Marvel Entertainment (NYSE: MVL). All I wanted to do was point out that Iron Man wasn't the make-or-break story Wall Street thought it would be. The core business -- the one that has yet to see a dime of profit from self-produced films -- is outperforming and  undervalued.

But it's actually more than that. Marvel is slowly but certainly morphing into the next Disney (NYSE: DIS).

Crazy, you say? Rewind to 2002 with me. Spider-Man hit theaters on May 3 and became the year's top grossing film. Yet, according to Capital IQ, Marvel booked just $57.8 million in licensing revenue in 2002. Look how it's improved since:

Talk about a myth buster. We've long thought that revenue from a 1999 joint venture with Sony (NYSE: SNE) -- a deal that, according to SEC filings, amounted to a 50-50 split of merchandise sales tied to the Spider-Man films -- was wholly responsible for licensing revenue growth. Not so. Marvel's licensing business performs well even when you exclude the joint venture.

To me, there are only two conclusions to draw from this data:

1. Marvel is I-just-hit-the-Powerball-jackpot lucky.
2. Marvel, like Disney, unleashes a revenue-boosting halo effect every time it introduces a successful character-based franchise.

I'm going with No. 2. Here's why:

See anything interesting? I do. Marvel's best year for non-Spidey licensing, 2005, also happened to be its worst year at the box office. For those wondering whether the beginnings of a $200 million deal with Hasbro (NYSE: HAS) might explain the increase, stop wondering. Marvel has historically broken out toy revenue separately.

And don't forget the core of Marvel's core businesses: publishing. That division produced just $64.5 million in revenue and $19.6 million in operating profit in 2002. Oh, what a difference a few successful movies make:

Spider-Man did a lot more than bury box office baddies, Fool. It improved every area of the business. News Corp.'s (NYSE: NWS) Fox, General Electric's Universal, and Viacom's (NYSE: VIA) Paramount all sought deals of their own with Marvel. Video game publishers also wanted in. Even Crocs (Nasdaq: CROX) bought a boost from Marvel's tailwind.

Thus the Disney comparison: Successful character introductions are massively lucrative outside the box office. Just how lucrative is a matter of debate, but we have some data to work with, thanks to the Spider-Man joint venture.

Let's run the numbers. Excluding 2002 and 2003 -- Marvel accounted for the joint venture differently in those years, so I hesitate to rely on data from back then -- the Spider-Man partnership brought Marvel $218.3 million during the four years ending in 2007. Doubling that (it's a 50-50 deal, remember) equals $436.6 million.

Four years, $109 million per year. Just for merchandising.

Does that mean Iron Man, too, could be worth $100 million a year outside the box office? Probably not. Spidey is huge; Shellhead isn't.

Not that it matters. Marvel is currently running just under $500 million a year in revenue. Who cares if Iron Man isn't worth $100 million annually? $50 million would be massive.

That's how Disney was built. Create a character, roll it out to a wide audience, license like crazy, and collect the residuals. The difference between Disney and Marvel is that the Magic Kingdom has worked this process successfully hundreds of times. Marvel has done it just once, with Spider-Man.

Check that, twice. Welcome to the club, Iron Man.

More Marvel ...

• Marvel Is So Money
• Iron Man!
• A Marvel-ous Deal