Marvel-From Comic Books to the Big Screen-12-CLEAN

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Susan Kim

Hussein Kalaoui

Rosalia Morales

D i l P lid S b l

From Comic Books to the Big Screen



D i l P lid S b l

Final Draft



Table of Contents

Executive Summary ..........................................................................................76 The Early Years: 1939-1950 ..........................................................................1312

Industry Analysis .........................................................................................1514 Strategic Positioning .................................................................................. 2221

Activity System ........................................................................................... 2322 The Silver Age: 1950-1968 ............................................................................2726

Industry Analysis .........................................................................................3130 Complementors.........................................................................................3534 Strategic Positioning ..................................................................................3635

Activity System 1950-1957 .........................................................................3837 Activity System 1957-1969 ......................................................................... 4241

The Bronze Age 1970-1989 ..........................................................................4847 Industry Analysis ......................................................................................... 5049 Complementors......................................................................................... 5453 Strategic Positioning .................................................................................. 5554

Activity System ........................................................................................... 5756 The Perelman Years: 1989-1998 ..................................................................6261

Industry Analysis .............................................................................................66



Exhibit 1: Five Forces Industry Analysis ...................................................114113 Exhibit 1a: The Early Years .....................................................................114113 Exhibit 1B: The Silver Age .......................................................................115114 Exhibit 1C: The Bronze Age ...................................................................116115 Exhibit 1c: The Perelman Years ............................................................117116 Exhibit 1d: The Rebirth ...........................................................................118117

Exhibit 2: Activity System..........................................................................119118 Exhibit 2a: The Early Years .....................................................................119118 Exhibit 2b: The Silver Age 1950-57 ........................................................120119 Exhibit 2C: The Silver Age 1957-68 ........................................................121120 Exhibit 2D: The Bronze Age ...................................................................122121 Exhibit 2E: The Perelman Years .............................................................123122 Exhibit 2F: The Rebirth ............................................................................124123

Exhibit 3A Marvel SUperhero Characters ...............................................125124 Exhibit 3B Marvel Characters During the Silver Age ..............................126125 Exhibit 4 Marvel Toys ................................................................................128126 Exhibit 5 Recent sales data ......................................................................128127 EXHIBIT 6: Main Acquisitions and Divestures in the 1990S .....................132131 Exhibit 7: Publisher Market Shares of Sales of Comic Books Trade



Industry Analysis ............................................................................................. 14 Strategic Positioning ...................................................................................... 21

Activity System ............................................................................................... 22 The Silver Age: 1950-1968 ................................................................................ 26

Industry Analysis ............................................................................................. 30 Complementors............................................................................................. 34 Strategic Positioning ...................................................................................... 35

Activity System 1950-1957 ............................................................................. 37 Activity System 1957-1969 ............................................................................. 41

The Bronze Age 1970-1989 .............................................................................. 47 Industry Analysis ............................................................................................. 49 Complementors............................................................................................. 53 Strategic Positioning ...................................................................................... 54

Activity System ............................................................................................... 56 The Perelman Years: 1989-1998 ...................................................................... 61

Industry Analysis ............................................................................................. 66 Complementors............................................................................................. 79 Strategic Positioning ...................................................................................... 82

Activity System ............................................................................................... 85 The Rebirth: 1998 – 2009 ................................................................................... 91



Exhibit 1c: The Perelman Years .................................................................. 110 Exhibit 1d: The Rebirth ................................................................................. 111

Exhibit 2: Activity System................................................................................ 112 Exhibit 2a: The Early Years ........................................................................... 112 Exhibit 2b: The Silver Age 1950-57 .............................................................. 113 Exhibit 2C: The Silver Age 1957-68 .............................................................. 114 Exhibit 2D: The Bronze Age ......................................................................... 115 Exhibit 2E: The Perelman Years ................................................................... 116 Exhibit 2F: The Rebirth .................................................................................. 117

Exhibit 3A Marvel SUperhero Characters ..................................................... 118 Exhibit 3B Marvel Characters During the Silver Age .................................... 120 Exhibit 4 Marvel Toys ...................................................................................... 121 Exhibit 5 Recent sales data ............................................................................ 122 EXHIBIT 6: Main Acquisitions and Divestures in the 1990S ........................... 126 Exhibit 7: Publisher Market Shares of Sales of Comic Books, Trade

Paperbacks, and Magazines (2006-2009) ................................................... 128



EXECUTIVE SUMMARY

This paper explores evolution toward fit of Marvel Comics (officially,

Marvel Publishing Inc, a subsidiary of Marvel Entertainment), the largest

American comic book publisher. The company created and owns iconic

characters such as Spider Man, the Incredible Hulk, Captain America and

the Fantastic 4.

After a brief overview our findings, this paper will go into further

detail, analyzing Marvel in five distinct periods: The Early Years, The Silver

Age, The Bronze Age, The Perelman Years, and The Rebirth. We chose to

break the analysis up into these periods for two reasons: 1) these periods

follow agreed-upon industry consensus on the major time periods of

comic book development based on the industry milestones, and 2) these

periods generally reflect significant changes in Marvel‘s business. One



For the analysis of each time period, we used the activity system

framework. This methodology allowed us to understand the choices and

resulting trade-offs made by the company in order to ensure fit with the

prevailing industry environment (eternal fit); and assess the degree to

which its internal priorities and processes articulated with its internal

strategy (internal fit). We built the activity system in each period around

core themes that reflected the company‘s strategic choices and

categorized each activity under the key components of the Company‘s

value chain: Artists and creative processes, licensing and alternative

media, fan base management, and distribution.

In order to understand the developmental processes that led to the

organizational configurations and fit, we examined the history of the

comic book industry through the lens of Marvel Comics. Given the

importance of Marvel within the industry, many important changes in the



system built around adapting storylines and genres to frequent changes in

reader tastes. In the 1950s, the comic book industry went into a period of

decline, and a distribution disaster led the company to the brink of

bankruptcy in 1957. Editor in chief Stan Lee was left to rebuild the

company and its activity system from the bottom up.

From this period onward, the focus was around creative storylines,

depth of characters and elevating the medium through which content

was delivered. It was after this period that Marvel enjoyed some of its

greatest successes with the creation and popularization of some of its

most well-known characters. Beginning in the 1970s, the company began

to leverage its intellectual property thorough licensing and forays into TV

and film, with notable successes. In 1991, the company was taken public

and shifted its strategic focus to leveraging its existing characters, both

through comics and aggressive expansion into other media platforms. The



Marvel is an example of a company that successfully reinvented

itself several times. First, in 1957 Marvel effectively adjusted its activity

system as it switched from producing hundreds of comics in different

genres without much content to focusing its strategy on creativity and

high-quality content development, based on an industry-imposed

publication limit of 8 monthly titles. This change in strategic focus required

changes in its activity system so that it reinforced creativity and

intellectually-coherent superhero storylines. In 1990, Marvel again

adjusted its activities and operations as changes in industry dynamics took

the firm from a comic book publisher to a diversified entertainment

company focused, at the time, on exploiting the collectibles boom.

Finally, beginning in 1998, the firm emerged from bankruptcy with a new

strategic focus: growth through licensing of its library of characters in other

industries, including film, toys and apparel.



period after this realignment saw Marvel become the dominant player in

the comic book industry.

In addition, Marvel is a good example of how a company can

successfully use a substitute threat as a complementor. The emergence of

television in the late 1930s was a huge threat for comic books, as TV could

have replaced comic books as an inexpensive and user-friendly form of

entertainment for children and young adults. Marvel (along with its main

competitor DC Comics) effectively used television to increase the

popularity and demand for its superhero characters to appeal to a

broader audience by creating TV shows based on its characters, such as

The Incredible Hulk and Spiderman. Since comic books have now lost their

mass appeal as reading material and have become collectible items,

Marvel continues to utilize new media to extract value by licensing its

characters for cartoon TV shows and blockbuster films.



individual editors and artists gained influence in the 1960s through the

1970s, the company‘s strategic decision making became more

unconnected. After the company was sold to Cadence executives

though the present day, strategic decision-making can best be

characterized as planned.

We can use Marvel‘s evolution as a case study for firms that need to

reinvent themselves and use changes in the industry structure to its

advantage.



THE EARLY YEARS: 1939-1950

Prior to the creation of the comic book, sales of comic strips

depended on space allocation within local and national newspapers.

During the Depression era, budget cuts in the main newspapers prompted

the downsizing of their comics‘ sections, and comic books subsequently

emerged as a new vehicle for publishers to reach their intended

audience.

Some of the early players in industry included DC Comics, then

known as National Allied Publications, and Fawcett Publications. DC

Comics started producing comics in 1935, four years before Marvel was

founded. DC introduced superheroes to the industry with its 1938 Action

Comics publication featuring the story of Superman.1 This period became

known as The Golden Age as superheroes became a cultural

phenomenon. DC Comics introduced other successful characters,



In 1939, upon witnessing some of DC Comic‘s early successes, Martin

Goodman founded a pulp magazine publishing business under the name

of Timely Publications. As a businessman, Goodman seized the

opportunity to expand downstream and began to produce his own

comic book content. It is important to note that the comic book content

production came as a way to create demand for the Goodman‘s main

business, the pulp magazine production. The first publication, under

Timely Publications, titled ―Marvel Comics #1‖ and cover-dated October

1939, quickly sold 80,000 copies. The following month, Goodman

produced a second batch, selling ten times more. The first characters to

appear included the Human Torch, created by Carl Burgos, and Namor

the Sub-Mariner, created by Bill Everett (see Exhibit 3A). However, Marvel‘s

most successful character at the time was Captain America, created by

freelance artists Joe Simon and Jack Kirby (see Exhibit 3A).



In 1939, Goodman brought in Stan Lieber, a relative, who used the

pen name Stan Lee. Lee focused on producing as many covers and

storylines as possible to see which series would become popular. Demand

was high and Goodman and Lee utilized as many freelance writers and

artists to keep the Captain America series going.

Only the biggest publishers and distributors with strong relationships

survived the Depression. Goodman successfully led Marvel given his

experience in publishing and printing, equipment, and relationships with

both distributors and artists.

By the mid 1940s, as the war was ending, superheroes began falling

out of fashion with comic book readers. With this change in readers‘

preferences, Marvel Comics began expanding into other genres,

including horror, humor, science fiction, and drama. This strategy change

led Marvel to expand its product line, its readership, and eventually its



separate industry. In this initial stage, the industry was very attractive for

the companies that moved in first and secured relationships with

distributors. Entrepreneurs targeted a new segment of the reading public:

Young people. (See Exhibit 1A)

SUPPLIER POWER: LOW

The comic industry‘s main suppliers included creativity providers, such

as writers, freelance artists, and editors. Other minor suppliers included

providers of publishing materials, including paper and ink companies.

In the beginning of the comic book industry, freelance artists were

abundant and nearly anyone who could write attention-grabbing short

stories and draw eye-catching covers was often published. By the 1940s,

the war created a shortage of skilled artists, as they were lost to the draft.

However, there was consistent availability of freelance artists in the

pipeline who filled absences The audience seemed rather indifferent



industry was for artists to sell the rights to their characters prior to

publication. As the success of a new character was uncertain before

launching, the companies were able to purchase rights to characters

fairly cheaply. For instance, DC Comics bought the rights to Superman for

$130.3

While artists were well compensated with employee salaries and in

some instance with a share of revenues, the publishing companies

retained sole ownership of the ―cash cow‖ characters, such as Superman

and Spiderman. Furthermore, once freelance artists sold their creations,

writers would independently develop the storyline. Once this was

completed, writers would pass the storyline to the artist to render drawings

to accommodate the story.4 This separation of duties kept artists and

writers under the control of the publisher.

The supply of printing material was rationed during World War II. The



physical inputs of comic books, circulation figures declined during the

war. Given these supplier cost factors, the share of value appropriated

during this period was compressed.

BUYER POWER: HIGH

Sales of comic books depended on newsvendors and small shops,

such as drug, cigar, and candy stores. These retail outlets provided shelf

space for the wide variety of comic books that emerged in the mid 1930s.

The number of retail outlets accessed by the distributor directly correlated

with the volume of sales that Timely Comics achieved. Therefore, comic

books depended on their distributors and retail outlets, in both push and

pull methods. In order to secure shelf space, comic books heavily relied

on their distributors.

By the mid-1930s a more sophisticated system of comic book

distribution emerged As more retail outlets and storeowners made shelf



On the other hand, the typical end consumer of comic books was a

young boy. Goodman‘s strategy with Marvel Comics was to follow the

trends and target young boys through ―heroes with costumes and secret

identities with ordinary public appearances and commitment to fighting

the bad guys‖5. Goodman believed that such characters would

inherently attract the playful nature of young boys.

In addition to young boys, teenage and male adults also consumed

comic books. It is estimated four to five consumers read each comic book

then. Moreover, 90% of fourth and fifth graders described themselves as

―regular readers‖6. While an abundance of comic book stories appeared,

these consumers had the power to determine which books would

become popular. During this period, the consumer‘s switching costs were

low because readers were not yet deeply invested in each storyline

BARRIERS TO ENTRY: INTERMEDIATE BUT INCREASING



Distributors would compete for ―rack space‖ and geographic territory

and their relationship with local retailers and storeowners was measured

by reliability of weekly delivery of the product. In addition, distribution

involved warehouse space, truck leases, mailing permits, and delivery

routes7.

INDUSTRY RIVALRY: LOW BUT INCRE ASING

During the 1930s, as small publishers closed shop due to the

depression and the remaining publishers fought for their ration of paper

from the War Materials Board, overall competition amongst comic book

publishers decreased. Only those with creative stories caught their

audience‘s attention. The first major success (and inspiration for Mar vel

Comics) came from DC Comics with their premier of Superman, selling

almost fifteen million comics books per month.

On the periphery, Dell Publishing was another major player, but chose



million copies an issue8 and ―production was limited not by the market but

by the time on the printers‘ schedule and availability of paper‖.9 The

Golden Age of Comics had begun and at the forefront of the battle

stood Superman, Batman, and Captain America. By 1942, comic books

made up over 30% of the printed matter mailed to military bases.10 By

1941, Captain America was circulating nearly one million copies.

Superman sold more than a million copies every issue, and Captain

Marvel sometimes two million.

This time period was challenging in terms of macroeconomic

conditions, but consumers were still looking for an outlet for entertainment,

and comic books served this void. The varying degrees of rivalry

throughout the period diluted industry profitability, but on the whole, the

profitability of the players who survived this challenging period was

moderate to high.



Thus, comic books were a cheap form of entertainment targeted to

young boys who fantasized about superheroes. The illustrations and

narrative style of comic books made this type of reading material

accessible for illiterate boys who could understand the story by following

the illustrations.

As a result, switching costs and buyers‘ propensity to substitute were

low. Until literacy rates improved and accessibility to television sets and

paperbacks increased in the late 1940s and 1950s, the threat of substitute

remained low in the early years of the industry.

STRATEGIC POSITIONING

Rather than innovate, Goodman looked for successful trends in the

market and followed what had already proven to be profitable. Initially,

Marvel Comics focused exclusively on superheroes and tried to put

themselves in the same strategic position on the frontier as competitors.



Despite having straddled in terms of creative content, Marvel

followed a needs-based positioning where they served one segment with

a variety of different characters and genres. In accordance, the

Company pursued a strategy that emphasized low cost, as the expense

of the development of the creative processes required to come up with

highly differentiated products. Since in the beginning consumers did not

pay too much attention to quality, low price was a key product attribute

that guaranteed mass appeal, particularly during the depression and war

years.

ACTIVITY SYSTEM

During this time, Marvel‘s activity system revolved around the

following strategic themes: Attention grabbing covers, quickly producing

new titles to respond to demand shifts, maximizing profits from bestseller

titles, and operating at a low cost. The first two strategic themes were



In the early days, one of Marvel‘s core aspects was that Goodman

personally handled most of the business issues. He spent significant time

and attention examining market data for new trends that the company

could jump on. Once successful, the company would milk the trend for all

it was worth until it fell out of favor, at which point the title was

discontinued or modified. Goodman himself, who was first and foremost a

businessman rather than an artist, made key strategic decisions12.

ARTISTS AND CREATIVE PROCESSES

Small core creative team of salaried employees: Goodman‘s initial

core artistic team was made up of two established artists: Joe Simon and

Jack Kirby, the creators of enduring characters such as Captain America,

the Human Torch and the Sub Mariner. While both Simon and Kirby

contributed to the story line and inking, Simon excelled in dialogue and

lettering, while Kirby focused on layouts and figures.



other artists to continue Captain America14. Structurally, Goodman

remained at the top of the organization, however, the distribution of

power shifted slightly to the editor, Stan Lee.

Scalable work for hire: Besides a few relatives of Goodman, Simon and

Kirby were the company‘s only salaried employees in 1940.15 The

company – essentially just Goodman – opted for a flexible workforce

consisting of freelance artists that were paid either by the page or weekly.

This would become the industry norm in the decades that followed.

Some artists worked from the company‘s small office and others from

home. In an industry where literary quality meant little and consumers

were fickle, this flexibility gave the company the ability to churn out new

titles and stories quickly under tight deadlines as market trends shifted. In

order to keep the tight deadlines, Marvel simply brought in other artists to

help16.



this, Goodman personally supervised the assignment and design of

covers17.

Comic book series: The majority of the storylines were filled with

anticipation and suspense, amplifying the desire for readers to make their

next purchase. While financially, there existed low switching costs, if a

reader began a series the ―personal‖ switching cost increased as he or

she became more involved with the storyline. On the other hand, series

production meant that a popular story relied on its original creator and

group of artists to continue writing and drawing.

RELATIONSHIP WITH DISTRIBUTORS AND RETAIL OUTLETS

Good relationship with key distributors: As a series became more

popular, more retail space became available for comic books. Timely‘s

good relationship with distributors allowed for the publication of as many

books per month as the company could put out, which lent itself to



THE SILVER AGE: 1950-1968

REGULATORY AND DISTRIBUTION BUST (1950-1957)

By the 1950s, super-heroes did not capture audiences‘ attention as

much as they did when they fought the Nazis. After the war, the super-

heroes lost direction and the financial performance of Goodman‘s

company started suffering. In 1951, Timely Publications changed its name

to Atlas Comics (the name of Goodman‘s distribution company) and

began to focus on a wide variety of genres including horror, humor, and

crime (See Exhibit 3B). In general, the comic industry had a difficult time

reviving the demand for comic books during the Silver Age.

The situation furthered deteriorated in 1954, after the release of a

book by Dr. Frederick Werthman that criticized how comics were directly

correlated with the delinquency of America‘s youth The author called



In response to this attack, the comic industry collaborated and

formed The Comic Magazine Association of America in 1954. In this way,

comic book publishers self regulated and created a printing code for their

covers (the Comic Book Code). The Code limited the content of covers

and precluded the release of certain books deemed to be violent.

Therefore, the themes of comic books switched back to superheroes and

science fiction as a way to convey positive messages and values.

Since the Comics Code had been created Timely (Marvel) had

been having a hard time. In 1957, these problems, combined with

dropping sales and distribution problems, caused Editor Stan Lee to have

to cancel 55 titles in a three-month period. 19

1n April 1957, Marvel went through a distribution fiasco that caused

important financial and talent losses. Starting in 1952, Goodman had

distributed his company‘s comics to newsstands through his own



was then forced to negotiate a deal with rival DC Comics to distribute

Timely comics through DC's newsstand system. 20The deal limited Atlas‘s

distribution to eight books per month.

Marvel lost its distribution capabilities and was forced to leave its

space in the Empire State building and move into a cramped two-office

space on Madison Avenue. During the following two years Marvel

published leftover material from the 55 cancelled titles mentioned above.

CREATIVE BOOM (1957-1968)

Given the massive layoffs at Marvel, the company essentially

consisted of only Stan Lee and Jack Kirby, which led to a high degree of

freedom and creativity to do their work. The new trend in the 1950s was

science fiction, featuring giant monsters with unpronounceable names.

As a result of the Cold War, radiation and nuclear energy, were very

popular story lines of comics, particularly at Marvel Furthermore, many



Comics created the Justice League of America as a way to create a new

story line for its traditional superheroes. Even though science fiction comic

books were popular, Marvel sales began to suffer. Thus, in an effort to

compete with DC comics, Marvel returned to creating superhero comics.

Marvel created the Fantastic Four to compete directly with DC Comics

Justice League. These new superheroes were a great success, and led

Marvel to continue to focus on this theme, creating characters such as

the Incredible Hulk, Spiderman, X-Men and Iron Man (see Exhibit 3A).

Despite regulatory challenges, some of the most popular

superheroes that continue to characterize Marvel today were created

during the Silver Era. The first publication under the Marvel Comics brand

emerged in 1961 as a science-fiction anthology titled ―Amazing

Adventures‖.21 In addition, The Fantastic Four and Spiderman emerged in

this era and will be discussed in further detail below.



publishing and vitamins conglomerate, renamed itself Cadence Industries,

and Goodman stayed at publisher for another four years. Marvel had to

distribute through DC Comics until 1969, when Cadence Industries bought

its own distributor, so Marvel could again increase the number of titles

published

At the height of the Silver Age in 1968, Marvel was selling fifty million

comic books per year. Financially, however, the industry was still small. For

instance, a cover price of twelve cents resulted in only six million dollars in

gross annual sales to be allocated among publisher, employees,

distributors, newsstands, and stores.22

INDUSTRY ANALYSIS

Given the industry structure, the profitability during this period was

low. The regulatory effects and heightened rivalry compressed

profitability, while the distribution glut caused by the excessive power of



continued during this period of time. However, the work between artists,

writers and editors became more collaborative at Marvel during this

period, as artists and writers began to work together to develop story lines,

thickening the importance allotted to the creative content providers.

In addition, the scarcity of printing and publishing materials ended.

The printing and publishing capabilities became very specialized during

this era, increasing the value given to suppliers. As a result, the comic

industry started producing publications with higher quality.

BUYER POWER: HIGH BUT DECREASING

The buyer continued to have heavy influence power over comic

themes and sales during the Silver Age. Comic book publishers relied

mostly on ―tips from distributors, industr y gossip, and gut instinct in their

search for new titles and new readers.‖23 Comic book companies did not

have a formalized marketing intelligence or research departments, but in



distributed through this channel also points to the high power yielded by

distributors in this industry. The effect on the US publishing market was

disastrous. Many publishers had to switch to independent distributors and

accept unfavorable contract conditions that eventually caused the

demise of many actors in the industry.24

Near the end of Silver Era, the industry saw a transformation in the

distribution channels with the appearance of second-hand stores and

comic stores. Sales for Marvel were propelled with these new distribution

channels, supplementing the profits generated from the creation of new

superhero characters. The appearance of these specialty-stores would

turn the balance of power in favor of comic book publishers during the

Bronze Age (see next section).

During this time, buyers‘ power also started to go down as the

collector trend emerged. By the 1960‘s, the market for comic books had



BARRIERS TO ENTRY: INTERMEDIATE

Overall production costs were not a significant entry barrier,

resulting in the emergence of a large number of competitors. However, as

previously mentioned, in order to succeed in the industry, companies

needed well-established distribution channels as well as creative content.

This latter factor was specifically determined by human capital (artists and

editors). Succeeding in these two areas was challenging and posed a

clear barrier to entry, thus very few entrants were able to capture a

significant portion of the market.

INDUSTRY RIVALRY: HIGH

Continued intense rivalry led to saturation of the industry as comic

book publishers began creating many new titles and characters in an

effort to increase sales. There were more than 650 titles sold at the same

time each week in a newsstand.25 This saturation made it difficult for



In an effort to differentiate itself, DC Comics attempted to bring

back heroes from its Golden Era (Second World War years) to revamp

popularity. Among many other characters, Flash and Wonder Woman

were re-introduced and became a great success for DC comics. This

created a surge in the popularity of DC Comics, and by 1957 Marvel

began struggling for survival. Marvel had to lay off almost its entire staff

except for its editor Stan Lee and creative artist Jack Kirby.

THREAT OF SUBSTITUTES: LOW

The substitutes for comic books continued to include other forms of

entertainment for children, such as toys and other books. However, these

products targeting children posed a low threat of substitution because

comics continued to be highly accessible due to their price advantage.

Comic titles were selling for 12 to 25 cents during this era (see Exhibit 3A).

During the Silver Age a new form of entertainment consolidated,



During the Silver Era, television became an important

complementor for the industry. At this point in time television helped to

increase the popularity and carry out the advertising needed to increase

the circulation of printed comics. The television success of Superman and

eventually Batman led to their becoming iconic superheroes amongst the

youth of the day. Batman was one of the most popular TV shows and

many other superheroes also had their own show. Comic book

characters invaded television on Saturday mornings.


Marvel‘s strategic positioning during the Silver Age can be

separated into two periods:

From 1950 to 1957, the company continued to grow and its activity

system continued to thicken around its tr ied-and-true strategy of genre

hopping and trend following. At the same time, the company adapted to



provided a direct dialog with their fans. Stan Lee attempted to imitate the

EC approach but with little success. The activity system Atlas had in place

did not lend itself to this approach; EC was able to produce better work

form the same talents that worked for Stan Lee26. This can be interpreted

as a straddling approach that failed because Atlas tried to duplicate EC‘s

success by copying only a few parts of a complex activity system. Lee

would learn how to truly emulate EC‘s success only after completely

recreating the company‘s activity system following the near bankruptcy

of 1957.

From 1957 through 1969, the Company went though a realignment

of its strategy. Ironically, by building a new activity system around the

limitations imposed by the distribution fiasco of 1957, the company

entered one of its most creative periods.

The Company positioned itself as a selective publisher of super-hero



The Company then focused in the production a reduced number of

high-quality titles. As mentioned previously, this era resulted in the creation

of Spider Man, the Incredible Hulk, and the Fantastic 4, which ultimately

propelled Marvel to the industry‘s leading position.27

Martin Goodman‘s comic book business officially became Marvel

Comics in May 1963. The characters created and titles released during this

period would come to provide the mainstay for this company that would

soon overtake DC to become the leading player in the industry.

ACTIVITY SYSTEM 1950-1957

The main strategic themes of the company‘s activity system during

this time period were similar to those of the golden age: low cost,

maximizing profit from best sellers, and generating attention grabbing

covers. However, the company added a new focus on quickly profiting

from emerging trends (See Exhibit 2A).



innovative and successful new superhero comics being published by

competitors and an increasingly discriminating and mature customer

base. However, the company continued its strategy of responding

immediately to the success of sales of previous weeks based on the

information provided by distributors and by imitating the competition‘s

successful characters and themes.


Trimming of work for hire and patching of the bullpen system: By the

1950s the company did away with outsourcing and developed a ―bullpen

system‖ where all artists worked in a large room on the 14th floor of the

Empire state building with capacity for around 30 artists. Artists were

mostly salaried, which contrasted with the freelance model of the

previous period. This resulted in the trimming of freelance element in the

activity system.



advantage of this system was that Stan Lee, who was now editor-in-chief,

had easy access to artists and could make corrections directly and

maintain control over the material being produced.

Thickening of active cover management: Stan Lee took over

Goodman‘s role in maintaining strict control of the comic book covers,

which continued to be important relative to the actual content of the

books. In order to meet deadlines with a less-flexible salaried workforce,

Stan Lee maintained an inventory backlog of completed scripts29.

Patching the Marvel Method: In the late 1950s, Lee developed a

process of standardizing creativity that became known as the Marvel

Method: Initially Stan Lee and later additional writers created full scripts

that were illustrated by artists. Scripts included detailed breakdowns of

panels per page, what the reader would see on each page and the

dialogue. Artists‘ work adhered as closely as possible to the scripts



and maximized the economic benefits of specialization, but it resulted in a

lack of inspiration and creativity in the final product30.

All these new activities fit well with the company policy of genre

hopping and filling pages with as many features as possible, at the

expense of more complex and rich stories. It also allowed for tight control

of the creative process on the part of Lee and Goodman, which assured

that artists were creating works that catered to the perceived market

opportunities. Artists that worked well with Stan Lee under this system were

those that had talent for being prolific in addition to their illustrative skills.

However, this drove away some talented artists who left the company in

frustration.


Thickening of close relationship with distributors: Similar to the

previous era, during the beginning of the Silver Era, distributors were



company had to assure a positive, stable relationship with them in order

to succeed in the market. Marvel required flexibility to respond quickly to

any change in the market, and the close relationship with distributors

helped to assure this responsiveness.

Patching direct distribution: In 1950, Goodman moved into the

distribution business. From 1952 to late 1956, Goodman distributed comics

to newsstands through his own distributor, Atlas. This move aimed to

support the company‘s market-based strategy by giving it direct access

to market information and providing the flexibility required to respond

more quickly to market trends and sales figures. Theoretically, it should

have increased profits by eliminating the middleman. However, it as

explained above, it was this failed move into distribution that brought the

company to the brink of bankruptcy in 1957.31

ACTIVITY SYSTEM 1957-1969



distribution limit and creating a universe of complex superhero stories that

captured people‘s imagination. (Exhibit 2B)

STRATEGIC DECISION MAKING

Comic books were now a small part of the Goodman empire that

included major books and magazines. Goodman‘s involved in the

creative process declined, leaving Lee with free reign. However,

Goodman took note of DC‘s success in the superhero genre and

suggested to Stan that the company return its focus to this area. Largely in

light of the distribution constraint and lack of resources, Lee was forced to

exclusively focus on developing the new superhero titles.


Trimming of in-house creative and artistic team and patching of

work for hire: In the wake of the company‘s near collapse, Stan Lee was

left to singlehandedly rebuild Atlas‘s creative core Lee hired back some



Trimming of scattershot approach: The defining factor of this period

was the distribution constraint that allowed only eight titles per month, no

matter how many pages Lee and his team could produce. This forced the

company to think carefully about which titles it published and Lee had to

get creative. The company could no longer use a scattershot approach,

and they were forced to invest in their titles and release only the ones that

were successful. It can be argued that this constraint forced the company

to focus on the quality of its books and storylines.

The company was forced to make difficult tradeoffs and commit its

resources to what it did best. Hence, Teen-Age Romance was replaced

with the Incredible Hulk. Journey into Mystery became the Mighty Thor,

and Amazing Fantasy became Spider Man.

Patching of crossovers: The eight books per month limit also forced

the company to resort to using constant crossovers and frequent



Lee could chose an artist without fear of upsetting other editors. He had

the leeway to decide what would be published within Goodman‘s

guidelines. Perhaps most importantly, with the 8-book-per-month

constraint on the number of titles he could publish, Lee now had time to

focus on every creative decision. In the newly downsized company, Lee

enjoyed a close working relationship with his most talented artists, Kirby

and Ditko, and maximized their talents as artists and storytellers. Kirby was

given incredibly wide latitude in his working relationship with Lee.

Thickening of the Marvel Method: In Goodman‘s downsized

company, Lee took to writing synopses out of necessity and working with

artists on dialogue later. This afforded artists more creative leeway. Once

the basic theme and storyline were decided, the artists would proceed to

draw comics without further guidance from the firm‘s editor. Lee and his

team leveraged their past experience with multiple genres to create



With the mandated eight books per month limit, the successful

Fantastic 4 series became a logical place to introduce and test new

characters. Successful characters were later given their own books that

were notable for their depth and complexity of storylines. Stories

continued between issues and artists were encouraged to settle on one

title for an extended run. This enabled the artists to develop their craft. The

characters Kirby created during this period would constitute the bulk of

Marvel‘s mainstay for the next 40 years.

Thickening of top talent retention: With the emergence of star artists

such as Steve Ditko and Jack Kirby, retention became increasingly

important. Marvel had to ensure that their artists would not leave the

company, particularly as sales increased and competition with DC

became more intense. With the company growing and now capable of

leveraging the creative abilities of the best artists, Marvel made a push to



introduced gradually and carefully. One by one, the non-superhero titles

were replaced with superhero titles.

MARKETING AND FAN-BASE DEVELOPMENT

Patching of the letter page for fan feedback: During this period,

Stan Lee began a personal publicity push to establish a connection to his

fans. He instituted a lively letters page in which he responded to fan mail

personally. Because Stan Lee was working in a genre in which he had little

experience (superheroes) and where the eight books monthly limit left

little room for error, Lee highly valued fan feedback. For example, it was in

response to fan feedback that Lee asked Kirby to put costumes on the

Fantastic 4. Stan Lee also connected to fans through lectures to college

students, which proved to be great publicity for the company and began

to build Stan Lee as a brand in himself.

Patching of the Marvel Universe Concept: Through crossovers and



THE BRONZE AGE 1970-1989

Transitioning into the 1970s, the comic book industry began to

weaken as the two dominant firms, Marvel and DC, battled for expansion

in a shrinking market. Both companies flooded the market with new titles,

two-thirds of which were discontinued within two years. By the 1970s,

comics were no longer a mass medium, and by 1980, annual comic book

sales dropped to 150 million from peak of 600 million in 1950s.32 Television

as an entertainment substitute, the disappearance of traditional

distribution outlets, as well as rising cover prices that dissuaded younger

buyers contributed to the industry decline.

Nonetheless, TV and film began to emerge as important ways for

both Marvel and DC to capitalize on the popularity of the characters they

had developed in previous years. In 1978, the industry was transformed by

the first truly successful live-action blockbuster movie based on the comic



Marvel reporting a 14.5 percent increase in monthly circulation during the

last half of 1984. DC Comics Inc. also reported a substantial gain in

circulation in1985. Finally, 3,000 comic book specialty shops had emerged

by 1985, pointing to the increasing importance of this channel.34

In 1986, Cadence Industries sold Marvel to media company New

World Entertainment. Under the ownership of New World Entertainment,

Marvel Comics developed new strategies and products designed to

attract new generations of readers and please older ones. During this

period, the company continued to increase its sales, profiting from the

renaissance of its main character, Spiderman. In 1987, Marvel released a

special high-priced annual issue of the Amazing Spider-Man with great

fanfare.

In addition, the Company appointed Todd MacFarlane, a very

talented artist that had worked in other Marvel titles, as the main creative



covers, all illustrating the image of Spider-Man, but with different color

arrangements. Sales for this issue reached three million copies, setting a

new record for the industry and prompting other comic book publishers to

replicate this strategy.

INDUSTRY ANALYSIS

SUPPLIER POWER: HIGH

The industry standard until this time was that Marvel and DC owned

their characters, not the artists that created them. The comic book makers

had been able to largely deflect pressure to assign ownership to artists,

and paying artists per page was the long-standing norm36. However, the

rise of underground and independent comics characterized by worker

ownership of the characters put pressure on large companies such as

Marvel and DC to institute similar incentives for their artists and writers.

Further, the new realities of a marketplace where buyers hunted down



division, Epic Comics, in which creators were allowed to retain copyright

to their work and explore more sophisticated subject matters.38

BUYER POWER: LOW

Consumers consisted of growing numbers of older collectors and

nostalgia buffs as the medium lost ground among children and teens.

These new buyers hunted down back issues based on artists, changing

the dynamics of the market.

However, the 1980s also saw a huge shift in the distribution network

for comic books. In the 1980s, comic book companies started to sell to a

number of distributors that in turn sold to specialized retailers. The industry

had three main distributors: Heroes World, Diamond Comics Distributors,

and Capital City Distribution. These distributors sold to comic book

specialty stores.



The fact that the distribution network now consisted of independent

specialty stores meant that comic-book publishers had the power to

negotiate better terms with them than with larger, higher-volume outlets.

For example, comic books became non-returnable, which helped to

stabilize sales. By 1982, Marvel was making half of its sales through such

specialty comic book stores, many of them run by fans-turned-

merchants.40

BARRIERS TO ENTRY: LOW

The new distribution channel based on specialty comic shops was a

boom to would-be independent publishers. Barriers to entry were reduced

as anyone with a little capital and some creative skills could launch an

independent comic book company and gain access to the network.41

The independent stores were willing to devote shelf space to comics

produced by small, independent outfits and the diminished importance of



INDUSTRY RIVALRY: HIGH

Overall, rivalry in the industry was quite high in the 1970s and 1980s.

The increasing number of small independent comic book publishers

competed for comic book fans‘ dollars. The significant decrease in the

overall level of sales in the industry, lead to more intense competition.

However, although the number of publishers grew, the dominant players

remained DC Comics and Marvel. In the 1980s, Marvel replaced DC

Comics as the market leader.

THREAT OF SUBSTITUTES: LOW BUT GROWING

Alternative forms of entertainment such as TV, movies and video

games increasingly competed with comic books for the attention and

dollars of the industry‘s traditional customer base. Nonetheless, by this time

the industry had developed a loyal fan base of young customers who

closely followed the stories and of older readers and collectors who had



In addition, during this time comics still had a price advantage

relative to emerging forms of entertainment such as video games and

video rentals. The comic book characters that had been developed

during the Silver Age enjoyed a high degree of recognition and were

difficult to substitute. Therefore, the most common impact of new

technology was the presentation of traditional comic book characters in

complementary forms of media.

COMPLEMENTORS

TV and film continued to act as both substitute forms of

entertainment and important complementors. The success of TV shows

such as the Incredible Hulk in the 1980s (based on the popular Marvel

character), the Superman feature film (based on the DC character) and

cartoon shows such as Spider Man and his Amazing Friends (based on

Marvel characters) reinforced the popularity of these characters and



and Superman to be introduced to a new generation of audiences who

may have never before opened a comic book.

Although Marvel and DC were direct competitors, DC‘s success

with the Superman film in 1978 helped to prove the concept of a comic

book superhero-based feature. This increased the likelihood that Marvel

would be able to land similar movie deals with its own characters.

In the mid 1980‘s, a Spider-man video game for the Atari 2600 and

Mattel Intellivision home video game systems was released. The early

entrance into this form of entertainment ensured that marvel could reap

the benefits from the existing complementarities between the comic

books and video games.


In the 1970s and 80s, Marvel‘s strategy consisted of vastly



titles. Although overall sales continued to grow slightly, individual title sales

declined43.

Marvel went back to its strategy of jumping on every trend they

could find, aggressively pushing out new titles. As a result, the company

encountered a number of operational difficulties; books shipped late and

editors feuded with one another for control of creative talent and titles.

As the line expanded, more writers were brought in, which made top-

down supervision increasingly difficult. The rush to hire led to a decline in

quality of the writing staff. Per a Marvel insider ―there were people working

for the company that shouldn‘t have been writing anything.‖44

By 1978, comic book sales were declining and the company‘s

editorial operation was in disarray. However, by this time company was

generating a significant portion of its sales from licensing some of its best-

known characters for merchandizing, films and TV shows. Marvel set up an



Muppet Babies45. In this way a substitute threat (TV entertainment) was

turned into a complementor and a direct source of revenue.

In addition, Marvel achieved a certain degree of stability when Jim

Shooter became editor in chief in 1978. Shooter improved Marvel‘s

profitability by eliminating low-selling titles, developing new ones to target

previously untapped segments of the population (young girls, ethnic

minorities, and younger children), and focusing on the quality of the

artistic work.46

ACTIVITY SYSTEM

The activity system revolved around maximizing profit per reader,

leveraging intellectual property in other forms of media, and creating

complex superhero stories to capture reader imagination. (See Exhibit 2C)




than elevate the medium) through crossover titles, licensing and forays

into adjacent markets.


The return to the scattershot approach necessitated a large staff of

young, energetic writers and artists who could remain faithful to the tried

and true Marvel style developed by Lee, Ditko and Kirby. After the rapid

growth that took place in the 1960s, the bullpen became chaotic and,

with Lee no longer creatively involved, editors had significant leeway with

the titles they controlled.

Patching of artist incentives: Marvel also instituted bonus and royalty

plans that rewarded creators when their books sold well. Specifically,

Shooter instituted good medical insurance and a system of royalties,

sharing the profits from comic book sales in excess of one hundred

thousand copies This approach resulted in some creative successes, such



dependence on cross selling of characters and titles. For example, Spider

Man had three different titles of his own, and numerous mini-series were

released with the goal of increasing revenue per reader.

Patching of recycling: Popular themes and characters were

recycled repeatedly and profitability per title began to drop.

Patching of licensing Intellectual Property from other creators:

Marvel also began aggressively licensing characters from others in order

to produce new comic book titles based on films and themes with their

own brand equity, such as Star Wars, Battle Star Galactica and the

Transformers48. This fit in well with their focus on quickly producing new

titles, leveraging existing successful creations and using the ―Marvel

Method‖ to produce new comics that cashed in on trends. An important

milestone achieved through this activity was the contract that Marvel

won to adapt the Star Wars Saga into a comic book series. This was the



outlet for Marvel, the company gained in power relative to its distributors

and used this leverage to end the buy-back provision for unsold comics.


Thickening of direct feedback mechanism: The company further

developed its policy using former editor in chief Stan Lee as a kind of

celebrity and brand. His association with the classic characters of the

Marvel Universe helped to reinforce the policy of cashing in as much as

possible on existing characters and themes. Marvel also sought to

cultivate the fan base by continuing with the direct feedback mechanism

(letter page).

LICENSING AND ALTERNATIVE MEDIA

Patching of licensing: the Company focused on leveraging its existing

intellectual capital to the maximum extent possible through aggressive

licensing of its characters for merchandise and the development of



efforts on bringing Marvel into the film business49. However, there was little

else in the Marvel activity system that reinforced their efforts to enter the

movie business. Lee‘s star power was not enough to gain traction in

Hollywood.

Although the company was pushing hard to break into the film

industry, most of its film projects never saw the light of day, and those that

did were dismal failures50. Again, Marvel‘s attempt to straddle two markets

failed as they tried to enter the film industry without having developed an

activity system that would allow it to develop competitive advantage.



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THE PERELMAN YEARS: 1989-1998

COMICS INDUSTRY BOOM

The economic recovery in the 1990s had a positive effect in

consumption and contributed to the rapid rise of the industry in the first

half of the decade. This period coincided with the start of a collectibles

craze that Marvel and other comic book companies identified and

sought to profit from. The industry responded to this collectibles boom by

publishing more comic books. In addition, specialty retail stores also

increased in numbers.

In January 1989, investor Ronald O. Perelman bought Marvel

Comics from New World Entertainment for $82.5 million. Marvel Comics

was placed under MacAndrews &Forbes (M&F), a holding company that

held interests in other companies, such as Revlon, and that was

completely under Perelman‘s control.



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while revenues increased from $68.8 to $81.8 million. 52 In 1991, Perelman

took the company public by selling forty percent of the company‘s stock

in the New York Stock Exchange for seventy million. By March 1993, the

stock price had multiplied nearly tenfold to almost $20.53 In that same year

Marvel earned $56 million on revenues of $415 million. 54

Perelman was a notorious ―corporate rider‖ that had acquired

multiple companies in the 1980s and 1990s using high yield debt. He had

no personal interest in the artistic aspect of the comic book industry and

was attracted to the company by the large cash flows generated during

the boom years. He used the company‘s healthy cash flows to leverage

the firm at the holding level and used debt proceeds to extract

handsome dividends and finance his diversification strategy. Under

Perelman‘s management, Marvel, for the first time, entered into the sports

and entertainment cards, stickers, toys, and confectionary businesses.



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The Death of Superman in 1992. Although Marvel was aware of this trend,

management did not realize the degree to which speculators had been

driving the businesses. There were no statistics available from the

thousands of retailers that had emerged so quickly.55

In June 1993, a Canadian comic sold a copy of Marvel Comics'

`Amazing Fantasy No. 15' for $14,000, the most ever paid for a comic

book. Steven Fishler of New York's Metropolis Comics paid the handsome

sum for the inaugural issue of the Amazing Spiderman.56This type of

transactions encouraged sellers to buy limited editions as collectibles.

COMICS INDUSTRY DECLINE

Publishing revenue reached a peak in the winter of 1992, when

sales of issue # 75 of DC Comics‘ Superman: The Death of Superman, sold

three million copies at $2.95 per copy. This issue is believed to have led to

thirty million dollars of sales for the comics industry in a single day



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speculators stopped buying comic books and a monumental crash

ensued. Lower speculative purchases resulted in a decline in publishing

revenues in 1994 compared to 1993, and to a lesser extent, in 1995 relative

to 1994.

Retailers that were stuck with unsold inventory significantly reduced

their order flow, and only ordered proven titles. Just as the comic book

market started to decline, so did the entertainment and sports cards

business, a business that Marvel had venture into in 1992, when player

strikes affected both professional hockey and baseball in 1994. Trading

cards sales fell by 30% over 1995 and 1996.58

Comic books experienced sales of $425 million in 1997, down from

$850 million in 1993. 59 The market remained relatively stable since 1997

with annual sales around three hundred million dollars.60 In the early 1990s,

comic book print runs usually averaged in excess of 100,000 copies for key



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In 1995 and 1996, Marvel reported its first losses due to slumping

sales and crippling bank debt. Marvel‘s share of the market slid from

around 70 percent to 35 percent in 1995, and then to 25 percent at the

end of 1996.62 The significant deterioration in the industry severely affected

Marvel‘s capacity to repay the significant amount of debt that it had

incurred to finance the multiple acquisitions of the early 1990s. Marvel,

under Perelman‘s management, suffered the consequences of various

failed business and financial dealings that would ultimately lead to its

bankruptcy in December of 1996. After the bankruptcy filing, an intense

legal battle ensued to define a reorganization plan and assign control of

the company to a solvent party. In October 1998 Toy Biz, a public toy

company, acquired Marvel out of bankruptcy and renamed it Marvel

Enterprises Inc.63

Marvel would end the decade as it started, as a comic book



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existing alternative media (television and films), the emergence of the

Internet, and the consolidation of the video games industry changed the

major comic book companies, including Marvel, focus from publishing

comic books to providing different forms of youth entertainment. Marvel

primarily focused on comic books and sport and entertainment cards, but

also entered into other forms of media, toys, and confectionery.

During the nineties, although talented suppliers and customers

regained some power, industry structure continued to be conducive to

good profit margins and limited competition. Due to industry dynamics,

comic book publishers did not have large capital requirements, did not

require high levels of inventory, or hold accounts receivable for a long

period of time. Also, companies in this industry could operate with a low

level of fixed costs because comic book writers and artists worked on a

free-lance basis and publishers outsourced printing rather than doing it in-



9 9 8

SUPPLIER POWER: HIGH

During this time suppliers successfully integrated forward into the

comic book industry. Suppliers continued gaining power during the

Perelman years despite attempts of the comic publishers to reduce artists

bargaining power.

During the first half of the nineties, Marvel and other comic-

publishing companies paid less attention to the creative aspects of the

business to take advantage of the speculative frenzy in comic books.

However, at the end, suppliers of talent demonstrated that they had an

important say in the direction of the industry.

In the early 1990s, Marvel focused on immediate financial results

through the harvesting of long-established comic book characters at the

expense of the creative function of the company. Marvel downsized

creative teams and focused on exploiting successful titles by publishing



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economic compensation. In 1992, MacFarlane and six other artists

shocked the comic book industry when they left Marvel to create a new

company called Image Comics. The artists who defected Marvel were all

well known for their participation in top-selling titles: Todd McFarlane

(Spider-Man), Jim Lee (X-Men), Rob Liefeld (X-Force), Marc Silvestri

(Wolverine), Erik Larsen (The Amazing Spider-Man), Jim Valentino

(Guardians of the Galaxy), and Whilce Portacio.

In four years, Image Comics became the third company in sales

after Marvel and DC Comics. The defection of Marvel‘s main artists was

widely publicized in the media and the first comics published by Image

outsold many Marvel and DC titles. Image‘s business principles include the

vow to never own creator s‘ property and never interfere creatively or

financially with any creator. The company produced a very successful

character, Spawn, which was launched in 1992 and made into a movie in



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printing companies, these competed heavily for business from publishers

and were willing to offer low prices in order to secure contracts that would

keep them afloat.66 This can be evidenced in Marvel‘s ability to diversify

away from its main supplier of printing services in the early nineties.

Besides a considerable increase in the prices of ink and paper that put

pressure on comic book margins, not much occurred in the field of

suppliers to alter their power during this decade.

BUYER POWER: LOW BUT GROWING

All comic book companies continued to focus their distribution on

specialty stores (direct sales channel) because of the targeting and cost

advantages of this channel. As explained above, most comic book

readers buy at specialty stores and these stores purchase comics on a

non-returnable basis. This was particularly important because it allowed

comic book companies relying on this channel to have a make to order



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to impose a non-return policy serve as evidence that buyer power was

rather low during this period.

Despite this favorable environment, management at Marvel was set

on changing the distribution system in the industry to its advantage.

Perelman‘s executives argued that even though Marvel had fifty-five

percent of the market as measured by sales volume, it was only getting

thirty percent of shelf space.67 In 1995, Marvel sought to reduce the power

of distributors and improve the marketing of its books by acquiring Heroes

World, a regional comics distributor, and giving it the exclusive rights to sell

its comic books nationwide. This strategy alienated specialty stores and

resulted in the complete concentration of distribution in a single player.

The small business owners that ran specialty stores were forced to

buy from Heroes in order to have access to Marvel‘s products and had to

fill in separate orders for other publishing houses. In addition, they stopped



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The slim profit margins of specialty storeowners did not allow them

to survive without volume discounts. Specialty storeowners suffered a lot,

and most of them blamed Perelman for focusing excessively on the

Company‘s financial gain at the expense of buyers. In fact, most of these

storeowners were the most avid fans of comic books, which reinforced a

negative image among end-consumers. Intermediate consumers

influenced the decision of purchasers downstream and caused a further

decline in sales.

Marvel's move to self-distribute put pressure on DC Comics to sign a

distribution agreement with Diamond Distributors. Diamond also secured

exclusivity agreements with Marvel‘s rivals: Dark Horse, Image, and Archie

comics. These developments left Capital without its main comic suppliers

and ultimately caused this company‘s demise. In June 1996, Diamond

bought Capital City, assuming an important position in the comics



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Instead of reducing the power of distributors, Marvel ended up

directly contributing to the opposite. In 1997, Diamond became the only

source of most comic products to specialty stores in the United States.

Diamond Comics reserved the right to distribute any comic book to the

specialty stores if it deemed that it had sufficient sales potential.69 Clearly,

this increased Diamond‘s power in the industry, making it more difficult for

new companies to enter the comic book industry, but also forcing

companies to sell only through one monopolistic distributor that had

immense control over catalogue content and marketing activities. The

power of small publishers and retailers alike were weakened by

Diamond‘s dominant control. Also the complete concentration of

distribution also exposed the industry to the risk of Diamond closing

down.70

The 1990s also saw an increase in the power of end consumers in



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followed the speculative bubble burst. In 1996, editorial staff was reduced

from 52 to 12 and Marvel titles were reduced from 120 to 40 per month.

That same year there was a reader boycott. Marvel fans became

disappointed at the lower quality of content and Marvel‘s excessive focus

on financial gain. Bob Kunz, a Marvel enthusiast studying at Duke

University, denounced Marvel‘s lost focus and rallied more than three

hundred Marvel fans to declare in writing that they would stop buying

Spider-Man comics until its quality improved. The boycott gained intensity

after Marvel decided to launch a new Spider-Man saga in which the

superhero was not Peter Parker, but his clone Ben Reilly. Other boycotters

launched campaigns by mail and on the Internet, gaining the attention of

the company. In turn, Marvel decided to drop the unpopular clone saga

that ironically was designed to boost sales.

71

The boycott lasted

approximately a year and resulted in the depressed sales of comics in the



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made it hard for potential entrants to develop new ones that could

compete for distributor and licensees attention in the market. This

became the most important factor driving profitability in the industry.

Upon taking control of Marvel in 1989, MacAndrews and Forbes (M&F)

conducted market research that indicated that the entertainment

industry had not produced lasting iconic characters between 1960 and

1990.

In the early 1990s, Marvel owned the largest collection of character

assets. This proprietary collection enabled Marvel to have a large

production scale and be the lowest-cost comic book producer in the

industry. In addition, Marvel‘s character library allowed it to dominate the

important comic book distribution channels. Other comic book publishers

lacked the array of character assets owned by Marvel and, to a lesser

extent, by DC Comics. This constituted an extremely strong barrier to



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and entertainment stars.73 Fleer, the trading card company acquired by

Marvel in 1992, had a license for three major sports, baseball, football, and

basketball. SkyBox, a sports card company purchased by Marvel in 1995,

was one of the only four licensees that could feature images of the

National Basketball Association (NBA) players in its products. This limited

the entrance of new players into the sports and entertainment cards

industry

The time required to develop a new successful character and the

existence of intellectual property rights served to protect the dominant

position of industry leaders, Nonetheless, in the 1990s suppliers of talent

were able to successfully integrate forward into the comic book

publishing industry, creating an opening for new small entrants (see

discussion on supplier power above).

INDUSTRY RIVALRY: INTERMEDIATE



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publishers did not necessarily translate into a high degree of rivalry

because the industry was highly concentrated. More than a third of

publishers in the industry only released one comic book during 1997. 74

In the early 1990s, Marvel Comics was the leading publisher of

comic books followed closely by DC Comics. Other companies included

Archie Comics and Dark Horse Comics. Marvel enjoyed the highest share

of the comics market in the first half of the nineties, accounting for

between fifty and seventy percent of the comic books sold. After the

merger of Warner Communications and Time Inc. in 1989, DC Comics,

Marvel's largest competitor, became a subsidiary of the newly formed

media conglomerate: Time Warner Inc. In the early nineties, DC Comics

had a market share of the U.S. comic book industry that ranged between

twenty and thirty percent.75

The third-largest U.S. comic book publisher,

privately held Dark Horse Comics, only had a five percent market share,



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segments. In the 1990s, Marvel focused on the 6-18 year old market, while

DC targeted the 18-25 year old market. 77 In addition, DC Comics relied

primarily on traditional superhero titles, due to the popularity of its Batman

and Superman characters, while Marvel Comics focused on other more

―human‖ characters as well. DC Comics is perceived as evolutionary,

constantly changing themes to remain current, while Marvel is

revolutionary, occasionally introducing radical new concepts, but

remaining faithful to its original concepts.78


DC Comics and Marvel were in the enviable position of having a

very large portfolio of iconic characters that were hard to replace.

However, comic book audiences in the 1990s could find many other forms

of comparable entertainment. Widely accessible cable stations aired

programs aimed at the same target demographic that comic books



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In the eyes of Marvel‘s management in the early 1990s, the main

potential substitutes of comic books were other forms of relatively

inexpensive entertainment for the target demographic: candy bars,

trading cards, Coca-Cola, and arcades. Management constantly

tracked the ratio of the prices of comic books ($ 1.25 in 1992) to these

items, as well as to the price of CDs and video games. According to Terry

Stewart, President and Chief Operating Office of Marvel in 1992, ―the

attractive price-performance of comic books and trading cards

continued to give Marvel products an advantage vis-à-vis substitutes‖.

79

Management did not see video games and television as substitute

products, but more as complementors. Comic book characters

successfully crossed-over into other types of media, but publication sales

have remained stagnant since the second half of the 1990s due in part to

the abundance of alternative sources of entertainment.



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there were 29 different publisher crossovers, involving 17 different

publishers. DC and Marvel published books featuring battles between

Superman and the Hulk, and Capitan America and Batman.80

Competitors became complementors as it was clear that customers

found value in seeing Marvel and DC comics‘ universes combined.

In addition, for the first time in its history, the comic book industry

had to face the threats arising from CD-ROMs, stronger video game

platforms, unlimited cable and satellite television, and the Internet.

However, alternative forms of entertainment did not completely substitute

comic book characters but complemented them. These new media forms

served as another channel through which to present comic book

characters to new generations.

During the 1990s, Marvel and DC Comics continued to benefit from

the consolidation of complementors, such as video games. According to



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the Nintendo Entertainment System (NES). That same year, a computer

game based on the mutant characters was also developed and games

on other platforms later followed.82 During the 1990s, Sega Genesis and

Super Nintendo also developed titles that featured two of Marvel‘s top

characters: Spider-man and Hulk. In addition, the Marvel vs. Capcom

arcade series was very popular, featuring various Marvel Comics

characters fighting against characters from Capcom games.

Video games were also good complementors of comic books on

the advertising front. Approximately, fifty percent of Marvel's advertising

revenue originated from video game marketers, followed by trading card

companies, which accounted for another 25 to 25 percent.83

Movies also reinforced sales of products based on comic book

characters. According to Marvel‘s management, the 1989 "Batman"

movie benefited Marvel comic book sales more than those of DC Comics,



9 9 8

Batman-related comic books also purchased Marvel comic books. This

phenomenon repeated itself when "Batman II" was released in 1992.

DC Comics had taken the lead in using other sources of media,

launching movies and television series in the 1980s. After Perelman took

over Marvel, the company quickly caught up in its overall drive to

become a diversified media company. In the 1990s, animated series

featuring Spider-Man and The X-Men were launched on Fox Children‘s‘

Network. These series more closely resembled the comic book and had

high success.84 Comic book issues were launched to coincide with events

in animated and live series. In 1996, Superman and Louise Lane‘s wedding

in DC Comics‘ book series was coordinated with the television wedding in

ABC‘s Louise & Clark television series. 85 The coordination of comic books

and television plots tended to affect the quality of the former, as they had

to be adapted to the demands of the television medium.



9 9 8

the first true web comic.86 The number of web comics increased

considerably in the second half of the nineties. The convenience of

carrying a comic book around and the unavailability of mobile Internet

devices limited the potential threat posed by this medium.

In fact, Marvel and DC comics used the web to their advantage by

using it to connect with readers and preview some of their work. Marvel's

site on the Internet (www.marvelzone.com) allowed fans to chat on line

with Stan Lee, the legendary creator of Spider-Man, the Hulk and the X-

Men.87 Recognizing the importance of new technologies, Lee also

launched a venture in 1999 to publish books exclusively over the Internet.


Under Perelman‘s management, Marvel sought to position itself as a

―diversified youth entertainment company, featuring content based on

developing the powerful brand equity of the more than 3,500 Marvel



9 9 8

As of the end of 1995, Marvel had become a diversified

entertainment company. It had six main line of business, four of which

were approximately equal in size:

Sports and Entertainment Cards: Sold picture cards featuring

athletes and entertainment figures through the Fleer / SkyBox

Subsidiary (22.4 % of the revenue).

Toys: Designed and manufactured toys based on Marvel

character through its Toy biz subsidiary (21.7% of revenues)

Children‘s Activity Stickers: Sold picture stickers of sports,

comics, and entertainment figures through its Panini

subsidiary (20.7% of revenues)

Publishing (comic books): published comic books (17.8% of

revenues)

Confectionery: Produced and distributed bubble gum



9 9 8

at taking advantage of the synergies originated from the utilization of

comic book characters in other types of media, such as television and

films. Time Warner was able to release the Batman film through Warner

Films, release the comic book adaptation through DC Comics, produce a

sound track through Warner Records, and advertise the film through its TV

Networks.90 Even the recently created Image Comics, had been able to

put one of its characters, Spawn, on film in 1997.

Nonetheless, the consolidation of a diversified entertainment group

through acquisitions coincided with the industry crisis and burdened

Marvel with a very large amount of debt that it could not repay. At the

end of 1995, Marvel reported its first loss and started firing staff and

cancelling projects.

The company spent the two years (1996-1998) mired in bankruptcy

proceeding as Perelman, and the majority debt holder, Carl Icahn, fought



9 9 8

In the last three years of the decade, the Company realigned its

strategy, selling many of the companies that had been acquired in the

first half of the 1990s in order to reduce debt and realign its assets with a

new strategy that focused on managing the character library (see next

section). Marvel straddled back to pure comics by selling the assets that

Perelman had acquired (See Exhibit X)

ACTIVITY SYSTEM

Marvel‘s activities during this period continued to revolve around

maximizing revenue per reader through multiple purchases, and

leveraging existing intellectual property in other media (See Exhibit 2D).


Trimming creative process: Marvel diverted resources away from

the development of new characters in order to concentrate on its best

sellers During the first half of the nineties Marvel and other companies



9 9 8

Patching of limited and special editions: In addition to expanding its

number of monthly offerings, Marvel continued to periodically introduce

special annual issues and "limited story" editions (a story line that is told

over three to five issues, rather than continually evolving month to month).

A number of these specials incorporated a value-added approach such

as enclosing a poster, a pack of trading cards, or printing a unique

cover.93

Patching of cross selling of characters: In the 1990s, Marvel and DC

teamed together to launch special `cross-over' editions in which the

super-heroes in their respective universes to battle one-another to

determine superiority.

Coasting of work for hire: Marvel downsized creative teams and

continued to rely on artistic work for hire (artist compensation on per

page basis and with limited royalties) and on the outsourcing of printing



9 9 8

With the company under the ownership of Perelman, Marvel was

run as a ―cash cow‖ business. Perelman had no personal interest in the

artistic aspects of the comic book industry and underestimated the

negative implications of his business decisions on the creative power and

fan following. Under his management, Marvel, for the first time, entered

into the sports and entertainment cards, stickers, toys, and confectionary

businesses.


Marvel wanted to increase its control over promotion of comic

books and increase the intensity of marketing and shelf space in specialty

stores, where it enjoyed the higher margins.

Thickening of direct sales: De-emphasize the retail and subscription

channels: Marvel prioritized the direct distribution channel over retail and

subscription because it resulted in better profit margins (specialty stores



9 9 8

in specialty stores. However, this activity also resulted in some collateral

damage in the form of disgruntled buyers.


Patching of re-targeting young customers: In 1996, Marvel began a

marketing campaign to support the release of "Heroes Reborn," a series

developed to make their core super-heroes (The Fantastic Four, Iron Man,

Captain America, and The Avengers) consistent with the 90's. For

example, over the years, Spider-Man had grown up to become a 24-year

old married man with one daughter. Other heroes had been born in the

1950s and 60s and needed a more modern context.

LICENSING AND ALTERNATIVE MEDIA

In the 1990s, Marvel sought to enhance equity value of Marvel‘s

characters through the use of other types of media. Perelman wanted to

turn Marvel into a major American media conglomerate and transform it



9 9 8

from $500,000 in 1992 to $15 million three years later.97 Activities related to

this strategic theme included:

Patching related entertainment products: Marvel directly invested

in sports and entertainment cards and stickers, as other media forms on

which marvel characters could be featured. These forms of media

complemented Marvel comics offering because they were targeted at

the same demographic, had the same distribution channels, and had

similar production systems.

Patching direct film and TV show development: In the past, Marvel

had made a lot of very detrimental deals involving the sale of television

and movie rights for its main characters. For example, the rights to Spider-

Man were entangled in an intricate web of companies that had different

pieces of the cinematographic rights. In the 90s, Blade and Men in Black

were the only major movies based on Marvel‘s characters. Marvel sought



9 9 8

Patching direct Video Game development: In early 1996, Marvel

created a software division to lead the development of video games

based on its characters.

Patching in-house toy design and development: In 1993, Marvel

acquired a 46% in ToyBiz, granting it an exclusive, worldwide license to

develop and manufacture toys based in Marvel characters. By doing so, it

acquired a direct interest in the licensed products.

Patching other licensing activities: In the 1990s Marvel invested

heavily in developing general licensing activities outside of media. It

developed a new restaurant chain in partnership with Planet Hollywood

called Marvel Mania. Marvel also joined forces with Universal to create a

new Marvel section at its Orlando Theme Park.



THE REBIRTH: 1998 – 2009

The beginning of the 2000‘s was a time of rebirth for the comic book

industry. The ―speculative boom‖ in the early 1990‘s had created a huge

inventory of unsold collectible comic books, causing hundreds of

specialty comic book stores to shut their doors. The end of the 1990‘s thus

was a marked period of declining comic book sales, and this forced

comic book publishers to search for new ways to reenergize sales. This

spawned concentrated efforts to target different segments of readers

with new titles.

The 2000‘s also brought on a new set of challenges. Comic book

sales overall was the lowest it‘s ever been in history. The industry seemed

to undergo a strategic inflection point as consumer preferences

permanently shifted. The major publishers Marvel and DC were no longer



companies. This change in the competitive landscape forced Marvel

and DC to retool their marketing strategies to compete on a broader

scale with large publishing houses.

Under the company‘s new name, Marvel Enterprises, Marvel truly

built the foundation to be a multimedia company based on its content

library. Two blockbuster films featuring Spiderman, with a worldwide total

gross over $1.5 billion99, was the real impetus to bring Marvel fully out of

bankruptcy.100 The success of these movies brought about increased

demand for related merchandise, increasing licensing opportunities.

More meaningfully, the success of Spiderman on such a mass scale meant

that Marvel‘s character library of more than 5,000 characters could be

monetized and used to attract consumers of a broad age group. This

movement from a purely comic book firm to a ―prominent character -

based entertainment company‖101 was reflected in DC Comics as well.



similar path. While some Marvel loyalists wonder if Marvel‘s edge will be

lost under new management, the merger will likely have a synergistic

effect and broaden both firms‘ consumer base.

While Marvel‘s previous rise to fame was developing creative

content, it currently is focused on finding ways to monetize its full content

library and extend in separate series to appeal to different segments.

Marvel still has a controlled development of new content, but this is not

the focus of their strategy. The company‘s success may lie in utilizing

Disney‘s expertise in constantly renewing its classic characters for each

generation.

INDUSTRY ANALYSIS

SUPPLIER POWER: INTERMEDIATE

The most important supplier is creative talent – writers, artists, and

other labor However the leverage given to these suppliers have been



BUYER POWER: LOW

While the relationship with the consolidated distributors is important,

their demand is dependent on final consumers. As superhero characters

became more popular, the consumer buyer power declined. In this time

period, Marvel turned its focus to monetizing its existing content library

through licensing agreements and managing its library of characters

through character extensions. In doing so, they broadened their appeal

to a wide range of consumer segments. This decreased their reliance on

any one segment and thus buyer power overall. Since both Marvel and

DC are now paired with broader entertainment groups, they will continue

to broaden their customer base and further decrease the influence of this

group in a macro sense.

The value appropriated to buyers can be said to be high.

Consumers have a high willingness to pay for superhero-based



development has been built since the inception of each character. In

addition, significant investments in marketing may need to be made to

popularize new character-based forms.

INDUSTRY RIVALRY: INTERMEDIATE

Rivalry for the industry – character-based entertainment – is

moderate. The major players for superheroes are still Marvel and DC, now

a division of Time Warner, but other movie studios and creative

developers still have competitive content. On a high level, all character-

based content can be said to be competing for audience mindshare, but

each character‘s story is so developed that consumers do not really view

them as direct competitors. Rivalry thus becomes much broader, in which

superheroes compete with other genres of entertainment.

Rivalry also significantly differs depending on the business division.

For Comic Book Publishing, the rivalry is low (see Figure #) Comic books



The Toy division is arguably the division with the highest rivalry.

Licensors are not directly responsible for negotiating for shelf space in toy

stores, but the toy‘s success is contingent on if and how much shelf space

distributors can get. That said, the competition for the limited shelf space

is fierce.

Rivalry for licensing is low, since the licensing agreements are based

on the popularity of each character.


The industry is comprised now of character-based entertainment,

and the substitutes can be said to be low. For example, Marvel has an

established base of characters that prevent substitutes (other superhero-

based novels, movies, etc.) from being much of a threat. There is no true

substitute for following the story of Spiderman or X-Men.



other. As Peter Cuneo, Marvel‘s vice chairman and former CEO, clearly

states: ――If you have seen our movies, you might get into our comic books,

you might get into our video games, you might buy a T-shirt with a Marvel

character, or you might buy some of the other consumer products.‖102

Other complementarities in the industry are other superhero-based

media. The success of the DC Comics and Warner Brother movies

invariably boosts up audience interest of Marvel superheroes; thus,

success for one firm temporarily increases the pie for all players.


Marvel‘s strategic positioning has shifted from its initial needs-based

Comic Book

Publishing

Toys Licensing



products, toys, video games, animated television, direct-to-DVD and

online.‖103

Upon entering this time period, Marvel struggled to attract new

comic book readers without turning away loyal followers.104 This served as

the foundation for many of their new releases during this time, such as

Marvel Knights, which involved a single storyline with several distinctive

characters. The differentiating factor of Marvel Knights from previous

releases was that it was outside the realm of Marvel Universe, so Marvel

could experiment with edgier content without influencing the image of

top Marvel characters.

During this time period, Marvel sought out opportunities to use

recognizable characters from their portfolio on the silver screen. The

release of Blade, a character who originally appeared in the Spiderman

series, by New Line Cinema created a segment of movie fans who were



successful film to date. This success persuaded Marvel to follow an

aggressive strategy of releasing three films per year. The resulting success

of these decisions allowed Marvel to redeem its remaining long-term debt

and become completely debt-free by mid-June of 2004105.

Meanwhile, Marvel continuously sought out other avenues to

monetize their library content and manage the library of characters.

Animated series were released on television and exposed yet a different

segment of consumers to Marvel‘s characters.

The success of the Marvel movies proved that the Marvel

characters could be adapted to appeal to both loyal readers and a new

audience base of a wide age range. Thus, the three, reinforcing,

strategic pillars of Marvel became:

Monetizing Content Library – licensing to media, toys, and other

d t



Marvel characters also have made the leap to emerging media,

being featured in computer and video games. Additionally, Marvel‘s

website allows users to access archived comics for a monthly fee.

From strictly a comic book publisher to a multi-platform

entertainment corporation, Marvel has undergone a significant

broadening of its business. The company announced in September 2009

that it is considering a merger with Disney. Marvel‘s CEO says that Disney

is ―the perfect home for Marvel's fantastic library of characters given its

proven ability to expand content creation and licensing businesses."107

With that, it‘s clear Marvel‘s focus is to continue building on its content

library to appeal to a wider audience base and licensing opportunities.

Further, both firm‘' management believe that the merger will strengthen

their respective strategic positions and allow meaningful growth

opportunity into their current consumer segments108.



Spider-Man. He is our number one character, with the widest

demographic appeal of any fantasy property. His appeal starts with two-

year old children who wear Spider-Man pajamas and goes up to

consumers in their 60s — they all enjoy Spider-Man. I wish all our characters

were that broad.‖109 With Disney‘s help, Marvel‘s library of characters

could achieve that level of recognition.

ACTIVITY SYSTEM


During this time period, Marvel patched control over creative

process as a core component of its activity system. Exercising control over

the creative process was particularly important to the Publishing division.

A highly level of quality was demanded of artists, and thus consistency in

characters and stories was heavily emphasized110. With its roots in comic

books, the company still viewed its Publishing division as its source of




As Marvel emerged from bankruptcy in 1999, the company brought

on several members of senior management that would help them grow in

their licensing business. Marvel‘s new board included former Toy Biz

owners Isaac Perlmutter and Avi Arad. Perelman‘s figurehead was not

replaced and thus trimmed.

Marvel currently has a ―Planned‖ strategic management model

that typically embodies the senior management and board of director

setup. As such, artists do not have power as they did when Marvel was

just a comic book company.

In 2008, Marvel formed an international advisory board ―comprised

of business leaders who possess deep knowledge of consumer

preferences in key international markets, such as China and India.‖111 This

advisory group will help the senior management team have a longer,



through 3 ways: 1) specialty bookstores, called the direct market, 2)

traditional retail outlets, called the mass market, and 3) on a subscription

basis112.

Marvel continues to be the dominant player with 46% of unit share

in the direct market, which consists of over 2,500 independent comic

books113. Because of Marvel‘s size, these comic book stores are reliant on

Marvel and thus willing to carry the 60 titles that Marvel prints out each

month.

For the Toy division, Marvel signed an exclusive agreement with a

Hong Kong-based company to manufacture and sell toys based on

Marvel‘s characters, and in return, Marvel received a 15% royalty from the

wholesale price114. Marvel retained control in design and quality of the

toy and only licensed out the manufacturing of the toys. Because several

members of Marvel‘s senior management team were formerly from Toy



Toy Stores, and Kmart, comprised 66% of Marvel‘s toy sales in 2003115. The

overall toy division generated over $20 billion in sales in 2003.

Marvel‘s licensing division previously licensed its characters out to

movie studios. However, in late 2005, the company built a $525 million film

facility to produce its own movies116. This decision was based on the

company‘s strategic pillar to contr ol creative content.


Marketing for Marvel takes a very multimedia approach. Sales for

the publishing division are heavily affected by exposure to other media,

particularly films. Movies tend to produce double the amount of demand

in corresponding comic books.117

To appeal to a wide fan base, managing the long-term value of

characters was thus patched onto the activity system. This element



work hard to find the right partners, and we approve the products for

quality, but we don‘t contribute any capital. We just collect checks,‖ Allen

Lipson, Marvel‘s president and CEO.118

Currently, significant licensing activities include licensing characters

out to consumer products, films (Sony Entertainment), television programs,

promotions, and other forms of media. In 2008, licensing made up the

largest portion of Marvel‘s revenue ($293 million of a total of $776 million).

FUTURE PROSPECTS

With Disney‘s premium $4 billion acquisition of Marvel earlier this

year, it is clear that Marvel seeks to utilize Disney‘s competencies to

expand its empire. Disney has been successful with the female youth

target and has managed to derive long-term value from this relationship.

Marvel‘s content library has so far not appealed to the female youth

market and it‘s expected for both sides to leverage each other‘s content



addition to a broadening of customer base, Marvel will likely leverage

Disney‘s expertise to begin building its internal media production

capabilities. Until recently, Marvel has primarily licensed out movie and

other media production; however, in order to thicken the ―Creative

Control‖ pillar of its strategy, Marvel will begin bringing all production

activities in house.

With the Disney and Marvel merger, it is likely that the combined

market served will be the broadest that the entertainment industry has

ever seen.



CONCLUSIONSKEY TAKEAWAYS

Marvel‘s strategic positioning evolved from a point of low cost and

low differentiation in the 1930s and 1950s, to a point of high differentiation

-achieved through the development of iconic characters and of a unique

form of managing character equity- and focus on quality in the

development of different forms of media and entertainment expressions

to effectively leverage its character equity.

The initial scattershot / low cost strategy was not sustainable, as it

did not involve choosing what not to do: Marvel published all types of

comic books aimed to all sorts of target audiences from the 1930s through

the end of the 1950s. During this time, the Company did not made any

tradeoffs and focused instead on building operational efficiencies to

which all other players in the industry had access.



criteria for the hiring and management of artistic labor was high volume

production for low pay, rather than on artistic ability. 119

During the Great Depression and the World War, the product was

undifferentiated and inexpensive, reflecting the financial constraints of

the target customers and the concentration of themes. However,

operational effectiveness fell short when customer sophistication grew,

macroeconomic conditions improved, and the end of the war

demanded the creation of more innovative characters (not only heroes in

the fight against the war enemies).

Marvel than decided to pursue a Needs-Based Positioning and

created an activity system to support this strategy. However, catering to

different needs did not create a differentiated position for Marvel

because it continued to rely in the same set of activities as before. The

activities developed during the first part of the Silver Age continue to give



Two inflection points in the industry positively affected the ability of

Marvel to create additional value through means different than lowering

its production cost. These events allowed Marvel to generate a higher

willingness to pay through differentiation (creation of complex and highly

innovative super-hero characters) and to access the specific segment of

the client population that eventually developed a high capacity and

willingness to pay (older readers and collectors).

The first inflection point corresponds to the marked decrease in

circulation brought about by the regulatory restrictions imposed in 1954

and the distribution glut of 1957, which forced Marvel to limit its monthly

distribution to eight titles. The second inflection point corresponds to the

switch in comic book distribution from mass retailers to specialty comic

book shops.

After 1957, Marvel was no longer able to profits from the high



This strategy paid of as we can see a marked increase in the sales

of marvel after 1959 and the consolidation of a positive growth trend that

would prevail until the beginning of the 1970s (See Exhibit 10). Eventually,

competitors, including DC Comics, copied the Marvel Method and the

gap in sales started to close down.

Later, during the 1980s, the industry evolved through a system of

distribution based on specialty-stores. This improved Marvel‘s ability to

capture value away from mass retailers, which had traditionally enjoyed

the ability to return unsold comic books, hurting publishers‘ profitability. In

addition, the emergence of specialty stores allowed Marvel to have

direct access to customers who only cared about comics (as opposed to

any type of magazine or form of entertainment), and who therefore had

a high willingness to pay. As a result, Marvel was able to extract a higher

share of value than before by reducing cost (no returns) and increasing

Formatted: Highlight



company file for chapter 11. It seems that often-radical changes can

only be brought about by shocks.

In the 1990s, the Company‘s activity system was fundamentally

changed to extract value from a temporary external situation (collectibles

bubble in the early 1990s), but the new system lacked internal coherence.

New activities were patched to generate additional sales revenue, but

these not connected well with the organizational structure, culture, and

activities that Marvel had developed until then. The new activity system

was supposed to it with the new external environment of mass

entertainment, but it did not fit with the expectations of the comic book

fans, or with the internal activities of the creative staff.

The activity system developed by Perelman was not sustainable

because it was rooted in external and temporary success factors: the

collectible craze, the ability to cheaply leverage Marvel‘s healthy cash



Another takeaway is that it is difficult to imitate other companies‘

activity systems. During the 1990s, Marvel tried to imitate the successful

activity system of DC Comics and the large media conglomerate to

which it belong: Time Warner. Nonetheless, activity systems are difficult to

imitate, particularly when the activities show a high degree of fit, as it was

the case for Time Warner‘s comic character business.

A final takeaway has to do with Marvel‘s ability to turn potential

competitors into complementors. New forms of media, such as television,

films and video games turned into complementors rather than

competitors because it was more valuable for comic book fans to see

their hoes on the big screen or in arcades. At the same time, it was also

valuable for comic book companies to reach a wider and younger

audience through these emerging forms of media. These technologies

were not disruptive for comic book characters, becoming just another



C h a p t e r : E x

h i b i t 1 : F i v e F o r c e s I n d u s t r y A

n a l y s i s

114

EXHIBIT 1: FIVE FORCES INDUSTRY ANALYSIS

EXHIBIT 1A: THE EARLY YEARS



C h a p t e r : E x


n a l y s i s

115

EXHIBIT 1B: THE SILVER AGE



C h a p t e r : E x


n a l y s i s

116

EXHIBIT 1C: THE BRONZE AGE



C h a p t e r : E x


n a l y s i s

117

EXHIBIT 1C: THE PERELMAN YEARS



C h a p t e r : E x h i b i t 1 : F i v e F o r c e s I n d u s t r y A

n a l y s i s

118

EXHIBIT 1D: THE REBIRTH



C h a p t e r : E x h i b i t 2 : A c t i v i t y S y s t e m

119

EXHIBIT 2: ACTIVITY SYSTEM

EXHIBIT 2A: THE EARLY YEARS




120

EXHIBIT 2B: THE SILVER AGE 1950-57




121

EXHIBIT 2C: THE SILVER AGE 1957-68




122

EXHIBIT 2D: THE BRONZE AGE




123

EXHIBIT 2E: THE PERELMAN YEARS




124

EXHIBIT 2F: THE REBIRTH



C h a p t e r : E x h i b i t 3 A M a r v e l S U p e r h e r o C

h a r a c t e r s

125

EXHIBIT 3A MARVEL SUPERHERO CHARACTERS

Human Torch Namor the Sub-mariner Iron Man Captain America



C h a p t e r : E x h i b i t 3 B M a r v e l C h a r a c t e r s D

u r i n g t h e S i l v e r A g e

126

EXHIBIT 3B MARVEL CHARACTERS DURING THE SILVER AGE

Homer the Happy Ghost Homer Hooper Ringo Kid Black Rider

Fantastic Four Hulk Spider-Man



C h a p t e r : E x h i b i t 3 B M a r v e l C h a r a c t e r s D

u r i n g t h e S i l v e r A g e

127

Sergeant Barney Barker Millie the Model The Monkey and the

Bear

Patsy Walker



C h a p t e r : E x h i b i t 4 M a r v e l T o y s

128

EXHIBIT 4 MARVEL TOYS

EXHIBIT 5 RECENT SALES DATA



C h a p t e r : E x h i b i t 5 R e c e n t s a l e s d a t a

129

September 2009 Comic Book Sales FiguresEstimated Comics Sold to North American Comics Shops

as Reported by Diamond Comic Distributors

Comic-book Title Issue Price PublisherEst.sales

1 Blackest Night 3 $3.99 DC 140,667

2 Captain America Reborn 3 $3.99 Marvel 108,240

3 Batman And Robin 4 $2.99 DC 106,835

4 Green Lantern 46 $2.99 DC 103,579

5Wolverine Giant-Size OldMan Logan

1 $4.99 Marvel 93,744

6 Blackest Night Batman 2 $2.99 DC 87,564

7 New Avengers 57 $3.99 Marvel 85,526

8 Green Lantern Corps 40 $2.99 DC 83,042

9 Dark Avengers 9 $3.99 Marvel 79,662

10 Blackest Night Superman 2 $2.99 DC 78,700

11 Batman 690 $2.99 DC 76,936

12Dark Avengers UncannyX-Men Exodus

$3.99 Marvel 75,598

13 Uncanny X-Men 515 $2.99 Marvel 73,523

14 Amazing Spider-Man 606 $2.99 Marvel 70,118

15 Ultimate ComicsAvengers

2 $3.99 Marvel 68,539

16 Thor 603 $3.99 Marvel 65,210

17 Blackest Night Titans 2 $2.99 DC 64,032



C h a p t e r : E x h i b i t 5 R e c e n t s a l e s d a t a

130




Source: http://www.comichron.com

Marvel DC Image Dark Horse Crossgen Others

Mar-98 27.17 26.47 13.88 5.59 0.00 26.89

Mar-99 22.54 34.34 10.26 7.87 0.00 24.99

Mar-00 21.08 31.06 13.48 7.21 0.00 26.63

Mar-01 25.33 33.19 9.08 8.31 1.47 22.62

Mar-02 38.80 25.38 5.66 8.14 3.03 18.99

Mar-03 31.86 29.45 7.91 4.59 4.48 21.71

Mar-04 31.05 30.35 4.27 7.12 2.16 25.05

Mar-05 41.60 25.69 3.54 6.96 0.00 22.21

Mar-06 38.12 32.32 4.49 4.16 0.00 20.91

Source:http://www.cbgxtra.com

Market Share

Comics, Magazines & Graphic Novels



C h a p t e r : E

x h i b i t 5 R e c e n t s a l e s d a t a

131

Publisher

Total Sales Total Sales

Total

Reorders

Total

Reorders

Dollar Share Unit Share Dollar Share Unit Share

MARVEL

COMICS 36.54% 43.19% 23.09% 25.57%

DC COMICS 30.63% 32.23% 34.41% 37.87%

DARKHORSECOMICS

5.58% 4.08% 9.93% 7.53%

IMAGECOMICS

3.90% 3.94% 4.31% 5.25%

TOKYOPOP 3.00% 1.13% 7.44% 5.09%

Source: http://www.comicbookresources.com

Top 10 Comics of 2004

Qty. Retail In

Item Code Title Price Pub.Rank Rank Stock

1 6 ** FEB040241 SUPERMAN #204 $2.50 DC

2 15 **

JUL046034/

NEW AVENGERS #1* $2.25 MARSEP041723/

OCT048022/

NOV048028

3 3 **JAN040225/

SUPERMAN BATMAN #8* $2.95 DC

5280/5299

4 1APR040316/

IDENTITY CRISIS #1* $3.95 DC5288/5290



C h a p t e r : E

X H I B I T 6 : M a i n A c q u i s i t i o n s a n

d D i v e s t u r e s i n t h e 1 9 9 0 S

132

5 5 **

MAR045193/

ASTONISHING X-MEN #1* $2.99 MAR1647/

APR045028

6 16 ** MAR040293 SUPERMAN #205 $2.50 DC

7 8 ** MAR040294 SUPERMAN BATMAN #10 $2.95 DC

8 4MAY040321/

IDENTITY CRISIS #2* $3.95 DC5410

9 27 ** APR040291 SUPERMAN #206 $2.50 DC

10 17 ** FEB040242 SUPERMAN BATMAN #9 $2.95 DC

Source: http://www.comicbookresources.com

EXHIBIT 6: MAIN ACQUISITIONS AND DIVESTURES IN THE 1990S



C h a p t e r : E

X H I B I T 6 : M a i n A c q u i s i t i o n s a n d D i v e s t u r e s i n t h e 1 9 9 0 S

133

Acquisitions

In July 1992, Marvel bough Fleer Corporation, a top producer of sports and entertainment trading cards and

a much larger company than Marvel at that time, for $286 million.

In the spring of 1993, Marvel acquired a minority part of Toy Biz, a designer and manufacturer of toys, in

exchange for a perpetual and exclusive royalty-free license to use all of Marvel characters.

In the winter of 1994 Marvel acquired regional comic-book distributor Heroes World in order to use it as its

own exclusive distributor (see buyer power discussion in five forces analysis).

In July 1994, Marvel also acquired the Panini Group, an Italian company that printed the photos of athletes,

movie stars, and comic book heroes on stickers that children collected in albums. The transaction amount

was $150 million.

During 1994, Marvel acquired other four comic book publishers including Harvey Comics, Welch Publishing,

and Malibu Comics.

In the winter of 1995, through its recently acquired Fleer subsidiary, Marvel bought sports and entertainment

cards company Skybox International for $150 million.

In July 1996, Marvel and Toy Biz created a joint-venture called Marvel Studios to facilitate the development

and financing of live action and animated motion pictures and television programming based on the

Marvel Characters.

Divestures

In February 1997, after failing to manage a nationwide distribution network, Marvel closed down Heroes

World.

In the summer of 1998, Marvel sold the division that produces Double Bubble gum to Concord Confection

Inc. for $ 18.7 million.



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X H I B I T 6 : M a i n A c q u i s i t i o n s a n d D i v e s t u r e s i n t h e 1 9 9 0 S

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In February 1999, Marvel completed the sale of Fleer/Skybox International, its trading card business, for a

purchase price of $26 million in cash to a newly formed private company.

In October 1999, Marvel completed the sale of Panini to an Italian Company. Panini remained as licenseefor some of Marvel characters



C h a p t e r : E

x h i b i t 7 : P u b l i s h e r M a r k e t S h a

r e s o f S a l e s o f C o m i c B o o k s ,

T r a d e

P a p e r b a c k s , a n d M a g a z i n e s ( 2 0 0 6 - 2 0 0 9 )

135

EXHIBIT 7: PUBLISHER MARKET SHARES OF SALES OF COMIC BOOKS, TRADE PAPERBACKS, AND MAGAZINES

(2006-2009)

Source: The Comic Chronicles

EXHIBIT 8: COMIC BOOKS ORDERED BY COMICS SHOPS IN NORTH AMERICA (IN DOLLARS)

Formatted: Heading 1, Add spacebetween paragraphs of the same style

Formatted: Font color: Red

n u n i t s )



C h a p t e r : E

x h i b i t 9 : C o m i c B o o k s O r d e r e

d b y C o m i c s S h o p s i n N o r t h

A m e r i c a ( i n

136


EXHIBIT 9: COMIC BOOKS ORDERED BY COMICS SHOPS IN NORTH AMERICA (IN UNITS)



D C



C h a p t e r : E

x h i b i t 1 0 : C o m i c S a l e s ( m o n t

h l y a v e r a g e i n m i l l i o n s ) f o r M a r v e l a n d D

C o m i c s ( 1 9 5 0 - 1 9 8 7 )

137


EXHIBIT 10: COMIC SALES (MONTHLY AVERAGE IN MILLIONS) FOR MARVEL AND DC COMICS (1950-1987)



D C



C h a p t e r : E

x h i b i t 1 0 : C o m i c S a l e s ( m o n t

h l y a v e r a g e i n m i l l i o n s ) f o r M

a r v e l a n d D

C o m i c s ( 1 9 5 0 - 1 9 8 7 )

Source: Enter the Story

Formatted: Centered

Marvel-From Comic Books to the Big Screen-12-CLEAN

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