When Chief Executive Robert Iger opens the Walt Disney Co. (DIS) post-earnings conference call to questions late Tuesday, he won’t be asked again to justify the $4 billion he spent in 2009 to acquire Marvel Entertainment. Or, at least, he shouldn’t be.
The skyscraping $175 million domestic box-office take for the opening weekend of "Iron Man 3" was exceeded only by the previous Disney-Marvel release "The Avengers," which went on to collect $1.5 billion in ticket sales globally.
The latest "Iron Man" installment had already pulled in as much overseas as it is estimated to have grossed in its initial North American weekend in theaters. At its current trajectory, the latest Robert Downey Jr.-Gwyneth Paltrow save-the-world-through-cool-technology movie should reach $1 billion in global box office.
"Iron Man 3" is the final Marvel-inspired film covered under a pre-existing distribution agreement with Viacom Inc.’s (VIAB) Paramount Pictures – an arrangement that Iger wanted to get past urgently enough that he agreed to pay Paramount a guaranteed fee in 2010 for "The Avengers" and "Iron Man 3" so Disney could take control of both films’ marketing.
A big payday
Paramount was in line to earn 8% of worldwide gross for distributing "The Avengers"' and 9% for "Iron Man 3." Disney agreed to buy Paramount out of the deal for $115 million, which was cast as an advance on those distribution fees, with Paramount earning its full 8% and 9% fee if box-office sales exceed threshold levels. If "Iron Man 3" does end up earning $1 billion, Paramount will get $90 million in total, or $32.5 million more than the minimum guarantee implied in the buyout deal, by one analyst's estimate.
Disney is only too happy to pay this fee, because it means "Iron Man 3" is a larger-than-anticipated blockbuster and it gives the company a head start in embedding Marvel into its distribution platform. This also hands Disney full marketing control and potential cost synergies with other releases.
Given the runaway success of the "Iron Man" franchise – based on what was once considered a marginal comic-book hero – it’s remarkable that Iger took a bit of heat from Wall Street for the price he paid for Marvel.
Because "Spider-Man" is spoken-for under a long-term deal with Sony Corp.'s (SNE) Sony Pictures, analysts were unsure Marvel promised enough bankable characters around which to base years-long slates of movies and their attendant merchandise tie-ins. "The Avengers" and "Iron Man" have silenced the doubters. On the way are another "Thor" picture and "The Avengers 2," which will belong entirely to Disney.