When Walt Disney Co. acquired Marvel Entertainment Inc. last week, it didn’t just get a stable of superheroes that can populate its next generation of movies, theme parks and TV shows. The $4 billion merger also opened the door to hundreds of millions of dollars in revenue from current and future video game franchises.

Over the past several years, video games based on Marvel’s most popular superheroes, such as Spider-Man and X-Men, have sold millions of copies to gamers. Marvel, which doesn’t publish its own games, makes money off the characters by licensing them to game-makers for an advance and royalties.

But the merger could eventually change that model and turn Disney into a larger force on the video game scene. The Burbank-based company has been beefing up its in-house video game division, Disney Interactive, and has started to publish more games itself.

Now, it’s believed the entertainment giant will try to make Marvel titles on its own – thus keeping more of the games’ revenue – and turn untapped superheroes into successful games.

“There’s a lot of long-term licensing agreements Marvel has already signed that may cap the revenue and profit upside for video games in the near term,” said Drew Crum, who tracks Disney as a Cleveland-based analyst for Stifel Nicolaus & Co. Inc. “But I think there’s an opportunity to mine this library and pull out some other characters for future revenue.”

Disney’s $4 billion stock and cash deal for Marvel was announced Aug. 31, and is still waiting the approval of Marvel shareholders and anti-trust review. It was the largest deal by Disney since 2006, when the company bought Pixar Animation Studios Inc. for $7.4 billion in stock.

For the moment, Disney’s role in Marvel-based video games will be limited because of existing deals. The comic book publisher has already licensed some of its most popular heroes – Spider-Man, Iron Man, X-Men, Thor and Captain America – to game publishers Tokyo-based Sega Corp. and Santa Monica-based Activision Blizzard Inc. The specific length of the Sega deal isn’t known; the Activision agreement doesn’t expire until 2017.

‘Superhero Squad’

Agoura Hills-based THQ Inc. also has a three-year license with Marvel to publish three games based on “Superhero Squad,” an upcoming television show featuring a cadre of Marvel characters.

When those agreements expire, Disney will decide whether to take them in-house or continue to license them out, said Disney Chief Executive Robert Iger in a conference call with investors.

“Marvel has some smart licensing agreements with some of the best video game manufacturers in the business,” Iger said. “We don’t rule out the possibility of a blend of licensed games, as well as self-produced and self-distributed ones.”

Disney could also try to turn some lesser-known Marvel superheroes into games. But unless those games have movie tie-ins, it’s doubtful they would sell.

Games based on popular Marvel characters have generally sold well because their content is familiar to customers and the games are typically linked to upcoming films. The “Spider-Man 3” movie-based game, which was published by Activision, sold 4 million copies in 2007, said Mike Hickey, an analyst with Englewood, Colo.-based Janco Partners Inc. (A hit video game can sell 10 million copies; 4 million is seen as a respectable result.)

If Disney can successfully develop its own Marvel-based games, the company stands to make more money than it would through licensing.

Marvel doesn’t disclose terms of its license deals, but typically they require the game publisher to pay an advance to the comics publisher against future royalties, said Patrick Sweeney, an attorney at Nixon Peabody LLP in downtown Los Angeles who works in video game licensing.

For a popular franchise such as Spider-Man, the advance can be tens of millions of dollars and the royalties as high as 10 percent or 15 percent, according to experts.

Crum of Stifel Nicolaus estimated Marvel took in about $30 million in video game revenue last year. Assuming that represents a royalty rate of10 percent, Marvel game sales could be about $300 million for 2008. That would be money Disney could pocket by developing successful titles.

But publishing games in-house also costs a substantial amount of money and carries risk. Disney Interactive would have to develop a game that’s comparable in quality to those produced by Activision, Sega and THQ – or customers might not buy it.

“The games that a company like Activision does require a higher level of development expertise,” said Hickey of Janco Partners. “Disney might decide that it makes more sense to license the properties and collect a 15 percent royalty.”

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