Disney-Marvel deal casts web of issues for toymakers

SEATTLE Mon Aug 31, 2009 7:55pm EDT

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SEATTLE (Reuters) - Toymaker Hasbro Inc may end up one of the biggest losers after Walt Disney Co agreed to buy Marvel Entertainment, as it loses out on a rich source of content for its new TV channel and faces much tougher licensing negotiations in the long term.

Hasbro's agreement with Marvel to make toys and games based on the latter's characters extends through 2017.

But what happens thereafter is a question mark, especially since Disney has a longer history with Hasbro's arch-rival Mattel Inc.

Some analysts had hoped Hasbro, the power behind such franchises as Transformers and G.I. Joe, would be able to add some of Marvel's stable of 5,000-odd characters including Spider-Man and Iron Man to its newly launched TV venture with Discovery Communications.

Now, Disney would most likely bring Marvel into its own vast entertainment network, they said.

"In the near term, we expect Disney to deploy Marvel's content onto its young male focused cable network, Disney XD," UBS analyst Michael Morris said.

"As many of these deals conclude over time, we will have the flexibility to either bring them in-house or pursue third-party licensing agreements depending on how we feel we can create the most value," Disney Chief Financial Officer Tom Staggs said in a conference call.

But the company is known to drive tough deals, so after it takes over Marvel's brands, Mattel and Hasbro likely face tricky licensing negotiations in the future.

"The squeeze is there from the retail side and now the squeeze will be there from the Disney side," said Jed Ferdinand, a licensing and intellectual property attorney for Grimes & Battersby LLP. "They command very favorable and strict terms from their licensing manufacturers."

BIG TV LOSS?

But the biggest lost opportunity may be on TV -- analysts had expected Marvel's relationship with Hasbro to extend onto screens.

In April, Hasbro signed a deal with Discovery to develop a kids' TV network. Analysts say the Spidey-Mickey deal leaves the No. 2 U.S. toymaker in a spot.

"We view this as a lost opportunity for 3rd party content as we had thought it was probable that Marvel-related TV content over time would gravitate toward the Hasbro/Discovery joint venture given Hasbro's long-term licensing agreement with Marvel," Wells Fargo Securities analyst Tim Conder said in a research note.

Hasbro has its own programs tied to brands like G.I. Joe, Transformers and My Little Pony lined up for the network, but had mulled beefing up its slate further.

"Marvel was one of the many potential sources we were looking at for programing for the network and it's probably less likely now," Hasbro spokesman Wayne Charness said.

TOUGHER LICENSING DEALS?

Media giant Walt Disney on Monday announced a $4 billion deal to buy Marvel, whose lineup includes such titans of the comic-book world as Wolverine, Iron Man and Thor besides Spider-Man and the Incredible Hulk.

Both Hasbro and Mattel face a tougher negotiator in deep-pocketed Disney when they try to secure lucrative contracts to churn out everything from toys to backpacks and lunch boxes, experts say.

Mattel has deals with Disney for Cars, Toy Story, Disney Princess, Mickey Mouse and Winnie the Pooh, to name a few. Mattel declined to comment on the deal.

For toy companies, licensed products help bolster sales, particularly during challenging economic times.

In 2008, brand owners collected $5.7 billion in licensing royalty revenue, but that was down 5.6 percent from a year earlier as tight consumer spending took its toll, a Licensing Industry Merchandisers' Association survey showed in June.

If toymakers are worrying what the Disney-Marvel deal means for the longer term, they may have company.

Viacom unit Paramount Pictures has worldwide distribution rights for Marvel's 'Iron Man 2,' 'Thor,' 'Captain America,' 'Avengers' and 'Iron Man 3' movies, which are not affected by the deal, a Paramount spokesman said, adding that it looks forward to working with Disney after that.

But Disney may have other plans.

"The rationale for the deal is more consumer product license focused than film, as the next five films for Marvel remain with Paramount under their existing distribution agreement, though we expect films from Marvel following that to be distributed by Disney," Thomas Weisel analyst Benjamin Mogil said in a research note.

The deal could also be a chance for Disney to accelerate to date limited theme park exploitation by Marvel," he said.

(Reporting by Aarthi Sivaraman in Seattle; Editing Bernard Orr)

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