Marvel hits Hollywood with "Iron Man"

BANGALORE (Reuters) - Marvel Entertainment Inc (MVL.N), the comic-book publisher known for "Spider-Man" and "X-Men," is set to step out of the long shadows of its famous superheroes as it takes less familiar characters like "Iron Man" and "The Incredible Hulk" to the big screen.

When "Iron Man" -- the company's first ever self-financed film -- hits theaters on Friday, Marvel will move away from being a licensor of an array of popular characters to a company that will have greater control in making the most of its characters.

The company-produced films, which make Marvel less dependent on others for its own success, marks the culmination of a push towards exploiting its characters since it emerged from bankruptcy in 1998.

"It's a game-changer for Marvel," J.P. Morgan Securities analyst Barton Crockett said. "It gives them an opportunity to control their own destiny."

Film rights for the company's biggest properties, "Spider-Man" and "X-Men," were licensed to Sony Corp (6758.T) and News Corp NWSa.N. The studios not only produced the films, they also took home the big money.

"Hulk," the second in Marvel's going-solo line-up, is slated for release in six weeks.

With the self-produced titles, Marvel will be able to garner more profits from films based on its characters, boost its top line and strengthen its existing businesses.

"It's a great opportunity for them to not only create a library of films they can extract value from long-term, but also to increase their licensing revenue, toy royalty revenue and potentially even their publishing business," said Peter Carlin, a portfolio manager at Alson Capital.

Alson is the fourth-largest institutional shareholder of Marvel, according to Thomson Reuters data.

Carlin said the launch of the movies will boost Marvel's core business as they could enhance the visibility of its lesser-known characters, which have not been a main source of licensing revenue, its biggest segment.

For example, "Iron Man" has hardly seen any licensing revenue, but Carlin believes the film will change that.

"Iron Man," directed by Jon Favreau, features a cast led by Robert Downey Jr and Oscar winner Gwyneth Paltrow. The film will be distributed by Viacom Inc's (VIAb.N) Paramount Pictures.

Banking on the success of "Iron Man," other comic book characters like Captain America, Black Panther and Thor, could also boost its profile for the future.

A HOLLYWOOD GAMBLE

Marvel set up a $525 million non-recourse debt line, arranged by Merrill Lynch MER.N, to finance its films.

The financial risk is limited for Marvel, Cowen & Co analyst Doug Creutz said. However, according to terms of the financing should the movies flop, the company would lose the right to make its own movies based on characters linked to the deal.

"If the films don't do well, you would argue that the films aren't worth that much," Creutz said. "It's a sort of a heads I win, tails I lose situation for Marvel."

Marvel will not need supernatural powers to pocket a greater percentage of profits from its self-produced films, compared with what it received from its licensed films.

Sony's "Spider-Man 2," which raked in $373.6 million at the domestic box office according to box office tracking website Box Office Mojo, was forecast to bring Marvel earnings of only 22 cents a share over the life of the film, Lehman Brothers analyst Eric Handler said.

By comparison, a self-produced film with only $150 million in domestic box office could drive lifetime earnings per share of 50 cents for Marvel, he said.

"Iron Man" has a chance of breaking $200 million in domestic box office and "Hulk" $140 million to $150 million, Handler said, adding that international box office tends to outperform domestic sales of these movies.

Handler expects them to make up nearly a third of Marvel's revenue in 2009.

The "Hulk" movie, starring Edward Norton and Liv Tyler, is seen as having weaker prospects of the two films and comes nearly five years after an Ang Lee-directed version bombed at the box office.

THE NEXT DREAMWORKS?

The movies represent not just an effort by Marvel to grab a bigger slice of the profits and the glory, should the films succeed, but also an attempt to morph into a media and entertainment player.

"Now they become a more diversified entertainment company instead of being more of a licensing company. They become more of a studio," Handler said.

However, there have been doubts if Marvel can succeed in the big league and especially if it can stomach successive failures at the box office.

"There's always the question, 'Can Marvel successfully self-produce films?'" Creutz said.

"It's a tough business, obviously," said Wedbush Morgan Securities analyst Michael Pachter. "If it was easy to make movies, a lot more companies would do so."

Marvel has drawn comparisons with Paramount-owned DreamWorks, co-founded by Steven Spielberg, the youngest mid-sized studio that has tasted reasonable success in Hollywood.

"The difference between the two companies is that Marvel has a library of characters -- some of them very recognizable -- and DreamWorks has this stable of very talented creative people that Marvel doesn't really have," Pachter said.

(Editing by Mike Miller, Saumyadeb Chakrabarty and Bernard Orr)