In October, Disney did something extraordinary: it unveiled plans to take its Marvel Cinematic Universe (MCU) through the end of the decade. Included in this eleven-film entrée were five pictures with characters largely unknown to audiences, two sequels to a film that won’t be released until mid-2015 and the studio’s first three-movie year (2016). The magnitude of what Disney is trying to achieve is hard to overstate. Not only will this slate cost nearly $3.5B and depend on another 1,650 days of audience interest in the MCU, but the studio’s ambitions go far beyond the theater. Marvel is currently producing seven live-action and three animated TV series, eyeing a number of Marvel theme parks worldwide, touring a live MCU show and, of course, publishing a wide range of video games and comics.
Yet, the most amazing aspect of this Olympian effort may be the fact that it has become virtually commonplace. Warner Bros.’ DC has ten superhero films planned through 2020, featuring unknowns such as Aquaman, Cyborg and Shazam, and including a two-part Avengers-style meet-up entitled Justice League. At the same time, the studio will be producing a television show for each of CBS, Fox and NBC, three for the CW (which Warner Bros. co-owns) and one for cable networks AMC, Syfy and the WB-owned TNT, as well as managing its own line of comics, apparel and toys. Sony has also announced plans to release at least one Spider-Man film every year (many of which won’t even include the franchise’s eponymous hero), starting with 2016’s Sinister Six (an Avengers of villains, essentially). Earlier this year, Fox released the multi-generational epic X-Men: Days of Future Past (rumored to be the most expensive superhero film in history) in the hopes of converting the ensemble-oriented franchise into its own web of character-specific spinoffs (Spoiler Alert: the film ‘resets’ the narrative timeline such that all dead characters never actually died). What’s more, there are already talks about an X-Men cross-over with Fox’s soon-to-be-rebooted Fantastic Four franchise. Outside the comic book genre, Universal is attempting to reestablish the Universal Monsters Cinematic Universe (starting with this year’s Dracula Untold) and Warner Bros. has begun pre-production on a trilogy of Harry Potter films that are set more than six decades before the Boy Who Lived was even born.
Many argue that this strategy is creatively vapid and bound for failure. That may be true, but these criticisms ignore the ways super-franchises reflect the economic necessities of mainstream filmmaking. Not only is the theatrical channel almost always unprofitable, it is becoming more expensive and unpopular each year – and the industry’s most important ancillary revenues are rapidly eroding. Platform films de-risk theatrical performance, amortize costly production and marketing budgets across multiple films, and diversify ancillary product offerings.
Yet, sound strategy doesn’t mean successful execution. As the major studios double and triple down on their superhero franchises, it’s worth looking back and evaluating their historical performance. After all, every committed date and dollar could be spent on another franchise – or at least reabsorbed by a corporate parent or distributed back to shareholders. In particular, I want to focus on active, un-divested comic book IP, as they constitute the largest committed future spend for each of Disney, Warner Bros., Sony and Fox.
The best place to start is North America, which represents the most mature market (in terms of both theatrical consumption and overall familiarity with comic book brands), as well as the most influential when it comes to VOD, home video and syndication revenues. Furthermore, significant growth in the overseas box office makes it difficult to compare audience reception to a franchise’s later titles (i.e. sales should all trend up over time).
On a domestic basis, Sony’s Spider-Man franchise has absolutely cratered. What’s particularly fascinating is the consistency of the decline in audience interest over the past 12 years – even after the property’s 2012 reboot. Fox’s X-Men, on the other hand, has never been a tremendously valuable franchise in North America. Even the much lauded Days of Future Past – a success by most measures – represents middling performance among other blockbusters (superhero or otherwise). It also sold 20% fewer tickets than 2006’s the series’ widely panned The Last Stand. Fox’s Fantastic Four franchise, which will be rebooted this June, has only ever disappointed ($189M and $151M on an inflation adjusted basis).
Disney’s Marvel, however, has been resilient. Average performance continues to improve (remember, upward volatility is actually good), thereby validating their integrated storytelling approach and demonstrating their growing mastery of the genre. Warner Bros.’ DC has had a far more mixed record. Aside from Christopher Nolan’s Dark Knight Rises trilogy (and to a lesser extent, Man of Steel, which Nolan also co-wrote and Executive Produced), the studio’s box office results have been both mediocre and unreliable. Worse still, there’s no sign of improvement – even though DC holds the second largest comic book roster (by far) and has released significantly more comic book films than any other distributor.
To evaluate franchising success, however, we need to see more than just the ability to scale revenues. There must also be evidence of scaled profitability (Note: Figures are now global).
The Very Unusual Suspects
Looking at the above, a few things are clear:
- Thanks to growth in the international box office, Spider-Man economics do appear to have stabilized. That said, franchise returns have still plummeted by nearly 50% since 2002. Unless Sony can find a way to materially reduce production and marketing costs (which have always been a problem for Spider-Man) or re-catalyze interest in the property (something the 2012 reboot failed to do), this may be more of a floor than an early sign of a rebound
- Fox’s X-Men, on the other hand, has certainly escaped its doldrums. But unless it can surpass Days of Future Past’s box office haul (which was the seven-film series’ best by almost 40%) while substantially cutting costs (the film’s rate of return ranked fourth), it’s unlikely to rival its caped competitors. To this end, Fox should look to The Wolverine as its case study – not Iron Man or Captain America. The film (which cost half of Days of Future Past and 27% less than X-Men Origins: Wolverine) showed that focused, lower budget entries can generate substantial returns for Fox without record breaking spend/risk. As for Fantastic Four, it’s hard to predict how the 2015 reboot might fare based on only two prior films. However, the series’ historical performance isn’t encouraging – and the title will face a far more competitive environment next summer than it did back in 2005 & 2007
- When costs are considered, Disney’s performance is even more superlative. Critics of ‘shared universes’ often point out that the strategy heightens portfolio risk (i.e. one bad film might spoil the lot) and promotes audience fatigue. Yet, Disney has defied both skeptics and mediocre ‘investment films’. Over the past six years, the company has managed to control (and in many cases reduce) production costs, convince audiences to return to the theater for film after film (even as they drift away from the channel) and made even its most obscure titles into mainstream “event films”. In Disney’s circus, there are no tent-poles that need bracing
- Marvel’s success also makes DC’s underperformance even more apparent. Only one of the superhero genre’s top five performers comes from the Warner Bros. subsidiary – and nearly half of its films underperformed the worst performing Marvel title (2008’s The Incredible Hulk). These results should frighten WB executives as they develop films around relatively unfamiliar characters like Cyborg and the Flash; unlike Marvel, they may not have the credibility needed to (economically) launch such untried brands. While Justice League will likely help with franchise revenue, it will also put an end to DC’s significantly below-average production costs
The Heroes’ Journey
However, focusing on a film’s performance – even when it incorporates all viewing windows – overlooks the deeper and emergent value of these properties. Case in point: 60% of Hollywood cash flow now comes from cable TV, not film. Yet while the success of Captain America and The Dark Knight has enabled Marvel and DC to pursue the medium with gusto, Sony and Fox hold only film rights to their superhero franchises. The remainder are, in fact, still property of Disney/Marvel. This puts the two studios at a significant competitive disadvantage.
Consider the full Marvel universe tha’ts in development today:
For Disney, the MCU represents far more than any single film or trilogy – it’s a storytelling platform through which Marvel entertainment can become a recurring service. This enables the conglomerate to gain not just revenue diversification, added upside and “halo effects” – but also constant touch points with consumers. Marvel’s weekly MCU TV series Agents of Shield, for example, helps audiences stay in engaged in the MCU in the months between feature films, and helps makes Marvel’s theatrical releases a ‘must see’ event for fans that might have otherwise waited until the title hit Netflix (or the Pirate Bay). In addition, Disney can use the sale of its various products to drive further consumption (e.g. a promotional 3-in-1 bundle containing a video game, 6 month comic subscription and a movie ticket; or a discounted Ant-Man ticket with the purchase of a Guardians of the Galaxy DVD or pass to Disneyworld). Warner Bros., of course, has access to many of these same benefits – though it doesn’t quite have the operational scale or marketing machine of Disney (e.g. there’s no Warner Bros.-land, no more Warner Bros. Studio Stores). Notably, the company has also decided to separate its film and TV universes (and not all of their TV series even exist in the same one). This mutes some of the benefits of platform filmmaking, though it does give the TV series greater creative freedom and the ability to re-cast characters.
Fighting Beyond the Silver Screen
Given their rights limitations, what’s the best path forward for Sony and Fox? Well first, it’s important to recognize that their disadvantages are going to intensify. Sony and Fox still benefit from the interest in Spider-Man, X-Men and Fantastic Four that’s generated by Marvel’s comics, toys and apparel (even though the products’ proceeds go to Disney). However, this might not last for long. Earlier this year, an X-Men fan asked Tom Breevort, Marvel’s SVP Publishing, the following: “Why aren’t there any X-Men cartoons? Why wasn’t there any licensing for Days of Future Past? Why aren’t there any new X-Men toys?” Breevort’s reply was simple:
“You’re talking about issues involving licensing and animation, and those are questions you’d need to ask to our people that oversee those areas. I will say two things, though, both of which are pretty self-evident, I think.
1. There are only so many hours in the day, and so many initiatives you can have going at once. So you need to pick and choose where you want to spend your time and your efforts.
2. If you had two things, and on one you earned 100% of the revenues from the efforts that you put into making it, and the other you earned a much smaller percentage for the same amount of time and effort, you’d be more likely to concentrate more heavily on the first, wouldn’t you?”
A few months later, X-Men writer Chris Claremont told Nerdist that “[The writing staff was] forbidden to create new characters… all because all new characters become the film property of Fox” and that “There will be no X-Men merchandising for the foreseeable future because, why promote Fox material?” In 2015, Marvel will go further: the 54-year old Fantastic Four comic book will be shuttered a two months before the release of Fox’s film reboot. Some even believe Marvel’s renewed commitment to Inhumans (which will join the MCU in 2019) comes from a desire “to [create] X-Menesque characters without having to use the X-men.” This doesn’t bode well for Professor X and his School for Gifted Youngers.
None of these decisions are unreasonable – nor are they necessarily nefarious. Ancillary markets such as home video, merchandising and children’s television can only absorb so much content. A child, after all, will not want a Christmas comprised of various X-Men, Avengers, Fantastic Four, Star Wars and Avatar paraphernalia and parents are unlikely to purchase multiple bedroom sets. But regardless of Marvel’s intentions, they will make it even harder for Sony and Fox to compete.
Plotting the Sequel(s)
What makes the entertainment business so challenging is the fact that it relies on a fundamentally intangible concept: taste. Executives at Sony and Fox can very reasonably believe that they can make a “better” movie than Marvel – that with the right talent, cast, script and marketing push, they can “beat” the MCU. Yet, were their situation to be abstracted or applied to any other industry, the decision would be simple: market exit.
The two companies are:
- Consistently underperforming
- Significantly less diversified
- Competing in an increasingly competitive space and against a market leader that is only getting stronger
- Without many of the strategic assets needed to thrive (and these same assets are instead being used against them)
- And in the case of Sony, experiencing a rapid deterioration in asset returns
With this view in mind, it’s tough to argue that Sony and Fox should continue to invest in their current superhero properties. Even if they do make a “great” film, will it be enough to overcome Marvel (and to a lesser extent, DC)’s expansive storytelling platform and entrenched audience? Will it be able to generate the returns needed to justify the investment and risk? Of course, it’s hard to look at a thriving competitor and sit out the fight, regardless of the industry. And Sony’s Spider-Man plans may yet work out. But it will take years and hundreds of millions to know.
Instead, Sony should sell the franchise’s film rights back to Marvel. Over the past few years, the latter has shown itself to be more than willing to make such a transaction – and would no doubt love to reclaim one of its best-selling characters (and an occasional Avenger). To make the deal more palatable, Sony could pursue a 15-20 year relicensing, rather than an outright sale. This would take Disney through the end of its current MCU roadmap and provide ample time for the studio to “kill” the character before rights returned to Sony. In either case, the studio would be able to quickly generate risk and cost-free revenue from the property. More importantly, Sony could then use these proceeds, as well as the money, effort and dates otherwise assigned to the franchise, to invest in new media forms and IP.
In hindsight, Disney’s $4B acquisition of Marvel in 2009 looks like the buy of the century. But so too was the company’s $7.4B pick-up of Pixar (2006) and $4B purchase of LucasArts (2012). The reality is that Marvel isn’t the only Marvel. There is other IP available – IP that can be controlled, protected and scaled. Would Lionsgate have committed to The Hunger Games if it had Spider-Man or the X-Men? Would Summit have snatched Twilight from under Paramount’s MTV Films? Many of the world’s best-selling “comics” aren’t even comics at all – they’re manga – and boast hundreds of millions of fans across the increasingly important Asian markets.
Sony executives will no doubt fear that selling or relicensing Spider-Man would further enable their most powerful competitor. That’s true. But Disney, frankly, doesn’t need Spider-Man to thrive. And retaining rights simply to inhibit a single competitor is unlikely to outweigh the benefits of building up a new, successful Sony-only platform film.
As for Fox, they should refocus X-Men on lower-budget blockbusters (up to ~$125M in production cost) that showcase its highly diverse character roster. The same argument could be made for Spider-Man, but the franchise is relentlessly expensive, not yet set-up for spinoffs and unlikely to survive another creative restart. With Fantastic Four, Fox will need to take a honest look at the reboot’s performance next summer and, unless it’s is superb, be willing to divest the property. 2005’s Fantastic Four, after all, grossed a justifiable $189M in inflation adjusted dollars at the domestic box office (enough to place it 13th for the year) – but its sequel pulled in 20% less and cost 30% more.
Hollywood may be facing more challenges and uncertainty than ever before, but more “superheroes and spend” isn’t the only answer. Thankfully, the business is built upon creativity and “newness”; with a little effort and fresh thinking, it can always find a way rescue itself.
Matthew Ball is a Director of Strategy & Business Development at Otter Media and leads Strategy & Originals at REDEF.
 In fact, the company claims to have a cinematic plan through 2028
 Notably, Universal owns the rights to have Marvel attractions east of the Mississippi River in the United States and in all of Japan
 I.e. Every US broadcast network aside from the Disney-owned ABC
 Agents of S.H.I.E.L.D., for example, teed up Captain America: The Winter Soldier and was itself fundamentally affected by the film’s events