column_breakout.gifIn recent years, Marvel succeeded with a number of moderately to wildly successful movies based on their characters. The company appeared in Entertainment Weekly, Variety, and on CNN for any number of reasons…hype, controversy, movie deals, and more. Publishing revenue rose 31 percent above 2001 numbers while licensing revenue jumped by 97 percent in that same time. In fact, licensing revenue in 2002 exceeded publishing revenue. Could that be Marvel’s primary focus–a character development house for future licensing as opposed to a publishing house. I’m sure plenty of people have thought that same thing, so I decided to look into it a little more. First, I took a look at Marvel’s recent 10-K filing with the Securities Exchange Commission and found some interesting phrasing within:

“The Company is one of the world’s most prominent character-based entertainment companies, with a proprietary library of over 4,700 characters. The Company operates in the licensing, comic book publishing and toy businesses in both domestic and international markets.”

Right out of the gates, Marvel let the investing world know that they have 4,700 characters, and then they list “licensing” as their lead business operation. This stance appeared in their 10-K reports all the way back to 1999, but that first year, I found a difference (besides 1200 less characters in their library)…a single line tacked on to that general company description:

“Management believes that the potential of the Company’s library remains largely unrealized.”

Let’s see…1999’s report covered the year 1998 where Marvel saw their Blade movie released that August. It grossed around $70 million. Since then, they tapped into licensing revenue with properties like the X-Men: Evolution cartoon, the Mutant X TV series, the X-Men movie, Spider-Man, Blade II, and Daredevil. And they still have more on the way. But with 4,700 available characters, that’s just the tip of the iceberg. So, how could a publisher open the licensing doors even wider?

They could start by placing hot/high profile creators on a line of books that modernizes characters and pulls them out of standard continuity. Books that proved the core of the characters have mass appeal and can make Hollywood think, “I see movie.” This line took off with comics like Ultimate Spider-Man, Ultimates, and Ultimate X-Men constantly appearing at the top of the charts. Heck, why not capitalize on this idea and release a ton of “Ultimate” characters? They could…but maybe they have another plan for what they could do with these hot properties.

They could give them away for free. That’s right…free comic books online at Marvel’s DotComics website. Well, that’s just crazy. These people must be dumber than a box of rocks if they think I’ll buy a comic I can read for free. What possible reasons made them think free comics would be a good idea? Well, it gave Marvel a system for getting people talking about their books…letting them browse through past issues and giving readers previews of things to come. This made their comics accessible to the public and even people that might be looking for new movies, TV shows, or promotions. But did Marvel truly give these comics away for free? Maybe they figured out a way to do what thousands of websites were unable to do during that whole DotCom era…generate revenue from banner ads. Some of the smartest people out there were trying to get people to click on those pesky little ads (even switching to pop-ups to force interaction with the ad and prove to advertisers that there’s some kind of response), and here came Marvel with people willingly providing click after click just to get to the next page in an online comic. How many clicks? I’m not really sure, but according to the advertising information posted at Marvel’s website, DotComics get downloaded approximately 600,000 times per month. Marvel definitely gave advertisers a lot of online bang for their advertising bucks, and probably has even more advertisers trying to get in on some of the Marvel action while they’re hot.

But that’s advertising revenue…how does it play into licensing? Well, if Marvel wanted to expand their licensing revenue, they probably need to get those characters out of the library and into print where people can see them. But how can they afford to publish these licensing opportunities without taking a loss? Not every book can sell like gangbusters or pick up a movie deal, but if they offer enough choices, they create a better chance for running into that character Hollywood might be looking for at that time. But getting all those books out there isn’t cheap, and that’s where extra advertising revenue can help offset the costs. Still, they’d need a lot of characters out there to hedge their bets…a lot more than advertising could help with. So next, they’d want to find a way to get the retailers to order enough to allow books to break even.

With a “no reprints” policy, costs associated with the printing charges, inventory storage, shipping and such would go down. This “no reprints” policy put the retailers in an “err on the side of caution” mode so they don’t get caught without enough copies of potentially hot books. But how do you know that will work? Hype some books up and see how the retailers react. Whether the hype’s for controversy, some special event, star creators or some “contest”, they’d make some noise about it and let it flourish or bomb. That helped get the retailers to the point where they have a good feel for how to order in the “no reprints” realm. But Marvel still needed a way to test if books could actually break even in this new environment. So what if they threw out some potential “bottom-feeder” books of odd concepts with new characters, different genres, or second tier and/or old characters to generate some numbers on what range of sales the these books might get if they sunk to the bottom? Books like Marville, The Hood, B-Sides, Apache Skies, Killraven, Rawhide Kid, Mangaverse and more–some were really great stories, but they hit such a wide range of ideas, genres and characters in the vast selection of comics out there that some were bound to get lost in the process. So, what might Marvel see with this kind of test? According to the Top 300 charts out at ICv2.com, the bottom 6 Marvel books have run between 9000 and 20,000 in initial pre-orders over the past 6 months. But will this still hold up if they introduce a lot of new books? They could always test and see…maybe rush solicit a bunch of titles with a variety of different characters and concepts as a test–a Tsunami of new books to see if they can maintain those numbers as the market gets flooded. And as a side benefit, they also get more characters “out of the library” while gathering heuristics on sales performance.

They’re getting closer, but the numbers might not be enough to break at the lower end, and a sudden downturn in the market could really cause some problems. So where else could Marvel cut some publishing costs? Let’s take a look at that 10-K report again:

“In 2001, Marvel cut back on the number of expensive, exclusive agreements with writers and artists while establishing new relationships with some of the industry’s hottest creators, as well as recruiting from outside the industry. Starting in 2001, Marvel eliminated the costly and inefficient process of hand-coloring books in favor of higher quality, less expensive, computer coloring.”

Even with the computer coloring and a slight reduction in exclusive contracts, there’s not quite enough cost reduction there to help get them to break even, but we can see another strategy in the works…recruiting from outside the industry. Why not keep it all in the industry? Well, you have talented people in film and television that have experience at telling stories. They may not know exactly how to translate that to comics, but they can be taught. Some, like Kevin Smith, can even bring a decent fan following to comics. But all of them can help the company network in the film and TV industry, which can be beneficial if your primary focus is licensing.

That doesn’t help reduce production costs though. With the normal freelancers and now professionals from other industries, rates would still be too high to get the books to break-even if they drift to the bottom. Maybe if they brought in eager up-and-coming talent on the books, they could set the costs for books down to a much-reduced rate. They’d be taking a big chance though, so they’d need to know if there was enough quality talent to support several books. Just to make sure, Marvel could spend a couple years doing talent searches, so they can see if there’s enough quality talent to run with this idea. They could also open their doors to writer submissions and see if there are enough good storytellers to handle the number of titles they want to release to the public. And they’d look good in the process. It’s always helpful when a company can spin information gathering into something that helps their image.

So, they developed hooks in the film/TV industries, proved that the core aspects of the characters can stand on their own after modernizing and revamps, increased advertising revenue possibilities, reduced some production costs, encouraged a steadier stream of orders from retailers, reviewed a lot of eager talent, and gathered numbers on lower end sales and production costs. Now they run into another problem–the potential to make lots of books but not enough editors to handle coordination of the creation process on that many projects. Well, why not develop a system to hand that off to the eager up-and-comers with “guidance” from the Marvel editors? They could even secretly approach some talent they’re already familiar with to run this process through its paces a bit before finalizing it. And it would develop into something like the new Epic guidelines that Marvel recently announced.

So, since 1999, Marvel released crazy idea after crazy idea–a lot of things people complained were just hype or short-term fixes to a comic book sales problem that would ruin the company and the industry. Whether it ruins anything remains to be seen, but if you look carefully at the various bits and pieces as a whole…it looks like they actually had a plan. A four to five year plan with a lot of different steps, but when I look at how all those different pieces could fit together, I can see how they’d set the stage to get more characters out of their proprietary library and make Marvel the premiere breeding ground for licensable characters. All with a plan that allows a comic book company to actually produce the heck out of comics while simultaneously pulling in revenue from film, TV and video games–things people tend to spend their money on instead of comics.

So, what’s your long-term plan? I know that was a long example, and it may not even be an accurate theory, but they did know exactly what they wanted to accomplish back in 1999…”Management believes that the potential of the Company’s library remains largely unrealized.” Even if it all just happened to fall into place through luck, they might never have gotten that chance if they hadn’t focused all their efforts on that goal so many years ago. A lot of aspiring creators don’t have that kind of focus. They have eagerness to break in–right this very instant and not a moment later–but they don’t always think about long-term goals. They don’t think about how much work they’d need to do to make a living at comics and about how much training and practicing they need to get to that point. Some don’t even consider what they’d do if they couldn’t break in even though each individual craft has job opportunities outside the realm of comics. They also don’t think about the steps it takes to become a great creator…they like to focus on what it takes to be better than what’s at the bottom of the barrel. They don’t even take a good look at the companies they want to work for. They tend to worry and complain more about how bad the company is or how bad the company’s stories are or how the company’s destroying the industry. And many aspiring creators don’t really think about where they could be in a few years if they just set a goal, make a plan and stick with it…maybe they could have a job where they could actually produce the heck out of comics while pulling in a good salary.