In the universe of superheroes and rock 'em, sock 'em action, a comic book tracking the adventures of "Turnaround Man" has yet to appear. If and when that happens, the most likely inspiration for such a character would be Peter Cuneo (HBS MBA '73), former president and CEO and current vice chairman of Marvel Entertainment. Home to some 5,000 characters including Spider-Man, the Fantastic 4, the X-Men, and the Incredible Hulk, Marvel employs about 200 people worldwide, not including the small army of freelance writers and illustrators who produce its acclaimed comic books.
In a career that spans more than thirty years, Cuneo has completed seven successful turnarounds at consumer-product companies such as Clairol, Black & Decker, and Remington. He joined Marvel in 1999, just after it emerged from bankruptcy. Now, in a move he has described as a "transforming event" and "radical change" for the company, Marvel has secured $525 million of nonrecourse debt (its film characters serve as collateral) to produce ten motion pictures. With Paramount as its distributor, Marvel will oversee all other aspects of the films and enjoy 100 percent of the profits from related merchandising licenses for toys and other consumer products. The first Marvel-produced theatrical release (Captain America is a likely subject) is scheduled to appear in summer 2008.
Marvel, based in New York, with offices in London, Los Angeles, and Tokyo, had revenues for 2004 totaling $513 million. That dramatic comeback from the company's near-death experience seven years ago didn't come without its share of pain, of course. Quiet but intense, Cuneo leaves little doubt as to his role in creating the new Marvel. When asked to pick which superhero he relates to the most, Cuneo mentions a tireless vigilante: the Punisher.
What is the motive behind Marvel's decision to begin producing its own films?
Creative control and a greater portion of the potential profits. When we came out of bankruptcy seven years ago we determined that movies would be the primary means of reintroducing our characters to consumers. But we were short of cash. As a result, our movie licensing deals with studio partners were not always to Marvel's advantage. Coming out of bankruptcy is like finishing chemotherapy: You are theoretically "cured" but also very weak. Since then, films made with Marvel characters have had a great track record—eleven out of twelve have been successful, with a cumulative box office of over $2 billion—so we're in a much stronger bargaining position. By producing our own films instead of licensing the rights to a studio, we will keep a much higher percentage of a film's revenues and be able to choose a release date that will enhance our sales of toys and other merchandise.
| Our heroes give us 100 percent of their earnings, never misbehave, and never get old. |
What changes will be made at the company as it enters this new industry?
Our Marvel Studios division has been intimately involved in the production of past movies featuring Marvel characters, from screenwriting to casting to choosing the director. In effect, they've been apprenticing for this change over eight or nine years. We will need to add five to ten permanent employees to help support the new filmmaking effort, although most of the people who produce a motion picture are hired on a freelance basis.
Are the declining numbers of moviegoers a concern?
No, action films loaded with special effects will continue to be popular because people want to see them on the big screen. No matter how home theater systems evolve, they'll never match the big screen for excitement. A small or R-rated film has trouble with the box office because the audience is limited and will often wait for the DVD release. Consumers are not stupid. They know that the time between the theatrical release of a film and the DVD release is shrinking due to the threat of piracy.
What is Marvel's revenue model?We make money in two ways. First, we expose our characters in all appropriate forms of mass media, such as motion pictures, television, the Internet, publishing, and wireless applications. In negotiating these arrangements, our characters might as well be real celebrities. We could be Tom Cruise's agent or Captain America's agent—it's almost the same discussion when it comes to entering media contracts. The careers of our characters differ from live celebrities in that our heroes give us 100 percent of their earnings, never misbehave, and never get old.
The second side of our business is consumer products. We're in twenty-five different categories, with toys being the biggest at the moment, followed by video games. Here, our characters are managed as brands. So it's interesting—Spider-Man is both a celebrity and a brand.
What are some of Marvel's newest licensing opportunities?
We are entering the direct-to-video business by producing animated, full-length films that sell directly to retailers. When it comes to licensing, we don't like to risk our own capital. Since I came to the company in 1999, we've done 1,500 licenses without putting up one penny of our own money.
What about comic books at Marvel?
They will always be very important. In a sense, comic books are our R&D function. What is unique is that we have a very profitable R&D effort with triple-digit ROI and net margins of 30 to 35 percent. We can take creative risks with new or existing franchises and virtually never lose money. Also, the quality of comic books today has never been better; it's not the old days when they were printed on pulp paper. When they're done well, they're a high form of art.
Who reads Marvel comic books today?
Generally speaking it's an audience aged 13 to 30, 70 percent male, 30 percent female. We're very conscious about further broadening the demographic for our comic books and the Marvel business in general.
Did you read comic books as a kid?
No, not really. I am an individual who does consumer-product turnarounds. I've done seven to date, and in each instance I've tried to determine if the brand involved had been destroyed in the eyes of consumers. If not, there was a good chance of recovery. In consumer products, you usually aren't threatened by some radical new technology from a competitor. Rather, it's almost always a question of lack of leadership—a lack of courage to make the changes that are needed. I don't have the same fears about making those changes that most people do. It may come from my experience as a Navy officer on a ship during the Vietnam War. Once you come through a war, your risk-reward profile is changed.
We turnaround types are often the wrong person to lead a well-oiled machine. Typically I stay for three or four years and then move on. I was CEO at Marvel for three-and-a-half years, but I love the business and am still involved as vice chairman. My part-time role includes evaluating acquisitions, talking to investors, and helping to evolve strategy—without the stress. Being a CEO, whether it's a turnaround situation or not, is 24/7 stress. The process of going from one turnaround to another, but having some time in between to rejuvenate, has worked out very well. 