Business case. The marvelous resurrection of Marvel (part 1)

    marvelRecently, I was offered to write a case for one company, but I was forced to refuse a profitable offer, since I had never before written them. But the situation hit me, so I decided to learn this business. Today I publish my first prototype. It is based on an idea gleaned from the Harvard Business School website.

    In general, the case study method (Case study, Case method) is a method of situational analysis, a training technique that uses a description of real economic, social and business situations. For a long time occupies a key position in management education. The method was first applied at Harvard Business School in 1924.

    Short description

    In December 1996, Marvel Comics, one of the oldest comic book publishing companies, filed for bankruptcy. Marvel Entertainment LLC team, formerly Marvel Enterprises and Toy Biz, Inc. (an American entertainment industry company formed by the merger of Marvel Entertainment Group, Inc. and Toy Biz, Inc. in 1998), known for its universe of superheroes including Spider-Man, Hulk, X-Men and Iron Man, must reconsider your marketing strategy. How did Marvel go from bankruptcy to selling $ 4 billion to Disney? Was the revival of Marvel just an accident? What marketing strategies allowed Marvel to repeat its success? How did you change your business model?


    Location: USA.
    Field of activity: art, entertainment, publishing.
    Number of employees: about 200.


    The successes of Marvel throughout its existence are explained by a number of incredibly talented authors and artists who brought the company to the first place. Such collaborators even invented the so-called “Marvel Method”, which consists in the fact that the author invents a plot, the artist draws it and thinks over the subtle details of the plot, dialogs and even characters, and then the author completes the process by final polishing the plot and dialogs.

    In the same way, most of her failures can be safely attributed to management failures. In the 1980s, as a result of the editorial debate, some of the “star” authors of Marvel went to the DC rivals, which served as a kind of beginning of the end of Marvel Comics. In 1986, the company was sold to the mediocre media company New World Entertainment, which produced B-class films, and in January 1989,Ronald Perelman , a corporate raider known for his hostile takeover of Revlon and his assaults on Salomon Brothers, bought Marvel for $ 82.5 million, spending only $ 10.5 million of his own funds. With his reputation and the habit of leveraged-buyout (buying companies on credit), Perelman considered Marvel underestimated, and according to the old scheme, he quickly decided to eliminate unprofitable business lines and optimize operations.

    In the first year under Perelman’s management, Marvel’s net profit rose from $ 2.4 million to $ 5.4 million, while revenues increased from $ 68.8 to $ 81.8 million. Further in 1991, Perelman sold 40% of the shares during the initial public offering, which brought in $ 70 million, of which $ 30 million was spent on debt payments, and the rest was disbursed as a “special dividend”. At the same time, it issues a series of “junk” bonds, for sale from which a number of companies were bought.
    The Russian Wikipedia proposes a point of view in which “Perelman helped bring Marvel back to life,” but the English one is more accurate , describing the subsequent bankruptcy of Marvel precisely as a result of the fraud and mistakes of Ronald Perelman.
    While his first steps in managing Marvel seemed successful, he spurred four strategic shifts that most likely led to the financial collapse of Marvel.

    • First, he tried to accelerate revenue growth by increasing the price of comics several times, which is a fairly obvious mistake, given the history of the appearance of comics as a genre. Comics were initially popular in the Depression of the 1930s, when they appeared as a cheap form of entertainment for poor children.
    • Secondly, Perelman initiated a rapid increase in the range of comics in an attempt to capture a large part of the market and reduce the cost of their production, in connection with which the quality of the company's products decreased.
    • Thirdly, he accused Marvel Comics of distributors' sales decline and took a number of actions that caused significant damage to both distributors and retailers.
    • Fourth, he embarked on a series of untimely acquisitions aimed at creating an entire entertaining Marvel empire, which led to a distraction from the main business of the company and erosion of the balance.

    The first two mistakes came from Marvel’s hopes of making money on speculative insanity of collectors, increasing the number of monthly publications from 45 to 1403 in some months, and a sharp increase in price from $ 1.25 to $ 4 for some issues (the previous owner of Marvel raised it three years before the sale prices from $ 0.65 to $ 1). As a result, expensive and poorly written and illustrated comics flooded the market. At this time, Marvel's manic desire to earn money, under the direction of Perelman, led to a modification of the entire industry. Producers inspired by Marvel have published premium comics with ornate covers and extras. Often, comics were sold already signed by authors and illustrators.

    Some experimented, which led to curious cases where one issue could appear with 13 different covers. In the short term, this strategy brought financial success, and Marvel's stock price peaked in November 1994 from $ 34.25 a share. However, prosperity did not last long, disappointed collectors appreciated the influence of the laws of supply and demand, not finding in the new comics neither high quality nor rarity. Thus, the speculative bubble burst and next year sales fell 19% across all distribution channels. And comic book fans felt deceived by Marvel.

    As a result of the overproduction, as well as the specifics of comic book distribution, more than half of the comic book stores went out of business, and the head of Marvel, meanwhile accusing the sales of the largest distributors of Capital City Distribution and Diamond Comic Distributors, bought Hero's World, which soon became the sole distributor of Marvel Comics. In response, most other major publishers signed exclusive deals with Diamond, forcing many others to simply go out of business. Having realized the mistake, Marvel left the distribution business and signed a similar contract, thereby leaving Diamond the only distributor of the four largest market players - Marvel, DC, Dark Horse and Image Comics.

    Non-core acquisitions also contributed to the destruction of the company. Trying to stimulate business growth through acquisitions, Ronald Perelman decided to diversify the company. Fleer, the second largest producer of sports and entertainment cards, was bought in July 1992 for $ 286 million, and in March 1995 the Skybox Trading Card Company for $ 150 million. After the bankruptcy of Marvel, these companies were sold for a purely symbolic amount of $ 26 million in total . In March 1993, Perelman acquired a 46% stake in Toy Biz, a company developing and selling children's toys, in exchange for an exclusive, perpetual, and royalty-free license to use all Marvel heroes.

    Other acquisitions included the Panini Group (stickers), half of the Welsh Publishing Group (Barbie and The Simpsons), Malibu Publishing (Planet of the Apes). Marvel Software was planned to enter a growing software market and a joint venture with Planet Hollywood to create a series of theme restaurants. All of these transactions were funded with large amounts of debt and an increase in Marvel's significant debt burden. Pay attention to steady debt growth with a huge surge in 1995.

    Of the above acquisitions, an agreement with Toy Biz seems particularly reckless. Let me remind you that Marvel received only 46% of the shares in exchange for exclusive rights to the toy products of all of its characters.

    Although Toy Biz made only figures, the agreement covered any toys, and therefore Marvel had to break all previous agreements with other manufacturers, which did not replace losses from royalties, since Toy Biz made toys for free. As a result, Marvel lost an important income item. Paradoxical as it may seem, it was Toy Biz that ultimately became the company that helped Marvel get out of its subsequent bankruptcy.

    Despite financial troubles, Marvel really achieved its goal of becoming a diversified company, and the acquisitions helped mask financial troubles and gloss over the decline in comic book sales. Although diversification theoretically protects part of the business from decline, Marvel lost $ 48.5 million in 1995, mainly due to losses in the publishing segment. The denial of problems continued until 1996, when the company filed for bankruptcy using Chapter 11 of the United States Bankruptcy Code.

    Generally speaking, the financial situation of Marvel significantly undermined the period from the end of 1992 to the end of 1995. Total expenses rose to 419%, inventory turnover decreased by 26%, daily sales increased by 37%, and total inventories rose to 406%. Even more dramatic, invoices for payments grew by 603% over this period, which certainly led to a lengthening of the payment cycle. At the beginning of the period, one could assume that Ronald Perelman simply did not see the current problems, but by the end of 1995 he undoubtedly knew that the company had big problems, and that was a year before the bankruptcy.

    In the next part of the case, details of the bankruptcy procedure will be described. Do not switch.

    Business Case. The miraculous resurrection of Marvel (part 2) .
    Business case. Marvel's Miraculous Resurrection (part 3)

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