Disney Buys Superhero Powers: Is It Safe?

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LOS ANGELES ( TheStreet) -- Disney's ( DIS) purchase of superhero-giant Marvel ( MVL) will give the media company Hulk-like powers.

Marvel's movies have been fantastically successful, spawning lucrative offshoots including amusement-park rides. However, riches streaming from the Marvel lineup may be coming to an end for Disney rivals Viacom ( VIA.B); Universal Studios, a subsidiary of General Electric ( GE); and Vivendi. Time Warner ( TWX), home to DC Comics, also will feel the heat.

Disney's agreement valued Marvel's stock at $50 a share, almost a 30% premium. Clearly, Disney saw value in Marvel. After the acquisition, Disney will control the top superhero shop and animation expert Pixar, a formidable competitive position against major competitors such as Warner Bros., a unit of Time Warner.

The addition of teenage-boy-friendly Marvel will plug the gap in Disney's offerings. With a catalog of more than 5,000 characters, most of which haven't been featured in a movie, and the creative brains at Marvel, Disney gains a huge inventory of content.

A strengthened Disney is one of the last things that Time Warner investors want to see. The company's shares have fallen more than 40% over the past year, and now the one division that investors could count on -- Warner Bros. -- will feel more competition than ever. Warner Bros. has been buoyed by "Harry Potter" and "Batman" hits in the past few years. But with the pipeline of new "Harry Potter" titles dwindling and the next Batman installment uncertain at best, Warner Bros. could begin to lose its male audience to the new Disney/Marvel powerhouse.

Even so, Warner Bros.'s own superhero movies, with the exception of Batman, are fewer in number and less successful than their Marvel competitors. With Disney now at the helm, the gap could grow substantially. The possibility of a Pixar/Marvel collaboration is both intriguing and potentially lucrative.

Companies with more in jeopardy are Viacom and General Electric, the majority owner of Universal Studios.

Viacom subsidiary Paramount Pictures recently inked a deal with Marvel to distribute several upcoming movies, such as the "Iron Man" sequel and "The Avengers." While current contracts need to be honored, it's safe to say that any future collaborations probably will be off the table. Disney will certainly begin distributing Marvel movies under its own name, cutting out other studios.

News Corp. ( NWSA) is also likely to lose business after the deal is done. Its subsidiary, 20th Century Fox, had distributed several Marvel movies in the past, including the "X-Men" series.

Universal Studios will end up losing twice -- it distributes various films and has rights to use several Marvel characters for its theme parks. As a result, Spider-Man and the Incredible Hulk may disappear from amusement parks.

That's just another reason why General Electric should think about dumping its NBC Universal subsidiary.

Before the acquisition of Marvel, Disney was a strong company with many competitive advantages. Now, its brand is even more powerful, and the company has sucked away huge future revenue streams from competitors. An acquisition price of $50 a share seems high, but Disney now looks to be far and away the best media company for investors to bet on.

Disney is rated "buy" by TheStreet.com Ratings. News Corp., Viacom and General Electric are rated as "hold." Time Warner is a "sell."

Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.

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