Iron Man Spawns a Marvel of a Movie Studio

This time around, the comic book publisher is taking its superhero to the big screen on its own instead of licensing him to Fox or Sony

Through its nearly 70-year history, the allure of Marvel Comics has always been pretty simple: Take one average Joe, add some superpowers (courtesy of a spider bite, a dash of radiation, or some other accident), throw in one or two villains, and you have a best-selling comic book hero. But can Marvel Comics (MVL) transform itself into the corporate version of a movie superhero as Pixar, or maybe even Dreamworks have? Stay tuned boys and girls, the answer to that question will hit a movie theater near you on May 2.

After years of licensing its films to other studios—Spider-man for Sony (SNE), or the X-Men franchise for Fox (NWS)—Marvel is going it alone. Well, kind of. With a $525 million credit line it raised in 2005, and a cushy distribution arrangement with Paramount (VIA) that allows it to keep a hefty piece of the profits, Marvel has made its first homegrown flick, Iron Man.

And befitting its new-found life as a studio wannabe, Marvel breaks from tradition with Iron Man: The hero ain't no average Joe; rather, it's a millionaire playboy corporate executive named Tony Stark who gets the superhero vibe. Instead of getting stung, radiated, or altered, he welds together some super-alloy for a suit, throws in a pair of screeching-fast jet boots and a pulverizing "repuslor" ray, and, presto, like Marvel itself, he has a new lease on life.

The Real Star is the Effects

But can Iron Man lift the $486 million-a-year comic book company to greater heights? Maybe he can. I caught the movie this week and, while it's no Spider-man (then again, not many flicks are), it's a pretty good ride for the superhero faithful.

As Tony Stark, Robert Downey, Jr. is a suitably insensitive, self-centered, womanizing crud. Surprisingly, he also brings the right amount of humor to the role. Jeff Bridges is an even better villain as Stark's back-stabbing second-in-command. But the real star is the over-the-top special effects that fire up Stark's suit with enough supersonic daring to outmaneuver jets, blast holes in mountains, and mow down Islamic rebels. Thank you, George Lucas and Industrial Light & Magic.

The big question, as it always is in Hollywood, is can Iron Man overcome its hefty price tag? No one at Marvel is saying how much it cost, but you can probably start at $150 million and go up from there. (Heck, Spidey set Sony back $250 million, but they're not complaining.)

A Secret Financing Weapon

I figure that to jumpstart DVDs, foreign sales, and toys, Iron Man had better sell north of $150 million worth of tickets at the U.S. box office—a figure that, given prior Marvel flicks' track records, is certainly doable. That means it needs to gross in the neighborhood of $60 million in its opening weekend to be on its way.

Marvel also has a secret weapon. Its financing deal, struck by one-time Disney (DIS) and Creative Artists Agency wunderkind David Maisel, is a non-recourse loan arranged by Merrill Lynch (MER). That means it doesn't sit on Marvel's balance sheet, and losses don't come out of the company's earnings. Of course, to get that deal, Marvel had to mortgage some of its prime characters much as you might mortgage your house. A series of flops for Marvel's new studio and Captain America, Black Panther, or Nick Fury could one day find themselves performing for a new studio. Marvel would be stuck taking license fees again rather than grabbing for box-office gusto.

Will that happen? Who knows? The box office gods are fickle. Anyone remember the Incredible Hulk, the 2003 film that Universal licensed from Marvel that went on to gross a very un-super $132 million? (More on that later.) That kind of number will send Marvel shareholders running for their Rolaids. The good news: Marvel is paying a lower-than-industry-average distribution fee to Paramount to get the films to theaters. According to its 2005 distribution agreement with Paramount, Marvel also gets to hang onto the merchandise, video game, and even network TV rights for its movie characters. That adds up: Spider-man alone accounted for some $132 million in merchandise revenue last year, according to Marvel's financials, although Marvel had to split that with Sony.

Marvel Has a Lot Riding on This

Marvel isn't sharing this time around. That's why Marvel's stock, now around $29, has been climbing—up by 8% in April alone—in anticipation of the Iron One making his big-screen debut. Having it all in-house changes everything for Marvel. "We have significant upside now," says Maisel. "We don't share the benefits and we don't have any material cash exposure." Better yet, Maisel pointed out during a recent lunch, he gets to greenlight his own films, a big deal for a company that waited through lawsuits and bankruptcies by various studios before getting Spider-man to the screen.

Paramount has done a great job making sure we all know Iron Man is coming. Anyone catch the Super Bowl spot? The studio also sent Downey off to Comic-con, the annual geekfest for comic buffs, and even down to Austin, Tex. to make nice to internet film critic Harry Knowles, the god of all things cinema to fan-boys. Marvel worked the comic-book faithful, creating a special issue that pitted the Iron Man against Captain America. Heck, there was ol' Robert, Jr. ringing the opening bell at the New York Stock Exchange three days before the flick opened.

Marvel has a lot riding on the next few weeks. Even after Iron Man has cooled his jets after what the company hopes will be a rocking great box office ride, the studio is onto its second flick, The Incredible Hulk. The big Green Guy hits movie screens in June. Yes, that's right, the Hulk, the same muscle-bound goof who fouled the air in theaters back in 2003. Maisel says this time a revamped Hulk will capture America. If it does, a new studio may take off in Hollywood like some web-spinning super hero with an overactive bug bite.

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