A Time Series Study on Marvel from 2000 - 2009: Marvel’S Movies Impact Relative to Stock Price

9th Global Business Conference February 7, 2015 De La Salle University, Manila, Philippines A Time Series Study on Marvel from 2000 - 2009: Marvel’s Movies Impact Relative to Stock Price Junius W. Yu De La Salle University [email protected] Abstract: Marvel studios have provided an interesting study for many business students particularly generating more than $1.5 billion box office receipts for the movie “Avengers” last 2012. Disney bought Marvel for $4.24 billion and the question arises from the valuation of the company relative to the acquisition price. The study focuses on Marvel Entertainment’s impact from movie releases relative to stock price. A time series analysis was used in gathering Marvel’s daily stock price changes from 2000 – 2009. This was also used in parallel to 20 movies released by Marvel within that time period. The behavior of the market was examined using the GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model and the EWMA (Exponentially Weighted Moving Average). A linear regression was used in testing the hypothesis on whether gross sales of movies and movie release (development, pre-production, production, post-production and release) have any significant to changes in stock price. GARCH (1,1) was used to measure the outliers for the signaling effect relative to huge changes on the time series data. The data results provided no empirical evidences due to relatively large p- values; however the spike of increase in changes were identified due to the release of Spider- Man 2 in 2004 and Iron Man in 2008. The conclusion of the study reflected on the impact Marvel has on mainstream Hollywood perhaps not on the valuation, but the future business earnings it may generate in the next decade. 1. INTRODUCTION Each movie tells a story, but what is the story “You become part of a bigger universe, you behind the movie story? Do Marvel stocks increase for just don’t know yet.” – Col. Nick Fury each Marvel movie announcement or there is simply no A plethora of Marvel characters have made it significance at all? to the big screen whether it is Spider-Man spinning webs to Wolverine unsheathing his claws to Iron-Man 2. HISTORICAL BACKGROUND OF hovering above the skies to Captain America throwing THE STUDY his mighty shield. Did you ever wondered how it all Marvel Comics originally started as Timely begun and how interesting would it be to study the Publications in 1939 when it was founded by Martin Marvel phenomenon? How long can they sustain their Goodman along with his brother Abraham Goodman. box office success? Each time they release a movie does Their first product was Marvel Comics # 1 that sold over it really affects the company valuation? 800,000 copies. Their best seller was Captain America There are relatively few who do study a Comics # 1 that sold over 1 million copies during the creative industry like Marvel Entertainment and perhaps onset of World War II. Disney saw the potential to capitalize on that. Disney After the War, a downward trend occurred for group of companies bought Marvel for $4.24 billion with the superhero genre and replaced by others from crime, the approved merger of both companies. Essentially drama, horror, western and more that resulted to the Marvel existing shareholders received $30 valuation or transition of Timely into Atlas Comics. The 1950s Atlas about 0.745 Disney shares for each Marvel share they Comics had massive layoffs and title reduction due to the owned. In 2010, the company was officially delisted loss of their distribution network with American News from the New York Stock Exchange with its ticker MVL Company. Hence they were force to go to their no longer trading in the stock market. competitor Independent News that is owned by Blade was the very first to be released when it National/DC Comics for distribution. was licensed by New Line Cinema. It allowed other The 1960s brought back Marvel Comics under studios to license Marvel characters to the big screen. the leadership of Stan Lee who rejuvenated the franchise 20th Century Fox gambled on the X-Men in 2000 when in making the Marvel Comics trademark stamp on their Marvel’s financials were in a doldrums. This allowed comic books. Their first major breakthrough was the them to secure a nexus of contracts in having movie publication of Fantastic Four and it heralds the start of rights to the X-Men group in perpetuity as long as they the Silver Age with the introduction of other Marvel keep on producing on a timely interval from two to three characters notably the Hulk, Daredevil, X-Men, Spider- years from the last movie. The gamble paid off and Fox Man, Iron-Man, Avengers, Doctor Strange and more. continues to produce them up to this day with X-Men: In 1968, Martin Goodman sold Magazine Apocalypse in 2017. Spider-Man followed in 2002 with Management Corporation with subsidiaries like Marvel Sony Columbia and had the same contract with Fox. Comics and all of his publishing businesses to Perfect 6 9th Global Business Conference February 7, 2015 De La Salle University, Manila, Philippines Film & Chemical Corporation (Cadence) owned by to exist among stock price changes. The primary Martin S. Ackerman. He remained with the company as advantage of studying individual investment behavior in publisher until 1972 when he was replaced by his son an experimental setting opens up the portal of testing Charles “Chip” Goodman. Cadence also owns DePatie- hypotheses about the existence of manipulative causality Freleng Enterprises (DFE Films) and later incorporated between accounting event and investor behavior (Sunder as Marvel Productions in 1981 with David DePatie as 1973). president and CEO until 1984 wherein he was replaced This is connected with Birnberg “focus” as his by Margaret Loesch. unit of analysis wherein he postulated that the units range In 1986, Cadence sold Marvel Entertainment from the study of individuals to the study of the Group to New World Pictures. Howard the Duck was the environment that acts upon accounting. It is clustered only license movie in 1986 and actual production was further in different segments from the behavior of made for Punisher in 1989. In 1989, New World Pictures individuals to small groups to organization and finally to (later New World Entertainment) has financial trouble environmental conditions (Birnberg 2011). For instance, and was forced to sell Marvel Comics to Ronald the behavior of investor affects small groups initially Perelman’s group of investors under the Andrews Group based on “major” events that occur from organization’s for $82.5M. Andrews Group’s parent company is action, hence creating an implosion from a micro level to MacAndrews & Forbes. Ronald Perelman later acquired a macro level. New World Pictures and absorbed Marvel Productions as In order to understand the dynamics of investor well. behavior, the best way is to exemplify Eugene Fama’s In 1991, Marvel Entertainment Group went Efficient Market Hypothesis (EMH) that emphasized the public with 40% of their stock and forward $40M efficient information in financial markets. The proceeds to the Andrews Group. This led to the purchase hypotheses accentuated that efficiency is differentiated of Fleer by Marvel for $265M in 1992. The following from “weak”, “semi-strong” and “strong”. “Weak” year, Marvel Entertainment Group acquired Toybiz with pertains to past public information that is already 46% ownership in exchange for a perpetual royalty free reflected on the traded assets. “Semi-strong” relates to exclusive in the toy production of Marvel Characters. both past information and relevant current information Avi Arad joined Toybiz with 10% ownership after the that promulgated on the traded assets. “Strong” deal to manage the business, while the rest of ownership instantaneously reflects on to the traded assets a priori still falls on Isaac Perlmutter. Avi Arad also founded knowledge that may be hidden to the public (Fama 1965, Marvel Films in 1993 by becoming the President and 1998). CEO. In retrospect, the capital market equilibrium In 1996, Marvel experienced the comic book model was first used in 1996 to study the relationships of bubble and massive layoffs occurred despite earnings stock prices and stock splits by Fama, Fisher, Jensen and made from licensing. Corporate management struggle Roll. Other studies that are related to my study involve occurred between the Perelman/Andrews Group and the relationship between stock price changes and Perlmutter/Toybiz group with Carl Icahn joining the fray accounting changes with depreciation and investment for a three way dog fight. Perelman filed bankruptcy for credit. Even though, their study did not yield significance the company, while Icahn blocked the move.When the it however provided empirical results on the changes of dust has settled, ownership pointed to the Toybiz group. accounting that affects stock prices (Kaplan and Roll In June 1998, Marvel Entertainment Group 1972). merged with Toybiz as Marvel Enterprises, while the To substantiate further the capital market Fleer/Skybox and Panini were sold separately. With equilibrium model is the capital asset pricing model that Marvel Enterprises as the parent company, the presupposed that the mean and variance are utilized in subsidiaries under the umbrella were Marvel Studios, the selection of portfolios by all investors who are single Marvel licensing and publishing, Toybiz and Marvel period risk-averse utility of terminal wealth maximizing Characters Group. Marvel Studios begun licensing investors. With the presumption that there are risk free Marvel characters for movie production and the very first interest rate, no taxes or transactions costs and all was Blade with New Line Cinema. It was the start for an investors have homogeneous views regarding the eventful study for Marvel and our focus would study the parameters of all the security returns with a joint “good” or “bad” news potential effects through the probability distribution.

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