Sony Should Get Out Of The Spider-Man Business

Includes: DIS, SNE
by: Steven Mallas

Disney’s Marvel will hook up with Sony to bring the Spider-Man franchise to the Marvel Cinematic Universe.

While this is exciting news for fans and shareholders, perhaps Disney should have simply purchased the rights to the Spider-Man character.

Sony would also have benefited from a direct sale, as it could have used the proceeds to invest in other franchises.

Disney (NYSE: DIS) and Sony (NYSE: SNE) recently announced a deal that will allow Spider-Man to be used in the Marvel Cinematic Universe. Nicholas Ward penned an article on the subject.

The Internet is screaming with joy over the news. But as Ward mentioned, Disney isn't actually buying back the rights to the character. This is something that shareholders should be questioning.

CEO Robert Iger should have done more to convince Sony to give up the Spider-Man rights. In fact, it's odd when you think about it - Iger's best moments have been when he pushes the buy-it-now button. His managerial tenure has been marked in quite distinctive fashion by the purchases of Pixar, Marvel, and Lucasfilm.

But imagine, if you will, buying Pixar without the rights to Buzz and Woody? Or Lucasfilm without the rights to C3PO? That's what not having Spider-Man is like.

So while the news is captivating, it nevertheless brings up the question of why it was consummated in the reported fashion. Trying not to overthink it, one might come to the very sound conclusion that Sony just isn't ready to give up the rights; it probably will never be. Spider-Man is an iconic character to say the least, and for Sony to give up access to the brand would be extremely difficult.

Iger, however, is not afraid to overpay for something that could reap great dividends down the line. Throwing $4 billion at Marvel in cash and stock certainly qualified as a premium at the time Disney acquired the House of Hulk. It worked out pretty well.

The exact value of the Spider-Man rights held by Sony is not easy to nail down. In some sense, you could throw out any large-but-not-outrageous number on the table; $300 million, $500 million, $700 million, it's obviously high.

The rejoinder in response to the question of why Sony would want to sell lies is the fact that the company doesn't seem to know what to do with the brand. As has been widely reported, the last film, The Amazing Spider-Man 2, disappointed fans and critics. It also grossed, according to Box Office Mojo, an anemic $202 million at the domestic box office and a total of $709 million on a worldwide basis. As blockbusters go, those figures just don't satisfy the spreadsheet. Deadline reported that the production budget was over $250 million, and that the cost to sell the movie to the public was a little under $200 million.

Sony certainly could keep on making Spider-Man films. It could control costs, maybe recast the roles with unknowns to eliminate egregious above-the-line expenses, create new experimental villains to fight the superhero, etc. Movie success is as volatile as a high-beta stock, and Sony could easily swing back to the Sam-Raimi heights of the franchise.

But maybe it's time to move on. As insane as that sounds, Sony Pictures Entertainment executives should seriously consider the value of a great big influx of cash and the ability that would come with it to invest in something else, something it could build from the ground up, something it understands and that is familiar to it.

Which leads to this: perhaps it is time to swap out of the Spider-Man universe and head on over to the Ghostbusters universe.

Dan Aykroyd promoted the idea that his ghostbusting franchise could see amplified returns if it took a cue from the big-bet strategy of Disney and Marvel. There are so many stories contained within that world and its characters that the upcoming third movie in the series to be directed by Paul Feig and to star Melissa McCarthy should not be seen as a self-contained experiment; it should be the launching pad for a whole new portfolio of films, TV shows, etc. Sony could even launch a new publishing division, producing novels and comics based on Ghostbusters. The brand could be taken into the short-form content arena and be used to bolster the value of the Crackle platform. This would show more imagination, and a bit more creative spine in my opinion, than walking over to Marvel and Kevin Feige and essentially saying, "We no longer know what to do with the man who was bitten by a radioactive spider." It's okay to admit defeat, so long as you have a backup plan and are willing to get out of a bad trade.

Obviously, I'm exaggerating to make a point. Spider-Man certainly has been good to Sony, and it would continue to be good to Sony, in some fashion, if Disney didn't get involved. But with such a convoluted deal structure (in my mind, anyway) in the post-hacked world of Sony Pictures Entertainment, it's hard to believe some over at the company might not have been thinking this way. After all, once you admit you need help from a competitor to improve the creative DNA of something you were lucky enough to acquire the rights to years ago, it's not a stretch that maybe you should return those rights for some cold hard cash. Disney realized that Miramax, while home to an incredible library of content, no longer fits the imperative of its studio ambitions and sold off the company. Sony should have proved that it isn't desperately attached to Spider-Man by attempting to negotiate an overvalued price tag for the property.

Both Disney and Sony shares have performed well over the last year. When the Spider-Man film comes out, I would imagine both stocks would benefit (Sony probably would see more of a benefit), but for now, in the shorter term, this particular event won't matter too much. Other forces, including the trend of the market itself, will drive the stocks. Disney, in particular, will be waiting for its 2015 summer films to boost its shares. And as the new Star Wars gets closer - as we see new trailers, new announcements about the plots, glimpses into the next merchandise lines - the stock should trade higher.

Disclosure: The author is long DIS. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.