Some time back I posted my view of one facet of what may be coming for the comic book industry, in a somewhat dubiously titled post, “The Future of the Comics Industry?” That post explored the growing number of publishers who have established relationships with movie studios, or in some cases, like Marvel, are actually assuming the role of movie producer. At the end of that post I promised a follow-up explaining how companies might make money a lot of money in the near term but might want to batten down the hatches over the longer haul.
My delay in posting the follow-up was to allow me time to digest Edward Jay Epstein’s fascinating book, “The Big Picture: Money and Power in Hollywood.” (Highly recommended for anyone with so much as a passing interest in how Hollywood works. It won’t take long to get through, unless you have my unfortunate habit of reading five books at once.) I’ve also been pouring over a number of articles Epstein has written for Slate - the latest of which is here, and will lead you to others if you’re so inclined. Epstein’s numbers and analysis went a long way towards helping me understand how a company like Marvel might have success producing movies.
The Mighty Marvel Manner
With their much publicized assumption of $525 million in movie production debt, Marvel moved to the front of any discussion regarding comic books and movies. The initial reactions to this move were mixed, with most people unsure how to balance the unquestioned past successes against the failure of others as well as the notion that what remains in the stable may not be nearly as compelling as Spider-Man, X-men and the Fantastic Four.
Most of the discussion has centered around the potential success or failure of the planned slate of movies: beginning with Captain America and ranging through such properties as Iron Man, Thor, Black Panther, Ant-Man, Cloak & Dagger, Power Pack and Doctor Strange. Beyond Captain America, and maybe Iron Man, none of these are even remotely recognizable to the non-comic reading public and most don’t even enjoy icon status within that select group. How can Marvel possibly think any of these will have success at the box office? The answer is simple: they don’t. These movies will likely be regarded as box office failures when viewed through the narrow lens of movie production finance and it seems quite likely Marvel knows this going in, as does financier Merrill Lynch. As Epstein frequently points out, very few Hollywood movies make money via theatrical release – at least in the traditional business sense where the phrase “making money” might be interpreted to mean “earning a profit after all expenses are paid.” According to Epstein, on par, studio movies bring in about $1.00 for every $1.40 doled out in expenses. That really makes you question Marvel’s move, doesn't it? Why do the deal at all? Because in the modern world of Hollywood accounting the cash cows are not theatres, but television licenses and DVD sales. Here’s the money line from the original press release:
“Marvel will receive a gross participation on all revenues from the facility as the producer of each film and will retain all of the film-related merchandising revenues. These merchandising revenues and the gross participation are neither pledged as collateral nor subject to any cash restrictions under the facility. Marvel will also receive all profits, including all revenue streams (including box office receipts, DVD/VHS sales, television, and soundtrack sales) after film costs, distribution fees, marketing, principal repayment, and interest. In addition, Marvel will have the ability to build its own film library through this initiative.” [Emphasis added.]
Prior to this move Marvel’s profit participation in their various adaptations was fairly restricted -- as is the case with most licensers -- but this sets up a new downstream that could generate income for years. Studios have been bought and sold for the value of their film libraries alone and as long cable and satellite providers continue to add stations (heck, even if they don't) the demand for content will be there. Equally, there are nearly as many ways to package and repackage DVD content as there are for old comic book stories.
A lot depends on Marvel’s ability to put out entertainment of at least passable quality. (Insert NEW AVENGERS joke of your choice here.) But that’s probably not as difficult as it sounds judging by some of the crep I clicked through on the various HBO incarnations last night.
Can I Get a Franchise With That?
While comic book films may not need to profit directly off their theatrical releases, they do need to create a buzz positive enough to generate DVD sales and, perhaps more importantly, provide at least modest momentum for sequels. Or they should if you’re trying to simultaneously build a film library, create an interest in licenses for underpants, fruit snacks and video games, and -- hopefully -- provide a little boost for your R&D, errrr, publishing division.
Not all franchises need to be of the Spider-Man or Batman tent pole variety, nor do the characters or vehicles themselves need to enjoy broad public awareness. One thing we’ve learned over the last few years is that it doesn’t take a 99th percentile Q-rating to find some success at the box office, and presumably the riches that follow. Of the millions who contributed to Daredevil’s $180 million worldwide gross, how many do you suppose knew anything about the character before they walked into the theater? How many knew Blade had been a comic book? Or Men in Black? Or Teenage Mutant Ninja Turtles? All of these had good to great box office success (in terms of raw numbers) across multiple releases. And all of them continue to spin off revenue for their various studio ownership. Which is certainly why Marvel is listing sequels to both Hulk and Punisher on their production slate.
The beauty of this for anyone who isn’t DC or Marvel is that the barrier for getting your comic book with movie franchise potential franchise optioned is considerably lower than one might have thought some years ago. Here is Atmosphere Entertainment’s Mark Canton in the press release announcing that his company will work with Platinum Studios to develop a movie based on the graphic novel KILLING DEMONS:
"'Killing Demons' is the kind of movie I really like making. It's in the vein of 'Men In Black' – an exciting, heroic big-screen adventure with comedic moments, lots of action and franchise potential.” [Emphasis added.]
KILLING DEMONS? It was actually a very well done graphic novel, albeit one that even most comic book fans aren’t aware of.
The Oncoming Train
So there’s revenues to be had, although you’d be hard-pressed to discern where income is derived from a simple reading of a studios income statement. (Epstein lays everything out in his book – apparently this kind of info is disseminated to the studios, but not made readily public.) Much of it comes after a movie leaves the theater, a period which seems to be shrinking daily as studios strive to move quickly to that DVD/TV revenue stage and take advantage of the theatrical release’s advertising.
As long as DVD and television revenues hold up, studios will continue to make money. For that matter, any knew technology, say Blu-ray DVD, that might force consumers to repurchase some part -- preferably all -- of their entertainment library is also a good thing. But it can’t be all good news, can it? There has to be some disruptive force on the horizon and you’ve probably already guessed what it is. The nature of that light from the omnipresent oncoming train? It’s from the front of your computer; it’s that little red LED flickering away as your hard drive is accessed. I suppose you could also say it’s from the ever-growing reach of broadband and wi-fi, and from TIVO and bittorrent and DVDXCopy and iPods and really anything else that involves file sharing, data transfer or storage.
It’s becoming increasingly easier for even the least technical among us to store data files – often without really knowing that’s what is being done. Call it a form of convergence if you will, but we’re not far away from a time when movies are tossed around the Internet in the same fashion MP3’s are today. I don’t think this spells the end for DVD sales or the current delivery model for televised programming, but there’s an adjustment period coming and the product that is most likely to be affected first are the premium services, specifically movies. The studios are clearly aware of this and seem determined not to fall down the same rat hole the recording industry currently finds itself in, but it’s hard not to imagine a financial setback, despite their efforts in the areas of digital rights management (DRM) and content delivery. The music industry has had to undergo a significant restructuring to their business model in order to stay financially viable and all indications are that Hollywood will as well.