Restoring a Blue Ocean Case Analysis


The Marvel Way:

Restoring a Blue Ocean


This case was written by Michael Olenick, Institute Executive Fellow at the INSEAD Blue Ocean Strategy Institute, under the supervision of W. Chan Kim and Rene Mauborgne, Professors at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at

Copyright 2016 INSEAD



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After Iron Man smashes his way to victory the credits roll. For those who linger the movie unexpectedly starts again and Tony Stark arrives home to find a stranger wearing a leather jacket and an eye patch in his living room.

You think youre the only superhero in the world? asks the man. Mr. Stark, youve become part of a bigger universe. You just dont know it yet.

Who the hell are you? asks Iron Man Stark.

Nick Fury, answers the man. Director of S.H.I.E.L.D.

Huh? shrugs Stark.

Im here to talk to you about the Avenger initiative.

This roundabout announcement that Marvel intended to recreate their epic Avengers storyline in a future series of Marvel-produced movies was arguably more exciting to Marvel fans and investors than the blockbuster movie itself. Seeing Sam Jackson with the eye patch telling [Iron Man actor Robert Downey Jr.] about the Avengers initiative made the hairs on my arms rise, wrote a Marvel fan on Reddit. Marvel investors should have been equally intrigued by the roundabout announcement of a major strategic pivot.

Marvel, which struggled to make payroll just a decade earlier, went on to unlock a blue ocean of moviemaking that has yielded more revenue and profit than any film franchise in history.

Marvels Early Years

Founded in 1939 by Martin Goodman, Marvel1 has seen a cast of heroes, villains, and events that rival anything found in their comic books. Goodman produced pulp fiction, magazines, and comic books and his strategy was straightforward: create many titles then, If you get a title that catches on add a few more; youre in for a nice profit.2 Goodmans motive was purely financial, but over the next few decades, his company would go on to create over 8,000 characters in what became arguably an American version of Homers The Odyssey and The Iliad.

During the 1940s, the comic book industry thrived, filling the entertainment space now saturated by childrens television programming, games, websites, smartphones, and all other manner of media. Besides the iconic Captain America created for WWII most Marvel titles of this era were thin knockoffs of the more popular DC Comics, home to Superman, Batman, and Wonder Woman.

Except for a short time after the war,3 business boomed until, in 1954, squirrel-faced psychiatrist Dr Frederic Wertham testified to the Senate Subcommittee on Juvenile

1 In the early years the business that would come to be named Marvel had many names and corporate shells. For clarity we refer to these collectively as Marvel.

2 Howe, Sean (2013-10-01). Marvel Comics: The Untold Story (p. 10). HarperCollins. Kindle Edition. 3 In 1949, during the post-WWII recession, economics forced Marvel editor Stan Lee to layoff virtually the

entire comic book staff. Many were rehired when the business rebounded. D o

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Delinquency that comic books were linked to teenage pregnancy and homosexuality. I think Hitler was a beginner compared to the comic-book industry! testified Wertham to the US Senate during a two-day hearing.4 Comic book sales plummeted5 and the industry created a self-censorship organization, the Comics Code Authority.

Marvels First Blue Ocean

Before Wertham there were five major comic book publishers. By the time comic book hysteria subsided only two were left, Marvel and DC Comics.6 Vying to compete by controlling retail shelf space, DC purchased Marvels distribution arm and limited the number of books that Marvel could distribute each month. Marketing low-cost me-too knockoffs targeted towards children would not sustain the business in this environment: Marvel needed to attract noncustomers.

Marvels as-is strategy delivering little original work and me-too knockoffs no longer worked. Faced with red ocean competition that threatened to shutter the comic book division Marvel adopted a new strategy: original content aimed at an older demographic, college students. From 1961 to 1965 Marvel Editor-in-Chief Stan Lee, along with comic book legends Jack Kirby, and Steve Ditko, delivered a multi-year burst of creativity creating a new blue ocean.7 Rather than copying DCs traditional macho crime fighters many Marvel characters start as ordinary people and are transformed, oftentimes by accident, into reluctant superheroes.

In 1961 Marvel introduced four ordinary people mutated by cosmic rays into superheroes, the Fantastic Four. After the Fantastic Four came The Incredible Hulk, a quiet scientist who morphs into a ferocious green monster when angered. Thor, a God who visits earth as a superhero, was introduced soon after. Ant-Man, the reformed thief who changes size, came next. In June 1962, Steve Ditko introduced the world to a teenager, bitten by an irradiated spider, who develops spider-like abilities, Spider Man. Next came an alcoholic womanizing military contractor with a bad heart who builds a high-tech metal suit to fight bad guys, Iron Man.

Not long after this burst of creative output Lee and his team decided to bundle their superheroes into a group called The Avengers. At the same time they created another group of entirely different characters, ordinary people endowed with extraordinary powers and distrusted by the unenhanced they lived amongst, The X-Men.8

4 Wertham released his book, Seduction of the Innocent which argued comic books were tied to juvenile delinquency days before the Senate hearing.

5 In 1956 Lee again had to fire his entire staff. 6 EC Comics produced, depending upon ones vantage point, either the edgiest or most inappropriate comics

and refused to submit their work to the censor. EC closed as a comic book publisher but went on to reinvent the business, publishing Mad Magazine, since magazines were not subject to censorship.

7 Lee served as editor-in-chief and lead storywriter. 8 Countless other characters would be introduced during this period, including The Human Torch, Dr

Strange, Thor enemy/brother Loki: Lees prolific team created literally thousands of different personalities. Eventually they would re-introduce the only 1930s Marvel superhero into the modern fold, Captain D o

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We were trying to reach a slightly older, more sophisticated group, Lee wrote.9 Stan Lee also created a new writing method, The Marvel Method, where he outlined stories, sent them for drawing, then filled in the story bubbles later.

Lees focus on noncustomer college students opened a blue ocean where Marvel thrived. Marvel Comics are the first comic books in history in which a post-adolescent escapist can get involved, for Marvel Comics are the first comic books to evoke, even metaphorically, the Real World, wrote the Village Voice in April, 1965.10

By the end of 1965 Marvel circulated 35 million comic books per year and inspired 500 fan letters per day.11 By 1967 Marvel sold six million comic books per month, just behind DCs seven million despite that Marvels distribution channel, which was owned by DC, restricted the number of issues they could offer.

Into the Red

In a typical comic book plot all goes well until it doesnt, then mayhem erupts.

In June 1968, Goodman sold Marvel to conglomerate Cadence Industries12 for $15 million ($102.1 million, inflation adjusted to 2015). Cadence owned a print distribution arm but knew nothing about publishing.13 Not long after the acquisition, Cadence hired Sheldon Feinberg, the former CFO of Revlon, as CEO, the first of many awful managers. Pit your executives against each other, make them fight each other, and then, somehow they should do better. And try to humiliate your subordinates, is how a Feinberg associate described his management style.14 Legendary cartoonist Jack Kirby soon quit, signing a three-year contract with DC Comics. The X-Men and Silver Surfer series were cancelled.15

Blue Ocean Strategy requires the alignment of value, profit, and people. Marvels comic books from this era were generally considered high quality but, internally, the lack of fair process damaged and demotivated the people, which led to potential profits being left unrealized. Untapped profits and poor management are like blood in the water, attracting sharks, and Marvel was soon swimming face to face with some of the bloodiest predators in the business world.

In November 1986, Cadence sold Marvel to New World Entertainment, an entertainment conglomerate whose executives did not know the difference between Superman, owned by DC Comics, and Marvels Spider-Man. New Worlds fortunes quickly foundered Marvel

America, and also recreate Daredevil, the blind lawyer whose heightened other senses give him superpower-like abilities.

9 Howe, Sean (2013-10-01). Marvel Comics: The Untold Story (p. 38). HarperCollins. Kindle Edition. 10 Kempton, Sally. Marvel Comics Are the First. Village Voice 1 Apr. 1965. 11 Howe, Sean (2013-10-01). Marvel Comics: The Untold Story (p. 63). HarperCollins. Kindle Edition. 12 Cadence was then called Perfect Film & Chemical Corporation but changed the name later. For clarity we

use the name Cadence throughout. 13 Cadence also owned a vitamin division, which is where Spider-Man vitamins were developed, an early

crossover product. 14 Howe, Sean (2013-10-01). Marvel Comics: The Untold Story (p. 104). HarperCollins. Kindle Edition. 15 Both were later revived and went on to perform well.D o

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was their only profitable business and they turned to Wall Street for help. Their investment bankers decided to sell Marvel.

Trouble with the comic business, said then Marvel Editor-in-Chief Jim Shooter, is that it seems that every time things look like theyre going to look good, then the owners of the company end up selling it. And it falls into the hands of the philistines and youve got to start all over again.16

In November, 198817 investment bank Drexel Burnham Lambert auctioned Marvel to corporate raider, and long-time Drexel client, Ronald O. Perelman for $82.5 million ($165.3 million adjusted for inflation to 2015).18 Perelman, a multi-billionaire, used $10 million of his own money to finance the acquisition and borrowed the rest.19 Like most Drexel-connected raiders Perelman believed strongly in value extraction rather than value innovation. Raiders typically purchase companies using high-priced junk debt, build the businesses through high-yield20 debt-fueled acquisitions, and finally flip the business, oftentimes carved up into pieces.

Perelman immediately and repeatedly raised comic book prices. During this time collectors were bidding the price of sports trading cards into a frothy bubble, where single sports cards could sell for hundreds of thousands of dollars. These collectors also fueled sales of new trading cards, as they sought to purchase the cards when released, betting they would increase in value over time. Perelman decided to copy the trading card strategy and build his own bubble in comic books. To fuel speculation Marvel introduced many versions of every co

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