Marvel Worldwide, Inc.

Product Model






Marvel Worldwide, Inc. is an example of a “product” business model. The company creates intellectual property for its parent company, Marvel Entertainment LLC, in the form of characters and stories for comic books that are sold directly to consumers either through a digital interface or in hard copy via retailers. This intellectual property is also utilised in Marvel Entertainment’s own movies and licensed to other vendors (e.g., TV networks).

HISTORY – THE EXEMPLAR FIRM AND OTHERS:

Marvel Worldwide, Inc. (hereafter Marvel) is a subsidiary of Marvel Entertainment LLC, itself a wholly-owned subsidiary of The Walt Disney Company. Marvel is one of the world’s largest character-based entertainment firms, with a library of 8,000 characters featured in a variety of media over seventy years. Marvel is described as utilizing “its character franchises in entertainment, licensing and publishing.”1

Marvel Entertainment as a whole has seen a spectacular turnaround in the past two decades, described by Forbes Magazine as “a Cinderella story that will be told for generations to come.” Entering a particularly messy bankruptcy in 1996, the company then followed the crescendo model: galvanizing, simplifying, building and leveraging,2 and under the watchful eye of new CEO Peter Cueno retired its debt, moved from a vertically-integrated model to licensing, fortified its publishing arm, and completed its turnaround by 2002.

In 2005 it raised $525 million to fund its own in-house movie studio, quickly releasing two films that were both financial and critical successes. Marvel was acquired by Disney in 2009 for $4.3 billion. Since then, they have enjoyed a string of box office hits, with results from 2014 putting the Marvel Cinematic Universe at the top of the rankings with the highest-grossing film franchise of all time.3

Its publishing arm, however, is seeing a decline in market dominance, from 40.81% in 2008 to 33.50% in 2013. Marvel’s biggest rival, D.C., saw a similar drop, from 40.81% to 29.94% respectively.4 This fall can be ascribed to growing competition from smaller, independent publishing companies, whose market share doubled between 2012 and 2013. That said, the comic book market as a whole, bucking the trend in periodically printed media, has been steadily rising, perhaps in part thanks to the movie successes, with the market increasing in North America from c. $660- 690m in 2011 to $700-730m in 2012, and reports of record sales in 20135.

Whilst Marvel may therefore currently own a smaller slice of the pie than in the past, that same pie has nevertheless been expanding year-on-year. Digital, meanwhile, has been somewhat slower to take a foothold in the industry than in other media, comprising only a 10% share in 2012. However, this will inevitably grow in the not-too-distant future, and Amazon’s recent acquisition of the comiXology app (consistently ranked as one of the top-grossing apps in iTunes) is a sign of an impending turf war in distribution.

CUSTOMERS – WHO THEY ARE:

Marvel Worldwide effectively has two customer groups: an “upstream” customer in the guise of Marvel Entertainment, which leverages IP created by the publishing body, and “downstream” customers, who buy the comics and related merchandise (e.g., action figures) and who watch Marvel’s movies and TV shows.

Market research in the comic book industry is surprisingly sparse. However, readership is definitely no longer dominated by teenage (or younger) boys; Marvel’s customer base is far more gender- and age-balanced than in the past, meaning Marvel must generate content that appeals to a broader readership. Marvel Worldwide has an exceptionally loyal (and vocal!) fan base, on whose loyalty much of its turnaround was predicated. In marketing products and services Marvel must balance the tastes of core readers whilst appealing to a new audience.

ENGAGEMENT – VALUE CREATION PROPOSITION (INCLUDING NETWORK EFFECTS):

Marvel Worldwide distributes its comics in both hard copy and digitally (the latter comprised 10% of total market sales in 2012). Diamond Comic Distributors, Inc. is the monopoly distributor in the industry for all publishers, acting as the middle-man between Marvel et al. and retailers internationally. The comiXology app has dominated digital distribution, while Marvel also makes content available via their own apps and website (including “Marvel Unlimited”, an on-site subscription service for back issues).

DELIVERY – THE VALUE CHAIN:

Nicknamed the “House of Ideas”, Marvel Worldwide’s primary role is to create content for its comics, which is then the intellectual property of the parent company. There is crossover between the publishing body and the movie studio, and characters and storylines are shared. Comics are created in-house, with teams of editors, writers, colourists and letterers working together to create the product. Hard copies are printed and distributed by external companies, and sold primarily via a fragmented network of master distributor and retail partners. On the digital side, the process remains the same until the layout stage, when the digital content is produced (looking identical to the hard copy version) and files are distributed through Marvel’s own app, comiXology or others.

comiXology is the market leader in digital content distribution, and has recently been acquired by Amazon, who immediately announced that in-app purchases would no longer be enabled; consumers would have to purchase content via the comiXology website instead (although it would still be readable in-app). This was to circumvent Apple’s 30% cut on all content purchased within its ecosystem (and follows Amazon’s decision to disallow Kindle purchasing via OS apps). As agreements with comiXology are pre-existing, no further ramifications have been felt – although it remains to be seen what influence Amazon will wield when it comes to contract renewals.

Marvel itself owns two digital comic download services – the first, Marvel Comics, has recently gone “day and date”, meaning new comics are available on the day of physical release (they used to arrive later, primarily to afford store retailers a degree of protectionism). The second, Marvel Unlimited, is a paid subscription service, where for a monthly or yearly fee, a back history of over 13,000 comics can be consumed.

MONETIZATION – VALUE CAPTURE:

Customers pay up front, with retailers estimating sales and ordering accordingly, although they may claim returns on certain unsold items. Comic books tend to retail between $2.99-$3.99 per issue, and the price does not change between digital and hard copy. Creative teams are on a “page rate” and receive negotiated royalties. Retailers and the distributor take variable cuts dependent on the volume ordered. Apple takes a top-slice of 30% on all sales in their App-based ecosystem. Marvel also earns money by licensing its characters and stories to other vendors, and through the movie franchises of Marvel Entertainment.

Disclaimer:

Written by Georgina Vincent and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School, this case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2014



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