A Time Series Study on Marvel from 2000 - 2009: Marvel’s Movies Impact Relative to Stock Price

9th Global Business Conference February 7, 2015 De La Salle University, Manila, Philippines

A Time Series Study on Marvel from 2000 - 2009: Marvel’s Movies Impact Relative to Stock Price

Junius W. Yu

De La Salle University

junius.yu@dlsu.edu.ph

Abstract: Marvel studios have provided an interesting study for many business students particularly generating more than $1.5 billion box office receipts for the movie “Avengers” last 2012. Disney bought Marvel for $4.24 billion and the question arises from the valuation of the company relative to the acquisition price. The study focuses on Marvel Entertainment’s impact from movie releases relative to stock price. A time series analysis was used in gathering Marvel’s daily stock price changes from 2000 – 2009. This was also used in parallel to 20 movies released by Marvel within that time period. The behavior of the market was examined using the GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model and the EWMA (Exponentially Weighted Moving Average). A linear regression was used in testing the hypothesis on whether gross sales of movies and movie release (development, pre-production, production, post-production and release) have any significant to changes in stock price. GARCH (1,1) was used to measure the outliers for the signaling effect relative to huge changes on the time series data. The data results provided no empirical evidences due to relatively large p- values; however the spike of increase in changes were identified due to the release of Spider- Man 2 in 2004 and Iron Man in 2008. The conclusion of the study reflected on the impact Marvel has on mainstream Hollywood perhaps not on the valuation, but the future business earnings it may generate in the next decade.

1. INTRODUCTION

“You become part of a bigger universe, you

just don’t know yet.” – Col. Nick Fury

A plethora of Marvel characters have made it

to the big screen whether it is Spider-Man spinning webs to Wolverine unsheathing his claws to Iron-Man hovering above the skies to Captain America throwing his mighty shield. Did you ever wondered how it all begun and how interesting would it be to study the Marvel phenomenon? How long can they sustain their box office success? Each time they release a movie does it really affects the company valuation?

There are relatively few who do study a creative industry like Marvel Entertainment and perhaps Disney saw the potential to capitalize on that. Disney group of companies bought Marvel for $4.24 billion with the approved merger of both companies. Essentially Marvel existing shareholders received $30 valuation or about 0.745 Disney shares for each Marvel share they owned. In 2010, the company was officially delisted from the New York Stock Exchange with its ticker MVL no longer trading in the stock market.

Blade was the very first to be released when it was licensed by New Line Cinema. It allowed other studios to license Marvel characters to the big screen. 20th Century Fox gambled on the X-Men in 2000 when Marvel’s financials were in a doldrums. This allowed them to secure a nexus of contracts in having movie rights to the X-Men group in perpetuity as long as they keep on producing on a timely interval from two to three years from the last movie. The gamble paid off and Fox continues to produce them up to this day with X-Men: Apocalypse in 2017. Spider-Man followed in 2002 with Sony Columbia and had the same contract with Fox.

Each movie tells a story, but what is the story behind the movie story? Do Marvel stocks increase for each Marvel movie announcement or there is simply no significance at all?

2. HISTORICAL BACKGROUND OF

THE STUDY

Marvel Comics originally started as Timely

Publications in 1939 when it was founded by Martin Goodman along with his brother Abraham Goodman. Their first product was Marvel Comics # 1 that sold over 800,000 copies. Their best seller was Captain America Comics # 1 that sold over 1 million copies during the onset of World War II.

After the War, a downward trend occurred for the superhero genre and replaced by others from crime, drama, horror, western and more that resulted to the transition of Timely into Atlas Comics. The 1950s Atlas Comics had massive layoffs and title reduction due to the loss of their distribution network with American News Company. Hence they were force to go to their competitor Independent News that is owned by National/DC Comics for distribution.

The 1960s brought back Marvel Comics under the leadership of Stan Lee who rejuvenated the franchise in making the Marvel Comics trademark stamp on their comic books. Their first major breakthrough was the publication of Fantastic Four and it heralds the start of the Silver Age with the introduction of other Marvel characters notably the Hulk, Daredevil, X-Men, Spider- Man, Iron-Man, Avengers, Doctor Strange and more.

In 1968, Martin Goodman sold Magazine Management Corporation with subsidiaries like Marvel Comics and all of his publishing businesses to Perfect

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Film & Chemical Corporation (Cadence) owned by Martin S. Ackerman. He remained with the company as publisher until 1972 when he was replaced by his son Charles “Chip” Goodman. Cadence also owns DePatie- Freleng Enterprises (DFE Films) and later incorporated as Marvel Productions in 1981 with David DePatie as president and CEO until 1984 wherein he was replaced by Margaret Loesch.

In 1986, Cadence sold Marvel Entertainment Group to New World Pictures. Howard the Duck was the only license movie in 1986 and actual production was made for Punisher in 1989. In 1989, New World Pictures (later New World Entertainment) has financial trouble and was forced to sell Marvel Comics to Ronald Perelman’s group of investors under the Andrews Group for $82.5M. Andrews Group’s parent company is MacAndrews & Forbes. Ronald Perelman later acquired New World Pictures and absorbed Marvel Productions as well.

In 1991, Marvel Entertainment Group went public with 40% of their stock and forward $40M proceeds to the Andrews Group. This led to the purchase of Fleer by Marvel for $265M in 1992. The following year, Marvel Entertainment Group acquired Toybiz with 46% ownership in exchange for a perpetual royalty free exclusive in the toy production of Marvel Characters. Avi Arad joined Toybiz with 10% ownership after the deal to manage the business,