Disney takes over the Marvel universe

The roster of the Avengers, the premier superhero team of Captain America and Iron Man, has recruited a new member: Mickey Mouse. “Avengers assemble!”

Wait, what?

One of the fun aspects of working at Hoover’s is when you’re confronted with those Monday morning M&A announcements that come out of nowhere. This week, it was the breaking news that Walt Disney had agreed to buy Marvel Entertainment for $4 billion.

There are two reasons the deal is such a surprise. First, there were absolutely no rumblings or rumors that the two companies were even in talks. That’s impressive in this age of instant information. But perhaps we shouldn’t be too surprised. When it comes to keeping a lid on things, a company that traffics in secret identities knows how to keep its mouth shut. Second, ever since Marvel began producing its movies totally in-house (Iron Man) instead of licensing the rights to other studios (Spider-Man), it’s been crowing about how good it is to control your own destiny and not share your pile of money.

Ultimately, though, it’s a good deal for both companies. (Full disclosure: I’m a Disney stockholder and a comic nerd of Mjolnir proportions.) On the Disney side, it will own a powerhouse 5,000 character licensing business with built-in name recognition from Day 1. No growing pains in trying to establish these characters or put their faces on everything from underwear to T-shirts. (Hell, we just bought my three-year old a package of Spider-Man underwear this very weekend.) Disney can install X-Men rides at Disneyland, produce cartoons for their numerous children’s TV networks, and on and on and on.

And that doesn’t even touch on the movie franchises that Marvel has only just started building. Iron Man 2 is coming next summer, followed by Captain America, Thor, and the eventual Avengers movie.  The only sticky situation Disney will have to navigate is with its studio arch-nemeses: Marvel currently has an exclusive distribution arrangement with Paramount, while Sony and FOX control the Spider-Man and X-Men movie franchises, respectively.

For Marvel, it no longer has to survive on its own as a small publicly-traded entertainment company in an industry of giant competitors. Sure, there’s a big upside to being your own boss and pocketing all profits, but there are risks as well. The comic publishing business is by no means a cash cow. It has a devoted and passionate fan-base that helps spread word of mouth, but that’s about it. That leaves most of the money to be made from licensing, which should only grow stronger backed by Disney.

But where Marvel carries the most risk is with the movies. When you are so dependent on producing one or two films every few years, the success of those movies makes or breaks your company. One film tanks and you’ve got a falling share price and ticked off shareholders. And even if the movies are hits, they still take years to develop, leaving you with long stretches where you don’t have anything hitting theaters or debuting on video and that hurts your cash flow. It’s the same pickle that Pixar found itself in while it was a public company. And it was eventually acquired by — yes — Disney. So again, the Mouse House has the experience to help Marvel be successful and the size to take the heat off any bombs or during downtime.

As a stockholder and media analyst, I like this deal. As a superhero geek and entertainment fan, I will simply make an appeal to Disney. Don’t fix what ain’t broken. Exploit the assets and characters all you want and make money. I’m cool with that. Just don’t start sticking your nose into the creative process. Superhero movies and comic books have had to fight hard for respectability, mainly by turning them into properties with more mature themes geared towards adults than kids. Please leave it that way. They know what they’re doing at Marvel. It’s why you’re buying them.