Marvel Enterprises - Case Study PDF

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RSM251!Case!Assignment!1!

Marvel!Enterprises,!Inc.!! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! Lucia!Jung! 1000439965! RSM251!L0201! Monday,!February!2,!2015! !

Lucia!Jung! 1000439965!

! Case!Assignment!1!–!Marvel!Enterprises,!Inc.!! ! Following!the!company’s!declaration!of!bankruptcy!in!the!late!1990s,!Marvel!had!since! developed!a!new!operation!strategy!integrating!its!extensive!licensing,!toys,!and!publishing!divisions! to!better!align!with!its!financial!standing.!Focusing!on!its!core!business!elements,!the!new!strategy! allowed!Marvel!to!successfully!recover!and!grow!to!have!a!market!value!of!over!$2!billion!by!2003.! With!significant!values!in!sales!and!income!as!well!as!its!brand!awareness!and!equity!achieved!by! 2004,!it!was!time!for!executives!to!critically!examine!the!company’s!future,!reevaluate!its!current! marketing!and!operation!strategies,!and!explore!potential!growth!opportunities.! ! ISSUE!STATEMENT! Marvel’s)current)strategy)is,)in)a)word,)outdated.)Rather)than)seizing)growth)opportunities) available)within)their)various)divisions,)especially)those)related)to)motion)pictures,)Marvel)Universe) characters,)and)publishing,)the)company)has)become)too)dependent)on)their)licensing)activities)and) popularity)of)well>known)core)characters)(e.g.)Spider>Man).)The)company)has)reached)a)point)where)this) strategy)is)no)longer)compatible)with)its)market)position)and)long>term)objectives.)) ! ! SITUATION!ANALYSIS! Stemming!from!it’s!recovery!period!after!filing!for!bankruptcy,!Marvel’s!strategy!mainly!focused! on!reducing!overall!expenditures,!implementing!growthMsustaining!measures,!and!minimizing!risk,! while!also!building!the!company!back!up.!In!order!to!do!so,!the!company!emphasized!the!importance! and!revenueMgenerating!roles!of!three!divisions:!comicMbook!publishing,!toys,!and!licensing.! ! Marvel)Universe,)Characters,)&)Comic>Book)Publishing! Marvel’s!existing!character!and!character!family!bank!makes!up!what!the!company!calls!the! Marvel)Universe,!and!is!showcased!in!their!comicMbooks!in!the!form!of!periodicals!and!graphic!novels.!

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! With!popular!characters!having!hundreds!of!associations!and!different!story!lines,!there!exists!a! variety!of!series!targeted!at!different!consumer!groups.!Mainly!targeted!at!males!from!13!to!23!years! old!as!well!as!adults!in!their!mid!30s,!comicMbooks!have!a!vary!limited!customer!base,!making!it! difficult!to!expand!and!develop!this!market1.!Traditional!distribution!methods!did!not!improve!this! situation,!as!direct!market,!mass!market,!and!subscription!channels!were!either!causing!Marvel!comicM books!to!experience!extreme!competition!on!the!shelves!in!the!form!of!DC!Comics!and!smaller! independent!publishers,!or!channel!locations!were!not!easily!accessible.!!While!this!market!is! considered!stable!at!$300!million!in!annual!sales!and!Marvel!had!a!sizeable!40%!dollar!market!share,! publishing!is!not!strong!enough!to!extend!and!strengthen!the!Marvel!brand,!especially!considering!the! existence!of!media!and!entertainment!products.!2! ! In!keeping!with!their!strategy!of!minimizing!risk,!Marvel!is!very!cautious!about!running!with! new!characters!and!storylines!(if!the!margin!is!under!30%).!That!is,!they!invest!in!developing! characters!and!publishing!the!comicMbooks,!but!inferring!from!the!case,!they!may!not!be!investing! enough!to!market!them!and!build!awareness,!resulting!in!a!lower!margin!than!that!of!existing!core! superhero!publications.!Marvel’s!overMdependence!on!“the!winners”!may!be!generating!enough! revenues!to!cover!these!costs!and!contribute!a!great!amount!to!the!company’s!overall!profits,!but!there! is!also!risk!involved!in!this!decision!since!consumer!tastes!may!change!and!the!public!may!lose!interest! in!any!of!the!popular!characters,!implying!major!changes!in!revenue!as!well.!! ) Marvel’s)Toy)Division) The!Marvel!toy!business!has!grown!to!become!a!top!designer!of!action!figures!and!children’s! toys.!Mainly!targeted!at!boys!from!4!to!12!years!old!and!an!older!customer!base!for!collectors,!the!toy! division!is!a!significant!contributor!to!profits,!and!creates!opportunities!for!sales!of!associated!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1!Appendix!Exhibit!AM!Target!Segments,!Competitors,!and!Distribution!Channels!for!Marvel!Company!Divisions! 2!Appendix!Exhibit!BM!ComicMBook!Industry!Market!Shares! 3!

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! consumer!products.!The!company’s!decision!to!invest!in!this!industry!and!in!developing!products!for! the!market!is!justified!by!the!$20!billion!in!sales!that!the!industry!generated!in!2003.!Through!their! licensing!agreement!with!TBW!(excepting!SpiderMMan),!Marvel!has!a!fairly!advantageous!position,!as!it! has!tight!control!over!quality!aspects!of!the!products!and!does!not!face!the!manufacturing!and! inventory!risks.!It!is!worth!questioning!this!strategy,!however,!because!the!company!is!already! responsible!for!the!development,!design,!and!marketing!aspects!of!the!toy!business,!which!incur! implicit!costs,!and!yet!Marvel!is!unwilling!to!independently!manufacture!its!own!products!for!fear!of! bearing!explicit!costs.!Considering!revenues!for!popular!character!toys!(more!than!10%!of!net! revenues!in!2001),!such!as!the!Spider>Man)Web)Blaster,!and!the!increase!in!sales!during!major!movie! releases,!the!toy!business!may!be!an!extremely!beneficial!investment!opportunity.! ! In!any!case,!Marvel’s!toys!gain!much!better!exposure!than!its!comicMbooks!through!the! distribution!channels!due!to!the!specialty!toy!retailers!and!mass!merchandisers!like!WalMMart!and! Toys!‘R’!Us.!Because!they!are!easily!accessible!and!available!to!a!wide!range!of!consumer!groups,!the! Marvel!brand!toys!can!market!the!characters!and!the!associated!media!products,!and!are!also!likely!to! gain!more!influence!on!consumer!behaviour!through!increased!brand!awareness.!This!strategy!also! had!its!consequences,!since!mass!retailers!provided!shelf!space!for!Marvel’s!competitors!in!the!toy! industry!(i.e.!Bandai,!Hasbro,!Mattel).!This!calls!for!Marvel!to!strengthen!its!competitive!advantages! and!find!ways!of!obtaining!more!shelf!space!in!its!distribution!channels.! ! Marvel’s)Licensing)Division)and)Media)Exposure) Using!licensing!as!the!main!operating!tool!to!expand!the!company,!Marvel!has!monetized!its! existing!content!library!consisting!of!major!blockbuster!characters!like!The)Hulk!and!Spider>Man,!as! well!as!many!lesserMknown!character!families!like!The)Ghost)Rider,)and!The)Fantastic)Four.3!Through! licensing,!the!characters!and!the!Marvel!brand!have!been!available!for!use!in!various!media!products!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3!Appendix!Exhibit!CM!Production!Costs!and!Revenues!of!Marvel!Movies!Released,!RevenueMSharing!Arrangement!for!Marvel! 4!

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! and!consumer!products,!making!this!division!the!most!profitable!among!all!of!Marvel’s!divisions,! generating!$139!million!in!operating!income.!! ! With!motion!pictures!being!a!major!component!of!Marvel’s!licensing!division,!the!company’s! studio!has!invested!human!capital!and!incurred!implicit!costs!in!increasing!this!particular!licensing! activity.!!To!minimize!risk!and!reduce!expenditures,!Marvel!has!built!partnerships!with!various!studios! that!produce!the!film!adaptations!of!its!popular!storylines,!avoiding!any!studio!or!production!costs,!as! well!as!any!marketing!and!advertising!costs.!In!other!words,!Marvel’s!close!involvement!with!the! development!of!the!films!is!not!reflective!of!their!very!limited!capital!investment.!Despite!total!box! office!results!for!blockbuster!films!like!Spider>Man!and!X>Men)II!covering!all!studio!productions!costs! and!generating!significant!profits,!Marvel!continues!to!engage!only!in!licensing!its!brand!and! characters!without!any!control!over!the!film!release!and!marketing!strategies.!Their!revenueMsharing! agreements!with!their!studio!partners!are!surprisingly!unfavourable,!and!often!generated!negligible! amounts!in!profits.4!However,!overall,!Marvel!films!dominated!the!market!generating!more!than!70%! of!the!revenue!($1.2!billion!out!of!$1.7!billion),!while!the!remaining!percentage!could!be!traced!to!its! competitors,!DC!Comics!(and!Warner!Brothers)!and!Pixar.!! ! Marvel’s!licensing!activities!for!other!media!and!consumer!products!are!alternative!sources!of! revenue,!and!it!is!assumed!that!they!tend!to!appeal!to!very!specific!consumer!groups!or!subgroups! (e.g.!consumers!who!enjoy!purchasing!and!playing!video!games,!consumers!who!have!access!to!special! theme!parks/shopping!malls/other!venues).!While!this!provides!the!company!with!a!plethora!of! opportunities!to!build!brand!awareness!and!general!sales!of!licensed!products,!the!minimum!payment! to!Marvel!by!licensees!are!dependent!on!the!customer!awareness!of!the!characters!and!storylines!that! are!being!marketed.!This!addresses!the!previous!issue!of!dependence!on!core!characters,!and!the!risks!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4!Appendix!Exhibit!DM!Motion!Picture!Revenue MSharing!Agreements!–!Marvel’s!Share ! ! 5!

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! involved!in!terms!of!loss!of!revenue,!as!well!as!the!issue!of!Marvel’s!brand!equity!and!loyalty!versus! the!characters’!brand!equity!and!loyalty.! ! ANALYSIS!OF!ALTERNATIVES!&!DECISION!CRITERIA! Decision)Criteria) Implementing!any!alternative!strategies!for!Marvel!requires!consideration!of!several!major! factors!that!will!drive!the!decisionMmaking!process.!First,!the!new!strategy!must!allow!for!sustained! growth:!after!emerging!from!bankruptcy!and!recovering!to!a!certain!degree,!the!company!can!now! focus!its!attention!on!longMterm!development!and!future!profitability!in!all!divisions.!Second,!any! alternatives!should!consider!the!extent!of!Marvel’s!capital!investments!and!work!to!identify!all! profitable!activities!that!will!maintain!or!exceed!profitability!under!the!current!licensing!strategy.! Furthermore,!any!new!strategies!should!increase!Marvel’s!brand!equity!and!loyalty!and!be!more! effective!than!placing!too!much!focus!on!popular!blockbuster!characters,!promoting!increased! awareness!of!the!company’s!other!smaller,!lesserMknown!characters.!! ! Based!on!these!criteria,!Marvel!has!a!variety!of!strategy!options!to!implement:! ! 1. The)current)market)strategy) They!can!continue!licensing!operations!while!maintaining!control!over!the!design!and!quality!of! toys!and!consumer!products,!and!build!brand!equity!and!awareness!of!their!original!popular! characters!through!the!media!at!the!cost!of!having!low!revenue!shares!from!production!studio!profits.! While!this!method!is!certainly!not!an!unprofitable!one,!their!lack!of!capital!investment!and!riskM avoiding!behaviour!is!preventing!the!company!from!tapping!into!potentially!profitable!sources!of! revenue!in!the!form!of!motion!pictures!(Spider>Man!grossing!$820!million!worldwide,!Marvel! receiving!$25!million!only!in!profits),!independent!toy!production,!and!expansion!of!the!Marvel! Universe.!There!is!also!a!disconnect!between!the!objectives!of!the!current!market!strategy!–!

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! minimizing!expenditures!and!risk,!and!financial!stability!–!and!the!goals!of!a!more!stable!Marvel!that! seeks!growth!opportunities!and!largeMscale!projects!to!increase!profitability.! ! 2. Expanding)the)Marvel)Universe>)Introduction)of)new)heroes)and)investment)in)marketing)lesser> known)heroes! Under!the!previous!market!strategy,!Marvel!chose!to!cancel!any!comicMbook!publications! featuring!new!characters!if!they!had!less!than!a!30%!margin.!Judging!from!Publishing’s!explanation,! the!company!did!not!invest!in!aggressive!marketing!or!advertising!for!these!new!products,!nor!did!it! attempt!to!build!any!brand!awareness!through!licensing!activities,!choosing!instead!to!“watch!it”!for!a! period!of!time.!!This!strategy!places!much!more!emphasis!on!the!existing!popular!characters!and! increases!Marvel’s!dependence!on!these!characters!to!achieve!expected!profits.!Marvel!needs!to! question!what!would!happen!to!their!profits!if!consumers!lose!interest!in!major!characters!like!Spider> Man,!and!how!this!would!also!negatively!affect!all!divisions!within!the!company.!! By!introducing!new!characters!and!investing!in!creating!customer!awareness,!Marvel!can!gain! popularity!for!these!characters!and!distribute!some!of!the!risk!associated!with!their!dependence!on! popular!superheroes.! !! 3. Investing)in)Capital>Intensive,)but)also)Potentially)More)Profitable)Activities)–)Motion)Pictures! Marvel!has!been!focused!on!activities!that!required!very!little!of!their!own!capital!investment,! thereby!emphasizing!their!use!of!licensing!as!a!means!of!generating!revenue.!This!strategy!was!very! applicable!when!the!company!did!not!have!the!cash!and!financial!means!of!providing!any!capital! investment,!however,!with!its!current!standing,!activities!requiring!large!investments!may!be! necessary!to!reap!the!bigger!rewards.!In!particular,!Marvel!may!want!to!seize!the!opportunity!to! capitalize!on!motion!pictures.!! With!an!everMgrowing!consumer!market!for!entertainment!products,!Marvel!can!invest!physical! and!human!capital!in!setting!up!its!own!production!studio!and!producing!its!own!films.!By!taking!this!

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! risk,!Marvel!could!fully!own!(and!not!just!license)!its!popular!superheroes!and!have!full!control!over! the!whole!filmmaking!process,!release!time!and!strategies,!and!marketing!and!advertising!strategies,! and!retain!the!profits!from!the!project.!! ! RECOMMENDATIONS! After!considering!Marvel!Enterprise’s!longMterm!goals!and!areas!in!which!it!has!not!yet!seized!all! revenueMgenerating!opportunities!and!profitMmaximizing!activities,!it!is!recommended!that!the! company!introduce!new!heroes!and!character!families!under!publishing!to!expand!and!diversify!the! Marvel!Universe.!Distribution!channels!for!resulting!comicMbook!series!and!graphic!novels!should!be! better!planned!and!organized!to!effectively!build!awareness!and!facilitate!easy!access!to!these!new! products.!It!is!also!recommended!that!Marvel!focus!less!on!minimizing!risk!and!expenditures!and! invest!more!physical!and!human!capital!in!producing!its!own!motion!pictures.!! ! ACTION!&!IMPLEMENTATION!PLAN! The!main!issue!with!introducing!any!new!characters!under!the!Marvel!brand!was!that!they! never!got!enough!exposure!through!marketing!efforts!to!rise!to!the!level!of!Spider>Man!or!The)Hulk.!As! a!result,!majority!of!consumers!are!likely!paying!too!much!attention!to!existing!popular!heroes,!and! are!less!likely!to!personally!seek!out!lesserMknown!characters.!To!respond!to!this!behaviour,!Marvel! can!build!the!awareness!of!new!heroes!with!consumer!awareness!of!known!heroes.!One!of!Marvel’s! greatest!strengths!is!that!it!has!interlocking!story!lines!and!families!of!characters!created!by! association!with!popular!heroes.!So,!by!publishing!comicMbooks!introducing!new!characters!as!part!of! a!team!with!a!known!character,!for!example,!the!target!audience!of!comic!books!featuring!known! characters!(and!previously!untapped!consumer!groups)!can!be!exposed!to!lesserMknown!heroes.!By! using!the!brand!equity!built!by!Marvel’s!successful!characters,!it!can!effectively!market!its!new! characters.!!

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! If!Marvel!can!gain!an!audience!for!these!new!characters,!opportunities!for!licensing!activities! may!also!increase.!Assuming!Marvel!invests!enough!capital!to!produce!motion!pictures!for!its!popular! heroes!and!stories!(discussed!below),!it!can!additionally!engage!in!licensing!the!use!of!their!lesserM known!characters!to!external!production!studios!so!that!they!may!gain!exposure!through!the!media.! This!can!lead!to!the!development!and!marketing!of!toys!and!other!consumer!products,!since!increases! in!demand!have!shown!to!be!closely!related!to!film!releases.!! ! In!terms!of!distribution,!Marvel’s!publishing!had!been!relying!heavily!on!direct!market!channels! such!as!specialty!stores!to!carry!a!large!amount!of!their!products,!but!these!stores!were!not!very! strategically!located!to!be!easily!accessible!to!a!large!consumer!base.!!Perhaps!it!would!be!beneficial! for!Marvel!to!also!reevaluate!their!distribution!methods,!and!consider!enhancing!their!online!specialty! shops!via!their!company!website.!This!would!categorize!their!product!lines!ranging!from!comicMbooks! to!toys!to!collectors’!items!and!make!them!available!to!anyone!who!visits!the!site.!Exclusive! memberships!are!also!an!option!so!that!those!willing!to!pay!a!membership!fee!can!gain!access!to! specialty!items!and!other!advantages,!but!this!may!alienate!Marvel’s!current!customers!who!are!not! willing!to!pay!the!fee.!The!company!should!be!aware!of!the!response!of!customers!to!these!changes!–! whether!it!is!accepted!and!appreciated!or!considered!too!corporate!–!and!act!accordingly.!! ! In!implementing!this!strategy,!Marvel!executives!should!be!aware!of!the!possibility!of!market! cannibalization,!as!well!as!costs!of!expanding!the!product!line!(characters).!While!it!seems!unlikely! that!responses!to!a!new!character!could!reduce!sales!volume!and!revenue!for!products!associated!with! their!major!heroes!(many!of!which!have!had!years!to!build!awareness!and!equity),!Marvel!needs!to! consider!the!likelihood!of!cannibalization!and!examine!the!implications!in!terms!of!possible!revenue! loss.!As!well,!developing!new!characters!and!stories!requires!human!capital,!and!this!is!an!investment! decision!that!Marvel!should!weigh!against!the!potential!payoffs.! !

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! Investing!their!own!capital!in!largeMscale!projects!like!motion!pictures!is!bound!to!require! Marvel!to!face!high!fixed!costs!in!setting!up!the!studio!itself,!as!well!as!other!costs!in!hiring!talent!and! human!capital,!cost!of!production!technology,!and!marketing!expenses.!These!costs!should!be!covered! in!full!by!the!revenue!generated!by!the!film!when!released,!although!there!is!little!guarantee!that!this! will!be!the!case!besides!the!initial!popularity!and!awareness!of!the!characters!and!effective!marketing! of!the!film.!This!type!of!project!is!highMrisk!due!to!the!level!of!investment!on!Marvel’s!part,!but!as!its! CEO!says,!there!could!be!a!huge!payoff!as!well.! ! As!mentioned!previously,!lesserMknown!character!films!are!likely!much!riskier!to!invest!in,!since! there!is!even!less!guarantee!of!the!films!becoming!a!hit!and!generating!high!revenues.!For!these!films,! Marvel!might!consider!using!its!licensing!strategy!to!have!the!major!studios!produce!them,!and!gain! profits!through!their!revenueMsharing!agreements.!If!these!characters!do!well,!Marvel!can!also! capitalize!on!this!opportunity,!and!produce!spinMoffs!or!sequels!in!their!own!studios!(provided!they! are!not!under!contract!with!other!studios).!! !! An!advantage!of!Marvel!producing!its!own!films!is!that!representatives!of!the!company!itself!can! dictate!exactly!how!each!character!in!each!film!will!be!marketed!to!the!public.!However,!there!is!the! challenge!of!building!the!brand!equity!and!customer!loyalty!in!the!Marvel!Studios!brand,!something! that!largeMscale!production!studios!like!Sony!Pictures!and!20th!Century!Fox!had!already!possessed! before!making!Marvel!films.!A!considerable!amount!needs!to!be!invested!in!not!only!marketing!the! films,!but!the!studio!brand!as!well,!in!order!to!successfully!implement!this!strategy.!! ! ! ! ! ! ! 10!

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! APPENDIX! !Exhibit)A:!Target!Segments,!Competitors,!and!Distribution!Channels!for!Marvel!Company!Divisions! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! !

Exhibit)B:!ComicMBook!Industry!Market!Shares! ! Smaller, Independent Publishers 25%

Marvel Enterprises Inc. 40%

DC Comics 35%

!

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! Exhibit)C:!Production!Costs!and!Revenues!of!Marvel!Movies!Released,!RevenueMSharing!Arrangement! for!Marvel! ! Title

Production Cos Costt

Total Box Office Earnings (Domestic and World)

Revenue Revenue-- Sharing Ag reement

Blade! Blade!II!...