The Motley Fool's Rich Smith snagged some time with Peter Cuneo, vice chairman of longtime
Motley Fool Stock Advisor
recommendation Marvel Entertainment
Rich Smith: Marvel has revamped its business plan from intellectual property (IP) licensing house to movie mogul. How does the new Marvel differ from the old?
Peter Cuneo: Historically, we limited ourselves to the ownership, control, and content creation for our only asset -- IP; our characters and brands. We are now capable of producing forms of media ourselves given our exposure to these areas over the past seven years. We have moved into the production of direct-to-video animated films (with Lions Gate
RS: When Fool co-founder David Gardner first recommended Marvel in 2002, he said, "The company gets a percentage of the movies' box office and DVD sales, but it's not responsible for paying for the movies' budgets. Sure, if any of the movies bomb, it will be a disappointment, but none of them is a sink-or-swim proposition." Marvel formerly offered low to no risk; even a movie flop would still make the company money. Now, Marvel has transformed itself into "something else." Reassure us that "something else" is "something better."PC: Our Marvel feature film slate is the natural evolution of our company and acknowledges the tremendous success our creative team has achieved through feature film productions over the past several years. While revenue and net income remain very important performance benchmarks, most important is how much cash our operations are able to generate, particularly in comparison to the amount of capital that we employ in our business. On these terms, we believe Marvel has a very attractive, totally unique business model that is truly something better.
RS: How does Marvel operate in regard to IP that it's already licensed for particular films? For example, can Marvel make X-Men and Spider-Man movies on its own now, or only in cooperation with News Corp.
PC: In our feature film licenses, our studio partners are granted what is essentially a "use it or lose it" license. These licenses require that the studio continue to produce and release films based on the characters and to meet certain criteria, such as minimum budgets and producing and releasing film sequels within contractual time frames. Otherwise, the film rights will revert back to Marvel. This is what occurred when the film rights for Iron Man and Hulk reverted to us in the recent past.
RS: You recently announced a partnership with Hasbro
PC: We selected Hasbro based on their passion and vision for the Marvel character brands, the strength of their global reach, their proven skills in the action figure and accessory market, and on their specific promotional commitments to support Marvel lines. Of course, we also like the overall financial terms of the agreement, which included a cash minimum guarantee that was substantially larger than we had secured from our previous master toy licensee.
RS: Marvel is contemplating taking on $525 million in debt. You've also partnered with Viacom's
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