For Marvel (NYSE:MVL), this is where the plot thickens. After spending the last few years raking in licensing fees while major Hollywood studios take its characters to the big screen, Marvel is prepared for a bigger piece of the action.
Tuesday morning, the company announced that it had secured the $525 million in financing needed to transform 10 of its comic book properties into popcorn-munching celluloid spectacles. It will lean on Viacom's (NYSE:VIA) Paramount studio to distribute its films, but will finance and produce them in-house.
The deal itself isn't new. Marvel had announced its intentions back in April. Starting in the summer of 2008, the four-color entertainment giant will bring live-action adventures to a multiplex near you twice a year. That includes some of the company's biggest properties -- Captain America, Nick Fury and The Avengers among them -- but also some more obscure franchises like Power Pack and Shang-Chi, Master of Kung-Fu.
The debt will be investment-grade, meaning that Marvel will be paying a relatively cheap rate on its leverage, but there are some strings attached. If Marvel defaults, its creditors will retain the movie rights to the related characters. That may seem like a win-win on the surface. If the films are turkeys, there wouldn't be much value in those film rights. However, given fickle moviegoer tastes, sometimes a great property (like Marvel's Hulk or Elektra) can still get botched in the theatrical translation. This is a non-recourse arrangement; under the worst-case scenario, Marvel won't have to give up anything beyond its collateral. That can be plenty, though. It would be a shame to give up on Captain America 2, or hand it over to a new owner, just because the first entry didn't resonate with movie audiences.
Marvel has been a huge winner for our Motley Fool Stock Advisor newsletter service. Since David Gardner recommended the shares three summers ago, Marvel's stock has been a hearty five-bagger.
The movie deal is likely to rock Marvel's stock one way or the other over the next few years, since it's the start of a major overhaul for the company's business model. Instead of sitting back and collecting licensing royalties, Marvel will be entering an investment-intensive phase where it has to finance nine-figure movie deals. The rewards will be huge if the company's aim is true. In the end, we will be looking at an income statement with great plus and minus sums on the way to a less predictable bottom line.
Related to the strategic shift, the company's moniker will transform from Marvel Enterprises into Marvel Entertainment. It's a move that makes sense. Just as Blockbuster Video became Blockbuster Entertainment when it started to branch out into new ventures through the 1990s -- only to retreat to the more modest Blockbuster (NYSE:BBI) when it had to hunker down and focus on its core business -- Marvel is a media mogul now. It might as well act like one.
Marvel is taking a bold step with this move. Let's just hope that it knows what it's doing.
Other Marvel-ous perspectives on the self-financed movie deal:
- Lawrence Meyers likes the idea.
- Steven Mallas has his concerns.
- I'll admit it. I too had my worries about the company back in June.
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Longtime Fool contributor Rick Munarriz enjoyed the Spider-Man and X-Men sequels even more than the originals, but he hasn't exactly been won over by Marvel's other theatrical efforts. He does not own shares in any of the companies mentioned in this story. The Fool has adisclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
