Shareholders now need to figure the root of Disney's outperformance to get a better sense of whether its conglomerate plans will work, or falter and cause shares to stagnate, as they did in the bull market between the dot-com bust and the financial crisis.
Ten years ago, media conglomerates bought up studios, Web startups, networks and retail stores in a failed effort to push intellectual property through a growing number of distribution platforms, says Peter Cuneo, a principal at media investment company Cuneo & Co. He blames failed cross-synergies on weak content, likening industry efforts to fueling a Ferrari with regular grade gasoline.
Previously, Cuneo headed a turnaround of Marvel as it emerged from bankruptcy in the late 1990s and early 2000s, and was vice chairman of the company when it was sold to Disney for $4 billion in 2009.
In experiencing Marvel's evolution into a factory for blockbuster movies, Cuneo cites the company's decision to use motion pictures to breathe new life into its comic book characters as a reason why Disney will now benefit from its ownership.When Disney bought Marvel, Viacom's Paramount unit had distribution rights for Iron Man and other Marvel-inspired films. Meanwhile, Sony (SNE) and Twentieth Century Fox hold the film rights to Spider-Man and X-Men films in perpetuity, meaning that Disney doesn't see an ownership benefit. While Spider-Man and X-Men are ubiquitous characters and their on-screen success isn't surprising, Cuneo points out that Marvel's Iron Man movies revived an action hero that had vanished into obscurity, with a big studio and comic books payoff. Disney will need to replicate that type of success with some of the thousands of lesser-known Marvel characters for its acquisition to truly be a blockbuster deal. Since buying Marvel, Disney has paid a big price to pull some of its movies in-house. In 2010, Disney took back the distribution rights to The Avengers and Iron Man 3 only after amending Paramount's previous agreement with Marvel for a minimum $115 million payment. In fact, in the hit launch of The Avengers, a movie concept that Cuneo says was underway prior to Disney's acquisition of Marvel, Reuters recently reported that Paramount still stands to collect 8% of the film's box office, DVD and Web-related revenue, citing unnamed sources. While licensing arrangements on Marvel franchises underway prior its acquisition might shave some present revenue, CEO Iger intends to make big investments to exploit a full ownership of most future Marvel movies, park rides and merchandising opportunities. Like with Disney's Pixar-inspired Cars Land, CEO Iger said on a recent conference call that the company expects to use Marvel characters to expand its theme parks, particularly in California, Europe and Asia, where it is currently completing a Shanghai Disney Resort. Meanwhile, Disney owns all current and future Marvel related retail revenues. "