Arvind Ethan David speculates on what lessons Marvel Entertainment might hold for the UK film industry and those who strive to make her sustainable.

Arvind Ethan David

In December 1997, Marvel Entertainment, the venerable comic book company behind household names like Spider-Man and The X-Men, entered into bankruptcy proceedings, more than $400m in the red.

In August 2009, 12 years later, fresh from the stellar success of Iron Man, Marvel was acquired by Disney for a breathtaking $4 billion. Today, Marvel is a model for corporate turnarounds with a $500m production war chest, a multi-picture distribution deal with Paramount and a slate of sure-fire blockbusters in development and production.

The story of how Marvel went from bankrupt basket case to major Hollywood player has received ample coverage. This article aims not to rehash that reportage, but to suggest that the British film industry might have much to learn from Marvel’s marvelous re-invention.

What was Marvel’s problem?

At the time of its bankruptcy, Marvel faced a mountain of woes: in-fighting between its equity and bondholders, dramatic decline of comic book sales, and a Baseball Strike that dragged down its trading cards subsidiary. The biggest issue, however, was a corporate strategy that emphasised short-term profits over long-term ownership and a failure to control, and monetise, Marvel’s prodigious library of characters and stories across multiple media.

Simply put: Marvel in the 1990s had neither the control of its own greatest assets, nor the wherewithal to move them from the printed page to the silver screen.

After emerging from bankruptcy in July 1998, the company addressed these issues through three stages of re-invention:

1. Reacquiring its movie rights and licensing them to studios, generating a run of successful franchises: Leading with Spider-Man (Sony) and X-Men (Fox) franchises, between 2002 and 2007, Marvel properties grossed nearly $5bn in global box office.

2. Taking control of the product. With each success came the leverage to shape its own films. Through the 2000s, Marvel built a skilled in-house production team and went from passive licensor to active owner/producer a long-term guardian of its brands and their value.

3. Fully financing and owning its films. In 2007, Marvel took things a step further. Aiming to independently finance its films, it raised $500m in financing with the help of Merrill Lynch, and structured a distribution deal with Paramount. By removing the need for the studio to fund development and production, Marvel retained their ownership rights, upended the traditional power structure within the industry, and minimized rents extracted by the studios.

CEO Avi Arad described the rationale succinctly: “We like our studio partners, but by doing it ourselves we retain most of the profits, the rights and the library, so there are many benefits. We understand how to treat our characters and we have every confidence in them. And if any of the studios want to give us back the rights to any of our characters we’ll gladly take them.”

This final stage was the game-changer for Marvel. Independent financing and production allowed it to reap the lion’s share of profits from Iron Man and The Incredible Hulk, to lay the groundwork for the upcoming Avengers suite of movies, and awakened Disney to the immense value it ended up paying for.

So what use is any of this to the UK Film Industry?

Like Marvel, the UK has produced an enormous quantity of proven, durable intellectual property that lends itself naturally to tent-pole, franchise movies. From The Lord Of The Rings, to Harry Potter, to James Bond and Mamma Mia!, British IP disproportionately out-performs at the box office. According to Box Office Mojo, the list of the top 100 All-Time Box Office earners contains 15 British properties versus nine comic book properties.

Like Marvel pre-2000, the rights situations of these properties are various and complicated and seldom sit unambiguously within a single company or even with the British film industry as a whole.

Like Marvel in 1998, the British film production and distribution industry as a whole teeters on the edge of bankruptcy: consumer press success stories aside, there are still not more than a handful of profitable production companies, and only one British owned distributor of any scale. The UKFC has had its budget slashed, as has Film Four, which as part of Channel 4, has a deeply uncertain future.

Like Marvel through the 2000s, however, the UK Film Industry has demonstrated that when it takes control of its homegrown product, it can create franchises of lasting global value. In Heyday (Harry Potter) and Eon (Bond), British producers have incontestably proved that they can steer the world’s two largest and longest lasting franchises from strength to strength, and that British centric characters and stories draw audiences on a global scale.

It is only the final stage of evolution that remains elusive for the British film industry. It has yet to take control of the financing to reduce the role (and profit-taking) of major Hollywood studios. That crucial leap that Marvel made in 2007, which transformed it into an equal partner with the Hollywood studios, has yet to be convincingly taken by any British entity.

The Working Title slate, the Bond and the Potter franchises and many of the other large films wishfully described as “British” are, in fact, fully-financed and hence fully-owned by US studios. There is of course value in the fact that they are largely shot in the UK, generating tax, employment and supporting infrastructure, as well as considerable wealth for the individual producers; these pale in comparison to the impact of profits that could have been.

Our analysis from publicly available data suggests that if the Harry Potter franchise to-date had been financed under a Marvel-Paramount style deal, $1.5 - 3 billion in additional profit would have accrued to the British producers, financiers and other rights owners.

Let’s pause to contemplate the scale of that number. $1.5-3bn. At the high end, that’s more than 100 times the total annual budgets of BBC Films and Film Four combined; more than 20 times the total public funding made available in 2007/2008 and 15 times the total annual impact of the tax credit. It is
a truly industry transformative sum of money. Unleashed it would do more to create sustainability than anything that has come before.

Now hindsight is clearly an advantage, and this piece isn’t meant to suggest that Potter or Bond could or should have been financed differently, or that we should be anything but grateful for their existence and the employment and kudos they have generated. Instead the interesting question is to examine why no major UK franchise has taken the final step that Marvel took in 2007.

Let’s first rule out some common but erroneous assumptions why this has not happened:

  • It is not because of a paucity of money in the system we still live in the financial capital of the world. Outfits like Ingenious, Scion, Prescience, Aramid and others have raised hundreds of millions of pounds for production finance from British investors. The vast majority of these funds, however, get invested as minority stakes in studio-owned and controlled films. Why couldn’t that money go into a production fund for a British rights owner and producer as Merrily did for Marvel or Reliance did for Dreamworks - enable them to play on more equal terms with the studios?

  • Neither is it because of an absence of potential blockbuster source material, as demonstrated by the top 100 list.

  • Nor is it because of a paucity of ambition or of track record: there are many British producers and directors who have and will continue to deliver global box office gold.

  • Finally, it is not because of the oft-cited excuse that the UK, or Europe as a whole, cannot offer distribution clout analogous to that of the Studios. Firstly, there are plenty of European distribution powerhouses now, including Studio Canal, E1 and Alliance Films. Furthermore, as Marvel proves, you can actually turn the might of the studios’ distribution network to your advantage, without needing to replicate or by-pass it.

The truth of why a British-originated, British-owned franchise doesn’t exist along the Marvel model, is because it is simply easier, from the perspective of any individual producer, to take their hot franchise property to a studio than attempt the far more complex exercise to build and monetise rights within a single company, let alone across an entire industry.

Put another way, it is not the job of any single producer to try and save the British film industry it’s their job to make the best film they can in the most efficient way and maximize their personal profits by doing so. Allowing the studios to fully finance your movie and give you some back-end is easier than trying to build a global company, even if building a global company would have huge benefits for the industry as a whole.

That is the key difference between the Marvel and the UK Film Industry: Marvel, post-bankruptcy, aligned the interests of all its various stakeholders to control its IP and interests as a single entity, and with all interests so aligned it was able to act unequivocally in its own best interests.

The UK Film Industry, by contrast, is not one entity, but a bunch of disparate stakeholders at best loosely unified, and at worst a warring collection of tribes with different economic interests. Those individual interests, unfortunately, do not always serve the interests of the industry at a whole.

A Tragedy of the Commons

This phenomenon a disconnect between the economic interests of an individual player and that of the industry as a whole is a classic economic conundrum. It is a “Tragedy of the Commons”, so named for a scenario in which a group of herders destroy a shared pasture because no one assumes responsibility for maintaining it for the community. It occurs frequently in nature (air quality, fish stocks, global warming) when the benefits to an individual are more obvious than the long-term costs to a community.

Like other such scenarios, where free-market capitalism left unfettered acts against the interests of the community as a whole, a Tragedy of the Commons is a classic case of market failure, and market failures, as we’ve recently had too many opportunities to witness, have historically justified government intervention in private industry.

So here’s the contentious bit of this piece: if policymakers and those who run the pots of public money are serious about building a sustainable British film industry, there may be a totally different approach to any tried so far.

They should bend all the money, all the influence, and all their combined connections and leverage to a single goal the production and financing of a British-owned franchise with the potential for global domination.

The new combined UKFC fund should put aside a substantial proportion of its money for projects that meet that criteria, the BBC and Channel 4 should focus unrelentingly on mining their libraries for potential material; UK publishing and games houses should be enlisted in the quest and terms put on directors, writers and producers who have received public funding for earlier productions, that when they get a shot at a franchise, they need to look to British sources of money first.

Private sources of production money, finance houses which are UK domiciled and raise their money from UK tax payers, should be put on notice that the industry’s good will (and its support in the periodic battles that these entities have with HMRC) is dependent on a chunk of the money raised being spent on acquiring UK owned packages of rights and the production of films based on them - not just servicing pre-existing studio product.

There are reasons of personality, taste, public accountability, bureaucracy, propensity for and perception of risk that are beyond the scope of this piece - why this suggestion is unlikely to be taken seriously by any of those bodies who could make it so.

But isn’t it fun to imagine a world in which they did?

2009’s success story was the victorious outcome of the battle that FilmFour and Celador waged to get Slumdog Millionairemade and distributed. But for all its success, Slumdog’s economic effect is, in the scheme of the franchise, minor.

Imagine if that same tenacity and risk-taking had been invested on behalf of someone with Potter or Frodo’s potential to be king of the world.

Now that would be quite marvelous.

Arvind Ethan David
is CEO of Slingshot and can be found online at<>and on He wrote this piece with support and research from Bertram Chan (London Business School, MBA class of 2010)