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  Some at Sony felt it was a mistake to settle because the merchandise rights were too valuable to give up. Certainly, if Lynton thought the agreement would bring peace between the two sides, he was wrong. Perlmutter continued to be a thorn in Sony’s side, constantly searching for any foot faults on their agreement. Calling from his $3.2 million condo in Palm Beach, where he spent much of his time and worked the phones starting early in the morning, Perlmutter would scream about the smallest details, from the costs of DVD displays at Best Buy to marketing restrictions in Thailand to free drinks at press junkets. The fact that Perlmutter was known to be a licensed gun owner only added to his ability to intimidate.

  The two companies also clashed over creative control. Marvel wanted guarantees, for instance, that Peter Parker would be a heterosexual male who didn’t lose his virginity before age sixteen and never slept with anyone under sixteen (which Sony agreed to) and that he would be a Caucasian of average height who doesn’t smoke, drink, use drugs, or curse (which Sony would not accept). Both sides were regularly auditing each other, and Sony eventually formed a committee that met weekly just to deal with the nonstop barrage of Marvel-related issues.

  Bottom line: the more successful Marvel movies were, the more pissed off Perlmutter became. In his view, studios were making too much of the money and getting too much of the credit for his characters. And the movie-based toy sales and royalties that now made up the bulk of Marvel’s profits depended on the whims of studio executives, who had their own agendas. Instead of becoming a master of Hollywood, Marvel was subservient to it.

  Perlmutter was a constant pain in Sony’s ass because, like any schoolyard bully, he was trying to compensate for the fact that deep down he felt powerless. What Marvel really needed was to become the master of its own destiny.

  4

  Revenge of the Nerds

  The Rise of Marvel Studios

  As the release of Spider-Man in 2002 approached, Avi Arad made what he thought was a simple request: he wanted to spend $80,000 to produce an animated Marvel logo that would run in front of that movie, and all future films based on Marvel comics, to remind audiences where the characters came from.

  But Ike Perlmutter didn’t see the point. If Arad really wanted it, the art department could make one, he said, though designing a movie logo for a movie screen was very different from creating the cover of a comic book. Arad eventually won that battle, and the result was an eleven-second animation of comic book panels flipping, until the name Marvel emerges from them. It still plays, in an updated form, on the company’s movies today.

  This tiny battle illustrated Perlmutter’s attitude toward Hollywood. He hated it: the egos, the grandiosity, and most of all the wasteful spending on luxurious offices and talent. One of his first moves upon taking over Marvel had been to try to slash the salary of the company’s only in-house star, Stan Lee, by half, down to $500,000. Arad and others prevailed on him to be less severe, and so he trimmed it to only $800,000.

  Perlmutter’s unwillingness to spend money on anything associated with Hollywood, while at the same time griping that Marvel wasn’t making enough money off Hollywood, was a difficult position to defend. If he wanted studios to put up all the money and take all of the risk, he could hardly ask them for a bigger reward.

  It took an outsider to come up with a possible solution. Amir Malin, a veteran independent film executive, had been part of the Sundance scene since its infancy, in the 1980s. He went on to lead a company called Artisan Entertainment that’s best remembered for the horror hit The Blair Witch Project. In 2000, he signed a deal for Artisan to make movies, some of which would be direct-to-DVD, with a cadre of mostly unknown Marvel superheroes that nobody else wanted, such as Ant-Man, Deadpool, and Black Panther (the first two would go on to become hit movies, and a Black Panther film appears poised to be a hit in 2018). Most of those projects never went anywhere, in part because Artisan was bought by a competitor, Lionsgate, in 2003, and the character rights returned to Marvel.

  But Malin, another Israeli American, became close to Arad in the process, and by 2003, as he prepared to leave Artisan as part of the Lionsgate sale, the businessman had an idea. In the wake of the mega-success of Spider-Man, he thought Marvel should take a new approach to moviemaking. “Why don’t you finance your own pictures?” he told his pal Arad. “Why don’t you collect the lion’s share of the benefits from this wonderful brand you have? If you’re successful, you have a multi-billion-dollar enterprise.”

  Arad, who wanted nothing more than to become a movie mogul himself, thought it was a great idea. But the toy designer turned producer hated spreadsheets and financial projections, so he asked Malin to put together a business plan. Over the next few months, Malin and associates wrote a seventy-five-page document titled “Marvel World.” An independent entity that would be 80 percent owned by Marvel and 20 percent owned by Malin and his business partners, Marvel World would raise its own capital to produce movies based on any superheroes the comic book company hadn’t already licensed out, a list that at the time included Thor, Captain America, and the characters originally licensed to Artisan.

  It was risky, for sure, but Malin thought it was a calculated risk, one whose high potential returns would appeal to Perlmutter, whom Malin had met when Marvel once considered acquiring Artisan. But Perlmutter, officially Marvel’s vice-chairman but as the largest shareholder also its key decision-maker, still thought investing in movies was too risky. A business in which a few major hits were supposed to cover the losses of a bunch of flops and in which even experienced studios regularly went on multi-year cold streaks was not appealing to him. Nor was giving up even 20 percent of the equity in anything to do with his company’s characters.

  So when Arad took Malin’s plan to the board in late 2003, “they looked at me like I was going to lose my mind,” he recalled.

  “Ike’s scared of the film business,” Arad reported back to Malin. And so Marvel World died.

  Perlmutter would consider making movies only if he didn’t have to give up any equity and couldn’t possibly lose money. To anyone who knew anything about Hollywood, it sounded like refusing to sit down at a blackjack table without a guarantee you’ll be dealt twenty-one every time.

  A Man with a Plan for Marvel

  Most people would take that attitude as an invitation to get lost and not forget to close the door on the way out. David Maisel took it as a challenge.

  A Harvard MBA and a former McKinsey consultant, Maisel spent the early part of his Hollywood career working alongside the mogul Michael Ovitz, first at the Creative Artists Agency, then at Disney, then with the theatrical producer Livent. After a stint at the Endeavor Talent Agency with another agent turned mogul, Ari Emanuel, Maisel was introduced to Ike Perlmutter.

  Brimming with confidence but socially awkward—people who worked with him semi-seriously questioned whether he had Asperger’s syndrome—Maisel first met Perlmutter at Donald Trump’s exclusive Mar-a-Lago Club in Palm Beach in late 2003. Seated at the luxury beachfront restaurant, the boyish, floppy-haired young executive convinced his skeptical breakfast partner that he could do the only thing Perlmutter cared about when it came to movies: make more money from them.

  So he was hired in the new position of president and chief operating officer of Marvel Studios, under Arad, the division’s CEO. Marvel Studios wasn’t actually a studio then—it was an office above a Mercedes dealership in Beverly Hills. There, a small team that included a young red-haired executive named Kevin Feige, who read scripts and carried Arad’s bags to and from meetings, consulted on the movies that other studios made with their characters.

  Maisel told Perlmutter he could get more than 5 percent of the gross in new deals for Marvel movies, which he did for properties like Deathlok (set up at Paramount but never made). But negotiating higher licensing fees was just a Trojan horse by which Maisel hoped to earn Perlmutter’s trust, in order to make a big pitch.

  His plan was similar to Malin’s Ma
rvel World concept, which Perlmutter had rejected: raising the money for Marvel to make its own films. Except, in Maisel’s scenario, the company wouldn’t give up any equity. Maisel would do all the work and Marvel would own 100 percent of the movies it made.

  Maisel was a lifelong fan of comic books, and he was ambitious. Well known as a business executive, he wanted to also be a producer respected for his creativity. Marvel, he believed, could be the launching pad he needed. He knew how deep the lore of seemingly second-tier characters like Thor and Iron Man actually was and how compelling they could be on the big screen.

  And a basic financial analysis told him that if Marvel could produce movies that performed at just the average level of the ones partner studios had made for the company—Spider-Man and Hulk and Daredevil and the two X-Men films—the potential profits were massive.

  “This is an opportunity worth billions!” he told the board, in a pitch similar to the one Arad had made to lenders during Marvel’s bankruptcy five years earlier. Not only could Marvel keep all the movie profits, he argued, but it wouldn’t have to share a penny from sales of consumer products. And instead of having to tell Wall Street that it really hoped Tom Rothman at Fox or Amy Pascal at Sony would release its next movie by the upcoming holiday season, Marvel alone would determine when its films hit theaters, on dates that were most ideal for its toy sales.

  The X-Men debacle of 2000 would never be repeated.

  Maisel’s argument went even further: he also contended that Marvel could make better films than the studios. “The movies should be made by people who love the characters, love the stories, and really care about these movies being the best they can,” he argued. “People who don’t just make million-dollar salaries regardless, while they’re making lots of other movies.” It was a ballsy claim, given Sony’s success with Spider-Man. But Maisel believed it would prove true as films came to be based on less-well-known characters. Most people knew the basics about Spider-Man, after all, but how many would know how to make a good movie about Ant-Man?

  It was certainly undeniable that Marvel employees, who knew more about their characters than anyone, were struggling to be treated with respect in Hollywood. Even for hits like X-Men, Marvel executives had to fight over minor details such as the hairstyle of Hugh Jackman’s Wolverine, which has an iconic pointy-but-not-devil-horns look in the comic books. And the fact that Arad and Feige were only consultants, not producers who had to be listened to, was evident in duds such as 2003’s Daredevil, which was more of a second-rate star vehicle for Ben Affleck than an exciting superhero adaptation.

  But the board’s response was similar to what they said about Malin’s plan: “David, stop talking so much. Your last name’s not Spielberg and we’re not going to risk the whole company on this. Don’t talk about this anymore unless you find a way to do it with little or no risk.’”

  They weren’t necessarily saying no, but by demanding that he come back with a specific plan that met their outrageous demands, many board members thought they would never hear from Maisel again. Still, he wanted time to try, and he asked the board for one concession: that they put a freeze on new licensing deals, particularly ones that were already in the works to sell Captain America to Warner Bros. and Thor to Sony. “If you license them out,” he said, “I’ll never be able to do it, even if I get the capital we need.”

  Perlmutter was intrigued, particularly by the potential for Marvel to control the movie release dates that drove toy sales, and the board agreed to put a pause on licensing and give Maisel the breathing room he wanted. If he could raise half a billion dollars of risk-free money, they’d be happy to hear back from him.

  At any other time, this would have been an impossible task. But as Maisel, working with consultants, put together his business plan and began meeting with banks throughout 2004 and into early 2005, he realized that what Perlmutter and the board wanted really was doable. The financial bubble that would crash the global economy four years later was growing, and major financial institutions were looking for new vehicles in which to invest their money, with little regard for risk.

  Hollywood was fast becoming an attractive home. One studio after another was setting up “slate deals,” in which hedge funds and banks pledged hundreds of millions of dollars to fund half or a quarter of the costs of most movies that would come out over the next several years. It seemed safe enough, since a few movies could easily lose a lot of money, but several dozen meant an investor was certain to participate in hits as well as flops.

  What Wall Street didn’t count on, however, was that DVD sales would soon start plummeting and that the “distribution fees” studios charged—typically 8 to 12 percent off the top in order to cover their costs—would subsume the profits on all but the biggest hits. Most slate deals ended up as losers.

  Then again, nobody invested in Hollywood purely for the money. Even the savviest investor was prone to be a little more flexible in judgment when given the opportunity to read scripts, hang out with stars on a red carpet, and get an “executive producer” credit onscreen.

  Maisel, a bachelor who can’t resist showing off texts on his phone from Sean Penn or mentioning that he and Leonardo DiCaprio took their moms out together for Mother’s Day, played that card to the hilt. After more than a year of negotiations, he found partners who were willing to give him everything he wanted, a deal that even Ike Perlmutter might find impossible to resist.

  Working with the Wall Street bank Merrill Lynch, Maisel secured a commitment of $525 million in debt. Marvel could use the money to make any movie it wanted over the next seven years, so long as it was rated PG-13 and cost less than $165 million. Marvel kept all of the consumer product rights and didn’t have to share a penny if toy sales shot up because of a film.

  Marvel could even cover the costs of the extra staff it would have to hire to oversee and make the movies with the Merrill debt. The comic book company wouldn’t have to spend an extra dollar on payroll.

  In addition, for its work producing the movies, Marvel got a 5 percent cut of all revenues. That’s what it got from other studios when they made movies with Marvel characters. But in this case, Marvel got to pay itself 5 percent, ahead of the investors who actually put up the money.

  And that was from all the revenue the films made, including on DVD. Typically, so-called “participations” for actors or licensors like Marvel apply to only one-fifth of the revenue from DVDs, a protection that studios built in to ensure profits for themselves. Maisel kept waiting for the bankers to request just such a provision, to which he would have replied, “OK, you’re right.” But, inexperienced in the ways of Hollywood, they never did.

  That 5 percent would apply regardless of whether the movie was actually profitable. Combining it with a lowball estimate of consumer products sales tied to a movie, Maisel figured the worst-case scenario was that Marvel would make between $25 million and $50 million per film and get at least four swings before it was forced to give up, unable to pay interest on the debt.

  “We’re guaranteed to make $100 million to $200 million just by signing. That’s our downside,” he told the board of directors in the spring of 2014. “Our upside, if it works, is billions.”

  That was all great, but it didn’t address Perlmutter’s biggest concern: the collateral. No matter how low an interest rate you get on your mortgage, after all, if you can’t afford the payments, the bank takes your house. That’s why the board wanted the Merrill Lynch deal for the movies to be “non-recourse” to Marvel, meaning that the company wouldn’t have to give up any assets if the films flopped and they couldn’t pay back the money.

  Amazingly, Maisel achieved it. The collateral for the movies was . . . the rights to make the movies themselves. Ten characters or groups of characters were included in the deal, and Marvel was guaranteed the right to make films based on at least four. After that, if it couldn’t afford the debt payments anymore, Merrill would take the rights. Marvel would still be able to make comic books and to
ys based on those superheroes, just not movies.

  But if Marvel made four consecutive flops, Perlmutter would almost certainly flee the production business anyway. And, indeed, the entire genre of films based on Marvel properties would likely be dealt a serious blow. So, if Marvel couldn’t pay, the rights Marvel gave up would be virtually worthless to it.

  “There’s little risk, there’s no risk, and there’s guaranteed-to-make-money,” Maisel explained. That was an approach to the movie business that even Ike Perlmutter could get behind. And so, after more than a year of saying no first to Malin and then to Maisel, Marvel’s board of directors agreed to get into the film business.

  “The idea was that hopefully the movies break even, we’d get our 5 percent fees, and then we’d make most of our money on products, because we’d control the timing and we’d make sure the movies were toyetic,” said a person close to Perlmutter, using industry jargon for a film that naturally lends itself to products on the shelves of Toys “R” Us.

  Paramount Pictures agreed to distribute and market the movies—a cost-intensive process Marvel couldn’t afford to replicate—for 10 percent of the revenue, which is standard in such deals (later on, following the success of Iron Man, Marvel would get that number down to 8 percent).

  Winning with the B-Team

  Now the question wasn’t whether Marvel could make movies, or if it would make movies, but how exactly it would do so. And there was one big problem: the ten characters included in the Merrill deal weren’t exactly A-listers. With the exception of Captain America, in fact, calling them second-tier would be generous.

  Hawkeye, a guy who’s really good with a bow and arrow? Power Pack, a quartet of young siblings given superpowers by an alien who looks like a horse? Ant-Man, a guy who can shrink and mind-control ants? Nick Fury, a spy who’s . . . well, he’s basically just a spy?