The Marvel Way: Restoring a Blue Ocean Strategy - Marvel Entertainment Case study | Bankrupt Marvel

Summary

The Marvel case study recounts the company's journey from struggling comic book publisher to a powerhouse in the entertainment industry. Founded in 1939, Marvel reinvented itself in the 1960s by creating relatable, flawed superheroes, attracting a new demographic. Financial missteps led to bankruptcy in 1996, but under new management, Marvel leveraged its intellectual property, securing lucrative movie deals and eventually establishing Marvel Studios. This strategic pivot resulted in the creation of the highly profitable Marvel Cinematic Universe, demonstrating a remarkable business turnaround.

Takeaways

• 😎 Marvel was founded in 1939 and initially struggled, producing knock-off comic books until the 1960s when it took a creative turn focusing on non-customers like college students.
• 🌟 In the early 1960s, Marvel revolutionized the industry by creating relatable characters like Spider-Man and the X-Men, which were 'people first, superheroes second'.
• 📉 By the 1980s, Marvel faced mismanagement and filed for bankruptcy in 1996 due to poor alignment of value, profit, and people.
• 🛑 After emerging from bankruptcy in 1998, new management had to stabilize the business amidst tight cash flow and licensing issues.
• 🎬 Marvel's post-bankruptcy strategy included creating a new 'blue ocean' with the most profitable movie franchise in history.
• 📚 Founder Martin Goodman's initial strategy was to create multiple titles and capitalize on successful ones, which led to the creation of over 8,000 characters.
• 🔍 The 1950s saw a decline in comic book sales due to the Comics Code Authority's self-censorship following accusations of comics causing social issues.
• 🔄 Marvel's strategy shift in the 1960s targeted an older demographic with original content, which revitalized the company and attracted non-customers.
• 💡 The 'Marvel Method' of writing allowed for a more dynamic storytelling process, with outlines sent for drawing and story details filled in later.
• 📉 Mismanagement in the 1980s and 1990s, including overpricing comic books and a failed distribution strategy, led to Marvel's bankruptcy.
• 💼 After bankruptcy, Marvel focused on core businesses and strategic licensing deals, which provided capital and set the stage for the creation of Marvel Studios.
• 🚀 Marvel Studios' strategy of self-funding and producing movies with known characters, rather than relying on movie stars, resulted in the successful 'Iron Man' and subsequent films.

Q & A

When was Marvel founded and what was its initial focus?

Marvel was founded in 1939 and initially struggled in a 'red ocean', producing primarily knock-off comic books.

What significant change did Marvel Comics make in the early 1960s?

In the early 1960s, Marvel took a 'blue ocean' turn by focusing on non-customers, college students, and creating characters that were people first and superheroes second, such as Spider-Man and the Incredible Hulk.

What led to Marvel filing for bankruptcy in 1996?

Marvel filed for bankruptcy in 1996 due to misaligned value, profit, and people, and being a victim of red ocean management practices.

Who was Martin Goodman and what was his initial strategy for Marvel?

Martin Goodman was the founder of Marvel. His strategy was to create many comic book titles and if a title caught on, add a few more for a nice profit.

What was the impact of Dr. Frederick Wertham's testimony on the comic book industry in the 1950s?

Dr. Frederick Wertham testified to the Senate subcommittee on juvenile delinquency that comic books were linked to teenage pregnancy and homosexuality, which led to plummeting comic book sales and the creation of the Comics Code Authority.

What was the 'Marvel Method' of writing comics?

The 'Marvel Method' of writing involved Stanley outlining stories, sending them for drawing, and then filling in the story bubbles later.

How did the ownership changes in the 1980s affect Marvel's operations?

The ownership changes in the 1980s, including sales to Cadence Industries and New World Entertainment, led to misalignment of value, profit, and people, and ultimately to Marvel's bankruptcy.

What was the strategy of Ronald Perelman when he acquired Marvel?

Ronald Perelman raised comic book prices, introduced multiple versions of each comic book with different covers to encourage collector speculation, and expanded into trading cards and toy businesses.

How did Marvel's post-bankruptcy business strategy evolve?

Post-bankruptcy, Marvel focused on its core businesses, sold off non-core assets, and licensed its characters for movies, which eventually led to the creation of Marvel Studios and self-funding and producing its own movies.

What was the financial strategy that Marvel Studios used to produce its own films?

Marvel Studios used a strategy of securing $525 million in low-interest debt against Marvel characters with no financial risk to the business to produce their own films.

How did Marvel ensure the integrity of its characters and storylines in its films?

Marvel created a creative committee consisting of lead comic book editors and company executives to ensure the integrity of the characters and storylines in its films.

Outlines

00:00

📚 Marvel's Origins and Turnaround

The video script begins with an introduction to Marvel's history, tracing its roots back to 1939. Initially, Marvel struggled in a competitive market, producing generic comic books. The 1960s marked a strategic shift as Marvel targeted a new demographic: college students. This pivot led to the creation of iconic characters like Spider-Man and the X-Men, who were relatable, flawed individuals first and superheroes second. However, mismanagement in the 1980s and 1990s led to bankruptcy. The script then calls for viewers to subscribe to the '5 Minutes Learning' YouTube channel for more educational content.

05:03

🔄 The Blue Ocean Strategy and Creative Revolution

This paragraph delves into Marvel's innovative approach to character creation, focusing on relatable, humanized superheroes that resonated with a mature audience. The 'Marvel Method' of writing, led by Stan Lee and artists like Jack Kirby and Steve Ditko, revolutionized the industry. The paragraph also details Marvel's business challenges, including distribution limitations imposed by DC Comics and the impact of the Comics Code Authority. Despite these hurdles, Marvel's creative output in the 1960s led to a surge in popularity and sales, positioning it as a major player in the comic book industry.

10:07

💸 Mismanagement and Bankruptcy

The narrative continues with Marvel's financial struggles due to poor management decisions. The company's value was misaligned with its profits and people, culminating in bankruptcy in 1996. Post-bankruptcy, Marvel's business was purchased, but the new management faced significant challenges, including cash flow issues and the loss of movie rights to many popular characters. The paragraph highlights the company's efforts to stabilize its operations and the strategic licensing of characters to generate revenue.

15:09

🌐 Post-Bankruptcy Revival and Strategic Shifts

After emerging from bankruptcy, Marvel reassessed its business model, focusing on core areas such as comic books, toys, and character licensing. The company also established Marvel Studios to manage film licensing more effectively. The script discusses the strategic decisions made by new management, including divesting non-core businesses and securing lucrative licensing deals for characters like Spider-Man and the X-Men, which provided a financial lifeline and validated the potential of Marvel-based films.

20:10

🎬 The Marvel Cinematic Universe and Long-Term Success

The final paragraph outlines Marvel's transition from licensing characters to producing its own films, starting with 'Iron Man' in 2008. The strategy involved securing low-interest loans against character rights, cost-effective production methods, and long-term actor contracts. Marvel's films emphasized character integrity and storytelling, connecting deeply with audiences. The success of this approach led to the creation of the Marvel Cinematic Universe, a blockbuster franchise that transformed the company's fortunes and solidified its place in pop culture.

📣 Conclusion and Call to Action

The script concludes with a call to action for viewers to subscribe to the '5 Minutes Learning' YouTube channel for more informative content. It wraps up the Marvel case study by highlighting the company's journey from near collapse to creating one of the most successful film franchises in history, underscoring the importance of strategic vision and creative storytelling.

Keywords

💡Red Ocean

In the context of the video, 'Red Ocean' refers to a highly competitive market where companies fight for market share and try to outperform their rivals. This concept is used to describe the initial state of Marvel Comics, where they were producing 'me-too' knockoff comic books, struggling in a saturated market. The video explains how Marvel initially struggled in this 'red ocean' before taking a strategic turn to differentiate themselves.

💡Blue Ocean

A 'Blue Ocean' strategy, as mentioned in the video, is about creating uncontested market space and making the competition irrelevant. Marvel Comics shifted towards this strategy in the early 1960s by focusing on non-customers, such as college students, and creating relatable characters like Spider-Man and the X-Men, which were 'people first, superheroes second.' This move helped Marvel to innovate and differentiate their products, avoiding the cutthroat competition of the 'red ocean.'

💡Value Extractors

Value extractors are entities that focus on maximizing short-term profits often at the expense of long-term value creation. In the video, it is mentioned that value extractors took over Marvel in the 1980s, leading to misaligned values between profit and people, which eventually contributed to Marvel's bankruptcy in 1996. This term illustrates the negative impact of short-sighted management practices on the company's sustainability.

💡Bankruptcy

Bankruptcy is a legal status for a company that is unable to repay its outstanding debts. The video narrates that Marvel filed for bankruptcy in late 1996 due to the mismanagement practices of value extractors. This event marked a turning point for Marvel, leading to new management that had to navigate through severe financial constraints and the challenge of reviving the company.

💡Non-Customers

Non-customers are individuals or groups who are not currently using a company's products or services. The video highlights Marvel's strategic shift to target non-customers, such as college students, by creating characters that were more relatable and human, which helped them to expand their market and create a new demand for their comics.

💡Marvel Method

The 'Marvel Method' of writing, as introduced in the video, is a unique creative process where the editor outlines the story, sends it for drawing, and then fills in the dialogue later. This method was instrumental in the rapid and innovative creation of Marvel's characters during the 1960s, contributing to the company's success and differentiation in the market.

💡Turnaround Specialist

A turnaround specialist is a professional who is brought in to revive a struggling company. In the video, Mr. Peter Cunyo is mentioned as a turnaround specialist hired by Marvel after its bankruptcy. His focus on core businesses and strategic licensing deals helped Marvel to stabilize and eventually thrive, illustrating the importance of strategic leadership in business recovery.

💡Intellectual Property (IP)

Intellectual property refers to creations of the mind, such as inventions, literary and artistic works, designs, and symbols, names, and images used in commerce. In the video, Marvel's intellectual property is highlighted as a core asset, including their characters, storylines, and brand, which became the foundation for their successful movie franchise and licensing deals.

💡Licensing

Licensing in the video refers to the legal permission granted by Marvel to other companies to use their characters for various products or media, such as movies. Initially, Marvel licensed their characters to movie studios, which provided a source of revenue and helped to increase the demand for Marvel's products. However, this strategy was later seen as leaving significant profits on the table, leading Marvel to create their own movie studio.

💡Marvel Studios

Marvel Studios, as discussed in the video, is the in-house movie production arm of Marvel that was established to produce films featuring Marvel's characters. Initially, Marvel licensed their characters to other studios, but the creation of Marvel Studios allowed them to control the production and reap greater profits from their intellectual property, leading to the successful Marvel Cinematic Universe.

Highlights

Marvel's turnaround from a struggling comic book publisher to a successful entertainment giant.

Marvel's initial strategy of producing knock-off comic books and its shift to creating original characters in the early 1960s.

Introduction of relatable characters like Spider-Man, the Incredible Hulk, Iron Man, and the X-Men that resonated with college students.

Marvel's bankruptcy in 1996 due to misaligned value, profit, and people.

New management's stabilization of Marvel post-bankruptcy and the challenges they faced.

The creation of the most profitable movie franchise in history after the establishment of Marvel Studios.

Stan Lee's innovative 'Marvel Method' of comic book creation.

The impact of the Comics Code Authority and the decline in comic book sales in the 1950s.

Ronald Perelman's acquisition of Marvel and the subsequent bubble strategy in comic book pricing.

The collapse of the comic book market due to Perelman's distribution strategy.

Marvel's five high-level businesses post-bankruptcy and their strategic importance.

The strategic decision to license Marvel characters to movie studios for films.

The financial success of licensing deals with Sony for Spider-Man and 20th Century Fox for X-Men.

David Maisel's radical strategy to create a real movie studio for Marvel and its execution.

The financial structure of Marvel's movie production using low-interest debt secured against characters.

Marvel's cost-effective production methods, including hiring lesser-known actors and reducing middle management.

The creative committee's role in maintaining the integrity of Marvel's characters and storylines in films.

The emotional connection audiences have with Marvel characters and the appeal of their storylines to non-customers.

Transcripts

hi

everyone today i'm going to take you

through the case study of

marvel the case study explains one of

the greatest turnaround in modern

business history

marvel was founded in the year 1939

and marvel comics initially struggled in

a red ocean

producing primarily me to knock off

comic books

in the early 1960s the marvel business

took a blue ocean turn

by focusing on non-customer college

students

marvel invented characters that were

people first

and super heroes second like the

spider-man

the incredible hulk iron man and the

x-men

by the 1980s value extractors took over

marvel and badly misaligned

value profit and people in late 1996

marvel filed for bankruptcy due to

a victim of red ocean management

practices

new management purchased the business

out of bankruptcy

in 1998 but faced a daunting task

cash was so tight that they almost

missed

payroll and movie rides for many of

their best characters

were licensed to others first

managers stabilized the business then

marvel

again created a new type of blue ocean

that went on to produce the most

profitable

movie franchisee in history

now before moving to this case study i

would request

everyone watching this video to

subscribe

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also this video is enabled with english

subtitles for your better understanding

now let's move to the case study

marvel founded in 1939 by martin goodman

marvel has seen a cast of heroes

villains and

events that rival anything found in

their comic books

goodman produced pulp fiction magazines

and comic books and his strategy was

straightforward

create many titles then if you get a

title that catches on

add a few more you are in for a nice

profit

goodman's motive was purely financial

but over the next decades his company

would go on to create

over 8 000 characters in what became

arguably

an american version of homer's the

odyssey

during the 1940s the comic book industry

thrived filling the entertainment space

which was now saturated by children's

television programs

games websites and all other manner of

media

besides the iconic captain america which

was created during world war ii

most of the marvel title of this era

were

thin knockoffs compared to most popular

dc comics

like home to superman batman and wonder

woman

except for a short time after the war

business

boomed until 1954 when

dr frederick vardham a psychiatrist

testified to the senate sub

committee on juvenile deliquency that

comic books were linked to teenage

pregnancy and homosexuality

comic book sales plummeted and the

industry created a self-censorship

organization the comics code authority

before dr vardhan there were five major

comic book publishers

by the time comic book hysteria

succeeded only two were left

which is marvel and dc comics dc

purchased marvel's distribution arm

and limited the number of books that

marvel could distribute each month

marketing low cost and me too knockoffs

targeting towards children

would not sustain the business in this

environment

marvel needed to attract non-customers

marvel's strategy of delivering little

original work

and me to knock-offs no longer worked

for them

faced with red ocean competition that

threatened to shutter the comic book

division marvel

adopted a new strategy original content

aimed at an older demographic college

students

from 1961 to 1965 marvel's

editor-in-chief

mr stanley along with comic book legends

mr

jack kirby and mr steve ditko delivered

a multi-year burst of creativity

creating a new blue ocean rather than

copying dc's traditional macho crime

fighters many marvel characters started

as a original ordinary people and are

transformed often by accidents into

reluctant superheroes

in 1961 marvel introduced four ordinary

people

mutated by cosmic rays into superheroes

which is the fantastic four after the

fantastic four

came the incredible hulk a quiet

scientist who marvels

into a ferocious green monster when

angered

next came the thor a god who visits

earth as a superhero then

ant-man the reformed thief who changes

sizes in june 1962

steve ditko introduced the world to a

teenager bitten by an

irradiated spider who develops

spider-like

abilities which is the spider-man

next came an alcoholic womenizing

military contractor

with a bad heart who builds a high-tech

metal suit to fight bad guys which is

iron man not long after this

burst of creative output lee and his

team

decided to bundle their superheroes into

a group

called the avengers at the time

they created another group of entirely

different characters

ordinary people endowed with

extraordinary powers

which is the x-men stanley also created

a new writing method

the marvel method of writing where he

outlined stories sent them for drawing

then filled in the story bubble later

by the end of 1965 marvel circulated

35 million comic books per year and

inspired

five fan letters per day by 1967 marvel

sold

6 million comic books per month just

behind

dc's 7 million despite that marvel's

distribution channel

which was owned by dc they restricted

the number

of issues they could offer

in june 1968 goodman sold marvel to

conglomerate cadence industries

for 15 million dollars karen's owned a

print distribution arm

but they knew nothing about publishing

after the acquisition caddens hired mr

feinberg

the former cfo of revlon

legendary cartoonist jack kirby soon

quit

after the acquisition he signed a

three-year contract with dc comics

as a result the x-men and silver surfer

series were cancelled

blue ocean strategy requires the

alignment

of value profit and people marvel's

comic books from this era

were generally considered high quality

but

internally due to the lack of fair

process

it damaged and demotivated the people

in november 1986 karen's sold

marvel to new world entertainment

whose executives did not know the basic

difference between superman

owned by dc comics and marvel's

spider-man

they turned to wall street for help

their investment bankers decided to sell

marvel

in november 1988 investment bank

drexel berham lambert auctioned marvel

to ronald o pearlman for 82.5 million

dollars

pearlman who was a multi-billionaire

used 10 million dollar

of his own money to finance the

acquisition

and borrowed the rest pearlman

immediately and repeatedly raised comic

book

prizes pearlman decided to copy the

trading card strategy

and built his own bubble in comic books

to fuel speculation marvel introduced

many version of every comic book each

with a different

cover encouraging collectors to purchase

more volumes perlman's bubble strategy

initially worked to raise revenues

and he sold 40 percent of marvel to the

public

in july 1991 raising 70 million dollars

perlman also consolidated 12

distributors

into one pearlman's goal

was to effectively sell comic books

directly to retailers

capturing revenue paid to distributors

the single source distribution system

wrecked havoc in the market the number

of

comic book stores quickly fell from 9400

to 4500. pearlman's marvel

also decided to branch into trading

cards

and purchased three companies sports

card makers

fleer and skybox as well as an

italian sticker company panini

finally marvel acquired 46

of toy maker toy biz

high prices fewer distributors lower

quality

underperforming acquisitions and a

predictable burst

in the comic book destroyed

sales of marvel on december

27 1996 marvel filed for

bankruptcy

after bankruptcy in late 1998

marvel had five high level businesses

number one is comic books marvel's

flagship comic book business produced

direct revenue

and vast intangible assets

intellectual property decades of

characters

story lines brand customer goodwill

and an institutional knowledge

number two is trading cards marvel had

two trading

card companies skybox and fleer which

had been combined

under pearlman a third business panini

an italian company that made trading

card like stickers

was seeded to marvel bankers to end the

bankruptcy

third choice toys were a

low margin business but marvel did well

most 1990s era marvel's revenue came

from the thai group

fourth character licensing marvel

always licensed characters licensing

deals were

optimal with an investment of little

more than drafting a contract marvel

need to do nothing but open envelopes

and cash checks

for high margin revenue finally

marvel studios marvel had a handful of

people in hollywood licensing marvel

characters to motion picture studios

for films this team referred to as

marvel studios was not a real movie

studio

they did not independently make movies

and had no intention of doing so

their goal was to drive sales of

licensed goods by

increasing demand for marvel characters

through films

the post bankruptcy period which is late

1990s was a difficult time for marvel

comic book sales were slipping 20

year-on-year

and licensing deals dried up because

licensees

were concerned about long-term contracts

with the company that might cease to

exist

cash became so tight that marvel almost

failed to make payroll

in this context perl matter and his

board of directors hired turnaround

specialist mr

peter cunyo cunyo focused on marvel's

core businesses

selling comics books and toys and

licensed the

exclusive movie rides to several of

marvel's most popular characters

cunyo and the board reasoned that

successful movie would spur

sales of licensed goods driving toy

revenue

additionally the early movie deals

provided much needed

capital and helped prove the economic

viability of

marvel based comic book movies

sony purchased the rights to spider-man

for 10 million dollar plus five percent

first dollar royalties

20th century fox acquired the rights to

x-men the

fantastic four and several lesser-known

characters on less expensive terms

universal studios purchase the rights to

make stand-alone hulk movies

marvel does not release actual figures

but industry analyst

estimate tony paid marvel nothing less

than 62 million dollar in royalties for

spider-man spider-man 2

and spider-man 3 which collectively

grasped about 2.5 billion dollars

fox is estimated to have paid marvel 26

million dollars total for x-men

royalties

the films have collectively grossed

approximately 2.3 billion dollars

blade a deal struck during the pearl man

years grossed

131 million dollars and marvel was paid

25 000

although the deal may not appear

favorable in hindsight

they served a strategic and tactical

purpose

practically they brought much needed

capital to marvel

in the form of upfront payments and

increased

licensing royalties giving the company a

breathing space

to eventually move in a more strategic

direction

in february 1999 marvel divested trading

card businesses

in march 1999 marvel exited the toy

production and sales business

selling exclusive rights to market

marvel characters

for five years to their toy manufacturer

for a

5 million dollar per year fee

a 15 royalty plus an additional 24.5

fee for marvel to continue designing the

toys

besides stabilizing the business

financially cuneo moved to

quickly heal the corporate culture

building

an environment where creativity could

thrive

once management stabilized the business

there was a sense that a major strategic

initiative was needed to boost the

company beyond stability

towards a blue ocean in 2004 hollywood

veteran david maisel

who had worked at the highly influential

talent firms

approached pearl matar with a radical

new strategy

to create a real movie studio to

fund and produce marvel movies he

reasoned

that by licensing characters marvel was

unnecessarily forgoing

large profits the current licensing

strategy was literally ripping apart the

avengers

pearl mater agreed and hired maisel

as coo of marvel studios with the

intention of sustainably extracting

long-term value from the business maisel

convinced

the board of directors to allow him to

proceed

and worked 18 months to eventually

close the deal exactly as he described

which is 525 million dollars

in low interest debt which was secured

against marvel characters with no

financial risk to the business

to produce marvel films marvel premiered

their first movie iron man in may 2008

the first movie was a blockbuster

crossing 585 million dollars worldwide

marvel located their california movie

studio above

a car dealership marvel eliminated the

hollywood tradition of spending on

glamour

that was not helpful for movie making

blockbusters

normally require movie stars but

marvel reasoned their own characters

were the stars

and they needed talented if lesser known

actors

directors and screenwriters to bring

their characters to life

to lock in the savings actors were

signed

to long-term contracts with many

obligated to

appear in six or even nine films at

rates negotiated

while the actor were still lesser known

even after these lock ups expire marvel

is known to replace actors in the same

role

but different movies rather than

offering

significant races besides

using lesser known actors marvel also

edited films to reduce shots that

added cost without commence rate buyer

value

marvel also reduced middle management by

failing to hire back the layers of

managers

lost during the lean years additionally

the leaner organization structure was

able to move faster

and assume more risk

robert downey jr who was an

academy award-winning actor suffering

from drug addiction

he had been in and out of the

rehabilitation and jail

marvel was able to hire him whereas

traditional studios had more layers of

executives able to

exercise miss paltrow

who was an academy award-winning actress

who had taken

time off to raise her children

after several actress turned down the

lead female role for

iron man due to compensation issues

paltrow agreed to take the role as a

part

of comeback marvel success is

because people who read the comics or

see the movies

get so connected to these characters

besides the characters themselves

the storyline appealed to non-customers

iron man is more of a love story than a

superhero movie

finally marvel created a creative

committee to craft the films consisting

of lead comic book editors

and company executives to ensure the

integrity of the characters

and storylines rather than grant a carte

blanche creative license

for directors to bring comic books to

life

marvel executives retain this role for

themselves

going so far as to replace traditional

storyboards

with cut up comic books

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