Time Warner's DC Comics A Stronger Play Than Disney's Marvel

| About: Time Warner (TWX)

There's no doubt that "Batman vs. Superman" will be one of the most anticipated and highest grossing movies of 2015. The movie, which stars two legends of the DC Comics universe, is the huge stepping stone for the Time Warner (NYSE:TWX) unit in their quest to monetize their comic character assets. Similar to what happened to Marvel, DC Comics is about to experience a plethora of comic book characters on the big screen.

In 2015, DC Comics will bring its two best known characters to the big screen in a combination movie. "Batman vs. Superman" has filled the internet with rumors of other comic characters involvement and which bad guys will be appearing. There are rumors of appearances by Lex Luthor, Nightwing, Green Arrow, and even Wonder Woman. DC can introduce characters and get fans ready for a "Justice League" movie in 2017.

DC Comics will hope that it can replicate the success Marvel/Disney (NYSE:DIS) had with "The Avengers". The 2012 movie from Disney grossed $623.4 million domestically and went on to a worldwide total of $1.52 billion. The movie ranks as the third highest grossing movie in domestic and worldwide history. DC Comics will also have the popularity of their characters behind them as Batman and Superman hold three of the top ten places (domestic box office) for comic book adaptations.

Marvel and DC Comics have enjoyed a near duopoly in the comic book world. Both companies have the most recognizable names in the business, but DC Comics seems to have the bigger names. IGN ranked the top 100 comic book characters of all time. On that list was Superman (#1), Batman (#2), Wonder Woman (#5), Green Lantern (#7), and The Flash (#8) represent DC Comics in the top ten. Marvel holds the other five positions in the top ten with Spider-Man (#3), Wolverine (#4), Captain America (#6), The Hulk (#9), and Daredevil (#10).

The five Marvel characters on the list comes with an asterisk in the movie world. Captain America, and The Hulk are part of Disney's Marvel world and have been used in several movies. Daredevil was used in a 2003 movie by 20th Century Fox (NASDAQ:FOXA). Spider-Man was used in four movies by Sony (NYSE:SNE) and Wolverine has seen countless movies on his own or under the X-Men brand for 20th Century Fox.

Back when Marvel was cash strapped, it licensed out several characters to large studios. While this gave Marvel the cash to survive and eventually work on the superheroes used in the Avengers, it did leave Marvel short part of its comic book universe. In fact, Marvel has licensed out Spider-Man, X-Men, and Fantastic Four. These are three of the biggest comic book series in the Marvel catalog.

Now comes DC Comics. With its ownership from Warner Brothers at an early point of its history, the company has had the cash to keep itself flowing and maintain the rights to all its characters. DC Comics owns all of its characters and can do origin stories, combination movies, and crossovers. Consider that Spider-Man and Wolverine, who were once part of the New Avengers, are not likely to be part of a Disney/Marvel movie ever. Disney would have to split profits with other studios just to include its own character in one of its movies.

DC Comics is ready to take over television as well. Much like Marvel has done with its "S.H.I.E.L.D." show, DC will use television as a way to introduce several characters and tease possible movies. DC Comics has a John Constantine based show coming to NBC. Fox has also signed a deal with DC Comics to televise "Gotham", a prequel based on a pre-Batman Gotham City. These new shows follow the success of "Arrow", which airs on The CW.

After the success of "Arrow" on The CW, Time Warner has greenlit a television series based on The Flash to appear on the same network. The show will be created by two of the "Arrow" writers. To get buzz going for the show and continue the comic theme of cross-promotion, Barry Allen (Flash) will appear as a character on several episodes of "Arrow" during season 2. Time Warner is also planning to make a movie based on The Flash in 2016.

The success of "Arrow" and the new Flash themed show are especially important to Time Warner, as the company co-owns the channel. Launched in 2006, The CW is a joint venture between Time Warner and CBS, who each own 50%. "Arrow" continues to post higher ratings and recently kicked off its second season. The comic character themed show is the highest rated Metacritic show for The CW in over five years. Strong ratings and reviews are helping turn Green Arrow into a loved comic character, which should bode well for a motion picture or the inclusion of Green Arrow in a Justice League flick.

Back in 1960, DC Comics introduced the world to the Justice League. This superhero ensemble originally consisted of Superman, Batman, Wonder Woman, Flash, Green Lantern, Aquaman, and the Martian Manhunter. Of course time will tell how many of these originals are included in the "Justice League" movie. Marvel, which started The Avengers in 1963, included three of the original five in their first movie (Iron Man, Thor, Hulk).

Back in 2009, Disney announced its acquisition of Marvel. Investors received $30 per share and 0.75 shares of Disney. That is the equivalent to over $80 today. Investors in Marvel's early comic book adaptations have been pleasantly rewarded. A similar thing is happening at Time Warner's DC Comics unit. Investors have the chance to profit from Batman, Superman, and the rest of the Justice League.

Time Warner is set to have a strong 2014 and 2015. One other important catalyst is the company's upcoming spin-off of its declining publication business, which I discussed here. In the third quarter, Time Warner reported revenue of $6.9 billion, which was flat from the prior year. Operating income did increase significantly to $4.8 billion, from the previous year's $3.9 billion. By business segment, here were the results:



Film & Television


Revenue Q3 2013

$3.5 billion

$2.7 billion

$0.8 billion

Revenue Q3 2012

$3.3 billion

$2.9 billion

$0.8 billion

Operating Income Q3 2013

$1.5 billion

$0.3 billion

$0.1 billion

Operating Income Q3 2012

$1.2 billion

$0.3 billion

$0.1 billion

And for fiscal 2012:

Business Unit (Fiscal 2012)


Operating Income


$14.2 bil

$4.9 bil

Film & Television

$12.0 bil

$1.2 bil


$3.4 bil

$0.5 bil

Total (Includes Corporate Costs)

$28.7 bil

$6.1 bil

As you can see, the revenue for networks and film and television are similar in importance. With the spin-off of publishing, DC Comics contribution to movies and television will be even more important.

Shares of Time Warner have had a nice run and trade just shy of 52 week highs. Here is a look at how Time Warner stock currently compares to Disney:


Time Warner


Share Price



Market Capitalization

$61.5 billion

$126.0 billion

Current Fiscal Year Sales Estimates

$29.6 billion

$47.8 billion

Price to Sales



Current EPS Estimates



Current Price to Earnings



Next Fiscal Year EPS Estimates



Forward Price to Earnings



As you can see, Disney and Time Warner trade with similar valuations. The company's price to earnings are nearly identical. Disney currently boasts better operating margins, giving shares a higher price to sales multiple, due to flowing more cash to the bottom line. Once Time Warner's publishing unit is spun off, shares should see a valuation increase of closer to 2.5 times sales.

While Marvel fans and Disney investors already know what's coming with the company's Phase II and Phase III programs outlined, DC Comics is a wildcard for Time Warner. The company can announce more guest appearances in "Batman vs. Superman" or other movies and easily send shares higher. You can take your pick between either of these companies and see strong growth over the next several years. To capitalize on the comic book boom, I believe Time Warner offers the better upside.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TWX, DIS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.