by Ben Fritz
The Sony-Hasbro team hired bankruptcy counsel, visited a “data room” at a law firm’s conference room in New Jersey where Marvel’s financial records were available, and met with debt holders. But amid a series of almost-not-quite agreements to save Marvel between Icahn, Perelman, and a dizzying roster of banks and bondholders, the Sony-Hasbro offer never gained traction.
Instead, Marvel ended up in the hands of a man whose initial interest in comic books was as minimal as Michael Lynton’s in entertainment: Ike Perlmutter. An Israeli veteran of the Six-Day War who immigrated to the United States in 1967 at age twenty-four, with $250 in his pocket, Perlmutter had an uncanny ability to smell value where others held their nose. The thin businessman who spoke with a heavy accent initially made his fortune in super-discount stores like Odd Lot, where he would buy seemingly worthless products, like last year’s toys that nobody else wanted, and sell them to value-conscious consumers for as little as one dollar.
He was always on the lookout for nearly dead companies he thought he could turn around, including Coleco, the manufacturer of Cabbage Patch dolls, and Remington, the razor company. Surplus goods could catch his eye too. In the 1980s, when Gimbels, the department store, went out of business, Perlmutter agreed to buy all of its fixtures, from mirrors to clothing racks—basically everything but the retail inventory itself. He started looking on a Wednesday, closed the deal the next Monday for about $10 million, and within a week sold it all for close to $50 million. The deal went through so fast that he had no time to conduct due diligence, title searches, or the other risk-protecting moves that businesses usually undertake.
Perlmutter had a reputation for extreme stinginess. He scrutinized every single cost at the businesses he bought, from the thermostat temperature to the thickness of the paper, and had no shame about personally calling employees to ask why they arrived at the office fifteen minutes late (as evidenced by the electronic time clocks he installed). But people who worked closely with him said that when Perlmutter saw a much bigger upside than downside, he was willing to take gambles.
That was what led him to Toy Biz, a struggling toy company. Perlmutter acquired it in 1990, with plans to revive it. One of his first moves was to strike a deal with Ron Perelman, then the owner of Marvel, to stop paying a licensing fee to manufacture toys based on the comic book company’s superheroes. In exchange, Marvel got 46 percent of Toy Biz’s equity. It saved Toy Biz millions, but also embroiled it in corporate chaos when Marvel filed for bankruptcy.
Most plans to revive Marvel called for using the bankruptcy court to cancel Marvel’s royalty-free license with Toy Biz, enabling a new owner to generate much-needed cash. Perlmutter’s investment in Toy Biz would have been ruined in the process, and he was prepared to go to any lengths to avoid that. His solution was to pitch a plan to merge Toy Biz and Marvel and for him to take over.
It was an audacious proposal, given the power of Icahn and Perelman, but Perlmutter had a unique asset: Avi Arad. A toy designer and fellow Israeli veteran of the Six-Day War who, like his business partner, could converse in Hebrew or accented English, Arad met Perlmutter at Toy Biz and the two became unlikely friends. He was in many ways the Pascal to Perlmutter’s Lynton—he had no interest in the business side of entertainment, but he was creative, he understood the value of story and characters, and he could charm almost anyone.
And he had an idea that initially seemed outlandish, but made more sense the longer you thought about it: Marvel, a bankrupt comic book and toy company, was perfectly positioned to become a major player in Hollywood.
The bearded, gray-haired Arad, who rode Harleys and liked to wear leather jackets, skull caps, and oversized rings featuring the logos of Marvel characters, could charm even a room full of conservative bankers with that vision. “I feel certain that Spider-Man alone is worth a billion dollars,” he declared in just such a setting, at a critical moment in the bankruptcy process. “But now at this crazy hour, at this juncture, you’re going to take 380 million—whatever it is from Carl Icahn—for the whole thing? One thing is worth a billion! We have the X-Men. We have the Fantastic Four. They all can be movies. Not to mention television and all the products and the other rights.”
That speech helped sell Marvel’s lenders, who wanted a solvent company that could pay back as much of its debt as possible, on the plan to put Arad and Perlmutter in charge of Marvel. And when the duo finally took the reins, at the end of 1998, job number one was to start selling film rights, especially those of the highly valuable Spider-Man.
Perlmutter, now Marvel’s biggest shareholder and its de facto chief, understood that hit movies would sell a lot of toys. Arad believed that films could transform Marvel from a publisher of comic books for kids into a media powerhouse. And both knew the fresh-out-of-bankruptcy company desperately needed the cash that a movie-rights deal would bring.
Landau had gotten to know Arad and Perlmutter when putting together Sony’s bid for Marvel with Hasbro, and he reapproached them in an effort to finally secure the rights necessary to make a Spider-Man movie. Another Israeli American who loved the art of the deal, Landau was able to forge a connection with the Marvel duo and recognize that, for Perlmutter, the exclamation “Go fuck yourself!” was the beginning of a negotiation, not the end.
He had an ace in the hole: the home-video rights that Schlessel had secured nearly a decade earlier. Without those, it would be very difficult for another studio to profit from a Spider-Man film, particularly as the era of huge DVD sales was dawning.
But when he approached Arad and Perlmutter, Landau found that the two had something bigger in mind. Looking to get as many movies going and as much cash in their account as quickly as possible, they offered him the rights to every single Marvel character (save for the X-Men, the Fantastic Four, and the Hulk, who were at other studios) for $25 million.
That included Spider-Man, who would go on to gross $4 billion over five movies, plus virtually every character that now makes up the Marvel Studios cinematic universe—Iron Man and Captain America and Thor and Black Widow and Ant-Man and others, who through 2016 would gross $10 billion in one dozen films.
Landau brought the offer back to Calley and the heads of Sony’s motion picture business, a small group of executives that included Amy Pascal. It didn’t take long for them to quickly and decisively respond: no way. “Nobody gives a shit about any of the other Marvel characters, we don’t want to do that deal,” they told Landau, as if he were Jack coming home with a handful of magic beans. Their instructions to Landau, they thought, were quite simple: “Go back and do a deal for only Spider-Man.”
It was the mistake of a lifetime, a deal that could have made Sony billions of dollars and potentially turned it into the juggernaut that Marvel’s current owner, Disney, is today.
But that’s with the benefit of hindsight. At the time, it was a deal nobody wanted. Who, besides the obviously biased Arad, could have possibly foreseen that as a result of economic forces not yet on the horizon, cinematic universes would take over the movie business and superheroes, no matter how obscure and seemingly absurd, would be the most valuable currency in Hollywood? In 1998, the number three movie was the gross-out comedy There’s Something About Mary, and in 1999 it was Toy Story 2. Nobody at the time—not even anyone working at Marvel, if they were honest—imagined that in 2014 it would be Guardians of the Galaxy, based on a poorly selling Marvel comic featuring a foul-mouthed raccoon and a grunting tree-man.
Indeed, Arad and Perlmutter couldn’t find any other takers for the deal, which is why six months later they ended up back in talks with Landau, offering him Spider-Man alone for $20 million. Even Marvel’s most valuable character, the Sony executive figured, wasn’t worth 80 percent of the cost of the entire library, and so he balked. But eventually, the two sides reached an agreement: Sony would pay $10 million up front for each Spider-Man movie, plus an additional 5 percent of the revenue once it exceeded that initial payment.
The deal also specified tha
t the two companies would evenly split revenue from Spider-Man merchandise, with a hitch that would prove important later: Sony would take the lead on selling products related to the movie, while Marvel would handle “classic” Spider-Man products and would have to split only the money above the baseline that existed before any films were produced.
One issue remained: Sony still needed to settle all of Peter Parker’s courtroom headaches. MGM was the most viable legal rival, and Calley, who had previously worked there, figured out an ingenious way to resolve the matter. In 1997, he had announced that Sony would produce a James Bond sequel, even though rights to the super-spy had for decades rested with MGM and its corporate sibling United Artists. Due to a complex dispute over the rights to 1965’s Thunderball and its 1983 remake, Never Say Never Again, Calley claimed his studio had acquired the rights to make its own series of Bond movies. MGM was, of course, outraged. Its CEO called Sony’s claim “delusional” and filed a lawsuit.
In March 1999, the two sides settled. To the outside world, they disclosed only the financial terms, which called for MGM to pay Sony $5 million. Behind the scenes, though, Calley had agreed to give MGM the disputed Bond rights in exchange for MGM giving up its claim to Spider-Man.
It was a huge victory for Sony. This was not yet the era of franchises, but nonetheless studios needed a few “event” movies every year to drive outsized box office and to prop up their diverse and riskier release slates. And Sony, as would always be true, was short on “event” films.
“The idea is to do it now, as fast as we can,” Pascal said after the Spider-Man deal closed. “It’s a big, tentpole movie.”
Swinging to Success
Arad hoped Cameron would still be interested in making his nearly decade-old scriptment and took the director, who was now working on Titanic, to lunch, only to find he had moved on. “It was like a girl you chased in high school, now she’s in college and she’s finally ready for you, but you don’t feel the same,” said Arad. “Jim was spent. He was done.”
Sony Pictures under Pascal was never known for developing its movies quickly, and it took the studio more than three years to get Spider-Man to the big screen. But they did it just right. After considering directors such as David Fincher, who was hot coming off Fight Club, Pascal chose Sam Raimi. Since launching his career with the campy, cult classic Evil Dead horror trilogy, Raimi had become a respected but only modestly successful studio director. His Hollywood movies like The Quick and the Dead, For Love of the Game, and The Gift were more mainstream, but none were major hits.
Raimi’s choice for his main character, with the studio’s backing, was the even-further-from-the-A-list Tobey Maguire, who had played sensitive teenagers in movies like Pleasantville and The Ice Storm.
The more recent template for hit superhero movies had been the last two Batman movies, packed with stars like George Clooney, Arnold Schwarzenegger, and Jim Carrey, along with the A-list director Joel Schumacher. Fox’s X-Men, the first Marvel movie released since the bankruptcy ended, boasted the well-known Patrick Stewart and Ian McKellan in lead roles, along with the red-hot indie director Bryan Singer.
The Spider-Man roster, meanwhile, reflected the fact that Amy Pascal, though hardly a comic book nerd, had come to love Peter Parker. She correctly intuited that while a Spider-Man movie needed jaw-dropping visual effects that showed its title character swinging through the streets of Manhattan, its success would really come from the heart-wrenching story of an insecure teenage loser, inspired by the tragic death of his uncle to become a hero.
Raimi, a long-time nerd himself, knew how to tell that story. And Maguire was perfectly suited to play the sad-sack teenager pining for the girl he can’t have until he covers his face with a superhero mask. As for Spider-Man himself? Visual effects, produced by Sony’s internal Imageworks unit, took care of that.
“I remember seeing a cut of the first ‘Spider-Man’ before most of our effects were in and the film worked just as a story,” said Landau. “That’s when I knew it was going to be unbelievably successful.”
In the United States and Canada, Spider-Man grossed $404 million. It remains the highest-grossing Sony release ever domestically, despite a nearly 50 percent rise in ticket prices since then. Overseas it grossed $418 million, an astounding figure at the time, when China wasn’t even a factor in the global box office. Most important, with stars and a director who weren’t yet able to command massive salaries and cuts of ticket sales, the $140 million production was hugely profitable. Once DVD, television, merchandise, and all other revenue sources were counted, that one movie alone generated $442 million in profits. Spider-Man is still Sony Pictures’ most profitable film of all time.
Everyone at the studio was elated. The year 2002 broke records for Sony at the box office and on the bottom line. Executives fanned out around the lot to give every employee a hundred-dollar bill in celebration.
Hollywood is an industry of followers, and in the wake of the success of Spider-Man, everyone jumped on the Marvel superhero train. Arad had been in Los Angeles full-time since soon after the bankruptcy, making a slew of deals to license as many characters as possible. After the moderate success of 2000’s original X-Men and the blockbuster returns from Spider-Man, studios rushed to get those projects on the screen.
Between 2003 and 2007, twelve movies featuring Marvel superheroes were released, quadruple the number that had ever been in theaters before. Five different studios were in on the action, and their results were decidedly mixed. Spider-Man sequels reigned supreme, with Fox’s X-Men sequels ranking a strong second. Fantastic Four and Daredevil, also from Fox, did decent business, while Universal’s Hulk was a disappointment and Fox’s Elektra and Lionsgate’s The Punisher were major flops.
Plenty more were in development, still trying to find their way to the big screen, including Iron Man at New Line, Black Widow at Lionsgate, Deathlok at Sony, Namor at Universal, and Dr. Strange at Miramax.
From the outside, it seemed like a golden age for Marvel. Arad’s vision had come true: the comic book company was now a major player in Hollywood, and its characters had become valuable brands. Marvel stock rose from less than $1 in 2001 to $20 by 2003. But in the dingy offices of Marvel Comics back in New York, Ike Perlmutter wasn’t smiling. X-Men had been a disaster for his company in 2000, when Fox unexpectedly moved up its release from the Christmas season to the summer. That ruined Marvel’s plans to sell toys in conjunction with the big-screen release, which meant it made little money off the movie. The pre-bankruptcy deal Arad had made gave the company no piece of the box office.
Spider-Man was a different story. Sony paid Marvel $11 million in royalties in 2002, on top of the initial $10 million. Marvel’s toy sales rose 69 percent that year, to $155 million.
But paradoxically, the healthier Marvel became, the more bitter Perlmutter felt about the deal his company had struck with Sony. Marvel had been at its weakest point then, just out of bankruptcy. Not only were most of the profits staying with the Hollywood studio, but to the general public, Spider-Man was associated with Sony, not Marvel. A Newsweek article about the Japanese company listed among its iconic assets the Trinitron, the Walkman, and Spider-Man.
“When we started to understand the business, we realized the 5 percent was pitiful and the deal on DVDs was even more insulting,” said Arad. “And Sony carried the banner for Spider-Man. It’s our brand, but they’re getting all the benefit.”
So in 2003, Marvel sued, claiming Sony was unjustly withholding merchandising revenue and attempting to disassociate Spider-Man from the comic book company that owned him. Marvel wanted $50 million and, most significant, a termination of its licensing deal with Sony. That would leave it free to negotiate a far more lucrative agreement with any competitor that wanted to make sequels.
Sony executives first discussed the lawsuit during a meeting in Tokyo, attended by, among others, Landau, Calley, and the CEO of Sony Corporation, Nobuyuki Idei. “What’s the meaning of this?” a surpr
ised Idei asked.
“Our Israeli is tougher than their Israeli. We won. They’re upset,” responded Calley.
And so Sony fought back, filing a countersuit of its own, alleging that Marvel was trying to force a renegotiation of a contract it signed with eyes wide open.
The dueling complaints didn’t stop Sony from rushing to get Spider-Man 2 into theaters in 2004. The only major obstacle was Maguire, who wanted more money for the sequel and complained of a bad back from riding horses while filming Seabiscuit. Sony expected to pay more, but not as much as the actor was demanding, and so Pascal made a contingent offer to Jake Gyllenhaal, essentially positioning him to take over the role if Maguire didn’t come around. The ploy worked, and by March 2003, Maguire went to a “come to Jesus” meeting at Pascal’s house, where he apologized to Raimi, and the two “hugged it out, literally,” one witness recalled.
Spider-Man 2 grossed $783 million at the box office, slightly less than its predecessor, on a production budget that rose to $200 million, due to bigger visual effects and higher pay for Maguire, Raimi, and the other talent. The result: Sony’s profits on the sequel plummeted 45 percent from those of the original, to a still substantial $244 million.
This was also Michael Lynton’s first year as CEO of the studio. Always more likely to search for an amicable solution than battle to the bitter end, Lynton quickly settled the litigation with Marvel. Without disclosing any details to the public, the two companies agreed that Marvel would now handle all of the licensing work for Spider-Man, whether related to the movies or not. There would be less fighting over what qualified as “classic” versus “film” merchandise and whether one was being promoted at the expense of the other. In return, Marvel would keep 75 percent of all merchandise revenue and Sony would get 25 percent.
