Disney’s deal to distribute Marvel films “The Avengers” and “Iron Man 3”

the new deal

It was widely reported (here’s a link to the story in the Washington Post) on Tuesday that DIS retrieved the worldwide rights to distribute upcoming Marvel movies The Avengers and IM 3 when they are released in 2012 and 2013 from Viacom’s subsidiary Paramount.  Paramount will still distribute Thor and Captain America.

I haven’t been able to find an official release either on the DIS or VIA websites, or on PR Newswire, for that matter, but the terms of the agreement seem to be as follows:

–DIS will assume responsibility for distribution of the two films

–DIS will pay VIA the 8% of box office it would have earned from distributing The Avengers and 9% (1% extra) of the box office from IM3.

when the films are initially released, DIS will also pay VIA a total of $115 million as a non-returnable advance against its distribution percentage.  Further details on the timing of the payment (which I don’t think are that important) aren’t clear.

Why did DIS do this?

Is it a good move?

Yes, for several reasons:

–DIS has a stronger global distribution network than Paramount

–DIS will be able to create a total marketing plan, including merchandise and other extras, for the films,

–as I understand it, the existing arrangement calls for Paramount to collect the film’s share of box office, subtract its 8% fee, recover its costs, and return the rest to Marvel.  The only contractual constraint on Paramount’s spending is a guarantee that Marvel will get a minimum percentage of the box office.

Paramount’s goal is to maximize box office, not film profits.  So it will have a natural tendency to overspend to generate ticket sales.  In theory it would benefit the distributor to spend an extra $100 on promotion to generate even an extra $50 in box office, provided it didn’t violate the minimum return guarantee.

–the film industry is noted for its unusual ways of reckoning up revenues and costs.  Having everything in-house makes it simpler for DIS to see and control them.  It will also save on audit fees.

As for Paramount, it no longer is exposed to the risk that the two films will be flops.  It will collect an up-front fee set at the blockbuster level.  It will collect more money if the films are super-hits, all without having to do any work.

by itself this is a footnote, not a big story

Why write about it then?

I think this deal is an indicator of a healthy attitude of responsibility and attention to detail by DIS’s management.  It’s kind of like the story that the new head of Disney Films is willing to accept input from Pixar, which his predecessor refused to do.  Not it itself a big thing.  But it gives the shareholder (I own DIS) confidence that the company’s management has professional skill and is using it for the benefit of the company’s owners.  In the case of DIS, it’s another piece of evidence that the neglect that characterized the Eisner years is being systematically addressed.

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