Come In Alone: Issue #40

Fri, September 1st, 2000 at 12:00am PST

Comic Books
Warren Ellis, Columnist

Marvel is in the news again. Editor In Chief Bob Harras has been fired, Joe Quesada is the new EIC. The net and the grapevine are crackling and swinging with tales of appalling behavior by some of the company directors, Bob generally sounds relieved and relaxed, Joe is taking on what is hands down the worst job in commercial comics. And I've been on the Web.

There is a thing on the Web called EDGAR. It is the Electronic Data Gathering, Analysis, and Retrieval system. It performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission (SEC). Publicly held companies. Like Marvel.

I've been reading through the annual report, filed March 29 2000. It interests me.

Marvel Comics aren't, of course, legally known as Marvel Comics. Never have been. Their current legal name is Marvel Enterprises, Inc.

The company's Standard Industrial Classification is, in fact, Dolls & Stuffed Toys.

The approximate aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of March 1, 2000 was {$91,055,439} based on a price of {$6.0625) per share, the closing sales price for the Registrant's Common Stock as reported in the New York Stock Exchange Composite Transaction Tape on that date.

The document opens with a sort of mitigation in advance: reasons why the company may not do well in the immediate future:

A decrease in the level of media exposure or popularity of our characters resulting in declining revenues from products based on those characters. If movies or television programs based upon Marvel characters which are scheduled to be released are not successful, the ability to obtain new licenses for motion pictures or television shows may be substantially diminished.

The lack of commercial success of properties owned by major entertainment companies that have granted us toy licenses.

The lack of consumer acceptance of new product introductions.

The imposition of quotas or tariffs on toys manufactured in China as a result of a deterioration in trade relations between the U.S. and China.

Changing consumer preferences. Our new and existing toy products are subject to changing consumer preferences. Most of our toy products can be successfully marketed for only a limited period…

This latter goes on for a very long time. Why such a great deal of attention to toys? Read on.

On October 1, 1998, the Company acquired MEG by means of a merger between MEG and the Company's wholly-owned subsidiary MEG Acquisition Corp. (the "Merger"). Upon consummation of the Merger, the Company changed its name from "Toy Biz, Inc." to "Marvel Enterprises, Inc."

When you see the word "Marvel", think "Toy Biz Comics Group, Inc."

The Company is one of the world's most prominent character-based entertainment companies, with a proprietary library of over 4,500 characters.

Over four thousand five hundred characters. All created by individuals. All owned in their entirety in perpetuity by Marvel. The vast majority of which were given up for a page rate.

Sit and think about that number for a while.

While you're considering, take a look at Marvel's description of its comic business:

Marvel Publishing is one of the world's leading publishers of comic books.

Since 1995, the domestic comic book publishing market has declined primarily as a result of reduced readership, lower speculative purchases and lower selling prices, which in turn caused a contraction in the number of comic book specialty stores.

Marvel Publishing has been publishing comic books since 1939… The Company's characters exist in the "Marvel Universe", a fictitious universe which provides a unifying historical and contextual background for the storylines. Marvel Publishing's titles feature classic Marvel super heroes, newly developed Marvel characters, and characters created by other entities and licensed to Marvel Publishing.

Marvel Publishing's approach to the Marvel characters is to present a contemporary drama suggestive of real people with real problems. This enables the characters to evolve, remain fresh, and, therefore, attract new and retain old readers in each succeeding generation. The "Marvel Universe" concept permits Marvel Publishing to use the popularity of its characters to introduce a new character in an existing Marvel super heroes comic book or to develop more fully an existing but lesser known character. In this manner, formerly lesser known characters such as Thunderbolts and Wolverine have been developed and are now popular characters in their own right and are featured in their own monthly comic books. The "Marvel Universe" concept also allows Marvel Publishing to use its more popular characters to make "guest appearances" in the comic books of lesser-known or newer characters to attempt to increase the circulation of a particular issue or issues.

You may also be amused by this description of How Comics Are Made.

The creative process begins with the development of a story line. From the established story line, the writer develops a character's actions and motivations into a plot. After the writer has developed the plot, the pencil artist translates it into an action-filled pictorial sequence of events. The penciled story is returned to the writer who adds dialogue, indicating where the balloons and captions should be placed. The completed dialogue and artwork are forwarded to a letterer who letters the dialogue and captions in the balloons. Next, an inker enhances the pencil artist's work in order to make the drawing appear three-dimensional. The artwork is then sent to a coloring artist. Typically using only four colors in varying shades, the coloring artist uses overlays to create over 100 different tones. This artwork is subcontracted to a color separator who produces separations and sends the finished material to the printer. Unaffiliated entities produce color separations and print all of Marvel Publishing's comic books.

Marvel appears to know their demographic. Whether this comes from deep market testing or a conversation with editorial staff isn't indicated. I find their notion of "the traditional purchaser" interesting. When I suggest that people could buy comics like this, they call me Wrong and Satan. But Marvel management are comfortable enough with the concept of a non-fanatic, non-crackhead audience to put it in the language of their annual report.

Marvel Publishing's primary target market for its comic books has been teenagers and young adults in the 13 to 23 year old age group. Established readership of Marvel Publishing's comic books also extends to readers in their mid-thirties. There are two primary types of purchasers of Marvel Publishing's comic books. One is the traditional purchaser who buys comic books like any other magazine. The other is the reader-saver who purchases comic books, typically from a comic book specialty store, and maintains them as part of a collection.

Now, we all know that comics sales are not good. We all also know that Marvel and the other major comics companies do not put a vast amount of time and effort into either shoring up the direct market - because, frankly, they're not sure how -- nor opening up new avenues of distribution. With this in mind, consider the following:

Marvel Publishing's comic book publications are distributed through three channels: (i) to comic book specialty stores on a nonreturnable basis (the "direct market"), (ii) to traditional retail outlets on a returnable basis (the "retail returnable market"), and (iii) on a subscription sales basis.

For the years ended December 31, 1997, 1998 and 1999, approximately 68%, 81%, and 80%, respectively, of Marvel Publishing's net publishing revenues were derived from sales to the direct market.

Sales are down. And yet Marvel derives an apparent rise in revenue from the direct market? No. A rising percentage of revenue is not an increase when the entire pie is shrinking.

For the years ended December 31, 1997, 1998 and 1999, approximately 22%, 10% and 9%, respectively, of Marvel Publishing's net publishing revenues were derived from sales to the retail returnable market. The retail returnable market consists of traditional periodical retailers such as newsstands, convenience stores, drug stores, supermarkets, mass merchandise and national bookstore chains. The distributors sell Marvel Publishing's publications to wholesalers, who in turn sell to the retail outlets.

This is the evidence of the much ballyhooed move to traditional "family" retail outlets that killed SATANA and emasculated the Marvel horror line of a few years back. This is the evidence of the move to enforce the Comics Code at Marvel to make it all safe for the parents and kiddies buying sugary chemical shit at convenience stores everywhere. This is the base from which Marvel are going to catapult the Ultimate line into the cultural mainstream. 9% of revenue.

Eighty percent of Marvel Comics money comes from the direct market: a market that is smaller this year than it was last year. And was smaller last year than it was the year before.

For the years ended December 31, 1997, 1998 and 1999, approximately 7%, 6% and 9%, respectively, of Marvel Publishing's net publishing revenues were derived from advertising sales and other publishing activities. In most of Marvel Publishing's comic publications, ten pages (three glossy cover pages and seven inside pages) are allocated for advertising.

In 1999, then, Marvel made as much money out of its internal ads as it did out of newsstands, convenience stores, drug stores, supermarkets, mass merchandise and national bookstore chains.

Marvel Publishing competes with over 500 publishers in the United States. Some of Marvel Publishing's competitors such as D.C. Comics are part of integrated entertainment companies and may have greater financial and other resources than the Company. Marvel Publishing also faces competition from other entertainment media, such as movies and video games, but management believes that it benefits from the low price of comic books in relation to those other products.

This fascinates me. Not only do precisely two of Marvel's competitors have comparable or greater resources than Marvel - DC and Disney - but the "500 publishers" figures seems to have been plucked out of thin air.

Also, we have here something that flies in the face of conventional wisdom. Everyone says that movies, TV and especially computer games kick comics' arse. But Marvel have it here, in an SEC document, that they believe comics have the edge due to a lower price. Therefore, Marvel's company policy is: cheap comics are good and give the medium the advantage over all others.

I look forward to reminding them of this. And so should you.

Management believes that the Company's relationship with its employees is good.

What follows next is a long segment, but please make the effort. This is Marvel's required return of outstanding legal proceedings against it. I'll skip the first, which is that the Spider-Man movie rights lawsuit, which found in favour of Marvel and its favoured partners, is being appealed against, and go straight to two you need reminded off and one that is quite odd.

Wolfman Litigation. On January 24, 1997, Marvin A. Wolfman ("Wolfman") filed a proof of claim in the bankruptcy cases of MEG and Marvel Characters, Inc. asserting ownership rights to a number of characters that appeared in stories written by Wolfman and published by Marvel Comics during the 1970s. In November 1999 a hearing was held in the United States District Court for the District of Delaware to determine the ownership rights to the characters covered by Wolfman's claim and the matter is sub judice.

On August 20, 1998, Wolfman commenced an action in the United States District Court for the Central District of California against New Line Cinema Corporation ("New Line"), Time Warner Companies, Inc., the Company, MEG and Marvel Characters, Inc. The complaint in that action alleges that the motion picture Blade (featuring Blade and Deacon Frost which were among the characters included within Wolfman's January 24, 1997 proof of claim), produced and distributed by New Line pursuant to an agreement with MEG, as well as the Company's sale of action figure toys, infringes Wolfman's claimed copyrights and trademarks as the author of the original stories featuring the Blade and Deacon Frost characters (collectively, the "Work") and that Wolfman created the Work and granted MEG's predecessor in interest only the non-exclusive right to publish the Work in print for Marvel Comics' Tomb of Dracula series. The complaint also charges the defendants in the action with unfair competition and other tortious conduct based upon Wolfman's asserted rights in the Work. The relief sought by the complaint includes a declaration that the defendants have infringed Wolfman's copyrights, compensatory and punitive damages, an injunction and various other forms of equitable relief. In late August 1998 Wolfman dismissed the complaint against MEG and Marvel Characters, Inc. The action has been stayed against the other named defendants pending the outcome of the November 1999 hearing in Delaware with respect to Wolfman's proof of claim.

Marvel v. Simon. In December 1999, Joseph H. Simon filed in the U.S. Copyright Office written notices under the Copyright Act purporting to terminate effective December 7, 2001 alleged transfers of copyright in 1940 and 1941 by Simon of the Captain America character to the Company's predecessor. On February 24, 2000, the Company commenced an action against Simon in the United States District Court for the Southern District of New York. The complaint alleges that the Captain America character was created by Simon and others as a "work for hire" within the meaning of the applicable copyright statute and that Simon had acknowledged this fact in connection with the settlement of previous suits against the Company's predecessors in 1969. The suit seeks a declaration that Marvel Characters, Inc., not Mr. Simon is the rightful owner of the Captain America character and that the termination notices filed by Simon are invalid and of no legal effect. Simon has asserted a counterclaim in the action seeking a declaration that he is the sole owner of the Captain America character.

Administration Expense Claims Litigation. Unresolved Administration Expense Claims are pending which seek amounts totaling approximately $16.8 million and additional unresolved Administration Expense Claims are pending which do not seek specified dollar amounts. The Company is contesting all of the unresolved Administration Expense Claims. Although there can be no assurance, the Company expects that it will be required to pay substantially less than the amounts sought by the holders of the Administration Expense Claims.

What follows is an encapsulation of Marvel Enterprises' current business strategy. It's a good business strategy, given the company's assets. But do you remember when someone - Avi Arad, maybe - made statements to the effect that Marvel was going to get out of comics and translate all the characters to other-media licensing, and then spinmen were released to explain that, no, of course Marvel aren't aiming to get out of comics? What we have here is a conflation of the two.

The Company's strategy is to increase the media exposure of the Marvel characters through its media and promotional licensing activities, which it believes will create revenue opportunities for the Company through sales of toys and other licensed merchandise. In particular, the Company plans to focus its future toy business on marketing and distributing toys based on the Marvel characters, which provide the Company with higher margins because no license fees are required to be paid to third parties and, because of media exposure, require less promotion and advertising support than the Company's other toy categories.

The Company intends to use comic book publishing to support consumer awareness of the Marvel characters and to develop new characters and storylines.

It is more cost-effective for Toy Biz to make Marvel toys because they don't have to pay anybody. This is a refreshing change of intelligence from recent behavior at Time-Warner, where various sections of the conglomerate have been charging each other absurd amounts of money to use what are in actual fact common properties. It makes sound business sense. But the last paragraph tells it all. Marvel is now a library and research-and-development department for a toy company. Which can only use Marvel characters freely if they are, indeed, owned by the company. Therefore, given away on work-for-hire contracts.

The comics company is not the most important part of the company. It's a vestigial part of it, there to service the toy division.

…the Company reported a net loss of $33.8 million in 1999 compared to a net loss of $32.6 million in 1998. The Company reported a loss per share after preferred dividends of $1.43 in 1999 compared to a loss per share after preferred dividends of $1.23 in 1998…

ITEM 11. EXECUTIVE COMPENSATION

F. Peter Cuneo


President and Chief Executive Officer


1999 SALARY: $295,000BONUS: $490,000

Eric Ellenbogen


Previous President and Chief Executive Officer


1999 SALARY: $444,231(SEVERANCE): $2,500,000

Avi Arad


Chief Creative Officer of the Company And Chief Executive officer of the Company's Marvel Studios Division


1999 SALARY: $375,000BONUS: $201,563


OTHER ANNUAL COMPENSATION: $109,774

And you wonder why comics cost so much.

Understand, I'm not going after Marvel. I just couldn't resist the chance to show you another side of the company, in a week where a lot of people believe a bell of change has been rung there.

You only ever see the skin of a company. This is its circulatory system.

I can be contacted by email about this column at warren@comicbookresources.com. My terribly beautiful website, updated last week with a new front-page essay and now containing an online store (carrying most things listed in INSTRUCTIONS) and a 24-hour rolling news service, is http://www.warrenellis.com.

My other column, BAD WORLD, has been moved to OPI8, and can be found at http://www.opi8.com/badworld.shtml

INSTRUCTIONS: Read APOCALYPSE CULTURE II as edited by Adam Parfrey (Feral House, 2000), listen to E LUXO SO by Labradford (Kranky, 1999), and hit BROOKLYN BIZARRO, because Jimmy Palmiotti's a dirty bastard who's going to Hell, at http://www.brooklynbizarro.com/.

Today's recommended graphic novel is MIRROR, WINDOW by Jessica Abel (Fantagraphics Books, 2000).

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