Business case. Marvel's wonderful resurrection (part 3)

In the first and second parts of the case, a crisis situation was described, which resulted in the bankruptcy of Marvel. In the third final part, we will consider remedial measures due to which the company emerged from the crisis, as well as their positive and negative points.

Many who read the previous parts of the case, probably already familiar with some of the details of the event. So in English-language sources, many authors view the reorganization very superficially, and almost in unison describe it as a lucky coincidence of circumstances and the success of the first part of the movie about Spider-Man, thanks to which everything began to turn, but as you understand, this is not so. But who cares to read about reformatting strategic goals, reducing costs, etc. In the spirit of Western blogs and news resources, catchy headlines and sensational stories in which the work of the management team is silenced, and rehabilitation procedures are explained by the miraculous success of the super-hero on the screen.

In fact, the transformation of Marvel from bankrupt to a profitable company during 1997-2000 was the result of quality management under the leadership of Peter Cuneo (was the general director of Marvel from 1999 to 2001) and Ayk Perlmutter (the general director of Toy Biz and the head of Marvel).

When Peter Cuneo came to Marvel in search of work in July 1999, he introduced himself as a specialist in financial recovery of companies, although he hadn’t previously had experience in a media company. In many sources, it is called no differently than Turnaround CEO at Marvel .

Analysis of rehabilitation measures allows to divide them into three time stages:

1. Bankruptcy 1997-1998,
2. Repositioning 1999-2000,
3. Stabilization and further development from 2001 to the date of sale.

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Within these time frames, we will evaluate the positive and negative aspects of financial, operational and management decisions.

Bankrupt

During this period, the management did a great job and made considerable efforts in trying to correct the mistakes made. They had to get rid of many unprofitable and non-core assets as quickly as possible, to restructure the main business contracts and formulate clear, consistent goals for the company. Not all the tasks were performed with the required efficiency, as a result of which, the members of the management team changed places on the board of directors of the company twice during two years.

Good decisions

First, Marvel management got rid of some assets, the most significant of which were:

• Heroes World Distribution is the exclusive distributor of Marvel comics, which has been unprofitable for many years. Instead, the distribution of Marvel comics began to engage the Diamond Comic Distributors.
• Fleer Confections is a manufacturer of sweets and chewing gum. The sale of Fleer resulted in a $ 7.1 million decrease in revenue.
• Unprofitable children's magazines, getting rid of which reduced revenue by another $ 15 million.

The next step was to reduce operating expenses:

• Dismissing three hundred highly paid employees.
• Reduction of selling, general and administrative expenses (SG & A, selling, general and administrative expenses), group expenses in the income statement, including payment for managers, salespeople, advertising, business trips, receptions and other overhead costs; does not include payment percent or depreciation) at $ 55.4 million (from $ 183 to $ 127 million).
• Reducing depreciation from $ 16 to $ 11 million as a result of the write-off of fixed assets associated with the sale of unprofitable divisions.
• Restructuring of artists' labor costs.

At the same time, the company retained the comic book production, licensing and toy business, and also signed a contract for the films “Men in Black” and “Blade”. However, Marvel was not able to fully utilize the possibilities of the film contract due to its current position.

Bad decisions

Despite all the efforts, it can now be concluded that the management could have done a little more. One could get rid of:

• Fleer and Skybox are collection card companies acquired by Marvel in 1995. This business was unprofitable due to a contraction of the market and unfavorable licensing agreements concluded with sports and entertainment organizations at a time when the market was on the rise.
• Panini is a sticker maker that has been unprofitable for the past two years.
• Marvel Restaurant Venture Corp is a joint venture with Planet Hollywood that created the Marvel Mania restaurant in Los Angeles, which lost $ 5.5 million in 1997. Marvel not only decided to keep this business, but also to develop it, on which another $ 25.7 million was lost.
• Toy Biz is a toy maker who loses money by spraying a large segment of the toy market (the company produced both toys in the Marvel universe, as well as toys based on NASCAR, Resident Evil, and others). True, in 1998 it was decided to focus only on toys related to Marvel.

Marvel financials for this period

Nevertheless, it is clear that Marvel was taking steps in the right direction, which led to the improvement of the company and gave it some freedom of maneuver in the short term. Moreover, it was very important to reduce the company's total costs by 63%. The company's payables also fell sharply. While the company was still in a very difficult situation, we see that the work on the mistakes was carried out in the right financial way. Although we still see a lack of a common strategic vision for the company. Parts of Marvel were divided. Each of them worked as a separate division and connected them only using a common pool of characters.

From these company reports of the time, it can be assumed that the board of directors was trying to select the right anti-crisis management team. In 1997, CEO Joseph Ahearn, along with the entire team, was replaced by Eric Ellenbogen, who in turn was replaced in 1999 by Peter Cuneo.

In general, during this period, the company took unprecedented measures to rehabilitate the business, but was defeated on two fronts: the main problem assets and very little success in eliminating the causes of the crisis - the volatility of sources of income, reducing demand for products and coordination between subdivisions.

Repositioning

1999 was a year of liberation from the yoke of the bankruptcy code. Management continued to optimize the capital structure, the sale of non-core assets and the improvement of the core business. More importantly, the slow shift in focus of the company from resolving bankruptcy issues to the formation of the future company.

Good decisions

First, the third team, working since 1999, behaved differently from its predecessors. Peter Cuneo locked himself up as CEO , COO and CFO . “Old Guard” eventually moved to the leadership positions of a subsidiary of Toy Biz.

In 2002, when, after the stabilization of the company, Peter Cuneo left his post, these posts were reintroduced. He consolidated in his hands most of the authority to control the company, and as soon as he managed to make the company profitable, he resigned and allowed the successors to manage the company according to their preferences.

Secondly, after several not very good years, Marvel finally sold Fleer and Skybox in February 1999 and Panini in October 1999, and the company lost $ 400 million on these assets.

Thirdly, to compensate for the loss of income from these businesses, the company signed major agreements on film licensing, the most important agreements were with Sony to produce a movie based on Spider-Man (Marvel received a percentage of rental vehicles and home video sales) and from the 20th Century Fox, for the production of the X-Men, the Fantastic Four, and the Silver Surfer. These steps proved the viability of the licensing business model. Revenues from the monetization of their characters allowed the company to restore its position and cash flow.

Fourth, the reorganization led to a concentration of the company's efforts in five value categories: licensing, publishing business, cinema (including television and DVD), the Internet (media) and toys.

Fifth, there were additional staff reductions from 1,650 full-time and 550 freelancers in 1998 to 800 and 530, respectively.

The most important thing in this period was a clear position of management. Marvel turned out to be one of the leading entertainment companies, concentrating on the sale of licenses and rights to its most valuable strategic assets (characters).

Bad decisions

Much of what Peter Cuneo did had a fruitful impact on the company, but some questions still remained unresolved:

• The toy business is still lagging behind, despite the elimination of some toy lines. Although the company focused on toys in the Marvel universe, efforts were sprayed on many characters, when it would seem more logical to support only the most popular ones. All the others should have been abandoned. In addition, a lower price policy would be an excellent move to reduce operating costs and ensure production flexibility. However, the company did not go so far.
• In 2000, the company is still at a loss. A small positive operating income from an agreement with Sony did not cover all of the company's expenses.

From the table below, it is clear that Marvel is still far from ideal and requires careful management, aimed at improving the company's current financial situation, and not scaling the company.


In general, Peter Cuneo and his team did something that nobody had been able to do before. They not only focused the company's business, but also formulated strategic goals and began formatting the company's structure according to these goals.

Stabilization and further development

Since 2001, the company began a period of stability. Between 2001 and 2003, the company successfully turned into a money machine. Low capital costs, low debt levels, low overhead costs, and large licensing revenues for popular characters for movies have allowed the company to forget about its past.

Good decisions

First, the management made a big step towards reducing long-term debt and interest costs, which hindered the growth of the company. The purchase of 12% priority securities for $ 99 million reduced annual interest payments by $ 10 million.

Secondly, the restructuring of the toy unit has been restructured. Instead of self-production and sale, a royalty agreement was concluded with the Hong Kong company Toy Biz Worldwide (not to be confused with the Marvel subsidiary).

Third, the management began to devote more time and attention to licensing:

• The number of character licensing deals for movies increased - Daredevil, X-Men 2, Hulk.
• The quality of deals with Hollywood companies has improved.
• Signed auxiliary agreements with companies such as Burger King, Activision and Universal.

Fourth, the company's main business has undergone significant improvements, reducing the cost of comic book publishing and expanding its presence in major retail chains such as Borders and Barnes and Noble.

Finally, in 2001, Marvel further reduced its operating costs, reducing the number of personnel to 500 people (including offices in Hong Kong and Mexico), and in 2002 it dropped to 200 people altogether. The company began, as necessary, to involve freelance writers and artists, whose number ranged around 500.


From 2001 to 2002, there were significant improvements in the financial statements. Cash has more than doubled, reaching levels no one has seen in nearly ten years. Net income in 2002 increased by 300%, inventories and payables decreased significantly.

How successful was the Marvel recovery?

From a purely financial point of view, it was a smashing success. Here are some proofs.

1. Minimum capital expenditures - only $ 4 million capital expenditures without any real fixed assets.
2. Low level of debt - at the beginning of 2004 only $ 151 million.
3. Lack of preferred shares - the company made a forced conversion of preferred shares into ordinary shares, eliminating interest obligations on preferred shares.
4. Significant increase in stock prices from $ 5 (2000) to $ 35 (2006).
5. High return on invested capital - 28%
6. Evaluation of the market value of equity on the scheme.

From an operational point of view, the recovery of Marvel is also seen as strong.

1. Licensing: the licensing model on the basis of which the renewed company worked, generated extremely high profits with virtually no capital investment. Marvel managed not only to choose the right strategy using her strategic assets - popular comic characters, but also to follow her. The company used the momentum from its films to diversify revenue from licensing DVDs, video games, television, theme parks, clothing, and other consumer goods.

2. Publishing business: Marvel has made its main business profitable again. The company reduced the cost of expensive exclusive agreements with some writers and artists, and replaced their manual labor with a less expensive computer. Marvel also managed to make peace with the most talented artists and authors, many of whom left the company after its bankruptcy or earlier, due to which sales grew again. As a distributor, the company entered into a contract with Diamond Comics, which processes all orders from independent comic stores, which allowed Marvel to print its products to order, eliminating excess inventory.

3. Toy Business: Marvel also returned profitability to this business, leaving all but the most profitable lines of toys, usually derived from the most popular Marvel characters, such as Spider-Man, X-Men and Hulk. All products were manufactured in Hong Kong.

4. Management: The company finally got rid of the motley public, plunging the company into the chaos of bankruptcy, and replaced them with people who put the interests of the company above personal. Marvel simplified the management structure by reducing the number of directors on the board, consolidating the functions of the CEO and COO, and eliminating management positions that are not related to the company's main business areas.

What's next?

Since 1998, Marvel has been involved in the joint production of films (Blade), and although the quality of licensing agreements has been increasing every year, all the most delicious system profits went to Hollywood.

Back in 2004, Wall Street analysts still doubted the company's prospects, considering the new success to be temporary and short-term, but already in 2005 it became known that Marvel Studios began producing its own films. To this end, the company enters into a revolving loan agreement with Merrill Lynch for 7 years worth $ 525 million with amazing conditions: according to a credit agreement with Merrill Lynch, if Marvel cannot pay interest, they will be paid by the insurance company in exchange for rights to use in the main character’s films .

The film industry and the public have already tried out films about super-heroes and everyone was waiting for new versions. Since the rights to use the blue chips of the company already belonged to other studios, they focused on their less popular heroes - Iron Man, Torah, Hulk. In 2008, Marvel blows up the world by successfully reloading Hulk (the first film is considered a failure) and an adaptation of “Iron Man”, which gathered over $ 430 million in the world box office in the first 17 days. “Iron Man” marked the beginning of a unique film universe developed by Marvel Studios. After that, the company began to remove the tape, scattering like hot cakes. The Avengers in the United States started on May 4, 2012 and earned $ 207.4 million for the first three days of hire, setting a record for debut weekend fees, and in total, the picture collected more than a half billion dollars in the top five highest-grossing films in history.

In 2009, The Walt Disney Company, under the strategic initiative of its CEO, Bob Eiger, acquired Marvel Entertainment for $ 4 billion, and, according to the established practice, didn’t change anything in the company, only by providing its resources and distributing Marvel’s products, which meanwhile film versions of their universe, although many publications describe it as pre-designed plans, but the documentary film Marvel Studios: Uniting the Universe says that initially such a goal was not even planned.

Thank you all for your attention and anticipation. Here you can read the first part , and here the second part. Here is a pdf-version of the entire case.