Was all that worrying for nothing? When entertainment mogul The Walt Disney Company (NYSE:DIS) bought cartoon character powerhouse Marvel Entertainment for $4 billion a few years back, Hasbro, Inc. (NASDAQ:HAS) investors felt waves of trepidation that the biscuit wheels were about to come off the gravy train. While the toymaker had just inked a licensing deal for the portfolio’s 8,000 or so characters at the time, the agreement only ran to 2017, and you could hear the doomsday countdown clock start ticking in the background.
This morning, though, both companies announced that they had agreed to extend their royalty arrangement through 2020, and for a cool guaranteed royalty payment of $80 million by Hasbro, Inc. (NASDAQ:HAS), the day of reckoning has been put off for a few more years. Maybe things aren’t so bad after all.
Maybe, but Marvel’s characters are an integral part of Hasbro, Inc. (NASDAQ:HAS)’s success, and when the studios aren’t releasing one of their iconic figures to the big screen, the toymaker is the one that suffers. In its second-quarter earnings announcement also just released this morning, Hasbro, Inc. (NASDAQ:HAS) said its boys segment suffered a 35% plunge in revenues based in part on tough comparisons its Marvel IP had with the year-ago period. Sales tumbled to $253.7 million from $389.1 million last year, too much of a decline to make up for the increase in revenues experienced in the categories of girls (up 43%), games (up 19%), and preschool (up 4%).
Although today’s news gives the toymaker a few more years of breathing space, it highlights the importance of Marvel — and movies generally — to Hasbro’s bottom line.
The new extended contract actually has its genesis in Hasbro, Inc. (NASDAQ:HAS)’s licensing agreement with Lucasfilm, the owner of the Star Wars franchise that The Walt Disney Company (NYSE:DIS) also acquired last year for $4 billion. Hasbro has licensing rights to the characters and the cartoons that appear on its Hub television network are a perennial revenue enhancer. The TV channel is still a small portion of Hasbro’s overall revenue picture, and won’t challenge anytime soon The Walt Disney Company (NYSE:DIS)’s own TV work or that of Viacom, Inc. (NASDAQ:VIAB)‘s Nickelodeon, but it is gaining critical acclaim if not more revenues.
Hasbro’s contract with Lucasfilm extends to 2020 and with both properties now part of the House of Mouse, The Walt Disney Company (NYSE:DIS) sought to align both contracts, which is why the toymaker was able to get the contract for Marvel extended. Yet because there are three more Star Wars films planned by the time the agreement runs out, Hasbro, Inc. (NASDAQ:HAS) has agreed to pay The Walt Disney Company (NYSE:DIS) $225 million in guaranteed royalties, with $75 million due at the signing.