MARVEL-lous Economics
Economics and Marvel movies are closely related. No, really. What if I told you that the financial crisis of 2008 had a hand in helping Marvel Studios take off?
Let’s uncover how the financial crisis ties into the beginnings of the studio.
Although superhero movies like The Hulk (2003) and the Spiderman trilogy (2002, 2004, 2007) were based on characters from the Marvel comics, they were not made by Marvel Studios. This is because the company did not yet make movies of its own but simply licensed its characters to production houses for film adaptations.[1] The first Marvel licensing deal sold the cinematic rights to a character called ‘Blade’ to New Line Cinema, which was adapted into a movie in 1998.[2] This licensing model appeared to be a good way of making quick cash for Marvel after its bout with bankruptcy in 1996. But, under this model, Marvel would only pocket royalties, which were a meagre amount compared to the box office figures of these movies. For example, Blade (1998) made $70 million at the U.S. box office but Marvel only received $25,000 of it.[3]
But things changed in 2005, when Marvel decided to make its own movies to be in creative control of its assets and retain 100% of the profits from films. With this in mind, they approached Merrill Lynch, an investment firm, to finance Marvel’s film-making arm with a $525 million loan. The collateral? 10 Marvel characters – Captain America, The Avengers, Nick Fury, Black Panther, Ant-Man, Cloak & Dagger, Doctor Strange, Hawkeye, Power Pack and Shang-Chi.[3] So, what did Merrill Lynch do when a recently bankrupt company asked them for a $525 million loan? They approved it, of course. [4] This level of risk might appear foolhardy today, but it fits in with the ‘casino vibe’ that financial institutions had before the Global Financial Crisis of 2008.[5]
Once the loan was secured, it was time for Marvel to pick a superhero. The studio’s wish to launch a superhero that had never been in live action left them with a long list of names to choose from.[3] They went with Iron Man. For anyone that had been following the comics, the studio’s decision appeared foolhardy, because Iron Man was a B-list superhero, at best. So why did Marvel not choose Captain America for their first film which would quite literally have made him the ‘First Avenger’? The answer is focus groups.
A focus group consists of a group of individuals who are asked opinions about certain products and services. It is often preferred over interviews because group members are allowed to interact and influence one another, making for richer observations.[6] This tool, often used by market researchers, was what Marvel used when picking the character for their first film. According to film historian Ben Fritz, Marvel convened focus groups of children and asked them which superhero they would most like to play with as a toy, after describing the heroes’ powers. Marketability was something that Marvel’s then-CEO Isaac ‘Ike’ Perlmutter was deeply interested in. [7] Hailing from Toy Biz, he understood the power of the synergy between movies and merchandising. Perlmutter had already missed the chance to release action figures when X-Men released in 2000, and he was not going make that mistake again.
Marvel’s gamble with the supposedly B-list superhero paid off and Iron Man (2008) went on to make more than $585 million at the box office.[8] Not only did this success embolden the studio’s spirit to make its own movies, but it also paved the way for one of the biggest business deals of the 2000s – Disney’s acquisition of Marvel and its 5000 characters, for $4 billion in 2009. So why did this movie do so well? After all, it’s the story of a billionaire-turned-superhero that released in the middle of a financial crisis caused by billionaires, which had made them distasteful to the public. More generally, going to the cinema is not something that people do in an economic downturn. Movies can be classified as a ‘luxury good’, which is a good whose demand decreases with a decrease in income. So, it seems a bit odd that people would spend money to go see a movie in the middle of a financial crisis, when they are losing their jobs. What explains the anomaly in people’s consumption pattern?
According to Abraham Riesman at Vulture, it was because Marvel and its characters were something that people were familiar with; it was comfortable, and the movies were something that people could keep coming back to.[5] Patrick Corcoran, spokesman for the National Association of Theatre Owners said that ‘escapist’ films do well in times of economic downturn while films about “things that are bothering everyone”, not so much (The top movie of 2008 in the US was The Dark Knight, another superhero flick)[9]. He further adds that movies are a cheap form of entertainment that allow people to forget their problems, and so, people do not mind spending on them, [10] even in the middle of a recession.
Source: The Numbers[9]
As seen in the graph above, ticket sales and box office collections in 2007-2009 did not vary too much. 1.36 billion movie tickets were sold in the US in 2008, compared to 1.4 billion the previous year.[9] Relatively, there is not much of a dip in ticket sales, and the graph seems to confirm Corcoran’s theory. But simply offering a few hours of ‘escape’ did not guarantee a box office hit for movies. According to IMDb, there were 47 flop movies in 2009.[4] This means that Iron Man (2008) did more than just offer a getaway for viewers. In her paper titled ‘What Movies Do You Watch During Bad & Good Economic Times’, Lin Yi says that movies featuring lot of drama and action consistently perform well during economic recessions.[11] Notably, these are two things that mainly feature in Marvel movies. Marvel’s ‘recession-proof’ movie making formula was once again proven when Black Widow (2021) set a pandemic record with $80 million earned in theatres in the US. It was the biggest opening weekend for a movie since the Covid-19 pandemic began. [12]
Since their first film, it has been up and up for Marvel. Their prolonged success appears to stem from managing to blend together storylines of different superhero characters, adding on sequels, good marketing decisions and a die-hard fan base.[4] With a little bit of luck and a few economic techniques, Marvel went from bankruptcy to shattering all kinds of box office records. Currently, the MCU is in Phase 4 of its filmmaking with fans eagerly awaiting the next film spectacle.
References
[1] obhanandassociates.com 2018. ‘Spider-Man, Marvel and IP licensing in films’. [online]. Available at: Spider-Man, Marvel and IP licensing in films – Obhan & Associates (obhanandassociates.com) > [Accessed 05th September 2021].
[2] screenrant.com 2020. ‘MCU, Sony, Fox: The history of the Marvel character movie rights’. [online]. Available at: MCU, Sony, Fox: The History Of The Marvel Character Movie Rights (screenrant.com) > [Accessed 07th September 2021].
[3] screencrush.com 2015. ‘How Marvel risked everything to go from bankruptcy to billions’. [online]. Available at: How Marvel Risked Everything to Go From Bankruptcy to Billions (screencrush.com) > [Accessed 07th September 2021].
[4] businessreviw.berkeley.edu 2019. ‘The Economics behind the Marvel Cinematic Universe’. [online]. Available at: The Economics behind the Marvel Cinematic Universe – Business Review at Berkeley > [Accessed 03rd September 2021].
[5] vulture.com 2018. ‘As the financial world crashed, the Marvel Cinematic Universe took shape. [online]. Available at: How the 2008 Crash Shaped the Marvel Cinematic Universe (vulture.com) >[Accessed 03rd September 2021].
[6] corporatefinanceinstitute.com 2020. ‘Focus Group’. [online]. Available at: Focus Group – Learn About Different Types of Focus Groups (corporatefinanceinstitute.com) > [Accessed 08th September 2021].
[7] screenrant.com 2020. ‘Why Marvel really chose Iron Man to be the MCU’s first movie’. [online]. Available at: Why Marvel Really Chose Iron Man To Be The MCU’s First Movie (screenrant.com) > [Accessed 08th September 2021].
[8] teampay.co 2019. ‘How heroic financial moves took Marvel from bankruptcy to box office’. [online]. Available at: How Heroic Financial Moves Took Marvel from Bankruptcy to Box Office Behemoth – Teampay | Teampay > [Accessed 08th September 2021].
[9] the-numbers.com 2021. ‘Domestic Movie Theatrical Market Summary 1995 to 2021’. [online’. Available at: The Numbers – Movie Market Summary 1995 to 2021 (the-numbers.com) >[Accessed 10th September 2021].
[10] ew.com 2011. ‘Is Hollywood recession proof ?’. [online]. Available at: Is Hollywood recession proof? | EW.com > [Accessed 10th September 2021].
[11] Yi, L. 2017. ‘What Movies Do You Watch During Bad & Good Economic Times: The Impact of Movie Genre on Attendance over Business Cycles’. [online]. Available at: Yi_Lin_201709_Msc.pdf (uoguelph.ca) > [Accessed 05th September 2021].
[12] nbcnews.com 2021. ‘ ‘Black Widow’ sets pandemic record with $80 million in theatres, $60 million streaming’. [online]. Available at: ‘Black Widow’ sets pandemic record with $80 million in theatres, $60 million streaming (nbcnews.com) >[Accessed 10th September 2021].